SDNY Compels Arbitration Pursuant to ADR Provision in Contract Governing Disputed Commercial Transaction

Applying the Federal Arbitration Act and recognizing that it “reflects a liberal federal policy favoring arbitration agreements,” the U.S. District Court for the Southern District of New York granted the defendant’s motion to compel arbitration, finding that the arbitration provision at issue was as expansive as similar clauses that the Second Circuit has previously described as the “paradigm of a broad clause establishing a presumption of arbitrability.”

Plaintiff Kuehne + Nagel Inc., a logistics service provider that arranges the transportation of freight, and defendant Baker Hughes were parties to a global air freight transportation contract, which included an alternative dispute resolution provision that applied “[i]n the event of any dispute between the Parties hereto arising from or relating to this contract.” After a shipment of cargo was seized by customs authorities at its destination in Brazil, Baker sent a demand letter to Kuehne to commence the claim process so Baker could be compensated for its losses. Efforts to mediate the dispute were unsuccessful and Kuehne filed an action in federal court seeking, among other relief, a declaratory judgment that the agreement did not apply to the claims at issue with Baker. Baker then moved to compel arbitration, contending that the ADR provision requires the submission of all disputes concerning the agreement to arbitration. Kuehne raised several arguments in opposition to the motion, including: (i) the issue of arbitrability should be decided by the court; (ii) the language “either party may refer the dispute to arbitration” means that the ADR provision is not mandatory; and (iii) the agreement did not apply to the transportation services at issue in the case.

The court rejected Kuehne’s arguments, finding that the ADR provision was expansive and that because the claims at issue “touch matters covered by” the agreement, the underlying dispute fell within the scope of the agreement’s ADR provision. The court also found that the agreement incorporated procedural rules that expressly empowered the arbitrator to determine the issue of arbitrability and concluded that although the agreement did not expressly address the matter, the parties intended to delegate the question of arbitrability to the arbitrator. Finally, the court noted the “overwhelming balance of authority in this Circuit and elsewhere” confirms that, absent language that an arbitration provision is intended to trigger “permissive” arbitration, provisions that state either party “may” refer the dispute to arbitration trigger mandatory arbitration. The court then concluded that the arbitration clause of the ADR provision of the agreement was mandatory and that the merits of Kuehne’s claims must be decided by the arbitrator. The court granted Baker’s motion to compel arbitration but denied its motion to dismiss, deciding instead to stay the case.

Kuehne + Nagel Inc. v. Baker Hughes, No. 1:21-cv-08470 (S.D.N.Y. June 23, 2022).