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).

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?

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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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.

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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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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