Baker McKenzie International Arbitration Yearbook 2024-2025 – United States

A. LEGISLATION AND RULES

A.1 Legislation

The United States is a federal jurisdiction that has arbitration-related legislation at both the federal (national) and state levels. The Federal Arbitration Act (FAA) of 1925 continues to be the controlling federal arbitration statute and reflects a well-established national policy that strongly favors arbitration as an alternate means of dispute resolution.

On a bipartisan, bicameral basis, Congress agreed on a draft national data privacy standard, the American Privacy Rights Act (APRA). The purpose of the standard is to make privacy a consumer right and to give consumers the ability to enforce that right. While the framework does not amend the FAA, it does include a provision that renders invalid and unenforceable pre-dispute arbitration agreements in cases involving an individual under the age of eighteen, or a claim alleging a violation that resulted in substantial privacy harm.^[1]

At the state level, California Assembly Bill No. 1903 was signed into law on 15 July 2024. It updated the California International Arbitration Act to incorporate many of the 2006 amendments to UNCITRAL Model Law. This step modernizes California law, bringing it in line with the foremost arbitral jurisdictions on issues such as the definition of arbitration agreements and interim measures of protection.

A.2 Institutions, rules and infrastructure

2024 has also seen substantial changes to some of the US arbitral institutions’ rules. The major arbitral institutions in the US include:

JAMS
The International Institute for Conflict Prevention and Resolution
The AAA
The ICDR, which is the international division of the AAA

In 2024, we saw the introduction of JAMS’ new rules on mass arbitrations, AAA’s new rules for the Construction Industry and its Mass Arbitration Supplementary Rules.

A.2.1 JAMS

JAMS is headquartered in Irvine, California, but maintains offices in 27 locations throughout North America and the United Kingdom. Effective 1 May 2024, JAMS adopted new rules and a new fee schedule for mass arbitrations. The new rules apply in two circumstances:

When parties have a pre-dispute or post-dispute written arbitration agreement
When there are 75 or more similar demands for arbitration, or any other specified amount in the parties’ agreement. The claims must be filed against the same parties.

These new JAMS rules contain two new procedures that aim to rectify a common problem in abusive mass arbitrations—a claimant pool that includes a large number of improper claimants.^[2] These claimants are often fictitious or duplicative, they may not even be customers of or workers for the targeted business, or they were never exposed to the challenged improper conduct. In some instances, they do not even have arbitration agreements with the targeted business and so do not have the right to invoke arbitration. However, the lawyers who file these improper arbitrations often assert that they were entitled to rely on the information typed into online forms by their putative clients or that the business should be responsible for identifying the improper claimants. As such, the new rules challenge these practices by requiring each claimant to demonstrate that there is an arbitration agreement in place alongside the demand for arbitration, for counsel to provide a sworn declaration stipulating that the information contained in the demand is true and correct to the best of the representative’s knowledge. The rules also make it feasible for businesses to challenge the propriety of arbitration filings at the outset.

As for its fee schedule, JAMS has a USD 7,500 filing fee regardless of the number of cases and a USD 7,500 filing fee for counterclaims. The other fees will depend on the hourly rate of the process administrator and arbitrator.

A.2.2 AAA

The AAA amended its Mass Arbitration Supplementary Rules in 2024. The following are some of the changes. There are now three different fee schedules for employment, consumer, and B2B/construction disputes. The AAA considers a mass arbitration to be one with 25 or more demands for arbitration. Both parties now share Merits Arbitrators’ costs, with companies bearing most of the financial burden unless otherwise agreed upon. The Process Arbitrator’s role has been expanded. They can be appointed before filing requirements are completed and can now decide on conditions precedent, cost payment, hearing locations, case inclusion/exclusion, and the selection of Merits Arbitrators. Representatives must certify the truthfulness of the information in all filings. However, the rules do not specify whether representatives have a duty to conduct a reasonable inquiry into the filing.

The Process Arbitrator’s administrative involvement ceases when a Merits Arbitrator is appointed to a specific case, unless the parties agree otherwise. However, the rules now allow the Merits Arbitrator to review the decisions of the Process Arbitrator for abuse of discretion. In connection with the global mediation required under rule 9, the AAA-ICDR shall now appoint the mediator if the parties cannot agree on one. There is now an expressed preference for virtual hearings.

For cases that are stayed, companies must pay a USD 2,500 fee every six months. When a third-party neutral is required, companies are responsible for additional fees and the neutral’s compensation. Advocates preparing for mass arbitration actions must consider the increased fees, develop flexible arbitration strategies to respond to Process Arbitrators’ decisions, and be aware of the ethical implications of the new certification requirement.

These changes present new challenges in arbitrating mass claims and should be carefully considered when deciding whether to file claims in mass arbitration.

The AAA also updated its Construction Industry Arbitration Rules and Mediation Procedures, effective 1 March 2024. These changes aim to improve efficiency, adopt modern technology, and meet the changing needs of the construction industry. The new rules phase out fax numbers and require email addresses for all parties. Several updates have been made to the regular track procedures. These include reinforcing adherence to AAA’s Standards of Conduct, refining consolidation and joinder procedures, enhancing arbitrator appointment rules, recognizing videoconferencing for preliminary hearings, and introducing more flexible communication methods and confidentiality measures. Finally, the Fast Track Procedures have been expanded to include cases with claims or counterclaims up to USD 150,000. The rules for information exchange and discovery have been streamlined, and a new procedure specifies that Fast Track case awards will be in the form of a standard award. For large and complex construction disputes, the threshold for appointing a three-arbitrator panel has been raised to cases exceeding USD 3 million, reflecting the increasing size of construction disputes.

B. Cases

B.1 Unanimous Supreme Court holds that a court that sends a dispute to arbitration must stay the case in the district court^[3]

The plaintiffs, current and former drivers for an on-demand delivery service operated by the defendants, alleged violations of federal and state employment laws. The plaintiffs claimed that the defendants misclassified them as independent contractors, failed to pay required minimum and overtime wages, and failed to provide paid sick leave. The defendants moved to compel arbitration and dismiss the suit. The plaintiffs conceded that all of their claims were arbitrable, but argued that section 3 of the FAA required the district court to stay the action pending arbitration, rather than dismissing it entirely.

The district court noted that the text of section 3 suggests that the action should be stayed, but Ninth Circuit precedent instructed that a district court may either stay the action or dismiss it outright when the court determines that all of the claims raised in the action are subject to arbitration, and opted to dismiss the case. The Ninth Circuit affirmed. It acknowledged that “the plain text of the FAA appears to mandate a stay“, but explained that it, too, was bound by circuit precedent that recognized the district court’s “discretion to dismiss“. The concurring opinion “encourage[d] the Supreme Court to take up” the issue, which it had side-stepped in earlier decisions.

The Supreme Court took up that invitation and reversed the Ninth Circuit, holding unanimously that “[w]hen a federal court finds that a dispute is subject to arbitration, and a party has requested a stay of the court proceeding pending arbitration, the court does not have discretion to dismiss the suit on the basis that all the claims are subject to arbitration.” Section 3 of the FAA provides that when any issue in a suit is subject to arbitration, the court:

“shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration”.

According to the Supreme Court, the use of the word “shall” “creates an obligation impervious to judicial discretion.” When section 3 says that a court “shall . . . stay” the proceeding, the court must do so. The Supreme Court rejected the argument that “stay” in section 3 means only that the court must stop parallel in-court litigation, which a court may achieve by dismissing without retaining jurisdiction. As the court explained, the word “stay” denotes the “temporary suspension” of legal proceedings, not the conclusive termination of such proceedings that accompanies a dismissal. In addition, section 3 ensures that the parties can return to federal court if the arbitration breaks down or fails to resolve the dispute, a “return ticket” that is “not available if the court dismisses the suit rather than staying it.”

The Supreme Court also supported its decision based on the way the FAA addresses appeals. Denials of requests to arbitrate are immediately appealable under section 16 of the FAA, but orders compelling arbitration are not typically appealable. This distinction is consistent with Congress’ purpose in the FAA “to move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible.” If a district court dismisses a suit that was compelled to arbitration even when a party requests a stay, that dismissal triggers the right to an immediate appeal, which would be contrary to what Congress sought to forbid.

As a result, the Supreme Court reversed the decision of the Ninth Circuit and remanded. The Supreme Court left open, however, the question of whether a stay is mandatory if neither party requests one.

B.2 Supreme Court reverses Second Circuit and holds that a transportation worker need not work in the transportation industry to be exempt from coverage under Section 1 of the FAA^[4]

The plaintiffs were franchisees of defendant, a mass-production bakery, who owned the rights to distribute the defendant’s baked goods in certain parts of Connecticut. The defendant baked the bread and buns and sent them to a warehouse from which the plaintiffs picked them up and distributed them to local shops. The plaintiffs’ jobs extended beyond just carrying the products. They also found new retail outlets, advertised, set up promotional displays, and maintained their customers’ inventories by ordering baked goods from the defendant, stocking shelves, and replacing expired products.

To purchase the rights to their territories, the plaintiffs signed distributor agreements with the defendant, that included a provision requiring “any claim, dispute, and/or controversy” to be arbitrated under the FAA. In 2019, the plaintiffs brought a putative class action claiming that the defendant had underpaid them in violation of state and federal law. The defendant moved to dismiss or to compel arbitration under the FAA, arguing that the contracts required the distributors to arbitrate their claims individually.

The FAA generally provides for the enforcement of arbitration agreements, but there is an exception specifying that “nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” The plaintiffs argued that they fell within this exception and, therefore, could not be compelled to arbitrate under the FAA.

The district court dismissed the case in favor of arbitration. It concluded that their “much broader scope of responsibility” under the distributor agreements “belie[d] the claim that they are only or even principally truck drivers,” meaning that the exception did not apply. Without addressing the district court’s analysis, the Second Circuit affirmed on the alternative ground that Bissonnette and Wojnarowski “are in the bakery industry” and under Second Circuit law, the panel explained, section 1 of the FAA exempts only “workers involved in the transportation industries.”

On appeal, the Supreme Court noted that a month after the Second Circuit’s decision, the Supreme Court decided Southwest Airlines Co. v. Saxon, which determined that a ramp supervisor who “frequently load[ed] and unload[ed] cargo” from airplanes belonged to a “class of workers engaged in foreign or interstate commerce.” The court held that a “class of workers” is properly defined based on what a worker does for an employer, “not what [the employer] does generally.” According to the Supreme Court, there is no requirement that a worker must work for a company in the transportation industry to be exempt under section 1 of the FAA.

In an earlier decision concerning the FAA section 1 exception, the Supreme Court relied on ejusdem generis, the familiar canon of statutory interpretation that courts “interpret a ‘general or collective term’ at the end of a list of specific items in light of any ‘common attribute[s]’ shared by the specific items.” Applying that canon to section 1, the court explained that the general phrase “class of workers engaged in . . . commerce” is “controlled and defined by reference to” the specific categories “seamen” and “railroad employees” that precede it. The court concluded that the linkage between “seamen” and “railroad employees” is that they are both transportation workers. The class of workers in the residual clause was therefore limited in the same way.

The Second Circuit, in the case below, had applied a test that an entity would be considered within the transportation industry if it “pegs its charges chiefly to the movement of goods or passengers” and its “predominant source of commercial revenue is generated by that movement.” The Supreme Court rejected such a test because it would often turn on arcane riddles about the nature of a company’s services such as whether a pizza delivery company derives its revenue mainly from pizza or delivery.

The defendant also made a policy argument, contending that the section 1 exemption would sweep too broadly without an implied transportation-industry requirement. Because virtually all products move in interstate commerce, the defendant warned that virtually all workers who load or unload goods—from pet shop employees to grocery store clerks—would be exempt from arbitration. The Supreme Court disagreed, noting that section 1 was not limitless. Exempt workers “must at least play a direct and ‘necessary role in the free flow of goods’ across borders.” The Supreme Court vacated the Second Circuit judgment and remanded the case for further proceedings consistent with the Supreme Court’s opinion.

B.3 DC Circuit refuses to apply EU law to invalidate confirmation of an ICSID award where the underlying dispute preceded Romania’s accession to the EU^[5]

Prior to Romania’s accession to the EU, the Romanian government adopted a number of tax incentives aimed at prodding investment in “certain economically ‘disfavored’ regions of the country.” In pursuit of those tax advantages, which Romania decreed would remain in place until 2009, the Micula brothers built certain food-production facilities. But in 2005, Romania—preparing to join the EU—repealed the incentives. The Miculas filed for arbitration five months later under the ICSID Convention. As Swedish nationals, the Miculas invoked arbitral jurisdiction pursuant to a BIT between Romania and EU member Sweden.

In late 2013, the ICSID tribunal ruled for the Miculas, finding that Romania had breached the BIT. In applying the BIT, the tribunal ruled that EU law did not govern the dispute because, although Romania joined the EU in 2007—after initiation of the arbitration—its accession thereto predated all events underlying the dispute (namely, establishment and subsequent repeal of the tax program). Romania’s 2014 petition to annul the arbitral award as inconsistent with EU law proved unsuccessful. But, during the pendency of Romania’s petition, the European Commission made a determination that Romania’s payment of the arbitral award would violate EU law. Specifically, the European Commission contended that payment would constitute anticompetitive state aid.

The Miculas then took their turn petitioning for further review. Four years later, the European Commission’s decision was overturned by the General Court of the Court of Justice of the European Union (“General Court“), a constituent body of the EU’s high court. In overturning the Commission, the General Court found, like the ICSID tribunal, that the dispute concerned Romania’s pre-EU conduct, and thus the Commission lacked powers necessary to resolve the controversy.

Before the General Court had come to that decision, the Miculas asked the US District Court for the District of Columbia to enforce the foreign arbitral award pursuant to federal law. The district court obliged, exercising power over the dispute under an exception to the Foreign Sovereign Immunities Act, 28 USC § 1605(a)(6), which permits American courts to confirm awards made pursuant to agreements to arbitrate. Though EU law prohibits intra-EU agreements to arbitrate, the district court declined to apply EU law because the factual matter in issue occurred prior to Romania’s accession.

In 2020, the US Court of Appeals for the DC Circuit affirmed on the same grounds. Thereafter, in January 2022, the Court of Justice of the European Union (CJEU), the EU’s highest court, ruled that the agreement to arbitrate under the BIT was void “the moment that Romania entered the EU.” The CJEU further overturned the General Court decision, and held that the European Commission’s decision, that payment of the award would constitute prohibited “state aid,” meant that EU courts could not enforce the award.

On this basis, Romania sought relief from the US confirmation order under Federal Rules of Civil Procedure 60(b)(4), (5) and (6). The district court denied relief, concluding that the CJEU decisions did not hold that Romania’s accession retroactively voided its pre-EU consent to arbitrate. Accordingly, the jurisdictional fact upon which the confirmation was based—that there was a valid agreement to arbitrate before Romania acceded to the EU—remained undisturbed. Romania appealed once more to the US Court of Appeals for the DC Circuit. The DC Circuit affirmed. First, the court explained that rule 60(b)(4) provides that relief from a judgment is proper when the judgment is void, but that finding a judgment void due to a jurisdictional defect is reserved for cases where the district court lacks even an arguable basis for jurisdiction. Here, the DC Circuit found that the district court had an arguable basis for jurisdiction. Specifically, the district court’s jurisdictional analysis relied not on EU law, but on Romania’s pre-EU arbitration agreement, and the CJEU decision did not implicitly (much less indisputably) invalidate the pre-EU arbitration agreement.

Second, rule 60(b)(5) provides that relief is proper where a judgment is premised on a former judgment that is reversed or no longer equitable. Romania contended that the district court denied the rule 60(b) motion based on the reversed General Court decision, thereby warranting relief. The DC Circuit rejected this theory, finding that the district court based its decision on a close inspection of Romania’s pre-EU arbitration agreement and the arbitral award itself. The DC Circuit likewise rejected Romania’s argument that the CJEU decision invalidated the underlying award itself, both because that argument was presented for the first time on appeal, and because the CJEU decision did not support that inference.

Finally, rule 60(b)(6) provides that relief is proper for extraordinary circumstances that justify relief. The DC Circuit reiterated that the sparing application of clause (6) demands that the arguments for relief cannot be simple reassertions of those asserted under any other clauses. As such, most of Romania’s arguments were rejected as duplicative. Romania’s sole non-duplicative argument was that the district court gave insufficient respect for the principle of comity—the principle that a forum should provide adequate deference to the act of a foreign government not otherwise binding on the forum. The DC Circuit rejected this argument, noting that the district court carefully examined the CJEU decision and gave the proper balance of deference to the CJEU decision and United States law.

Accordingly, the DC Circuit affirmed the district court’s denial of Romania’s rule 60(b) motion for relief from judgment.

B.4 District court declines to confirm arbitral award, concluding that the arbitration proceeding was not conducted in accordance with the parties’ underlying agreement^[6]

Spineway SA (“Spineway“) and Strategos Group LLC (“Strategos“) were collaborators on a business venture in South America. Following a deterioration of the parties’ relationship, Spineway commenced an arbitration proceeding against Strategos before the Swiss Chambers Arbitration Institution (SCAI) pursuant to the Swiss Rules of International Arbitration (“SCAI Rules“).

The parties acknowledged that they had agreed to arbitrate any disputes, but they disagreed on the arbitral institution and corresponding rules, because the institution and rules identified in the agreement were “the Geneva International Chamber of Commerce” and the “Mediation and Arbitration Rules of the Geneva International Chamber of Commerce,” a non-existent institution. As a result, while Spineway claimed that the parties intended to arbitrate before the SCAI under the SCAI Rules, Strategos countered that the intended arbitral institution was the ICC under the ICC Rules.

Consistent with its position that it never agreed to arbitrate before the SCAI, Strategos did not appear at the arbitration before the SCAI that Spineway had commenced. Nonetheless, the arbitrator issued a final award, holding that he had jurisdiction over the dispute and awarding Spineway restitution and certain fees and costs.

Spineway sought to confirm the SCAI’s award in the US District Court for the District of Delaware. The court denied Spineway’s request upon determining that the award was not issued in accordance with the underlying agreement between the parties and thus met the ground for refusing to enforce an award under article V(1)(d) of the New York Convention. Looking to the text of the arbitration clause under French contract law, which the parties agreed governed the agreement, the court first considered that, as Strategos contended and Spineway could not rebut, countless French courts interpreted similar references to “the Geneva International Chamber of Commerce” to refer to the ICC and its rules, with an arbitral seat in Geneva.

The court noted that the extrinsic evidence bolstered this conclusion. Reviewing the drafting history, the court highlighted that, while every draft of the agreement contained references to the “International Chamber of Commerce,” there were no such express references to the SCAI. In fact, the only reference to the SCAI was in a comment bubble during the parties’ drafting process, which contained a hyperlink to a website that tangentially referred to the SCAI. Based on the foregoing, the court concluded that the agreement required the parties to proceed before the ICC, not the SCAI, and that the SCAI award was therefore not enforceable under the New York Convention.

The court determined that Spineway’s remaining arguments were meritless as well. Although Spineway contended that Strategos had waived its right to oppose the confirmation of the award by failing to appear at the SCAI arbitration, the court remarked that none of the cases Spineway cited actually required appearance to contest jurisdiction. Next, while Spineway averred that the court should defer to the SCAI arbitrator, the court rejected this assertion because the parties agreed that an ICC arbitrator would determine arbitrability under the ICC rules. Finally, the court rejected Spineway’s position that Strategos must establish substantial prejudice as a result of the SCAI arbitration to avoid confirmation of the award. The court explained that it identified no binding authority to support Spineway’s assertion and that, in any event, Strategos had suffered prejudice given the material differences between the rules of the ICC and the SCAI.

For all these reasons, the court denied Spineway’s request to confirm the arbitral award.

B.5 Third Circuit affirms district court’s order denying motion to compel arbitration after AAA decides it would not administer dispute^[7]