Cowin Technology Co., Ltd. v. Amazon.com Services, LLC

Background

Cowin Technology Co., Ltd. operated as a third-party seller on Amazon.com under Amazon’s Business Solutions Agreement. The agreement required sellers to provide accurate information, prohibited compensating people for product reviews, allowed Amazon to suspend or terminate accounts for specified misconduct, and allowed Amazon to permanently withhold payments when an account was used for deceptive, fraudulent, or illegal activity or repeatedly violated Amazon’s policies. The agreement also required disputes to be resolved through binding arbitration and selected Washington law.

Amazon blocked Cowin’s seller account after finding that Cowin had contacted customers who left negative reviews and offered them bribes to delete those reviews. Cowin later shifted sales of Cowin-branded products to a Cosmonic seller account. Amazon suspended that account for the same type of review-related conduct and required an identity-verification interview. According to the arbitration award, Cowin’s representative failed the interview because of a lack of knowledge about Cowin and the Cosmonic account, raising questions about who operated the account. Amazon withheld $976,103.19, described as two weeks of sales proceeds.

Cowin began arbitration seeking release of the funds and reactivation of its account. The arbitrator found that Cowin violated the agreement by manipulating reviews, that Amazon had a contractual basis to suspend and terminate the account and withhold funds, and that the resulting harm to customer goodwill and Amazon’s reputation was difficult to quantify. The arbitrator concluded that the withheld amount was a reasonable forecast of the damage and denied all of Cowin’s claims.

Issues and arguments

Cowin petitioned to vacate, or cancel, the arbitration award. It argued that the award was completely irrational; that the arbitrator had manifestly disregarded the law by enforcing the agreement’s payment-withholding provision; and that enforcing the provision violated public policy. Cowin also appeared to challenge the enforceability of the agreement’s arbitration clause. Amazon opposed vacatur and cross-moved to confirm the award.

Court’s analysis

The court explained that arbitration awards receive very limited judicial review under the Federal Arbitration Act and the New York Convention. A party seeking to vacate an award must establish one of the recognized grounds for refusal, such as corruption, arbitrator misconduct, an arbitrator exceeding authority, or a violation of public policy. The court also recognized the narrow rule allowing vacatur for an arbitrator’s manifest disregard of clearly established law.

The court rejected Cowin’s “complete irrationality” argument because that is not an independent ground for vacating an award. It also rejected the manifest-disregard argument. The arbitrator had applied the Washington test for an enforceable liquidated-damages provision: the harm must be difficult to measure, and the amount must be a reasonable forecast of compensation. The arbitrator found that Cowin’s review manipulation damaged customer goodwill and Amazon’s reputation and that the withheld amount was a reasonable forecast of the harm. The court held that this provided at least a minimally adequate justification and that Cowin’s disagreement with the arbitrator’s assessment was not enough to vacate the award.

The court also rejected Cowin’s public-policy argument. The agreement selected Washington law, and Cowin had not challenged that choice-of-law provision. The court found that applying Washington law did not violate New York’s most basic principles of morality and justice. It further held that Cowin could not rely on a bankruptcy decision involving a different section of the Business Solutions Agreement and noted that Cowin had failed to raise that issue in arbitration.

Finally, the court held that Cowin waived its challenge to the arbitration clause by signing the agreement, submitting its claims to arbitration, and failing to timely object to arbitration. Because Cowin had not established a valid basis for vacatur, the court confirmed the award.

Disposition

The court denied Cowin’s petition to vacate the arbitral award and granted Amazon’s cross-motion to confirm the award. The Clerk was directed to enter judgment confirming the award.