Kuehne + Nagel Inc. v. Baker Hughes

Background

Kuehne + Nagel Inc. brought an action seeking declarations and an injunction concerning a dispute with Baker Hughes Company arising from the transportation of air cargo. In 2018, Kuehne + Nagel and the Global Shippers' Association entered into a Global Air Freight Transportation Contract. Baker Hughes was named a member company in a 2020 amendment. The contract included a multistep alternative-dispute-resolution provision requiring negotiations and mediation before either party could refer an unresolved dispute to arbitration.

In September 2020, Baker Hughes engaged Kuehne + Nagel to ship air cargo to Brazil. Kuehne + Nagel retained LATAM to perform the physical transportation. According to Kuehne + Nagel, LATAM failed to ensure that a required security manifest traveled with the cargo, and Brazilian customs seized the cargo at its destination. The opinion states that the cargo was being held by Brazilian customs and had not been lost or damaged.

The parties exchanged letters and held meetings among executives in an effort to resolve Baker Hughes's claim. After those efforts failed, Baker Hughes requested mediation under the contract on October 14, 2021. Kuehne + Nagel agreed to mediation, and the first session occurred on January 12, 2022. The opinion states that mediation was still ongoing when the lawsuit was filed and that Baker Hughes intended to start arbitration if mediation failed.

Parties' Arguments

Kuehne + Nagel sought declarations that the contract did not apply to the dispute, that no loss had occurred within the meaning of the Montreal Convention or the contract, that it was not liable for LATAM's actions or inactions, and that it had fulfilled its duties. It also sought a declaration concerning a liability limit and an award of attorney's fees, along with an injunction preventing Baker Hughes from invoking the contract's dispute-resolution procedures.

Baker Hughes moved under the Federal Arbitration Act to compel arbitration and dismiss the lawsuit. Kuehne + Nagel argued that the contract did not cover the type of loss at issue, that the arbitration provision did not clearly delegate questions of arbitrability to an arbitrator, that the provision was not mandatory, that Baker Hughes had not taken steps required to request a spot quote, and that Kuehne + Nagel was not responsible for LATAM's conduct. Baker Hughes argued that the dispute arose from and related to the contract and that these issues should be decided in arbitration.

Court's Analysis

The court applied the Federal Arbitration Act and New York law. It first determined that the parties had agreed to arbitrate. The court characterized the provision covering “any dispute between the Parties ... arising from or relating to this Contract” as broad. Because the dispute involved air-freight transportation services covered by the contract, the court held that the dispute fell within the provision's scope.

The court also held that the parties had clearly and unmistakably delegated questions of arbitrability—such as whether the parties agreed to arbitrate and whether the agreement covered this controversy—to the arbitrator. The contract incorporated either the CPR Rules for Non-Administered Arbitration of Business Disputes or the arbitration rules of the International Chamber of Commerce, depending on which rules applied. The court concluded that both sets of rules empowered an arbitrator to decide arbitrability, so it did not need to decide which set governed.

The court rejected Kuehne + Nagel's argument that the provision was merely permissive because it said either party “may” refer the dispute to arbitration. The court held that, at minimum, arbitration was mandatory in this case because Baker Hughes had already initiated the alternative-dispute-resolution process. Once one party invokes the arbitration right, both parties must arbitrate under the court's reading of the provision.

The court did not decide Kuehne + Nagel's liability, the effect of the Montreal Convention, the applicability of the asserted liability limit, or the other underlying claims. It held that those matters, along with arbitrability, must be decided by the arbitrator.

Disposition

The court granted Baker Hughes's motion to compel arbitration and denied its motion to dismiss. Instead of dismissing the lawsuit, the court stayed the action pending arbitration. The parties were ordered to update the court about arbitration on July 22, 2022, and every 60 days afterward until arbitration was completed.