Archive for June, 2017

Justice Kagan and the Kindred Spirit

Thursday, June 1st, 2017

Surely you sometimes wonder why Elena Kagan is a Justice of the Supreme Court and a former Dean of the Harvard Law School, while you, on the other hand, plod along in your quotidian existence as a world-renowned, universally-esteemed, brilliant and magnificently accomplished international arbitrator.  Well, you should read Justice Kagan’s masterful opinion for the nearly-unanimous* Supreme Court in Kindred Nursing Centers v. Clark, 137 S.Ct. 1421, 2017 WL 2039160 (May 15, 2017). If you could write such compelling prose, you might have had a different destiny. (Note: It helps to breathe the air of Manhattan’s Upper West Side, as Justice Kagan did in her youth, and your Commentator has done each day for 28 years. But the Justice re-read Jane Austen’s Pride and Prejudice every year in her youth, whereas for your Commentator that masterpiece remains on a very long to-do list).

You need not read Kindred Nursing to discern any change in US arbitration law. It is a reaffirmation of first principles, a smack-down of a State court that was trying to be too clever by half in its hostility to arbitration. Arbitration agreements stand on equal footing with other contracts under the FAA, and shall not be invalidated or denied enforcement by the individual States on grounds not generally applicable to all contracts. You knew that (or else you have been practicing arbitration law under a rock since 1925).

2017 is the year of alternative facts, and the Supreme Court of Kentucky had contrived a set of alternative facts about why it was OK to deny arbitration where a nursing home made an arbitration agreement with an elderly resident through the agency of a compos mentis relative of the resident who held a valid and broad power of attorney. Presumably so that the outcome would not have the appearance of being the handiwork of the conservative wing of the Court supporting the nursing home industry in the vicitimization of the elderly, the task of writing the opinion of the Court fell to a member of the Blue State liberal quartet.

Referring to the Kentucky court’s so-called “clear statement rule” that a power of attorney must declare in express terms a delegation of authority to enter into a contract that would waive the “sacred” and “God-given” right to a trial by jury, Justice Kagan wrote that the Kentucky court “adopted a legal rule hinging on the primary characteristic of an arbitration agreement — namely, a waiver of the right to go to court and receive a jury trial.” The requirement of special express authorization to delegate such contractual power to an attorney-in-fact “subject[s] [agreements to arbitrate] by virtue of their defining trait, to uncommon barriers …” And answering the arguments advanced by Respondent in support of the Kentucky court’s decision, that the “clear statement rule” applied equally to other kinds of contracts that could forfeit fundamental rights – the examples given at argument were contracts sacrificing freedom of worship, providing for an arranged marriage, or committing the principal to personal servitude – Justice Kagan characterized these examples as “a slim set of both patently objectionable and utterly fanciful contracts that would be subject to its rule.”  She continued: “Placing arbitration agreements within that class reveals the kind of ‘hostility to arbitration’ that led Congress to enact the FAA. … And doing so only makes clear the arbitration-specific character of the rule, much as if it were made applicable to arbitration agreements and black swans.”

I intend to read, and then re-read, Pride and Prejudice….and to breathe more Upper West Side air. Anything for a chance at such vivid clarity in legal writing.


*Justice Thomas insists the FAA does not apply in courts of the individual States. Justice Gorsuch arrived too late participate.


What We Learn from the Suez/Vivendi v. Argentina Non-Annulment (2) — Greener Grass in More-Favored Nations

Thursday, June 1st, 2017

You are not finished learning from the ICSID annulment committee’s non-annulment of the Suez/Vivendi v. Argentina award, at least not if you actually read these posts (a covert activity that leaves cookies, and suggests you probably did not heavily annotate the latest issue of the ICSID Review). Some number of you will remember that Argentina turned up at the US Supreme Court a few years back, trying to sell the idea that the Supremes should tell British investors they had to spend 18 months cooling off in the Argentine courts day-by-day (with an allowance for Tango and Malbec at night) if they wanted to eventually pursue international arbitration at the World Bank to show that Argentine fiscal policies had sunk the profitability of their investments against settled expectations. The Court did not buy the argument that 18 months in the Cooler was a condition of Argentina’s consent to ICSID arbitration, because the UK-Argentine investment treaty couldn’t fairly be read to say that (not even after a half bottle of REALLY GOOD Malbec). [BG Group PLC v. Republic of Argentina, 134 S. Ct. 1198 (2014)]

So it will not surprise you to know that in the Suez/Vivendi case [Suez & Vivendi Universal v. Argentine Republic, ICSID Case No. ARB/03/19, Decision on Annulment, May 5, 2017], Argentina also tried and failed to convince the arbitrators that the investors should be shut down because they refused to comply with the 18 months in the Cooler clause – this one in the Spain-Argentina investment treaty. What sunk Argentina in this case was that the France-Argentina investment treaty had no such clause, and the Spain-Argentina treaty had a “most favored nation” (MFN, hereinafter Grass-is-Greener) clause. Said the Spanish investor to the ICSID Tribunal: “The Grass-is-Greener in France, so we play by French rules.” Game, set, and match to the Spanish investor. (R. Nadal, citing this precedent, won his round of 64 match at Roland-Garros yesterday, 6-2, 6-4, 6-1. On clay not grass).

So Argentina told the annulment committee that the Grass-is-Greener argument has a long history of not working for investors in regard to dispute resolution provisions in treaties, i.e. that many investment tribunals have rejected similar arguments by investors that MFN clauses gave them an escape from procedural preconditions to investment arbitration that were present in the treaty they invoked to launch arbitration, but not in another treaty between the Host State and another State. Argentina apparently was quite right about this, except for a small problem: that MFN clauses get interpreted one-by-one on their own terms, treaty by treaty, so what’s Green Grass for one may be weeds for another. The problem that sunk Argentina in the Suez/Vivendi case is that the MFN clause in its investment treaty with Spain had been construed as being applicable to dispute settlement procedures – and thus to give Spanish investors the benefit of less-encumbered passage to arbitration found in other States’ investment treaties with Argentina — on approximately four other occasions by four other Tribunals.

The ICSID annulment committee, after duly reminding its readers that its mandate is limited to ensuring that arbitrators act like a Tribunal and not like a lynch mob, found no basis to dislodge the Tribunal’s thoroughly-explicated and case-law-supported position (you get in trouble if you say “precedent”) that the Spanish investor was entitled to the benefit of the France-Argentina treaty rule of No Time in the Cooler Before Arbitration.

So today’s lesson, readers: get out there in cyberspace and read the bilateral investment treaties of some likely arbitration-target States. The Grass-is-Greener question is a hot topic – not only for dispute resolution, but for substantive protections like “fair and equitable treatment” which might mean one thing between Spain and Ukraine, and something else between the US and Ukraine, and who knows what between the EU and Ukraine, who sort of finalized a new treaty courtesy of a Dutch ratification vote as reported in yesterday’s New York Times.



Hot Off the Press ….

Thursday, June 1st, 2017

Some of you, gluttons for punishment, demand longer, more heavily-annotated versions of these usually short and mainly citation-free posts. Trying to oblige, I draw your attention to:

  • A Glance Into History for the Emergency Arbitrator” just published in the Fordham International Law Journal as part of the collection of papers presented at the Fordham Conference On International Arbitration in November 2016.
  • Efficiency With Dignity: Early Dispositions and the Beleaguered Arbitrator”, a soon to be published manuscript on which your comments are welcomed.

Each is available upon emailed request, and the Fordham article is already uploaded to the Publications page of my website.

Best wishes.

Marc Goldstein