Schorr v. American Arbitration Association

Background

Marcia Schorr sued the American Arbitration Association (AAA) and the International Centre for Dispute Resolution (ICDR), collectively called the AAA-ICDR. The lawsuit followed an arbitration that Schorr had started against an unnamed respondent concerning a joint venture and property rights in Cuba. The agreement required disputes to be arbitrated in New York under the AAA’s Commercial Arbitration Rules.

Schorr paid the AAA-ICDR $46,795.66 in arbitration fees and expenses. The respondent did not pay his share. Schorr asked the arbitrator to enforce an agreement provision that would have allowed the arbitration to proceed without the nonpaying party’s participation and to determine damages. The arbitrator declined, concluding that the provision conflicted with an AAA rule stating that a party could not be prevented from defending a claim or counterclaim. The AAA-ICDR later administratively terminated the arbitration because its employees and the arbitrator had allegedly been subjected to continuing violations of the organization’s conduct standards.

Schorr filed seven state-law claims against the AAA-ICDR. They included breach of contract, breach of the duty of good faith and fair dealing, false advertising, and unjust enrichment. She sought the fees she had advanced and the damages she alleged the arbitration respondent owed her. The AAA-ICDR removed the case from New York state court to the United States District Court for the Southern District of New York.

Motion to Remand

Schorr moved to remand, meaning to return the case to state court. She argued that the Federal Arbitration Act (FAA) did not give the federal court subject-matter jurisdiction over her claims. The AAA-ICDR opposed the motion and argued that the case fell within Chapter 2 of the FAA, which implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

The court explained that the arbitration agreement fell under the Convention because it was written, required arbitration in New York, concerned a commercial transaction, and was not entirely domestic in scope because it involved property in Cuba. Section 203 of the FAA gives federal district courts original jurisdiction over an action or proceeding falling under the Convention. Section 205 permits removal from state court when the subject matter relates to an arbitration agreement or award falling under the Convention.

Court’s Analysis

The court rejected Schorr’s argument that Section 203 was limited to proceedings directly seeking to compel arbitration or confirm or vacate an arbitral award. The court held that the broader statutory language also covers proceedings assisting or affecting an arbitration under the Convention.

Although the arbitration ended administratively rather than with a formal award, the court viewed Schorr’s lawsuit as challenging the arbitration’s bottom-line result. Her contract claims sought from the AAA-ICDR essentially the relief she had sought in the arbitration: damages allegedly owed by the respondent and recovery of the arbitration fees she had advanced. A judgment for Schorr would therefore function much like setting aside the arbitration’s disposition, while a judgment for the AAA-ICDR would at least partly confirm that result.

The court also held that removal was proper under Section 205. The lawsuit required interpretation of the Operating Agreement, including its provision concerning nonpayment of arbitration expenses, the AAA Commercial Rules incorporated into that agreement, and the decision not to use that provision. The court adopted a broad interpretation of Section 205’s requirement that the state-court action relate to an arbitration agreement or award covered by the Convention.

The court separately held that it could exercise supplemental jurisdiction—authority to hear related state-law claims—over claims not independently covered by Section 203, such as the false-advertising claims. Those claims arose from the same events as the claims within federal jurisdiction: the refusal to invoke the agreement’s provision and the termination of the arbitration.

Disposition

The court denied Schorr’s motion to remand. It did not decide the merits of Schorr’s claims or the AAA-ICDR’s pending motion to dismiss. The court lifted the stay on briefing for that motion and set deadlines for an amended complaint, further motion practice, and an initial pretrial conference.