Tag: Arbitration

The New Cross-Cultural Playbook for Global Arbitration

Cross-cultural differences and the misunderstandings that often arise from them play a powerful role in how businesses build relationships and conduct their commercial and legal affairs. At a time of expansive growth in transnational business, trade, and investment, a lack of knowledge about local culture, values, and customs in business and legal dealings are leading to ever more complex and tense international legal disputes.

As lawyers and arbitrators, it is critical to foster a deeper understanding of how cultural and emotional factors along with behavioral tendencies impact business decisions and the practice of arbitration worldwide. Addressing these issues in the context of business-to-business (B2B) relationships, a recent report by the International Chamber of Commerce, Jus Connect, and McCann Truth Central found that a new set of principles—based on emotional intelligence, cultural awareness, and cultural fluency—is required to create a cross-cultural playbook for arbitration and re-imagining dispute outcomes.

Global leaders surveyed said that arbitration is still the preferred way to resolve cross-border disputes over litigation. If a contract fails, 60% prefer arbitration to legal proceedings in a court. Overall, arbitration has increased significantly over the past decade, reaching an estimated $80 billion in 2022. Some 37,000 new cases were registered between 2018 and 2022, an increase of nearly 30% between 2013 and 2017. While this represents a mere fraction of the $121 trillion in international trade in 2022, arbitration is growing twice as fast as global trade as clients recognize the speed, efficiency, transparency, and flexibility it offers to resolve disputes compared to traditional litigation.

Cultural Miscues

In my travels as President of the ICC International Court of Arbitration, I have heard countless stories about the influence of cross-cultural differences on business and legal affairs, including arbitration. And with good reason: every country has unique and often contrasting attitudes about dispute resolution and misunderstanding them can add layers of difficulty during legal proceedings for both general counsel and arbitration lawyers.

Based on extensive interviews and quantitative data, the ICC report divides cultural attitudes and approaches into four generalized categories and suggests which countries fit into each one. The Innovative Explorer, for example, including France and Saudi Arabia, seeks collaboration and co-creation, looks for emotional chemistry, and tends to stretch goals. For their part, India and Nigeria can be seen as a Strategic Balancer, eager for collaboration and co-creation, along with emotional chemistry, and ready to stretch goals.

Brazil and Mexico are among the countries regarded as a Decisive Custodians, in that they tend to value structure and contracts as part of a more direct, yet discrete approach and in addition, prefer working with senior partners. Finally, as the name indicates, the Pragmatic Realist—including the U.K. and Switzerland—takes a reasoned and practical approach, with an appreciation for clear expectations meeting agendas, and giving parties a second chance.

These attitudes are reflected in the different approaches that countries have toward contracts. Some want a clear scope, set in stone. Others put more focus on outcomes and fluidity in delivery. For instance, while Mexico and Brazil prefer structured approaches in contract agreements, India and Saudi Arabia are open to collaboration and co-creation in a scope of work. France and China prefer to stretch sometimes-unrealistic goals, but India and Nigeria, want realistic and achievable ones.

Chameleon U.S.

Digging deeper into the analysis shows that in some ways, the U.S. has a lot in common with Brazil and China when considering the role of hierarchy and discretion in a business situation. If someone in business makes a mistake, Americans prefer to promptly resolve disputes, even if a party might get offended and are also unlikely to copy their boss on an email.

These categories help explain many business decisions and actions and can guide teams to recognize and overcome cultural differences. But they don’t always tell the whole story: cultural nuances add even more complexity to cross-border business and legal dealings.

The U.S., for example, can be described as a chameleon or shapeshifter that doesn’t always neatly fit any descriptor. In my experience, U.S. business representatives will typically revise their approach depending on what the customer or counterparty needs. This flexibility is likely due to the presence of diverse and multicultural U.S. business teams compared to some other countries. As one senior arbitrator said in the report, “In the U.S., the common denominator is understanding what the customer needs.”

Small Behavior, Big Impact

Mapping the world by culture rather than geographic positioning offers valuable insights that can improve cultural fluency and ensure that geography alone does not influence expectations and approaches. The report showed how small behaviors point to larger cultural priorities. Teams from France and Saudi Arabia don’t necessarily need an agenda to attend a meeting, but those from India and Nigeria would usually prefer a detailed agenda. Acknowledging these cultural differences, however small and seemingly inconsequential, provides a framework for anticipating and resolving friction and helping teams adapt.

One of the most interesting aspects of the study is that business teams and leaders say they want lawyers involved earlier in the B2B process—and more deeply integrated into the journey—with a focus on win-win outcomes. This is consistent with the changing role of in-house counsel, particularly in the U.S., where in house counsel work more closely with business teams to develop strategy and structure the deal. Given the growing complexity of today’s global regulatory environment, business teams can no longer negotiate the deal first and then bring the terms to the in-house team to document.

While the study focused on cultural differences, it also found a commonality across cultures: a growing preference for non-legal dispute resolution. Some 77% favored an amicable, interest-based resolution—through internal or contract review, or direct negotiations between legal teams—compared to 52% favoring a rights-based resolution using arbitration or legal proceedings in a court. Only about one-third chose a so-called power-based resolution, such as a canceled contract, a report to a regulator, a post on social media, or a leak to the press.

Key Truths

Understanding the diverse world of business culture reveals several truths about B2B relationships. One is that emotion and culture have a significant impact on business—perhaps more than many realize—because the B2B journey comprises the human experience. Contrary to the commonly held perceptions that B2B interactions are largely transactional or purely functional, and free of emotions, the report found that they are emotionally charged, from initial engagement with parties and contracts to long-term partnerships.

I have experienced this firsthand when representing a multinational company in a very complex arbitration involving the calculation of damages. I needed to prepare the CEO for cross-examination. Yet his analysis was not entirely data-driven decision-making: emotions were also a big part of his thinking. When describing his approach and his meeting with his CEO counterpart, he just kept telling me, “This is so emotional.”

Another truth is that by effectively navigating cultural differences and overcoming communication barriers, we can improve business relationships. In this context, business attitudes toward particulars such as contracts and meeting styles reflect cultural priorities and offer relevant cultural cues. At first, these may appear to be minor details but unveil deeper cultural attitudes concerning hierarchy, orderliness, adaptability, and creativity.

When I was in China earlier this year, I was surprised by the number of back-channel conversations that took place to determine how many people we could bring to a meeting and the level of seniority so that the Chinese delegation would have the same. There were also discussions about attire—including whether men should wear a tie—so that nobody would feel out of place.

Cross-Cultural Playbook

With these truths in mind, a new cross-cultural playbook for global arbitration should include the following actions. First, integrate legal teams as early as possible into the process and keep them engaged via partnerships with business teams. Train teams to understand emotional intelligence and be more culturally aware so they can become more adept at relationship building and managing shifting emotions during the B2B journey. Ensure teams can interpret subtle behavioral and cultural cues to make informed decisions and improve communications. Equally important, prioritize direct negotiation channels for dispute resolution, reserving legal action for failed negotiations.

More than ever, we must emphasize the role of emotion and human interaction in business and how important it is in building trust: the report noted that half of all B2B disputes are likely caused by the breakdown of human interaction rather than solely by contractual issues. With heightened sensitivity to cultural differences, we can better understand the complexities of the B2B journey, minimize business and legal disputes, and successfully apply these truths to resolving conflicts through arbitration.

© Copyright 2024 ICC International Court of Arbitration®
For more on Global Arbitration,  visit the NLR ADR Arbitration Mediation section

Supreme Court Says When It Comes to Deciding Arbitration Clauses: “I Am the Law”

On May 23, the Supreme Court issued a decision holding that when parties have two conflicting contracts – one that sends disputes to arbitration and one that sends disputes to the courts – a court, not an arbitrator, must decide which contract controls. This decision is important as arbitration provisions continue to rise in popularity and situations like the one the Supreme Court encountered are not uncommon.

The Supreme Court’s decision in Coinbase Inc., v. Suski, et. al., stems from a dispute regarding two separate contracts between Coinbase, a leading cryptocurrency exchange platform, and respondents, users of Coinbase. The first contract concerned the Coinbase user agreement, which included an arbitration agreement with a delegation clause. The delegation clause provided that “[a]ll such matters shall be decided by an arbitrator and not by a court or judge.” The second contract concerned the official rules of a sweepstakes Coinbase offered, where respondents entered for a chance to win Dogecoin. The official rules contained a forum selection clause, which provided: “[t]he California courts (state and federal) shall have sole jurisdiction of any controversies regarding the [sweepstakes] promotion and the laws of California shall govern the promotion.” Thus, the arbitration agreement’s delegation clause, which sent all disputes to arbitration, and the official rules’ forum selection clause, which sent all disputes to California courts, provided for different procedural vehicles for disputes.

Respondents brought suit against Coinbase in the United States District Court for the Northern District of California for claims under the Coinbase user agreement and the official rules. Coinbase moved to compel arbitration based on the Coinbase user agreement, and the District Court denied the motion, reasoning that deciding which contract governed was a question for the court. On appeal, the Ninth Circuit affirmed the District Court’s ruling. The Supreme Court then granted certiorari, and was tasked to decide, when two such contracts exist, who should decide the arbitrability of a contract-related dispute between the parties – an arbitrator or the court?

Justice Ketanji Brown Jackson, writing for the Supreme Court, began the Court’s analysis by noting that the Supreme Court has “previously addressed three layers of arbitration disputes: (1) merits, (2) arbitrability, and (3) who decides arbitrability. This case involves a fourth: What happens if parties have multiple agreements that conflict as to the third-order question of who decides arbitrability?”. Justice Jackson wrote that “[b]asic legal principles establish the answer. Arbitration is a matter of contract and consent, and we have long held that disputes are subject to arbitration if, and only if, the parties actually agreed to arbitrate those disputes. Here… a court needs to decide what the parties have agreed to.” So, if there is a contract at dispute without an arbitration clause, even if there is another contract that requires arbitration, the matter will need to be decided by a court.

Coinbase argued that the user agreement’s delegation provision should have been isolated and severed from the contract and the Ninth Circuit should have considered only arguments specific to that provision. The Supreme Court, however, rejected this argument, reasoning that if a party challenges the validity of the precise agreement to arbitrate at issue, the federal court must consider the challenge before ordering compliance with that arbitration agreement. The Supreme Court also declined to heed Coinbase’s warning that its ruling would “invite chaos by facilitating challenges to delegation clauses.” To this argument, the Supreme Court replied that such chaos will not follow because disputes with one contract that mandates arbitration will go to arbitration absent a successful challenge, and situations with two contracts – one sending the dispute to arbitration and one sending the dispute to the courts – will be handled by a court.

This is an important decision in the dispute resolution space because it makes clear that even though a company may have an arbitration provision in one contract, that arbitration provision will not necessarily carry the day if there are subsequent contracts that provide for different results. As companies continue to increasingly use arbitration provisions in their contracts, they must be careful to be consistent in any future contracts or agreements.

Copyright ©2024 Nelson Mullins Riley & Scarborough LLP

Diving Into SECURE 2.0: Changes for Small Employer Retirement Plans

International arbitration provides a binding, neutral, and consensual process for resolving contractual disputes between parties, often resulting in resolutions that are quicker, cheaper, more private, and more controllable than litigation in a court of law. Accordingly, arbitration for the resolution of international disputes between contracting parties from different legal jurisdictions has emerged as a fundamental method for resolving complex disputes in an ever-increasingly interconnected world. Multinational companies should make sure they stay up to date on the fundamentals of international arbitration, and it all starts with ensuring any arbitration clause included in an international agreement is drafted in a way that is enforceable and provides contracting parties a clear path toward the resolution of their dispute.

Why Should You Care about What Your Arbitration Clause Says?

An arbitration clause is the starting point for determining the parties’ intent in resolving their dispute outside a court of law. It is an independent agreement within the broader contract, likely enforceable even if the remainder of the contract is procured by fraud, and sits at the apex of what a court or arbitrator will look for to determine the parties’ intent with respect to how a dispute between contracting parties should be resolved.

A clear arbitration clause results in a meaningful, enforceable outcome, minimizes the intervention of U.S. or foreign judiciaries in what should be a private dispute resolution process, grants the third-party administrator and/or the arbitrator the powers necessary to resolve the dispute, and is conducted in accordance with procedures that help guarantee a fair, efficient proceeding.

In contrast, if an arbitration clause is ambiguous, there may be a finding that there is no dispute resolution agreement to enforce. This can result in challenges to the arbitration clause’s enforceability and potential litigation in unfavorable and less-than-ideal judicial systems. Of course, such ambiguity and challenges will create higher costs, longer windows of time to resolve disputes, greater risks that your claims in the dispute will be vulnerable to collateral attacks, and other unintended and unexpected consequences.

What Are the Hallmarks of a Clear Arbitration Clause?

For purposes of clarity, you should ensure your contract’s arbitration clause identifies:

  • Applicable Law. Which country’s (or state’s) law applies?
  • Forum and Rules. There are any number of arbitral forums, each with its own nuances in terms of procedure. Knowing the business and potential disputes that could arise will assist in selecting a good fit in terms of applicable rules.
  • Seat of Arbitration. The seat of the arbitration is more than just the place where the final hearing will take place. It provides a significant backbone to the proceeding and is as important as the selection of the forum and applicable rules.
  • Number of Arbitrators. The more arbitrators, the larger the cost, but a three-member tribunal has its place in certain disputes.
  • Language. Selecting the language (or languages) of the arbitration can greatly affect the cost of the proceeding.

Why Does Selecting the Seat of Arbitration Matter?

More than just the physical place where the arbitration will take place, the seat of arbitration is a legal construct that determines the lex arbitri — the procedural law of the arbitration.

Where the contract between the parties or the rules selected by the parties do not provide for certain procedures, the procedural laws of the seat of arbitration will be applied. Among the important aspects of a proceeding that the seat of the arbitration determines is:

  • Which courts will have supervisory jurisdiction over the arbitration;
  • Definitions and form of an agreement to arbitrate;
  • The arbitrability of the dispute;
  • The constitution of the arbitral tribunal and any grounds for challenge;
  • The equality of treatment of the parties;
  • The freedom to agree on detailed rules of procedure;
  • Interim measures of protection and court assistance;
  • Default proceedings;
  • The validity of the arbitration award; and
  • The finality of the arbitration award, including which courts will hear challenges to the award.

If not clearly identified by the parties, the seat of arbitration — and the procedural laws of that seat — will be selected by the arbitral tribunal.

What Do the Rules You Picked Say About Interim Measures?

A major consideration in selecting the applicable arbitral rules is the availability of interim measures. These are measures of relief, which can include injunctive relief, obtained prior to the commencement of, or during, an arbitral proceeding.

One of the most interesting forms of interim measures is an award of security. An interim award of security in arbitration is a payment of an amount of monies (usually tied to damages) pre-hearing for the conservation of, and enforcement of, a judgment so as to not render a judgment in the future a Pyrrhic victory. These securities prevent the dissipation of assets before it is too late to reach those assets. As such, it is an extremely powerful tool, and determining whether the rules you select, and/or the seat of the arbitration, allows for such an interim award should be a key consideration in drafting your arbitration clause.

What Are the Abilities and Liabilities of Third Parties?

Depending on the circumstances, jurisdiction chosen, governing law, and seat of the arbitration, a third party (a non-signatory to the agreement) can compel arbitration and be compelled to arbitration, the latter being the rarer occurrence. Knowing if there is potential exposure to such parties, which can include directors, officers, employees, beneficiaries, and others, should be assessed prior to entering into an arbitration agreement.

On What Basis Are Arbitral Awards Enforceable?

Arbitral awards, because of the adherence by more than 160 countries to the 1958 New York Convention on the Recognition and Enforcement of Arbitral Awards (“New York Convention”), are the most enforceable award anywhere in the world. Under the New York Convention:

  • A written agreement to arbitrate, including as contained in a contractual arbitration clause, is generally enforceable.
  • Subject to very narrow exceptions, an arbitral award may be recognized and enforced as a final judgment in each contracting country.

In contrast, no treaty requires that the judgments of a country’s court system be recognized; these enforcement decisions are made on an ad hoc basis according to principles of comity and public policy. The Hague Judgments Convention on the Recognition and Enforcement of Foreign Judgments, a treaty similar to the New York Convention, may become the relevant applicable framework in the future but is still in its infancy.

How Can Legal Counsel Help My Multinational Company Address International Arbitration Issues?

The best way to ensure a reliable and enforceable arbitration agreement is a careful examination of the structure and purpose of the contract as well as the company’s unique business profile based on how and where it does business.

Adequate legal counsel should provide clients with practical guidance in drafting and enforcing international arbitration agreements. Services provided should include:

  • Counseling: Counseling companies to understand how international arbitration clauses apply to their multinational operations, how they may benefit from such clauses, and/or how such clauses may not be in their best interest.
  • Drafting: Working with clients to ensure enforceable and clearly understood arbitration clauses are prepared for the specific contractual relationship, considering the myriad factors that go into preparing such a clause.
  • Risk Assessments: Working with companies to conduct risk assessments in the event of contract disputes with arbitration clauses.
  • Arbitration: Arbitrating before tribunals to secure interim securities and/or enforceable arbitral awards in the event of a contract dispute anywhere in the world.

© 2023 Foley & Lardner LLP

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No More Surprise Medical Bills: Providers Score More Victories in First Year of No Surprises Act Arbitrations, But Claims Backlog Otherwise Complicates Implementation

In the year following the implementation of the arbitration process established under the federal No Surprises Act (NSA), more than 330,000 disputes have been submitted for resolution. This figure far outpaces the predictions of the US Departments of Health and Human Services (HHS), Labor, and the Treasury (the Departments), and complicates the implementation of the NSA.

*This is the eighth article in a series analyzing the No Surprises Act and its implementation. To view the entire series, click here.

As background, Congress passed the NSA in 2020, effective in 2022, to curb so-called “surprise” medical bills — balance bills received by patients in situations where they have no control over who is involved in their care. Frequently, patients incur these bills when they obtain emergency care from out-of-network facilities or non-emergency services at in-network facilities where at least one member of the care team is out-of-network. In these situations, the NSA forbids out-of-network providers from balance billing the patients to collect the difference between billed charges and what the patient’s health insurance actually paid. Instead, to protect patients and ensure that reasonable payments are made to providers, the NSA establishes an alternative dispute resolution process, allowing eligible parties to submit disputed claims to independent dispute resolution entities (IDREs) to determine appropriate out-of-network payment rates.

Dispute resolution was intended to be streamlined and efficient, but IDREs have been inundated with submissions in the year since the NSA became effective. The volume of claims has created a significant backlog, hindering providers’ ability to obtain timely and appropriate reimbursement for the services they rendered. In an effort to promote transparency, the Departments recently issued a “status update” on the arbitration process. The report revealed several key findings regarding the volume, eligibility, and outcomes of claims submitted under the NSA to date.

Key Findings of the Status Update Report

First, the report provided insight into the overall numbers of claims that have been filed since the NSA became effective. Since the federal claims submission portal first went live in April 2022, disputing parties have initiated more than 330,000 arbitration submissions. This figure is nearly 14 times greater than the Departments’ initial estimates. The sheer volume of claims has drastically slowed the adjudication of claims submitted under the NSA.

Second, the report states that IDREs have rendered determinations in favor of one party or the other in only a small fraction of cases, with approximately 42,000 disputes decided as of March 31, 2023. Of these, initiating parties (typically health care providers) have prevailed approximately 71% of the time.

Third, to date, IDREs have closed more cases than they have decided. Overall, more than 100,000 claims,  – more than four times the amount anticipated by the Departments, have been closed. There are various reasons for this. Some claims were closed following successful negotiations between the parties. Others were closed due to one or both parties failing to submit the required fees mandated under the NSA. A large number — nearly 40,000 — were closed for eligibility reasons. Non-initiating parties have challenged the eligibility of more than a third of claims submitted for arbitration, balking at approximately 120,000 disputes. Non-initiating parties frequently object that claims are not eligible for arbitration under the NSA for multiple reasons, including lack of timely negotiation or arbitration submission, or because the disputed claims involve insurance programs outside the scope of the NSA.

In addition to the objections lodged by non-initiating parties, the IDREs have an independent duty to confirm that all claims submitted for arbitration are eligible under the NSA. These determinations require IDREs to engage in what can be a complex and time-consuming analysis of each claim, frequently requiring the submission of additional information from the parties. The report finds that these eligibility determinations represent the primary cause for the delays in processing arbitration submissions.

Finally, in an effort to help resolve delays, the status update includes that the Departments have begun to require initiating parties to submit additional information to assist IDREs in evaluating the eligibility of claims. The Departments have also modified the arbitration portal to require the input of additional information to enable non-initiating parties to identify disputed claims. These are among the “ongoing technical and operational improvements” the report states the Departments have been making over the last year.

Looking Ahead: Additional Legislation and Ongoing Court Challenges

The report highlights a series of problems that have hampered the implementation of the NSA, including larger-than-expected dispute volume, complex eligibility determinations, and technical issues. Collectively, these problems have left many parties awaiting arbitration awards and payment.

Meanwhile, the legal challenges to the Departments’ implementing regulations under the NSA continue, and HHS Secretary Xavier Bacerra recently testified before Congress regarding the implementation of the NSA. These developments have fueled speculation that Congress may step in and pass additional legislation to streamline the arbitration process. While these events play out, providers should continue to submit timely open negotiation notices and IDR initiation forms to preserve their rights under the NSA.

A copy of CMS’s report can be found here.

© 2023 ArentFox Schiff LLP

For more Healthcare Legal News, click here to visit the National Law Review.

Mediation vs. Arbitration Provisions in a Contract

All provisions of a contract are relevant, no matter how innocuous they appear to be and no matter how many times you are told that they are “just boilerplate.” Mediation and arbitration provisions often are deemed to fall in the “boilerplate” category, but the impact of these provisions cannot be understated.

Taking a step back, in the event of a dispute between contract counterparties, the underlying contract often provides an avenue for resolution of such dispute, which may require that the parties pursue such matter in court, through arbitration or by other means, including mediation. While most parties are familiar with the concept of litigation, the differences between mediation and arbitration are less well-known. Among the many relevant factors distinguishing between mediation and arbitration, the following three factors should be considered:

  1. Mediation in the United States is non-binding, meaning that a party is not obligated to follow the determination of a mediator. Arbitration, on the other hand, may be binding.

  2. From a timing standpoint, the mediation process is more expeditious, often being completed anywhere from one to three months after the process is initiated, depending upon the complexity of the issues and the parties’ agreements. Arbitration proceedings often last as long as a lawsuit with a formal discovery process and other formalities that commonly would be part of a lawsuit.

  3. From a cost perspective, mediation is more economical, largely due to the speed of the process and less legal formalities. This generally bodes well for the parties if they agree to abide by the determination of the mediator or view such decision as indicative of how an arbitrator or judge ultimately would rule on a matter. But since mediation is non-binding, parties may view this process as an unnecessary delay and waste of resources.

© 2023 Chuhak & Tecson P.C.

For more Business of Law legal news, click here to visit the National Law Review

Non-Negotiable Arbitration Agreements May Be Required as a Condition of Employment

On February 15, 2023, the Ninth Circuit struck down AB 51, a California statute that imposed criminal and civil penalties against employers who required employees to enter into an arbitration agreement as a condition of employment, finding the statute to be an “unacceptable obstacle to the accomplishment and execution of the full purposes and objectives” of the Federal Arbitration Act (“FAA”).  Chamber of Commerce of the United States of America, et al. v. Bonta, et al., No. 20-15291 (9th Cir. 2023).

As discussed in our prior post and articles (link here), in August 2022 the Ninth Circuit withdrew its prior decision, which had upheld portions of AB 51, following the United States Supreme Court’s June 2022 decision in Viking River Cruises v. Moriana.

AB 51, embodied in California Labor Code §432.6 effective January 1, 2020, prohibited an employer from entering into a non-negotiable agreement that required the employee to waive “any right, forum, or procedure” for a violation of the Fair Employment and Housing Act or the California Labor Code, including “the right to file and pursue a civil action.”  Further, AB 51 imposed harsh penalties for employers who violated the statute, including a fine of up to $1,000 and up to six months’ imprisonment, as well as the potential for civil litigation by the State of California or by private individuals.  In an effort to avoid Supreme Court decisions striking down state laws that improperly targeted arbitration agreements, the California legislature also created the confusing outcome that potentially criminalized the formation of non-negotiable arbitration agreements, but permitted their enforcement once executed.

Noting that arbitration agreements by their very nature require parties to waive their rights to bring disputes in court, and crediting the plaintiffs’ evidence that the possible imposition of civil and criminal penalties deterred employers from attempting to enter into non-negotiable agreements with employees, the court affirmed the district court’s preliminary injunction in favor of several trade associations and business groups who sought to block the implementation of the statute.  Relying on principles of preemption and judicial precedent striking down similar state laws or judge-made rules that singled out executed arbitration agreements, the Court found AB 51 improperly “burden[s]” the formation of arbitration agreements in violation of the FAA.

Having written the previous 2-1 decision upholding AB 51, Judge Lucero now found himself dissenting.  Arguing that the majority “misconstrue[d] the jurisprudence” of the Supreme Court, the dissent claimed that arbitration was permissible only if consensual and that AB 51 only applied to conduct occurring prior to the formation of the contract and thus was not an obstacle to the objectives of the FAA.

Employers may require their California employees to sign non-negotiable arbitration agreements to obtain or maintain their employment.  Arbitration agreements may still be unenforceable however if they are procedurally and substantively unconscionable, if the agreement lacks mutual consent because a party was forced to sign by threats or physical coercion or “upon such grounds as exist at law or in equity for the revocation of any contract.”  Thus, employers should review their agreements to ensure they are in compliance with other California requirements, that the terms are not unfair or one-sided, and, the agreement presented is not unfair, surprising or oppressive.

Article By Sheryl L. Skibbe of Vedder Price

For more arbitration legal news, click here to visit the National Law Review.

© 2023 Vedder Price

Important Considerations for Mediation

“You can’t always get what you want. But if you try sometimes, well, you just might find, you get what you need.” – Mick Jagger and Keith Richards

Successful Mediation. Unlike the regular adjudication of a legal dispute, in mediation there is no “decision-maker” to determine who is “right” or “wrong.” No final order or judgment is issued. Instead, a good mediation will result in a resolution created by both parties that satisfy both parties’ interests or concerns. Mediators are not looking to find fault or assign blame – rather, a mediator works with the parties to problem solve and find creative solutions and proposals.

Selecting a Mediator. In some court programs there is a list of “pre-approved” mediators. The mandatory Alternative Dispute Resolution program in the Western District of Pennsylvania has such a list. In the Allegheny County Court of Common Pleas there will be no such guidance on preferred mediators. Pennsylvania does not have any national or statewide organization that certifies mediators. However, there is training available and basic mediation training is generally a 40-hour course covering problem solving, conflicts, communication skills, ethics and practical skills in role plays and other exercises. Mediators should have attended at least a basic mediation training course as well as have experience in mediating civil cases.

Article By Kathryn L. Clark of Strassburger McKenna Gutnick & Gefsky

For more arbitration and mediation legal news, click here to visit the National Law Review.

©2022 Strassburger McKenna Gutnick & Gefsky

US Supreme Court Holds That Airline Cargo Loaders Are Exempt From Arbitration

The US Supreme Court has held that airline cargo loaders who load and unload cargo from planes that travel across state lines are exempt from the Federal Arbitration Act (FAA) because they belong to a “class of workers engaged in foreign or interstate commerce” under § 1 of the FAA. Southwest Airlines Co. v. Saxon (June 6, 2020).

Background

Latrice Saxon worked for Southwest Airlines and was responsible for training and supervising teams of ramp agents who load and unload airplane cargo on Southwest planes that travel across state lines. Saxon brought a collective action alleging failure to pay proper overtime wages FLSA in the Northern District of Illinois. However, Saxon had signed an arbitration agreement requiring her to arbitrate her wage disputes, and Southwest moved to dismiss the lawsuit and to compel arbitration under the FAA.

Saxon opposed the motion, invoking § 1 of the FAA, which exempts “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” She argued that ramp supervisors, like seamen and railroad employees, were an exempt “class of workers engaged in foreign or interstate commerce,” but the district court agreed with Southwest and found that only employees involved in “actual transportation,” not those who merely handle goods, fell within § 1 of the FAA. On appeal, the Seventh Circuit Court of Appeals disagreed with the District Court’s decision, holding that “[t]he act of loading cargo onto a vehicle to be transported interstate is itself commerce.” The Seventh Circuit’s decision conflicted with an earlier decision of the Fifth Circuit, Eastus v. ISS Facility Services, Inc., 960 F. 3d 207 (2020), and the Supreme Court granted certiorari to resolve the conflict between the two circuits.

The Supreme Court’s Decision

In a unanimous decision, the Supreme Court held that loaders who load and unload airplane cargo that travels intrastate play a direct role in the interstate transportation of goods and therefore belong to a “class of workers engaged in foreign or interstate commerce” under § 1 of the FAA. The Court engaged in a two-step analysis. First, it considered how to define the relevant “class of workers.” The Court rejected Saxon’s argument that the “class of workers” should be defined as virtually all airline employees, which would include shift schedulers or those who design Southwest’s website. Rather, the Court held that the inquiry must focus on the job duties of the employees themselves, rather than the employer’s business and that Saxon “belongs to a class of workers who physically load and unload cargo on and off airplanes on a frequent basis.”

Next, the Court considered whether that class of airplane cargo loaders “engaged in foreign or interstate commerce.” It determined that “one who loads cargo on a plane bound for interstate transit is intimately involved with the commerce of that cargo” and that workers like Saxon who load and unload airplane cargo that travels in interstate commerce are exempt from the FAA.

Takeaway for Employers

Though the Court did find a class of workers exempt from the Federal Arbitration Act, it expressly rejected the assertion that this exemption should apply to all employees of an employer engaged in foreign or interstate transportation. It went on to provide examples of positions that would not satisfy the exemption, such as workers engaged in the sale of interstate asphalt or workers who supply janitorial services to a corporation engaged in interstate commerce.

Employers engaged in interstate or foreign transportation commercial should consult legal counsel if they plan to utilize arbitration agreements as part of their dispute resolution process.

Article By John P. Zaimes and Natalie C. Kreeger of ArentFox Schiff LLP

For more arbitration legal news, click here to visit the National Law Review.

© 2022 ArentFox Schiff LLP

BREAKING: Supreme Court Reverses California Court of Appeal in Viking River Cruises v. Moriana

On June 15, 2022, the U.S. Supreme Court issued its decision on Viking River Cruises, Inc. v. Moriana (Case No. 20-1573) reversing the California Court of Appeal’s decision to affirm the denial of Viking’s motion to compel arbitration Moriana’s “individual” PAGA claim and to dismiss her other PAGA claims.

As previously reported, the question presented in Viking River Cruises involved whether the Federal Arbitration Act (“FAA”) preempts the California Supreme Court’s decision in Iskanian v. CLS Transp. Los Angeles, LLC, 58 Cal.4th 380 (2014), which invalidates contractual waivers of representative claims under California’s Labor Code Private Attorneys General Act (“PAGA”).

In a majority opinion authored by Justice Alito, the Court held that while Iskanian’s prohibition on “wholesale waivers” of PAGA claims is not preempted by the FAA, Iskanian’s rule that PAGA actions cannot be divided into “individual” and “non-individual claims” is preempted.

Applying this holding to the parties, the Court held that Viking was entitled to enforce the parties’ arbitration agreement insofar as it mandated arbitration of Moriana’s individual PAGA claim.  As for Moriana’s non-individual PAGA claims,  because PAGA itself “provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding,” Moriana lacks “statutory standing” under PAGA to litigate her “non-individual” claims separately in state court.  Accordingly, “the correct course is to dismiss her remaining claims.”

Article By Timothy Kim and Michele J. Beilke of Hunton Andrews Kurth

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Copyright © 2022, Hunton Andrews Kurth LLP. All Rights Reserved.

SCOTUS Significantly Narrows Scope of 28 U.S.C. § 1782 for International Arbitrations

The United States Supreme Court’s recent decision in ZF Automotive US, Inc., et al., v. Luxshare, Ltd., No. 21-401, holds that U.S. federal courts cannot order discovery in aid of international commercial arbitrations or investor-state arbitrations.  In a unanimous decision, the Court reasoned that a “foreign tribunal,” under 28 U.S.C. § 1782, “is best understood as an adjudicative body that exercises governmental authority” rather than a private body that is merely located in another country.  Because the private arbitral tribunal in the ZF Automotive case did not exercise governmental authority, the Supreme Court denied discovery in aid of the proceeding under Section 1782.

The decision resolves a circuit split over whether private commercial arbitration panels should be considered “foreign or international tribunals” under 28 U.S.C. § 1782, and thus whether U.S. discovery should be allowed in such private commercial arbitrations.  Section 1782 authorizes a district court to order the production of evidence “for use in a proceeding in a foreign or international tribunal.”  The Fourth and Sixth Circuits have previously held that international commercial arbitrations are foreign tribunals under the statute, while the Second, Fifth, and Seventh Circuits have held that they are not.  The availability of discovery under Section 1782 is a key issue for the international arbitration community because the scope of discovery allowed under Section 1782 is generally broader than any discovery allowed under institutional arbitral rules or under foreign arbitration laws.

In reaching its decision, the Court found that the word “tribunal” carries a distinctively governmental flavor.  A prior version of Section 1782 covered only “judicial proceeding[s]” in any court in a foreign country, however, Congress later expanded the legislation’s scope to cover proceedings in a “foreign or international tribunal.”  The Court found that while this change broadens the understanding of “tribunal” to include tribunals that are not formal courts, the term is still best understood to refer to an adjudicative body that exercises governmental authority.  Under the decision, a “foreign tribunal” is a tribunal belonging to a foreign nation while an “international tribunal” is best understood as one that involves two or more nations imbued with governmental authority.  Location of the tribunal or the nature of the parties to the dispute are not determinative in this interpretation.

The Court also noted that extending Section 1782 discovery to cover international arbitrations would conflict with the Federal Arbitration Act, which governs domestic arbitrations.  Thus, interpreting Section 1782 as applying to international arbitration would create a “notable mismatch between foreign and domestic arbitration.”

The Court’s decision came in a consolidated case arising out of appeals in the Sixth and Second Circuits.  The first case involves a dispute between Luxshare, a Hong Kong company and ZF Automotive US Inc., a Michigan-based company, over an allegedly fraudulent sales transaction.  The agreement between the parties provided that all disputes would be resolved by an arbitral panel under the Arbitration Rules of the German Arbitration Institute (DIS).  In preparation for bringing an arbitration, Luxshare filed an ex parte petition under Section 1782 in the U.S. District Court for the Eastern District of Michigan seeking information from ZF Automotive and its officers.  The district court granted the petition and ZF Automotive moved to quash, arguing that a panel formed under the auspices of the DIS was not a “foreign or international tribunal” under Section 1782.  The district court denied the motion and the Sixth Circuit denied a stay.

The second case involves AB bankas SNORAS, a Lithuanian bank which was nationalized by Lithuanian authorities.  The Fund for Protection of Investors’ Rights in Foreign States, a Russian corporation, commenced an ad hoc arbitration proceeding against Lithuania under a bilateral investment treaty that the country entered with Russia.  The Fund filed a petition under Section 1782 in the district court seeking information from AlixPartners, LLP, a New York-based consulting firm, and one of its officers.  AlixPartners challenged the petition, arguing that the ad hoc panel was also not a “foreign or international tribunal” under Section 1782.  The district court rejected that argument in a decision that was affirmed by the Second Circuit.

The Court’s decision is likely to spark much discussion in the international arbitration community.  There will likely be a significant impact on current and future international arbitrations, with parties having to consider their strategies for discovery in light of the unavailability of a critical information-gathering tool.  On the other hand, for better and for worse, this decision will further streamline the international arbitration process, as many arbitral proceedings will not be delayed by related litigation over discovery in U.S. courts.

Article By Travis A. Gonyou of Binder & Schwartz

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