US Rising Star Inc. v. Amazon.com, Inc.

Background

US Rising Star Inc. was a corporation formed under California law and operated as a third-party seller in Amazon’s online store. Amazon blocked the account on April 28, 2021, after believing that US Rising Star had manipulated customer reviews. US Rising Star later admitted offering compensation in exchange for positive reviews. After an identity-verification interview, Amazon concluded that the account had been used for deceptive, fraudulent, or illegal activity and terminated it on July 2, 2021.

Section 2 of Amazon’s Business Solutions Agreement allowed Amazon, in its sole discretion, to permanently withhold payments after certain account violations. Amazon withheld the last two weeks of US Rising Star’s sales revenue, totaling $1,148,000. The agreement required disputes to be resolved through binding arbitration under the commercial rules of the American Arbitration Association.

US Rising Star asserted contract, implied-covenant, conversion, and bailment claims in arbitration. It also argued that the arbitration clause was procedurally unconscionable and that Section 2 was substantively unconscionable and an unenforceable penalty under Washington law. The arbitrator rejected those arguments and ruled that Section 2 was an enforceable liquidated-damages clause, allowing Amazon to retain the withheld amount.

Motions and arguments

US Rising Star petitioned to vacate, or overturn, the arbitration award. It argued that the award was “completely irrational” and that the arbitrator had acted in “manifest disregard of the law,” particularly Washington’s rules against penalty clauses. It also submitted three awards from other arbitrations involving Amazon in which other arbitrators reached different conclusions.

The respondents cross-moved to confirm the award. Under the Federal Arbitration Act, the court explained, an award generally must be confirmed unless one of four statutory grounds for vacatur is established: corruption, fraud, or undue means in obtaining the award; evident partiality or corruption by the arbitrator; arbitrator misconduct; or the arbitrator’s exceeding of authorized powers. US Rising Star did not rely on those grounds.

The court nevertheless considered the Second Circuit’s “manifest disregard of the law” doctrine, which permits vacatur in a narrow circumstance. The court explained that this doctrine does not permit review merely because an arbitrator made a legal error. For a contract-based challenge, vacatur requires an award that contradicts an express and unambiguous contract term or departs so far from the agreement that it cannot reasonably be derived from it.

Court’s analysis

The court held that the arbitrator had not manifestly disregarded the parties’ agreement. The arbitrator specifically enforced Section 2, explained the reasoning, and addressed US Rising Star’s arguments that the provision was unconscionable and an improper penalty. Because the award was grounded in the agreement’s language, it did not depart from the contract in a way that justified vacatur.

The court also held that even if the arbitrator had misunderstood Washington law, that would not by itself justify overturning the award. The arbitrator had considered the penalty-clause argument and disagreed with US Rising Star’s position. The different outcomes in other arbitrations did not change the result because different arbitrators may reach different conclusions when their decisions have a colorable justification.

Disposition

The court denied the petitioner’s motion to vacate the arbitration award and granted the respondents’ motion to confirm the award. The Clerk was directed to enter judgment for the respondents confirming the award and dismissing the petitioner, remove the two motions from the list of open motions, and close the case.