Arbitration, Mediation & Alternate Dispute Resolution

To stay or to go (from the docket)? For decades, federal courts of appeal have disagreed on a fundamental procedural question: when a dispute filed in federal district court is subject to arbitration, should the court dismiss the action or stay it pending the outcome of the arbitration? 

Online retailers routinely include arbitration clauses in the terms of service for their website, seeking to send any consumer claims to arbitration and to eliminate a consumer’s right to file a class action lawsuit. 

In what appears to be an effort to standardize and professionalize its mediation practices and procedures, China recently enacted new rules governing the mediation of intellectual property disputes. Issued by the Mediation Center of the China Council for the Promotion of International Trade, a national foreign trade body, the new rules create a framework that can guide IP dispute mediation nationwide. It appears that China is hoping that these steps will make it a more popular mediation forum among foreign parties.

Recently, the U.S. Supreme Court denied certiorari in Piersing v. Domino’s Pizza Franchising LLC, 20-695 (Jan. 25 2021) and dismissed its own writ of certiorari as “improvidently granted” in Henry Schein, Inc. v. Archer & White Sales, Inc., 592 U.S. ___ (Jan. 25 2021). Both cases concerned a non-signatory of an arbitration agreement seeking to enforce the terms of that agreement against a signatory, including terms that arguably concerned whether arbitrability issues were delegated to an arbitrator for adjudication in the first instance. And both arguably offered true threshold questions in that regard – e.g., who decides the delegation issue itself. Here were opportunities to wrestle with the perplexing Russian (nesting) doll problem.

In its restraint, SCOTUS has shown us the mischief that arbitrators may do if parties are lax in setting boundaries in their agreement to arbitrate. By declining to grant certiorari regarding the Second Circuit’s most recent decision in Jock v. Sterling Jewelers, Inc., 2019 U.S. App. LEXIS 34205 (2d Cir. Nov. 18, 2019), cert. den., No. 19-1382, 2020 U.S. LEXIS 4133 (Oct. 5, 2020), SCOTUS reminds us of the significance of the doctrine of judicial deference to the authorized decisions of an arbitrator.

The Seventh Circuit is the latest Court of Appeals to enter the fray concerning the scope of application of 28 U.S.C. §1782(a), finding additional reasons to hold that a foreign or international commercial arbitration is not a “foreign or international tribunal” for purposes of the statute and hence not entitled to its benefits.  See, Servotronics, Inc. v. Rolls-Royce, PLC, 2020 U.S. App. LEXIS 30333 (7th Cir. Sept. 22, 2020).  The Seventh Circuit thus joins the Second and Fifth Circuits in so holding, while the Fourth and Sixth Circuits have held to the contrary.  Cases teeing up the same issue are pending before the Third and Ninth Circuit Courts of Appeals.

Congress long ago generously provided for American judicial assistance in obtaining discovery in the United States “for use in a proceeding in a foreign or international tribunal” without requiring reciprocity from the country in which such tribunal is seated. This altruistic legislation, intended as an example (hopefully to be emulated by other countries), is set out in the increasingly popular yet controversial statute, 28 U.S.C. § 1782.

The fly in the ointment regarding this generous legislation, however, is the enduring fundamental issue of whether a foreign or international private commercial arbitration is such a “tribunal” for these purposes. The Circuit Courts of Appeals that have ruled on that issue have split down the middle: the Fourth and Sixth Circuit held relatively recently in the affirmative, while the Second and Fifth Circuits have held just the opposite. (The Second Circuit’s most recent decision in that regard was issued in July 2020, reaffirming its earlier decision in 1999 to this same effect.)

On June 15, 2020, the U.S. Supreme Court welcomed back a familiar case by granting certiorari in Henry Schein, Inc. v. Archer and White Sales, Inc., No. 19-963. SCOTUS itself arguably made the case’s second visit to Washington inevitable by issuing a narrow decision in the first go round (“Schein I”) and leaving a number of related issues on the table that would have to be addressed on remand.

The issues in both Schein I and current Schein II largely concern who should decide gateway questions of arbitrability in the first instance – (a) a court, the presumptive adjudicator of such questions; or (b) an arbitrator, when the parties have “clearly and unmistakably” agreed to delegate such issues to an arbitral panel. But SCOTUS has some latitude with respect to the range of issues it will address concerning the relationships between arbitrability, delegation, arbitration clause carve-outs, and equitable estoppel.

When all was said and done, the U.S. Supreme Court ruled unanimously on June 1, 2020 in effect that the New York Convention (i.e., the U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards) and the Federal Arbitration Act (“FAA”) ch. 2, which implements its enforcement in the U.S., are not preemptively exclusive law concerning the enforcement of international arbitration agreements. See GE Energy Power Conversion France SAS v Outokumpu Steamless USA, LLC, 2020 U.S. LEXIS 3029 (U.S. June 1, 2020).

Just as the jurisprudential pendulum appeared to be swinging smoothly in one direction, the Second Circuit declined to get on board and instead pushed back to the future on July 8, 2020 in holding that federal courts may not order discovery, under 28 U.S.C. §1782(a), in support of a foreign private commercial arbitration. See, Hanwei Guo v. Deutsche Bank Securities, Inc., 2020 U.S. App. LEXIS 21219 (2d Cir. July 8, 2020). It thus reaffirmed its 1999 decision in National Broadcasting Co. v. Bear Stearns & Co., 165 F.3d 184 (2d Cir. 1999).

Here is reason for hope for those who face with trepidation the prospect of enforcing an international arbitration award in India.  On June 2, 2020, the Supreme Court of India (“ISC”) confirmed the enforceability there of a foreign arbitral award that was rendered in accordance with a “two-tier arbitration” agreement. Among other things, the court rejected the dreaded catch-all “Indian public policy” defense as raised by the respondent.  This is the latest in what seems to be a trend of pro-arbitration enforcement decisions by the ISC, and may help to alleviate some of the many anxieties concerning the enforceability generally of international arbitral awards in India.

The statutory mechanism for judicial enforcement of an arbitration “subpoena” – in actuality, an arbitrator’s summons to give evidence -- is simply by petition to “the United States District Court for the district for which such arbitrators, or a majority of them, are sitting….” Federal Arbitration Act (“FAA”) § 7, 9 U.S.C. § 7.  But U.S. law regarding the limited subject matter jurisdiction of its federal courts, coupled with Congress’ omission to provide for such jurisdiction in chapter 1 of the FAA, makes for significant potential complexity at the threshold of enforcing an arbitral subpoena issued in connection with a domestic arbitration.  Fortunately, the Second Circuit Court of Appeals recently simplified such matters a bit.

The United States Supreme Court established that questions of arbitrability are presumptively for a court unless the parties clearly and unmistakability manifest their intention (i.e, agreement) that such issues should be determined by an arbitrator in the first instance. But is the “clear and unmistakable” standard uniform in all circumstances or variable?

If we needed a reminder of why the “delegation” question – i.e., whether parties have agreed that gateway arbitrability issues should be adjudicated in the first instance by an arbitrator rather than by a court – is important, a recent decision by the Fifth Circuit Court of Appeals should do in the trick.  In Sun Coast Resources, Inc. v. Conrad, 2020 U.S. App. LEXIS 12149 (5th Cir. April 16, 2020), an arbitrator had issued a “clause construction award” to the effect that an arbitration agreement that did not mention class or collective arbitration nonetheless permitted it, and the Court held that there was no turning that train around.

In 1948, the United States first promulgated a unique statutory mechanism by which, via its 1964 amendment, an interested person could receive judicial assistance in obtaining evidence in the U.S. for “use in a proceeding in a foreign or international tribunal . . . .”  See, 28 U.S.C. § 1782(a).  Whether a private arbitration was such a “foreign or international tribunal” became a prominent issue after the U.S. Supreme Court arguably opened the door in that regard via dictum in its decision in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004).  While the federal District Courts have broadly split on the question, the current momentum in the federal Circuit Courts of Appeals favors the applicability of the statute with respect to such arbitration proceedings.

A federal court in the Northern District of California has adopted the reasoning and conclusion of a recent Sixth Circuit decision in holding that 28 U.S.C. § 1782 applies to private foreign/international arbitrations.  See, HRC-Hainan Holding Company, LLC v. Hu, 19-MC-80277, 2020 U.S. Dist. LEXIS 32125 (N.D. Cal. Feb. 25, 2020).  This adds to the split among federal courts concerning the issue of the applicability of this federal “judicial assistance” statute to private commercial adjudicatory proceedings.

Are there circumstances in which forum non conveniens is a viable defense in the U.S. to a petition to confirm an arbitration award that is subject to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”)?  Could or should a U.S. court having jurisdiction abstain from taking up the matter in favor of a foreign court on the grounds that the U.S. court is “inconvenient”?  A federal court in the D.C. Circuit recently reaffirmed that it should not. 

Battles persist concerning the enforceability of insurance policy arbitration clauses due to the conflict between (a) the U.S. Constitution’s Supremacy Clause (Art. VI, cl. 2), which gives federal laws and international treaties preemptive authority over conflicting State law, and (b) the McCarran-Ferguson Act, which gives State insurance laws reverse-preemptive authority over federal statutes that interfere with State regulation of the insurance business.  A recent federal District Court decision in the Ninth Circuit offers support for the proposition that a key provision of an important arbitration-related treaty -- the New York Convention -- is self-executing, is not reverse-preempted by McCarran-Ferguson, and thus may be a basis, where applicable, for compelling arbitration of insurance coverage disputes. 

Under the Federal Arbitration Act (“FAA”), “a party may not be compelled . . . to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.”  Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 684 (2010).  The Eighth Circuit Court of Appeals recently sharpened that rule a bit to require “an affirmative contractual basis” to conclude that the parties agreed to class arbitration.  See Catamaran Corp. v. Towncrest Pharm., 2020 U.S. App. LEXIS 753 (8th Cir. Jan. 10, 2020) at *5.