Arabian Motors Grp. v. Ford Motor Co.

ARABIAN MOTORS GROUP, W.L.L., Plaintiff-Appellant, v. FORD MOTOR COMPANY, Defendant-Appellee.

CASE NO. 18-1748

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

May 30, 2019

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION

File Name: 19a0281n.06

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF MICHIGAN

Before: BOGGS, BATCHELDER, and STRANCH, Circuit Judges.

ALICE M. BATCHELDER, Circuit Judge. In this interlocutory appeal, the plaintiff challenges the district court's confirmation of an arbitration award.¹ We AFFIRM.

I.

In 2005, Arabian Motors Group W.L.L., a Kuwaiti company, entered into a resale agreement ("Agreement") with Ford Motor Company, headquartered in Detroit, Michigan, under which Arabian Motors would sell Ford brand cars in the Middle East. In that Agreement, both parties agreed that any dispute arising from the breach or termination of the Agreement would be subject to binding arbitration in accordance with the United Nations Commission on Trade Law Arbitration Rules, including the question of whether the arbitrator had jurisdiction over the dispute.

When Ford terminated the Agreement in March 2016, it submitted an arbitration demand to the American Arbitration Association, seeking a declaratory judgment that it had acted properly in terminating the Agreement and was, therefore, not liable to Arabian Motors. Arabian Motors objected to the arbitration demand, arguing that 15 U.S.C. § 1226 excused it from arbitration because § 1226 requires that for consent to arbitrate certain motor-vehicle-franchise contract disputes to be valid, that consent must be given after the dispute arises, and Arabian Motors had not so consented. Thus, Arabian Motors contends that a court—not the arbitrator—must decide whether Ford could compel it to arbitrate.

In October 2016, Arabian Motors sued Ford in the district court, seeking an injunction and a declaratory judgment that it was not bound to arbitrate. It also sought damages on claims of breach of contract, breach of duty, fraud, and misrepresentation. Because the arbitration was already underway, Arabian Motors moved immediately for a temporary injunction, which the court denied, holding that § 1226 does not apply to foreign dealerships so the Agreement's provisions controlled "and the arbitrator, not the [c]ourt, must decide whether Arabian Motors can be compelled to arbitrate its dispute with Ford." Arabian Motors Grp. W.L.L. v. Ford Motor Co., 228 F. Supp. 3d 797, 799 (E.D. Mich. 2017) (emphasis in original), reconsideration denied, No. 16-CV-13655, 2017 WL 676943 (E.D. Mich. Feb. 21, 2017), and motion to certify appeal denied, No. 16-CV-13655, 2017 WL 2222552 (E.D. Mich. May 22, 2017).

In December 2016, the arbitrator ruled that § 1226 does not apply to foreign automobile dealers, so he had jurisdiction to decide the dispute and proceed to the merits. At that point, Arabian Motors asserted a defense and four counterclaims, including breach of contract, fraud, and misrepresentation. When Arabian Motors later decided to withdraw its counterclaims, Ford argued that the withdrawal must be "with prejudice." But, in permitting Arabian Motors to withdraw the counterclaims, the arbitrator expressly "made no determination of the effect of the withdrawal on an attempt by [Arabian Motors] to re-assert the counterclaims in a future proceeding." In December 2017, the arbitrator ruled for Ford on the merits of the dispute, holding that Ford had properly terminated the Agreement, either as "at will" or "for cause," and awarded Ford approximately $ 1.35 million in fees and costs.

Back in the district court, Arabian Motors moved to vacate the arbitration award, arguing that the arbitrator acted with "manifest disregard for the law" when he concluded that § 1226 did not apply to the Agreement and that he lacked jurisdiction. Concurrently, Ford moved to confirm the award. The court, relying on its earlier analysis of the § 1226 question, "conclude[d] that the arbitrator did not make any error—and certainly did not show a 'manifest disregard for the law'—when, like the [district] [c]ourt, he concluded that [§ 1226] does not apply to the parties' contract and when, based upon that conclusion, he rejected Arabian Motors's argument that he lacked jurisdiction." Arabian Motors Grp. W.L.L. v. Ford Motor Co., No. 16-CV-13655, 2018 WL 6427723, at *2 (E.D. Mich. Apr. 25, 2018). The court denied Arabian Motors's motion, granted Ford's motion, and on June 6, 2018, entered judgment in accordance with that order, confirming the arbitration award in all respects. Arabian Motors appealed.

Arabian Motors had pled claims of breach of duty, fraud, and misrepresentation in its complaint and, while it had dismissed those as counterclaims in the arbitration proceeding (with the right to reassert them in a future proceeding), it had not dismissed those claims from the civil litigation in the district court. Nor did the court's judgment expressly resolve those claims. Arabian Motors, therefore, retains the right to reassert those claims in the district court after this interlocutory appeal. We have jurisdiction to decide this appeal under 9 U.S.C. § 16(a)(1)(D). See Grain v. Trinity Health, Mercy Health Servs. Inc., 551 F.3d 374, 377 (6th Cir. 2008).

II.

In an appeal from the confirmation of an arbitrator's award, we review the district court's findings of fact for clear error and conclusions of law de novo. Samaan v. Gen. Dynamics Land Sys., Inc., 835 F.3d 593, 599 (6th Cir. 2016). But our "review [of] an arbitrator's decision . . . is very narrow[,] . . . one of the narrowest standards of judicial review in all of American jurisprudence." Id. at 600 (quotation marks omitted). In reviewing the arbitrator's decision, we must uphold the decision "as long as the arbitrator [wa]s even arguably . . . acting within the scope of his authority." Michigan Family Res., Inc. v. Serv. Employees Int'l Union Local 517M, 475 F.3d 746, 752-53 (6th Cir. 2007) (en banc) (quotation and editorial marks omitted).

Arabian Motors argues that the arbitrator here acted in "manifest disregard of the law" by concluding that § 1226 does not apply extraterritorially to foreign automobile dealerships, such as Arabian Motors. To prove "manifest disregard of the law," Arabian Motors had to show that "the applicable legal principle [wa]s clearly defined" and that the arbitrator "refused to heed that legal principle." Marshall v. SSC Nashville Operating Co., LLC, 686 F. App'x 348, 353 (6th Cir. 2017) (relying on and quoting Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Jaros, 70 F.3d 418, 421 (6th Cir. 1995)). An arbitrator's "mere error in interpretation or application of the law is insufficient." Merrill Lynch, 70 F.3d at 421. To be in "manifest disregard of the law," the arbitrator's "decision must fly in the face of clearly established legal precedent." Id.

The Supreme Court has set out a two-step test for deciding whether a statute applies extraterritorially. RJR Nabisco, Inc. v. European Cmty., 579 U.S. --, 136 S. Ct. 2090, 2101 (2016). At the first step, we "ask whether the statute gives a clear, affirmative indication that it applies extraterritorially." Id. If it does not, then at the second step we ask whether "the conduct relevant to the statute's focus occurred in the United States," in which case the dispute "involves a permissible domestic application even if other conduct occurred abroad." Id. Section 1226 applies to "motor vehicle franchise contracts," which, for our purposes, are contracts "under which a motor vehicle manufacturer, importer, or distributor sells motor vehicles to any other person for resale to an ultimate purchaser." § 1226(a)(1)(B) (emphasis added). This statute overcomes the delegation of arbitrability included in such contracts:

[When] a motor vehicle franchise contract provides for the use of arbitration to resolve a controversy arising out of or relating to such contract, arbitration may be used to settle such controversy only if after such controversy arises all parties to such controversy consent in writing to use arbitration to settle such controversy.

§ 1226(a)(2). The arbitrator determined at step one of the RJR Nabisco test that, although facially limitless, the phrase "any other person" did not include foreign dealerships, such as Arabian Motors, because...