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

Background

Shenzhen Zongheng Domain Network Co., Ltd. was a third-party seller on Amazon.com beginning in March 2017. In June 2021, Amazon accused it of manipulating customer reviews, deactivated its accounts, and kept its sales proceeds, which the opinion says totaled $507,618.92. The company started arbitration under its contract with Amazon, seeking release of the money. On January 23, 2023, the arbitrator rejected the company’s claims and allowed Amazon to keep the funds.

The company then filed a New York state-court petition seeking to vacate, or set aside, the arbitration award. Amazon moved the case to federal court. The court denied the company’s request to return the case to state court. It later denied the company’s request to vacate the award and granted Amazon’s request to confirm it.

Motion for reconsideration

The company asked the court to reconsider the decision confirming the award under Federal Rule of Civil Procedure 60(b)(2), which permits relief based on newly discovered evidence that could not reasonably have been found earlier. The company said that it had learned in early November 2023 that the arbitrator had previously ruled for Amazon in a 2020 matter involving the same legal issues. Although the arbitrator had disclosed serving as an arbitrator in two matters involving Amazon, the company had not objected to her appointment.

The court assumed, without deciding, that the company had reasonably been unaware of the information. It nevertheless held that the information would not have changed the result. Under the Federal Arbitration Act, an award may be vacated for “evident partiality,” meaning circumstances requiring a reasonable person to conclude that the arbitrator was biased. The party seeking to vacate the award must prove that bias with clear and convincing evidence.

The court found that the company identified no undisclosed conflict, relationship, or interest in the arbitration’s outcome. The arbitrator’s earlier ruling for Amazon, even in a similar factual setting, was not enough by itself to show partiality. The court also explained that arbitration proceedings are generally confidential under the applicable arbitration rules, so the arbitrator could not be faulted for failing to describe an earlier decision that she had an obligation to keep confidential. The court therefore denied the motion for reconsideration.

Motion for sanctions

Amazon asked the court to impose sanctions on the company’s counsel under Rule 11 for filing what Amazon characterized as a frivolous motion to remand. Rule 11 requires that legal arguments be supported by existing law or by a reasonable argument for changing or developing the law. The court explained that an argument can be wrong or unlikely to succeed without being sanctionable; sanctions require a legal position that was objectively unreasonable and plainly frivolous.

Amazon argued that the company’s remand motion ignored binding Second Circuit authority concerning federal-question jurisdiction and whether the arbitration was covered by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Amazon also pointed to similar remand motions filed by the company’s counsel in other cases and to a prior conference in which counsel had discussed related jurisdictional issues.

The court acknowledged that Amazon’s arguments had force and that counsel had lost at least three similar remand motions in the district. But the court concluded that the high standard for sanctions was not met. The company’s argument that the arbitration was domestic, along with its reliance on the Supreme Court’s decision in Badgerow v. Walters, may have been wrong and unsuccessful, but it was not plainly frivolous when made. The court declined to infer from counsel’s conduct in another case that the motion here had been obviously frivolous.

Disposition

Judge Jennifer L. Rochon denied the company’s motion for reconsideration and denied Amazon’s motion for sanctions. The court directed the Clerk of Court to terminate the motions at ECF Nos. 38 and 48. The court warned the company’s counsel that sanctions might be appropriate if she continued filing similar motions in similar cases.