Business Litigation Reporter March 26, 2018

Emergency Relief and Arbitration Agreements

Many business contracts have arbitration clauses, under which the parties agree that all disputes arising from or relating to the contract will be resolved by an arbitrator, rather than by a court. But what if a dispute arises and one of the parties believes that it needs emergency or other interim relief, before the time it would normally take for an arbitrator to be selected, hold a hearing, and render a decision? 

Rules changes adopted several years ago by the major arbitration organizations, and subsequent decisions from various courts across the country, have unsettled this area of the law. Those changes, which added expedited procedures for seeking emergency relief from an arbitrator, have called into question the willingness of the courts to entertain requests for preliminary relief pending the outcome of the arbitration proceeding. That, in turn, has both presented litigators with new strategic decisions and reinforced the need for careful attention to, and drafting of, arbitration clauses in the first place.

Prior to 2010, the principal organizations providing commercial arbitration services did not have rules that automatically established an expedited process for seeking emergency relief. The Commercial Rules of the American Arbitration Association (AAA), for example, did have a provision, captioned “Interim Measures,” that allowed the arbitrator to “take whatever interim measures he or she deems necessary, including injunctive relief and measure for the protection or conservation of property and disposition of perishable goods.” But the rules did not provide an expedited process for selection of the arbitrator and for a hearing and decision in the event that emergency relief was claimed to be needed. The AAA did have a set of “Optional Rules for Emergency Measures of Protection” that established such a process, but they applied only if the parties’ contract had expressly adopted those optional rules.

Under those circumstances, most courts held that, in disputes covered by an arbitration clause, judges had the authority to grant preliminary injunctive relief needed to prevent a party from suffering irreparable harm pending the outcome of the arbitration proceeding. For example, although the parties’ dispute in Teradyne, Inc. v. Mostek Corp., 797 F.2d 43, 47 (1st Cir. 1986), was subject to arbitration with the AAA, the First Circuit upheld the district court’s grant of a preliminary injunction requiring the defendant to set aside funds to satisfy a possible arbitration award. The appeals court held that, notwithstanding the provisions of the Federal Arbitration Act, “a court can, and should, grant a preliminary injunction in an arbitrable dispute whenever an injunction is necessary to preserve the status quo pending arbitration.” The court reasoned that, where immediate irreparable harm was threatened, permitting a court to issue a preliminary injunction is essential “to preserve the meaningfulness of the arbitration process.” Id. Numerous other courts reached the same conclusion, and some states enacted statutes codifying this rule. E.g., Calif. Code Civ. Pro. § 1281.8(b).

In 2013 and 2014, however, the AAA and JAMS adopted new rules for commercial arbitrations that establish an expeditious process for an arbitrator to grant preliminary relief to avoid irreparable harm in disputes subject to arbitration. The AAA’s Rule 38, titled “Emergency Measures of Protection,” applies to arbitrations conducted under arbitration agreements entered into on or after October 1, 2013. It provides that a party needing emergency relief prior to an arbitration panel being chosen may notify the AAA in writing with a statement of the reasons for emergency relief. The movant must also include a statement certifying that all other parties have been notified, which can be done by email or fax, or explaining the steps taken in good faith to notify the other parties. Within one business day, the AAA is required to appoint a single emergency arbitrator who, within two business days, must issue a schedule that can provide for a hearing by telephone or video conference or for a ruling based just on the parties’ written submissions. The emergency arbitrator, in turn, may issue interim relief if satisfied that the party faces immediate and irreparable loss or damage and is entitled to such relief. Similarly, JAMS adopted Rule 2(c), captioned “Emergency Relief Procedures,” that apply in arbitrations filed after July 1, 2014. Likewise, effective July 1, 2013, the International Institute for Conflict Prevention & Resolution (CPR) issued its Administered Arbitration Rules. Rule 14 of those rules also provides that, before the arbitration panel is picked, any party may request that interim measures be granted against any other party by a special arbitrator, that the CPR is to appoint a special arbitrator within one day to the extent practicable, and that the arbitrator is to conduct the proceedings “as expeditiously as possible.”

The adoption of these emergency-relief rules called into question whether a party to an arbitration agreement can still seek preliminary injunctive relief from a court. Over the past several years, courts have provided conflicting answers to that question.

Some courts have concluded that the availability of emergency relief in arbitration means that the courts should no longer entertain requests for interim relief. In Smart Technologies ULC v. Rapt Touch Ireland Ltd, 197 F. Supp. 3d 1204 (N.D. Cal. 2016), for example, the court refused to issue a temporary restraining order on the ground that the arbitration rules provide an expedited process for seeking emergency relief from an arbitrator. The court noted that those rules contain email and video conferencing procedures that may be more efficient than the rules that apply in federal court. And it held that even if the court had authority to do so, the plaintiff had provided “no explanation for why a federal court (rather than an arbitrator) should adjudicate the request for emergency relief” given that the parties had “agreed that their underlying dispute should be arbitrated.” Similarly, in TK Services, Inc. v. RWD Consulting, LLC, 263 F. Supp. 3d 64 (D.C.C. 2017), the court observed that under the AAA’s new rules, emergency relief can be obtained from an arbitrator, and that if the plaintiff believes that it faces irreparable harm, “it is free to seek interim relief from the arbitrators.” Additionally, in both A&C Discount Pharmacy, L.L.C. v. Carmark, L.L.C., 2016 U.S. Dist. LEXIS 82888 (N.D. Tex. Jun 27, 2016), and Rx Pros, Inc. v. CVS Health Corp., 2016 U.S. Dist. LEXIS 8983 (W.D. La. Jan. 26, 2016), the courts reasoned that because there was a dispute as to whether the request for preliminary relief was itself subject to mandatory arbitration, that issue had to be resolved by an arbitrator.

Other courts, however, have held that parties may continue to seek preliminary relief in the courts. In North American Deer Registry, Inc. v. DNA Solutions, Inc., 2017 U.S. Dist. LEXIS 61043, *5 (E.D. Tex. Apr. 21, 2017), the court noted that the AAA rule authorizing “interim measures” expressly provides that a request for interim relief from a court “shall not be deemed incompatible with the agreement to arbitrate or a waiver of the right to arbitrate.” Notably, the AAA rule authorizing “emergency measures” contains the same language. Likewise, in Mirage Casino-Hotel v. Beale Street Blues Co., 2016 WL 1335462 (Nev. 2016), the court cited the same language in holding that the movant had properly sought judicial relief even though it could have sought emergency relief under the AAA’s commercial rules. Yet courts reaching the opposite conclusion have essentially determined that this language does not change the fact that a party claiming a need for emergency relief now has an “adequate remedy” via the new arbitration rules, meaning that the traditional standards for a preliminary injunction are not met.

Thus, a party to an arbitrable dispute who needs emergency relief faces a strategic decision. Such a party might prefer to seek judicial relief because courts are accustomed to requests for preliminary relief and because their orders are immediately enforceable through the court’s contempt powers. But a party applying for such relief from a court now risks being told to apply to an arbitrator for that relief. And while a party that obtains an emergency order from an arbitration might need to seek to have that order confirmed by a court to be enforced, courts generally have viewed arbitration awards of interim relief as being subject to immediate confirmation. See Johnson v. Dentsply Sirona Inc., 2017 U.S. Dist. LEXIS 158285 (N.D. Okla. Sept. 27, 2017); Bowers v. Northern Two Cayes Co., 2016 U.S. Dist. LEXIS 88009 (W.D.N.C. July 7, 2016).

As with many issues concerning arbitration agreements (and contracts more generally), the end result may be affected – and greater certainty can be achieved – by careful and precise drafting of the arbitration clause. Because courts will typically enforce arbitration clauses in commercial agreements in accordance with their express terms, the contracting parties are free to specify that any request for emergency or other interim relief is – or is not – subject to mandatory arbitration as well. Given the unsettled state of the law, such careful drafting is especially warranted.