Update on International Arbitration Law in United States

Matthew H. Kirtland, Katie Connolly, Esha Kamboj and Ernesto M. Hernandez | Norton Rose Fulbright

This past year, most in-house counsel have wrestled with significant disruption, distractions and lack of time. It has proved difficult for many to stay on top of legal developments. This article offers summaries of the most significant recent international arbitration law developments in the United States.

Impact of corruption on enforceability of awards

In Vantage Deepwater Company v Petrobras America Inc, the Supreme Court denied Petrobras’s petition for certiorari concerning a Fifth Circuit decision confirming Vantage’s arbitral award over Petrobras’s objection that the award had been procured by bribery and contrary to US public policy. Petrobras had asked the Supreme Court to clarify whether US courts should:

review de novo an arbitrator’s conclusions on issues of law or mixed questions of law and fact bearing on the ultimate question of whether United States public policy should prevent enforcement of an arbitral award.

In the now-final decision, the Fifth Circuit deferred to the arbitral tribunal’s conclusion that Petrobras had “ratified” the parties’ allegedly corrupt contract because it had notice of alleged bribery and nonetheless performed.(1)

Foreign sovereign immunity

In Bolivarian Republic of Venezuela v Crystallex International Corp, Venezuela, PDVSA, CITGO Petroleum and PDV Holding appealed to the Third Circuit a 14 January 2021 Delaware district court order denying their respective post-judgment motions challenging the court’s grant of Crystallex’s writ of attachment fieri facias and directing the sale of the CITGO shares to proceed.(2) The January order followed the Supreme Court’s May 2020 denial of Venezuela’s and PDVSA’s joint petition for certiorari in which they sought review of a now-final Third Circuit decision holding, among other things, that:

  • jurisdiction under the Foreign Sovereign Immunities Act (FSIA) from a recognition proceeding carried over to post-judgment enforcement and did not require an independent basis for subject matter jurisdiction; and
  • the Bancec alter ego extensive control analysis did not require proof that PDVSA was extensively controlled by Venezuela and that its control was connected to Crystallex’s injury.(3)

In Process & Industrial Developments Ltd v Federal Republic of Nigeria, Nigeria appealed to the DC Circuit a district court decision holding that signatories to the New York Convention relinquish their ability to claim sovereign immunity in other convention signatories’ courts.(4) In June 2020, the DC Circuit reversed a different district court decision in the same case, holding that Nigeria’s immunity defence – that a confirmable “award” under the FSIA arbitration exception cannot include an award set aside by a court with supervisory jurisdiction – was colourable and that it could not be forced to brief the merits before resolution of this immunity defence, because the FSIA provides immunity from litigation as well as from entry of adverse judgments.(5)

Service on foreign parties

In Compañía de Inversiones Mercantiles (CIMSA) v Grupo Cementos de Chihuahua (GCC), the Tenth Circuit affirmed a Colorado District Court’s decision that:

  • alternative service of process on a foreign party is appropriate under Federal Rule of Civil Procedure 4(f)(3) where the alternative method is not “prohibited” by the Hague Service Convention;
  • the district court has personal jurisdiction over GCC; and
  • the district court did not err by confirming CIMSA’s arbitral award against GCC.(6)

The Supreme Court denied GCC’s petition for writ of certiorari. Following the Supreme Court’s denial, the Colorado District Court denied GCC’s subsequent motion to vacate judgment.(7)

Contracting out to retain right to seek court interim injunctive relief

In Henry Schein, Inc v Archer & White Sales, Inc, the Supreme Court reversed itself and dismissed Schein’s petition for certiorari, leaving as final a Fifth Circuit decision that a carve-out of injunctive relief disputes from an arbitration clause meant that such actions do not first have to go to an arbitrator to determine whether the carve-out applies to the dispute.(8) In 2019, on a prior appeal in this same case, the Supreme Court had held that when a contract delegates the question of arbitrability to an arbitrator, a court may not override the delegation, even if it thinks that the argument that the arbitration clause applies to a dispute is “wholly groundless”.(9)

Evidence for use in private commercial arbitrations

In Servotronics, Inc v Rolls-Royce PLC, the parties moved to dismiss their appeal to the Supreme Court after the Court had granted Servotronics’ petition for certiorari seeking a decision on whether:

the discretion granted to district courts in 28 U.S.C. § 1782(a) to render assistance in gathering evidence for use in ‘a foreign or international tribunal’ encompasses private commercial arbitral tribunals, as the Fourth and Sixth Circuits have held, or excludes such tribunals without expressing an exclusionary intent, as the Second, Fifth, and, in the case below, the Seventh Circuit, have held.(10)

The Seventh Circuit ruled that private commercial arbitrations cannot be “proceedings before foreign or international tribunals” under 28 US Code section 1782 and denied Servotronics’s petition for discovery in support of an anticipated commercial rules arbitration in England.(11) There are at least three pending cases in which this same question is currently being argued before circuit courts.(12)

Challenge to arbitrator

In Monster Energy Co v City Beverages, LLC, the Supreme Court denied Monster Energy’s petition for certiorari, leaving as final a Ninth Circuit decision vacating an arbitral award because of evidence that the arbitrator had failed to disclose certain facts, including that the arbitrator had had an ownership interest in the arbitral institution, creating a reasonable impression of partiality. There continues to be a circuit split on the standard, with the Eleventh Circuit endorsing the “evident partiality” standard adopted by the Ninth Circuit, while the First, Second, Third, Fourth, Fifth and Sixth Circuits require a showing that “a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration”.(13)

Non-signatories to arbitration

In GE Energy Power Conversion France SAS, Corp v Outokumpu Stainless USA, LLC, the Supreme Court analysed the New York Convention’s text, its negotiation and drafting history, and the post-ratification conduct of its signatories to hold that the New York Convention does not prohibit US courts from applying the equitable estoppel doctrine to determine whether an international arbitration clause can be enforced by a non-signatory to compel arbitration. The Supreme Court reversed and remanded the Eleventh Circuit’s decision for consideration of whether GE Energy, on the facts of this case, could enforce the arbitration clauses and compel arbitration (for more details please see “New York Convention does not prohibit enforcement by non-signatory under doctrine of equitable estoppel”.(14)

Impact of Achmea on enforcement

In Micula v Romania, the DC Circuit affirmed the district court’s decision that Slovak Republic v Achmea BV (Case C-284/16) (Achmea) – in which the European Court of Justice ruled that an investor-state arbitration clause in a bilateral investment treaty between two EU member states was incompatible with EU law – did not apply to invalidate an arbitral award against Romania, because the key events leading to the award occurred before Romania’s accession to the European Union, and because the dispute did not relate to the application of EU law.(15) There are several other enforcement actions pending in DC against Spain and Italy in which the states have argued, at least in part, that the courts lack jurisdiction because of Achmea.(16)

Endnotes

(1) 966 F3d 361 (5th Cir 16 July 2020), cert denied, No. 20-1032, 141 S Ct 1395 (22 February 2021).

(2) Nos. 21-1276, 21-1277, and 21-1289 (3d Cir 12 February 2021).

(3) 932 F3d 126 (3d Cir 29 July 2019), cert denied, 140 S Ct 2762 (18 May 2020).

(4) No. 21-7003 (DC Cir 31 December 2020) (appealing No. 18-CV-594 (CRC), 2020 WL 7122896 (DDC 4 December 2020).

(5) 962 F3d 576, 580 (DC Cir 19 June 2020).

(6) 970 F3d 1269 (10th Cir 17 August 2020).

(7) No. 1:15-CV-02120-JLK, 2021 WL 2213193 (D Colo 30 April 2021).

(8) 935 F3d 274 (5th Cir 14 August 2019), cert granted, 141 S Ct 107 (15 June 2020), and cert denied, 141 S Ct 113 (15 June 2020), and cert dismissed as improvidently granted sub nom Henry Schein, Inc v Archer & White Sales, Inc, 141 S Ct 656 (25 January 2021).

(9) 139 S Ct 524, 529 (8 January 2019).

(10) No. 20-794 (22 March 2021).

(11) 975 F3d 689 (7th Cir 22 September 2020).

(12) Luxshare, Ltd v ZF Automotive US, Inc, Case No. 21-2736 (6th Cir. 2021); HRC-Hainan Holding Co, LLC v Yihan Hu, Case No. 20-15371 (9th Cir 2020); In re: Application of EWE Gass, Case No. 20-1830 (3d Cir. 2020). Defendants have filed a petition for certiorari to the Supreme Court before judgment. ZF Automotive US, Inc, v Luxshare, Ltd, Case No. 21-401 (2021).

(13) 940 F3d 1130 (9th Cir 22 October 2019), cert denied, 141 S Ct 164 (29 June 2020).

(14) 140 S Ct 1637 (1 June 2020).

(15) 404 F Supp 3d 265 (DDC 11 September 2019) affd, 805 F Appx 1 (DC Cir 19 May 2020).

(16) NextEra Energy Global Holdings BV v Kingdom of Spain, 19-cv-1618 (DDC 3 June 2019); 9ren Holding SARL v Kingdom of Spain, 19-cv-1871 (DDC 25 June 2019); Infrastructure Servs Luxembourg SARL v Spain, No. 18-cv-1753 (DDC 28 August 2019); E v Kingdom of Spain, 18-cv-1148 (DDC 16 May 2018), which was consolidated with Foresight Luxembourg Solar 1 SARL v Kingdom of Spain, 20-cv-0925 (DDC, transferred 7 April 2020) on 9 September 2020; Rreef Infrastructure (GP) Ltd v Kingdom of Spain, 19-cv-3783 (DDC 19 December 2019); Cef Energia, BV v Italian Republic, 19-cv-3443 (DDC 2 October 2019) and Greentech Energy Systems A/S v Italian Republic, 19-cv-3444 (DDC 14 May 2019), which have been consolidated in the Columbia District Court.

Flow-Down Showdown: The Interplay of Arbitration Agreements and Flow-Down Provisions

Lexie Pereira | Forum on Construction Law

Flow-down, or pass-through, provisions are among the most important provisions in all subcontracts, at least from the perspective of general contractors. These classic risk-transfer provisions provide that the subcontractor will be bound to the general contractor in the same fashion that the general contractor is bound under its contract with the owner. (As a practical matter, general contractors must provide access to the owner contract in order for the flow-down provision to be enforceable against the subcontractor. Prudent general contractors ought to redact sensitive information, including business terms (like their fee and other aspects of the deal) and bank wire transfer information.) These provisions are often accompanied with language throughout the subcontract that dually requires the subcontractor to follow the prime contract between the owner and the general contractor, in the event there exists a conflict or gap between provisions in the subcontract and the prime contract. For example, a prudent general contractor could draft a notice provision that requires a subcontractor to submit notice in writing within a desired amount of days and include the language “unless the General Contract Documents require notice sooner.” In short, flow-down provisions are a nice backstop for general contractors to ensure that they are following the requirements set forth in their contracts with the owner. 

However, even the best of backstops have their limits – and such limits often come to light in the face of agreements to arbitrate. In a recent flow-down showdown, the California Court of Appeals illustrated these limits when it refused to enforce an arbitration agreement that was flowed-down from a prime contract. See Remedial Construction Services, LP v. AECOM, INC., 65 Cal. App. 5th 658, 666 (Cal. App. 2d Dist. 2021). There, the subcontract incorporated by reference a prime contract that included an arbitration agreement and required, like all flow-down provisions do, that the subcontractor assume towards the general contractor “all obligations and responsibilities contained in the Prime Agreement.” Notably, the subcontract itself did not contain an agreement to arbitrate. The court thus found that since “[t]he Subcontract [did] not evidence an intention, clear or otherwise, for arbitration of disputes,” the agreement to arbitrate was unenforceable against the subcontractor in its disputes with the general contractor.For those tracking flow-down showdowns, this result was unsurprising. Just over a decade earlier, the New York Court of Appeals came out the same way in a very similar case. See Wonder Works Construction Corp. v. R.C. Dolner, Inc., 73 A.D.3d 511, 514 (N.Y. App. 1st Dep’t 2010). There, a subcontract also lacked an agreement to arbitrate and, instead, simply incorporated by reference the prime contract which contained such agreement. Like California, the New York Court of Appeals reasoned that an arbitration agreement must be unambiguous in expressing a clear intent of both parties to arbitrate disputes. Id. at 513; see Remedial Construction Services, 65 Cal. App. 5th at 661 (“In the absence of a clear agreement to submit a dispute to arbitration, we will not infer a waiver of a party’s jury trial rights.” (citing Avery v. Integrated Healthcare Holdings, Inc. 218 Cal. App. 4th 50, 59 (2013)).

To avoid having their own flow-down showdowns, general contractors – and their lawyers – must keep in mind that the duty to arbitrate can only be imposed by clear written agreement. See 9 USC § 2; New York Convention of the Enforcement of Foreign Arbitral Awards, Article II. As recognized by the Supreme Court in the series of cases known as the ‘‘Steelworkers Trilogy,’’ ‘‘arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which [it] has not agreed so to submit.’’ United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960); accord AT&T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 648 (1986). Since“[a]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which [it] has not agreed so to submit,” determining who actually agreed to arbitrate is always a threshold matter. See“Steelworkers Trilogy”; Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. (quoting Moses H. Cone) (“The first task of a court asked to compel arbitration of a dispute is to determine whether the parties agreed to arbitrate that dispute. The court is to make this determination by applying the ‘federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the [Federal Arbitration] Act.’”).

The best way to achieve both a clear agreement to arbitrate with a subcontractor and one that is not in conflict with the dispute resolution procedures in the owner contract is to draft a flow-down dispute resolution provision that explicitly references arbitration. So, just like how prudent general contractors can draft notice provisions that require subcontractors to submit notice in writing within a desired amount of days, “unless the General Contract Documents require notice sooner,” the same can be drafted in the dispute resolution context. For example, a subcontract should explicitly provide that disputes must be resolved in strict conformance with the General Contract Documents. The subcontract should also provide that, “at the election of the General Contractor,” disputes will be arbitrated or submitted to court of a specified location (either a convenient jurisdiction for the general contractor or the project). The arbitration agreement should provide (1) the rules of arbitration, generally it is the American Arbitration Association’s Construction Industry Arbitration Rules, (2) the situs of the arbitration, (3) the number of arbitrators, (4) consideration of a nominal sum included in the subcontract price, and (5) a waiver to jury trial, in all-capitals. The rule of thumb when it comes to arbitration agreements is to keep them clear. And that same clarity should be carried forth by flowing-down the requirements of the owner contract – nobody wants to be in the position of both litigating and arbitrating essentially the same case because the arbitration was not fully agreed to.

In the event your agreement lacks a clear agreement to arbitrate, courts,* like those in Remedial Construction Services and Wonder Works, must determine the scope of the arbitration clause at issue, so as to determine what the parties actually agreed to do. The Federal Arbitration Act (or “FAA”) provides a liberal policy of promoting arbitration because it was drafted to override the then long-standing judicial hostility towards arbitration and to make arbitration agreements “valid, irrevocable, and enforceable.” 9 USC § 2; Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24 (1983) (noting that courts are to “rigorously enforce agreements to arbitrate.”) So, on the one hand, if a court determines that an arbitration clause exists, “any doubt concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.” Id. at 24. However, it is “equally clear that the ‘federal policy alone cannot be enough to extend the application of an arbitration clause far beyond its intended scope.’” Fuller v. Gutherie, 565 F.2d 259, 261 (2d Cir. 1977). “After all, the purpose of the FAA ‘was to make arbitration agreements as enforceable as other contracts, but not more so.’” Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n.12 (1967). Thus, on the other hand, arbitration cannot be compelled unless it is found that both of the parties (1) agreed to arbitrate and (2) intended the arbitration clause to cover the particular dispute. Another way to avoid being a party to the arbitration agreement is to assert that you lack the ability to pay. In such scenarios, there is a possibility that the fees of an arbitration (like the institutional ones and the ones going to the tribunal, but not the legal fees) might provide a basis for invalidating an arbitration agreement in its entirety. In other words, the right to be heard trumps the federal policy favoring arbitration. 

In conclusion, general contractors ought to continue transferring risk through flow-down provisions, but must be particularly prudent in the face of agreements to arbitrate. Again, the best way to achieve the upper hand is by explicitly reinforcing the application of the flow-down provision and referencing the agreement to arbitrate within the subcontract. And, if a subcontractor challenges the applicability of arbitration, at least you brought the bigger gloves to the fight.


* Note, however, that pursuant to the Doctrine of Kompetenz-Kompetenz, arbitrators are competent enough to decide their jurisdiction. See Schein v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019) (upholding this principle in a recent January 2019 case where parties contracted to have an arbitrator decide not only the merits of a particular dispute, but also gateway questions of arbitrability). Thus, court interference may not be necessary at this initial jurisdiction stage.

Value Engineering Construction Arbitration: Designing A Better Process And Techniques Arbitrators Can Use To Help Parties Reach A Faster, More Cost-Effective Resolution

Laura C. Abrahamson | JAMS

The rapid growth of construction arbitration over the last 20 years is a testament to its advantages over traditional litigation: speed, cost and flexibility. But as parties submit larger and more sophisticated disputes, they are looking for ways to ensure the process can still provide those advantages. Before joining JAMS, over the course of almost 25 years working in-house in large, publicly held companies, I was constantly asked two questions by clients: “Should we still arbitrate disputes?” and “Can’t you make it less expensive?” Clients are primarily concerned with time and cost.

The good news is that there are several levers arbitrators and counsel can employ to “value engineer” their construction arbitrations. First, sophisticated counsel can design a better, more efficient process at the front end of a project to suit complex construction cases. But what if the parties’ arbitration agreement contains just a generic or barebones dispute resolution clause? Arbitrators and counsel can still employ a number of techniques to minimize concerns about time and cost.

The best way, of course, to maximize efficiency is at the beginning, before disputes (inevitably) arise, making agreement on anything more difficult to reach. Drafting the dispute resolution clause is often left to the end of negotiations. This is where both inside and outside counsel can add value. Having the right model clause prepared in advance can dramatically reduce the time and cost to resolve disputes down the road.

Here are a few key clauses that can help control arbitration time and cost:

Build in time constraints. As every construction lawyer knows, and as their clients appreciate, delays inevitably increase costs. Drafting deadlines into your dispute resolution clause can help parties avoid unnecessary delays. Time constraints can be built in to the selection of arbitrators, the first procedural hearing, the evidentiary hearing, the hearing itself and the rendering of the award.

Drafting tips:

  • Make sure any arbitrator selected is required to meet the time constraints built in your model clause. Example: “Any arbitrator nominated must be able to serve within the time frames specified herein before accepting appointment.”
  • Use your clause to limit the length of a hearing and ensure it is heard on consecutive business days to further increase cost efficiency. Example: “Unless the parties agree otherwise, the tribunal will hold a hearing on the merits within six to nine months of its constitution, which will be set for consecutive days (excluding weekends and holidays) and last for no more than 10 days.”
  • Require the parties to attend the procedural conference with counsel, which allows in-house counsel to help establish the most cost-effective arbitration schedule, and push for the earliest hearing on the merits. Example: ”Unless the parties agree otherwise, the tribunal will hold a procedural conference with the parties and their counsel within 30 days of its constitution, either in person or via a videoconferencing platform, to set the schedule for the arbitration, including the date(s) for the hearing on the merits.”

Drive the schedule with a memorial style arbitration process. Consider requiring a memorial style process that favors getting all the evidence out early. Under this process, which is more common in international arbitration, a claimant files its memorial (legal brief) with its evidentiary support (witness statements, documents and expert reports) within a few months of the arbitration’s commencement. The respondent files its counter-memorial with evidentiary support a few months later. The tribunal can then call for reply submissions, if appropriate, or simply move to a hearing.

Drafting tip:

  • Include a schedule for the service of the memorial and counter-memorials. Example: “Unless otherwise agreed by the parties, at the first in-person or virtual procedural hearing, the tribunal will set a schedule for conducting the proceeding, which shall include the service by the claimant of a memorial, together with written witness statements, documents and expert reports, within three months; service by the respondent of a counter-memorial, together with witness statements, documents and expert reports, within two months; and service of reply and sur-reply memorials, as appropriate within two weeks.”

Include discovery limits. Discovery, particularly e-discovery, can exponentially increase the cost of arbitration. Well-crafted clauses can eliminate or significantly curtail discovery. Rule 17 of the JAMS Engineering and Construction Arbitration Rules & Procedures can aid parties in that Rule 17(a) requires parties to “exchange . . . all . . . non-privileged documents . . . on which they rely in support of their positions” and identify “names of individuals [with] relevant knowledge or who may be called” to testify “within 21 calendar days after all pleadings . . . have been received” and Rule 17(b) limits parties to two depositions. Consider either expressly prohibiting requests for admission and/or interrogatories, or providing that the parties are limited to the discovery contemplated in Rule 17. You may also want to specify no document requests or require parties to apply to the arbitrator for narrowly tailored requests limited to items relevant and material to the outcome.

Drafting tip: Explicitly make cost a factor for the arbitrator to consider before allowing any additional discovery. Arbitrators will follow specific limits on discovery set out in the parties’ arbitration agreement. Example: “Unless otherwise agreed by the parties, discovery shall be limited to the exchanges of documents and discovery provided for in Rule 17 of the JAMS Engineering and Construction Arbitration Rules & Procedures. Any party seeking additional discovery shall apply to the arbitrator, who shall consider whether the requests are narrowly tailored and limited to items that are relevant and material to the outcome, and the reasonable need for the requested discovery in light of the cost and amount at issue in the case.”

But what if your dispute arises from an arbitration agreement that doesn’t include any of these provisions?

Even where parties haven’t written cost-savings mechanisms into their dispute resolution clause at the front end, the arbitrator can still push the parties to agree on, or order on his or her own, a number of procedures to move the dispute forward and to structure the presentation of evidence that both suit complex construction cases and enhance efficiency. Arbitrators know, just as experience construction and engineering lawyers do, that time equals money and delays increase costs. Consider the following:

  • Hybrid Hearings
    After more than a year of conducting virtual hearings, arbitrators have gotten used to them. As we begin to return to in-person hearings, arbitrators can leverage their experience during the pandemic to help parties reduce costs by continuing to conduct procedural and non-evidentiary hearings virtually instead of having parties and their counsel incur the time and expense of traveling to a hearing. Even when it comes to evidentiary hearings, although we all may be eager to return to “normal,” arbitrators can help parties reduce costs by allowing a mixture of in-person and virtual testimony. Arbitrators and parties can value engineer dispute resolution by taking a hard look at which witnesses need to appear in person and which can appear virtually.
  • Party Participation
    Arbitrators can encourage senior party representatives to attend the first procedural conference, particularly if it will take place on Zoom or a similar videoconferencing platform. Party representatives, who have their eye on the bottom line, are often more empowered than outside counsel to agree to procedures that will help set a faster schedule—agreeing to shorter hearings with a chess clock, or to dispense with certain types or areas of discovery. They may also be emboldened to agree to the one of the various techniques arbitrators can employ for reducing the time and cost of presenting witness and expert evidence.
  • Written Witness Statements
    Encouraging counsel to submit direct testimony through written witness statements—a practice common in international arbitration—can dramatically reduce both the time and cost of construction arbitration. It eliminates the need for depositions, since the parties know what testimony the other parties will introduce, and it allows them to prepare better, more targeted cross-examination. It also significantly cuts down the length of the hearing, as time is only spent on cross-examination and redirect. It also allows arbitrators the opportunity to gain a better understanding and appreciation of the parties’ positions in advance of the hearing.
  • Coupling Expert Reports With Hearing Presentations
    Expert evidence can be one of the most costly aspects of construction arbitration. Asking the parties to submit expert reports to the arbitrators in advance as their direct testimony, and then allowing them to make a short (30- to 90-minute) visual presentation (PowerPoint or other format) at the hearing can similarly eliminate the need for expert depositions and significantly improve the efficiency and efficacy of expert testimony.
  • Joint Expert Meetings Without Lawyers
    Arbitrators can, at the request of a party or on their own initiative, order the parties’ respective experts to meet outside the presence of lawyers to explore where they agree and disagree, and then produce a report listing the agreed-upon and disputed issues. This allows the parties and the arbitrators to understand what area(s) and points of disagreement between the experts exist and to limit the examination to those points, significantly cutting down preparation and hearing time.
  • “Hot-Tubbing” of Experts
    Either as an alternative to the experts meeting outside the presence of counsel and issuing a joint report, or in addition to them, the parties can agree, or the arbitrator(s) can order, that the parties’ respective experts on any given topic appear together for questioning by the tribunal. This technique, which is also more common in international arbitration (and often referred to as “hot-tubbing”), can uncover why the experts disagree, thus helping the arbitrator focus his or her questioning and reducing hearing time. This process can be particularly helpful for technical issues.

Arbitration of construction disputes must continue to meet the parties’ needs. If arbitrators and counsel use the tools available to them to value engineer the process of resolving construction arbitration disputes to ensure it remains fast, cost-effective and flexible, it will.

In Brief: Arbitration Agreements in USA

Matthew E. Draper | Draper & Draper

Arbitration agreement

Arbitrability

Are there any types of disputes that are not arbitrable?

There are very few restrictions on the types of disputes that can be arbitrated under federal law. Certain intrastate family, consumer and municipal matters may be considered non-arbitrable under state law.

Requirements

What formal and other requirements exist for an arbitration agreement?

The FAA and the New York Convention require arbitration agreements to be made in writing. However, courts interpret this requirement in a commercially practical manner and, in appropriate cases, have enforced arbitration agreements where, for example, the final contract was unsigned or where the agreement to arbitrate was entered into via email or in circumstances discussed in answer 12.

Generally, US law permits non-signatories to be bound to an arbitration agreement through application of traditional principals of state law such as assumption, corporate veil piercing, alter ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel. This year, the US Supreme Court clarified that in arbitrations governed by the New York Convention, a non-signatory to the arbitration agreement can be compelled to arbitrate based on the doctrine of equitable estoppel (see GE Energy Power Conversion Fr. SAS, Corp. v Outokumpu Stainless USA, LLC, 140 S. Ct. 1637 [1 June 2020]).

An agreement to arbitrate may be set out in a document other than the contract in dispute, such as where that document is incorporated by reference into the main agreement. Parties may also agree to arbitrate after a dispute has arisen.

Enforceability

In what circumstances is an arbitration agreement no longer enforceable?

FAA section 2 permits challenges to arbitration agreements ‘upon such grounds as exist at law or in equity for the revocation of any contract’, such as mistake, lack of capacity, fraudulent inducement, incapacity, rescission and termination of the arbitration agreement. Nonetheless, US policy strongly favours the enforcement of arbitration agreements, and these challenges will be scrutinised closely.

Courts respect the principle of separability, which requires that the arbitration agreement be treated as a distinct agreement that is not rendered invalid, non-existent or ineffective simply because the contract itself may be treated as such.

Separability

Are there any provisions on the separability of arbitration agreements from the main agreement?

The Federal Arbitration Act does not expressly provide for the separability of arbitration agreements from the main agreement. However, the US Supreme Court recognised this doctrine in Prima Paint, providing that ‘an arbitration clause in the contract is “separable” from the rest of the contract, and that allegations that go to the validity of the contract in general, as opposed to the arbitration clause in particular, are to be decided by the arbitrator, not the court’ (Prima Paint Corp v Flood & Conklin Mfg Co, 388 US 395, 409 (1967)).

Third parties – bound by arbitration agreement

In which instances can third parties or non-signatories be bound by an arbitration agreement?

Generally, third parties or non-signatories are neither bound by an arbitration agreement nor can they compel a signatory to arbitrate. There are, however, exceptions to this rule. Third parties and non-signatories can be bound to arbitrate a dispute based on common law contract and agency principles, such as incorporation by reference, assumption, agency, veil-piercing or alter ego, estoppel, succession in interest or assumption by conduct. The law governing the contract (or putative contract) is potentially relevant in such cases, as is the law of the place of incorporation and the law of the arbitral seat.

Third parties – participation

Does your domestic arbitration law make any provisions with respect to third-party participation in arbitration, such as joinder or third-party notice?

Many institutional rules provide mechanisms for joinder or consolidation of arbitration proceedings; US courts have generally respected these mechanisms.

Class arbitration may also be permitted, but only where the parties have expressly manifested their consent to such a procedure. Silence or ambiguity in the arbitration agreement is not a sufficient basis to permit class arbitration (see Stolt-Nielsen v Animalfeeds Int’l Corp, 559 US 662 (2010) and Lamps Plus, Inc v Varela, 139 S Ct 1407 (2019)). Waiver of class arbitration is also permitted. Consumer contracts that require arbitration but prohibit class arbitration are valid even when the cost of pursuing such claims on an individual basis would be prohibitively expensive, or seem to conflict with US labour protections (Epic Systems v Lewis, 138 S Ct 1612 (2018)); and even when an online user agreement notifies consumers of it simply through a hyperlink (Meyer v Uber Tech Inc, 868 F 3d 66 (Second Circuit, 17 August 2017)).

Groups of companies

Do courts and arbitral tribunals in your jurisdiction extend an arbitration agreement to non-signatory parent or subsidiary companies of a signatory company, provided that the non-signatory was somehow involved in the conclusion, performance or termination of the contract in dispute, under the ‘group of companies’ doctrine?

Although state and federal law do not recognise the group of companies doctrine, a non-signatory parent, subsidiary or affiliate of a signatory company may be bound to an arbitration agreement pursuant to the applicable law’s principles of agency, contract, estoppel or veil-piercing (Arthur Andersen LLP v Carlisle, 556 US 624 (2009)). Specific terms of the arbitration clause can be important in determining such matters.

Multiparty arbitration agreements

What are the requirements for a valid multiparty arbitration agreement?

A multiparty arbitration agreement must meet the same validity requirements as any arbitration agreement – it must be in writing and manifest the parties’ intent to be bound. Courts will generally enforce valid multiparty arbitration agreements.Consolidation

Can an arbitral tribunal in your jurisdiction consolidate separate arbitral proceedings? In which circumstances?

The FAA is silent on the consolidation of separate arbitral proceedings, as are the AAA Commercial Arbitration Rules and the JAMS Comprehensive Arbitration Rules and Procedures. However, the ICDR International Arbitration Rules provide for an appointment of a consolidation arbitrator under article 8, who may consolidate separate arbitral proceedings in the circumstances listed below. Rule 3.13 of the CPR Administered Arbitration Rules 2019 also provides for consolidation in certain circumstances. Further, certain state arbitration statutes, such as the California Arbitration Act (section 1281.3) (Cal Code Civ P paragraphs 1280-1294.4) also provide for consolidation.

Relevant considerations for consolidation are:

  • the parties’ express agreement to consolidation;
  • the appointment of one or more arbitrators in one or more of the arbitrations;
  • the existence of common issues of law or fact creating the possibility of conflicting decisions;
  • claims and counterclaims in the arbitrations arising out of the same arbitration agreement;
  • undue delay and prejudice from failing to consolidate outweighs the prejudice caused to parties opposing it; and
  • interests of justice and efficiency.

The US courts have provided arbitral tribunals with a substantial amount of discretion with respect to consolidation and have placed emphasis on the language of the arbitration agreement. A federal court in Ohio recently distinguished a bilateral arbitration from a class arbitration where the consent of every party is required for consolidation and held that courts do not require every party’s consent for consolidation (Parker v Dimension Serv Corp, 2018-Ohio-5248).

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1 January 2021

Disputes Over Arbitrator Qualifications: The Northern District of California Offers Some Guidance

Justin K. Fortescue | White & Williams

The selection of an arbitration panel can often lead to disputes between the parties regarding things like whether a particular candidate is qualified, whether a challenge to an arbitrator’s qualifications can be addressed pre-award and whether a party that names an unqualified arbitrator should lose the opportunity to name a replacement. In Public Risk Innovations v. Amtrust Financial Services, No. 21-cv-03573, 2021 U.S. Dist. LEXIS 129464 (N.D. Ca. July 12, 2021), the court provided answers on all three of these issues.

In Amtrust, the parties filed cross-motions to compel arbitration. Although both parties agreed the dispute was arbitrable, they disagreed about whether Public Risk Innovations, Solutions and Management’s (PRISM) arbitrator was qualified under the terms of the applicable contract. In seeking to have PRISM’s arbitrator disqualified, Amtrust argued that he: (1) was not a “current or former official of an insurance or reinsurance company”; and (2) was not “disinterested.” Amtrust also argued that because PRISM named an unqualified arbitrator (and presumably the time to appoint had passed), PRISM should be deemed to have failed to select an arbitrator as required by the contract and that Amtrust had the right to select a second arbitrator of its choice.

In evaluating the issues, the court first recognized the general proposition that a court cannot entertain an attack on an arbitrator’s qualifications until after a final award has been issued. However, because the parties both agreed that the court should decide the issue upfront, rather than waiting until after the arbitration, the court proceeded to evaluate the qualifications of PRISM’s arbitrator.

With respect to Amtrust’s first argument, that the arbitrator was not a “current or former official of an insurance or reinsurance company,” the court noted that the arbitrator had been “general counsel to numerous joint powers authorities and self-insurance joint powers authorities and risk pools.”[1] While recognizing that some courts have held that self-insurance does not mean the same thing as insurance, the court held the arbitrator’s experience at JPAs satisfied the requirement of the contract at issue. In support, the court noted that the parties’ contract indicated the word “insurance” should be interpreted broadly since the contract referred to PRISM as a company even though it was a public entity. The court also noted that “a more generous interpretation of insurance” would be consistent with the specific process that the parties agreed to for selection of the arbitration panel – i.e., that the whole point of the selection process was to allow each side to pick an arbitrator representative of its general interests and then have those arbitrators pick the third neutral.

As to Amtrust’s second argument, that PRISM’s arbitrator was not disinterested, the court agreed and held that he was not qualified to serve. In finding the arbitrator was not disinterested, the court held that the arbitrator “could feel some pressure to take positions favorable to PRISM” since he was currently an official for: (1) entities that have members who are also members of PRISM; and (2) entities that are members of PRISM itself. Notably, the court reached its conclusion despite the fact that there was no indication that the other entities or their members had any direct financial interest in how the parties’ dispute was resolved.

Lastly, although the court found PRISM’s arbitrator was not qualified, the court rejected Amtrust’s argument that PRISM had forfeited its right to name a replacement. In holding Amtrust’s argument was “meritless,” the court noted that PRISM did not fail to appoint an arbitrator and the fact that PRISM’s arbitrator turned out to be unqualified did not mean PRISM failed to act.

This case is important as it demonstrates that at least some courts will be willing to address disputes over the qualification of arbitrators pre-award, at least where the parties agree the court should do so. The case also provides some insight into how courts will interpret an arbitration provision that requires arbitrators to be a “current or former official of an insurance or reinsurance company.”


[1] Joint powers authorities (JPAs) are legal entities that allow two or more public agencies to jointly exercise common powers.