Shenzhen Xingchen Xuanyuan Industrial Co. Ltd. v. Amazon.com Services LLC

Background

Xingchen operated as a third-party seller on Amazon’s online platform. To use the platform, it accepted Amazon’s Business Services Agreement (BSA), which included a broad arbitration clause covering disputes related to the BSA or Xingchen’s use of Amazon’s services. The clause also provided that arbitration would be conducted under the American Arbitration Association’s commercial rules.

Amazon terminated Xingchen’s seller account and blocked the disbursement of revenues earned through the platform. Xingchen initially pursued claims in arbitration, including claims for breach of contract, conversion, and violation of bailment, and sought approximately $120,761.20 in sales proceeds. The arbitrator scheduled an in-person hearing after rejecting Xingchen’s position that the matter should proceed only through written submissions. Xingchen sought removal of the arbitrator, but the American Arbitration Association denied that request.

Xingchen did not pay its share of the arbitration fees. The arbitration was first placed on hold and was later terminated because of the nonpayment. The opinion states that Xingchen did not use available procedures to seek a fee reduction or deferral. After the arbitration ended, Xingchen filed a New York state-court lawsuit asserting claims arising from the same events. Amazon removed the lawsuit to federal court and moved to compel arbitration and stay the case.

The Parties’ Arguments

Amazon argued that Xingchen was bound by the BSA’s arbitration provision and should not be allowed to abandon arbitration after unfavorable rulings by the arbitrator. Xingchen argued that other BSA provisions were unenforceable because they were unconscionable. It also challenged the enforceability of Section 2 of the BSA, but it did not challenge the arbitration provision itself or the provision delegating arbitrability questions to the arbitrator.

Court’s Analysis

The Federal Arbitration Act generally makes written arbitration agreements enforceable. The court explained that a challenge to the contract as a whole, or to provisions other than the arbitration agreement, ordinarily does not prevent enforcement of the separate arbitration agreement. The court also explained that the parties’ adoption of the American Arbitration Association’s commercial rules clearly showed their intent to have the arbitrator decide questions about whether disputes were subject to arbitration.

Because Xingchen did not specifically challenge the delegation provision, the court treated the agreement to arbitrate as valid and enforceable. The court left Xingchen’s challenges to other BSA provisions for the arbitrator to decide.

The court next concluded that the claims in the lawsuit fell within the arbitration clause. The claims concerned the BSA and Xingchen’s use of Amazon’s platform, and Xingchen had previously asserted substantially the same claims in the arbitration.

The court also addressed whether a court case must be stayed when an arbitration has been terminated because a party did not pay arbitration fees. Relying on a Second Circuit ruling in another case involving an arbitration terminated by the American Arbitration Association, the court concluded that arbitration had not yet been completed under the Federal Arbitration Act. The court reasoned that allowing a party to avoid mandatory arbitration simply by failing to pay would turn a mandatory arbitration agreement into an optional one. The court also stated that Xingchen had not raised this issue in its briefing and therefore had waived the argument.

Disposition

The court granted Amazon’s petition to compel arbitration. It also granted Amazon’s request to stay the federal case pending arbitration. The clerk was directed to terminate the pending motion and record the stay. The court stated that, if Xingchen could not afford the arbitration costs, it should work to resolve that issue before the arbitrator first.