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Arbitration / Court Decisions

District Court Orders Limited Trial to Address Party’s Authority to Sign Arbitration Agreement

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Relying on the Federal Arbitration Act and recognizing that “this case presents one of the rare instances in which a defendant opposing arbitration survives the initial stage of an FAA proceeding,” the U.S. District Court for the Eastern District of Kentucky denied the defendant’s motion to dismiss the plaintiff’s action to compel arbitration and ordered the matter to proceed to trial on the limited issues concerning the validity and enforceability of the arbitration agreement.

In August 2010, Opal Wells executed an unlimited power of attorney providing her son Leonard Wells as her attorney-in-fact and agent. Opal was admitted to the Boyd Nursing and Rehabilitation Center in 2013. In 2019, when new owners took over Boyd, they took steps to obtain signatures on paperwork regarding Opal, which included an arbitration agreement. The arbitration agreement was part of a larger document but had its own signature block, which Leonard signed as his mother’s “responsible party.” Opal passed away in September 2020 and Leonard filed a state court action on behalf of her estate and wrongful death beneficiaries. Boyd then filed an action in the district court to compel arbitration of the state court claims, asserting that the power of attorney “provided Leonard with the authority to sign the Arbitration Agreement on Opal’s behalf.” Leonard filed a motion to dismiss Boyd’s action on several grounds, including lack of subject matter jurisdiction, failure to join an indispensable party, and the Colorado River abstention doctrine. The district court rejected each of those arguments. Leonard also raised arguments regarding the validity and enforceability of the arbitration agreement, asserting that the arbitration agreement was unconscionable because it was “part of a mass-produced, boiler-plate, pre-printed document” and that “an obviously gross disparity of bargaining power” supports a finding of unconscionability. The court rejected those arguments as well, noting that the court has “previously found that nursing home arbitration agreements with similar characteristics fall short of the high bar for procedural unconscionability despite their ‘boilerplate’ language” and that the claim of unequal bargaining power was unsupported.

Finally, Leonard argued that the authority he maintained as Opal’s power of attorney expired when she became incapacitated, rendering him incapable of signing the arbitration agreement on her behalf. With regard to this issue, the court concluded that “the making of the agreement is in issue” such that “this matter must proceed to trial” on limited issues regarding whether “Opal was incapacitated prior to the signing of the Arbitration Agreement” and, if necessary, “whether Leonard lacked actual knowledge of Opal’s incapacitation such that he could in good faith validly bind her and her successors in interest.” The court noted that the “Sixth Circuit has stated that ‘parties may seek targeted discovery on … disputed contract-formation questions’ under the FAA, provided that ‘any discovery must comport with § 4, which calls for a summary trial — not death by discovery.’” The court ordered the matter to proceed to trial on the limited issues addressed in the opinion and permitted limited discovery on the triable issues.

Boyd Nursing & Rehabilitation, LLC v. Wells, No. 0:22-cv-00011 (E.D. Ky. Aug. 30, 2022).

Fourth Circuit Dismisses Petition Brought by NLRB to Enforce Settlement and Order

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Concluding that the action before it “lacks adverseness” and did not present a case or controversy fit for judicial resolution, the Fourth Circuit Court of Appeals held that it did not have jurisdiction over the National Labor Relations Board’s petition to enforce a settlement and order to which the employer had consented, and dismissed the petition.

Respondent Constellium Rolled Products employs members of a local United Steelworkers union. After a labor dispute, the union filed four charges with the NLRB alleging that Constellium committed unfair labor practices. The union requested information from Constellium that it believed would be relevant to collective bargaining. The union alleged that Constellium refused to provide the requested information, and “[b]elieving the allegations had merit,” the NLRB issued an agency complaint against Constellium. Rather than proceed through agency adjudication, the union and Constellium entered into a formal settlement stipulation, which provided that the stipulation was not effective until the NLRB had approved it and that upon entry of an NLRB order, Constellium would immediately comply with the terms of the order. Constellium also agreed in the stipulation that when the NLRB sought a judgment in federal court to enforce the order, “Constellium would waive all defenses and consent to the entry of that judgment.”

The NLRB approved the stipulation, issued an order reflecting the terms, and then petitioned the court under 29 U.S.C. §160(e) to enter a consent judgment against Constellium reflecting the terms of the order. The Fourth Circuit dismissed the petition holding that “[b]ecause this suit lacks adverseness, we lack jurisdiction.” In considering the jurisdictional issue, the Fourth Circuit noted the Supreme Court’s decision in United States v. Windsor, 570 U.S. 744 (2013), which reaffirmed that Article III requires “sufficient adverseness” to confer an adequate basis for jurisdiction. The court further noted that “[a]dverse interests — that minimum adverseness threshold required by Windsor — exist only when judicial action would have ‘real-world consequences’ and ‘real meaning’ for the parties.” The court noted that the NLRB “agrees that Constellium has complied with the order and continues to do so” and found that while there was adverseness between the NLRB and Constellium at some point when the matter was before the board, “that adverseness was extinguished before the case got to federal court” and dismissed the petition.

National Labor Relations Board v. Constellium Rolled Products Ravenswood, LLC, No. 20-2140 (4th Cir. Aug. 5, 2022).

Court Grants Nigeria’s Second § 1782 Application for Discovery in Foreign Proceeding in Dispute Over $10B Arbitration Award Related to Gas Supply Agreement

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The U.S. District Court for the Southern District of New York granted the 28 U.S.C. § 1782 application of the Federal Republic of Nigeria to issue subpoenas on four U.S. entities and two individuals, the respondents, in aid of an upcoming fraud trial against Process and Industrial Developments Ltd. (P&ID) before the English High Court of Justice in London, England. In that proceeding, Nigeria seeks to set aside a $10 billion arbitral award, which arose from a gas supply and processing agreement between P&ID and Nigeria that Nigeria claims was fraudulently procured. According to Nigeria, P&ID is a “shell entity whose only asset” is the arbitration award. Nigeria sought to issue a subpoena to each respondent concerning the acquisition of P&ID, financial records, P&ID’s business operations relating to the agreement and the arbitral award, and other issues.

Under section 1782(a), the “district court in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal.” “The order may be made … upon the application of any interested person and may direct that the testimony or statement be given, or the document or other thing be produced, before a person appointed by the court.”

The court found that it had jurisdiction to grant an application under section 1782 because the respondents reside or are found within the Southern District of New York, the discovery is for use in the proceeding before a foreign tribunal, and the application was made by an interested person.

The court also determined that Nigeria met the Supreme Court’s four-factor test in exercising its discretion to grant the application (the Intel factors): (1) whether the person from whom the discovery is sought is a participant in the foreign proceeding (they are not); (2) the nature of the foreign tribunal, the character of the proceedings underway abroad, and the receptivity of the foreign government or the court or agency abroad to U.S. federal-court judicial assistance (English courts are receptive to section 1782 assistance); (3) whether the section 1782 request conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the United States (it did not); and (4) whether the section 1782 application contains unduly intrusive or burdensome discovery requests (it did not).

Regarding the fourth Intel factor, the court rejected the respondents’ argument that, because Nigeria previously filed a different section 1782 application arising out of a separate criminal case, seeking similar discovery from the same respondents, Nigeria should not be permitted to proceed simultaneously on the two section 1782 applications. The court held that there was no legal basis for the respondents’ contention that successive section 1782 applications related to two different foreign proceedings should be prohibited.

In re Petition of Federal Republic of Nigeria, No. 1:21-mc-00007 (S.D.N.Y. Sept. 14, 2022).

SDNY Confirms Unopposed Arbitration Award Using Summary Judgment Framework

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A Turkish manufacturer of motor coaches entered into a distribution agreement with a Delaware-based corporation for the exclusive distribution of its motor coaches in the United States. Years later, a dispute arose over the Delaware corporation’s (CH Bus) nonpayment for 72 motor coaches and its failure to repay a $1 million loan from the Turkish company (Temsa). Temsa commenced arbitration before the International Centre for Dispute Resolution, a division of the American Arbitration Association, pursuant to the arbitration clause contained within the parties’ distribution agreement. After a hearing, the arbitration panel awarded Temsa approximately $17.2 million. Temsa then sought confirmation of the award in the U.S. District Court for the Southern District of New York.

CH Bus did not oppose or otherwise appear in the action. Nevertheless, the court noted: “Default judgments in the context of confirmation and vacatur proceedings are generally inappropriate; an unopposed petition should instead be resolved under a summary judgment framework.” The court found that it had jurisdiction over the award pursuant to chapter 2 of the Federal Arbitration Act. Next, the court stated that an arbitration agreement falls within the scope of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards if four requirements are met:

  1. There must be a written agreement;
  2. It must provide for arbitration in the territory of a signatory of the Convention;
  3. The subject matter must be commercial; and
  4. The agreement cannot be entirely domestic in scope.

Here, the distribution agreement was written; the United States is a signatory to the Convention; the subject matter was commercial (i.e., the sale of motor coaches); and the distribution agreement was a non-domestic agreement because the importation of motor coaches from Turkey was not entirely domestic in scope.

The court then discussed the seven grounds for nonrecognition of an award under the Convention:

  1. The parties to the arbitration agreement were under some incapacity or the agreement “is not valid” under the law designated by the parties, or in the event they have not designated any, the law of the country where the award was made;
  2. The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case;
  3. The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
  4. The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place;
  5. The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, the award was made;
  6. The competent authority in the country where recognition and enforcement is sought finds that the subject matter of the difference is not capable of settlement by arbitration under the law of that country; or
  7. The competent authority in the country where recognition and enforcement is sought finds that the recognition or enforcement of the award would be contrary to the public policy of that country.

None of the bases provided by the Convention for refusing to recognize and enforce an arbitration award applied here. The court also noted that, in this case, because the arbitration took place in the United States, the award was also subject to the FAA provisions governing domestic arbitration awards, including the four grounds enumerated by the FAA for vacatur. However, none of those grounds applied either. As such, the court confirmed the arbitration award in favor of Temsa.

Temsa Ulasim Araclari Sanayi Ve Ticaret A.S. v. CH Bus Sales, LLC, No. 1:22-cv-00492 (S.D.N.Y. Sept. 1, 2022).

New York Federal Court Holds Questions of Arbitrability to Be Resolved by Arbitrator in Labor Dispute

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In a recent decision, a New York federal magistrate judge considered whether threshold questions of arbitrability were to be decided by the court or by an arbitrator in a labor dispute between a Jewish religious organization and its former employees.

Upon leaving employment at the Kabbalah Centre, the plaintiffs signed separation agreements, which included arbitration clauses providing that any disputes related to employment or to the separation agreement itself were to be decided in arbitration. The plaintiffs nonetheless brought an action against the Kabbalah Centre in federal court, arguing that the separation agreements and their arbitration clauses were the products of improper, coercive tactics by their former employer and were therefore unenforceable. The Kabbalah Centre moved to compel arbitration under the terms of the separation agreements.

As an initial matter, the court distinguished between challenges to an arbitration clause in a contract, and challenges to the contract as a whole. Citing Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010), the court noted that the former type of challenge must be decided by the court, while the latter type of challenge was within the purview of the arbitrator.

In granting the Kabbalah Centre’s motion to compel arbitration, the court found that the plaintiffs did not challenge the facial validity of the separation agreements’ arbitration provisions but rather asserted that the contract as a whole should be deemed void. As such, the court looked to the arbitration provisions themselves to determine whether they addressed threshold issues of arbitrability. The court concluded in the affirmative, noting that the separation agreements delegated questions of arbitrability to the arbitrator by incorporating the rules of the American Arbitration Association and JAMS. The court rejected the plaintiffs’ additional arguments and granted the Kabbalah Centre’s motion to compel arbitration accordingly.

 Greene v. Kabbalah Centre International, Inc., No. 1:19-cv-04304 (E.D.N.Y. Sept. 1, 2022).