Determining Arbitrability in the Second Circuit (Part III of III)


By Hon. Henry Pitman (Ret.)

Continued from Part II of III…


Belton v. GE Capital Retail Bank, 961 F.3d 612 (2d Cir. June 16, 2020), petition for cert. filed, No. 20-481 (Oct. 14, 2020): Plaintiffs had opened accounts with defendant credit card companies; the cardmember agreements contained arbitration clauses. Plaintiffs’ accounts became delinquent, and the issuing banks “charged off” the debts and sold them to third parties. The banks also reported the status of the debts to the major credit reporting companies as charged off, indicating delinquent and outstanding debts. Plaintiffs subsequently filed a petition in bankruptcy and obtained orders discharging all debts; these orders operated as an injunction against any attempt to collect the discharged debts pursuant to 11 U.S.C. § 524(a)(2). Despite the discharge, the banks continued to report the debts as charged-off without mentioning the bankruptcy discharge. The debtors moved to hold the banks in contempt, arguing that their refusal to update their credit reports constituted an attempt to collect a discharged debt in violation of Section 524(a)(2) injunction. The banks responded by seeking to compel arbitration pursuant to the terms of the cardmember agreements. Both the bankruptcy court and the district court denied the banks’ motion.

Two years earlier, in In re Anderson, 884 F.3d 382 (2d Cir. 2018), cert. denied, 139 S.Ct. 144 (2018), the Second Circuit had answered virtually the identical question and held that only the bankruptcy court has the authority to enforce the Section 524 injunction and that permitting arbitration of such claims would be in “inherent conflict” with the Bankruptcy Code. The issue in Belton is whether the intervening Supreme Court decision in Epic Sys. Corp. v. Lewis, 138 S.Ct. 1612 (2018), which addressed, among other things, when other federal statutes might displace the broad provisions of the FAA, warranted reconsideration of Anderson.

The Belton court concluded that Epic did not impugn the continuing vitality of Anderson. The court held that a claim alleging a violation of a bankruptcy court’s discharge order is not an arbitrable dispute and that only the court that issued the discharge order can enforce it through a contempt citation.

Adequacy of Arbitration as a Dispute Resolution Mechanism

DiCesare v. Town of Stonington, 823 F. App’x 19 (2d Cir. Aug. 14, 2020) (summary order): A former municipal employee claimed that he had been wrongfully terminated in retaliation for the exercise of his First Amendment rights and that he was denied due process on connection with his termination proceedings. After noting that the plaintiff had received notice of certain charges of misconduct and had been afforded a right to respond before his termination, the court found that a plenary arbitration proceeding commenced by the plaintiff after his termination and pursuant to the applicable CBA satisfied due process.


Washington National Ins. Co. v. Obex Group LLC, 958 F.3d 126 (2d Cir. May 1, 2020): Claimant commenced an arbitration alleging fraud in connection with a reinsurance agreement and subpoenaed testimony and documents for use at the hearing from a non-party witness. The witness refused to comply with the subpoena, and the claimant filed a petition seeking enforcement of the subpoena pursuant to Section 7 of the FAA. The witness offered a number of arguments in opposition to the subpoena, none of which was successful.

The witness first argued that the court lacked subject matter jurisdiction because, among other things, the parties in the underlying arbitration were not completely diverse and the amount in controversy did not exceed $75,000. With respect to the argument that complete diversity was lacking, the court held that the relevant inquiry is whether complete diversity exists among the parties to the petition to enforce the subpoenanot with respect to the parties to underlying arbitration. The court further held that a co-claimant, whose presence would have destroyed compete diversity in the enforcement proceeding, was not a necessary party. With respect to the witness’ argument concerning the jurisdictional amount, the court noted that the amount in controversy in the underlying arbitration was $134 million and that claimant had alleged the documents in issue had a value in excess of $75,000. Because the witness had not demonstrated to a legal certainty that the amount in controversy was actually smaller, the court rejected the argument concerning the amount in controversy.

The non-party witness next argued that the subpoena was improper because it sought pre-hearing discovery. This argument was based on the claimant’s offer to waive the witness’ appearance at the hearing if the documents were produced prior to the hearing. Although the court reaffirmed its prior holding that a Section 7 subpoena could not be used for pre-hearing discovery, it went on to hold that a Section 7 subpoena that validly sought production at the hearing was not rendered invalid by the claimant’s offer to accept the documents prior to the hearing and to waive the witness’ appearance at the hearing.

Third, the witness argued that the district court improperly failed to rule on its Federal Rules of Civil Procedure Rule 45 objections; namely, that the subpoena was unduly burdensome and sought matter that was privileged or otherwise protected. The court also rejected this argument, finding that the objections could be raised before the arbitrator. The court, however, left open the questions of whether the district court had the authority to rule on such objections and whether leaving the Rule 45 objections to the arbitrator would deprive the non-party witness of any avenue for judicial review, finding that those issues were not before it.

Finally, the witness claimed that because the arbitrators had previously held a hearing in the Eastern District of Pennsylvania, the venue in the Southern District of New York, where the claimant filed its petition, was improper. The court rejected this argument, noting that the arbitration agreement provided for arbitration in New York, New York and that the subpoena was returnable at a law office located in Manhattan. The court found the fact that the arbitrators had previously sat in Pennsylvania in connection with another summons was not relevant.

Sampedro v. Silver Point Capital, L.P., 958 F.3d 140 (2d Cir. May 1, 2020): This matter involved an issue under 28 U.S.C. § 1782, which provides, in pertinent part, that “upon the application of any interested person,” a district court “may order [a person] 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.” Sampedro and his brother were terminated from their employment with a Spanish company, Codere, S.A., and they commenced an action in the Commercial Court of Madrid. Codere was the only defendant in the action. Shortly thereafter, Sampedro and his brother also commenced an arbitration before the International Chamber of Commerce (ICC) arising out of the same facts and seeking the same relief that was sought in the Commercial Court. The appellants before the Second Circuit, directors and significant shareholders of Codere, were named as respondents in the ICC arbitration. The district court had granted Sampedro discovery from appellants pursuant to Section 1782, without limiting the use of that discovery to the Spanish litigation, but had denied appellants the right to take reciprocal of discovery from Sampedro. The denial of this reciprocal discovery was the issue before the Second Circuit. Appellants argued that the district court erroneously concluded that only the Spanish litigation was relevant to the Section 1782 application and failed to consider the ICC arbitration.

The Second Circuit began its analysis by noting that district courts have broad discretion in addressing applications under Section 1782 so long as that discretion is exercised in a manner consistent with the purposes of the statute; namely, providing assistance to participants in international litigation and encouraging foreign countries to provide similar assistance to courts in the United States. The court went on to explain that although a grant of discovery under Section 1782 may be conditioned on the applicant’s providing reciprocal discovery, it was not required to do so. The court noted that the district court justifiably found that Sampedro had not commenced the Spanish litigation as a ruse to obtain discovery for the ICC arbitration and that nothing in Section 1782 required a court to consider proceedings, such as the ICC arbitration, that were not the subject of the 1782 application. Thus, the court found that requiring the district court to permit reciprocal discovery would be adding a condition not required by the language of the statute. With respect to appellants’ fallback argumentthat their interest in the Spanish litigation justified reciprocal discoverythe court noted that the denial of reciprocal discovery was not an abuse of discovery because appellants, as non-parties to the Spanish litigation, would not be able to use the discovery in the Spanish litigation. In conclusion, the court found that appellants had failed to show that the district court had abused the broad discretion granted to it under Section 1782.

In re Guo, 965 F.3d 96 (2d Cir. July 9, 2020): This matter also involved an issue under Section 1782. The issue in Guo was whether a proceeding before the China International Economic and Trade Arbitration Commission (CIETAC) constituted a “foreign or international tribunal” within the meaning of Section 1782. The Second Circuit had previously held that Section 1782 was not applicable to “arbitral bod[ies] established by private parties(National Broadcasting Co. v. Bear Stearns & Co., 165 F.3d 184, 191 (2d Cir. 1999) (NBC)) and the parties from whom the discovery was sought in Guo opposed the petitioner’s application, arguing that CIETAC was a private arbitral body. The issue was a difficult one because CIETAC was not a purely private entity, nor did it have all the attributes of a judicial body. The People’s Republic of China established CIETAC as a part of the China Council for the Promotion of International Trade (CCPIT), CIETAC’s administrative leadership was appointed by the CCPIT and both CIETAC and CCPIT received some funding from the Chinese government. CCPIT played no role in selecting CIETAC’s list of arbitrators, and potential arbitrators were not required to have any connection with the Chinese government, although Chinese law did set certain minimum standards for arbitrators. CIETAC’s jurisdiction was limited to disputes in which the parties had agreed to CIETAC arbitration and to certain disputes with Chinese governmental entities.

Most of the court’s analysis in Guo dealt with the question of whether NBC was still good law after the Supreme Court’s decision in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), which held that an application under Section 1782 did not require that (1) a foreign action be pending at the time of the application, (2) the information be discoverable under the law of the foreign jurisdiction and (3) the information sought would be discoverable in domestic litigation analogous to the foreign proceeding. After concluding that Intel did not impair the continued validity of NBC, the court found that CIETAC was a private international commercial arbitral body and thus outside the scope of Section 1782. The court explained that determining the status of an arbitral body as either private or governmental did not turn on the body’s origin, but instead required consideration of a range of factors, including the body’s degree of state affiliation and functional independence and the extent to which the parties controlled the body’s jurisdiction. “In short,” the court stated, “the inquiry is whether the body in question possesses the functional attributes most commonly associated with private arbitration.” The court then went on to analyze the relationship between CIETAC and the Chinese government and the manner in which CIETAC obtained jurisdiction over a dispute, and concluded that because it functioned almost identically to private arbitration panels, it did not constitute a “foreign or international tribunal” within the meaning of Section 1782.

Johnson v. National Football League Players Ass’n, 820 F. App’x 51 (2d Cir. July 17, 2020) (summary order): Johnson was suspended for 10 games without pay as a result of a positive drug test, and the suspension was affirmed in arbitration. Johnson’s petition to vacate the award was denied, and he appealed, arguing that the arbitrator improperly denied his request for certain discovery. After noting that review of LMRA arbitration awards is “among the most deferential in the law,” the court found that the arbitrator’s decision was well within his broad discretion and that there was no fundamental unfairness given that the plaintiff had notice of the discipline that was contemplated and had full and fair opportunity to present his arguments in opposition.

Appealability of Order Compelling Arbitration

Zimmerman v. UBS AG, 789 F. App’x 914 (2d Cir. Jan. 14, 2020) (summary order): Plaintiff brought suit against several defendants for violations of the securities laws. The district court dismissed the claims against certain defendants, and it granted the motion of the remaining defendant to compel arbitration, stayed the proceedings, and administratively closed the case until the arbitration was completed.

The Second Circuit dismissed the appeal for lack of subject matter jurisdiction because there was no appealable “final order.” The court found that the order was not appealable under Section 16(a)(1) of the FAA because it was not an order affecting an award or partial award, nor was it appealable under Section 16(a)(3) because it was not final. The Second Circuit explained that the district court stayed proceedings pending the conclusion of the arbitration and that the administrative closure of the case had no jurisdictional significance.

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