The Southern District of Texas has remanded a case removed to federal district court pursuant to 9 U.S.C. § 205 because the requirements for allowing a nonsignatory to compel arbitration with a signatory were not satisfied and no other basis for federal jurisdiction existed. In QPro Inc. v. RTD Quality Servs. United States, No. H-09-3904, (S.D. Tex. January 4, 2011), QPro Inc. (“QPro”), a Texas company that performs nondestructive testing and inspection of coated, insulated pipes, leased technology through a nonexclusive licensing agreement from Applus RTD, a Dutch company, to perform its work. The lease agreement between QPro and Applus RTD contained an arbitration clause which stated, Each party undertakes to make its best effort to settle amicably any dispute with the other party arising out of or relating to this agreement. If such settlement efforts fail, disputes arising in connection with the present agreement shall be finally settled under the then current Rules of Conciliation and Arbitration of the International Chamber of Commerce in The Hague, The Netherlands. The arbitration proceedings shall be held in The Netherlands. The language of the arbitration shall be in English. Additionally, the lease provided “[t]he validity and interpretation of this agreement and the legal relations of the parties to it shall be governed by the laws of The Netherlands.” In 2006, QPro began a three year service agreement with Dow Chemical Company. In 2007, Applus RTD unsuccessfully attempted to acquire QPro. According to QPro, Applus RTD refused to lease QPRO additional equipment and attempted to put the company out of business through its subsidiary RTD Quality Services USA (“RTD”). QPro alleged that RTD induced Dow Chemical to reduce services provided by QPro and eventually rebid its contract with QPro, which resulted in a majority of the work being awarded to another company. QPro sued RTD in a Texas state court for tortious interference of the contract between QPro and Dow Chemical Company. RTD removed the case to federal court “under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 9 U.S.C. §§ 201–08, based on an arbitration agreement between QPro and Applus RTD.” In June 2010, the Southern District of Texas denied QPro’s motion to remand the case, because under 9 U.S.C. § 203, a defendant has the right to remove an action or proceeding that “relates to an arbitration agreement or award falling under the Convention . . . any time before the trial thereof. . . to the district court of the United States for the district and division embracing the place where the action or proceeding is pending.” 9 U.S.C. § 205 (emphasis added). The Southern District of Texas also directed RTD to file a motion to compel arbitration no later than June 18, 2010. After RTD filed its motion to compel, QPro again asked the court to remand the case to Texas state court. The Southern District began its review of QPro’s new motion to remand by stating the issue of arbitrability was for a court to decide, When, as here, the issue is whether a nonsignatory to an arbitration clause may enforce it against a signatory, the courts have viewed that as a matter for the court to decide. See, e.g., Arthur Andersen LLP v. Carlisle, — U.S. —-, 129 S. Ct. 1896, 1902 (2009). … Following the reasoning of the First, Second, and Federal Circuits, an arbitrator in an ICC arbitration would have jurisdiction to decide issues of arbitrability, but only between the parties to the arbitration agreement, here, QPro and Applus. The cases extending this reasoning and allowing a nonsignatory to compel a signatory to arbitrate issues of arbitrability involve a nonsignatory defendant that essentially stood in the shoes of a signatory to the arbitration agreement when defending the suit. In order to determine arbitrability, the court examined “Grigson v. Creative Artists Agency, LLC, in which the Fifth Circuit adopted equitable estoppel as a basis for a nonsignatory to compel a signatory to arbitrate a claim, and its progeny. 210 F.3d 524 (5th Cir. 2000).” According to the court, the Grigson doctrine “recognizes that it would be unfair to allow a plaintiff to rely on a contract when it works to its advantage, and repudiate it when it works to its disadvantage.” The Southern District next determined, [t]he tortious interference claim by QPro against RTD does not rely on the terms of the lease agreement between RTD and Applus. The close relationship between the alleged tortious interference and the underlying contractual obligations necessary to allow the nonsignatory to the contract to enforce the arbitration clause is not present. The court continued its examination by stating, The second basis for compelling arbitration discussed in Grigson is only met if a signatory to the arbitration clause alleges interdependent conduct by both a signatory and a nonsignatory to the arbitration agreement and the nonsignatory defendant seeks to compel the signatory plaintiff to arbitrate all claims. … In the present case, QPro did not sue Applus. QPro did not allege misconduct by Applus. QPro alleged that Applus had a connection with the facts of this case, but that is insufficient. As stated in Grigson, the standard is “substantially concerted and interdependent misconduct . . . .” 210 F.3d at 527. A court can consider what RTD did without considering what Applus did. The second prong of Grigson is not met. Finally, the Southern District addressed QPro’s motion for remand, Under Beiser, this case should now be remanded. QPro’s claim is based on state law and this court has found that the claim is not arbitrable. Absent § 205, no other basis for federal jurisdiction exists. Beiser holds that although removal of state law claims may be initially proper under § 205 as claims that “relate to” an arbitration agreement, once they are determined not to be arbitrable, remand to state court is appropriate. 284 F.3d at 674; see also Certain Underwriters at Lloyd’s v. Warrantech Corp., 4:04-CV-208-A, 2004 U.S. Dist. LEXIS 29953, at *8 (N.D. Tex. Sept. 23, […]

by Thomas J. Stipanowich (Editor’s note: An earlier version of this posting was published in the Los Angeles and San Francisco Daily Journals.) “Because of expense and delay, both civil bench trials and civil jury trials are disappearing.” So says a task force co-sponsored by—of all groups—the American College of Trial Lawyers. Litigation often costs so much and takes so long, they acknowledge, that parties nearly always settle or stop suing rather than go all the way to trial. While the great majority of disputes have always been resolved out of court, today even many parties with strong bona fide claims may be daunted by the time and money required to go to trial. The primary culprit is American-style discovery, which accounts for as much as ninety percent of costs in litigation—leading some to conclude that the “look-under-every-rock” approach embodied in our discovery system is simply unworkable. The scope of discovery has metastasized with the revolution in electronic communications, producing “a nightmare and a morass.” All this leads the Trial Lawyers’ task force to call for a wide range of critical changes in the landscape of American litigation, including an end to the “one size fits all” approach of current federal and state procedural rules. In other words, it’s critical to fit the process to the problem. Fitting the process to the problem—and avoiding the perceived pitfalls of litigation—is what leads many business users to adjudicate disputes out of court, in binding arbitration. One would expect the current dissatisfaction with the “one size fits all” model of court trial to provide fertile ground for the growth of arbitration—and to some extent that has happened. Advocates of arbitration point out that arbitration awards are likely to prove much more “final” than court judgments, tending to substantially reduce post-hearing process time and costs. Because arbitration usually is triggered by a written agreement, businesses that choose arbitration over litigation have the opportunity to craft a process that proves vastly superior to litigation in many cases; parties are able to choose their decision maker(s) (including subject matter experts), procedures and venue. Parties may also identify the issues that will (and will not) be arbitrated, help set the timetable for the process, and take steps to ensure the confidentiality of proceedings and of documents disclosed during the process. For any or all of these reasons arbitration may be an appealing alternative to litigation regardless of the relative cost and length of arbitration. If business users regard speed, efficiency and economy as important goals in dispute resolution, as they frequently do, there are steps that can be taken to tailor a process to serve those goals. The same ends are sometimes achieved through the excellent management skills of arbitrators and/or the cooperative efforts of counsel. It is therefore surprising to hear so many corporate counsel complain loudly about arbitration. Of the grievances most frequently expressed, complaints about the cost and length of arbitration top the list. Failed expectations for a cost-effective, expeditious process undermine arbitration’s vaunted advantages and turn off many business users. As one West Coast in-house lawyer with a major company recently reported, “We really sell arbitration to our business clients [as a superior alternative to litigation]. Now they are accusing us of false advertising. . . . Literally all of the top general counsels from the largest corporations in the Bay Area were uniform in their frustration with arbitration and many have said . . . they’re not agreeing to it anymore.” A similar calculus may lay behind the 2007 decision of the American Institute of Architects to delete from its widely used model construction industry contracts the long-standing provision calling for binding arbitration of disputes. Recently, a national Summit on the Future of Business-to-Business Arbitration in Washington D.C. brought together nearly two hundred corporate counsel, lawyers, arbitrators and agents of leading arbitration institutions for a “town meeting” on the gap between expectations and experiences in commercial arbitration. The participants concluded that the blame for lengthy, costly arbitration must be shared by business users, in-house attorneys, the institutions that provide arbitration and other dispute resolution services, outside counsel and arbitrators. Too-costly, too-lengthy arbitration begins with businesses that incorporate arbitration clauses in their contracts. Those who draft commercial contracts may be unable or unwilling to take advantage of the choices inherent in arbitration. They throw in, without discussion or reflection, a boilerplate arbitration or dispute resolution provision—frequently an omnibus, all-purpose scheme that leaves the parties and the arbitrators with a lot of discretion or wiggle room. When disputes arise, they “turn the keys over” to legal advocates who bring a “litigation mentality” to arbitration. Such lawyers insist on full-blown discovery, reflexively file motions and raise objections, raising costs and dragging out the process. Arbitrators may be reluctant to “ride herd” on such behavior, limit discovery, rule on those motions that hold promise for getting key elements of the case resolved, or act decisively on scheduling. All of these factors contribute to making arbitration a far cry from the speedy and efficient process of lore. In order to address these shared problems, National Summit participants supported the idea of shared solutions and called upon all “stakeholders” in arbitration to play a role in addressing the problem. The resulting College of Commercial Arbitrators Protocols for Expeditious, Cost-Effective Commercial Arbitration—guidelines soon to be made public—will play a key role in changing the culture of commercial arbitration by speaking directly to business users, lawyers, arbitrators and providers of arbitration services. Users: It’s your process. For businesses who use arbitration and their legal counsel, the clear message of the Protocols is that “the solution must begin with you.” If speed and economy are your priorities, plan your arbitration procedure accordingly. Consider arbitration in the context of a comprehensive strategy for resolving conflict—including the possibility of a negotiated resolution. (For some, this may mean providing “stages” for negotiation and mediation. Keep in mind that mediators, if they can’t help get a case settled, may be able to work with parties […]

Earlier this month, Stephen P. Anway, a partner in the Cleveland, OH office of Squire, Sanders & Dempsey, LLP, authored an article which summarizes recent changes to United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules. The article, entitled United Nations Commission on International Trade Adopts Revised UNCITRAL Arbitration Rules, discusses the revisions to the UNCITRAL Arbitration Rules, adopted in 2010. As stated in the article, “the revisions seek to enhance the efficiency of UNCITRAL arbitration and to reflect uses of modern technology.” The key changes are noted and briefly explained. Mr. Anway also points out the lack of provisions imposing a general duty of confidentiality. The article may be read (without charge) here. Disputing previously discussed the revised UNCITRAL Arbitration Rules here and here. Technorati Tags: ADR, law, arbitration

Disputing would like to thank Paul Lurie, partner at Schiff Hardin, LLP’s Chicago office for bringing In re the Subpoena Issued to Beck’s Superior Hybrids, Inc., No. 29A05-1008-MI-489, (Ind. App. January 12, 2011) to our attention. In the case, the Court of Appeals of Indiana held that Section 7 of the Federal Arbitration Act (“FAA”) preempted an Indiana discovery statute. Here are the facts: In 2002, Monsanto Company and Monsanto Technology, LLC (collectively, “Monsanto”) entered into two seed license agreements with Pioneer Hi-Bred International and its parent company, E.I. DuPont de Nemours & Company (collectively, “DuPont”). Both agreements contained an arbitration provision which stated any disputes would be resolved by an arbitration proceeding in New York, NY. In May 2009, Monsanto filed a demand for arbitration against DuPont in New York City. In its claim, Monsanto alleged “DuPont was engaged in a sublicensing scheme whereby DuPont distributed Monsanto’s ‘Roundup Ready technology’ to unaffiliated third parties throughout the United States, including Beck’s, an Indiana corporation,” at a lower price than Monsanto sold its seed to third parties. After a New York arbitration panel was formed, Monsanto requested that the panel issue a subpoena duces tecum ordering “Beck’s to appear at a preliminary hearing, in Indiana, before one of the panel members and to produce business records relating to Monsanto’s arbitration claim.” In February 2010, Monsanto served Beck’s with the arbitration panel’s subpoena. Beck’s refused to comply with the subpoena because the FAA “required Monsanto to seek enforcement of its nonparty subpoena in ‘the United States district court for the district’ in which the arbitration panel was sitting, the Southern District of New York.” New York courts lacked both subject matter jurisdiction and personal jurisdiction over Beck’s, however, so Monsanto filed a “petition to assist in the Hamilton Superior Court, pursuant to Indiana Trial Rule 28(E), to compel Beck’s to comply with the subpoena.” In August 2010, the trial court ordered Beck’s to comply with the panel’s subpoena and appear before a single arbitrator in Atlanta, Indiana to provide testimony regarding “authentication of business records.” Beck’s appealed the trial court’s order on the grounds that Section 7 of the FAA preempted Indiana Trial Rule 28(E). The Indiana Appeals Court began its review by declaring it was undisputed that the New York arbitration was governed by the FAA and that Section 7 applied to the subpoena at issue. Next, the court stated “neither express preemption nor field preemption applies here.” According to the court, “Beck’s contends that Indiana Trial Rule 28(E), as applied, is in conflict with the accomplishment and execution of Section 7’s purposes and objectives.” According to the court, Case law from the federal courts of appeals makes clear that the type of subpoena issued by the arbitration panel against Beck’s is authorized by Section 7. Specifically, in Hay Group, the Third Circuit held that an arbitrator may issue a Section 7 subpoena to a nonparty for the production of documents if the subpoena also requires the nonparty to appear. …. The central question in this appeal is whether Section 7’s language that Monsanto must petition a federal district court for enforcement of the subpoena is a clear reflection of congressional intent and whether Monsanto’s use of Trial Rule 28(E) frustrates that intent. As discussed in more detail below, we hold that Section 7 is clear as written. Pursuant to its plain terms, Congress requires the enforcement of an arbitration panel’s nonparty subpoena to be brought in the federal forum. 9 U.S.C. § 7. This limited federal jurisdiction for enforcement is a reflection of Congress’ desire to keep arbitration simple and efficient, ‘to protect non-parties from having to participate in an arbitration to a greater extent than they would if the dispute had been filed in a court of law,’ and not to burden state courts with incidental enforcement procedures. See Dynegy, 451 F.3d at 96. As such, the attempt to use an Indiana trial rule when a federal forum is unavailable frustrates Congress’ intent to limit these petitions to the federal courts. The Indiana Appeals Court continued, Section 7 requires an arbitration panel’s nonparty subpoena to be enforced by “the United States district court for the district in which such arbitrators, or a majority of them, are sitting.” 9. U.S.C. § 7. The arbitration panel, or a majority of its members, is and will be sitting in New York City. Accordingly, if Monsanto needed to enforce the nonparty subpoena, then, by the plain text of Section 7, it needed to do so in the United States District Court for the Southern District of New York. Monsanto may not circumvent the express procedure outlined by Congress by ignoring Section 7 and instead applying for a Trial Rule 28(E) petition to assist in an Indiana trial court simply because Monsanto lacks federal jurisdiction under Section 7. See Dynegy, 451 F.3d at 94-96. That Monsanto lacked an independent basis for federal subject matter jurisdiction is not Beck’s problem. Monsanto agreed to arbitration, and it is the party chargeable with any negative results associated with that choice. Monsanto’s self-inflicted wounds do not give this court cause to ignore the plain text of Section 7. The court then dismissed Monsanto’s argument that the Southern District of Indiana had jurisdiction over the dispute merely because the New York arbitral “panel agreed to ‘sit’ in Indiana for purposes of the preliminary hearing.” According to the court, “The suggestion that a district court in a district other than the district in which the arbitration panel is sitting could be the proper court under Section 7 was squarely rejected by the Second Circuit.” The court continued, indulging Monsanto’s analysis one step further to assume that the Southern District of Indiana is the proper federal district under Section 7, Monsanto still did not ask the district court to enforce the subpoena. Instead, Monsanto asked an Indiana trial court to do so. Next, the Appeals Court stated “Congress knows what a United States district court is, and we will not redefine […]