Schorr v. American Arbitration Association

Background

Marcia Schorr sued the American Arbitration Association Inc. (AAA), the International Centre for Dispute Resolution (ICDR), and Sebastian Doggart. The dispute arose from a 2018 Operating Agreement concerning a joint venture involving real property in Cuba. The agreement required disputes to be arbitrated in New York County through the AAA under its Commercial Arbitration Rules.

Schorr alleged that she paid $46,795.66 in arbitration fees and expenses while Doggart failed to pay his share. She also alleged that the arbitration agreement contained an “Inquest Clause” addressing a party’s failure to pay arbitration expenses. After Doggart allegedly engaged in threatening and abusive conduct toward arbitration personnel and the arbitrator, the AAA-ICDR administratively terminated the arbitration on March 19, 2021, before a merits decision was issued. Schorr sought damages equal to the fees she had paid and an order vacating the termination, appointing a new arbitrator, and restarting the arbitration.

The Second Amended Complaint asserted eight claims, including breach of contract, breach of the duty of good faith and fair dealing, promissory estoppel, rescission, negligence, false advertising under New York law, and unjust enrichment. The AAA-ICDR and Doggart moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not state a legally sufficient claim. Doggart also sought sanctions against Schorr’s attorney and an order requiring Schorr to appear by video to confirm her assent to the lawsuit.

Rulings on arbitral immunity

Arbitral immunity is legal protection from liability for acts sufficiently connected to the arbitration process. The court held that this protection barred Schorr’s seventh claim, which alleged that the AAA-ICDR violated New York’s false-advertising statutes by declining to enforce the Inquest Clause or failing to warn that the clause might not be enforceable. The court reasoned that interpreting the arbitration agreement together with the AAA’s Commercial Rules was part of the adjudicative phase of the arbitration. The court therefore granted the AAA-ICDR’s and Doggart’s motions to dismiss that claim on the ground of arbitral immunity.

The court declined to dismiss the seven other claims on arbitral-immunity grounds. Those claims challenged the AAA-ICDR’s mid-arbitration termination and its refusal to reimburse Schorr, rather than a decision on the parties’ underlying dispute. The court stated that arbitral immunity was an uncertain fit where an arbitration organization allegedly accepted payment but stopped providing the arbitration service. It also noted that, as alleged, the termination was based on violations of the AAA-ICDR’s Standards of Conduct rather than on an adjudicative decision about the claims.

Contractual liability waiver

The court nevertheless dismissed the remaining claims under AAA Commercial Rule 52(d). That rule provides that parties to an arbitration under the rules agree that neither the AAA nor an arbitrator is liable for damages or injunctive relief for acts or omissions connected with the arbitration. The Operating Agreement incorporated the Commercial Rules, and the arbitration proceeded under those rules. The court held that Rule 52(d) foreclosed Schorr’s claims for both damages and injunctive relief, including her challenge to the AAA-ICDR’s decision to terminate the arbitration.

Requested vacatur

Schorr also sought to have the termination and the arbitrator’s refusal to enforce the Inquest Clause vacated, meaning set aside by the court, if those actions were treated as arbitration awards. The court did not decide whether either action was a final award because Rule 52(d) independently required dismissal. The court explained, however, that if the challenged actions were final awards and Rule 52(d) did not apply, the request to vacate would be untimely under the Federal Arbitration Act’s three-month deadline. Schorr filed the request for vacatur in her Second Amended Complaint nearly a year after the termination, even though her original complaint had not sought vacatur or given notice of an intent to seek it.

Sanctions and final disposition

The court denied Doggart’s request for sanctions against Schorr’s attorney. It found that Schorr’s claims were not frivolous because she had a sound basis for disputing whether arbitral immunity applied to the mid-arbitration termination. The court also concluded that Doggart was properly named in connection with Schorr’s request to vacate the termination, because he was the respondent in the underlying arbitration.

Judge Engelmayer granted the AAA-ICDR’s and Doggart’s motions to dismiss the Second Amended Complaint under Rule 12(b)(6). The dismissal was with prejudice. He denied Doggart’s motion for sanctions and directed the Clerk of Court to close the motions and the case.