The International Arbitration Review: USA
Amid significant political upheaval in the United States, international arbitration law has remained untouched. Case law developments continue, with significant new precedents involving 'mass' arbitration, consequences of the Achmea decision for US enforcement of European awards, the taking of evidence in aid of arbitration abroad and the enforcement of awards. US law continues to be strongly supportive of the arbitral process.
i The structure of US courts
The US court system includes a federal system and 50 state systems (plus District of Colombia and territorial courts) with overlapping jurisdictions. The federal system is divided into district courts, intermediate courts of appeal referred to as circuits and the Supreme Court, which is the court of last resort. Each state has its own court system, governed by its state constitution and its own set of procedural rules. While state systems vary, most mirror the federal system's three-tiered hierarchy of trial courts, appellate courts and a court of last resort. There are no specialist tribunals in the federal or state systems that deal solely with arbitration law, although New York and Florida have made provision for special handling of international arbitration matters in certain of their state courts. Because of the structure of US law, most cases involving international arbitration are dealt with in the federal courts.
ii The structure of arbitration law in the United States
The Federal Arbitration Act (FAA) governs most types of arbitrations in the United States, regardless of the subject matter of the dispute. It is by no means comprehensive, however, instead regulating arbitrations only at the beginning and end of their life cycles. Under the FAA, all arbitration agreements 'shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract'.2 Upon the application of any party, judicial proceedings are stayed as to any issues determined to be referable to arbitration.3 As long as an arbitration agreement is deemed enforceable and a dispute arbitrable, the FAA leaves it to the parties and the arbitrators to determine how arbitrations should be conducted. While the FAA allows for some judicial review of arbitral awards, the grounds upon which an order to vacate the award may be issued are limited and exclusive and, in general, are designed to prevent fraud, excess of jurisdiction or procedural unfairness, rather than to second-guess the merits of the panel's decision.4
The FAA's largely hands-off approach reflects US federal policy strongly favouring arbitration as an alternative to sometimes congested, ponderous and inefficient courts.5 It was this pro-arbitration policy that led the Supreme Court to interpret an arbitration clause expansively to include statutory antitrust claims in Mitsubishi Motors Corp v. Soler Chrysler-Plymouth, allowing arbitrators to enforce federal antitrust law alongside judges.6 In the international context, this pro-arbitration policy is further evidenced by the implementation of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) and the Inter-American Convention on International Commercial Arbitration (Panama Convention) in Chapters 2 and 3, respectively, of the FAA.7
State law, by comparison, plays a limited role in the regulation of arbitrations in the United States. The FAA pre-empts state law to the extent that it is inconsistent with the FAA and applies in state courts to all transactions that 'affect interstate commerce' – a term that the Supreme Court has interpreted to include all international transactions and many domestic ones.8 Thus, for international commercial disputes, state arbitration law is relevant only as a gap-filler where the FAA is silent.
iii Distinctions between international and domestic arbitration law in the United States
The FAA enacts the New York and Panama Conventions. Thus, as a general matter, there are no significant distinctions at the federal level between international and domestic arbitration law.9 The FAA gives federal courts an independent basis of jurisdiction over any action or proceeding that falls under the New York Convention, opening the federal courts to international parties who otherwise would have to demonstrate an independent basis for federal jurisdiction.10 Some states have international arbitration statutes that purport to govern only international arbitrations taking place in those states. As previously mentioned, however, these state statutes are pre-empted by the FAA to the extent that they are inconsistent with it and are thus of limited relevance to international arbitration.
The year in review
i Developments affecting international arbitration
The perennial question of whether the court or the arbitrator decides on arbitrability of a dispute was raised again this year but not definitively resolved. Under First Options of Chicago, Inc v. Kaplan, if the parties have 'clearly and unmistakably' allocated the question of arbitrability to the arbitrators, then arbitrability issues are for the arbitrator to decide in the first instance, not the courts.11 An open question, not yet answered by the Supreme Court, is whether reference in the arbitration agreement to arbitration rules with competence-competence provisions is sufficient to satisfy the First Options standard. Commentators had hoped that the Supreme Court would resolve this circuit split in Henry Schein v. Archer & White Sales, Inc,12 but the court declined to address this question, leaving the debate to continue.
The Sixth Circuit joined the majority of circuits that have found that such a reference was sufficient to satisfy the First Options standard in Blanton v. Domino's,13 a class action against Domino's, in which the plaintiffs alleged that the company's franchise agreement violated federal antitrust law as well as state law. The arbitration clause incorporated the American Arbitration Association (AAA) National Rules for the Resolution of Employment Disputes, which provide that '[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement'.14 The Sixth Circuit held that incorporation of the AAA rules constituted 'clear and unmistakable' evidence that the parties agreed to arbitrate 'arbitrability', noting that the vast majority of other circuits and district courts within the Sixth Circuit had reached this result.15
Past editions of The International Arbitration Review have discussed the Supreme Court's strict enforcement of class action waivers, which forbid individual employees or consumers from commencing class action litigation against corporate defendants. Enterprising plaintiffs' counsel have responded by initiating 'mass' arbitrations, in which similarly situated plaintiffs, instead of pursuing a class action, initiate essentially identical arbitrations against the same defendant. The initiation of all of these claims simultaneously imposes a heavy financial burden on the defendant, which is now obligated to pay arbitration costs in each of these numerous cases.
One recent example of this trend is Abernathy v. DoorDash,16 in which more than 6,000 couriers filed individual arbitrations against DoorDash, alleging that they were misclassified as independent contractors rather than employees under the Fair Labor Standards Act. The AAA rules required DoorDash to pay nearly $12 million in upfront costs, but DoorDash refused. Eventually, the district court ruled that DoorDash could not avoid arbitration on the basis of onerous fees, reasoning that DoorDash previously had forced class action waivers on its workers and insisted on individual arbitrations instead of class action litigation, and it would be hypocritical to allow DoorDash to change its position.
The AAA has recently responded to the rise of 'mass' arbitrations by implementing a new sliding scale of filing fees in 'multiple consumer cases' involving 25 or more similar arbitration claims filed by or against the same party. Under the new rules, businesses will pay $300 per case for the first 500 cases, $225 per case for cases 500 to 1,500, $150 per case for cases 1,501 to 3,000, and $75 per case for cases 3,001 and beyond.17
Enforcement and recognition of foreign arbitral awards
As is usual, the enforcement and recognition of foreign arbitral awards kept US courts busy this past year. US courts continued to consider the effects of the decision of the European Court of Justice (ECJ) in Slovak Republic v. Achmea BV18 on the enforcement in the United States of European arbitral awards. They also continued to handle enforcement cases in which plaintiffs seek to seize Venezuelan assets, considered the effect of a tribunal's finding of ratification in a case of alleged corruption, and grappled with questions concerning personal jurisdiction.
In Achmea, the ECJ invalidated an arbitration provision where 'the dispute called upon the arbitral tribunal to interpret or apply European Union (EU) law and the tribunal's ultimate resolution of any question of EU law was not subject to review by a court or tribunal within the EU's judicial system'.19 Micula v. Government of Romania was the first US decision in which Achmea was a factor. In that case, the district court for the District of Columbia held that Achmea, which Romania cited as a defence against the enforcement of the petitioners' US$331 million International Centre for Settlement of Investment Disputes (ICSID) award, was not relevant because EU law was not at issue since the underlying events had taken place before Romania's accession to the EU.20 This past year, the DC Circuit found no reason to disturb the district court's holding.21
Micula, however, is an outlier because most Achmea-related enforcement cases in the United States involve circumstances in which the relevant events did take place after the respondent state's accession to the EU. Several Achmea-related cases are now stayed because US courts have chosen not to decide on enforcement until set-aside proceedings in Europe are concluded. This was the case in CEF Energia, B.V. v. Italian Republic, a recent case in which the District of Columbia district court stayed enforcement of an arbitral award that Italy has sought to set aside in the Svea Court of Appeal in Sweden (the 'Svea Court').22
In deciding to issue a stay, the district court found that considerations of judicial economy favoured a stay because '[l]itigating essentially the same issues in two separate forums is not in the interest of judicial economy or in the parties' best interests', especially in the case of foreign parallel proceedings when 'there is a possibility that the [arbitral] award will be set aside[,] since a court may be acting improvidently by enforcing the award prior to the completion of the foreign proceedings'.23 The district court also noted that, because of the complexity and novelty of the Achmea-related issues being considered by the Svea Court, as well as the likely persuasive value of the Svea Court's reasoning in a future decision, 'there is significant interest in both judicial efficiency and international comity that warrants staying the instant case'.24
In addition, US courts continued to shepherd enforcement cases against Venezuela. The case that is furthest advanced is Crystallex Int'l Corp. v. Bolivarian Republic of Venezuela. As reported last year, the Third Circuit has held that Petroleos de Vanezuela (PDVSA) is so extensively controlled by Venezuela that it is an alter ego of Venezuela and thus its assets are attachable by Venezuela's creditors.25 In the United States, these assets consist principally of shares held by PDVSA in PDV Holding, Inc (PDVH), which in turn owns Citgo Petroleum Corporation.
This year, Venezuela made a further effort to avoid enforcement, arguing that PDVSA is no longer its alter ego because the United States has recognised the government of Juan Guaidó which has taken steps to ensure PDVSA's independence. Venezuela also argued that permitting the attachment of its US-based assets undermined 'US efforts to help Venezuela mitigate its humanitarian crisis, restore democracy, and pay all of its many creditors in a fair and just manner'.26 The district court was unmoved by either argument. It did not find that simply a change in government warranted revisiting its alter ego determination. The court also did not find any equitable reason not to enforce the judgment as ordered by the Third Circuit: 'While the Court joins Crystallex – and, evidently, the United States and the Republic – in hoping that some day soon, Venezuela will find a way to pay all its debts and alleviate the terrible suffering in Venezuela, the possibility that this outcome may not be achieved before Crystallex receives what is owed does not absolve the Court of its duty to comply with the Third Circuit's orders on remand'.27
Due to the sanctions the United States has imposed on Venezuela, Crystallex will need a licence from the United States Department of Treasury's Office of Foreign Asset Control (OFAC) to attach PDVSA's assets. The court found that the OFAC licensing process would take into account the foreign policy and national security interests the US government asked the court to consider.28 Contrary to the requests of Venezuela and the United States, the court also determined that it would not delay any steps in the sale of PDVH shares until an OFAC licence issued. Instead, the court decided to take all steps that were possible without an OFAC licence.29 The court subsequently appointed a special master 'to assist with the sale of PDVSA's shares of PDVH to satisfy Crystallex's judgment'.30 We further discuss the cases against Venezuela in US courts in the section on investment treaty cases below.
In recent years, issues relating to corruption have increasingly been considered in the enforcement of arbitral awards. In Vantage Deepwater Company v. Petrobras America, Inc., Vantage sought to enforce an arbitral award of $620 million for wrongful termination of a contract.31 Petrobras alleged that the contract had been obtained as a result of a $30 million bribe of Petrobras officials and argued that the enforcement of an award premised on a contract obtained through corruption would violate US public policy. The district court held that there was no violation of public policy because, according to the tribunal, Petrobras had ratified the contract after it learned of the alleged bribery and because there was no public policy defence 'if both parties had engaged in the same fraudulent misconduct'.32 On appeal, Petrobras did not dispute that, if ratification occurred, enforcement of the award would not violate public policy. However, Petrobras argued that the district court improperly deferred to the arbitrators' findings on this point. The Fifth Circuit held that the tribunal had the authority to rule on the underlying contract's validity and that the court did not improperly defer to the tribunal's decision.33
In addition to the above high-profile cases, US courts also grappled with intricate issues related to personal jurisdiction this past year. In Compañia de Inversiones Mecnatiles S.A. (CIMSA) v. Grupo Cementos de Chihuaua S.A.B. De C.V. (GCC), the Tenth Circuit examined in detail what contacts with the United States are sufficient to establish personal jurisdiction to enforce an arbitral award.34 CIMSA obtained an award rendered in Bolivia against GCC, and the District of Colorado district court accepted jurisdiction. The Tenth Circuit noted that there are two types of personal jurisdiction. General jurisdiction exists when there are 'continuous and systematic general business contacts between a party and the forum, empowering the forum to resolve any dispute involving that party, not just the dispute at issue'.35 Specific jurisdiction generally depends on '(1) whether the defendant purposefully directed its activities at residents in the forum state; (2) whether the plaintiff's injury arose from those purposefully directed activities; and (3) whether exercising jurisdiction would offend traditional notions of fair play and substantial justice'.36
Preliminarily, CIMSA relied on Rule 4(k)(2) of the federal rules of civil procedure, which permits proving personal jurisdiction by aggregating the defendant's contacts with the United States rather than demonstrating sufficient contacts with one particular state. This rule applies in limited circumstances: when the claim arises under federal law, the party is not subject to the jurisdiction in any state's courts of general jurisdiction, and exercising jurisdiction is consistent with the United States Constitution and laws.37
After establishing that Rule 4(k)(2) applied, the Tenth Circuit examined GCC's contacts with the United States and determined whether that contact was a proximate cause of the CIMSA's injury. GCC's contacts with the United States included the following: (1) the parties negotiated and consummated a Shareholder Agreement in Miami; (2) the parties subsequently had several meetings in Miami to discuss CIMSA's option of first refusal under the Shareholder Agreement with respect to a prospective sale; (3) the parties negotiated a second Shareholder Agreement in 2011 in Houston; and (4) using New York counsel and contemplating using New York law, the parties began drafting the second Shareholder Agreement (which GCC refused to enter at the eleventh hour, claiming that CIMSA had no right to first refusal).38
The Tenth Circuit found that these contacts were a proximate cause of CIMSA's injury because they 'constitute[d] events in the causal chain leading to CIMSA's financial loss [and] also form[ed] part of the narrative determining when and how GCC's breach occurred'.39 The Tenth Circuit then considered the final step of the analysis, 'whether the district court's exercise of personal jurisdiction was reasonable'.40 This inquiry considers five factors: '(1) the burden on the defendant, (2) the forum state's interest in resolving the dispute, (3) the plaintiff's interest in receiving convenient and effective relief, (4) the interstate judicial system's interest in obtaining the most efficient resolution of controversies, and (5) the shared interest of the several states in furthering fundamental substantive social policies'.41
The Tenth Circuit concluded that, considering these factors overall, it was reasonable for the district court to assert jurisdiction over GCC. The Tenth Circuit found the following factors sufficient to reach this conclusion. First, while it was a burden for GCC to litigate in the United States, it was not a 'crushing' burden because 'GCC previously travelled to the United States for meetings, has its General Counsel located here, and does hundreds of millions of dollars of business here'.42 Second, while GCC is not a US resident, the court found that there was a federal policy favouring arbitral resolution of disputes in the field of international commerce. Third, it was unclear that CISMA could receive effective relief in Mexico given specific actions of the Mexican central authority, which failed to timely serve GCC with process, and a Mexican court, which in an ex parte proceeding issued an order prohibiting CISMA from initiating confirmation proceedings in Mexico.43
The district court for the District of Columbia also considered issues of personal jurisdiction this past year. Under the Foreign Sovereign Immunities Act, a court does not need to find personal jurisdiction over a foreign state so long as the court has subject matter jurisdiction. However, due process under the Fifth Amendment requires that personal jurisdiction be established with respect to a state instrumentality as is the case with any other non-state defendant. In UAB Skyroad Leasing v. OJSC Tajic Air,44 Skyroad conceded that Tajic Air lacked sufficient minimum contacts with the United States to satisfy the Fifth Amendment, but it argued that the district court did not need to assert personal jurisdiction over Tajic Air to enforce an arbitral award against it because the airline was an alter ego of Tajikistan and therefore should not be considered a separate state instrumentality. First Nat'l City Bank v. Banco Para El Comercio Exeterior de Cuba (Bancec)45 has long provided the standard under US law for determining if a state instrumentality is the alter ego of its parent state and therefore should not be presumed to be a separate entity. Under Bancec, Skyroad could show that Tajic Air was the alter ego of Tajikistan in one of two ways: '1) by demonstrating that Tajikistan so extensively control[s] Tjik Air that a relationship of principal and agent is created . . . or 2) by showing that recognition of [Tajik Air] as an entity apart from the state would work fraud or injustice'.46 In the DC Circuit, four factors are required at a minimum to establish the first prong: ' the parent has manifested its desire for the subsidiary to act upon the parent's behalf,  the subsidiary has consented so to act,  the parent has the right to exercise control over the subsidiary with respect to matters entrusted to subsidiary, and  the parent exercises its control in a manner more direct than by voting a majority of the stock in the subsidiary or making appointments to the subsidiary's Board of Directors'.47
Skyroad presented several facts it argued were sufficient to meet this test, but the district court rejected them. The court found that, while relevant, the fact that Tajikistan was 100 per cent owner of Tajik Air and could appoint and fire its director general was insufficient by itself to demonstrate the required control. The court also found that the state's ability to disburse dividends or profits and its authority to finance and acquire aircraft did not move the needle. These prerogatives are typical of a sole shareholder. The district court was also unmoved by the fact that Tajikistan had provided indirect financial assistance to Tajik Air, as this was a normal aspect of the relation between a government and a state-owned entity.48
The one fact that gave the district court pause was that high-ranking Tajikistan officials served on Tajik Air's Supervisory Board. However, the district court concluded that there was insufficient information in the record to overcome the presumption of separateness, including because the board did not make day-to-day decisions for Tajik Air and because the appointment of the high-ranking officials to the board was triggered by Tajik Air's financial distress.49 Additionally, the court found that recognising Tajik Air's separate corporate identity would not result in a fraud or injustice on Skyroad.50
Non-statutory grounds for vacatur of awards
The FAA and the New York Convention, which it implements, strictly limit the grounds upon which a court can vacate an arbitral award. Their intent is to avoid merits-based judicial review of arbitral awards except in very narrow circumstances. Over the past seven decades, a judicially created doctrine called manifest disregard has developed in the United States that sometimes has allowed parties to seek an expanded review of the merits of arbitrators' decisions, at least in theory. Successful use of the doctrine is rare, however, and appellate decisions in the past few years have brought even the existence of that doctrine into question.
The manifest disregard doctrine was born from Supreme Court dicta in 1953: '[T]he interpretations of the law by the arbitrators in contrast to manifest disregard [of the law], are not subject, in the federal courts, to judicial review for error in interpretation'.51 Over the following years, this passive reference grew in the lower courts into what was commonly considered an additional ground for vacatur of arbitral awards, at least in a domestic context, where arbitrators wilfully ignore clearly applicable law in reaching an erroneous result.52 In 2008, in the Hall Street case, the Supreme Court – again in dicta – questioned the validity of the manifest disregard ground:
Maybe the term 'manifest disregard' was meant to name a new ground for review, but maybe it merely referred to the [FAA Section] 10 grounds collectively, rather than adding to them . . . Or, as some courts have thought, 'manifest disregard' may have been shorthand for [Section] 10(a)(3) or [Section] 10(a)(4), the paragraphs authorizing vacatur when the arbitrators were 'guilty of misconduct' or 'exceeded their powers' . . . We, when speaking as a Court, have merely taken the Wilko language as we found it, without embellishment . . . and now that its meaning is implicated, we see no reason to accord it the significance that [petitioner] urges.53
While this criticism of manifest disregard is itself merely dicta, the court was clearly sceptical about a merits-based review that threatened to turn arbitration into a mere prelude to a 'more cumbersome and time-consuming judicial review process'.54 It has declined, however, to use opportunities in later decisions to state explicitly whether manifest disregard survived Hall Street.55
As a result of the Supreme Court's lack of clear direction, a circuit split has arisen over the continuing validity of the manifest disregard doctrine post-Hall Street. The Fifth, Eighth and Eleventh Circuits (which include much of the American South) have interpreted Hall Street as an express rejection of the manifest disregard doctrine.56 The Second and Ninth Circuits (which include New York and California), meanwhile, have held that manifest disregard is simply a judicial gloss on the FAA's statutory grounds for vacatur and have continued to apply their manifest disregard jurisprudence.57 Both circuits have found that a high standard must be met for the doctrine to apply.58 The Fourth Circuit has ruled that the manifest disregard doctrine is still viable,59 while the Seventh Circuit has stated that 'manifest disregard of the law is not a ground on which a court may reject an arbitrator's award unless it orders parties to do something that they could not otherwise do legally (e.g., form a cartel to fix prices)'.60 The Sixth Circuit found that, in addition to the grounds provided by the FAA, a court can vacate an arbitral award 'in the rare situation in which the arbitrators “dispense [their] own brand of industrial justice”, by engaging in manifest disregard of the law'.61 Most of the remaining circuits have produced contradictory or non-committal manifest disregard jurisprudence.62 For example, the First Circuit acknowledged that there is a circuit split on whether manifest disregard is a viable doctrine and also noted that, while it had previously stated in dicta that the doctrine is no longer available, it had not squarely addressed the issue.63
This year, a district court in the Fourth Circuit reaffirmed the validity of the manifest disregard doctrine in that circuit and applied it. In Warfield v. ICON Advisers,64 the plaintiff initiated arbitration proceedings against his employer, asserting claims for wrongful termination and defamatory language in a form required by the regulatory authority that explained the reasons for plaintiff's termination. The arbitral panel issued an award granting damages for wrongful termination without just cause and ordering the amendment of the termination explanation. The district court vacated the damages portion of the award under the manifest disregard standard, holding that North Carolina law did not support the award of damages because plaintiff's employment contract expressly provided that his employment was 'at-will' and no cause of action for wrongful termination exists for 'at-will' employees.65 However, the court declined to vacate the portion of the award ordering the amendment of the form, holding that the arbitral panel did not demonstrate a manifest disregard of the law in that portion of the award.66
Section 1782: taking of evidence in aid of arbitrations abroad
Pursuant to 28 USC Section 1782(a), US federal district courts may order discovery for use in a proceeding in a foreign or international tribunal.67 Four statutory requirements must be met for a court to grant discovery under Section 1782:
(1) the request must be made 'by a foreign or international tribunal', or by 'any interested person'; (2) the request must seek evidence, whether it be 'testimony or statement' of a person or the production 'of a document or other thing'; (3) the evidence must be 'for use in a proceeding in a foreign or international tribunal'; and (4) the person from whom discovery is sought must reside or be found in the district of the district court ruling on the application for assistance.68
Older cases suggested that a foreign arbitration did not fall within the statute's purview, which was thought only to include foreign judicial proceedings.69 Those cases were thrown into doubt, however, with the US Supreme Court's decision in Intel Corp v. Advanced Micro Devices, Inc, which found that the Directorate General for Competition of the European Commission was a tribunal under Section 1782.70 In so finding, the court noted that in 1964 Congress had replaced the term 'judicial proceeding' in the statute with 'tribunal'. The court quoted approvingly from the related legislative history, which 'explain[ed] that Congress introduced the word “tribunal” to ensure that “assistance is not confined to proceedings before conventional courts”, but extends also to “administrative and quasi-judicial proceedings”'.71 The court also relied on a definition of tribunal that included arbitral tribunals.72
Since Intel, courts have split on whether Section 1782 permits discovery in aid of a foreign arbitration. The key issue has been whether a foreign arbitration constitutes a proceeding in a foreign or international tribunal for the purposes of the statute. Some precedents distinguish investment treaty arbitration, which arguably falls within the statute because the fora are state-sponsored, from purely private commercial arbitration, which arguably does not come within the statute.73
The circuit split deepened this year. In July, the Second Circuit reaffirmed in In re Guo that Section 1782 does not extend to foreign commercial arbitrations.74 The petitioner had sought discovery of documents from underwriters in New York for use in a CIETAC arbitration, and the district court had denied the request on the grounds that CIETAC was not a 'foreign tribunal' for purposes of Section 1782. The Second Circuit affirmed, reasoning that Section 1782 applies only to governmental entities, and CIETAC was more akin to a private commercial arbitral tribunal.
Two months later, the Seventh Circuit joined the Second Circuit in holding that Section 1782 does not extend to foreign commercial arbitrations. Servotronics Inc. v. Rolls-Royce PLC75 involved a private arbitration in the United Kingdom in which Rolls-Royce alleged that Servotronics supplied it with defective engine valves. Servotronics asked the district court in the Northern District of Illinois to issue a subpoena compelling Boeing to produce documents for use in the London arbitration. The district court granted the request, but the Seventh Circuit reversed, reasoning that the phrase 'foreign tribunal' as used in Section 1782 means a 'governmental, administrative, or quasi-governmental tribunal operating pursuant to the foreign country's “practice and procedure”'. It arrived at this conclusion based on the statute's legislative history and to avoid a 'serious conflict with the Federal Arbitration Act'.76
The Seventh Circuit's decision contrasted directly with the Fourth Circuit's decision last year in Servotronics v. The Boeing Company, in which the court granted Servotronic's request to subpoena certain Boeing employees residing in South Carolina. The Fourth Circuit concluded that the UK arbitral panel is a 'foreign or international tribunal' under Section 1782(a), reasoning that the panel was 'acting with the authority of the state' because the UK Arbitration Act 1996 provides for governmental regulation and oversight.77
The Supreme Court has granted certiorari in the Servotronics v. Rolls-Royce case, and it is widely expected that the Supreme Court's decision will finally resolve the circuit split.
In Texas Brine v. American Arbitration Association, the Fifth Circuit addressed the issue of whether the 'AAA' could be held liable for damages because of the arbitrators' failure to disclose potential conflicts of interest.78 Two of the three panelists in an arbitration allegedly had failed to identify potential conflicts of interest, and the district court vacated the panel's interim awards on the basis of the arbitrators' misconduct. Texas Brine then sued the AAA, arguing it should be allowed to recoup money spent on the arbitration. The AAA argued that Texas Brine's suit was an impermissible collateral attack on the arbitration award seeking to bypass the congressionally created remedy for challenging an arbitration through a vacatur or modification proceeding. The Fifth Circuit agreed, holding that vacating the arbitration was the only remedy to which Texas Brine was entitled.79
In OOGC America LLC v. Chesapeake Exploration LLC,80 the district court vacated two related awards because of the close ties one of the arbitrators had with the chairman of the board and the General Counsel of a non-party company, FTS. While FTS was not a party to the arbitration, one of the issues to be determined was whether FTS was an affiliate of OOGC. The Fifth Circuit reversed the district court decision, holding that the arbitrator's lack of disclosure did not meet the Circuit's standard that vacatur was warranted only when there was a 'reasonable impression of bias' stemming from 'a significant compromising connection to the parties'.81 This is a 'stern standard' that requires 'a concrete, not speculative impression of bias' and calls for 'upholding arbitral awards unless bias was clearly evident in the decisionmakers'.82 The Fifth Circuit found that, among other reasons, the lack of importance of the arbitrators' finding that FTS was an affiliate of OOGC 'militates against OOGC's theory that [the arbitrator's] connection to FTS constituted a “significant compromising connection to the parties”'.83
Sanctions for unsuccessful challenge of arbitral award
The district court in Alabama ordered sanctions against a party for filing a groundless motion to vacate an arbitration award in Hill v. CAG2 of Tuscaloosa.84 The arbitral award found that the defendant violated the Truth in Lending Act and awarded the plaintiffs monetary relief as well as costs and attorney's fees. Defendant sought to vacate the award, arguing that the award constituted a manifest disregard for the law in light of the 'unconscionable' and 'excessive' award of attorney's fees. The district court held that the manifest disregard doctrine is no longer valid after Hall Street and thus Sections 10 and 11 of the FAA are the exclusive grounds for vacating or modifying an award. It further concluded that the arbitration award did not fall within any of the categories listed in the FAA. The court directed plaintiffs to file a statement listing the work performed in defending against the defendant's motion to vacate and noted that it would determine the appropriate award of sanctions after receiving this statement.85
This year saw a prominent example of the emergency arbitrator mechanism in Vital Pharmaceuticals v. PepsiCo.86 This case concerned a dispute between two beverage manufacturers, PepsiCo and Vital Pharmaceuticals (VPX), arising from a distribution agreement in which PepsiCo agreed to distribute VPX's Bang-branded energy products throughout the United States. VPX terminated the distribution agreement without cause, and PepsiCo alleged that, under the terms of the agreement, a party must give notice three years before any termination can be effective, during which time the parties are required to continue to comply with their contractual obligations.
PepsiCo filed a Demand for Arbitration and requested that the AAA appoint an emergency arbitrator to award relief prior to the constitution of the arbitration panel. The emergency arbitrator issued an interim order finding that PepsiCo 'made a sufficient showing that it would suffer immediate and irreparable loss or damage in the absence of emergency relief' and ordering VPX to abide by the terms of the distribution agreement.
PepsiCo sought confirmation of the emergency arbitrator's order, which the district court granted, holding that the interim order was sufficiently final to be confirmed under the FAA. The court further held that neither VPX's appeal of the interim order nor VPX's intention to seek a superseding award from the arbitration panel once it was constituted prevented the interim order from being confirmed.
The growing legalisation of cannabis across the United States in recent years has led to the emergence of cannabis-related disputes, and this year the Eleventh Circuit upheld a $3.9 million arbitration award against a CBD oil product distributor in Earth Science Tech., Inc. v. Impact UA.87 The dispute related to a distribution agreement under which Earth Science Tech, Inc. had exclusive rights to distribute Cromogen Biotechnology Corp's CBD oil. Cromogen filed a demand for arbitration, asserting breach of contract, conversion and tortious interference.
The arbitral tribunal ruled in Cromogen's favour on all issues, and the district court affirmed the award. The Eleventh Circuit held that the tort claims were arbitrable because, inter alia, the parties clearly agreed to have arbitrators resolve the question of arbitrability by agreeing to proceed under UNCITRAL rules, which contain a competence-competence provision. The court also rejected Earth Science's request for a modification of the damages award because there was neither a 'material mistake' nor a miscalculation of figures evident on the face of the award.
Biased arbitral panel
In Trout v. Organización Mundial de Boxeo, Inc., a professional boxer brought claims against the World Boxing Organization (WBO).88 The WBO's regulations stated that all disputes arising from the regulations would be resolved through arbitration before the 'WBO Grievance Committee,' which consisted of three members, all of whom would be selected by the WBO President.89
The boxer argued that the WBO's complete control over the selection of arbitrators would deprive him of a fair opportunity to pursue his claims because the committee, by virtue of the method of selection, would be inherently biased.90 The district court disagreed and granted WBO's motion to compel arbitration. The First Circuit vacated the district court's decision, holding that the WBO's exclusive control over the selection of arbitrators was unconscionable under Puerto Rico contract law.91 It remanded the case to the district court to determine whether the arbitrator-selection provision is severable from the remainder of the arbitration agreement.92
ii Statutory developments
A variety of measures potentially affecting arbitration law are introduced each year in the US Congress, but few of them proceed through committee consideration to become potential legislation. Most recently, the Forced Arbitration Injustice Repeal Act (the FAIR Act) was reintroduced in Congress. The FAIR Act would render invalid and unenforceable any pre-dispute arbitration agreement or pre-dispute joint-action waiver with respect to an employment dispute, consumer dispute, antitrust dispute or civil rights dispute. In its prior iteration, in 2019, the FAIR Act garnered strong support in the House of Representatives, and this year with a (slim) Democratic majority in the Senate and a Democratic President, advocates are hopeful that the FAIR Act will become law. However, this still remains unlikely because 60 votes are needed to overcome a filibuster in the Senate.
The FAIR Act reflects a growing concern in the United States over the past decade with mandatory arbitration agreements between parties with unequal bargaining power, especially between individuals and companies, that may affect perceived fundamental rights. This concern has been accentuated by the class arbitration line of cases, in which the Supreme Court has strictly enforced class action waivers in consumer and employment agreements, among others.
In principle, such legislation might have little or no impact on international arbitration, but there is concern in the international arbitration community that any curtailing of arbitration by Congress could have unintended consequences on international commercial and investment arbitration or could lead to other legislation or judicial actions limiting the scope of international arbitration.
iii Investment treaty cases involving the United States or US nationals
The most interesting developments this past year in investment treaty cases related to US nationals occurred in US courts as US and foreign investors holding treaty awards against Venezuela raced to attach and sell PDVSA's shares in PDVH. As discussed above, the Canadian company Crystallex is closest to this goal. But several US investors are close behind, including subsidiaries of ConocoPhillips and Koch Industries.
In Koch Minerals SARL v. Bolivarian Republic of Venezuela,93 Koch Minerals sought recognition of its $140.25 million ICSID award in the District of Columbia district court, and Venezuela defaulted after it failed to appear for more than a year. A few months after defaulting, Venezuela made its first appearance, filing a motion to set aside the default. The court recognised that Koch Minerals was in a race against other creditors and that it could not intervene in the Crystallex litigation 'until [it] obtain[ed] a final judgment from this Court'.94 However, Koch Minerals could not, as it needed to, 'demonstrate how delay here will uniquely cause loss of evidence, unnecessary or challenging discovery, or an enhanced risk of fraud'.95 Moreover, the court found reason enough to set aside the default because Venezuela had filed to annul the ICSID award. The court found that the significant size of the award, the existence of a dissenting opinion in the ICSID award, and the overlapping arguments to be heard by the enforcement court and the annulment committee were sufficient reason to set aside the default.96 The enforcement action will now proceed to the merits.
ConocoPhillips is arguably closer to the goal line than Koch industries. While Venezuela has sought to annul ConocoPhillips' $8.5 billion award, the annulment committee decided to lift a stay of enforcement 'once it has been satisfied that all assurances have been given by the Conoco Parties that, should enforcement of the Award be possible under the OFAC sanctions regime, it can return any money collected under the Award to Venezuela in case of annulment'.97
One final point of interest regarding the cases against Venezuela concerns the continuing uncertainty as to who represents the interests of Venezuela. After Nicolás Maduro won a second term, on 23 January 2019 opposition leader Juan Guaidó questioned the legitimacy of the results and declared himself the interim president of Venezuela. More than 50 countries, including the United States, recognised Guaidó's presidency.98 Subsequently, Guaidó's government tried to seize the representation of Venezuela in US court cases and in international arbitrations.99 The reaction to these attempts have been mixed. The annulment committee in ConocoPhillips, for example, has permitted both the Guaido and Maduro governments to represent Venezuela.100 Other tribunals and annulment committees have rejected Guaido's attempted representation of Venezuela because of the fact that Maduro exercises effective control over Venezuela or to maintain the continuity of representation.101 US courts have recognised Guaidó as the legitimate representative of Venezuela as a consequence of the United States' recognition of his government.102 However, that position may become increasingly complicated after Maduro's recent election victory in December 2020. While the legitimacy of the results has been questioned, Maduro's effective control over Venezuela appears to have grown stronger. The European Union, for example, which initially, like the United States, recognised Guaidó as Venezuela's legitimate interim president, announced in January 2021 that it no longer does so.103 It can be expected that this ongoing uncertainty as to Venezuela's representation will cause at least some amount of disarray in ongoing proceedings.
Outlook and conclusions
The international commercial arbitration regime in the United States is stable and is tended by US courts with an eye to its effective operation. Personnel changes have occurred on the US Supreme Court, and it remains to be seen whether these will affect the nuances of this pro-arbitration regime; but there is no reason to expect sharp alterations of direction. The outlook for investment arbitration is more uncertain, as a new administration develops its policies in this area.
1 James H Carter is senior counsel and Claudio Salas is special counsel at Wilmer Cutler Pickering Hale and Dorr LLP. Sabrina Lee is in independent practice.
2 9 United States Code (USC) Section 2.
3 9 USC Section 3.
4 An arbitral award may be vacated under the FAA where, for example, the parties or arbitrators behaved fraudulently or where the arbitrators exceeded their powers as defined in the arbitration agreement. For a complete list of grounds of vacatur, see the FAA at Section 10.
5 See Moses H Cone Mem'l Hosp v. Mercury Constr Corp, 460 US 1, 24 (1983) ('Section 2 [of the FAA] is a congressional declaration of a liberal federal policy favouring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary.').
6 See Mitsubishi Motors Corp v. Soler Chrysler-Plymouth, 473 US 614 (1985).
7 See FAA, 9 USC Sections 201–208, 301–307.
8 See Allied-Bruce Terminix Cos v. Dobson, 513 US 265, 281 (1995) (holding that the FAA pre-empts state policy that would put arbitration agreements on an unequal footing).
9 Some authorities argue that, to the extent manifest disregard exists as a judge-made ground for vacatur, it applies only to domestic cases and not to international arbitrations conducted in accordance with the New York Convention. For a more detailed discussion of developments in the case law concerning manifest disregard, see passages on manifest disregard below.
10 The Supreme Court has ruled that the FAA does not provide an independent basis for subject matter jurisdiction over a motion to compel arbitration in potentially arbitrable disputes not governed by the New York Convention. See Vaden v. Discover Bank, 556 US 49 (2009).
11 514 US 938 (1995).
12 139 S. Ct. 524, 529 (2019).
13 962 F.3d 842 (6th Cir 2020).
14 See id. at 845.
15 See id. at 846.
16 No. C 19-07545 WHA, 2020 WL 619785 at *1 (N.D. Cal., 10 February 2020).
17 See AAA, Consumer Arbitration Rules, p. 33.
18 Case C-284/16, Slovak Republic v. Achmea BV (6 March 2018).
19 Micula v. Gov't of Romania, 404 F. Supp. 3d 265, 279 (D.D.C. 2019).
21 Micula v. Gov't of Romania, 805 F. App'x 1 (D.C. Cir 2020) ('as the district court carefully explained, Romania did not join the EU until after the underlying events here, so the arbitration agreement applied').
22 CEF Energia, B.V. v. Italian Republic, No. 19-CV-3443 (KBJ), 2020 WL 4219786, at *1 (D.D.C., 23 July 2020).
23 id. at *5.
25 Crystallex Int'l Corp. v. Bolivarian Republic of Venezuela, 932 F.3d 126 (3d Cir 2019).
26 Crystallex Int'l Corp. v. Bolivarian Republic of Venezuela, No. CV 17-MC-151-LPS, 2021 WL 129803, at *4 (D. Del., 14 January 2021).
27 id. at *5.
28 id. at *8.
29 id. at *16.
30 Crystallex Int'l Corp. v. Bolivarian Republic of Venezuela, No. MC 17-151-LPS, 2021 WL 1392992, at *2 (D. Del., 13 April 2021).
31 Vantage Deepwater Co. v. Petrobras Am., Inc., 966 F.3d 361, 366 (5th Cir 2020).
32 id. at 370.
33 id. at 372.
34 Compania de Inversiones Mercantiles, S.A. v. Grupo Cementos de Chihuahua S.A.B. de C.V., 970 F.3d 1269 (10th Cir 2020).
35 id. at 1281.
37 id. at 1282.
39 id. at 1288.
40 id. at 1289.
42 id. at 1290.
43 id. at 1291.
44 No. 20-CV-00763 (APM), 2021 WL 254106, at *6 (D.D.C., 26 January 2021).
45 462 U.S. 611 (1983).
46 UAB Skyroad Leasing v. OJSC Tajic Air, No. 20-CV-00763 (APM), 2021 WL 254106, at *5 (D.D.C., 26 January 2021).
47 id. at *6.
48 id. at *6–8.
49 id. at *8–10.
50 id. at *12.
51 Wilko v. Swan, 346 US 427, 436-37 (1953), overruled in part on other grounds by Rodriguez de Quijas v. Shearson/Am Express, Inc, 490 US 477 (1989).
52 See, e.g., Stolt-Nielsen SA v. AnimalFeeds Int'l Corp, 548 F3d 85, 91–93 (2d Cir 2008), rev'd, 559 US 662, 672–73 (2010).
53 Hall Street Assocs, LLC v. Mattel, Inc, 552 US 576, 585 (2008). See also Gary Born, International Commercial Arbitration 1,229–1,293 (third edition 2021), discussing Stolt-Nielson SA and manifest disregard under the FAA.
54 Hall Street, 552 US at 588 (quoting Kyocera Corp v. Prudential-Bache Trade Servs, Inc, 341 F3d 987, 998 (9th Cir 2003)).
55 See Stolt-Nielsen SA, 559 US at 672 n3.
56 See Citigroup Global Mkts Inc v. Bacon, 562 F3d 349, 355 (5th Cir 2009) ('Hall Street unequivocally held that the statutory grounds are the exclusive means for vacatur under the FAA . . . Thus, to the extent that manifest disregard of the law constitutes a non-statutory ground for vacatur, it is no longer a basis for vacating awards under the FAA'.); AIG Baker Sterling Heights, LLC v. Am Multi-Cinema, Inc, 579 F3d 1268, 1271 (11th Cir 2009) (Hall Street 'confirmed [that Sections] 10 and 11 of the FAA offer the exclusive grounds for expedited vacatur or modification of an award . . .'). The Eighth Circuit has stated that it had 'previously recognized the holding in Hall Street and similarly hold now that an arbitral award may be vacated only for the reasons enumerated in the FAA'. Med Shoppe Int'l, Inc v. Turner Invs, Inc, 614 F3d 485, 489 (8th Cir 2010). Lower courts have interpreted this statement as a repudiation of manifest disregard. See Jay Packaging Grp, Inc v. Mark Andy, Inc, No. 4:10MC00763, 2011 WL 208947, at *1 (ED Mo 21 January 2011) ('The Eighth Circuit has specifically address[ed] this issue, and concluded that a party's attempt to vacate or modify an arbitration award on the basis of an alleged manifest disregard of the law is not a cognizable claim'.).
57 See Stolt-Nielsen SA, 548 F3d at 94–95 (noting that the Hall Street court speculated that manifest disregard was 'shorthand' for the FAA's statutory grounds for vacatur); Comedy Club, Inc v. Improv West Assocs, 553 F3d 1277, 1290 (9th Cir 2009) (Hall Street listed several possible readings of manifest disregard, including the Ninth Circuit's longstanding interpretation that it is equivalent to Section 10(a)(4) of the FAA).
58 See Biller v. Toyota Motor Corp, 668 F3d 655 (9th Cir 2012); AZ Holding, LLC v. Frederick, 473 F Appx 776 (9th Cir 2012); Goldman Sachs Execution & Clearing, LP v. Official Unsecured Creditors' Comm of Bayou Group, LLC, 491 F Appx 201 (2d Cir 2012).
59 Wachovia Sec, LLC v. Brand, 671 F3d 472 (4th Cir 2012).
60 Johnson Controls, Inc v. Edman Controls, Inc, 712 F3d 1021, 1026 (7th Cir 2013) (citation omitted).
61 Physicians Ins Capital v. Praesidium Alliance Grp, 562 F Appx 421, 423 (6th Cir 2014) (citation omitted). The Sixth Circuit noted that manifest disregard is a 'limited review'. id. (citations and quotation marks omitted):
A mere error in interpretation or application of the law is insufficient. Rather, the decision must fly in the face of clearly established legal precedent. As long as a court can find any line of argument that is legally plausible and supports the award then it must be confirmed. It is only when no judge or group of judges could conceivably come to the same determination as the arbitrators must the award be set aside.
62 For the First Circuit, compare Ramos-Santiago v. United Parcel Services, 524 F3d 120, 124 n3 (1st Cir 2008) ('[M]anifest disregard of the law is not a valid ground for vacating or modifying an arbitral award . . . under the [FAA]'), with Kashner Davidson Sec Corp v. Mscisz, 601 F3d 19, 22 (1st Cir 2010) ('[We] have not squarely determined whether our manifest disregard case law can be reconciled with Hall Street'). See also Republic of Argentina v. BG Grp PLC, 715 F Supp 2d 108, 116 n7 (DDC 2010) ('A question remains, however, as to whether this basis [manifest disregard] for vacating an arbitral award survived the Supreme Court's recent decision in Hall Street . . .'), rev'd 665 F3d 1363 (DC Cir 2012), rev'd sub nom. BG Grp PLC v. Republic of Argentina, 572 US 25 (2014); Paul Green Sch of Rock Music Franchising, LLC v. Smith, 389 F Appx 172, 177 (3d Cir 2010) ('Based on the facts of this case, we need not decide whether manifest disregard of the law remains, after Hall Street, a valid ground for vacatur'.); Hicks v. Cadle Co, 355 F Appx 186 (10th Cir 2009) (no need to decide whether manifest disregard survives Hall Street because petitioners have not demonstrated it).
63 Raymond James Fin Servs, Inc v. Fenyk, 780 F3d 59, 64-65 (1st Cir 2015).
64 3:20CV195-GCM, 2020 WL 3260067 (W.D.N.C., 16 June 2020).
65 See id. at *3.
66 See id. at *4.
67 'The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal . . .' 28 USC Section 1782(a).
68 Consorcio Ecuatoriano de Telecomunicaciones SA v. JAS Forwarding (USA), Inc, 747 F3d 1262, 1269 (11th Cir 2014).
69 See NBC v. Bear Stearns & Co, 165 F3d 184, 188 (2d Cir 1999) ('[T]he fact that the term 'foreign or international tribunals' is broad enough to include both state-sponsored and private tribunals fails to mandate a conclusion that that the term, as used in [Section] 1782 does include both'). See also Republic of Kazakhstan v. Biedermann Int'l, 168 F3d 880 (5th Cir 1999); In re Medway Power Ltd, 985 F Supp 402 (SDNY 1997).
70 Intel Corp v. Advanced Micro Devices, Inc, 542 US 241 (2004). See also Gary Born, International Commercial Arbitration (2021, third edition), pp. 2584–97, discussing the use of Section 1782 under US law to obtain evidence for use in international arbitration.
71 Intel, 542 US at 248–49.
72 id. at 258.
73 For a recent discussion of this issue see In re Gov't of Lao People's Democratic Republic, No. 1:15-MC-00018, 2016 US Dist LEXIS 47998 (DN Mar Is 7 April 2016).
74 In re Guo, 965 F.3d 96 (2d Cir, 8 July 2020), as amended (9 July 2020).
75 Servotronics, Inc. v. Rolls-Royce PLC, et al., No. 19-1847, 2020 WL 5640466 (7th Cir, 22 September 2020).
76 id. at *5.
77 Servotronics v. Boeing Company, 954 F.3d 209 (4th Cir, 2020).
78 Texas Brine Co. LLC v. American Arbitration Association, 935 F.3d 482 (5th Cir, 2020).
79 id. at 489.
80 975 F.3d 449 (5th Cir, 2020).
81 id. at 453.
83 id. at 454.
84 7:19-cv-02044-LSC, 2020 WL 3207615 (N.D. Ala., 15 June 2020).
85 id. at *2.
86 20-CIV-62415-RAR, 2020 WL 7625226 (S.D. Fla., 21 December 2020).
87 Earth Science Tech., Inc. v. Impact UA, 809 F. App'x 600 (11th Cir 2020).
88 965 F.3d 71 (1st Cir 2020).
89 id. at 74.
90 id. at 79.
91 id. at 80.
92 id. at 82.
93 Koch Mins. Sarl v. Bolivarian Republic of Venezuela, No. 17-CV-2559-ZMF, 2020 WL 7646764, (D.D.C., 23 December 2020).
94 id. at 14.
96 id. at 17–18.
97 ConocoPhillips v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/07/30), Annulment Proceeding, Decision on the Applicant's Request to Continue the Stay of Enforcement of the Award (2 November 2020), at para. 67.
98 Christian Leathly, New Developments in Relation to the Legal Representation of Venezuela in International Proceedings (2 April 2021) available at https://hsfnotes.com/latamlaw/2021/04/02/new-developments-in-relation-to-the-legal-representation-of-venezuela-in-international-proceedings/#page=1 (last viewed 29 April 2021).
100 ConocoPhillips v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/07/30), Annulment Proceeding, Order on Applicant's Representation (3 April 2020), at para. 37.
101 See Christian Leathly (footnote 98).
102 OI Eur. Grp. B.V. v. Bolivarian Republic of Venezuela, No. CV 16-1533 (ABJ), 2019 WL 2185040, at *5 (D.D.C., 21 May 2019) ('In light of [the D.C. Circuit] Order, and because the United States has recognized Juan Guaidó as the Interim President of Venezuela,3 the Court will recognize the Guaidó government lawyers as the appropriate representatives of Venezuela').
103 See Christian Leathly (footnote 98).