Longyan Junkai Information Technology Co., LTD v. Amazon.com Services, LLC

Background

Longyan became a third-party seller on Amazon’s North American and European marketplaces and entered into Amazon’s Services Business Solutions Agreement. That agreement allowed Amazon to deactivate a seller account and withhold payments when Amazon determined that the account had been used for deceptive, fraudulent, or illegal activity, including selling counterfeit goods.

Amazon deactivated Longyan’s North American account on January 5, 2021, and its European account on May 29, 2021. Amazon froze the sales proceeds in both accounts and told Longyan that the accounts had been deactivated because of suspected counterfeit-goods sales. Longyan later demanded more than $450,000 in arbitration before the International Centre for Dispute Resolution. The parties conducted document discovery and depositions and submitted written materials instead of holding an evidentiary hearing.

The arbitrator rejected Longyan’s breach-of-contract claim, relying on customer complaints, Longyan’s failure to show a legitimate supply chain, and statements and documents indicating that some products were counterfeit. The arbitrator also rejected Longyan’s arguments that the agreement was procedurally or substantively unconscionable and that the agreement’s payment-withholding provision was an invalid penalty rather than a valid liquidated-damages provision.

Jurisdiction and Remand

Longyan filed a petition in New York State Supreme Court seeking to vacate the award. Amazon removed the case to federal court, asserting jurisdiction under the New York Convention and diversity jurisdiction. Longyan moved to remand, arguing that the arbitration involved an entirely domestic dispute because the contract, governing law, arbitration institution, arbitrator, and procedures were connected to the United States.

The court denied the motion to remand. It explained that the Federal Arbitration Act authorizes federal courts to confirm or vacate arbitration awards but does not itself create federal subject-matter jurisdiction. Here, however, the New York Convention applied because the arbitration arose from a commercial relationship and Longyan is a Chinese corporation with its principal place of business in China. The award therefore was not entirely between citizens of the United States, giving the court federal jurisdiction under the Convention.

Motion to Vacate

Longyan argued that the award should be vacated because it was irrational, showed a manifest disregard of the law, and violated public policy. Vacatur is the judicial cancellation of an arbitration award. The court explained that review is extremely limited: a court generally does not reconsider an arbitrator’s legal or factual conclusions and may vacate only on narrowly defined grounds under the Federal Arbitration Act, the New York Convention, or the recognized standard for manifest disregard of the law.

The court rejected Longyan’s irrationality argument, explaining that irrationality is not an independent basis for vacatur in the Second Circuit and is essentially another way of asserting manifest disregard of the law. The court also rejected the manifest-disregard argument because the arbitrator had identified and applied relevant Washington law, addressed Longyan’s arguments, and explained why the payment-withholding provision was valid. The court concluded that Longyan was principally disagreeing with the merits of the arbitrator’s decision, which was not enough to justify vacatur.

The court also rejected the public-policy argument. It explained that the public-policy exception is interpreted narrowly and applies only when enforcing an award would violate basic notions of morality and justice. Longyan did not identify a New York law or clearly defined New York public policy that the award violated. Its reliance on an Arizona bankruptcy court decision involving a different provision of the agreement did not establish that this award violated public policy.

Disposition

Because Longyan had not established a ground for vacating the award, the court denied Longyan’s motion to vacate. The court granted Amazon’s cross-motion to confirm the award, explaining that denying the motion to vacate supported confirmation. The Clerk was directed to enter judgment confirming the award, close the pending motions, and close the case.