In a proceeding under the Federal Arbitration Act (“FAA”) to determine if a dispute must be arbitrated, a federal district court performs a more limited function than in a plenary civil action. On an application to stay an action allegedly referable to arbitration, the court decides only if “the issue involved in such suit or proceeding is referable to arbitration under [a written arbitration] agreement.” 9 U.S.C. § 3. On a petition to compel arbitration, the court decides only whether “ the making of the agreement for arbitration or  the failure to comply therewith” are in issue. 9 U.S.C. § 4. If the court is satisfied that the two matters are not in issue, it must direct the parties to arbitrate in accordance with the agreement. But if either matter is in issue, the court must proceed summarily to trial. Id.
On April 30, 2018, the U.S. Supreme Court granted certiorari to review an unpublished Ninth Circuit decision in Varela v. Lamps Plus, Inc., No. 16-56085 (9th Cir. Aug. 3, 2017). See Lamps Plus, Inc. v. Varela (No. 17-988, U.S. Sup.). Lamps Plus framed the question presented to the Supreme Court as follows: “Whether the Federal Arbitration Act [“FAA”] forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements.”
The Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1, et seq., provides the usual means of enforcing an arbitration agreement by compelling a party to arbitrate rather than litigate. Thus, the FAA enables an aggrieved party to seek “an order directing that such arbitration proceed in a manner provided for in such agreement.” 9 U.S.C. § 4.
Is there such a thing as an arbitration joke? Here is a test. Two plaintiffs walk into a court, claiming that each was wrongfully terminated by a bank (UBS). The bank moves to compel arbitration by plaintiff one; and it moves to dismiss the judicial claim of plaintiff two because that plaintiff had already brought his claim in an arbitration that he commenced. The Court finds that both plaintiffs are bound by arbitration agreements with UBS and that their claims are within the scope of the arbitration clauses. The punchline: “the court denies UBS’s motion to dismiss [plaintiff two’s] claims and to compel arbitration of [plaintiff one’s] claims.” See Zoller v. UBS Secs. LLC, 2018 U.S. Dist. LEXIS 44170 (N.D. Ill. Mar. 9, 2018) (emphasis added).
An ex parte proceeding in a U.S. court to “recognize,” “enforce,” or “confirm” an arbitration award against a foreign sovereign is improper. The U.S. Court of Appeals for the Second Circuit issued a lengthy and instructive decision to that effect in Mobil Cerro Negro, Ltd. v. Bolivarian Republic of Venez., 863 F.3d 96 (2d. Cir. 2017). Its lesson is that in the United States, the only way to enforce (or recognize or confirm) an arbitral award issued against a sovereign entity by the International Centre for Settlement of Investment Disputes (“ICSID”) (and probably otherwise as well) is in compliance with the Foreign Sovereign Immunities Act (“FSIA”).
As discussed in an earlier post, obtaining discovery from a non-party to an arbitration often is easier said than done. Depending on the law of the place of arbitration, arbitrators may not be able to compel document production or testimony from a non-party before a hearing on the merits. This can impair a claimant’s ability to prove its claims considerably, or in some cases altogether inhibit a potential claimant from learning the facts necessary to identify the correct respondent(s) or to articulate a competent claim. Moreover, while Fed. R. Civ. P. 27 permits pre-action discovery to “perpetuate testimony regarding [a] matter that may be cognizable,” many federal courts have interpreted the phrase “perpetuate testimony” to mean that Rule 27 may only be used to “preserve testimony which could otherwise be lost,” rather than as a “substitute for discovery.” Ash v. Cort, 512 F.2d 909, 912 (3d Cir. 1975); accord Bryant v. Am. Fedn. of Musicians of the United States, 666 Fed. Appx. 14, 16 (2d Cir. 2016); In re Allegretti, 229 F.R.D. 93, 96 (S.D.N.Y. 2005) (“[Rule 27] is not a method of discovery to determine whether a cause of action exists; and, if so, against whom the action should be instituted.”)).
Arbitration is a creature of contract. So is the law concerning contracts with an arbitration clause the same as the law concerning any other contract? Almost. One must always bear in mind the “separability” or “independence” of the arbitration agreement — the autonomy principle.
The drive in the Second Circuit to clarify the rules regarding confirmation and enforcement of various types of arbitration awards continues. The latest addition is the decision in BSH Hausgerate GmbH v. Kamhi, 17 Civ. 5776, 2018 U.S. Dist. LEXIS 34597 (S.D.N.Y Mar. 2, 2018) (Sweet, J.). Federal district courts have occasionally decided that an arbitration award is ambiguous or incomplete or indefinite, and therefore should be remanded to the arbitrator for clarification rather than confirmed by the court. Judge Sweet seeks to bring clarity to the law concerning the judicial treatment of international arbitral awards in particular, holding that “ambiguity” is not a cognizable basis for refusing to enforce (or “confirm”) such an award.
Arbitration is often promoted as faster, cheaper, more predictable, and more controllable than litigation. But to many, arbitration’s promise comes up short on delivery. Why? A prime reason is that many parties do not make use of their ability to shape a proceeding that fulfills those promises, and end up with an arbitration that is more time consuming, more expensive, and less predictable than it could have been.
The courts undoubtedly have the power to grant provisional remedies in aid of a pending arbitration – including temporary restraining orders, preliminary injunctions, and attachments. As a recent Fifth Circuit decision reminds us, the courts also can grant such remedies in aid of an arbitration that has yet to be commenced. Indeed, those remedies may be available under state law, even if the future arbitration is governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention”), and even if the arbitration will be sited in a state other than the one in which the interim remedy is sought.