Brendan Gooley

Fifth Circuit Affirms Judgment Confirming Award Despite Concluding Lower Courts Erred by Not Considering Claim That Dispute Could Not be Arbitrated

February 15, 2023 by Brendan Gooley

The Fifth Circuit affirmed judgments confirming an arbitration award despite concluding that the lower courts should have considered one of the party’s claims that a dispute decided by the arbitrator was beyond the scope of arbitration.

Attorney Jon Amberson represented his then father-in-law, James McAllen, a rancher, in litigation related to an oil company burying toxic chemicals on McAllen’s ranch. Amberson’s engagement letters included arbitration clauses. Disputes arose about Amberson’s representation, and Amberson and McAllen arbitrated those disputes, as required by the engagement letters.

A controversy also arose about a separate transaction involving Amberson and McAllen (Cannon Grove Transaction). McAllen purportedly used an entity Amberson created (ANR) for a transaction in which McAllen transferred $4.5 million to ANR. McAllen later asked for his money back, but Amberson refused, claiming that the money had been a gift.

Amberson moved to compel arbitration of all the claims between him and McAllen except for the Cannon Grove Transaction dispute. A Texas state court ordered Amberson and McAllen to arbitrate all their disputes, including the Cannon Grove Transaction Dispute.

Amberson and McAllen then arbitrated all their disputes. McAllen prevailed and moved to confirm a substantial award in his favor. While McAllen’s motion to confirm was pending, Amberson and ANR filed for bankruptcy. McAllen then sought to confirm the award in bankruptcy court. The bankruptcy court concluded that it could not consider Amberson’s argument that the Cannon Grove Transaction dispute should not have been arbitrated. On appeal, a federal district court affirmed the bankruptcy court judgment.

Amberson then appealed to the Fifth Circuit, which affirmed, albeit on different grounds. The Fifth Circuit concluded that the bankruptcy court erred by holding that it could not consider Amberson’s argument that the Cannon Grove Transaction dispute should not have been arbitrated. It explained that the Texas General Arbitration Act “allows a party to renew arguments in a motion to vacate that were rejected prior to arbitration about the scope of the arbitration agreement.” Thus, the Fifth Circuit held that “Amberson was entitled . . . to have the argument,” “that the arbitrator had exceeded his powers in resolving the Cannon Grove claim” “considered” by the bankruptcy and district courts. Nevertheless, the Fifth Circuit rejected Amberson’s arguments that the Cannon Grove Transaction dispute was not arbitrable on the merits. The Fifth Circuit therefore affirmed the judgments confirming McAllen’s award.

In the Matter of: Jon Christian Amberson, No. 21-50960 (5th Cir. Nov. 18, 2022).

D.C. Circuit Affirms Denial of Stay of International Arbitration Award Enforcement

January 27, 2023 by Brendan Gooley

The D.C. Circuit affirmed the denial of a stay regarding the enforcement of an international arbitration award under the New York Convention.

In 2010, the country of Moldova allegedly failed to pay energy bills to Energoalliance, a Ukrainian company. LLC SPC Stileks acquired Energoalliance’s claim against Moldova and initiated arbitration in Europe. In 2013, an arbitration tribunal in Paris ruled against Moldova and Stileks moved to confirm the award in the United States under the New York Convention.

Proceedings in Europe continued while Stileks’ U.S. motion to confirm was litigated. The decision in Stileks’ favor was reversed by a French court, then reinstated, then appealed again. That appeal remains pending and further proceedings in Europe are likely after the appeal.

In the proceedings in the United States, the district court confirmed Stileks’ award and the D.C. Circuit affirmed (except for an issue regarding the currency of the judgment). Moldova then moved for a stay of proceedings in light of the uncertainty regarding the underlying proceedings in Europe. The district court denied the stay and Moldova appealed.

The D.C. Circuit affirmed, noting that the two most important factors in its decision were supporting “the expeditious resolution of disputes and the avoidance of protracted and expensive litigation” and “the status of the foreign proceedings and the estimated time for those proceedings to be resolved.” Both of those factors weighed against a stay. The underlying dispute had been ongoing for more than a decade and there was no immediate timeline for an end to the European actions.

The D.C. Circuit also affirmed — on the alternate basis — that the law of the case doctrine precluded a stay because the D.C. Circuit had denied a stay in a prior ruling upholding the award.

LLC SPC Stileks v. The Republic of Moldova, No. 21-7141 (D.C. Cir. Dec. 21, 2022).

Sixth Circuit Affirms Judgment Compelling Arbitration in Kroger/Union Dispute

January 25, 2023 by Brendan Gooley

The Sixth Circuit recently rejected a challenge to a Rule 12(c) judgment compelling arbitration in a dispute between a Kroger subsidiary and a union that represented its employees.

Kroger Limited Partnership I (KLPI), which is part of The Kroger Company, had a collective bargaining agreement (CBA) with United Food & Commercial Workers, Local 1995. The union represented employees in KLPI’s stores in the greater Nashville, Tennessee area. In 2020, a different division of Kroger opened a warehouse in the area (Knoxville Local Fulfillment Center). The union claimed it represented employees at the new facility and Kroger and KLPI disagreed. The union sought to initiate arbitration and, when KLPI refused, filed a motion to compel arbitration. The union then moved for judgment on the pleadings pursuant to Rule 12(c). The district court granted the union’s motion as to KLPI — but not Kroger on the basis that Kroger was not a party to the arbitration clause in the CBA — KLPI appealed.

The Sixth Circuit affirmed and held that the union’s grievance fell within the scope of the arbitration agreement because the union argued that the Knoxville Local Fulfillment Center was a “store” as defined in the CBA within the geographic area covered by the CBA. The Sixth Circuit therefore applied a presumption of arbitrability that KLPI could only overcome by citing an “express provision excluding” the dispute from the scope of the arbitration clause or “forceful evidence of a purpose to exclude the claim from arbitration.” The court rejected KLPI’s claim that such evidence existed because the CBA’s definitions only applied to grocery stores, not the Knoxville Local Fulfillment Center. Although that may have been a plausible reading of the CBA, the provisions at issue did not “clearly and unambiguously” exclude the union’s claim, and the relevant clauses were susceptible to multiple interpretations. The court also rejected a claim by KLPI about what discovery would have shown as beyond the scope of its answer and thus, something that it could not consider in the scope of a Rule 12(c) motion. Consequently, the Sixth Circuit rejected the argument on the grounds that it went to the merits of the dispute, not the scope of the CBA’s arbitration agreement. The Sixth Circuit also rejected KLPI’s argument that the courts lacked jurisdiction over the union’s claim because the National Labor Relations Board had exclusive jurisdiction over the subject matter of the dispute.

United Food & Commercial Workers, Local 1995 v. Kroger Co., No. 22-5085 (6th Cir. Oct. 14, 2022).

Supreme Court of Arkansas Declines To Consider Part of Appeal Involving Court’s Failure To Consider Motion To Compel Arbitration

December 20, 2022 by Brendan Gooley

The Supreme Court of Arkansas recently refused to consider the portion of an appeal involving a motion to compel arbitration because the lower court had not ruled on the motion and the court therefore concluded it did not have jurisdiction to consider the appeal.

Altice USA, Inc., d/b/a Suddenlink Communications provided phone, internet, and cable services to the City of Gurdon, Arkansas. In conjunction with its provision of services, Suddenlink assessed certain fees. The City of Gurdon filed a putative class action claiming that three of the fees assessed were improper. Suddenlink filed a motion to compel individual, non-class arbitration in response. The trial court granted class certification without ruling on Suddenlink’s motion even though Arkansas Code provided that a court “shall stay any judicial proceeding that involves a claim alleged to be subject to arbitration until the court renders a final decision” on the request for arbitration. Suddenlink then appealed the court’s failure to rule on its motion and the grant of class certification.

The Supreme Court of Arkansas concluded that it did not have jurisdiction to consider the portion of Suddenlink’s appeal that challenged the failure to rule on its motion to compel arbitration. The court noted, “only certain issues concerning arbitration are eligible for interlocutory appeal, namely orders denying motions to compel arbitration.” Because the trial court had “not entered an order denying Suddenlink’s motion to compel arbitration,” the court concluded, “the absence of an order foreclosed Suddenlink’s ability to appeal” the lack of a ruling on the motion to compel. The court also noted, “Suddenlink failed to seek an extraordinary writ to force the trial court to comply with” the provision of the Arkansas Code that seemingly required the trial court to stay proceedings pending a ruling.

The Supreme Court of Arkansas then affirmed the grant of class certification.

Altice USA, Inc. d/b/a Suddenlink Communications v. City of Gurden et al., No. CV-22-32 (Nov. 10, 2022).

Second Circuit Holds That Summons Is Not Required When Seeking Confirmation of Foreign Arbitral Award Against Foreign Instrumentalities

November 4, 2022 by Brendan Gooley

The Second Circuit Court of Appeals recently held that a summons is not required to initiate proceedings to compel a foreign arbitration award against a foreign instrumentality. The court also confirmed the arbitration award at issue but vacated the district court’s award of additional fees because the losing party’s arguments did not amount to bad faith or vexatious arguments.

CVG Ferrominera Orinoco, C.A. is a Venezuelan company that produces and exports iron ore. Commodities & Minerals Enterprise Ltd. (CME) is a British Virgin Islands company that trades commodities and minerals, including iron ore. CME and Ferrominera executed a contract for a ship named the General Piar to transport Ferrominera-owned iron ore to an offshore transfer station where CME would then ship it onward. The contract specified U.S. law as the choice of law and contained a broad arbitration clause.

CME commenced arbitration for unpaid invoices, lost profits, and attorneys’ fees. The arbitration panel rejected jurisdictional, fraud/corruption, and other defenses from Ferrominera and entered an award in favor of CME. CME moved to confirm that award. The U.S. District Court for the Southern District of New York confirmed the award and awarded costs and fees.

The Second Circuit affirmed, except with respect to the district court’s fee award.

First, the Second Circuit rejected Ferrominera’s argument that the district court lacked personal jurisdiction because CME had not served a summons when it initiated its action to confirm. The Second Circuit held that “a summons is not required to properly effect service when seeking confirmation of a foreign arbitral award against a foreign instrumentality” because the Federal Arbitration Act does not require a summons and the FAA’s references to the Foreign Sovereign Immunities Act, which Ferrominera relied on, were only to fill gaps in the FAA regarding the manner of serving documents.

Second, the Second Circuit disagreed with Ferrominera’s arguments that the agreement was invalid under Venezuelan law because the proper Venezuelan officials had not signed off on it, that, even if valid, the arbitrators had exceeded their authority by refusing to allow Ferrominera to allocate payments between various agreements with CME as it wished, and that the award violated U.S. public policy. The agreement contained a U.S. choice-of-law provision, which rendered Ferrominera’s reliance on Venezuelan law regarding who must approve agreements meritless. The allocation argument was merely a damages argument, and damages were for the arbitrators to determine. Ferrominera’s public policy argument meanwhile relied on a claim that the agreement was obtained through “corruption,” but that did not challenge the award, and the FAA’s narrow public policy exception concerned whether the award offended public policy.

Third, the Second Circuit agreed with Ferrominera that the district court erred by awarding further fees. Although the district court had inherent authority to award fees for bad faith, vexatious, etc., arguments, Ferrominera’s arguments did not meet that standard. The summons issue, for example, was an issue of first impression for the Second Circuit that Ferrominera had prevailed on in other courts. The Second Circuit vacated the additional fees.

Commodities & Minerals Enterprise Ltd. v. CVG Ferrominera Orinoco, C.A., No. 20-4248 (2d Cir. Oct. 3, 2022).