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Texas Judge Dismisses Suit Against ICDR

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A judge of the U.S. District Court for the Southern District of Texas has dismissed a case against the International Centre for Dispute Resolution on the basis of arbitral immunity. The holding in Wartsila North America, Inc., et al v. International Centre for Dispute Resolution, et al., 2018 WL 3870015 (S.D. Tex. 2018), C.A. No. H-18-1531, was based in large part on precedent from the First Circuit.

The city of Raton, New Mexico, its publicly-run electric company, and Raton's insurer (collectively, "Raton") filed a statement of claim at the AAA/ICDR against Wartsila North America, Inc. and Wartsila Finland Oy (collectively, "Wartsila"). Warstila objected to the ICDR's jurisdiction to hear Raton's claims, and the ICDR responded that it would administer the arbitration and that further objections to jurisdiction should be made to the arbitrators once they were appointed. Id., at 4.

Before arbitrators could be appointed, however, Wartsila filed suit in the U.S. District Court for the Southern District of Texas seeking, inter alia, injunctive and declaratory relief from the ongoing ICDR arbitration. Id. The ICDR moved to dismiss the lawsuit pursuant to the doctrine of arbitral immunity.

In granting the ICDR's motion to dismiss, the court relied heavily on the First Circuit's opinion in New England Cleaning Servs., Inc. v. Am. Arbitration Ass'n, 199 F.3d 542 (1st Cir. 1999) ("New England Cleaning"), calling it "instructive and persuasive." Wartsila, at 6. Dismissing a claim against the American Arbitration Association, the First Circuit held in New England Cleaning, "As with judicial and quasi-judicial immunity, arbitral immunity is essential to protect decision-makers from undue influence and protect the decision-making process from reprisals by dissatisfied litigants...In proper circumstances, organizations that sponsor arbitrations, as well as arbitrators themselves, enjoy this immunity from civil liability." New England Cleaning, at 545.

Based on New England Cleaning, the Texas court elucidated the following framework for deciding questions of arbitral immunity: "The relevant question...is whether the resolution of the arbitrability issue is facially obvious. If it is not facially obvious, then immunity should apply to the administrative stages prior to an official appointment of an arbitrator..." Wartsila, at 7. In other words, an arbitral institution may not be held liable for proceeding to empanel arbitrators except where it is "facially obvious" that the ICDR does not have jurisdiction. See id. Because Wartsila could not establish that there was "a clear absence of jurisdiction," the Texas court found that the ICDR was protected by arbitral immunity and granted the ICDR's motion to dismiss.

Wartsila has filed an appeal to the 5th Circuit and Fitch will monitor further developments on appeal.

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