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Swirling Rumors

Rumors have reached Arbitration Commentaries concerning the recent professional activities and virtual invisibility of our founder and long-time supporter Marc J. Goldstein. It has been said that he is locked in a consuming legal battle on behalf of a European technology client against a once-mighty and still formidable American technology colossus, that the controversy is pending in a federal judicial forum in New York, and that there is as a consequence indeed a measure of truth to the “Litigation” within Marc J. Goldstein Litigation & Arbitration Chambers.   So intensive are the supposed demands of the dispute that Mr. Goldstein has reportedly declared that he must defer completion of a requested contribution to this space about the Yukos judicial annulment decision in the Netherlands,  a position we can readily understand given the demands of deciphering the Dutch jurists’ exhaust(ive)(ing) analysis of Russian law in the turgid English translation presently available. It is also reported that Mr. Goldstein’s name has been restored to the Mediator Roster of the U.S. District Court in Manhattan, a roster from which he had taken leave some 15 months ago to divert energies as a mediator away from disputes between afflicted citizens and the City of New York. But alas this Roster turns out to be an online resource where disputants interested in the skill sets of mediators can find good listings of their areas of specialization, even if rather few of the commercial cases on the docket of that Court, as compared to its staggering docket of  cases under federal civil rights statutes, are mediated through the Court’s ADR office.  If you would like to verify any of the foregoing, Arbitration Commentaries would be pleased to contact Mr. Goldstein on your behalf.

 

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Arbitration Deflated

So are we to think that the rightful power of arbitrators has been vindicated as a matter of principle by the US Second Circuit Court of Appeals’ 2-1 panel decision reinstating Tom Brady’s four-game suspension? This commentator says no, and if you think this is mainly because my tailgate party for the Buffalo Bills at New England Patriots game on October 2 will be a less lustrous event with #12 maybe off the premises*, you would be only half right. (Come to the party anyway. We start about 11 am).

On the question of whether the four-game suspension was discipline the contract permits (the “contract” being the collective bargaining agreement between the NFL and the players’ union) there are two legal principles in play. The first straddles labor and commercial arbitration: the arbitrator to act within her powers must at least arguably be construing the contract; she cannot simply impose her “own brand of industrial justice.” (You remember this refrain from Stolt-Nielsen). Stated in another fashionable phrase, the arbitrator’s award should “draw its essence from the agreement.” The second principle is more or less unique to labor arbitration: a collective bargaining  agreement is to be interpreted according to the “law of the shop,” and where that “law” establishes that the employer’s discipline of an employee must be within a range of punishments that the employee had notice would potentially be imposed for the infraction committed, a punishment not inside that range doesn’t draw its essence from the agreement.

To understand how these principles operate in the Brady/NFL case of course one needs to accept that the employer and the arbitrator are the same person: the NFL Commissioner (whose father was a Bills fan). In the arbitration, the aggrieved player is the Claimant and the Respondent is, well, the arbitrator. That’s what the contract says, so forget about independence and impartiality. They have been collectively-bargained out the picture.

Whether the two above-mentioned principles were respected or offended by the NFL Commissioner’s four-game suspension of #12 depends on how one reads the fine print in the collective bargaining agreement, notably Article 46 entitled “Commissioner Discipline.” Your Commentator thinks the Commish dispensed his own brand of “industrial” justice**, and that Article 46 cannot be arguably construed to provide notice to players that they risk suspension for conspiring to under-inflate footballs for competitive advantage.

But the Second Circuit having taken a position on that issue has no real impact on arbitration law. The decision, as it relates to the Commissioner’s power to impose the four-game suspension, does not move the doctrinal needle about arbitral power and discretion even a millimeter. The same issue, had it involved a lower profile sports league and a non-celebrity athlete would not merit the attention this case has received in arbitration circles.

Two procedural rulings by the Respondent-Arbitrator were also at issue on this appeal. The first was to deny Brady the right to call the NFL General Counsel as a witness. The second was to deny Brady access to the interview notes of the law firm that the Commissioner hired to investigate. The Second Circuit majority holds that these rulings were not fundamentally unfair, and the dissenter dissents but without discussion.

Well-settled law about judicial deference to arbitral procedural rulings is easily applied when arbitrators are actually independent and impartial. To apply that law in a formulaic way to the procedural rulings of the Respondent-Arbitrator NFL Commissioner whose impartiality versus a player he has disciplined had been waived by contract is a different matter. But this is what the Second Circuit has done in the Brady/NFL case. For the proceedings of the Respondent-Arbitrator to be seen to be fair in this very public setting, something akin to full transparency of the Commissioner’s actions as a Respondent ought to be the rule — that is to say, full transparency of the initial decision to impose discipline. Here the Commissioner insists there was such full transparency because, according to the Commissioner, his General Counsel did not participate in drafting the investigative report that formed the basis for Brady’s suspension. But does this not determine a material fact by sealing off from challenge the Respondent’s assertion about the fact? There is no vindication of arbitrators or arbitration here, but instead some rather unfortunate application of settled principles with inadequate attention to context.

Besides, it would be a better tailgate party, and a sweeter victory over the Patriots, if #12 takes the field on October 2.

Go Bills!

* At this writing, #12 has just added former US Solicitor General Theodore Olson to his legal dream team. So a few things could happen between now and October … A rehearing en banc in the Second Circuit, or a petition for certiorari to the short-staffed Supreme Court of the United States which still has only one presumptive Patriots fan (Breyer, J.). The latter might be coupled with an application to stay the mandate of the Second Circuit’s judgment.

**  The phrase “own brand of industrial justice” dates from a time in the early 1960s when America had manufacturing industries, notably steel mills, and hundreds of thousands of steelworkers. The phrase was coined in a labor arbitration decision to which the United Steelworkers Union was a party. That decision and two companion cases are known in arbitration law and legend as the Steelworkers Trilogy and are the original source of many of the core principles of modern American arbitration law.

After Justice Scalia, The Deluge?

Life does sometimes present good second chances. And Arbitration Commentaries aspires to be more like life. Really. So for all of you who spurned your invitations to the April 21, 2016 meeting of the International Arbitration Club of New York, or failed even to be present in New York on the date, you will find linked HERE. the transcript of remarks delivered on that occasion by our supporter and friend Marc J. Goldstein about the prospects for arbitration jurisprudence at the US Supreme Court in the post-Scalia/possibly Garland era. Only one photograph of the event remains in circulation; Arbitration Commentaries is pleased and proud to link it HERE: IACNY 4.21 Presentation Photo .

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Your Next Trip to the Library

What? You have nothing good to read? You been through all the new biographies of Donald Trump but seek something absorbing? Perhaps this space can help. A rumor has reached Arbitration Commentaries that, beginning in the week of May 2, you should be able to read online “Living (Or Not) With the Partisan Arbitrator: Are There Limits to Deliberations Secrecy?” This article has been written by Marc J. Goldstein, a New York attorney (still) and a long-time supporter of Arbitration Commentaries. The online source to read this piece, one surmises, is the website of Arbitration International (http://arbitration.oxfordjournals.org) (last visited April 30, 2016).  As some of you surely know, Arbitration International declares itself to be, and indeed is, a “peer reviewed journal.” Whether the publication of this article qualifies its author as a peer of the journal’s Editorial Board members, let alone any of you the august readers of these Commentaries, remains open to vigorous debate. If you would eventually wish to have an autographed reprint, for personal use or as a birthday gift for a grandchild, Arbitration Commentaries will forward your request to Mr. Goldstein.

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Another Touch of Class

Here in the USA (New York remaining therein until November 2016 and possibly beyond), judicial control over the use of arbitration for class actions is still a hot topic. One aspect of such control, or lack of it, is the question of who (finally) decides — court or arbitrator — whether a particular arbitration clause does indeed permit arbitration to be pursued on behalf of a class of persons alleged by the named Claimant to be in the same circumstances vis-à-vis the Respondent. Not every US corporation has managed to include an enforceable class action waiver in its arbitration clauses with consumers and workers. So somebody, court or arbitrator, must (finally) decide whether an arbitration clause that says more or less nothing about class arbitration should be construed to permit it.

Quickly to set the stage, recall that the US Supreme Court (i) objects to arbitrators finding clauses that are silent about class arbitration to permit it, if the sole basis is the arbitrator thinks class arbitration is a good thing (Stolt-Nielsen), (ii) doesn’t object to arbitrators construing a clause to allow class arbitration so long as it’s a genuine (even if debatable) clause construction (Oxford), (iii) holds that questions of “arbitrability” (sometimes called “Gateway” questions) are presumptively for courts not arbitrators to (finally) decide (First Options, Howsam, BG Group), (iv) says that overcoming that presumption, i.e. giving the “arbitrability” question to the arbitrator, requires “clear and unmistakable evidence” of the parties’ intention to delegate (First Options etc.), (v) has sent mixed signals on whether the question of class arbitrability is a “Gateway”  issue (hinting, in Oxford and Stolt-Nielsen, that it is) or instead is merely an issue of arbitral procedure squarely in the arbitrator’s lap (the plurality’s statement but not a majority’s holding in Bazzle, roughly a decade before Oxford and Stolt-Nielsen); and (vi) has never blessed the view, held by a majority of the federal Circuit Courts of Appeals, that an intention to delegate a “Gateway” issue to the arbitrators is clearly and unmistakably shown by the declaration in the arbitration agreement that arbitration will be conducted under arbitration rules that happen to include a “compétence-compétence,” rule (that says arbitrators have power to rule on objections to their “jurisdiction”) which rule is not specifically referenced.

Plunging into this abyss in January 2016, the US Third Circuit Court of Appeals (usually but not always found in Philadelphia, near the Liberty Bell), held, addressing a question of first impression in the US federal appellate courts, that no such delegation of the class arbitration question to the arbitrator results, clearly and unmistakably, from an agreement to arbitrate under the AAA Commercial Rules (which include in AAA Commercial Rule 7 a “compétence-compétence,” rule ). Thus in the view of the Third Circuit the presumption that class arbitrability is for the court finally to decide is not overcome by agreeing to arbitrate under such rules without specifically making reference to the compétence-compétence rule. Chesapeake Appalachia LLC v. Scout Petroleum, LLC, 809 F.3d 746 (3d Cir. Jan. 5, 2016).

Before we get to the legal analysis, let’s digress for a moment to the realpolitik of this “who decides class arbitrability” question.

There is a problem out there, and judges are too discreet to write about it directly in their opinions. Class arbitration hugely escalates the arbitrator’s earning potential. Lodging the class arbitrability question with an arbitrator who will profit exponentially from deciding that issue in favor of class arbitration results in a decision process in regard to that issue that may be seen as distinctly biased in favor of class arbitration. The AAA and other institutions could improve matters by assigning the “Clause Construction” phase of a putative class arbitration to an arbitrator who will decide only that issue. But this has not been done, so the courts are forced into an uneasy dilemma. Self-interested pro- class arbitration rulings by arbitrators enlarge access to justice for aggrieved consumers and workers, but may cast arbitration into even greater public disrepute. Judicial decisions against class arbitration, on the other hand, may be viewed by the public as disproportionately solicitous of the rights of corporations to abuse consumers and workers, by making effective redress for and deterrence of such abuse uneconomical for victims to pursue.

The Third Circuit’s analysis on the delegation issue devolves ultimately to the view that the AAA Commercial Rules read as a whole, reflect a paradigm, a norm, of “bilateral arbitration,” that the compétence-compétence rule should be understood in this bilateral context, and that the compétence-compétence rule, at least when reference to it is indirect,  cannot stand as clear and unmistakable evidence of a delegation of the non-bilateral class arbitrability issue to the arbitrator. You, dear arbitrators, have read these Rules, and applied them. You may ask, from what textual clues does this aura of bilateralism emanate? From anything other than the (evidently convenient and parsimonious) use of “Claimant” and “Respondent” in the singular rather than the plural? What about item (a) (ii) in the AAA’s Checklist of Preliminary Hearing Procedures, calling upon the arbitrator to address “whether all necessary or appropriate parties are included in the arbitration“? What about item (vi)(c) in the same checklist, calling for discussion in the preliminary hearing about the “threshold issue…” of “consolidation of the claims or counterclaims with another arbitration” ? Hmmm…. sounds potentially multilateral.  And of course many of you have handled AAA arbitrations, under the Commercial and ICDR Rules, involving numerous claimants and/or numerous respondents.

I’m not saying the Third Circuit necessarily reached the wrong outcome. I’m just saying….that the Third Circuit’s analysis of the delegation issue in Chesapeake is not fully satisfying because it fails to wrestle to the ground the question of whether the delegation of “jurisdiction” issues to the arbitrators in the compétence-compétence rule does or doesn’t “clearly and unmistakably” delegate the class arbitration issue. The Third Circuit’s “bilateral” analysis isn’t convincing, because the AAA Commercial Rules have long been applied to permit multiple claimants to bring arbitrations against multiple respondents. And the ordinary reasonable person or company entering into an arbitration agreement wouldn’t expect to have less ability in arbitration than in litigation to have multiple claimants and respondents, at least provided that all of them have signed the same agreement to arbitrate and that they participate on their own behalf.

What the Third Circuit is really saying is that there are no indications in the AAA Commercial Rules that a Claimant may bring an arbitration in a self-declared representative capacity, which is just another way of saying these Rules are silent about class arbitration. But this approach fails to come to grips with what the term “jurisdiction” in AAA Commercial Rule 7 is “clearly” (as opposed to reasonably) understood to cover. To make a persuasive case that there has been no delegation when the AAA Rules have been adopted, there has to be an arguable position that the class arbitrability issue isn’t a “jurisdiction” matter under the compétence- compétence rule, but something else entirely.

Here is a stab at the arguable position: One might produce a series of concentric circles, each progressively removed from a core concept of jurisdiction, and yet still at least arguably jurisdictional. Near the core would be issues relating to the existence or validity of the arbitration clause. Did it expire on a contract expiration date, superseded by a judicial forum selection clause? Is it void under the law to which it is properly subjected? Also near the core would be questions about amenability of the subject matter to arbitration, either because applicable law prohibits certain subject matter to be addressed by arbitrators, or a limitation is imposed by the arbitration clause itself. These matters are specifically mentioned in AAA Commercial Rule 7 (and in ICDR Rule 19(1)). If such limits are alleged to put the entire case beyond the reach of arbitrators, the matter involves the existence/absence of jurisdiction. If less than all claims or matters are alleged to be non-arbitrable, the question is whether the arbitrators’ jurisdiction is limited in scope. It is not seriously debatable that rules that allow arbitrators to handle objections to “jurisdiction” cover “scope” as well as “existence” objections.

Is class arbitrability simply another species of “scope” objection to arbitral jurisdiction? If it “clearly and unmistakably” is, then the rules-incorporation equates to effective delegation to the arbitrator.  One needs to consider the infrastructure of this “scope” issue. Assume that all putative class members have signed arbitration agreements with the Respondent. If all of them expressly joined as Claimants, making the case a “mass” rather than class arbitration, the existence of consensual arbitral power to act is certain.

The class action obviously differs from the mass action insofar as only putative class representatives have declared that they have a dispute with the Respondent. If the others elect to opt in after receiving notice, then they too have a dispute. But what is the source of arbitral power to authorize the solicitation of other Claimants to join in the arbitration as absentee Claimants represented by the class representative?

This question is arguably one of jurisdiction — but only if jurisdiction, as the term is used in arbitral rules empowering arbitrators to address objections to it, is clearly understood to embrace the question of the Claimant’s right to proceed as a representative of absentees who have not yet declared that they have a dispute with the Respondent. That matter might also be characterized as a question of what claims-prosecution rights the parties conferred on one another, as opposed to a question of what powers they mutually conferred on arbitrators. In that sense, it is more heavily weighted toward the express terms of the parties’ agreement to arbitrate and less weighted toward what is to be understood from the indirect incorporation of the compétence-compétence rule resulting from a reference to the AAA Commercial Rules. And if the class arbitrability issue is therefore arguably not about jurisdiction, but about the powers the parties conferred on one another to prosecute claims, then the existence of jurisdiction-deciding powers in the incorporated arbitration rules is at least arguably not a delegation of the class arbitration issue to the arbitrator.

This analysis at least demonstrates that the “who decides class arbitrability” question is not necessarily answered by case law treating other issues as clearly delegated to the arbitrator by virtue of the incorporation of institutional compétence-compétence rules. Courts addressing the issue will be invited to think carefully about whether class arbitrability is conceptually different from other jurisdiction issues deemed delegated to the arbitrator solely by virtue of the compétence-compétence rule, and whether the jurisdiction power mentioned in institutional rules must be understood to embrace the class arbitrability issue.

The answer to this conundrum probably is that while class arbitrability is a question we arbitration lawyers would think of as a matter of arbitral “jurisdiction”, it is not what an ordinary lay person would think of as a “jurisdiction” matter — lay persons having a more rudimentary concept of what “jurisdiction” entails. And therefore in most settings where class arbitration issues arise — consumers and employees, and others who make arbitration agreements without participation of counsel — the incorporation by reference of arbitration rules that include a compétence-compétence rule probably ought not to be regarded as an unmistakable and clear delegation of the class arbitrability issue to the arbitrator.

 

Thinking Pure Thoughts About Arbitration

We did not really learn very much about arbitration from the U.S. Supreme Court’s 6-3 decision in DirecTV v. Imburgia, 136 S.Ct. 463, 2015 WL 8546242 (Dec. 14, 2015). After all, we knew, even before we were reminded by the New York Times, that companies that sell goods and services to consumers using written contracts, in interstate or international commerce, use arbitration clauses that prohibit class or consolidated actions, doing so to foreclose legal challenge to profitable but perhaps dubious business practices. We also knew that the U.S. Supreme Court has mainly condoned such use of class arbitration waivers by denouncing, on FAA pre-emption grounds, state law efforts to permit consumers to disavow such clauses and bring class arbitrations or judicial class actions. In particular, and as the backdrop for the DirecTV case, we knew from the Concepcion case that such state law escape valves are held to be impermissibly hostile to enforcement of arbitration contracts, as compared to the ordinary run of contracts,

So what do we learn from DirecTV that we did not know before? Probably not much more than this: that liberal state court judges, when they try to protect consumers against adhesion arbitration contracts and to dodge Concepcion-based FAA pre-emption at the same time, probably will fail. Even a reliable liberal Supreme like Justice Breyer (presumably a dislocated Patriots fan who uses DirecTV to keep tabs on Tom Brady) will grind to dust a brazen state court dodge of federal stare decisis. And so he did in this case.

To appreciate DirecTV one needs the polish up and switch on the trusty Arbitration Law Time Machine. The year is 2007; the Supreme Court’s decision in Concepcion is three years away, and some states most notably California are cracking down on class action waivers in arbitration agreements by treating such waivers as unconscionable (ostensibly a venerable common law basis for non-enforcement of any contract) because they operate to deprive consumers of access to justice and to shield shady corporate practices from legal challenge. Some arbitration observers and institutions thought that, as the waivers could be set aside while the underlying arbitration agreements would remain intact, class arbitration would be the wave of the future. DirecTV’s legal team had an idea to counter this: a sort of arbitration law poison pill. They added to the arbitration clause in the standard service contact a sentence the provided that if “the law of your state” would render the class arbitration waiver unenforceable then the entire arbitration agreement would be unenforceable. So Plan B for DirecTV, in a state like California, was that if state law would force the company to have class actions with consumers, at least the proceedings would take place in the courts where they could be long and miserable and appealable. (Besides, judges spend Sunday afternoons watching pro football on DirecTV’s NFL Sunday Ticket. Arbitrators go to antique shows.)

The problem confronted in turn by the California Court of Appeal and the U.S. Supreme Court was how to construe the “law of your state” agreement-not-to-arbitrate in light of (1) Concepcion, decided after the litigation had begun but before it reached the California Court of Appeal, and (2) the DirecTV contract’s own separate provision affirming that the arbitration clause was subject to the FAA.  For the California court, professing to be applying neutral contract interpretation principles neutrally, not through an arbitration prism, it was not difficult to conclude that (1) the “specific” law-of-your-state provision in the arbitration clause trumped the “general” declaration in the contract that the FAA applied, and (2) construing the “ambiguous” (my air-quotes) agreement against the drafter, “law of your state” meant the California law that would apply if that law were not pre-empted by the FAA.

Sure.

Shame on you California judges!,” exclaim six Justices of US Supreme Court. “Shame on you for not recognizing your own use of the arbitration prism and its refraction of state contract law!“…. “Without looking through at this through the arbitration prism, you would not have happened upon (or accepted counsel’s advocacy of) this ‘general’ v ‘specific’ contract interpretation principle as a way to construe together the juxtaposed arbitration clause and FAA applicability clause. And without looking through the arbitration prism, you would not have found ‘law of your state’ to be ambiguous, and so you would not have had occasion to invoke the construe-against-the-drafter canon. So nice try California judges, but too clever by half!”  (Quotation not found in Justice Breyer’s opinion, but perhaps in synch with one of his e-mails to the Brethren written at halftime of a Patriots game).

So there you have the DirecTV case:  No use of refractory arbitration prisms is allowed when state court judges purport to apply neutrally state law rules of contract interpretation to decide whether an agreement to arbitrate may be enforced. When arbitration prisms refract contract law, with regard to principles governing the enforceability of a contract to arbitrate, the decision to deny enforcement of the arbitration contract (touching interstate or foreign commerce) violates FAA Section 2’s strict limitation on the grounds for such denial of enforcement.

Happy New Year! Keep your prisms in the closet. Think only nice thoughts about arbitration. Think what you will about the New England Patriots.

Are You Ready for Some Football?

You are only human. You lead a busy professional life, and, while you have a few precious hours to watch American football on Sunday afternoons, you have no time (or patience) to slog through 20 pages of the federal district court decision that vacated the arbitration award of National Football League (NFL) Commissioner Roger Goodell that had (in)famously upheld the four-game suspension imposed on a certain player known to be the husband of a famous fashion model. (National Football League Management Council v.National Football League Players Association, 2015 WL 5148739 (S.D.N.Y. Sept. 3, 2015)). If ever there were a task to delegate to Arbitration Commentaries, surely the parsing of this decision qualifies.

So, with full disclosure that your writer lacks independence — he wears a Buffalo Bills wrist bracelet, not a Rolex — here is all you need know to get through the coming rounds of lunches and cocktail receptions:

1. Commissioner Goodell’s independence as an arbitrator and his denial of a motion for recusal were not adjudicated. But how much does a federal judge need to swaddle the word “independent” in a cloak of quotation marks for tea leaf readers to sense the aroma that would result from adding boiling water?

2.  The Second Circuit appeal will be heard orally, at the earliest, in the week of the Super Bowl in February 2016. Giselle’s husband gets to play the full 2015 season.

3. Arbitration law has not been abused in the service of football. The evidence gathered in the league’s investigation was not reviewed for sufficiency. Even a Buffalo Bills fan would agree that Giselle’s betrothed deserves due process, a fair hearing, and adequate notice  of the prospect of employee discipline of the type that was imposed. He also deserves to be flattened by bloodthirsty linebackers.

4. This turns out to be a labor law case, and arbitral power has a particular coloration in the collective bargaining context. #12 with the golden arm is just a rank-and-file member of a union. A lunchpail guy. Discipline gets meted out under disciplinary policies bargained between the union and the league, and the policies are deemed part of the collective agreement from which an arbitral award concerning employee discipline must “draw its essence.” There was no player disciplinary policy that notified players that they were subject to suspension without pay (ouch!) for aiding and abetting, or condoning, or generally being aware of, violations of rules about “competitive integrity” which rules were themselves published only to owners not to players.  And while players are on notice they might be suspended four games for a first offense involving performance enhancing drugs, players have no reason to know that condoning the manipulation of equipment by others would be treated the same for disciplinary purposes as manipulating their own physiology for competitive advantage. No notice = no connection of the sanction to the contract = arbitrator exceeding his powers, dispensing “his (her) own brand of industrial justice.”  Easy.

5. Of course arbitrators have substantial leeway and discretion to exclude cumulative evidence. Do not become sleepless thinking arbitral discretion has been confined by this decision holding that the arbitrator denied a fair hearing by excluding evidence as cumulative. This is professional football mismanagement law, a special niche. NFL commissioners who decline to recuse themselves from serving as arbitrators in arbitrations about discipline they have imposed, based on investigations jointly conducted by outside counsel and the NFL’s General Counsel, had better provide very specific and well-reasoned justifications for denying as “cumulative” the aggrieved player’s request to cross-examine the General Counsel. Judges, like referees, recognize illegal formations.

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So cheer. For arbitration law. For sound judicial discretion. And for all opponents of the New England Patriots, always.

Asset Hunting in the Wilds of Manhattan: What to Wear on Your Next Safari

We are all collection lawyers, more or less. That is, those of us who act as advocates in international arbitration. If you don’t have a good collection plan, enterprising Claimant counsels, maybe don’t start the case until you do. A personal favorite move is to grab real estate in Canada on Day #1 of the arbitration. Vancouver is particularly lovely on the first day of an arbitration, when the demonstrably rogue Respondent owns three homes with substantial equity.

But sometimes even the well-heeled international finance types get ahead of themselves, and chart a course to win a battle (a Final Award) without a plan to fight the war (collection!). This seems to have been the recent plight of a foreign real estate vehicle of a U.S. bank that shall remain nameless here, lest they foreclose on your Commentator’s mortgages and cut off his credit lines. But read: In re Harbour Victoria Investment Holdings Section 1782 Petitions, 2015 WL 4040420 (S.D.N.Y. June 29, 2015).

So, you ask, where does Section 1782, of  fit into a collection plan on a Final Award confirmable under the New York Convention? Well, a Manhattan federal judge wondered also, in the case just cited and here reported. So please, do read on.

Petitioner won an Award in London against Respondents from India and first filed confirmation proceedings in India. But, fearing insufficiency of Respondent assets India, Petitioner started a confirmation action in New York, got an ex parte attachment order from a New York State judge against a $20 million apartment in Manhattan (nice!), and asked the judge to permit discovery so Petitioner could show that the record owner of the glam flat was only a flimsy front for the Respondents. Removal to the federal court ensued (no surprise there), and the federal judge, doubting personal jurisdiction over Respondents and equally doubting the alter ego claim, vacated the attachment and denied the discovery.

Enter Section 1782! Petitioner says please let me have this alter ego discovery on ownership of the glam flat “in aid of” the pending foreign confirmation proceedings in India, and “in aid of” the further confirmation proceedings contemplated in Singapore and the UK if Petitioners’ suspicions about who really owns the flat are confirmed. But “wait a minute,” says federal judge #2, who gets the 1782 case as a separate file from the confirmation case pending before her colleague down the corridor  (of the spectacularly-renovated old US Courthouse at 40 Centre St.) — “Isn’t this just the same discovery you were already denied by Judge #1, repackaged under 1782?” And moreover, she asked, “didn’t you settle the confirmation action in India, so you really don’t plan to use the discovery in a foreign proceeding?

Petitioner had only lame (well OK, unpersuasive) answers to these questions — mainly that other creditors were clamoring for the same assets in India, such that the settlement there might crumble. In the view of Judge #2, even if the proposed discovery could be seen as fitting in the 1782 cubbyhole as “in aid of” foreign proceedings, it was more likely than not that the main purpose of the 1782 petition was to end-run Judge #1’s denial of discovery in the confirmation case about true ownership the glam flat, and to eventually use the 1782 discovery in that U.S action — not foreign or international but right down the corridor —  a subversion of 1782. 1782 petition denied, case closed. (Except that WestLaw says an appeal was filed in the Second Circuit US Court of Appeals on August 19).

Is there a moral of the story here? As your Commentator I am committed to finding such, so let’s try this: It is well and good that the New York Convention permits recognition and enforcement proceedings to be taken concurrently in multiple jurisdictions. But a sound collection strategy requires a careful sorting of the issues — apart from whether the Award should be recognized — that each court may be asked to address. Here I wonder why the enforcement court in India could not have been asked to enter a global Mareva injunction against the Respondents and taken measures to permit Claimant to ascertain by disclosure the scope of those assets. The instinct to seek out discovery in a US forum because US courts are generally pro-discovery needs to be reality-checked against the specific context of a complicated international asset hunt in an award enforcement context.

Arbitral Subpoenas: The Good, the Bad, and the Ugly

Shame on you (!!), subpoena-issuing international arbitrators sitting in Dallas, Texas. Here in NYC, where we have wrestled, maybe not to the ground but mightily, with the problem of arbitral subpoenas, we are reading about your case (Matter of Arbitration Between Tang Energy Group Ltd. and Catic USA, 2015 WL 4692459 (N.D. Cal. Aug. 6, 2015), and asking ourselves: “How ‘Bout Them Cowboys??!!

Dear colleagues, if a party in your case wants a subpoena for a non-party witness located in San Francisco — even if he is a recognized international arbitration lawyer in San Francisco — then take your hearts, go to San Francisco, and pack carefully for the return trip. Why would you think the Federal Arbitration Act would provide power to haul in a distant non-party witness for an arbitration hearing in Dallas when the federal district court in the same locale clearly could not? Surely the “in the same manner…” language in FAA Section 7 means this. (If  the lawyer-witness is within the control of a party to the arbitration, as one side seems to argue,  by reason of an attorney-client relationship, then why issue a subpoena? His appearance could be directed with the risk of an adverse inference if he does not appear).

Perhaps, Dallas-seated colleagues, you wonder whether Section 7 permits you, or one of you, to wander off to SFO, when the parties have agreed to arbitrate in Dallas? It is a fair question, but if the FAA clearly does not permit the witness to be forced by subpoena to come to you in Dallas, while the FAA does (post Rule 45 amendments) permit you to issue a subpoena to the witness in SFO, then traveling to SFO to hear the witness (or getting everyone to agree to to a video conference, on the basis that you could make that trip) seems like the way to go! After all, don’t your arbitration rules provide (as most international ones do) that the arbitrators may convene a hearing anywhere to hear a witness, despite the agreement on (and without effect upon) the seat of the arbitration?

We hope there is still time for this to be fixed by the sua sponte issuance of an amended subpoena. As matters stood by reason of the decision of the Magistrate Judge in SFO (the case cited herein), the party that sought the subpoena is required to move to compel compliance in the federal district court in Dallas — a motion doomed to failure because the witness has the same right as under Rule 45 to be compelled to attend a testimonial proceeding only if it is held closer to home.

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Your Commentator takes note that the AAA has organized a CLE program for arbitrators whose title asks rhetorically if arbitral subpoenas are worth the paper they are written on. The partial answer, I suggest, is this: If arbitrators systematically issue the subpoena as requested by the party, and thereby expose themselves and the process to the errors that counsel may make in regard to enforceability of the subpoena, then the answer to the AAA’s rhetorical question may, unfortunately, avoidably,  and altogether too often, be “no.”

Speaking of Declarations

All of us had to start somewhere. A few famous people perhaps reading or perhaps declining the invitation to read this post started in this business, sort of, back in the early/mid ’80s in a case-for-the-ages about an aborted hotel venture near the Pyramids. (Your author was, back in the day, doing legal battle with the Ayatollah K, who took our clients’ condo complex in Teheran by force and made a nice living in the real estate business, for a time).

Anyway, more about the Pyramids case (Southern Pacific Properties (SPP) v. Arab Republic of Egypt, for you fussy types; Google it)… The ICSID branch of the case — there was also an ICC case, as a warm-up — was mired for several years in jurisdictional arm-wrestling. And one of the fascinating issues was whether Egypt, in its domestic legislation regarding foreign investment, had given the written consent to ICSID arbitration of that dispute as required by the ICSID Convention Art. 25(1). (If you thought Egypt’s prior ratification of the Convention was itself such consent, an automatic standing offer equivalent to what is given in many BITs, now you know differently…).

My reason for taking you back to the infancy of the jurisprudence on this domestic-legislation-as -ICSID -consent issue is, as you may have guessed, that the same issue has been addressed, in a quite fulsome and helpful way, in a very recent Award. (PNG Sustainable Development Program Ltd. v. Independent State of Papua New Guinea, ICSID Case No. ARB/13/33, Award dated May 5, 2015).

You can well imagine how the argument shaped up in the Pyramids case. Respondent trotted out a 30-something Leslie Gore (now of blessed memory), reprising her 1963 hit It’s My Sovereignty, And I’ll Yield If I Want To. Claimant’s counsel, then as now irrepressible gourmands, urged a favorite recipe on the Tribunal: take equal parts general principles of statutory interpretation and general principles of treaty interpretation, and a teaspoon of “effet utile” (about which more later), and stir until congealed. And this is roughly the formula the Pyramids Tribunal adopted, as it stated (as quoted by the New Guinea Tribunal on May 5, 2015): ” [I]n deciding whether in the circumstances of the present case Law No. 43 constitutes consent to the Centre’s jurisdiction, the Tribunal will apply general principles of statutory interpretation taking into consideration, where appropriate, relevant rules of treaty interpretation and principles of international law applicable to unilateral declarations.

My job as Commentator is to spare you too much detail about what goes on in the kitchen — you could instead read the case(s) in extenso — and instead try to put something digestible before you on an attractive platter. So have in mind that the New Guinea Tribunal had to struggle with considerable conflicting jurisprudence on this rather undeveloped terrain about the role of a State’s unilateral (and usually legislative) declarations as evidence of written consent to ICSID arbitration (or, in parallel, as putative consent to the compulsory jurisdiction of the International Court of Justice). Is it mainly the State’s Party (per the Leslie Gore ballad)? — that is to say, is there more or less a presumption against construing the unilateral legislative act as consent to jurisdiction?, or is there a requirement of clear and unambiguous proof of consent, owing to the significant sacrifice of autonomy entailed in a State submitting to jurisdiction, on an issue of State liability, to an international tribunal? (“You would cry too if it happened to you….“). Or to the contrary should arbitral interpretation of the unilateral State declaration follow more or less the Vienna Convention principles for interpreting a treaty, because the State having already ratified the ICSID Convention is then legislating in a treaty context, and the subject matter of the legislation is the scope of the ICSID Convention obligations the State has agreed to undertake?

The New Guinea Tribunal’s Award will be remembered perhaps less for its outcome — the State’s objection was sustained and the case was dismissed — than for its painstaking development of an “objective and neutral ” methodology for approaching the question of how to interpret unilateral State declarations of putative consent to ICSID arbitration.  Taking its cue from the Pyramids Tribunal’s reference to a “preponderance of the evidence” standard, and artfully providing extensive footnote references to the no-presumptions norm in the interpretation of treaties while acknowledging the non-treaty character of the State’s unilateral declaration, the Tribunal held that interpretation of the State’s declaration should proceed without any a priori weighting in favor of or against the possibility that the declaration is in fact a consent to ICSID jurisdiction. But, as if to acknowledge and counterbalance the natural gravitational pull of the State’s inevitable “It’s My Party” arguments, the Tribunal observed (para. 257): “It is at least equally true, however, that States should be presumed to desire the effective and just resolution of international investment disputes, in a manner that enhances the prospects for foreign investment and confidence in the rule of law. In the Tribunal’s view, these various considerations are best reflected in a neutral, objective approach toward jurisdictional objections, without preconceived preferences in one direction or the other, consistent with the substantial weight of authority on the issue.” And on the question of whether to apply “effet utile” (everything must mean something) the Tribunal while conceding that this principle was mainly developed in regard to interpretation of treaties, found ample reason to extend it to States’ unilateral declarations made within a treaty framework (para. 268): “Regardless of whether it applies to ‘pure’ unilateral declarations made by States under international law, the Tribunal is of the view that effet utile is one of the common principles of statutory construction that generally apply to the interpretation of such ‘hybrid’ provisions.

Credit the New Guinea Tribunal with gently moving the needle towards the middle on the conceptual balance between Host State sovereignty and Host State interest in attracting foreign investment, and doing so even in a case where, on the language of the relevant State declaration, the State had the clearly better of the argument on the question of consent.

Perhaps this will enrich your re-reading, on July 4, 2015, of one of history’s most famous unilateral State declarations about sovereignty, which celebrates its 239th birthday with barbecues, baseball, and fireworks. Here in the USA, just for today, It’s Our Party. Join us!