Arabian Motors v. Ford Motor Co.

• Court: Court of Appeals for the Sixth Circuit
• Decided: May 30, 2019
• Docket: 18-1748
• Status: Unpublished

Opinion

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION

File Name: 19a0281n.06

CASE NO. 18-1748

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT FILED ARABIAN MOTORS GROUP, W.L.L., ) May 30, 2019 ) DEBORAH S. HUNT, Clerk Plaintiff-Appellant, ) ) v. ) ON APPEAL FROM THE ) UNITED STATES DISTRICT FORD MOTOR COMPANY, ) COURT FOR THE EASTERN ) DISTRICT OF MICHIGAN Defendant-Appellee. ) )

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.

1 The plaintiff also seeks to appeal the district court’s denial of a preliminary injunction to stay the arbitration. But, in its complaint, the plaintiff raised claims of breach of contract, breach of duty, fraud, and misrepresentation. The district court has not yet entered judgment on those claims. Consequently, this is an interlocutory appeal. Absent certification by the district court, see 28 U.S.C. § 1292(b), we lack jurisdiction to review “an interlocutory order . . . refusing to enjoin an arbitration.” 9 U.S.C. § 16(b)(4). Our interlocutory review is limited to the order confirming the arbitration award. After the district court enters “a decision that ends the litigation on the merits” by disposing of the claims alleged in the complaint, the plaintiff may appeal that final judgment and raise the issues discussed in its preliminary-injunction motion. See Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79, 86 (2000). No. 18-1748, Arabian Motors Grp. v. Ford Motor Co.

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

2 No. 18-1748, Arabian Motors Grp. v. Ford Motor Co.

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).

3 No. 18-1748, Arabian Motors Grp. v. Ford Motor Co.

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.

4 No. 18-1748, Arabian Motors Grp. v. Ford Motor Co.

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 there was no “clearly expressed congressional intent to” apply the statute

extraterritorially. See RJR Nabisco, 136 S. Ct. at 2100. The arbitrator considered the statutory

text (including Arabian Motors’s expressio unius est exclusio alterius argument), the statute’s

purpose and effect, and the legislative history, to conclude that Arabian Motors had failed to rebut

the presumption against the extraterritorial application. The arbitrator concluded that “nothing in

Section 1226 provides a clear, affirmative indication that Congress intended to shield foreign

dealerships from mandatory arbitration.”

In this appeal, Arabian Motors points out, correctly, that this question—whether § 1226

provides a clear, affirmative indication that it applies to agreements between domestic

manufacturers and foreign dealerships—is “an issue of national first impression.” The resolution

of this issue has not been clearly established by any existing legal principles in our caselaw.

Instead, the arbitrator applied traditional tools of statutory interpretation without the aid of

precedent that directly addressed the question. Under these circumstances, the arbitrator, at most,

could have made an “error in interpretation or application of the law,” and that is “insufficient” to

constitute a manifest disregard for the law. See Merrill Lynch, 70 F.3d at 421. In fact, Arabian

Motors argues in its appellate brief that by disagreeing with Arabian Motors’s view of the canons 5 No. 18-1748, Arabian Motors Grp. v. Ford Motor Co.

of statutory construction, the statute’s purpose, the legislative history, and the public-policy

benefits, the arbitrator misapplied precedent, including RJR Nabisco. But those types of

evaluations and determinations are directed to the arbitrator’s judgment, and these challenges do

not show that the arbitrator “refused to heed [a clearly established] legal principle.” See Merrill

Lynch, 70 F.3d at 421.

Arabian Motors also argues that the arbitrator erred at step two of the RJR Nabisco test by

finding “that Section 1226 should not be given domestic application under the facts of this case.”

This is a mixed question of law and fact: (1) what is the statute’s “focus,” and (2) did the facts

relevant to that focus occur in the United States. See RJR Nabisco, 136 S. Ct. at 2101. The

arbitrator appropriately examined the ambiguous statutory language using traditional tools of

statutory interpretation to decide “that the focus of the statute is not on where the contract with the

manufacturer was negotiated or what law governs, but rather on the protection of domestic U.S.

automobile dealers,” and therefore this dispute—involving a foreign automobile dealer—had no

domestic application. The arbitrator showed no manifest disregard for the law in concluding that

the statute’s focus is on domestic automobile dealers. Moreover, the arbitrator’s decision that no

facts relevant to the statute’s focus occurred in the United States is a factual determination and, as

such, does not raise a claim of manifest disregard for the law.

III.

For the foregoing reasons, we AFFIRM the judgment of the district court.