Shenzhen Zongheng Domain Network Co., Ltd. v. Amazon.com Services LLC

Background

Shenzhen Zongheng Domain Network Co., Ltd. filed a New York state-court petition seeking to vacate an arbitration award in favor of Amazon.com Services LLC and Amazon.com, Inc. The respondents removed the case to the U.S. District Court for the Southern District of New York. Shenzhen Zongheng then moved to remand, meaning to return the case to state court, arguing that the federal court lacked subject-matter jurisdiction.

Shenzhen Zongheng became an Amazon third-party seller in March 2017 and agreed to Amazon’s Business Solutions Agreement, which contained an arbitration clause. Amazon accused Shenzhen Zongheng of manipulating customer reviews, deactivated its seller accounts, and withheld $507,618.92 in sales proceeds. After an arbitration proceeding, the arbitrator denied Shenzhen Zongheng’s claims and allowed Amazon to keep the funds. The state-court petition alleged that the arbitrator acted with partiality, committed misconduct, disregarded the law, and exceeded the arbitrator’s authority.

Federal-Question Jurisdiction

The court held that the petition fell under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly called the New York Convention. The Federal Arbitration Act gives federal courts jurisdiction over actions to confirm or vacate arbitration awards governed by that Convention.

The court applied the Second Circuit’s four-part test: there must be a written arbitration agreement, arbitration must be provided for in a Convention signatory’s territory, the subject matter must be commercial, and the dispute must not be entirely domestic. Shenzhen Zongheng did not dispute the first three requirements. The court found the fourth requirement satisfied because Shenzhen Zongheng is a Chinese corporation with its principal place of business in China. The court explained that an arbitration award may be “nondomestic” when a party has its principal place of business outside the jurisdiction enforcing the award; a connection to a foreign legal system is not required.

The court also rejected the argument that New York state court’s authority over arbitration proceedings in New York prevented federal jurisdiction. State and federal courts can generally have concurrent jurisdiction. The court further determined that the Supreme Court’s decision in Badgerow v. Walters did not require remand because the federal jurisdiction was apparent from the face of the petition itself.

Diversity Jurisdiction

The court separately found diversity jurisdiction. Diversity jurisdiction allows federal courts to hear certain civil cases involving citizens of different states or foreign countries when more than $75,000 is in controversy. Shenzhen Zongheng was a Chinese corporation. Amazon.com, Inc. was a Delaware corporation with its principal place of business in Washington, and the court determined that the parties were completely diverse.

The court held that the amount-in-controversy requirement was also met. Shenzhen Zongheng sought more than $500,000, including the release of $507,618.92 in withheld sales proceeds. The court stated that the requirement was satisfied under both the approach looking to the relief sought in the underlying arbitration and the approach looking to the value of the arbitration award. Under the latter approach, the arbitrator’s decision allowing Amazon to retain the withheld funds was effectively an award to Amazon for that amount, even though Shenzhen Zongheng received an award of zero dollars.

Disposition

The court concluded that federal-question jurisdiction and diversity jurisdiction both existed. It therefore denied Shenzhen Zongheng’s motion to remand. The opinion decided where the petition could proceed; it did not decide whether the arbitration award should be vacated.