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US Supreme Court Denies Certiorari in Two Arbitration-related Cases

On October 7, 2013, the United States Supreme Court denied certiorari to the following cases concerning arbitration, Bakoss v. Certain Underwriters at Lloyds of London Issuing Certificate No. 0510135, 707 F.3d 140 (2d Cir. 2013) and  Kramer v. Toyota Motor Corp., 705 F.3d 1122 (9th Cir. 2013). Bakoss concerns the definition of “arbitration” under the Federal Arbitration Act (FAA) and state law, whereas Kramer involved an attempt by a nonsignatory to an arbitration agreement to compel arbitration. The Supreme Court also denied cert in NML Capital, LTD. v. Republic of Arg., 680 F.3d 254 (2d Cir. 2012), which held that post-judgment discovery in aid of enforcing a judgment against a foreign state can be ordered with respect to all assets of a foreign state regardless of their location or use, and - contrary to decisions by the Seventh, Fifth, and Ninth Circuits - is not limited to assets located in the United States that are potentially subject to execution under the Foreign Sovereign Immunities Act. While NML involved enforcement of a judgment, it is potentially relevant to the enforcement of arbitral awards against foreign sovereigns.

With the denial of cert in Bakoss and Toyota, the appellate court rulings remain in effect, and the federal circuit courts remain split on whether state or federal common law defines arbitration under the FAA and whether non-signatories to an agreement may compel arbitration.

In Bakoss, the Second Circuit affirmed a lower court decision holding that “the meaning of ‘arbitration’ under the Federal Arbitration Act is governed by federal common law – not state law.” Id. at 144. The appellate court noted the split among the circuits on which definition of arbitration is authoritative by comparing cases in the First, Second, and Tenth Circuits, which define arbitration by application of  federal law, and courts in the Fifth and Ninth Circuits, which apply state law. Id. at 143.  Agreeing with the “compelling analysis of the circuit courts that have followed federal law in defining the scope of ‘arbitration’ under the FAA,” Id. at 144, the court reasoned that doing otherwise and applying state law would create a “‘patchwork,’” in the law, and the FAA would not have a uniform meaning across the U.S. Amicus briefs regarding the cert petition and full text of this case are available here.

In Kramer, the Ninth Circuit affirmed the lower court’s ruling in In re Toyota Motor Corp. Hybrid Brake Mktg., Sales, Practices & Prods. Liab. Litig., 828 F. Supp. 2d 1150 (C.D. Cal. 2011), concluding that a nonsignatory may not compel a party to an arbitration agreement agreement to arbitrate the threshold question of “arbitrability”(whether the dispute was properly before the arbitral tribunal). Citing the FAA, the court reasoned that “[g]enerally, the contractual right to compel arbitration may not be invoked by one who is not a party to the agreement and does not otherwise possess the right to compel arbitration. Accordingly, the strong public policy in favor of arbitration does not extend to those who are not parties to an arbitration agreement.” Id. at 1126. This conflicts with decisions in the First and Second Circuits that used an estoppel theory to hold that when an arbitration agreement empowers the arbitral tribunal to decide questions of arbitrability, that issue is to be decided by the arbitrator, even when the party seeking to compel arbitration is not a signatory to the arbitration agreement. For more information regarding the substance of the agreement between the parties in this case, full text of the case opinion, and amicus briefs regarding cert, click here.  

Although there do not appear to be any further arbitration-related cert petitions up for consideration in the court’s conferences on October 11 and 18, the justices will hear oral argument in the much-anticipated BG Group v. Argentina case on December 2.

- Libbie Richards, CPR Legal Intern