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Arbitration Provisions Delegating “All Disputes” to Arbitration Are Sufficiently “Clear and Unmistakable Evidence” of Parties’ Intent to Arbitrate Arbitrability

March 29, 2022 by Benjamin Stearns

An arbitration provision providing that “all controversies which may arise between the parties” was sufficiently broad and clear to require disputes related to the arbitration panel’s jurisdiction to be settled by the arbitration panel itself. “The question of who decides arbitrability is itself a question of contract.” “In determining whether the arbitrability of a dispute is to be resolved by the court or the arbitrator, the arbitration agreement is determinative.” In determining whether the parties have agreed “to arbitrate arbitrability,” a court should require “clear and unmistakable evidence that they did so.”

The Southern District of New York ruled that this “clear and unmistakable” standard was satisfied by the contract’s delegation of “all controversies” to the “exclusive jurisdiction” of the arbitration panel. “The Court finds that the meaning of this provision is plain indeed: any and all controversies are to be determined by arbitration. The wording is inclusive, categorical, unconditional, and unlimited.”

Having found that the arbitration panel had jurisdiction over the dispute, the court next addressed the argument that the panel had “manifestly disregarded” the law in its interpretation of the underlying contract at issue, sufficient to warrant vacatur of the panel’s award. The court noted that the Second Circuit follows a three-part test in evaluating such claims: (1) the law allegedly ignored must have been clear and explicitly applicable to the matter before the arbitrators; (2) disregard of the law must have led to an erroneous outcome; and (3) the arbitrators must have known of the law’s existence and its applicability to the case, and must have disregarded it intentionally. The court found that the litigant fell well short of satisfying that standard. A “straightforward dispute over contractual interpretation” is “precisely the sort of Panel determination to which the Court is required to defer.” There was no support for the argument that the panel ignored clear and explicitly applicable law or any evidence of the panel’s subjective intent to disregard the law. As such, the court confirmed the panel’s award.

Katalyst Securities LLC v. Marker Therapeutics Inc., No. 1:21-cv-08005 (S.D.N.Y. Mar. 9, 2022).

Filed Under: Arbitration / Court Decisions, Contract Interpretation

D.C. Circuit Concludes That IMF Did Not Waive Immunity by Agreeing to Arbitration

March 21, 2022 by Brendan Gooley

The D.C. Circuit recently affirmed the dismissal of a suit against the International Monetary Fund (IMF) that sought to modify or vacate an arbitration award after concluding that the IMF did not waive its immunity from judicial process in the agreement that authorized the arbitration.

The IMF enjoys broad “immunity from every form of judicial process except to the extent that it expressly waives its immunity for the purpose of any proceedings or by the terms of any contract.” The IMF hired Leonard A. Sacks & Associates, P.C. to negotiate disputes it had with several contractors related to renovations of the IMF’s headquarters. The agreement between the IMF and Sacks incorporated the IMF’s immunity “from every form of judicial process” and explained that, in accordance with the IMF’s broad immunity, disputes concerning the agreement were “to be resolved not by litigation, but by arbitration.” The agreement’s arbitration clause concluded by stating: “It is understood and agreed that the submission of a claim or dispute to arbitration … shall not be considered to be a waiver of the immunities of the IMF.”

A dispute arose between Sacks and the IMF regarding Sacks’ fee. The parties submitted that dispute to arbitration and an arbitration panel awarded Sacks a small increase in its fee. Sacks was displeased with the result of the arbitration, however, and sued the IMF in D.C. Superior Court seeking a modification or vacatur of the arbitration award, as generally allowed by D.C. law.

The IMF moved to dismiss Sacks’ action based on its immunity. The district court granted the IMF’s motion and Sacks appealed to the D.C. Circuit, which affirmed.

The D.C. Circuit compared the agreement between Sacks and the IMF to the contract in C & L Enterprises Inc. v. Citizen Band Potawatomi Indian Tribe of Oklahoma, in which the U.S. Supreme Court held that a Native American tribe had waived its immunity to suit in state court under the terms of an agreement with a construction contractor that included an arbitration clause that the Supreme Court held established that the tribe had consented to the enforcement of arbitration awards under the arbitration clause in Oklahoma state court.

Unlike the contract in C & L Enterprises, the “IMF contract contain[ed] express preservations of immunity.” The IMF-Sacks agreement viewed “resolution of disputes by arbitration as part and parcel of preserving [the IMF’s] immunity from judicial process.” The IMF-Sacks agreement’s arbitration clause also concluded by noting “that the submission of a claim or dispute to arbitration … shall not be considered to be a waiver of the immunities of the IMF.”

Based on this language, which distinguished the IMF-Sacks agreement from the agreement at issue in C & L Enterprises, the D.C. Circuit concluded that it could not say that the IMF explicitly waived immunity. The D.C. Circuit therefore affirmed the dismissal of Sacks’ suit.

Leonard A. Sacks & Associates, P.C. v. International Monetary Fund, No. 21-7034 (D.C. Cir. Feb. 25, 2022)

Filed Under: Arbitration / Court Decisions, Contract Interpretation

SDNY Rules Non-Signatories to Agreement May Compel Signatory to Arbitrate Issues of Arbitrability

March 10, 2022 by Alex Silverman

Plaintiffs, the Republic of Kazakhstan and Outrider Management LLC, filed suit in New York state court claiming the defendants conspired to obtain a fraudulent international arbitral award against them of nearly $500 million. The defendants removed the case to the U.S. District Court for the Southern District of New York, relying on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, as implemented by the Federal Arbitration Act. The plaintiffs moved to remand the action to state court. The defendants cross-moved to compel arbitration of Outrider’s claims.

On the issue of remand, the court noted at the outset that Kazakhstan and Outrider stood in very different positions, as Kazakhstan was not a party to the contract in which Outrider and others agreed to arbitrate. Despite Kazakhstan being a non-signatory, the defendants claimed the Southern District of New York still had subject matter jurisdiction of its claims because, according to the defendants, section 205 of the FAA creates such jurisdiction for any case that is “related to” an arbitration agreement or award falling under the Convention. However, the court found this interpretation to be inconsistent with the plain language of the statute and Second Circuit precedent. Because only section 203 of the FAA creates subject matter jurisdiction — and did not do so here for Kazakhstan’s claims — Kazakhstan’s motion to remand was granted. Outrider’s motion to remand was denied, however, as it was a party to the arbitration agreement, the defendants were seeking to compel arbitration pursuant to that agreement, and the other jurisdictional requirements were satisfied.

As to the motion to compel, the defendants contended that Outrider’s arbitrability arguments were for the arbitrator, not the court, to decide, citing a “delegation” clause in the arbitration agreement. The plaintiffs countered that the defendants were not parties to the agreement and that the delegation clause did not delegate arbitrability issues involving disputes with a non-signatory. The issue thus became whether it was for the court or the arbitrator to determine whether non-signatories may invoke arbitration against a signatory. The court read two Second Circuit decisions as creating or implying a two-part inquiry: first, the court must decide whether the arbitration agreement permits or precludes invocation by non-signatories; and second, the court must decide whether a threshold of “relational sufficiency” exists between and among the parties to the dispute and the arbitration clause. The court found the requirements were met here, emphasizing both the breadth of the delegation clause and that it did not explicitly state only a signatory could invoke it. The court also concluded that Outrider and the defendants had sufficient relationships to each other and to the rights created under the arbitration agreement. The court therefore held that the defendants may compel Outrider to submit the arbitrability of its claims to the arbitrator.

Republic of Kazakhstan v. Chapman, No. 1:21-cv-03507 (S.D.N.Y. Feb. 10, 2022).

Filed Under: Arbitration / Court Decisions, Contract Interpretation

Maine Supreme Court Holds Uber Cannot Enforce Arbitration Clause in Its User Terms and Conditions, Agrees User Was Not Provided Reasonable Notice

March 8, 2022 by Alex Silverman

The Supreme Court of Maine has affirmed an order denying Uber’s motion to compel arbitration of claims that it and its subsidiary violated the Maine Human Rights Act. The action was filed after an Uber driver refused to drive plaintiff Patricia Sarchi, who is blind, because of her guide dog. Uber moved to compel arbitration pursuant to the terms and conditions of its user agreement. The plaintiffs (Sarchi and the Maine Human Rights Commission) argued that the manner in which the terms were presented rendered them, and the arbitration agreement, unenforceable.

Given the prevalence of online contracts, the court explained that “reasonably conspicuous notice of the existence of contract terms and unambiguous manifestation of assent to those terms by consumers are essential if electronic bargaining is to have integrity and credibility.” Ultimately, the question is “what level of notice and assent is required in order for a court to enforce an online adhesion contract?” Looking to other jurisdictions for guidance, the court identified a two-step inquiry. The first step looks at whether the user had reasonable notice of the contract terms from the standpoint of a reasonably prudent user of online technology. Assuming reasonable notice was provided, the second step is whether the user manifested assent to the terms. Here, the court found Uber’s terms did not make it beyond step one, likening this case to others in which Uber’s terms were deemed insufficient to provide reasonable notice. As in those other cases, the court explained that the user interface here — the appearance of the hyperlink to the relevant terms, the use of muted coloring, the font size, the emphasis on payment information, among other things — rendered the terms “inconspicuous.” While that alone warranted denial of Uber’s motion to compel arbitration, the court also found Sarchi could not have manifested assent to the terms given their presentation. The court expressly rejected the notion that Sarchi became bound by the arbitration clause by clicking on a “done” button after entering her payment information.

Sarchi v. Uber Technologies, Inc., No. 2022 ME 8 (Me. Jan. 27, 2022).

Filed Under: Arbitration / Court Decisions, Contract Formation

Fifth Circuit Dismisses Appeal of Order Denying Motion to Reopen Case, Sever Cost-Splitting Provision, and Impose Costs of Arbitration on Appellee

March 3, 2022 by Michael Wolgin

The underlying dispute related to a property manager’s limitation of the appellant, Jane Doe, to one pet in her apartment. Doe sued the manager for declaratory relief, injunctive relief, monetary damages, and punitive damages under the Fair Housing Act and the Louisiana Equal Housing Opportunity Act. Doe moved for a preliminary injunction, and the property manager moved to compel arbitration and stay the case pursuant to the lease’s arbitration clause. Doe responded, in relevant part, by arguing that the court should sever the arbitration clause’s cost-splitting provision and require the property manager to pay Doe’s share of the arbitration costs.

The district court granted the motion to compel arbitration, holding that Doe was bound by the arbitration clause. It also declined to rule on Doe’s motion for a preliminary injunction and denied Doe’s request to sever the cost-splitting provision of the arbitration clause and her request that the property manager pay her share of the arbitration costs. The court stayed the case and retained jurisdiction to reopen the case on appropriate written motion. The parties subsequently could not agree on the costs of arbitration, and Doe filed a motion to reopen the case and, again, to sever the cost-splitting provision of the arbitration clause. The district court denied Doe’s motion, holding that, pursuant to the agreement’s delegation clause, disputes regarding the parties’ respective responsibilities for arbitration costs should be addressed by the arbitrator.

On appeal to the Fifth Circuit, the court agreed with the property manager’s arguments that the court lacked jurisdiction. The court held that the district court’s order compelling arbitration and staying and administratively closing the case pending arbitration was interlocutory and unappealable within the meaning of section 16 of the FAA. The court held that Doe’s motion to reopen the case and sever was, in effect, nothing more than a motion to reconsider the merits of part of the district court’s order compelling arbitration. A denial of a motion to reconsider an order compelling arbitration does not possess any more finality than the order compelling arbitration itself. The Fifth Circuit also ruled that the collateral order doctrine did not apply given section 16 of the FAA’s “specific framework for determining whether and when an appeal is proper” and that exercising mandamus jurisdiction, a drastic remedy reserved only for truly extraordinary situations, would be inappropriate.

Doe v. Tonti Management Co., No. 21-30295 (5th Cir. Feb. 1, 2022).

Filed Under: Arbitration / Court Decisions, Jurisdiction Issues

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