Arzate v. ACE American Insurance Company: Employer Not Required to Initiate Arbitration in Defense of Itself
On June 18, 2021, a group of ACE American Insurance Company employees filed a class action suit alleging that ACE misclassified them as exempt employees.
ACE moved to compel arbitration based on arbitration agreements that each of the plaintiffs had signed as a condition of their employment where they agreed to “submit [employment claims] to final and binding neutral third-party arbitration.”
The agreement made clear that employees “cannot bring any employment related claim in court,” and further stated that the “party who wants to start the Arbitration Procedure” is required to begin the process by filing a demand for arbitration, which in this case was within 30 days of the court’s order.
On March 14, 2023, the trial court determined that the case fell within the scope of the arbitration agreement, granted the motion to compel, and stayed the case pending the outcome of arbitration. The court did not clarify which party was required to actually start arbitration.
On August 24, 2023, the plaintiffs filed a motion asking the court to lift the stay, arguing that ACE was required to initiate the arbitration process as they were the party who wanted arbitration, and by failing to do so within the agreement’s 30-day period, ACE had waived its right to arbitrate. The trial court agreed with this reasoning and found that ACE’s inaction “was inconsistent with its right to arbitrate,” finding that even though the plaintiffs were the ones who initiated the claims, they did not want to arbitrate and in fact, wanted to continue to litigate the claims in court.
ACE appealed arguing that the court misinterpreted the contractual language. The appellate court agreed with ACE, finding the trial court erred by considering provisions of the arbitration agreement in isolation instead of construing the agreement as a whole. The agreement required the party who “wants” arbitration to initiate arbitration, but also states that if a plaintiff has “employment related legal claims, [they] will submit them to … arbitration.” The appellate court held that the term “want[ing] to start the Arbitration Procedure” could not refer to a preference for arbitration as the parties had contractually agreed to rule out litigation as a viable forum. Accordingly, it was the plaintiffs who were required to initiate the arbitration proceedings.
Implications for Employers
This decision highlights the importance of ensuring that arbitration agreements are clear on what procedures apply should an employee bring legal claims. Ambiguities about who must file for arbitration and what rules will apply during the arbitral process should be eliminated wherever possible.
Arbitrator Selection in International Automotive Supply Chain Disputes
Why Arbitrator Selection Matters
International automotive supply chains often involve tight just-in-time deadlines, so resolving disputes quickly and efficiently is critical. When arbitration is the designated resolution method, the arbitrator’s qualifications and experience can significantly affect the speed, fairness, and effectiveness of the process. Choosing an arbitrator with relevant industry expertise and strong procedural management skills can help minimize business disruptions and financial risks.
Key Considerations for Selecting an Arbitrator
Industry-Specific Expertise
Select arbitrators with a solid background in automotive manufacturing, logistics, or supply chain operations.
Knowledge of OEM-supplier relationships, production timelines, and quality control standards is essential for understanding contractual obligations and industry best practices.
Legal and International Trade Knowledge
The arbitrator should be well-versed in the contract’s governing law.
If the dispute involves multiple jurisdictions, an arbitrator with cross-border contract enforcement experience is highly beneficial.
Experience in Supply Chain Disputes
Prior experience resolving contract breaches, supply chain interruptions, force majeure claims, and pricing conflicts is key.
An arbitrator familiar with assessing damages from delayed deliveries, nonconforming goods, or production disruptions can expedite dispute resolution.
Case Management Skills
Effective arbitration depends on an arbitrator’s ability to enforce clear timelines, oversee evidentiary processes and prevent unnecessary delays.
Selecting arbitrators with a strong track record of efficiently managing proceedings can reduce the risks of drawn-out disputes.
Ask potential arbitrators whether their schedules permit them to expeditiously decide the dispute, including granting emergency interim relief if appropriate.
Impartiality and Neutrality
Ensure the arbitrator has no conflicts of interest from prior business dealings or industry ties that could compromise neutrality.
Established institutions such as the ICC International Court of Arbitration (ICC), the International Centre for Dispute Resolution (ICDR), which is affiliated with the American Arbitration Association, and the Singapore International Arbitration Center (SIAC) offer pre-screened arbitrators known for their impartiality.
Best Practices for Arbitrator Selection
Define Arbitrator Qualifications in Contracts
Prevent selection disputes by specifying qualifications such as:
“Arbitrator must have at least five years of experience in international automotive supply chain disputes.”
“Arbitrator must be licensed to practice law in the following jurisdiction: ______________.”
Keep in mind that if the qualifications are too specific it may increase the time it takes for arbitrator selection, thereby delaying resolution of the dispute.
Utilize Established Arbitration Institutions
Many arbitration bodies provide industry-specific arbitrators, including:
ICC– commonly used in global supply chain agreements.
ICDR– well-suited for North American contracts.
SIAC– preferred for disputes in Asia-based supply chains.
Consider Three-Arbitrator Panels for Complex Cases
For high-value disputes or supply chain disruptions, a three-member tribunal can provide broader perspectives.
Each party selects one arbitrator, and the third neutral arbitrator is appointed by the institution or panel. Alternatively, all three arbitrators can be selected from a list proposed by the institution.
Keep in mind that dealing with the schedules of three arbitrators as opposed to one can significantly slow down the process and increases arbitrator fees.
Incorporate Virtual Arbitration for Efficiency
Many institutions now facilitate remote hearings and digital case management.
SIAC and ICDR support virtual arbitration, reducing costs and logistical delays associated with international disputes.
Final Takeaways
Selecting the right arbitrator is a strategic decision that directly affects the efficiency, fairness, and outcome of an automotive supply chain dispute. By prioritizing industry expertise, legal proficiency, procedural efficiency, and impartiality, companies can ensure smoother dispute resolution.
To minimize risks and improve arbitration outcomes, U.S. automotive executives or their lawyers should:
Clearly define arbitrator qualifications in contracts.
Choose reputable arbitration institutions with emergency relief options.
Consider three-arbitrator panels for high-stakes disputes.
Explore virtual arbitration to reduce costs and speed up proceedings.
Abu Dhabi Court of Cassation Confirms Exclusivity of Grounds for Set Aside of Arbitral Awards
Introduction
In a decision that became public recently, the Abu Dhabi Court of Cassation (Court of Cassation) in Case No. 1115 of 2024 (issued on 25 November 2024) confirmed the exclusivity of the grounds to set aside arbitral awards contained in Article 53 of the United Arab Emirates (UAE) Federal Arbitration Law No. 6 of 2018 (Arbitration Law). Those grounds do not include reconsideration of the arbitral tribunal’s evaluation of the evidence.
Background
An award debtor (claimant in the arbitration) filed application No. 16 of 2024 in the Abu Dhabi Court of Appeal (Court of Appeal) seeking to set aside an arbitral award issued in an arbitration under the rules of the Abu Dhabi Commercial and Conciliation Centre (since reorganized and renamed as the Abu Dhabi International Arbitration Centre). The basis for the application was that the arbitral tribunal adopted a different method in assessing the award debtor’s claims to that adopted in assessing the award creditor’s claims (counter claimant in the arbitration), and the burden-of-proof requirements applied to the award debtor were more onerous than those applied to the award creditor. In its judgment issued on 16 October 2024, the Court of Appeal dismissed the application.
The award debtor filed an appeal to the Court of Cassation, relying upon the same arguments raised before the Court of Appeal.
Judgment of the Court of Cassation
The Court of Cassation upheld the Court of Appeal’s judgment. It confirmed that it is established that the court hearing an application to set aside an arbitral award shall not be allowed to reconsider the merits of the arbitration case or to supervise the application and interpretation of the law by the arbitral tribunal. The Court of Cassation held that the assessment of evidence in an arbitration proceeding is within the purview of the arbitral tribunal. It is not admissible as a ground for setting aside an arbitral award, as it is not a procedural defect listed in the grounds for setting aside an arbitration award in Article 53 of the Arbitration Law. The Court of Cassation further noted that the validity of arbitral awards in terms of reasoning is not to be measured by the same standards as state court judgments. The Court of Cassation held that the award debtor had not established that it was denied the opportunity to present its case by the arbitral tribunal or that there had been any breach of the principles of due process.
Comment
The Court of Cassation’s judgment reaffirms the UAE courts’ supportive position of arbitration, emphasizing the exclusivity of the statutory grounds for setting aside arbitral awards and that those grounds shall be interpreted narrowly.
The Arbitration Act 2025 Finally Becomes Law
Practitioners and stakeholders in the arbitration community have welcomed the long-awaited Arbitration Act 2025, which has now received Royal Assent, marking the most significant update to English arbitration law in nearly three decades. This milestone concludes a years-long process initiated by the Law Commission’s 2023 recommendations and underscores the UK government’s commitment to maintaining London as an arbitration hub.
The Legislative Journey
The Conservative government originally introduced a version of the bill in late 2023. As we noted in 2024, the bill’s passage was derailed by the snap general election in May of that year. The new Labour government, under Prime Minister Sir Keir Starmer, revived the reforms, with Lord Ponsonby sponsoring the bill in the House of Lords.
Following its passage through the Lords in November 2024 and the House of Commons earlier this month, the bill received Royal Assent, cementing it as law. The Act applies to any English-seated arbitrations commenced from today onward.
Key Reforms: Targeted and Pragmatic Changes
The Act introduces incremental refinements to the Arbitration Act 1996, among the most notable reforms are:
1. Governing Law of Arbitration Agreements
A new default rule states that arbitration agreements will be governed by the law of the seat, unless the parties expressly agree otherwise. This reform aims to resolve ambiguity stemming from Enka v Chubb (2020) (as previously explained in more detail) and aligns with global best practices.
In simple terms this change will resolve an issue which we have encountered in practice, where the governing law of the underlying contract is not of a pro-arbitration jurisdiction, no express choice of law governing the arbitration agreement has been made, but the seat of the arbitration is in England and Wales. Now, there is no chance of such an arrangement leading to problems invoking arbitration.
One of the few amendments made during the bill’s parliamentary journey, which we commented on at the time, is a carve-out for investor-state arbitration agreements. That amendment has survived into the final legislation. Investment treaty arbitrations will not be subject to the default governing law rule.
2. Arbitrators’ Duty of Disclosure
A second substantive change, reflecting the UK Supreme Court’s decision in Halliburton v Chubb, arbitrators now have a statutory duty to disclose any circumstances that might reasonably give rise to justifiable doubts about their impartiality. This codification enhances transparency and builds confidence in the integrity of the arbitral process.
3. Expanded Arbitrator Immunity
The Act extends arbitrators’ immunity to resignations, provided they are not unreasonable. This change aims to prevent tactical challenges and encourage arbitrators to act without fear of undue litigation risks.
4. Power to Summarily Dismiss Unmeritorious Claims
Arbitrators now have an explicit statutory power to summarily dismiss claims with no real prospect of success. Although tribunals had implicit authority to do so under the 1996 Act, enshrining it in law will encourage more frequent and effective use, improving efficiency.
5. Emergency Arbitration and Court Powers Over Third Parties
The Act clarifies that English courts have the power to make supportive orders in emergency arbitration proceedings and explicitly extends the scope of those orders to third parties, increasing the effectiveness of emergency relief mechanisms.
6. Streamlined Jurisdiction Challenges (Section 67 Reforms)
Parties challenging arbitral jurisdiction under Section 67 of the 1996 Act can no longer raise new grounds or submit fresh evidence unless necessary in the interests of justice. This change aims to prevent abusive litigation tactics and reduce court intervention in arbitration.
Proskauer’s view
The UK arbitration community has overwhelmingly welcomed the Act, emphasizing its pragmatic refinements rather than a radical overhaul. However, not all voices are entirely satisfied. Some commentators noted that it is a shame that the Act remains silent on confidentiality, despite prior discussions by the Law Commission on introducing an explicit duty of confidentiality in arbitration.
In our view, the Arbitration Act 2025 represents a measured, well-targeted update to English arbitration law. It has fine tuned the existing framework rather than overhauling it and has clarified issues that we have encountered for clients.
We will blog soon with a comparison of the UK changes as against the French proposal to reform its 14-year old arbitration act, which is expected to be issued by decree before the Summer 2025.
Choice-of-Law Provisions Cannot Circumvent Ending Forced Arbitration Act, Court of Appeal Rules
On February 3, 2025, the California First District Court of Appeal held that a party to an arbitration agreement cannot rely on a choice-of-law provision to wire around the federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (the “EFAA”). The case, Casey v. Superior Court, clarifies that a party cannot circumvent the EFAA and compel a dispute to arbitration by using a pre-litigation choice-of-law provision.
Legal Background
The Federal Arbitration Act (“FAA”) requires courts to enforce arbitration agreements arising from transactions involving interstate commerce. Passed in 1925, the FAA embodies a liberal federal policy in favor of enforcing arbitration agreements. The California Arbitration Act (“CAA”) was passed in 1961 and applies even in situations where the FAA does not. Like the FAA, the CAA provides that pre-dispute arbitration agreements are “valid, enforceable and irrevocable.”
As we have previously written, Congress passed the EFAA in March 2022 to exclude sexual harassment claims from mandatory arbitration provisions. The EFAA provides that “at the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault dispute, . . . no predispute arbitration agreement or predispute joint-action waiver shall be valid or enforceable with respect to a case which is filed under Federal, Tribal, or State law and relates to the sexual assault dispute or the sexual harassment dispute.” The EFAA therefore permits a person to bring a claim for sexual harassment or sexual assault in court, even if the person previously agreed to arbitrate such disputes. The EFAA amended, and is now part of, the FAA. There is no California statutory counterpart to the EFAA.
Facts and Procedural History
In Casey, the plaintiff signed an employment contract in 2017 that included an arbitration agreement (the “Employment Agreement”). A clause in the Employment Agreement provided that the construction and interpretation of the agreement shall “be governed by the laws of the State of California.” In September 2023, the plaintiff filed a lawsuit against her employer and a coworker, alleging that the coworker made a series of unwanted sexual remarks in late 2022. The plaintiff brought a claim for sexual harassment under the Fair Employment and Housing Act (“FEHA”) against both her employer and her coworker. The plaintiff’s suit included several other claims against her employer only, including wage-and-hour violations unrelated to her sexual harassment dispute.
The employer and the coworker defendant jointly filed a motion to compel arbitration. The plaintiff opposed the motion, arguing that the EFAA applied and the dispute could not be compelled to arbitration. The trial court granted the motion to compel arbitration on the basis that the Employment Agreement’s choice-of-law provision rendered the EFAA inapplicable to the dispute. The plaintiff immediately appealed.
The Court of Appeal’s Decision
On February 3, the Court of Appeal issued a decision reversing the trial court’s judgment and concluding that the plaintiff’s dispute was covered by the EFAA. In reaching that decision, the Court of Appeal found the plaintiff’s employment relationship sufficiently involved interstate commerce because both the employer’s business and the plaintiff’s specific job duties included interstate business and communication. The Court of Appeal also concluded that the CAA is preempted by the EFAA under the doctrine of conflict preemption—which occurs when “state law stands as an obstacle to the accomplishment and execution” of Congress’s objectives. Relying on the choice-of-law provision, the Court of Appeal noted, would “directly contravene Congress’s purpose and objectives in enacting the EFAA.” The Court stated that in enacting the EFAA, Congress expressed an intention to guarantee judicial forums for suits involving sexual harassment or sexual assault disputes. Accordingly, the Court reasoned, the plaintiff could elect to render the arbitration provisions of the Employment Agreement invalid with respect to her sexual harassment dispute.
The Court of Appeal also rejected the employer’s argument that the EFAA did not apply retroactively to the plaintiff’s 2017 Employment Agreement. The Court noted that the EFAA covers any dispute or claim that arises or accrues on or after March 3, 2022. Here, plaintiff’s complaint alleged the sexual harassment occurred in December 2022. Because the plaintiff’s claims accrued on or after March 3, 2022, the Court found that the EFAA applied.
Finally, the Court of Appeal concluded that the EFAA applied to the plaintiff’s entire lawsuit—including the wage-and-hour claims that were factually unrelated to the plaintiff’s sexual harassment dispute. Accordingly, the plaintiff could not be compelled to arbitrate any part of her lawsuit. This result is consistent with prior decisions from California Courts of Appeal that we have covered here.
Ultimately, the Court of Appeal ordered the trial court to vacate its order compelling arbitration and enter a new order denying the defendants’ motion to compel.
Key Takeaways
Casey confirms that parties cannot use choice-of-law provisions in arbitration agreements to circumvent the EFAA. Accordingly, if a plaintiff brings a claim involving sexual assault or harassment, the EFAA precludes the defendant from forcing the plaintiff to litigate the claims—regardless of whether a choice-of-law provision exists in the contract.
The Casey decision comes four months after the California Court of Appeal’s decision in Liu v. Miniso Depot CA, Inc.—which also held that if a plaintiff brings a suit that merely includes a sexual harassment claim, none of the other claims may be arbitrated. Together, Casey and Liu ensure that more lawsuits containing sexual harassment and sexual assault claims will be heard in court and not compelled to arbitration.
Employers should consult with outside counsel to review their existing employment and arbitration agreements. In addition, employers—working with experienced counsel—should understand what these holdings mean for them and what steps they should take to prevent and defend against future lawsuits that may be subject to the EFAA.
Mistake No. 8 of the Top 10 Horrible, No-Good Mistakes Construction Lawyers Make: Know the Benefits and Perils of a Privately Administered Arbitration
I have practiced law for 40 years with the vast majority as a “construction” lawyer. I have seen great… and bad… construction lawyering, both when representing a party and when serving over 300 times as a mediator or arbitrator in construction disputes. I have made my share of mistakes and learned from my mistakes. I was lucky enough to have great construction lawyer mentors to lean on and learn from, so I try to be a good mentor to young construction lawyers. Becoming a great and successful construction lawyer is challenging, but the rewards are many. The following is No. 8 of the top 10 mistakes I have seen construction lawyers make, and yes, I have been guilty of making this same mistake.
Most (but not all) commercial construction contracts contain binding arbitration clauses. Whether the contract is between an owner and architect/designer, an owner and prime contractor, or a subcontractor and prime contractor, the decision to arbitrate or litigate a dispute is always negotiable. You can refer back to one of my previous blog posts in this series discussing the pros and cons of binding arbitration vs. litigating in court. But when parties have decided to arbitrate a dispute, the next question is what rules will apply and how will the arbitration be administered?
Most arbitration clauses (especially those in the standard AIA form set of construction project documents) specify that the American Arbitration Association (AAA) will “administer” the arbitration and that the construction rules of the AAA will apply (the “AAA Rules”). Per the AAA Rules, a party filing an arbitration pays a filing fee to the AAA, the amount of which is based on the amount of the claim. For example, the total non-refundable fee (with few exceptions) for a claim (or counterclaim) from $500,000 to $1 million is $12,675. A claim from $1 million to $10 million is $17,450. There are other AAA fees to pay as the process continues. The other primary costs are the compensation (normally hourly) of the selected arbitrator (or panel).
There are many experienced construction lawyers who are unhappy with the administrative services provided by the AAA (I am not one of them) when taking into consideration the amounts charged by the AAA to the clients. Their arguments are as follows: “I know who the good and bad arbitrators in my area are. My clients do not need to pay the huge AAA filing fees to just get a list of potential arbitrators. And once chosen, a good arbitrator takes over the administration of the arbitration and all the AAA case manager does is set up calls (when the arbitrator does not do so), collects the estimated arbitrator fees from the parties, sends out notices and pays the arbitrator.”
Because of the arguments above, and other concerns, there is a growing trend for parties and their construction lawyers, even with an arbitration clause that calls for AAA administration, to completely “bypass” the AAA and have the arbitration administered “privately.” Over the past five years, I would estimate that 33% of the arbitrations for which I have served as an arbitrator (including on a panel of 3 arbitrator) over the past 3 years have been privately administered. What this means is that the parties agree to amend the arbitration clause; enter into a private arbitration agreement (which may call for portions of the AAA Rules to apply); and agree on an arbitrator(s). There can also be an agreement to a private arbitration without a pre-existing arbitration clause. While the arbitrator’s rates will normally be the same as the rates charged by the AAA, the obvious savings to the clients is that the AAA’s initial filing fees and other charges are avoided.
On first blush, especially for large claims and counterclaims, this may look like a win-win for the clients. However, before you go off and recommend this to your clients, you better be fully aware of the risks and issues that can arise.
Avoid issues by having an agreed private arbitration agreement.
If the arbitration clause calls for AAA Rules, and the parties agree to private arbitration, there should always be a carefully well-drafted private arbitration agreement signed by the clients. It should, among other items, set forth what rules will be applicable; what pre-hearing discovery will be allowed; identify the agreed arbitrator (and at what hourly rate); outline the requirement to split the arbitrator compensation; and determine a process if, for whatever reason, the existing arbitrator must withdraw prior to the hearings. I do not agree to serve as a private arbitrator without such an agreement in place (which is where I obtain my authority to issue a binding award). Also, do not forget that such an agreement is a “contract,” and there can be clauses included that were not in the original contract, such as a prevailing party attorneys’ fees/arbitration expenses clause or even an agreement for the most convenient hearing location (not the location of the project). Last year I served as a private arbitrator on a project located in Alabama with counsel in Atlanta, Tennessee and Colorado, and the hearings were in my firm’s offices in Nashville.
Involve your client in the arbitrator selection.
In the AAA process for selecting an arbitrator, the AAA sends a list of potential arbitrators to both counsel, who then send in a confidential list to the case manager with names crossed off and an order of preference (much like jury selection). The case manager then reviews the list and appoints the arbitrator (subject to conflicts). In a private arbitration, both sides must agree on an arbitrator. In most instances, the client will not have any idea of any potential arbitrator, so the client will be heavily relying on your advice, albeit tempered by the admonition that there cannot be any guaranties on how an arbitrator might rule. Another previous blog post in this series discussed the issues of not vetting potential arbitrators. The point here is to involve your client and explain who has been suggested as the private arbitrator. Because if the agreed upon arbitrator rules against your client, despite your fantastic efforts, a losing, disgruntled client may ask (when presented with your final post-hearing invoice), “I don’t recall agreeing to this arbitrator: why did you recommend we use that guy? You told me he would call balls and strikes, and he did not.”
Managing post-arbitrator selection conflicts can be tricky.
While any potential private arbitrator will disclose any conflicts (same process as the AAA), arbitrator conflicts can come up after selection. An example would be the later disclosure of expert witnesses or fact witnesses. If that arbitrator uses or has used one side’s designated expert, there should be a disclosure. The difference is that when the AAA administers the case, if a disclosure is necessary, the arbitrator discloses to the case manager who then deals only with counsel. Under the AAA Rules, the AAA has the sole discretion to rule on whether the arbitrator can continue to serve. In a private arbitration, the arbitrator must manage the conflict directly with counsel. One solution is to designate, in the private arbitration agreement, another qualified arbitrator who is authorized by the parties to rule on any conflict.
Handle party nonpayment issues.
When the AAA administers a case, the arbitrator provides an estimate of his total compensation/expenses, and the AAA bills each side one-half of the estimate. The payments go into the AAA “bank.” The arbitrator sends invoices to the AAA, and the AAA pays the arbitrator from the deposits. The difference is if one side does not pay its share. If a AAA administered arbitration, the case manager manages it internally and does not inform the arbitrator which side has not paid. If the payment is not timely made, the arbitrator is then given the option of proceeding with the hearings or putting the arbitration on hold. The AAA does give the paying party the option to pay the other side’s portion (but most of the time this does not happen). In a private arbitration, the arbitrator is the “bank.” The pre-payments are made to her, and obviously she knows which side has or has not paid.
The bottom line is not making the mistake of allowing the “benefit” of a client not having to pay the AAA fees with the real and material issues that can occur with a private arbitration. Having good, experienced counsel on both sides helps, as well as knowing that many of the identified issues can be anticipated in a well-drafted private arbitration agreement.
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2025 Global Franchise & Supply Network Report
We are pleased to present our 2025 Global Franchise & Supply Network Report detailing key legal developments, strategies and insights into the evolving landscape of franchising, licensing, distribution and supply chain management. This report explores various topics, including:
FTC Franchise Rule amendments
Noncompete covenants
Considerations when merging franchise systems
Mediation trends
Considerations for Item 18 of the FTC Franchise Rule
California’s Franchise Investment Law
Recommendations to reduce misclassification, joint employment and vicarious liability risks
Resources
Read the full report
Dubai Court of Cassation Holds Clause Providing for Court Provisional Measures Not a Waiver of Arbitration Agreement
Introduction
The Dubai Court of Cassation (Court of Cassation) in Case No. 296 of 2024 vacated the decision of the Dubai Court of Appeal (Court of Appeal) in Commercial Appeal No. 2284/2023, in which the Court of Appeal issued a decision on the merits of a claim despite the existence of an arbitration agreement. Relying upon an inaccurate translation of the arbitration agreement, the Court of Appeal found that the parties had agreed that either party could refer disputes arising out of the parties’ contract to any competent court and had therefore waived the right to arbitration. In vacating the Court of Appeal’s decision, the Court of Cassation confirmed that the Dubai courts have the authority to look to the original text of an arbitration agreement, and disregard any inaccurate translation, to ascertain the intent of the parties.
Background
The claimant filed proceedings in the Dubai Court of First Instance seeking a monetary judgment against the defendant arising out of alleged breaches of contract. The defendant did not appear before the Court of First Instance, and the Court of First instance dismissed the claim due to lack of evidence.
The claimant (appellant) filed an appeal to the Court of Appeal. The respondent to the appeal (the defendant in the lower court proceedings) argued that the claim should be dismissed on the grounds of lack of jurisdiction due to the existence of an arbitration agreement between the parties. The Court of Appeal dismissed this argument and found, based on the Arabic translation of the arbitration agreement, that the parties had agreed that either party could refer disputes arising out of the parties’ contract to any competent court and therefore, the Dubai courts had jurisdiction over the dispute.
The defendant appealed this judgment to the Court of Cassation relying upon the existence of an arbitration agreement to argue that the Dubai courts lacked jurisdiction.
Judgment of the Court of Cassation
The Court of Cassation noted that the arbitration agreement was concluded in English and therefore, the intent of the parties had to be considered in light of the original text of the arbitration agreement and not any Arabic translation thereof. The Court of Cassation held that the original text is clear that either party may apply to any competent court for “injunctive relief” or other “provisional remedies” (but not in respect of the determination of the substantive claim). The Court of Cassation noted that these are common law terms and the closest concepts under UAE law are “provisional orders” and “provisional or precautionary measures”. The Court of Cassation confirmed that the parties’ agreement is consistent with the right of the parties, set forth in Article 18(2) of Federal Law No. 6 of 2018 (UAE Arbitration Law), to seek provisional or precautionary measures from a court of competent jurisdiction in support of current or future arbitration proceedings. Accordingly, the Court of Cassation held that the parties’ agreement did not constitute a waiver of the agreement to resolve the substantive dispute in arbitration and therefore the Court of Appeal decision must be vacated.
Analysis
This judgment confirms that, under the UAE Arbitration Law, parties may seek provisional or precautionary measures from a court of competent jurisdiction in support of current or future arbitration proceedings and that any express agreement to this effect does not constitute a waiver of the arbitration agreement. It also serves as a reminder to ensure that translations into Arabic for the use in onshore court proceedings are accurate.
The Risks of 50-50 Owned Business Partnerships: This Marriage of Equals Does Not Guarantee Success
During Valentine’s Day month, we are taking a look at 50-50 owned private businesses. Forming a co-owned company may sound like a good idea on paper because the two partners are close friends or family members who are making the same investment, sharing equal control, and receiving the same financial returns. But, as in marriages, the co-owners may run into conflicts they cannot resolve, which could require a costly business divorce. This is the chief problem with these co-owned businesses: When conflicts arise the partners cannot work out, they will be in a position of deadlock that distracts or ultimately derails their business.
The Deadlock Dilemma Is the Real Deal
The risk of a co-owned business capsizing over unresolved conflicts between the owners is substantial and many of these companies come apart because the partners failed to create any type of dispute resolution process. Here are two examples: first, the ubiquitous Buffalo, New York, law firm of Cellino & Barnes, broke up in 2020 after 25 years, but only after the partners engaged in a highly publicized, three-year-long legal battle resulting in a court-ordered buyout. The litigation between the two law partners was so contentious it led to an off-Broadway play produced about the case. The second example is the lengthy legal battle between the co-CEOs of TransPerfect Global, Inc., the translation services company, which the parties finally settled in 2020 after six years of litigation.
In light of the high risk of conflicts arising in the future between the co-owners of these businesses, the two partners should consider whether this ownership structure is truly their best option. If they do decide to go down this road, however, the good news is that they have some options to consider. This post reviews specific, practical steps the co-owners can take to head off problems that might otherwise cause their partnership to end in a bitter feud.
Another Approach: Shared Financial Returns, But Not Equal Co-Ownership
One approach for the partners to consider that will avoid future conflicts is to adopt an ownership structure that provides financial equality, but with a modified ownership percentage. Under this approach, the partners would agree to an ownership percentage of 51% to 49%, but also agree in the company’s governing documents to share equally in the company’s profits and losses, as well as in the amount of their compensation. This structure provides for both partners to share the same financial results from the company’s performance, but it establishes a process for decision-making by the company that will not result in gridlock.
Further, the majority owner will have the right to make operating decisions on a day-to-day basis for business, but the minority partner will also have veto rights over some of the most important decisions, and these will be subject to negotiation. By way of example, the partners may decide that a unanimous vote of both of the partners will be required to admit new partners, to approve the sale of the business, and/or to permit the company to take on debt above a certain amount. This structure thus avoids conflicts over most of the decisions that need to be made to keep the business moving forward.
Create a Set of Clear Tie Breakers
For partners who are insistent on having equal ownership in the company, it is critical for them to adopt a tie-breaking mechanism that will prevent them from reaching the point of deadlock over future business decisions. Some of the tie-breaking options available to the partners are reviewed below.
Zones of Authority
For certain companies, the roles of the two partners will be distinct, and in those businesses, the partners may be able to agree that each partner will have the authority to make decisions in their own domain. For example, a partner in charge of marketing and business development may be given authority to decide on what the website will look like, who to hire/fire in the marketing/sales department, and what marketing strategy to adopt. Similarly, a partner running the company’s back office may have the authority to select the accounting software and the CPA firm the company uses, to set pricing on products or services, and to hire a CFO or comptroller.
The problem with this approach is that the partners will have to agree on some decisions that do not fall into these clear categories and they may have conflicts deciding other issues, such as the amount of the company’s expenses, profits distributions, acceptable debt level and growth rate. The bottom line here is that there will still be many common areas in which a potential deadlock may arise between the partners.
Create a Neutral, Tie-Breaking Authority
The obvious tiebreaker is for the partners to agree to appoint either one person or a small committee or board (usually three people) who have some industry or other experience and who will make decisions to resolve all conflicts between the partners. While this approach sounds reasonable, it may be difficult for the partners to agree on the selection of one person or of a board of three people to serve in this capacity for the company.
In addition, even if the partners can agree on the specific person or people they wish to appoint, these individuals may not be willing to take on this role knowing that, at some future point, they will disappoint one of the partners by making a final decision that rejects the other partner’s position. To persuade anyone to serve in the capacity of a tiebreaker, the partners will also, at a minimum, have to agree to fully indemnify the people who agree to serve in this role. The partners will also have to agree to pay the legal fees for any and all disputes incurred by the tiebreakers in which they become involved because they agreed to serve in this role.
Adopt an Arbitration Procedure
For more complex disputes, the partners could agree to arbitrate these conflicts on a fast-track basis that resolves the dispute in 60-90 days. This is a much more formal approach to conflict resolution as it would involve using a private arbitration service, but the process will result in a clear, final and non-appealable result.
Further, before the parties agree to participate in arbitration, they could require that a mandatory, in-person mediation be held before any arbitration is filed. This would requires the parties to engage in one last mediated settlement conference in efforts to reach a resolution before they start any sort of legal process.
Enter Into a Negotiated Buy-Sell Agreement
Even when the partners do appoint an individual or board to resolve any conflicts that arise between them in the future, that may not end their discord. The partner whose position was rejected by the individual or board may be frustrated by the outcome, have hard feelings toward the other partner, and/or be concerned the company is now going off track. In this situation, the partners need to have a buy-sell agreement in place that provides a clear process for the exit of a partner to take place. If there is no off ramp for a disgruntled partner, things may go downhill rapidly in the business, because this unhappy partner may decide to create disruption (or worse) in the business in order to pressure the other partner to buy out that partner’s interest. These types of legal disputes between co-owners involving claims for breach of fiduciary duties can create significant distractions and substantial expense for the partners and the business.
The buy-sell agreement between the partners needs to address all of the following issues: (1) what are the circumstances under which the buy-out can be triggered (who can trigger it and how is it triggered); (2) what is the process for determining the value that will be paid for the departing partner’s ownership interest in the business at the time of exit; (3) what specific terms apply to the buyout payment (how many years, what interest rate and what collateral will be provided in the event of a default); and (4) what is the dispute resolution process for resolving any conflicts that arise regarding the application of the buy-sell agreement.
A critical part of this buy-sell agreement will be the process for deciding who is the buyer and who is the seller. This is often termed a “shotgun” provision, and it operates by allowing one person to make an offer to purchase the interest of the other partner, then the recipient will have the option to accept the purchase offer or to reject it and then become the buyer.
How this provision will work in practice therefore needs careful consideration to ensure that the business goals of the parties will be achieved if the clause is triggered in the future.
Conclusion
Starting a 50-50 owned business is exciting, but it is also inherently risky because it almost certainly requires the close collaboration of both of the partners on a long-term basis for the business to be successful. When the partners have serious disagreements, that can lead to a deadlock that cripples the business because key decisions will be postponed, investments will not be made, and opportunities will be missed. Also, the lack of clear direction when the two partners are locked in an impasse is likely to have a negative impact on both the company’s employees and customers.
If the two partners remain willing to accept these risks of entering into a co-owned business, they will want to do so with vigilance to head off future conflicts as much as possible. This planning process will require them to implement a tie-breaking process designed to resolve future disputes, as well as to negotiate and enter into a buy-sell agreement that enables them to achieve a business divorce if they reach a point where irreconcilable differences exist between them.
For both partners to keep smiling on Valentine’s Day and beyond, these planning measures will give them and the business the best chance to prosper on a long-term basis, and it will also provide a plan for a partner exit to help avoid a bitter, protracted business divorce down the road.
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District Court Rules Employer’s Withdrawal Liability Cannot Be Based on Post-Rehabilitation Plan Contribution Increases
In Central States, S.E. & S.W. Pension Fund v. McKesson Corp., No. 23-cv-16770, 2025 WL 81358 (N.D. Ill. Jan. 13, 2025), the district court affirmed that a multiemployer pension plan’s calculation of withdrawal liability should not have included contribution rate increases imposed after the plan had implemented a rehabilitation plan.
An employer that withdraws from a multiemployer pension plan is generally liable for its proportionate share of the plan’s unfunded vested benefits. The statutory methods used to calculate the employer’s share are all based in part on the amount of contributions the employer was required to remit to the plan in the years preceding its withdrawal. The employer’s withdrawal liability is payable immediately in a lump sum or pursuant to a statutory payment schedule. The payment schedule is calculated by: (i) determining the employer’s maximum annual payment, (ii) determining how many payments the employer must make to pay off the withdrawal liability with interest, and (iii) capping the number of payments at no more than twenty years (even if the withdrawal liability would not be paid off in twenty years). One of the most important variables used to calculate the employer’s withdrawal liability and its payment schedule is the contribution rate at which the employer was required to contribute to the plan. All else equal, a higher rate will result in greater withdrawal liability and larger annual payments.
For plans that have adopted a funding improvement or rehabilitation plan, the Multiemployer Pension Reform Act of 2014 (MPRA) amended the statute to generally exclude from these calculations any contribution rate increases imposed after 2014 unless the increases: (i) were due to increased levels of work or employment, or (ii) were used to provide an increase in benefits or benefit accruals that an actuary certifies is paid using contributions not contemplated by the funding improvement or rehabilitation plan and that will not imperil the plan from satisfying the requirements of its funding improvement or rehabilitation plan.
The District Court’s Decision
McKesson Corporation was a contributing employer to the Central States Pension Fund. The Fund adopted a rehabilitation plan in 2008 that called for annual increases in McKesson’s contribution rate. The rehabilitation plan did not alter the Fund’s formula for benefit accruals, which called for participants to accrue 1% of all contributions made to the Fund on their behalf during the year. When McKesson withdrew from the Fund, the Fund demanded that it pay $1,437,004.08 per year for 20 years to pay off its withdrawal liability. McKesson commenced arbitration to challenge the assessment, arguing that the Fund should have excluded the contribution rate increases pursuant to MPRA, which would have lowered its required payments to $1,091,819.04 per year for 20 years.
The arbitrator agreed and the District Court affirmed. The Court concluded that the statute was unambiguous and that once a multiemployer pension plan adopts a funding improvement or rehabilitation plan, there is a presumption that any subsequent contribution rate increases are to be excluded from the withdrawal liability calculation unless the plan satisfies one of the two statutory exceptions. The Court rejected the Fund’s argument that it qualified for the second exception because, pursuant to its 1% accrual formula, any increase in contributions resulted in increased benefits to participants. The Court noted that the resulting increase in benefits predated the Fund’s rehabilitation plan, and thus could not satisfy the statute’s requirement that increased contributions be used to pay for additional benefits or benefit accruals, and that in any event, the Fund had not obtained the actuarial certification needed to satisfy the statutory exception. The Court also rejected the Fund’s alternative argument that only the portion of the increased contribution rates used to reduce the Fund’s underfunding should be excluded from the withdrawal liability calculation and that the portion used to pay for increased benefit accruals should not. The Court held that the statute does not make any such distinction, and rejected the Fund’s reliance on a proposed rule by the PBGC that would have interpreted the statute to allow for such a distinction because the PBGC did not end up adopting the rule.
Proskauer’s Perspective
Several other employers have challenged the Fund’s efforts to include post-2014 contribution rate increases in its withdrawal liability calculations, and the Seventh Circuit is expected to resolve the issue later this year. Plans that have taken a similar approach to the Fund will want to monitor these cases, as they may have a significant impact on their approach to calculating employers’ withdrawal liability. In the meantime, for employers that contribute to or have withdrawn from plans that have adopted funding improvement or rehabilitation plans, the decision is a reminder to review closely withdrawal liability calculations to assess whether rate increases are being included in the calculation of withdrawal liability or the corresponding payment schedule.
Another Arbitration Agreement Bites the Dust!
The California Court of Appeal dealt another blow to arbitration, just months after we reported the last such decision here.
This time, the Court ruled that the federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (“EFAA”) overrides state law—even in cases in which the employee has signed an arbitration agreement that explicitly invokes state law favoring arbitration.
Kristin Casey, a former employee of D.R. Horton, Inc., sued the company and one of its employees, Kris Hansen, for sexual harassment, sex discrimination, retaliation, and failure to prevent discrimination and harassment in September 2023. D.R. Horton attempted to enforce an arbitration agreement in Casey’s employment contract, which included a choice-of-law provision applying California law. Casey opposed arbitration, arguing that the EFAA gave her the right to pursue her claims in court.
The EFAA, enacted in 2022, provides that a “person alleging conduct constituting a sexual harassment dispute” may elect that “no predispute arbitration agreement . . . shall be valid or enforceable with respect to the case filed under federal, tribal or state law and relates to the sexual harassment dispute.”
The trial court upheld the arbitration agreement, enforcing the terms to which Casey had agreed. But on a writ petition, the California Court of Appeal reversed, holding that the EFAA preempts state law so long as the employment relationship involves interstate commerce (a low hurdle). The court further determined that an employer cannot rely on a choice-of-law clause to avoid the effect of the EFAA.
You can read the full decision here.
Does an Arbitration Agreement Require the Employer’s Signature? Read the Fine Print
The California Court of Appeal recently reminded employers in an unpublished (but nonetheless chastening) opinion of the importance of carefully drafting arbitration agreements. In Pich v. LaserAway, LLC et al, the court affirmed the trial court’s denial of the employer’s motion to compel a former employee’s representative wage-and-hour suit to arbitration because the arbitration agreement in question was signed only by the employee—not the employer.
While acknowledging that California courts have recognized that arbitration agreements bearing only the employee’s signature without a corresponding signature from the employer can still be valid, the Court found that, in this case, the plain text of the arbitration agreement required a signature from both parties to be effective.
For example, the arbitration agreement contained lines such as: “The Company and I understand and agree that, by signing this Agreement, we are expressly waiving any and all rights to a trial before a judge and/or a jury,” and “[t]he parties acknowledge and agree that each has read this agreement carefully and understand that by signing it, each is waiving all rights to a trial or hearing before a judge or jury of any and all disputes and claims subject to arbitration under this agreement.” (Italics added.)
Therefore, the Court found that the agreement by its own terms required a signature from the employer to be valid and, lacking one, never took effect and never became a valid agreement to arbitrate.
Although this decision is unpublished and therefore noncitable, it is still an important reminder to employers to think carefully when drafting arbitration agreements. As we have covered, California courts are often eager to find weak spots that can provide an excuse to deny arbitration.