Why Midsized Companies Should Consider International Arbitration to Enforce Their Cross-Border Contracts
For midsized companies engaged in cross-border trade—whether selling overseas or purchasing from foreign suppliers—the ability to enforce contracts is critical. After all, if a contract cannot be enforced, it’s not worth the paper it’s written on. But the unfortunate truth is that relying on courts to enforce cross-border contracts can cost significant time and money. Large companies often can sustain those costs and are accustomed to dealing with foreign courts. That frequently is not the case for midsized companies, however. And under current global economic circumstances—including a weakening dollar—cross-border contract (and other commercial) disputes may increase as trade flows and foreign investment patterns shift. It is therefore all the more important for midsize companies to reduce the risks associated with their cross-border transactions where possible. One potential tool for doing so is international arbitration.
An international arbitration clause can provide a midsized company with a practical and enforceable mechanism to resolve disputes, thereby reducing legal uncertainty and minimizing risk. The benefits of an internation arbitration are discussed below.
Avoiding the Risks of Foreign Litigation
One of the biggest risks in cross-border trade is being forced to defend a dispute in a foreign court. Litigating in a foreign jurisdiction can mean navigating an unfamiliar legal system, dealing with different laws and procedures, facing potential prejudice as an outsider, defending yourself at a distance from home, and overcoming language barriers—all of which increase uncertainty, cost, and risk. By choosing international arbitration, companies can ensure that disputes are resolved in a neutral and more predictable forum, avoiding the pitfalls of foreign litigation.
Expert Decision-Making
Unlike litigation, where a case is often decided by a judge or jury with no expertise in the subject matter, arbitration allows parties to select arbitrators with specialized knowledge in the relevant industry or legal field. This leads to well-informed decisions that take commercial realities into account, improving the quality and fairness of dispute resolution.
Confidentiality
Unlike court proceedings, which are typically public, arbitration is private. This helps to keep sensitive business information, trade secrets, and contractual disputes confidential, reducing reputational risks and protecting competitive advantages.
Flexibility and Control
Arbitration allows parties to shape the dispute resolution process to meet their needs. Companies can select arbitrators with the right expertise, agree on procedural rules, and choose the seat of arbitration—all of which provide greater control over how disputes are handled compared to litigation.
Use Your Own Lawyer Regardless of Arbitration Location
A significant advantage of arbitration is that, if your lawyer has international arbitration expertise, they can represent you no matter where the arbitration is seated. Unlike litigation, where local court rules often require hiring local counsel, arbitration allows you to retain the legal team you trust, ensuring consistency in legal strategy and cost efficiency.
Possibility of Remote Arbitration
Many arbitration institutions now offer the option for hearings to be conducted remotely via video conferencing. This reduces the need for costly international travel and allows businesses to participate fully in dispute resolution with minimal disruption to operations. Remote arbitration can also streamline proceedings, making the process more efficient and cost-effective.
Limited Discovery
Discovery in international arbitration is far more limited, less invasive, and less expensive than in U.S. litigation. Depositions are rarely allowed, and document production is typically restricted to materials that are relevant and material to the outcome of the case. This contrasts sharply with U.S. litigation, where broad and costly discovery – and resolution of the disputes that inevitably arise over such discovery – can significantly extend the length and expense of proceedings.
Faster Resolution
International arbitration is often more time-efficient than litigation, helping businesses avoid prolonged court delays that can disrupt operations. With streamlined procedures and limited appeals, arbitration enables companies to resolve disputes more quickly and move forward with their business.
Cost-Effectiveness
While arbitration involves costs, it is generally more predictable and cost-effective than navigating lengthy court battles across different jurisdictions. The ability to choose efficient procedures, avoid excessive discovery, and limit unnecessary delays makes arbitration a more practical choice for midsized businesses.
Finality of the Award
Unlike court judgments, arbitration awards are final and binding, with very limited grounds for appeal. This means that once an award is issued, the losing party has little ability to delay or overturn the decision, providing businesses with greater certainty and closure.
Enforceability of Awards
International arbitration awards are widely recognized and enforceable in over 170 countries under the New York Convention. This makes arbitration a more reliable mechanism for cross-border contract enforcement than court judgments, which may not be easily recognized or enforced in foreign jurisdictions.
The “Loser Pays” Rule
Unlike litigation in U.S. courts—where each party typically bears its own legal costs—international arbitration often follows the “loser pays” rule. This means that the losing party is generally required to cover the prevailing party’s arbitration costs and legal fees. This discourages frivolous claims and ensures that businesses can recover their costs when they prevail.
Implications for Midsized Companies
For midsized businesses engaged in international trade, arbitration offers a strategic advantage by ensuring contract enforceability, reducing legal uncertainty, and avoiding the complications of foreign litigation. By including arbitration clauses in cross-border contracts, companies can protect their interests and minimize risks while benefiting from a more predictable, cost-effective, and expert-driven dispute resolution process.
The Latest Attack on Consumer Arbitration Agreements
The war against arbitration agreements continues apace. The latest volley comes from the U.S. Court of Appeals for the Fourth Circuit, Johnson v. Continental Finance Company, LLC, No. 23-2047 (4th Cir. Mar. 11, 2025). In Johnson, the court considered whether a change-in-terms provision in a cardholder agreement rendered arbitration and delegation clauses illusory under Maryland law. In a 2-1 decision featuring opinions by all three panel members, the court said “yes,” and found the arbitration and delegation clauses unenforceable.
Plaintiffs filed putative class-action complaints against Continental Finance Company, LLC and Continental Purchasing, LLC. Continental moved to compel arbitration pursuant to the arbitration provision contained in the cardholder agreement Plaintiffs received upon account opening. Plaintiffs opposed, arguing the cardholder agreement lacked consideration because the agreement’s change in terms provision permitted Continental to unilaterally amend the agreement at its “sole discretion”:
We can change any term of this Agreement, including the rate at which or manner in which INTEREST CHARGES, Fees, and Other Charges are calculated, in our sole discretion, upon such notice to you as is required by law. At our option, any change will apply both to your new activity and to your outstanding balance when the change is effective as permitted by law.
Affirming the district court, a majority of the panel agreed that the arbitration clause was illusory because the change-in-terms provision allowed Continental to “change any term of [the] Agreement in [its] sole discretion, upon such notice to [Plaintiffs] as is required by law.” Citing a decision by the Supreme Court of Maryland (Cheek v. United Healthcare), the majority said such provisions “are so one-sided and vague” under Maryland law that they “allow[] a party to escape all of its contractual obligations at will,” including the obligation to arbitrate. Based on this, the majority held that the arbitration and delegation clauses were unenforceable.
Judge Wilkinson’s lead opinion raises a difficult question: If the change-in-terms provision renders the arbitration clause illusory, then why doesn’t it render the entire cardholder agreement illusory? To be sure, the plaintiffs limited their argument to the arbitration and delegation clauses, and the majority affirmed that these were the only provisions that its judgment disturbed. The lead opinion doesn’t answer this question. To our eyes, we see no limiting principle that would prevent the same argument from taking down the entire cardholder agreement. What’s good for the goose is good for the gander: Arbitration agreements are to be treated just like every other contract under state law. If the change-in-terms provision nullifies the formation of the arbitration agreement, the same should be true for every other term in the contract. Such a drastic outcome would jeopardize the formation of countless consumer contracts. As the dissent (authored by Judge Niemeyer) points out, the change-in-terms language here is “legal and widespread.” All that is required is sufficient notice of the change. If consumers don’t like the change, they negotiate with their wallets and take their business elsewhere.
Perhaps sensing this gap in the lead opinion, Judge Wynn addresses it in his decisive concurrence. But in doing so, he frankly raises more troubling questions. He points to another Maryland Supreme Court case (Holmes v. Coverall N.A., Inc.) stating that “an arbitration provision contained within a broader contract is a separate agreement that requires separated consideration in order to be legally formed.” This strand of Maryland law strikes us as potentially unlawful as preempted under the Federal Arbitration Act. Again, arbitration agreements must be treated on the same footing as every other contract under state law. No one disagrees that every other provision in Continental’s contract can be negotiated collectively and supported by the same pot of consideration. So why do arbitration agreements require something different and more rigorous under Maryland law? Though we’re obviously Monday morning quarterbacking this case, our answer is: They shouldn’t.
As noted at the top, Johnson is part of a larger judicial war by plaintiffs’ lawyers and consumer advocacy groups against consumer arbitration—one that we expect to grow in ferocity given the Trump administration’s recent defanging (and defunding) of the CFPB. Several courts have limited the enforcement of arbitration provisions in consumer contracts where plaintiffs have argued that the unilateral modification of such contracts to include arbitration provisions was illusory or did not comply with the implied covenant of good faith and fair dealing. See Canteen v. Charlotte Metro Credit Union, 900 S.E.2d 890 (N.C. 2024); Decker v. Star Fin. Grp., Inc., 204 N.E.3d 918 (Ind. 2023); Badie v. Bank of Am., 67 Cal. App. 4th 779 (1998). And prior to the recent changes in Washington, the CFPB had proposed a rule making one-sided “change-in-terms” provisions illegal and unenforceable.
We note however that several courts have gone the other way, see, e.g., SouthTrust Bank v. Williams, 775 So. 2d 184 (Ala. 2000), and the cases that have refused to enforce arbitration provisions have indicated that such provisions may be enforceable where the change in terms clause expressly requires a detailed description of changes before they become effective (Johnson) or the contract previously had a governing law provision that specified the forum for the resolution of disputes (Canteen).
Companies that have arbitration provisions or are considering adding them to their consumer contracts should stay apprised of the developing law in this area, particularly in the states in which they are located. Please talk to a lawyer before you draft or promulgate an arbitration clause—an ounce of prevention is worth a pound of cure.
Arbitration Act 2025 Updates UK’s Dispute Resolution Framework
Go-To Guide:
The UK Arbitration Act 2025 seeks to modernise arbitration law through a series of targeted reforms to the Arbitration Act 1996:
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New statutory rule establishes arbitration agreement’s governing law as the law of the seat, absent express agreement.
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Arbitrators gain express power to summarily dismiss claims or defences with no real prospect of success.
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Codifies arbitrators’ duty to disclose potential conflicts of interest on an ongoing basis.
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Court powers extended to issue orders against third parties in support of arbitration proceedings.
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Equips emergency arbitrators with extended enforcement powers.
The Arbitration Act 2025 (the 2025 Act) received Royal Assent on 24 February 2025. This new legislation introduces a series of targeted reforms to modernise and enhance the Arbitration Act 1996 (the 1996 Act), which has underpinned England’s arbitration offering for the past 30 years. The changes the 2025 Act introduce seek to reinforce and preserve London’s status as one of the world’s leading international arbitration seats.
Background
The 2025 Act follows a multi-year review process conducted by the Law Commission, which included two consultations and a final report containing proposed amendments to ensure the 1996 Act was fit for purpose.
Arbitration Act 2025’s Key Changes
The five key changes and their practical implications include:
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Governing Law of Arbitration Agreements: The 2025 Act establishes a clear rule for determining the governing law of an arbitration agreement. In the absence of an express agreement between the parties, the governing law will be the same as the law of the seat of arbitration. This new statutory rule seeks to address a practical challenge often encountered in English-seated arbitrations, where the governing law of the main contract is of a jurisdiction that is not arbitration-friendly, yet there is no express choice of law for the arbitration agreement. The new statutory rule circumvents the common law position the Supreme Court previously adopted in Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38. There is a limited exception to the statutory rule’s application for certain types of investment treaty arbitration clauses.
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Summary Disposal Powers: Arbitrators are now expressly empowered to summarily dismiss claims or defences that have no real prospect of success. The tribunal may issue an award on a summary basis, disposing of a claim/defence or a particular issue upon either party’s application, provided that the parties have not agreed to exclude this power. The 2025 Act refrains from prescribing a detailed procedure, instead stipulating only the requirement that all parties be given a reasonable opportunity to make representations, thereby ensuring flexibility in its implementation. Overall, the new provisions for summary disposal contained within the 2025 Act seek to align arbitration procedures more closely with those of the English courts by empowering tribunals to filter out claims or defences that lack legal or factual merit at an early stage, without requiring a full, costly, and time-consuming hearing.
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Arbitrators’ Duty of Disclosure: The 2025 Act establishes a statutory obligation on arbitrators to disclose, on an ongoing basis, any circumstances that might reasonably raise justifiable doubts about their impartiality. This statutory duty now requires arbitrators to reveal both what they actually know and what they reasonably ought to have known regarding potential conflicts of interest. Although the 1996 Act did not previously include a statutory duty of disclosure, the Supreme Court did determine that such a duty existed in common law (Halliburton v Chubb [2020] UKSC 48). The 2025 Act therefore seeks to promote transparency by codifying this duty.
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Court Powers in Support of Arbitration: The court’s authority to issue orders supporting arbitration proceedings pursuant to section 44 of 1996 Act (including freezing orders or orders in respect of the preservation of evidence) has been extended to include orders against third parties, as opposed to only against parties to the arbitration. This change reinforces the court’s role in ensuring the arbitral process’ effectiveness and allows the courts to target other persons connected with an arbitration. This extension of the court’s power may be deployed in cases involving fraud, asset dissipation, or when a third party, such as a bank or supplier, holds important evidence.
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Emergency Arbitrators: It is common practice among the most popular sets of arbitration rules to appoint emergency arbitrators to make interim decisions before establishing the full tribunal. In light of this trend, the 2025 Act introduces new provisions that enable parties to enforce orders made by emergency arbitrators when the relevant arbitration rules allow their appointment. These new provisions allow the emergency arbitrators, where a party has failed to comply with the emergency arbitrator’s order or directions, to make and enforce a peremptory order with the same authority as a fully constituted tribunal. This creates a clearer framework for interim relief in arbitration and equips emergency arbitrators with enforcement powers that were previously exclusive to fully constituted tribunals.
Takeaways
The changes the 2025 Act introduces will take effect through relevant regulations as soon as practicable. However, these changes will not affect (i) arbitral proceedings commenced before the relevant changes come into force, (ii) court proceedings related to arbitral proceedings commenced before the relevant changes come into force, and (iii) any other court proceedings commenced before the relevant changes come into force.
Overall, the reforms represent targeted refinements to England’s existing framework. They seek to enhance expeditiousness, fairness, efficiency, and legal certainty in the arbitration process, all while maintaining the core principles of the 1996 Act that have served this jurisdiction for three decades. Fundamentally, the changes aim to reinforce London’s status as a leading arbitral seat in the international arbitration landscape.
Oleksii Izotov also contributed to this article.
Court Upholds Mass Class Action Opt-Out Permitting Individual Arbitrations
No company would relish the prospect of defending against a class action lawsuit and thousands of related individual arbitrations at the same time. But following a recent federal court ruling, Google (and its parent company, Alphabet) find themselves in exactly that position. In February 2025, the United States District Court for the Northern District of California rejected Google’s efforts to invalidate the mass opt-out of over 69,000 individuals from a class action in order to pursue individual arbitrations. The case, In re Google Assistant Privacy Litigation (No. 5:19-cv-04286), centers on allegations that Google Assistant-enabled devices recorded users’ private conversations, and Google used the resulting data, without the device users’ consent. The court’s ruling has far-reaching implications for arbitration and class action strategies.
Case Overview
The litigation stems from claims that Google Assistant devices unintentionally recorded private conversations through what plaintiffs refer to as “False Accepts.” These unintended recordings, plaintiffs argue, resulted in unauthorized data collection and privacy violations. Google, on the other hand, denies the allegations, maintaining that any such recordings were either user-triggered or incidental, and were handled in line with its privacy policy.
In December 2023, the court certified a class of U.S. consumers, covering individuals who purchased Google Assistant-enabled devices between May 18, 2016, and December 16, 2022. Class members were notified of their rights, including the option to opt out if they preferred to pursue claims independently.
Dispute Over Mass Opt-Out
Following the certification, 69,507 individuals submitted an opt-out request through the law firm Labaton Keller Sucharow LLP, signaling their intent to leave the class and pursue individual arbitration claims against Google. Google contested the mass opt-out, arguing it failed to comply with procedural standards and deprived individuals of making fully informed, independent decisions.
Google’s Challenges
Google’s opposition to the opt-out relied on two key arguments:
Due Process Concerns – The company claimed the mass opt-out undermined the individual claimants’ ability to make fully-informed decisions for themselves about whether to opt out, as it was orchestrated by a law firm on behalf of the participants.
Procedural Invalidity– Google argued that the lack of individual signatures rendered the opt-out submission invalid under the class action’s notice requirements.
The Court’s Decision
The court ruled against Google, upholding the validity of the opt-out request. The court determined that:
Individual Authorization Was Clear – Direct consent from the involved individuals was established by the record evidence, making the opt-out legitimate.
Procedural Irregularities Were Insufficient Grounds – The court held that technical deficiencies, such as the lack of individual signatures, did not justify overriding the participants’ expressed intent.
Broader Implications
This ruling emphasizes that courts may validate mass opt-outs if evidence of individual consent is provided, even if procedural formalities are not strictly followed. The decision serves as a warning to defendants in class action cases that mass opt-outs, often aimed at transitioning disputes into individual arbitrations, may be challenging to overturn.
For Google, the ruling could result in navigating thousands of individual arbitration claims instead of a consolidated class action. Importantly, the language of the potentially applicable Google arbitration agreements expressly excludes consolidation of individual arbitrations. As we have explained in another e-alert, under a recent Ninth Circuit decision, that likely means Google cannot take advantage of consolidating those opt-out arbitrations and therefore may face significant arbitration costs. More broadly, the case represents a growing recognition of mass opt-outs, potentially influencing future strategies in litigation involving major corporations.
Under New York Law a Recourse Provision Bars Most Claims Except for Fraud
In Iberdrola Energy Projects v. Oaktree Capital Management L.P., 231 A.D.3d 33, 216 N.Y.S.3d 124, the Appellate Division for the First Department ruled that a nonrecourse provision in a contract barred a plaintiff’s causes of action for tortious interference with contract, unjust enrichment, and statutory violations of a trade practices statute, but not for fraud.
This case arose from a contract related to the construction of a power plant in Salem, Massachusetts. A choice-of-law provision dictated that the contract was governed by and construed in accordance with New York law. Defendants created a special-purpose entity (SPE) to serve as the company charged with constructing the new plant. Defendants owned, controlled, and managed the SPE and were the SPE’s majority and controlling equity holders. The majority of the SPE’s board of directors and officers were also defendants’ employees. The SPE retained plaintiff to be the project’s engineering, procurement, and construction contractor.
The contract permitted the SPE to terminate the contract for convenience or for a material breach by the contractor. In the event of termination for cause, the owner would incur substantial payment obligations; a termination for convenience would not. The contract required the contractor to post a standby letter of credit in the amount of approximately $140 million as security for the contractor’s performance. The owner was permitted to draw on the letter of credit only “upon any Contractor’s breach or failure to perform, when and as required, any of its material obligations under the Contract.” The contract contained a nonrecourse provision that provided that,
[Owner’s] obligations hereunder are intended to be the obligations of Owner and of the corporation which is the sole general partner of Owner only and no recourse for any obligation of Owner hereunder, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, shareholder, officer or director or Affiliate, as such, past, present or future of such corporate general partner or any other subsidiary or Affiliate of any such direct or indirect parent corporation or any incorporator, shareholder, officer or director, as such, past, present or future, of any such parent or other subsidiary or Affiliate.
The project was plagued with delays and cost overruns. When the project was 98% complete, the SPE terminated for cause. The SPE drew the $140 million afforded by the letter of credit, retained a replacement contractor, and completed the remaining work. The original contractor filed for arbitration against the SPE, claiming that the SPE breached the contract, engaged in tortious conduct, violated the Massachusetts Unfair Trade Practice Act, and sought $700 million in damages. The SPE appeared in the arbitration proceeding and asserted counterclaims.
The arbitration panel determined, among other things, that the SPE lacked cause to terminate the contract and that it terminated the contract as a pretense to draw on the letter of credit and issued a final award in the contractor’s favor for $236,404,377. That award was confirmed in New York, and the SPE filed for bankruptcy. The original contractor filed a civil action in New York, bringing the same claims against the defendants, but all counts except for fraud were dismissed based on the nonrecourse provision.
The New York lower court enforced the plain meaning of the nonrecourse provision, which sophisticated commercial parties negotiated. The nonrecourse provision is a contractual limitation on liability, which, like other exculpatory clauses, is generally enforceable provided it does not violate a statute or run afoul of public policy. The court determined the provision to be “as broad as it is clear: no liability could be imposed upon various individuals and entities for “any claim based on the contract or otherwise in respect thereof.” Plaintiff’s causes of action for tortious interference with contract, unjust enrichment, and violations of Massachusetts’s deceptive trade practices statute were all hinged or predicated on conduct taken under or in contravention of the contract. Since these causes of action were all related to or connected with the contract, they were all barred by the nonrecourse provision. The court showed no sympathy for the plaintiff contractor and its likely inability to recover any part of the judgment it was holding. The plaintiff knew it was entering a very large contract with an SPE and should have known of the breadth of the nonrecourse provision. The takeaway appears to be: Beware of nonrecourse provisions with SPEs.
Unified Patent Court Publishes First Annual Report
The Unified Patent Court (UPC) and the Unitary Patent, which launched on June 1, 2023, marked a historic milestone, allowing for the enforcement of patents across borders via a single court. The UPC has now issued its first Annual Report.
Of note, since its inception, the UPC has handled a significant number of cases, with 633 actions filed by the end of 2024. This large influx of filings has enabled the Court to already develop a baseline comprehensive body of case law, enhancing legal certainty and predictability.
Of further note, looking ahead, the UPC plans to implement a new Case Management System by mid-2025, in collaboration with the European Patent Office, to address current system limitations. The Court also aims to establish the Patent Mediation and Arbitration Centre to enhance its dispute resolution capabilities, with a goal of allowing it to become operational this year. We will continue to monitor these new developments as the UPC continues to evolve as a pillar of the European patent system.
Federal Appeals Court Upholds Arbitration Institution’s Authority to Consolidate Mass Arbitrations
Defending against numerous individual arbitrations that share common factual and legal issues can cost companies significant time and money. The U.S. Court of Appeals for the Ninth Circuit recently held that such arbitrations can be consolidated when permitted by the applicable arbitration agreement and arbitration rules and affirmed the denial of a petition to compel individual arbitration. But the Ninth Circuit’s decision underscores that companies must pay careful attention to the language of their arbitration agreements and their selected arbitration rules in order to ensure that consolidation is an option.
Case Background
In Kiana Jones v. Starz Entertainment, LLC, the plaintiff, Kiana Jones, created a Starz account and agreed to Starz’s Terms of Use. The Terms included a mandatory arbitration clause incorporating the rules of Judicial Arbitration and Mediation Services (JAMS), one of the major arbitration institutions in the U.S. The Terms prohibited class or representative proceedings but did not explicitly bar consolidation of individual arbitrations into a single proceeding.
Jones and thousands of other claimants (all represented by the same counsel) later filed individual arbitration claims against Starz, alleging privacy violations. JAMS, applying its own rules, consolidated 7,300 of these claims into a single proceeding. Among other things, this had the effect of significantly reducing Starz’s potential arbitration fees, which otherwise would have exceeded $12 million. Claimants’ counsel opposed consolidation and objected to every arbitrator suggested, preventing arbitration from moving forward. Jones then petitioned a federal district court to compel individual arbitration, arguing that JAMS’s consolidation amounted to Starz refusing to arbitrate under Section 4 of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 4. The district court denied the petition, holding that Starz had not refused to arbitrate and that consolidation was a procedural issue for the arbitrator, not the courts, to decide.
The Ninth Circuit’s Decision
The Ninth Circuit affirmed the district court’s ruling, emphasizing that Starz had not refused to arbitrate but had actively participated in the arbitration process. The court held that:
Under Section 4 of the FAA, a party seeking to compel arbitration must show that the opposing party has failed, neglected, or refused to arbitrate. Starz had done none of these things, and so Jones could not make the required showing.
The consolidation of claims by JAMS did not present a “gateway” arbitrability issue requiring judicial intervention. “Gateway” arbitrability issues typically concern the validity and scope of the agreement to arbitrate and are for a court to decide unless the parties have clearly and unmistakable indicated otherwise. But in this case, the arbitration institution’s application of its own rules on consolidation fell within its authority.
Jones’ argument that JAMS’s consolidation converted the arbitration into a prohibited “class or representative proceeding” in violation of the Terms was unfounded. The Terms did not explicitly require individual arbitration or prohibit consolidation. Moreover, consolidation is not the same as class or representative arbitration, because “[i]n a class or representative arbitration, an individual brings claims on behalf of others, whereas a claimant in a consolidated arbitration brings the claim in her individual capacity.”
Jones’ attempt to invoke unconscionability as a means to force individual arbitration was improper. The FAA does not allow a party to modify an arbitration agreement on unconscionability grounds while simultaneously seeking to enforce it.
The court distinguished this case from Heckman v. Live Nation Ent., Inc., 120 F.4th 670 (9th Cir. 2024), where the applicable arbitration rules provided for “mass arbitration” in which bellwether cases served as precedents for all other cases in a given “batch,” without giving the claimants in those other cases notice of the bellwether cases, the opportunity to participate in the bellwether cases or to otherwise be heard, or the right to opt out of the “batch.” The Ninth Circuit had therefore found the “mass arbitration” rules in Heckman unconscionable and thus unenforceable under California law. By contrast, under the JAMS consolidation rule in this case, Jones (and the other individual claimants) could still challenge consolidation within the arbitration proceeding itself and were not bound by decisions in bellwether cases where they had no opportunity to be heard. As the Ninth Circuit put it, under the JAMS consolidation rule at issue in this case, “no claimant is at the mercy of another claimant’s representation of her.”
Implications
This decision reinforces that arbitration institutions have discretion to apply their own rules, including consolidation procedures, when those rules are incorporated into arbitration agreements. It also underscores that procedural objections to an arbitration institution’s management of a case do not justify judicial intervention under the FAA.
For businesses, this ruling highlights the importance of carefully drafting arbitration agreements, particularly with respect to mass arbitration risks. While this case did not involve a specific mass arbitration clause, it demonstrates how consolidation can mitigate excessive costs in large-scale arbitration claims.
Assembly Bill 3 Proposes to Raise Jurisdictional Cap on Nevada Diversion Program
Jurisdictional changes may be coming to Nevada’s court annexed non-binding arbitration program, which currently involves most civil cases where the amount in controversy is $50,000 or less. Nevada’s courts have proposed AB 3, which is currently before the Assembly’s judiciary committee. This bill would change the NRS 38.310(1)(a) jurisdictional cap for that program from $50,000 to $100,000, effective for cases filed on or after January 1, 2026. The arbitration program was created in 1992 with an original cap of $25,000. That cap was increased to $40,000 in 1995 and raised to $50,000 in 2005. The Bureau of Labor Statistics Consumer Price Index Inflation Calculator estimates that the buying power of $50,000 in February 2005 equates to approximately $83,000 of buying power in January 2025.
Proponents of AB 3 testified at a committee hearing that the percentage of civil cases entering the program has dropped by nearly 20% in recent years due to inflationary pressures negatively impacting medical bills, property damage repairs, and other types of damages. If fewer cases enter the program, the caseload for the district courts increases. Proponents assert that by increasing the cap to $100,000, the number of cases entering the program should return to historical averages.
AB 3 generally appears to benefit defense clients. The arbitration program was expressly designed to streamline discovery and reduce litigation costs, allowing lower-value disputes to be litigated on their merits. Raising the jurisdictional cap to $100,000 would benefit litigants by enabling more cases to enter the program. Another benefit of program participation is that principal damages are capped at the jurisdictional maximum.
At a committee hearing on February 17, several attorneys testified in support of AB 3, but there was no participation from broker or carrier lobbying groups. Notably, the plaintiff-oriented Nevada Justice Association (NJA) testified that while it presently opposes AB 3, it is willing to work with the bill’s proponents to reach a compromise. However, the NJA did not hint regarding what it may want in return for supporting AB 3.
The judiciary committee did not vote on AB 3 at the February 17 hearing but is expected to continue consideration of AB 3.
Second Circuit Renders Important Decision on Vested Retiree Benefits
In a significant ruling on February 5, 2025, the U.S. Court of Appeals for the Second Circuit addressed the enforceability of an arbitration provision in an expired collective bargaining agreement (CBA) in the case of Xerox Corporation v. Local 14A, Rochester Regional Joint Board, Xerographic Division Workers United.
The court’s decision delves into whether certain retiree health benefits promised under the CBA had vested and thus continued beyond the agreement’s expiration. The case underscores the complexities involved in interpreting CBAs and the conditions under which retiree benefits may be considered vested.
Quick Hits
The U.S. Court of Appeals for the Second Circuit found that specific language in a CBA could be reasonably interpreted as promising vested benefits, which would extend beyond the expiration of the agreement.
Provisions in the CBA related to benefits allowances and life cycle assistance programs were deemed capable of being interpreted as forms of deferred compensation, creating rights that vested during the term of the agreement.
The court held that a reservation-of-rights clause in the plan documents did not conclusively preclude the interpretation that the CBA promised vested retiree benefits.
Case History and the Second Circuit’s Decision
The case arose when the company modified health benefits for employees who retired before the expiration of the 2018–21 CBA. The union filed a grievance, arguing that these benefits had vested and could not be terminated. The union sought to enforce the expired CBA’s arbitration provision. The company filed a petition in the U.S. District Court for the Western District of New York for injunctive and declaratory relief, and to stay and enjoin arbitration.
The district court ruled in favor of the company, concluding that the retiree benefits had not vested and, thus, were not subject to arbitration. The union appealed this decision to the U.S. Court of Appeals for the Second Circuit, which vacated the district court’s judgment and remanded the case for further proceedings, finding that the language in the CBA could reasonably be interpreted as promising vested benefits, making the grievance arbitrable.
The court’s analysis focused on several key aspects of the agreement:
Language in the CBA: The court examined the language in the 2018–21 CBA and the incorporated plan documents. Although noting that, in general, an expired CBA is unenforceable, it found that phrases such as “continues participation in the Plan … until” and “shall continue as a Participant in the Plan until his or her death” could reasonably be interpreted as promising vested benefits. This language suggested that benefits would continue beyond the CBA’s expiration, thus making the union’s grievance arbitrable. The court found that on the arbitrability issue, the union did not have to show that unambiguous CBA language supported its position, only that the language could reasonably be interpreted as vesting retirees with benefits.
Deferred compensation: The court also considered the CBA’s “Benefits Allowance” provision, which varied based on an employee’s length of employment and included a “LifeCycle Assistance Program Component.” This provision was seen as a form of deferred compensation, accruing rights during the term of the CBA. The court likened this to severance pay, which is considered deferred compensation that vests during the term of an agreement.
Reservation-of-rights clause: The company argued that the reservation-of-rights clause in the plan documents allowed it to amend or terminate the plan at any time, thus precluding any interpretation of vested benefits. However, the court found this clause ambiguous when read in conjunction with the CBA. It noted that such a clause could not unilaterally vitiate bargained-for rights, especially when the CBA itself did not explicitly incorporate the reservation-of-rights clause in a manner that would allow for the termination of vested benefits.
Conclusion
For unionized employers, this decision highlights the importance of clear and unambiguous language in CBAs regarding the vesting of retiree benefits. Employers should consider carefully drafting and reviewing their agreements to ensure that the terms related to retiree benefits and any reservation-of-rights clauses are explicit and consistent. This case also serves as a reminder that courts will closely scrutinize the language of CBAs and plan documents to determine the parties’ intent, and ambiguities may lead to interpretations favoring the vesting of benefits.
Plaintiffs, Not Defendants, Must Initiate Arbitration
Arzate v. Ace American Insurance Company, — Cal. Rptr. 3d — (2025) began as a familiar case: plaintiffs signed arbitration agreements (“Agreement”) with their employer that contained a class action waiver. But when a dispute arose, plaintiffs disregarded their Agreements and filed a class action lawsuit. The defendant filed a motion to compel arbitration. The trial court granted the motion, enforced the class action waiver, and stayed the action pending arbitration.
However, plaintiffs did not initiate arbitration. Unsurprisingly, neither did the defendant. After all, who sues themselves? Nonetheless, the trial court concluded that based on the terms of the Agreement, the defendant—not the plaintiffs—was required to initiate arbitration. And because the defendant did not do so, it waived the right to arbitrate the dispute.
The express terms of the Agreement are instructive. Specifically, the Agreement required that the “party who wants to start the [a]rbitration [p]rocedure should submit a demand,” which must be filed “within thirty (30) calendar days from the date of entry of the court order.”
The trial court reasoned that while the plaintiffs filed the class action suit and sought relief, “they have heavily contested any requirement to arbitrate these claims” and therefore never “wanted” or “demanded” arbitration. Instead, the court held that the defendant was the party who “wanted” arbitration. And because the defendant “took no action within 30 days” of the court’s order staying the action pending arbitration, it was “in material breach.”
The California Court of Appeal sided with the defendant/employer and reversed the trial court’s decision. When doing so, the Court of Appeal explained that contract interpretation rules required that the arbitration-initiation provisions be read in the context of the Agreement as a whole, not in isolation.
The Court of Appeal explained that, in the context of an arbitration agreement, the provision for “wanting” arbitration could not “refer to a preference for arbitration over litigation becausethe parties already ruled out litigation as an option in any dispute governed by the arbitration agreements.” Instead, “wanting” arbitration could only refer to a desire to seek redress for an employment-related claim. The Court of Appeal also noted that the Agreement incorporated the American Arbitration Association’s Employment Arbitration Rules and Mediation Procedures, which defined the “claimant” as the initiating party. The Court of Appeal reasoned that because the employees initiated the lawsuit, they were the claimant and were responsible for initiating arbitration.
Arzate stands for the proposition that—where valid and enforceable arbitration agreements exist—employees bringing claims against their employers must initiate arbitration. But for the avoidance of any doubt, employers should consider drafting their arbitration agreements to expressly state which party must initiate arbitration.
Supreme Court Update: Waetzig v. Halliburton Energy Services, Inc. (No. 23-971)
In Waetzig v. Halliburton Energy Services, Inc., (No. 23-971), the Supreme Court finally settled a question lawyers have been debating from time immemorial: Is a plaintiff’s voluntary dismissal of a complaint without prejudice under Federal Rule of Civil Procedure 41(a) a “final proceeding” for purposes of a Rule 60(b) motion to reopen the suit? A unanimous Court concluded that it was, eliminating a circuit split created by a Tenth Circuit decision that had ruled it was not.
The case began when Gary Waetzig was fired by Halliburton. He sued his former employer in federal court alleging age discrimination. Halliburton responded by asserting that Waetzig was required to arbitrate his claim. Waetzig acquiesced, submitting his claim for arbitration. But instead of asking the District Court to stay his suit pending the outcome of that arbitration, he voluntarily dismissed his complaint pursuant to Rule 41(a), which permits a plaintiff to dismiss a case “without a court order” if the plaintiff serves “a notice of dismissal before the opposing party serves either an answer or a motion for summary judgment.” Because Halliburton had not answered or moved for summary judgment, Waetzig’s dismissal was effective without any court action. And because this was Waetzig’s first such dismissal, it was (according to the Rule’s terms) presumptively without prejudice.
Unfortunately for Waetzig, he lost the arbitration. He then filed a motion in the docket for the dismissed case, asking the District Court to reopen the case and vacate the arbitration award. He argued the District Court had the authority to reopen the case under Rule 60(b), which allows a court “[o]n motion and just terms,” to “relieve a party . . . from a final judgment, order, or proceeding.” The District Court agreed with Waetzig and awarded Rule 60(b) relief, holding that a voluntary dismissal without prejudice counts as a “final proceeding” within the meaning of Rule 60(b), and that Waetzig’s voluntary dismissal was a “careless mistake” of the sort Rule 60(b)(1) allows relief from. Then, in a second order, the District Court found that the arbitration award was improper and set it aside. Halliburton appealed, arguing the District Court lacked authority to reopen the case in the first place because a voluntary dismissal without prejudice does not count as a “final judgment, order, or proceeding,” and therefore falls outside the reach of Rule 60(b). The Tenth Circuit agreed with Halliburton: It held that a voluntary dismissal without prejudice could not be a “final proceeding” because “a final proceeding must involve, at a minimum, a judicial determination with finality.” In reaching that result, the Tenth Circuit disagreed with the Fifth and Seventh Circuits, which both had held that a voluntary dismissal without prejudice was a “final proceeding” within the meaning of Rule 60(b).
A unanimous Supreme Court sided with the Fifth and Seventh Circuits over the Tenth. Writing for the Court, Justice Alito first concluded that a voluntary dismissal under Rule 41(a) was “final.” According to sources like the Advisory Committee’s Notes on the rule, the word “final” means only that interlocutory judgments are not subject to Rule 60. Whether it’s with or without prejudice, a voluntary dismissal “terminates the case,“ making it “final.” Alito then addressed whether such a dismissal was also a “proceeding.” Turning to dictionaries, he concluded that “proceeding” included “all formal steps taken in an action.” He thus rejected Halliburton’s argument that a “proceeding” required judicial intervention, noting that such a restrictive definition would deprive “proceeding” of independent meaning since the Rule also covers “orders,” which by definition require judicial action. Having concluded that a voluntary dismissal was both “final” and a “proceeding,” Alito put one and one together and held that it was a “final proceeding” within the meaning of Rule 60(b). The District Court thus had the authority to reopen Waetzig’s case.
Waetzig’s legal claim lives to fight another day, but maybe not that many more. For while Halliburton put up a valiant defense of the Tenth Circuit’s Rule 60(b) decision at the Supreme Court, its heart wasn’t really in it. Instead, Halliburton devoted many of the pages of its Supreme Court brief (and a good chunk of its oral argument) to the point that it doesn’t matter whether the District Court had the authority to reopen Waetzig’s dismissed case under Rule 60(b) because it didn’t have jurisdiction to set aside the arbitration award issued in Halliburton’s favor. But the Court gave that argument short shrift: It granted cert only on the question of whether the District Court had the authority under Rule 60(b) to reopen the case. And whether it did or didn’t wasn’t affected by whether it had the authority to then go on and grant Waetzig the relief he sought (namely vacating the arbitration award). The Court thus left “any subsequent jurisdictional questions” to the lower courts on remand. And if we had to guess, we suspect the Tenth Circuit will once again rule for Halliburton, only this time on the perhaps sounder basis that even if the District Court could reopen the case, it couldn’t free Waetzig from the arbitration award.
U.S. Courts Can Recognize a Foreign Judgment Even Without Personal Jurisdiction
A recent federal court decision underscores a critical point for parties seeking to enforce foreign judgments in the U.S.: recognition of a foreign judgment does not require personal jurisdiction over the defendant. In Cargill Financial Services International, Inc. v. Taras Barshchovskiy, the U.S. District Court for the Southern District of New York recognized a $123.94 million English judgment against a Ukrainian businessman, despite his lack of ties to New York. This ruling reaffirms that judgment creditors can gain access to U.S. discovery tools—among the most expansive in the world—before establishing jurisdiction over a debtor or its assets. With similar judgment recognition laws in many other U.S. states, this decision may influence courts nationwide and shape future cross-border enforcement strategies.
Case Details
In January 2021, Cargill initiated arbitration under the London Court of International Arbitration (LCIA) Rules, citing Barshchovskiy’s failure to repay debts under several agreements. The LCIA consolidated these proceedings, resulting in a December 2022 award favoring Cargill for $123,940,459.55. Barshchovskiy contested the award under Section 68 of the English Arbitration Act, but the English Commercial Court dismissed his claims in May 2023. Following this, Cargill sought enforcement of the award, culminating in the English High Court’s judgment in January 2024.
Proceedings in New York
Cargill then filed a case in the New York State Supreme Court seeking to enforce the English judgment in the U.S. Due to difficulties locating Barshchovskiy, the court approved alternative service methods, such as email and Facebook. After service, Barshchovskiy removed the case to federal court and filed for dismissal, citing insufficient service and failure to state a claim for relief. The court denied his motion in September 2024, finding the alternative service appropriate given the impracticality of traditional methods.
Summary Judgment and Recognition
Cargill moved for summary judgment to recognize the English judgment under New York’s Uniform Foreign Country Money Judgments Act (CPLR Article 53). Barshchovskiy opposed, arguing the court lacked personal jurisdiction over him. The court explained that recognizing a foreign judgment does not require personal jurisdiction over the defendant, as it simply converts the foreign judgment into a New York judgment. The court noted that enforcing that New York judgment would, however, require Cargill to establish the court’s jurisdiction over Barshchovskiy or his property.
Implications
This ruling highlights the difference between recognition and enforcement of foreign judgments. Recognition can proceed without personal jurisdiction over the defendant, whereas enforcement actions require such jurisdiction. Recognition is not a mere procedural hurdle to clear on the way to enforcement, however. As the court explained, “one of the primary purposes of judgment recognition [is] to give the judgment creditor the right to use the tools of the court to locate the judgment creditor’s assets.” These tools include the various methods authorized by U.S. courts for the discovery of documents and information. The scope of discovery in U.S. courts is typically far more extensive than in non-U.S. jurisdictions and can thus provide a powerful tool in enforcing foreign judgments.
Although the decision relied on New York law governing the recognition and enforcement of foreign judgments, the specific New York statute is based on the Uniform Foreign Country Money Judgments Act, a version of which 36 other U.S. states have also enacted. Given this fact, as well as New York’s prominence as a leading pro-arbitration jurisdiction, the Cargill decision is likely to be influential in other U.S. jurisdictions.
The decision is Cargill Financial Services International, Inc. v. Taras Barshchovskiy, U.S. District Court for the Southern District of New York Case No. 24-cv-5751 (Feb. 18, 2025).