Rodarte v. Financial Industry Regulatory Authority Inc, The et al, No. 3:2011mc00084 - Document 10 (D.S.C. 2011)
Court Description: OPINION AND ORDER denying 1 Motion for Preliminary Injunction; denying 1 Motion for Permanent Injunction; denying 1 Motion to Vacate ; denying 1 Motion for TRO: As this miscellaneous matter pursues only relief through the motion, the matter is dismissed. Signed by Honorable Cameron McGowan Currie on 6/1/2011. (Attachments: # 1 An FAA Cause of Action to Enjoin Arbitration: Is It Necessary?)(cbru, )
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Marc J. Goldstein Litigation & Arbitration Chambers » An FAA Cause of... 1 of 8 http://arbblog.lexmarc.us/2011/03/an-faa-cause-of-action-to-enjoin-arbitr... Search Commentaries by MJG QUICK LINKS E-Mail Inquiries Website Curriculum Vitae Arbitration Experience Profile Mediation Resume Published Articles Arbitration Counsel Services Litigation Counsel Services International Contract Services MJG MEDIATION LIBRARY Mediator Codes of Conduct Laws on Mediation Articles on Mediation COUNSEL CULTURE CORNER n ko ler 1 /1/1 6 c aw yl Two New Arbitrability Decisions, Brieflyb Noted d we A Shift in Attitude AbouttArbitral Orders for Pre-Award Security? vie Las RECENT POSTS Navigating Arbitration Commentaries: A Note on New Features Archives May 2011 April 2011 March 2011 February 2011 January 2011 December 2010 October 2010 September 2010 August 2010 July 2010 June 2010 May 2010 April 2010 March 2010 February 2010 January 2010 December 2009 6/1/2011 8:54 AM Marc J. Goldstein Litigation & Arbitration Chambers » An FAA Cause of... 2 of 8 http://arbblog.lexmarc.us/2011/03/an-faa-cause-of-action-to-enjoin-arbitr... November 2009 October 2009 September 2009 August 2009 July 2009 June 2009 May 2009 April 2009 March 2009 February 2009 January 2009 December 2008 Link and Resources American Arbitration Association Marc Goldstein s Arbitator/Mediator Curriculum Vitae Marc J. Goldstein Litigation & Arbitration Chambers Meta Log in n ko ler Home About Contact RSS 1 /1/1 6 c aw l by d we e t vi Las www.lexmarc.us The question whether the US Federal Arbitration Act ( FAA ) permits a cause of action that seeks only the relief of a stay or injunction against arbitration proceedings has arisen in several recent cases mentioned in Arbitration Commentaries, including the Chevron v. Ecuador saga, in which the Second Circuit decided not to decide this undecided question, finding that neither Ecuador nor the plaintiffs in the Ecuador environmental litigation against Chevron had shown 6/1/2011 8:54 AM Marc J. Goldstein Litigation & Arbitration Chambers » An FAA Cause of... 3 of 8 http://arbblog.lexmarc.us/2011/03/an-faa-cause-of-action-to-enjoin-arbitr... grounds for such a stay of Chevron s investment arbitration against the Republic of Ecuador. The question was raised again in a case decided last week, involving a more mundane commercial dispute over Subway sandwich franchises in Ireland. The New York federal district court in this case held that the FAA and New York Convention do permit a cause of action for a stay of arbitration. (Farrell v. Subway International, B.V., 2011 U.S. Dist. LEXIS 29833 (S.D.N.Y. Mar. 23, 2011)). Farrell owned Subway franchises in Dublin, Ireland. The franchisor was a Netherlands affiliate of Subway. The franchise agreement called for arbitration under the UNCITRAL Rules in New York administered by an arbitration agency, such as the International Centre for Dispute Resolution, an affiliate of the American Arbitration Assocation. Subway commenced arbitration by filing a demand for arbitration with the American Dispute 1 /1/1 Connecticut, in close 6 Resolution Center, Inc. ( ADRC ). ADRC is located in New Britain, on lerk proximity to the New Milford, Connecticut headquarters of Subway s U.S. parent company c aw l Doctor s Associates, Inc. Although the y b ADRC holds itself out as willing to administer d we wish to adopt (www.adrcenter.net), Farrell evidently arbitrations under any rules vieparties t the Las interpreted Subway s resort to ADRC as an attempted end-run around the arbitrator appointment process according to Article 6 of the UNCITRAL Rules. Farrell brought an action in the New York Supreme Court to enjoin the ADRC arbitration. Subway removed the case to federal court under Chapter 2 of the FAA, as a case arising under the New York Convention. The federal judge agreed with Farrell. The court interpreted the arbitration clause as requiring appointment of arbitrators in accordance with the UNCITRAL Rules, considered Subway s choice of ADRC to be an attempt to vary from the UNCITRAL Rules procedures, and further interpreted the administered by clause as prohibiting a unilateral choice of administering institution. The Court then decided that the FAA permits a court to enjoin arbitration, enjoined the ADRC arbitration pursuant to the FAA and the [New York] Convention, and, while 6/1/2011 8:54 AM Marc J. Goldstein Litigation & Arbitration Chambers » An FAA Cause of... 4 of 8 http://arbblog.lexmarc.us/2011/03/an-faa-cause-of-action-to-enjoin-arbitr... noting that the parties were in agreement that their dispute should be resolved by arbitration, provided no affirmative pro-arbitration relief, no such relief having been sought by either party. The threshold question before the Court was whether Chapter 2 of the FAA confers power on federal courts to stay arbitrations in New York Convention cases. There is no controlling decision from the U.S. Supreme Court or the US Second Circuit Court of Appeals. In support of the position that FAA Section 206 empowers a court to stay arbitration, the court in Farrell cited a 1999 decision of another federal district judge in New York. That decision held that, based on the authority expressly granted in Section 206 to compel arbitration, that [i]t would follow ¦ that the court should have a concomitant power to enjoin arbitration where arbitration is inappropriate. The concomitant power seemed logical, to that court, because a failure to do so would frustrate the goals of arbitration, since there would be delay and 1 /1/1 6 increased expense as the parties ligitated in both fora. on lerk Is this analysis correct? As the following discussion demonstrates, the pragmatic concerns c aw l motivating this conclusion are overstated by at best. ed wthe Supreme Court or Second Circuit that the FAA, or least Suppose it were clearly decidede t vi by Las Chapter Two, does not authorize a stay of arbitration. Would the position of the party aggrieved by a wrongful arbitration be made untenable? I submit the answer is no. If the position of the aggrieved party is that there is no agreement to arbitrate, or the agreement is invalid, or that the issues on which arbitration has been filed are beyond the scope of the clause, the aggrieved party may commence litigation on those issues in a competent court. Normally the adverse party will respond with a motion to compel arbitration, and the arbitrability issue will be resolved in the traditional way. If the adverse party elects to litigate the merits, it will waive the right to arbitrate. Normally such a waiver, when brought to the attention of the arbitral tribunal (if one has even been constituted), should result in a termination of the proceedings. If the tribunal does not stay its own hand, and the adverse party 6/1/2011 8:54 AM Marc J. Goldstein Litigation & Arbitration Chambers » An FAA Cause of... 5 of 8 http://arbblog.lexmarc.us/2011/03/an-faa-cause-of-action-to-enjoin-arbitr... still attempts to go forward in the arbitration, then the Court may issue an anti-arbitration injunction to protect its own jurisdiction. In that scenario the injunction power comes not from the FAA, but instead from the undisputed inherent power of the Court to protect by injunction its legitimately-acquired jurisdiction. Equally, if the adverse party inexcusably defaults in the court case, having been duly served with process, judgment will be entered on the merits and waiver of the right to arbitrate would be one of the issues implicitly determined by that judgment. In that scenario as well, if the party against whom judgment on the merits by default has been entered still pursues arbitration, the Court may grant an anti-arbitration injunction against that party to protect its judgment from collateral attack, and this is another form of injunction based on the Court s inherent powers, with no need to find authority in the FAA. Those courts holding that the FAA does not itself authorize a cause of action to stay or enjoin 1 /1/1 FAA does expressly 6 arbitration take note of the limited and precise affirmative powers that the on rk confer on the courts, i.e. to enforce an arbitration cle agreement or award, and they refer to the aw lunius est exclusio alterius (the express mention y principle of statutory construction expressio db e of one thing implies the exclusion of others not mentioned). Those courts which have either iew st v La held that the FAA does permit an action to enjoin or stay arbitration, or which have assumed without deciding that such a cause of action exists, have stated either that the power to compel arbitration necessarily implies a power to enjoin or stay arbitration, or that such power is at least not inconsistent with the express powers granted by the FAA. Many of the older cases cited in recent decisions for the proposition that such power does exists under the FAA in fact did not so hold, but were instead decisions affirming district court stay orders based on the inherent powers of the Court. A recent example of the inherent powers approach to stays of arbitration can be seen in Jock v. Sterling Jewelers, Inc., 2010 U.S. Dist. LEXIS 132759 (S.D.N.Y. Dec. 10, 2010), in which Judge Rakoff after reviewing many of the leading authorities wrote: The Court concludes that, as a necessary incident to its power to compel 6/1/2011 8:54 AM Marc J. Goldstein Litigation & Arbitration Chambers » An FAA Cause of... 6 of 8 http://arbblog.lexmarc.us/2011/03/an-faa-cause-of-action-to-enjoin-arbitr... arbitration proceedings under § 4 of the FAA, it may preserve the integrity of those proceedings by enjoining later-filed arbitrations that arise out of the same controversy. Any other conclusion would impede rational application of § 4 of the FAA, as well as fundamentally limit the power of a court to enforce its own judgments. Cf. Landis v. N. Am. Co., 299 U.S. 248, 254 ¦(1936) (noting that the power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket. ) In regard to international arbitrations taking place in the United States, this inherent/incidental powers approach to stays of arbitration may indeed be a more pro-arbitration position than the position that the FAA authorizes a cause of action for a stay of arbitration. Adoption of this position would mean that a party seeking intervention of a US court, to establish non-arbitrability in a pending international arbitration at a US seat, would have to proceed by starting an action to litigate the merits of the putatively non-arbitrable claims. The non-U.S. parties to such arbitrations often will have no interest in litigating the merits in a US court. /11 6/1 The consequence of having no access to a US federal court on seat merely to stay or enjoin at the rk cle the arbitration would mean that more arbitrability issues will be presented to the arbitral law y tribunal, or will be presented to a foreignb d court where the non-US party would prefer to litigate e iew the merits if its non-arbitrability position is correct. Some of those foreign jurisdictions may st v La does the US to the commencement of litigation on the merits of have higher barriers than claims already raised in a pending arbitration, and some of those jurisdictions may have more forceful rules requiring arbitrability issues to be resolved by the arbitral tribunal in the first instance. (Section 32 of the UK Arbitration Act 1996, for example, provides that the Court will not consider an issue of arbitral jurisdiction absent the agreement of all the parties or permission of the arbitral tribunal.) Where the objecting party s position is that its adversary had commenced arbitration at variance with the agreement, the unavailability of an injunction remedy in federal court should motivate the objector to commence what it regards as a proper arbitration. Let us consider how the Farrell v. Subway dispute might have played out if the law in the 6/1/2011 8:54 AM Marc J. Goldstein Litigation & Arbitration Chambers » An FAA Cause of... 7 of 8 http://arbblog.lexmarc.us/2011/03/an-faa-cause-of-action-to-enjoin-arbitr... Second Circuit were as I suggest it should be. Farrell, if well advised, and understanding the law, would not have sought relief in federal or state court to enjoin arbitration. Instead, Farrell would have commenced an arbitration under the UNCITRAL Rules, sought agreement from Subway on an administering institution and procedure for selecting arbitrators, and if Subway had refused to participate Farrell would have applied to the Permanent Court of Arbitration in the Hague ( PCOA ), pursuant to Article 6 of the UNCITRAL Rules, for assistance in appointing arbitrators. So far, no role for the courts. As a practical matter, the institution unilaterally selected by Subway to administer and appoint arbitrators might well have declined to proceed once notified that the PCOA s assistance had been sought. If so, there would still have been no necessary role for the courts, as there would not have been two arbitrations going forward. Subway might then have conceded the legitimacy of Farrell s UNCITRAL arbitration. 1 1 /1/to compel arbitration in 6 If not, it would have had to bring its own FAA Section 4 petition on rk accordance with its version of what the agreement cle allowed. Chances are that its request for law y temporary relief to enjoin the UNCITRAL arbitration would have been denied, and the db e ew UNCITRAL arbitration would ihave proceeded. Subway at that point would have been facing st v La sacrifice of its ability to appoint a co-arbitrator, by further refusing to participate in the appointment process in the UNCITRAL case. It would have been significantly motivated to concede the legitimacy of Farrell s UNCITRAL case. A pro-arbitration solution, in accordance with the agreement of the parties and without judicial intervention, would have been more likely in a legal environment not provding a cause of action for a stay of arbitration. Of course, things might not play out so well. Parties might not be well advised. Or they may be obstinate in pursuing aggressive but self-defeating litigation strategies. Statutory interpretation cannot be a cure-all. But if the foregoing analysis is correct, the chances for resolution of the arbitrability disputes without the need for courts to get involved would be increased if the US federal courts declare themselves unavailable for commencing a case whose sole purpose is to 6/1/2011 8:54 AM Marc J. Goldstein Litigation & Arbitration Chambers » An FAA Cause of... 8 of 8 http://arbblog.lexmarc.us/2011/03/an-faa-cause-of-action-to-enjoin-arbitr... enjoin a pending arbitration. It requires only an interpretation of the FAA according to the plain meaning of its relevant provisions for this objective to be accomplished. Filed under: Uncategorized | Visit Marc's website at www.lexmarc.us Leave a Reply Name (required) Mail (will not be published) (required) Website n ko ler 1 /1/1 6 c aw l by d we e Submit Comment t vi Las « A Curious Decision on Article VI Stays of Award Enforcement in US Courts An Important New Chapter in the Second Circuit s Empowerment of Arbitral Tribunals » Website maintained by Big Apple Design 6/1/2011 8:54 AM
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