Category Archives: External Bloggers: 2023 – 2024

External Bloggers: 2023 - 2024

Manners Maketh . . . Arbitrators? Lessons from ICSID’s Upcoming Code of Conduct

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By

Alejandro Colon-Cedeno

During its 56th annual session in Vienna, Austria, the United Nations Commission on International Trade Law (UNCITRAL) adopted a Code of Conduct for Arbitrators in International Investment Disputes.1 The Code is the product of collaboration between the Secretariats of the International Centre for Settlement of Investment Disputes (ICSID) and UNCITRAL. It is intended to provide principles and provisions addressing matters such as arbitrator independence and impartiality and the duty to conduct proceedings with integrity, fairness, efficiency, and civility. The Code is based on a comparative review of standards found in codes of conduct in investment treaties, arbitration rules applicable to investor-state dispute settlement (ISDS), and international courts.2

In October 2023, UNCITRAL published an advance copy of the Code along with UNCITRAL’s decisions and comments titled “UNCITRAL Code of Conduct for Arbitrators in International Investment Dispute Resolution.”3 This advance copy defines “international investment dispute” as “a dispute between an investor and a State or a regional economic integration organization or any constituent subdivision of a State or agency of a State or a regional economic integration organization submitted for resolution pursuant to an instrument of consent.”4 This definition encompasses that which is commonly known as “investment treaty arbitration” and is contingent upon a combination of treaties protecting investments and investors, legislation governing foreign instruments, and investment contracts between a foreign investor and a State.5

The Code is applicable to arbitration proceedings by agreement of the disputing parties or as required in the instrument of consent to arbitral proceedings.6 Specifically, the Code calls for the independence and impartiality of arbitrators and imposes obligations not to be influenced by “loyalty to any disputing party or any other person or entity.”7 Additionally, the Code limits multiple roles in arbitration proceedings, or what is commonly called “double-hatting,” unless the disputing parties agree otherwise.8 These limitations prohibit an arbitrator from acting concurrently as a legal representative or an expert in any other proceeding involving the same measures, parties, related parties, or provisions.9 Furthermore, Article 5 of the Code imposes a duty of diligence on arbitrators, and Article 6, a duty of integrity and competence.10 The Code, moreover, prohibits ex parte communications in any case and requires complete confidentiality on behalf of an arbitrator, unless the disputing parties have agreed otherwise.11 Article 9, in turn, requires that arbitrators be compensated reasonably and in accordance with the instrument of consent or the applicable rules as chosen by the disputing parties, while Article 10 establishes the parameters under which an arbitrator may have an assistant.12 Finally, Article 11 requires an arbitrator to disclose “any circumstances likely to give rise to justifiable doubts as to his or her independence or impartiality,” and Article 12 requires general compliance with the Code while establishing that any challenge or disqualification of an arbitrator shall be governed by the instrument of consent or the applicable rules of the proceeding.13

Other types of alternative dispute resolution may choose to learn from and integrate those provisions that may be applicable to the nature of their proceedings. Arbitration, domestic, international, or otherwise, allows parties to choose the applicable rules under which to carry out their arbitral proceedings. In fact, Article 2 of the Code, regarding its application, establishes that “[t]he Code applies to an Arbitrator in, or a Candidate for, an [international investment dispute] proceeding, or a former Arbitrator. The Code may be applied in any other dispute resolution proceeding by agreement of the disputing parties.”14 Thus, the UNCITRAL Code of Conduct for Arbitrators in International Investment Dispute Resolution represents an avenue for the broad alternative dispute resolution community to carry out proceedings under a uniform code of conduct and eliminates the need for both institutional-specific or arbitration-specific rules to be created. The Code’s provisions remain relatively flexible, as most of the provisions are opted-in by agreement of the disputing parties. However, the decision to apply these rules to arbitration proceedings or otherwise ultimately falls on the disputing parties’ choice of arbitral institution (if any), the applicable rules, and the shared instrument of consent.

  1. ICSID, UN Member States Adopt ICSID and UNCITRAL Code of Conduct for Arbitrators in International Investment Disputes, NEW & EVENTS (July 14, 20230, https://icsid.worldbank.org/news-and-events/news-releases/un-member-states-adopt-icsid-and-uncitral-code-conduct-arbitrators. ↩
  2. Id. ↩
  3. ICSID, Code of Conduct for Arbitrators in International Investment Disputes, RESOURCES (last visited May 1, 2024), https://icsid.worldbank.org/resources/code-of-conduct. ↩
  4. UNCITRAL, UNCITRAL CODE OF CONDUCT FOR ARBITRATORS IN INTERNATIONAL INVESTMENT DISPUTE RESOLUTION, (2023), https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/uncitral_code_of_conduct_for_arbitrators_advance_copy_publ.pdf (advance copy). ↩
  5. Id. ↩
  6. ICSID, supra note 1. ↩
  7. UNCITRAL, supra note 4, at Art. 3. ↩
  8. Id. ↩
  9. Id. at Art. 4. ↩
  10. Id. at Art. 5-6. ↩
  11. Id. at Art. 7-8. ↩
  12. UNCITRAL, supra note 7, at Art 9-10. ↩
  13. Id. at Art. 11-12. ↩
  14. Id. at Art. 2. ↩
External Bloggers: 2023 - 2024

Faux Businesses; Real Consequences: Commentary on the FAA’s “Transportation Worker’s” Exception pre-Bissonnette

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By

Hannah Chapple

Section 1 of the Federal Arbitration Act (FAA) exempts “seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” from the statute’s coverage.1 In the case of Bissonnette v. Le-Page Bakeries, which, at the time of writing, the United States Supreme Court had just granted cert,2 the Court is poised to squarely address if commercial truck drivers are “transportation workers.” In so answer, the Court will shed light on the entire Section 1 exception.

Neal Bissonnette, the name plaintiff, drives trucks for Le-Page Bakeries, the defendant, delivering goods through channels of interstate commerce. Despite this, the Second Circuit Court of Appeals held that these workers were not exempt under Section 1 of the FAA,3 as the Second Circuit found to be covered under such exemption requires that the worker be a “transportation worker” in a “transportation industry.”4 The Second Circuit considered the plaintiff part of the “baking industry” since the defendant hired the plaintiff directly, rather than by a trucking company.5

If the Supreme Court were to rule in favor of Le-Page Bakeries, there would be significant implications to the scope of the Section 1 exception, as well as in how employers would be able to categorize their employees to evade this exception.

In 2022, the Supreme Court in Southwest Airlines Co. v. Saxon,6 confronted the argument that when determining whether an employee falls within the scope of the FAA exemption, the courts analysis should focus on the industry involved, not simply on the work being performed by the employee. In Saxon, the plaintiff was a cargo loader for Southwest Airlines, and although she did not personally transport the cargo over state lines, the Court found that their focus should be on whether the workers play “a direct and ‘necessary role in the free flow of goods’ across borders.”7 The Court held that the nature of an employee’s work determines whether they are exempt from arbitration agreements in the employment contract.8 The Court expressly declined to limit the FAA’s exemption to workers who personally cross state lines because that is not rooted in the FAA’s express language.9 If the Court were to follow this route and say that the truck drivers of Bissonnette are not “transportation workers in a transportation industry,” it would weaken Saxon and open holes for abuse among other employer-employee/independent contractor/franchisee relationships.

Many workers who primarily transport goods across interstate commerce are not in the “transportation industry.” They instead operate under the umbrella of a different industry entirely, despite the nature of their work being exactly what the FAA sought to protect – that which dealt with interstate commerce. Bissonnette’s dissent notes this, stating, “the plaintiffs drive trucks; they are not bakers. And while they happen to be employed by the bakery whose bread they deliver, this is nothing new.”10

Additionally, the Supreme Court has revisited the FAA’s worker exception in New Prime, Inc. v. Oliveira, and held that Section 1’s exception applies to both an employer’s direct employees and independent contractors.11 Le-Page hired Bissonnette as a compelled “franchised business,” rather than under their own employer-employee umbrella. In compelling their drivers to franchise, Le-Page Bakeries may evade the ruling of New Prime, which failed to differentiate between employees and independent contractors when determining whether a worker was exempted pursuant to FAA § 1.12 Instead, Le-Page Bakeries has obligated its workers to become “Independent Distributors” by forming contracts with these employees as a condition for work. Under this theory, future arbitration between Le-Page and similarly situated plaintiffs would be framed as business-to-business commercial arbitration beyond the scope of FAA § 1.

If incorporated workers are found to be exempt from the protection granted to them in Section 1 of the FAA, then corporations could easily undermine the FAA’s protection by simply mandating incorporation as a precondition of work. This ruling would allow companies to enforce arbitration against transportation workers—including seamen and railroad workers—in clear circumvention of the statue’s plain meaning. This interpretation would clearly eat away at the FAA’s exception, diminish the meaning and power of the statute as a whole, and perpetuate an abusive relationship between these workers and their employers who are unable to adequately advocate for themselves as a business, as they are not truly operating as such.

  1. Federal Arbitration Act, 9 U.S.C. §1. ↩
  2. See Bissonnette v. LePage Bakeries Park St., LLC, 144 S. Ct. 479 (2023) ↩
  3. Bissonnette v. LePage Bakeries Park St., LLC, 49 F.4th 655, 662 (2d Cir. 2023) ↩
  4. See id. at 660. ↩
  5. See id. at 661-62. ↩
  6. 142 S. Ct. 1783, 1791 (2022) ↩
  7. Id. at 1790 (quoting Circuit City Stores v. Adams, 532 U.S. 105, 121 (2001)). ↩
  8. Id. at 1785 (“Saxon is therefore a member of a ‘class of workers’ based on what she frequently does at Southwest—that is, physically loading and unloading cargo on and off airplanes…”). ↩
  9. Id. at 1791-92. ↩
  10. Bissonette, 49 F.4th at 671 (Pooler, J., dissenting); see generally Loc. 50, Bakery & Confectionery Workers v. Gen. Baking Co., 97 F. Supp. 73, 74 (S.D.N.Y. 1951). ↩
  11. 139 S. Ct. 532, 539-43 (2019). ↩
  12. See id. at 543-44 ↩
External Bloggers: 2023 - 2024

Climate Change: Disputes, Difficulties, and Solutions

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By

Gilberto Elio de Martinis

In the last decades, climate change has cast an increasingly ominous shadow on nations around the globe, threatening many aspects of society, from agriculture1 to the global economy. This looming danger imperils the well-being of the future generations. As a result, a substantial number of provisions have been established. Of these, the two most relevant and interconnected are the 1992 United Nations Framework Convention on Climate Change (“UNFCCC”) and the 2015 Paris Agreement.

The UNFCCC is aimed at “preventing dangerous human interference with the climate system,”2 while the 2015 Paris Agreement is an international treaty between the member states of the United Nations Framework Convention on Climate Change. It concerns the reduction of greenhouse gas emissions. The treaty’s goal is to contain the global average temperature below 2°C compared to pre-industrial levels from 1850 to 1900 and, if possible, at 1.5°C compared to these same levels.

Article 14(2) of the UNFCCC provides that:

[w]hen ratifying, accepting, approving or acceding to the Convention, or at any time thereafter, a Party . . . may declare . . . that, in respect of any dispute concerning the interpretation or application of the Convention, it recognizes as compulsory ipso facto and without special agreement, in relation to any Party accepting the same obligation: submission of the dispute to the International Court of Justice, and/or arbitration . . ..3

In this sense, the possibility to empower arbitration with the function of settling disputes arising out of climate change claims is established. Nevertheless, the disposition “does not expressly set out the types of inter-parte disputes that can be resolved through arbitration.”4 As a result of this deficiency, State parties to the Convention appear to divert climate change-related disputes from arbitration to other, more suitable ways of settling claims.

In other words, when facing climate change related disputes, it is evident that litigation proves not to be the best solution for a successful settlement. In fact, they are too complex to be solved using the courts. Because of this complexity, these disputes require competence on technical climate change issues. This necessity has paved the way for new and increasingly developing instruments, summarized as alternative dispute resolution (ADR), in particular negotiation and mediation.

The conclusion of an analysis expressed in Kenya,5 which has been suffering from climate change for decades, provides the most suitable instrument for resolving this type of conflict.

The University of Nairobi has underlined the clear difficulties of negotiation relating to this matter: first of all, when negotiating, it is difficult or even impossible to find a win-win solution, due to the complexities of the interest at stake; furthermore, the power imbalances can be of such a substantial nature not to provide an equal solution, as it can appear in the relations between multinational companies or government agencies and a local community.6

On the other hand, “mediation remains one of the most effective and efficient ADR methods of resolving land and natural resources disputes.”7 In fact, mediators help parties in identifying the “shared interests, maximiz[ing] the various shared benefits, and equally address[ing] the challenges and problems together.”8 This conclusion is even more supported by the concrete example provided by the Kenya Association of Manufacturers, which engaged with Ufadhili Trust in 2016. In this case, the association worked as a mediator between the mining company and the community, with the successful result of making these two parties work together in resolving their dispute.

In conclusion, climate change related disputes have resulted in an ever-growing concern of modern societies, mediation proves to be very suitable and effective in settling claims, due to its capacity of concretely understanding the interests of the parties, while making them work together, in order to achieve the best possible outcome.

  1. U.S. ENVTL. PROT. AGENCY., Global Greenhouse Gas Overview (Last updated April 11, 2024), https://www.epa.gov/ghgemissions/global-greenhouse-gas-overview (“Estimates indicate that net global greenhouse gas emissions from agriculture, forestry, and other land use were approximately 12 billion metric tons of CO2 equivalent, or about 21% of total global greenhouse emissions.”) ↩
  2. UN Women, United Nations Framework Convention on Climate Change 10-11 (Last checked, May 1, 2024), https://www.unwomen.org/en/how-we-work/intergovernmental-support/climate-change-and-the-environment/united-nations-framework-convention-on-climate-change. ↩
  3. Id. ↩
  4. Marin J. Valasek and Caroline Bélair, International Arbitration and Climate Change, 20 INT’L ARB. REP. 11 (May 2023), https://www.nortonrosefulbright.com/-/media/files/nrf/nrfweb/publications/international-arbitration-report-issue-20.pdf. ↩
  5. Bruno O. Osanan, The Application Of ADR In Resolving Climate-Related Disputes To Achieve Sustainable Development In Kenya, 2 U. NAIROBI L.J. 1 (July 2023), https://uonjournals.uonbi.ac.ke/ojs/index.php/unlj/article/view/1579/1352. ↩
  6. Id. at 12. ↩
  7. Id. ↩
  8. Id. at 12-13. ↩
External Bloggers: 2023 - 2024

Rising Tides, Rocky Tides: Problematic Interpretations of EFAA

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By

Hannah Chapple

A rising tide lifts all boats. Women of Color in lower-paying jobs are the most likely group to experience sexual assault, abuse, and harassment in the workplace.1 When making laws that impact all, Congress should focus on the most vulnerable to these egregious workplace actions to better serve all workers.
At the outset of its passage, problematic interpretations are left open by the language of the Ending Forced Arbitration for Sexual Assault and Sexual Harassment Claims Act of 2022 (“EFAA”). The Act, a significant amendment to the Federal Arbitration Act, has been hailed as “a milestone in the #MeToo movement.”2
Under the EFAA, employers must carve out sexual harassment and sexual assault disputes from their mandatory arbitration programs.3 Currently, the statute gives employees the option of either pursuing sexual harassment and sexual assault claims through arbitration or in federal, state, or tribal courts.4 However, when a plaintiff has subsequent discrimination claims, their right to choose the forum for their sexual harassment and assault claim is virtually invalidated. By leaving open the question of what impact the EFAA has over other employment discrimination claims brought in conjunction to a sexual harassment or sexual assault claim, this statute detrimentally impacts the very people that it was enacted to protect.
Sexual desire does not drive all sexual harassment; on the contrary, it may be an expression of control and power.5 These experiences in the workplace are typically accompanied by race and gender discrimination. 6 The EFFA does not explicitly cover these related claims when brought alongside sexual harassment/assault claims. This drafting decision stands inapposite to the reality that harassment intersects race and sex to invade one’s ‘gendered racial identity.’
Congress must amend the EFAA to explicitly encompass other subsequently brought discrimination claims. Such an amendment is necessary because both sexual harassment and subsequent discrimination claims flow from the abuser’s compulsion to exert power. This same parentage inextricably binds these related discrimination claims together. By leaving the acceptable level of attenuation from the original sexual harassment/assault claim ambiguous, the EFAA all but invites judicial interpretations which contravene its express legislative intent.
In Johnson v. Everyrealm, Inc., a district court interpreted the EFAA to require invalidation of the arbitration clause as to the entire “case” relating to the sexual harassment dispute.7 The plaintiff’s claims of sexual harassment, pay, race, gender and ethnicity discrimination, retaliation, and other tort claims were thus not subjected to arbitration.8 This view is too broad. It contravenes the amendment’s legislative intent — not to handicap the FAA entirely.9 By taking the broad view that the entire “case” is not subject to an arbitration agreement, the plaintiff’s unrelated claims, for example – a final paycheck claim, would not be subject to arbitration, chilling the entire FAA. This broad interpretation may inspire bad-faith plaintiffs to bring forth sexual harassment or assault claims in an effort to escape their arbitration agreements.10 Despite the fact that false claims are very unlikely, this broad interpretation, if adopted, may be abused, diminishing public perceptions of alleged survivors. Such a result would be catastrophic to the ongoing push to end sexual harassment and sexual assault, and would impact the credibly of arbitration proceedings.
On the other side, where the court only carves out the sexual harassment claim,11 plaintiffs are forced to either forego their right to a judicial forum, or they are forced to pursue their power disparity-based claims in multiple forums at once. This narrow interpretation also further disenfranchises the very people that this act seeks to protect and chills the effect of the EFAA.
The EFAA, narrowly interpreted, creates issues if plaintiff’s hope to pursue their sexual harassment or assault claim in a judicial forum, but must bring subsequent claims to arbitration, and these issues would reasonably deter a plaintiff from doing so, eliminating the EFAA’s purpose to give the plaintiffs a choice. When plaintiffs attempt to pursue claims in two forums, they may run into res judicata issues as the arbitration is likely to end before the judicial forum. 12 Proceeding in two forums may also invite inconsistent results as power imbalances in one forum may not be considered the same way as in the next. Further, by proceeding in two forums, plaintiffs may have to relieve unsettling and traumatic experiences multiple times.
The issues that arise when operating in two forums would deter a reasonable plaintiff from taking their sexual harassment or assault claim to court; effectively mooting the entire EFAA which was intended to allow plaintiffs to choose forum.
The open interpretations of the EFAA disenfranchise victims and pervert the act into a statutory extension of the abusive relationship it was codified to stop. Accordingly, Congress must amend the EFAA to cover subsequent claims of discrimination and other causes of action rooted in discrepancies of power.

  1. See Mica Whitfield, National Sexual Violence Resource Center, 1 (Apr. 19, 2022), . ↩
  2. Delaney M. Busch, Congress Ends Mandatory Arbitration of Sexual Harassment and Sexual Assault Claims, 1 (Feb. 18, 2022), . ↩
  3. See Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, Pub. L. No. 117-90, 136 Stat. 26. ↩
  4. Id. ↩
  5. Heather McLaughlin, Christopher Uggen, and Amy Blackstone, Sexual Harassment, Workplace Authority and the Paradox of Power, 1 (Aug. 1, 2012), . ↩
  6. Nancy Kreiger, Pamela Waterman, Cathy Hartman, Social Hazards on the Job: Workplace Abuse, Sexual Harassment, and Racial Discrimination – a Study of Black, Latino, and White Low-income Women and Men Workers in the United States, . ↩
  7. Johnson v. Everyrealm, Inc., Case No. 22 Civ. 6669 (PAE), 2023 WL 2216173 (S.D.N.Y. Feb. 24, 2023). ↩
  8. Id. ↩
  9. On February 10, 2022, Senator Ernst said the following on the floor of the Senate about their meeting: “. . . During our meeting, my colleagues agreed with me that this bill should not be the catalyst for destroying predispute arbitration agreements in all employment matters.” 168 CONG. REC. S625 (daily ed. Feb. 10, 2022) (statement of Sen. Joni Ernst). ↩
  10. A 2014 study of sexual assault cases reported to the Los Angeles Police Department used quantitative and qualitative methods to review reports and analyze detective interviews. The study found that 4.5% of cases were false reports. As with any crime, false reporting of sexual assault does occur; however, it is very rare. When it does occur, it is both incredibly harmful to the falsely accused and extremely damaging to survivors of sexual assault who find themselves subject to stereotypes and disbelief as a result. ↩
  11. Mera v. SA Hosp. Grp., LLC, 2023 U.S. Dist. LEXIS 96912 at* 4 (S.D.N.Y. Jun. 3, 2023). ↩
  12. See Southland Corp. v. Keating, 465 U.S. 1 (1984). ↩
External Bloggers: 2023 - 2024

Makeshift Separability? Puerto Rico State Courts’ Response to Private Arbitration Clauses that Conflict withe State Consumer Administrative Agencies

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By

Alejandro Javier Colon-Cedeno

The Doctrine of Separability is central to international arbitration.1 Unsurprisingly, it has made its way into private arbitration. Consumer contracts are an excellent example of this.2 However, fundamentally, certain government agencies have yet to cement their approach to arbitration clauses within consumer contracts, leading to disparate results within the same sphere of the law. Establishing a consistent, procedurally sound course of action in light of arbitration clauses becomes exceedingly complex when faced with administrative agencies empowered to superimpose their jurisdiction over arbitration and given deference by the courts. Puerto Rico’s DACo (Department of Consumer Affairs) and its treatment of arbitration clauses contained within consumer contracts in the advent of solar panel leasing is a modern example.

Doctrinally, separability mandates that invalidities in a primary agreement do not invalidate an accompanying arbitration clause or agreement.3 For reference, Section 7 of the English Arbitration Act 1996 expressly codifies the doctrine while, in the US, state and federal law ratifies its existence and domestic applicability.4 Separability is also expressly addressed in several institutional rules (such as the ICC Rules, LCIA Rules, AAA Rules, and the UNCITRAL Arbitration Rules). Moreover, an arbitration agreement, contained within the main contract, confers jurisdiction to the arbitral tribunal.5 EWHC 1887 (Comm) (Nov. 2014).] Therefore, the issue of whether an administrative agency’s presumptive jurisdiction over consumer contracts may offset an arbitral tribunal’s jurisdiction arises.

In Peña Ortiz v. Máximo Solar Group, Corp., for instance, Puerto Rico’s appellate court found that a consumer’s challenge to the validity of a consumer contract by virtue of fraud and misrepresentation did not apply to the arbitration clause contained within it and that, therefore, the dispute required resolution via arbitration.6 This case was an appellate review of an agency decision reached by DACo, the Puerto Rico administrative agency that tends to consumer affairs, where the appellants, in turn, challenged DACo’s jurisdiction over the matter due to the existence of a valid arbitration clause pursuant to the American Arbitration Association (AAA).7 In this matter, DACo sought to establish its jurisdiction pursuant to an agency resolution that would broadly grant the agency jurisdiction over all contractual consumer matters. The appellate court, nonetheless, held that DACo erred in attempting to establish jurisdiction considering what the court referred to as a “forum selection clause.”8 Moreover, there exists in Puerto Rico a consensus that appellate tribunals abstain from intervening with administrative agency decisions due to their presumptive legality.9 Consequently, judicial review of such administrative agency decisions hinges on whether the interpretation of law and regulations are reasonable pursuant to Puerto Rican administrative law.10 In effect, the Court reiterated that Puerto Rican jurisprudence mandates that fraud or misrepresentation related to a contract in general do not invalidate “forum selection clause” contained within.11

Peña Ortiz presented the Puerto Rico appellate court with its latest challenge to the legitimacy and procedural soundness of private consumer arbitration. In response, the court reiterated the long-standing posture of the U.S., Puerto Rico, and the international community: arbitration clauses are prima facie valid. Relying on baseline contract law, the internationally recognized and widely applied Doctrine of Separability was — and should be — established as a cornerstone of arbitration in Puerto Rico, regardless of whether administrative agencies are caught up with half a century of arbitration development. Nevertheless, Puerto Rico’s Supreme Court has yet to rule on this matter, but judicial review of administrative decisions concerning DACo’s reluctance to recognize the presumptive validity of arbitration clauses within a container contract appears to be heading in the right direction.

  1. See Blake Primrose, Separability and Stage One of the Sulamérica Inquiry, 33 ARBITRATION INTERNATIONAL 139, 139-51 (2017), ↩
  2. See Daniel T. Deacon, Agencies and Arbitration, 117 COLUM. L. REV. 991 (2017). ↩
  3. See Separability, BLACK’S LAW DICTIONARY (11th ed. 2019). ↩
  4. See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967). ↩
  5. See Kruppa v. Benedetti Anor, [2014 ↩
  6. Peña Ortiz v. Máximo Solar Group, Corp., 2023 WL 2522089 at *7 (TCA, 2023). ↩
  7. Id. at *2-4. ↩
  8. Id. at *7. ↩
  9. Id. at *4. ↩
  10. Id. ↩
  11. Id. at *7 ↩
External Bloggers: 2023 - 2024

A Controversial Path Towards Enforcement

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By

Gilberto Elio de Martinis

In June 2023, the United States Supreme Court ruled1 that a U.S. defendant’s criminal activity against a non-U.S. plaintiff when enforcing an international commercial arbitration award triggers Article 18 U.S.C. § 1964(c) — the Racketeer Influenced and Corrupt Organizations Act (RICO). This decision creates a new circumstance under which non-US plaintiffs can enforce foreign arbitral awards in the United States.

In Yegiazaryan, the United States Supreme Court ruled on a multimillion-dollar international commercial arbitration award in favor of the non-US plaintiff Smagin against Yegiazaryan. This judgment considered Yegiazaryan, who misappropriated investment funds in a joint real estate venture in Moscow. Smagin alleged that Yegiazaryan, who lives in California, violated RICO by creating shell companies in the U.S. and abroad to avoid paying the award. The United States Supreme Court re-examined the case after the District Court dismissed the complaint on the reasoning that Smagin failed to plead a “domestic injury” as required by RJR Nabisco, Inc. v. European Community.2 On the first appeal, the Ninth Circuit applied a context-specific approach to the domestic-injury inquiry, using the specific circumstances of the case, in contrast with the District Court’s residency-based approach. After granting certiorari, the US Supreme Court concluded that Smagin’s complaint satisfied the requirements of RICO and gave evidence overcoming the presumption against extraterritoriality3

“Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court . . ..”4 “It is unlawful for anyone employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt.” 5 Furthermore, in RJR Nabisco, Inc., the Court provided a two-step inquiry to overcome the presumption against extraterritoriality and apply RICO domestically. First, a court must consider “whether the statute gives a clear, affirmative indication that it applies extraterritorially”.6 If yes, the test ends, if no, the court must consider whether “{a} private RICO plaintiff . . . must allege and prove a domestic injury to its business or property.”7 In Yegiazaryan, the court held that RICO does not provide the clear indication required at stage one, therefore the court considered whether in the case there is a domestic injury, in relation to a business or property. In this sense, the Supreme Court considers the arbitration award as the foundation for giving the successful non-US plaintiff a right of property. This property, based on the court’s context-specific approach, was injured by the conduct of Yegiazaryan, who frustrated the purpose of the award, by avoiding paying the sum Smagin lawfully obtained through the successful arbitration.

In light of the above, one must pay particular attention to how the Court conceptualizes and uses the concept of “property”. The arbitration award in favor of Smagin gives him the right to collect the multi-million-dollar payment from Yegiazaryan. This mirrors the creditor-debtor relationship where the former has a right to collect the sum of money lent to the latter, through an obligation directed towards one party. On the other hand, a tangible property right, such as land, or an intangible property right, such as a patent, are not considered in relation to just one counterparty, but to all in general. The nature of the creditor’s right is, therefore, highly different from a property right, which gives the owner the possibility of exercising it in relation to every person who commits a breach. This leads to the conclusion that the judgment considered by the United States Supreme Court should not be considered a property right, but a creditor’s right. Accordingly, RICO should not be applied in the present case as there was no property to be injured.

In conclusion, the United States Supreme Court’s decision provides a new path for enforcing an arbitration award in the U.S. by a non-U.S. plaintiff. Unfortunately, this path is based on a flawed concept of property, that differs from its practical use. The Court’s very elastic reasoning now lets non-US plaintiff obtain a “significant increase in the value of his arbitration victory”8

  1. See Yegiazaryan v. Smagin, 599 U.S. 533 (2023). ↩
  2. 579 U.S. 325, 346. ↩
  3. See Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247, 255 (2010) (opining that it is a “longstanding principle of American law that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the US” and holding that “when a statute gives no clear indication of an extraterritorial application, it has none.”). ↩
  4. 18 U.S. Code § 1964(c). ↩
  5. 18 U.S.C.A. § 1962(c) (West 1984). ↩
  6. RJR Nabisco, Inc., 579 U.S. at 337. ↩
  7. Id. at 346. ↩
  8. Matthew H. Adler, Jeremy D. Heep, Callan Stein, et al., U.S. Supreme Court Creates a New Path for Non-U.S. Plaintiffs to Enforce Foreign Arbitral Awards, ABA Business Law Today (Aug. 2nd, 2023), ↩