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Null But Not Void

One may read several times over the long-awaited decision of the US Second Circuit Court of Appeals upholding the confirmation under the Panama Convention of a $300 million commercial arbitration award against Mexico that had been annulled by a Mexican court at its Mexican seat, searching upon each fresh reading for some hint of a more generous opening for US enforcement of annulled foreign awards than the very restrictive case of an annulment that offends fundamental principles of US public policy. The repeated readings are not likely to bear fruit; the Second Circuit evidently is willing to go only this far and no farther.  (Corporacion Mexicana De Mantenimiento Integral, S. De R.L. De C.V. v. Pemex-Exploracion Y Producion, No. 13-4022, 2016 WL 4087215 (2d Cir. Aug. 2, 2016)). But at least we now know that such an annulled foreign award still is considered to exist such that US judicial discretion may be brought to bear upon it. That much is implicit in the basic architecture of the Court’s opinion, which is that the judicial discretion to enforce an annulled foreign award is not expressly limited by the Panama or New York Conventions, but is impliedly limited by principles of comity applicable to foreign judicial judgments including judgments annulling arbitration awards.

So, foreign sovereign readers, you may ask how you might get into trouble with the US courts and have your judicial judgments concerning arbitral awards forfeit the warm blanket of comity among nations in the courts of the United States. Well, start out with an organic law governing the affairs of a state-owned enterprise that expressly authorizes the company to put an arbitration clause in a contract. Add to that a law that says if the counterparty breaches the contract, the state owned company can rescind the contract. Then, when a dispute breaks out, and the counterparty wants payment, and the state owned company declares a rescission, and an arbitration begins, and the arbitral tribunal rules that it has jurisdiction, go to work on the legislative front. Pass a law that says rescission of a contract by a state-owned company is a sovereign act that cannot be arbitrated but only challenged in court. Pass a law that says the judicial challenge to such a sovereign act can only be brought in a particular court, and only within 45 days of the accrual of the cause of action.  And for good measure, seize the counterparty’s 94 percent-complete work product and forcibly banish its personnel from its work sites.

If, dear sovereigns, you follow this formula with care, you will learn, as did PEMEX the state-owned petroleum enterprise of Mexico, that un-waiving sovereign jurisdiction in the courts of the State) collides with the American conception of the rule of law: “Giving effect to [PEMEX’s] twelfth-hour invocation of sovereign immunity shatters [Plaintiff]’s investment-backed expectations in contracting, thereby impairing one of the core aims of contract law.” You too, dear sovereign, may hear from another US court, quoting this one, that “[r]etroactive legislation that cancels existing contract rights is repugnant to United States law.”  You too may hear from a US court that expropriation without payment of compensation violates US domestic policy not to mention many international trade treaties including the NAFTA. And you too may hear that American jurists tend to regard the meaningful availability of some forum to resolve a claim as a fundamental principle “firmly embedded in legal doctrine.” (Of course you may also read, in other chat rooms, that Uruguay recently convinced two non-American international arbitrators, but not the American-Born dissenting arbitrator, that effective denial to a foreign investor of a judicial forum to resolve vis-à-vis the Host State conflicting rulings from different domestic courts was not a denial of justice in violation of an investment treaty’s guarantee of fair and equitable treatment. Nice work Uruguay. But at least in that case the forum stalemate was an anomalous result of an ordinary allocation of judicial power, and not the foreordained outcome of a post-dispute gerrymandering as was done by Mexico).

But take heart, foreign sovereigns, this ruling from the US Second Circuit professes to be an exceptional response to an exceptionally egregious violation of the above series of related bedrock principles bundled into the American conception of the rule of law. The decision does not move the US in the direction of French doctrine in viewing foreign arbitral awards as having a tenuous link to the legal order of the arbitral seat. And the decision does not even hint that State court judgments annulling awards against that State are generally subject to an enhanced level of scrutiny as compared to other award annulment judgments.  One can detect here nearly no movement in US jurisprudence, but only a set of circumstances without precedent in the limited body of US case law concerning enforcement of annulled foreign awards.

 

Bluster in the Windy City

Dear Readers, I do like Chicago. It’s my kind of town. The Friendly Confines. The Tarzan Pool.  The Tribune Tower. And of course, not to be missed, the US Seventh Circuit Court of Appeals, usually friendly confines for arbitration awards.

But sometimes even the best of friends can be cranky and difficult. They have bad hair days. And today, here in the friendly confines of my New York summer office, I submit to you that the eminent Seventh Circuit jurist Richard Posner had such a day in Bankers Life & Casualty Co. v. CBRE Inc., 2016 WL 4056400 (7th Cir. July 29, 2016), in which, joined by only one of his two panel colleagues, he held that a three-member arbitral tribunal of retired Illinois judges exceeded their authority and that their award rejecting a breach a contract claim had to be vacated for that reason.

This was a commercial real estate case between a tenant (Bankers) and broker (CBRE).  CBRE knew that another tenant in the building (Groupon) needed more space, and that Bankers could make do with smaller and cheaper space elsewhere. So Bankers contracted with CBRE to sublease its space, presumably to Groupon, and the contract provided that CBRE would answer Bankers’ questions about the potential sublease. Bankers had its eyes on suitable space in another building and asked CBRE: “What would be our net savings if we move to the new place and sublease to Groupon?”  As its answer, CBRE provided a written cost-benefit analysis that answered the question this way: “$7 million estimated, as indicated by this cost-benefit analysis, but we disclaim any responsibility for errors in this estimate.” CBRE made a big mistake: The $7 million did not account for a $3.1 million tenant improvement allowance that Bankers had offered to Groupon and that CBRE knew had been offered by Bankers to Groupon. Bankers did not notice CBRE’s mistake until it was too late, relied on the $7 million net savings estimate, closed the real estate deals, discovered the mistake later on, and brought an arbitration claim under JAMS Rules.

The panel issued an award rejecting all three of Bankers’ claims (breach  of contract, negligent misrepresentation, and an Illinois statutory claim). Our focus is on the breach of contract claim because that is the claim whose resolution was, per Judge Posner and one colleague, in excess of the panel’s authority. The panel, interpreting the contract, and not overlooking the “answer our questions,” provision but instead quoting it in haec verba, held that there was no express promise in the contract to provide an accurate representation of net savings from subleasing and moving, and that the “entire agreement” clause in the contract precluded implying such a term. CBRE moved for reconsideration, and the panel, evidently not alerted to the fact that the JAMS Comprehensive Arbitration Rules do not provide for reconsideration but only for correction of arithmetic or typographical or clerical errors in an award (Rule 24(j)), issued a procedural order denying Bankers’ reconsideration motion based on its lack of merit. In that order, the panel specifically addressed the argument that the “answer our questions” provision necessarily implied a duty to provide accurate answers and that the duty was breached by providing an inaccurate answer. The panel stated that the “answer our questions” duty was fulfilled by providing the cost-benefit analysis that included the disclaimer of responsibility for errors, and that CBRE’s position about the “answer our questions” clause furnished no reason to reconsider and alter the award’s outcome on the breach of contract claim.

The District Court confirmed the award, and reasoned that whether the panel’s interpretation of the contract was right or wrong, it was an interpretation of the contract and so the Court was required to confirm the award under the Illinois Uniform Arbitration Act which in substance and application is not materially different from the FAA. (The transcript of the hearing at which the District Court’s order was announced is available in the docket on the Northern District of Illinois website. I have downloaded it.)

But for Judge Posner the matter looked different. First, he treated the order denying reconsideration as an award, and subjected its reasoning to review according to the legal standards applicable to an award. He proceeded to analyze the panel’s position regarding the “answer your questions” provision, and concluded that the contractual duty to answer questions accurately could not be excused by the disclaimer in CBRE’s cost-benefit analysis because the disclaimer was not contractual but instead was a unilateral term inserted by CBRE in the cost-benefit analysis. In effect, per Judge Posner, the arbitration panel gave contractual effect to a non-contractual term and by doing so exceeded its powers which were, in relevant respect, confined to interpreting the contract as written.

It is a technical objection, I suppose, but I think a correct technical objection, to state that the Seventh Circuit ought to have treated the reasoning in the panel’s procedural order denying reconsideration of the award as a nullity because the proper ground for denial of reconsideration, under the JAMS Rules, should have been that the panel lacked power to entertain the reconsideration motion. As to the merits, the panel was functus officio save for potential correction of clerical or typographical or arithmetic errors appearing on the face of the award, and so the panel’s observations in the procedural order denying reconsideration about the disclaimer in the cost-benefit analysis and its relationship to the “answer your questions” obligation ought to have been treated as statements having no legal effect, and certainly not as an additional award. (The parties had stipulated that the initial award, denominated “Final Award,” should be re-named “Interim Award,” but this was because the panel had not yet dealt with cost-shifting . The re-naming did re-open the award, either for changes in result or for embellishment of its rationale.)

The panel’s actual award, as opposed to the procedural order that the Seventh Circuit majority erroneously treats as an award, did not even mention the disclaimer in the cost-benefit analysis, and so the vacatur of that original award based only on the supposed excess of power in referring to the disclaimer in a post-award order denying reconsideration seems quite dubious. The case was already decided without reference to the disclaimer, and so the Seventh Circuit majority has reverse-engineered the reasoning of the subsequent order into the award in order to come up with an excess of authority outcome.

But let’s suppose that the panel’s reasoning in the subsequent order had in fact appeared in the original award. What then?  Wasn’t the panel entitled to consider that the question Bankers had asked CBRE was “what do you estimate to be the net savings we can reasonably expect to achieve by moving and subleasing”? And wasn’t the panel entitled to to interpret the “answer your questions” provision as containing no implied prohibition against including a disclaimer of responsibility for errors affecting an estimate in the answer to a question that called for the making of such an estimate? One can certainly disagree with this interpretation of the contract, but it is not a “wacky” interpretation or a failure to give any interpretation.

Like the dissenting judge on the Seventh Circuit panel, Arbitration Commentaries dissents, and offers its fearless forecast that this case if it is even long remembered will be viewed more as a bad hair day for Judge Posner than as a significant precedent concerning judicial review of arbitration awards.

 

Patriot Games

Arbitration lawyers follow Tom Brady’s case as they would track a Patriots game while in dutiful attendance at a painfully mis-scheduled wedding of an in-law’s niece on an otherwise perfect October Sunday. At obsessively frequent intervals, they check the Internet for score updates and game highlights. You are reading this, so how can you disagree? Arbitration Commentaries is your nfl.com.

You should know by now that the most popular Ted in Boston is not a Williams, not a Kennedy, but an Olson, as in Theodore C. Olson, the ex-Solicitor General now enlisted by the Brady team for the en banc initiative to rescue victory from the nearly-clenched jaws of defeat in the US Second Circuit Court of Appeals.  (Dear Non-US Readers, en banc is a discretionary reconsideration process in the federal courts of appeals whereby the full contingent of that judicial circuit’s appellate judges might hear anew a case decided by a three-judge panel. Brady is a practitioner of American professional football. Williams is a venerated practitioner of American professional baseball, who toiled for the Boston team from 1939 to 1960 with two wartime interludes as a fighter pilot).

This post is your first quarter update on the en banc contest.

The Brady en banc brief sounds two main themes. Your commentator thinks one could be a winner, the other maybe not. The first theme (the “maybe not”) is that the arbitration agreement didn’t give the NFL Commissioner power — when he acts in an arbitral capacity to hear an appeal of a disciplinary action taken by the League against a player —  to uphold the discipline based on new factual findings resulting from evidence introduced in the appeal hearing, i.e. findings of fact that were not made by the employer at the time the discipline was imposed. The Brady Brief seizes on language in the Second Circuit majority’s decision that nothing in Article 46 of the NFL Labor Agreement “purports to limit” the Commissioner’s authority in this respect. And, says the Brady Brief, this is wrong because arbitral authority must be based on an affirmative delegation in the arbitration agreement, not an inference of arbitral power derived from silence (the absence of a limitation) in the arbitration agreement, as the latter is the type of approach to arbitral power that the Supreme Court’s majority condemned in Stolt-Nielsen.   I say “maybe not” to this position because the Second Circuit majority, in the very next sentence, said that the agreement does expressly authorize the Commissioner to hold a hearing and to receive evidence, and that it is a reasonable construction of that express authorization that the result of the evidentiary hearing could be an outcome based on the evidence presented at the hearing that was not available to be considered at the time of the initial disciplinary decision.

The second theme is that for an arbitrator’s decision to “draw its essence” from the contract, the arbitrator’s award must reflect that the arbitrator actually has given consideration to portions of the contract that arguably bear upon the outcome. Here the Brady Brief perhaps gives #12 more hope, because the argument concerns the arbitrator’s decision process rather than the outcome. Process is entitled to less deference than outcome. At issue is whether the Labor Agreement’s provisions concerning discipline for “equipment/uniform violations” should have been explicitly considered by the NFL Commissioner in his award. The Second Circuit majority doesn’t address the Commissioner’s failure to reference those portions of the Labor Agreement in the award. Its approach instead is to show that, if the Commissioner had analyzed those provisions, he readily could have construed them (and perhaps did) as permitting suspension for four NFL regular season games as a sanction for a first offense.

But whether such a construction of the Labor Agreement’s provisions concerning “equipment/uniform violations” could have been given by the Commissioner seems besides the point: the question is whether the Commissioner’s decision fails to “draw its essence” from the contract if the Commissioner bypassed in the award an analytical step that was arguably necessary to an outward appearance of thorough consideration of the contract’s bearing upon the Commissioner’s range of disciplinary discretion in regard to the infraction in question. (Who said “Justice must not only be done but must be seen to be done“? Williams? Kennedy? Brady? It was a favorite expression of the late great Pierre Lalive, who was always more of a tennis guy than a football guy.) Here there is some vulnerability in the Second Circuit panel’s reasoning.

Another fourth quarter rally for the Patriots is not out of the question.  Stay tuned.

 

One Step at a Time

If you drafted this arbitration clause, ‘fess up: “In the event of any dispute and if the Parties cannot resolve the dispute through negotiation, the Parties agree first to try in good faith to settle the dispute by formal arbitration under the [ICC Rules] before submitting the matter to litigation….” Talk about a step clause to trip over. What is a district court judge to do?

The answer: Enforce the arbitration agreement as an agreement for binding arbitration, the only form of arbitration the ICC Rules permit. So held a judge of the US District Court in New York. Celltrace Communications Ltd v Acacia Research Corp., 2016 WL 3407848 (S.D.N.Y. June 16, 2016). Never mind any presumption in favor of arbitration, said the Court — finding correctly that there can be no such presumption where the question is whether an arbitration agreement even exists. The interpretation mandated by New York contract law principles (to give full meaning to all words of the contract, including the incorporated words of the ICC Rules, and construe them in harmony) is that the reference to litigation in this clause only contemplates post-award litigation for confirmation or vacatur of the award.

And what does it mean “first to try in good faith to settle by formal arbitration under ICC Rules”? Certainly not what the Plaintiff here did — to send an E mail to opposing counsel purporting to request arbitration. In the context of ICC arbitration, the good faith effort (the “old grandes écoles try”?) “requires, at a minimum, sending a request to the ICC Secretariat to initiate arbitration and continuing to act in good faith to complete the arbitration process.” (Best efforts buffs will find some interesting  research results here concerning what it means to “try in good faith” to accomplish a task).

Seriously, young and aspiring arbitration lawyers, do not draft a clause like this one, lest someone try in good faith to channel your legal career in another direction. For online guidance to stumble-free step clauses, see, e.g., AAA International Centre for Dispute Resolution, Guide to Drafting International Dispute Resolution Clauses, www.adr.org/aaa/ShowPDF?doc=ADRSTG_002539 (last visited July 1, 2016).

Penniless Parties

Get ready for the upcoming conference on Impecuniousness in Commercial Arbitration. No, not another session on third-party funding. Rather, our subject will be the law applicable to the inability of a party to pay its share of the arbitrators’ fees. And our main text will be a new (really) decision from the US Ninth Circuit Court of Appeals, holding that when an AAA commercial arbitration under the Commercial Rules has been terminated by the tribunal due to Claimant’s non-payment of deposits for arbitrator fees, and the reason for non-payment was genuine inability to pay, the federal district court should allow the Claimant’s case to proceed on the merits in court. (Tillman v. Tillman, 2016 WL 3343785 (9th Cir. June 15, 2016)).

I spare you the specifics of the case, save to note the Claimant did indeed try quite diligently to pursue the arbitration but simply ran out of money and could not pay, that Respondent declined to advance Claimant’s share of deposits, and that the arbitrator first suspended and ultimately terminated the case all as provided in AAA Commercial Rule R-57.

The case had originally been brought in court, but having been stayed pending arbitration under FAA Section 3 upon the granting of Respondent’s motion to compel arbitration. After the termination of the arbitration, Claimant sought to have the Section 3 stay vacated so that the case could proceed in the district court on the merits. Respondent sought to have the stay vacated so that the district court could enter an order of dismissal. The district court round went to the Respondent, with the district court finding that the FAA deprived the court of power to permit further litigation once a stay of proceedings pending arbitration had been granted. The Ninth Circuit rejected this conclusion in the narrow circumstances of this case where there was a clear evidentiary showing by the Claimant that she had attempted to participate in the arbitration in a fulsome way but was prevented by financial incapacity for proceeding to the stage of a merits hearing and a final award. On that foundation of facts, the Ninth Circuit drew two conclusions in applying the FAA’s text: first, that Section 3’s requirement that a stay pending arbitration endure until arbitration “has been had in accordance with the agreement” was satisfied where the arbitration had proceeded up to the point of a final order of termination under Commercial Rule R-53; second, there would no statutory basis for a renewed order compelling arbitration under Section 4, because there was no “failure, neglect, or refusal” to arbitrate.  Thus finding no basis in the FAA itself to penalize Claimant with summary dismissal of her court case under Federal Civil Procedure Rule 41(b) (involuntary dismissal for failure to comply with a court order), the Ninth Circuit held that such dismissal by the district court was erroneous,  a violation of the public policy-driven principle that “‘[d]istrict courts have an obligation and a duty to decided cases properly before them.'”

And in response to the position of Respondent  (and maybe a few naysayers in the arbitration community) that this position is an affront to the “‘liberal federal policy favoring arbitration,'” the Ninth Circuit says NO: “Our decision that Tillman’s case may proceed does not mean that parties may refuse to arbitrate by choosing not to pay for arbitration…. Here… the district court found that Tillman had exhausted her funds and was ‘unable to pay for her share of arbitration.'” Accordingly, the Court’s judgment that the case should proceed on the merits before the district court “does not run afoul” of the pro-arbitration policy.

What should be the result on the same question an arbitration governed by FAA Chapter Two and the New York Convention? Article II(3) of the Convention provides that the Court of a Contracting State shall refer the parties to arbitration at the request of one of them but need not do so if the arbitration agreement is (inter alia) “incapable of being performed.” Section 206 of the FAA speaks in permissive terms, i.e. that “[a] court having jurisdiction under this chapter may direct that arbitration be held in accordance with the agreement…” Thus Chapter 2 presents no unique obstacle to a result similar to that achieved in Tillman. And FAA Sections 3 , the sections interpreted an applied in Tillman, applies with equal force to international cases under Chapter Two — as Chapter Two has no separate provision concerning stays of proceedings in the US District Courts.

On the theory that good law sometimes promotes bad behavior, it is worthwhile to consider some possible consequences. Perhaps even as this is written some creative 9th Circuit plaintiff’s lawyers are devising schemes to contrive a state of impecuniousness for their clients.  Defense lawyers keen to maintain the arbitral forum or at least to stymie efforts by Claimants to escape may demand discovery into the Claimants financial affairs, hoping to show that the position of impecuniousness is a ruse. Arbitrators suspecting a ruse may be reluctant to enter termination orders, and may conclude that indefinite suspension — putting the Claimant in limbo with no recourse to the courts — has more potential effect than the threat of termination to influence Claimants to come up with the necessary funds.  And what shall become of the AAA’s longstanding practice, in domestic and commercial cases, to withhold from the tribunal both the identity of the non-paying party and the circumstances of non-payment (even though this is usually self-evident, and in any event a party may bring the matter to the arbitrator’s attention, e.g. Rule R-57(a))? And what of the position that under a broad arbitration clause, the question of whether non-payment is a material breach of the agreement to arbitrate, or a non-performance excused by “impossibility” to perform, is an arbitrable issue that the tribunal should decide — presumably before entering a termination order?

All of this is surely wonderful fodder for our first annual Impecuniousness in Commercial Arbitration conference, appropriately to be convened at a sunny Ninth Circuit locale. Beverly Hills in February perhaps?

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.