Reinsurance & Arbitration Focus

Plaintiffs, the Republic of Kazakhstan and Outrider Management LLC, filed suit in New York state court claiming the defendants conspired to obtain a fraudulent international arbitral award against them of nearly $500 million. The defendants removed the case to the U.S. District Court for the Southern District of New York, relying on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, as implemented by the Federal Arbitration Act. The plaintiffs moved to remand the action to state court. The defendants cross-moved to compel arbitration of Outrider’s claims.

On the issue of remand, the court noted at the outset that Kazakhstan and Outrider stood in very different positions, as Kazakhstan was not a party to the contract in which Outrider and others agreed to arbitrate. Despite Kazakhstan being a non-signatory, the defendants claimed the Southern District of New York still had subject matter jurisdiction of its claims because, according to the defendants, section 205 of the FAA creates such jurisdiction for any case that is “related to” an arbitration agreement or award falling under the Convention. However, the court found this interpretation to be inconsistent with the plain language of the statute and Second Circuit precedent. Because only section 203 of the FAA creates subject matter jurisdiction — and did not do so here for Kazakhstan’s claims — Kazakhstan’s motion to remand was granted. Outrider’s motion to remand was denied, however, as it was a party to the arbitration agreement, the defendants were seeking to compel arbitration pursuant to that agreement, and the other jurisdictional requirements were satisfied.

As to the motion to compel, the defendants contended that Outrider’s arbitrability arguments were for the arbitrator, not the court, to decide, citing a “delegation” clause in the arbitration agreement. The plaintiffs countered that the defendants were not parties to the agreement and that the delegation clause did not delegate arbitrability issues involving disputes with a non-signatory. The issue thus became whether it was for the court or the arbitrator to determine whether non-signatories may invoke arbitration against a signatory. The court read two Second Circuit decisions as creating or implying a two-part inquiry: first, the court must decide whether the arbitration agreement permits or precludes invocation by non-signatories; and second, the court must decide whether a threshold of “relational sufficiency” exists between and among the parties to the dispute and the arbitration clause. The court found the requirements were met here, emphasizing both the breadth of the delegation clause and that it did not explicitly state only a signatory could invoke it. The court also concluded that Outrider and the defendants had sufficient relationships to each other and to the rights created under the arbitration agreement. The court therefore held that the defendants may compel Outrider to submit the arbitrability of its claims to the arbitrator.

Republic of Kazakhstan v. Chapman, No. 1:21-cv-03507 (S.D.N.Y. Feb. 10, 2022).