So, You Thought Your Arbitration Agreement Was Bulletproof: Beware Of Traps That Can Render Arbitration Agreements Unenforceable - Arbitration & Dispute Resolution - United States

[Gunnar Larson]

United States: So, You Thought Your Arbitration Agreement Was Bulletproof:
Beware Of Traps That Can Render Arbitration Agreements Unenforceable:
https://www.mondaq.com/unitedstates/arbitration--dispute-resolution/1403716/so-you-thought-your-arbitration-agreement-was-bulletproof-beware-of-traps-that-can-render-arbitration-agreements-unenforceable?email_access=on

21 December 2023
by Douglas Lang
Thompson Coburn LLP


In a recent federal court case, Baker Hughes v. Dynamic Industries, the
court decided even though the parties agreed to arbitrate, the agreement
was unenforceable because the arbitration agency was "abolished." In that
case, the U.S. District Court for the Eastern District of Louisiana denied
a motion to compel arbitration where the Dubai-based arbitration agency
designated to administer it no longer existed. However, the record showed
when Dubai decreed the designated agency was "abolished," it transferred
the assets, rights, and obligations of the dissolved agency to another
Dubai entity. Also, the language of the transfer stated "DIFC-LCIA
arbitration agreements entered into before the effective date of [the
decree] are deemed valid."

The plaintiff refused to arbitrate because the designated forum no longer
exists. The Court agreed the arbitration agreement was unenforceable,
citing several prior Fifth Circuit decisions including one where the court
refused to enforce an arbitration agreement because the forum no longer
administered the type of claim involved. Also, the court relied on a case
in which a court refused to compel arbitration where one party sought to
hold the arbitration in Mississippi because the agreed upon Iranian forum
was deemed unsafe for the litigants. Specifically, in this Baker Hughes
case, the Court concluded arbitration would not be compelled because
whatever similarity the original agency DIAC may have with the new agency
DIFC LCIA, "it is not the same forum in which the parties agreed to
arbitrate." The case is likely to be appealed to the Fifth Circuit.

Points to consider regarding the decision
The ruling appears to be in conflict with the "liberal federal policy
favoring arbitration" cited in AT&T Mobility LLC v. Concepcion.
The ruling did not expressly consider the federal court's authority to
appoint arbitrators under the Federal Arbitration Act.
Also, the court did not consider whether it was important that the rules of
arbitration for the dissolved forum, the rules of the London Court of
Arbitration, were likely preserved when Dubai transferred to the DIAC, "the
assets, rights and obligations" of the DIFC LCIA and the transfer decree
stated "DIFC-LCIA arbitration agreements entered into before the effective
date of [the decree] are deemed valid."
The court did not expressly consider the location of the forum remained in
Dubai.
Lessons for drafting
One should consider at least the following:

Expressly state in the arbitration clause that should the designated
arbitration agency no longer exist when arbitration is to be compelled, the
court shall exercise its authority to appoint arbitrators "if for any ...
reason" arbitrators are not otherwise appointed to serve, as outlined
intheFederal Arbitration Act (9 U.S.C. § 5).
Expressly state that if the location designated for the arbitration cannot
be used, another designated location is identified.
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