In this article for New York Law Journal, Kirkland partner Matthew Solum discusses injunctive relief in private arbitrations.
Arbitration is often looked at as a more flexible, confidential method for dispute resolution as compared to litigation in state and federal court systems. In many respects, that perception is true. Arbitration allows parties to agree to their own desired timeline, procedural rules, and level of formality. It allows parties to select arbitrators with specific expertise, and it permits proceedings to be kept confidential—features that are often appealing in the context of large commercial disputes. And because both Congress and the courts have made clear that there is a strong public policy in favor of arbitration, prevailing litigants can rely on the court system to confirm and enforce their arbitral awards without a high risk of a court questioning the merits of the decision.
But arbitration also comes with a potential disadvantage. Many cases involve some form of injunctive relief—something fundamentally different in kind from entry of a money judgment. Courts have various injunctive tools at their disposal: temporary restraining orders, preliminary injunctions, and permanent injunctions. Courts can, for example, order a litigant to refrain from unlawful activity, order a litigant to comply with an obligation, and order a temporary freeze to a transaction that would be impossible to later unwind. Any order a court issues is backed by government authority, including a court’s power to cite parties for contempt or issue sanctions. Arbitrators, on the other hand, have no such inherent authority. Instead, arbitrators derive their authority from the parties’ agreement, and from the general assumption that their decisions will, if necessary, be backed up by the court system at a later time.
That can put litigants in a predicament. If urgent, injunctive relief is needed and the dispute is subject to arbitration, where to turn? To the arbitrator who lacks contempt power, or to a judge whose involvement in the case may seem to defy contractual language? The answer depends on context, and may involve either a judge or the arbitrator, or both. Litigants facing this scenario should (1) review their arbitration clause in the context of the particular issue requiring injunctive relief; (2) inform themselves of the options available to them under their arbitrator’s rules; and (3) assess the need for a court’s confirmation of any interim award while the arbitration is still pending, i.e., whether peace of mind requires that any emergency arbitral relief be confirmed by a court and made subject to its jurisdiction.
What does the arbitration clause say, and what relief do I need?
As an initial step, litigants should consider what the arbitration agreement says about the type of relief that they are seeking. While many arbitration clauses simply apply to “all disputes,” actual language varies widely. An arbitration clause may, for example, contain an explicit carveout allowing some types of relief to be sought in court. Or, an arbitration clause might, on the other hand, explicitly permit arbitrators to issue broad interim relief when necessary.
If a party very urgently needs relief in aid of arbitration, for example, an order to prevent the imminent spoliation of evidence, dissipation of assets, or revelation of trade secrets, prudence may dictate that the party go to court immediately and seek a relief pending arbitration, regardless of what the arbitration clause may say. In most federal circuits, courts retain the power to consider injunction applications even where a dispute is being arbitrated. That is because “[a]rbitration can become a hollow formality if parties are able to alter irreversibly the status quo before the arbitrators are able to render a decision in the dispute.” Blumenthal v. Merrill Lynch, Pierce, Fenner & Smith, 910 F.2d 1049, 1053 (2d Cir. 1990). For example, in the recent trade secret case of General Mills v. Champion Petfoods USA, the Southern District of New York entered a preliminary injunction precluding a former General Mills senior executive from working for a competitor while the parties’ trade secret dispute was being arbitrated. The court reasoned that, “[w]ere the Court to decline enjoining [the executive] pending arbitration … much of the damage Plaintiff seeks to prevent will occur in the time it takes for the arbitrator to be appointed, consider the issues, and deliver a final ruling.” Gen. Mills v. Champion Petfoods USA, No. 20-CV-181 (KMK), 2020 WL 915824, at *3 (S.D.N.Y. Feb. 26, 2020).
Further, under the rules of major arbitration centers, a litigant’s choice to seek interim relief from a court will not be interpreted as a waiver of the right to arbitrate. See, e.g., AAA Commercial Rules 37, 38, JAMS Rule 24; ICDR Rule 24; ICC Article 28(2).
What interim measures does the arbitral forum have available?
Litigants should also be sure to review the arbitral forum’s procedural rules. Even if the presiding arbitrator or panel has not yet been appointed, that does not necessarily mean that any interim relief must be sought in court. Indeed, major arbitration providers have rules allowing the appointment of emergency arbitrators and entry of interim relief.
In arbitrations before the American Arbitration Association, for example, a tribunal is empowered to take “whatever interim measures it deems necessary, including injunctive relief and measures for the protection and conservation of property.” AAA Commercial Rule 37. The arbitrator also has the power to require security for the costs of the interim measures. Id. Further, if interim relief is required before the presiding arbitrator has been appointed or panel has been convened, the AAA may appoint an emergency arbitrator. AAA Commercial Rule 38. Similar rules exist in JAMS, the AAA’s ICDR, and the ICC. See, e.g., JAMS Rules 2, 24; ICDR Rules 6, 24; ICC Article 29.
Would it be good idea to have my interim award confirmed?
To the extent that a litigant secures interim relief before an arbitrator, the litigant may desire the ability to compel compliance through the court system without first waiting for the entire arbitration to conclude with a final award. Though courts generally will not review interlocutory orders of arbitrators, courts have been receptive to applications to confirm interim awards in the context of provisional relief.
A recent case in the Southern District of Florida provides an example. In Vital Pharmaceuticals d/b/a VPX Sports v. PepsiCo, the parties, both in the beverage business, were in a dispute about whether PepsiCo was using “commercially reasonable efforts” to distribute VPX energy drinks as required by a distribution agreement that gave PepsiCo exclusive rights. PepsiCo filed a demand for arbitration with AAA seeking a declaration that it remained the exclusive distributor of VPX products despite VPX’s allegations of breach. In that proceeding, an emergency arbitrator issued an interim order preserving PepsiCo’s exclusivity pending arbitration of the parties’ dispute, and ordered VPX to cease certain activity that would threaten PepsiCo’s exclusivity. The court cited extensive precedent providing that “this Court and many others have found that confirmation of interim arbitral orders granting injunctive relief is appropriate” and further reasoned that “[d]istrict courts must have the power to confirm and enforce such injunctive relief as ‘final’ for it to have teeth.” The court then rejected a number of VPX’s objections and confirmed the interim award. Vital Pharms. v. PepsiCo, No. 20-CIV-62415-RAR, 2020 WL 7625226 (S.D. Fla. Dec. 21, 2020); see also Ace/Cleardefense v. Clear Def., 47 F. App’x 582 (D.C. Cir. 2002) (“We also conclude that the district court did not err in confirming the award despite its interim nature … . [I]n this case, the interim award is a preliminary injunction, and confirmation of the injunction is necessary to make final relief meaningful.”); Pac. Reinsurance Mgmt. v. Ohio Reinsurance, 935 F.2d 1019, 1023 (9th Cir. 1991) (“[W]e hold that temporary equitable orders calculated to preserve assets or performance needed to make a potential final award meaningful … are final orders that can be reviewed for confirmation and enforcement by district courts under the [Federal Arbitration Act].”).
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Though it may seem challenging to secure injunctive relief in a private arbitration rather than in the court system, the reality is that litigants have a variety of options and, in fact, can leverage both the speed and expertise of arbitrators and the power of the courts in order to secure meaningful relief.