ENH LLC v. Amazon.com Services LLC

• Court: District Court, W.D. Washington
• Decided: May 20, 2025
• Docket: 2:24-cv-02082
• Status: Unknown

Opinion

1 2 3

4 5 UNITED STATES DISTRICT COURT 6 WESTERN DISTRICT OF WASHINGTON AT SEATTLE 7 ENH LLC, CASE NO. C24-02082 8

Petitioner(s), ORDER DENYING MOTION TO VACATE 9 v. AND GRANTING MOTION TO CONFIRM ARBITRATION AWARD 10 AMAZON.COM SERVICES LLC et al.,

11 Respondent(s).

12 Petitioner ENH LLC (“ENH”), a third-party seller that operated on the online marketplace 13 Amazon.com, seeks to vacate a final arbitration award issued against ENH and in favor of 14 Respondents Amazon.com Services LLC and Amazon.com, Inc. (collectively, “Amazon”). Dkt. 15 Nos. 11, 12 (corrected motion). In response, Amazon cross-moves to confirm the arbitration 16 award. Dkt. No. 13. 17 Having reviewed the briefs and supporting materials and the relevant record, the Court 18 DENIES ENH’s motion to vacate (Dkt. Nos. 11, 12) and GRANTS Amazon’s cross-motion (Dkt. 19 No. 13). ENH has failed to show that the arbitration award was completely irrational or exhibited 20 a manifest disregard of the law. As such, the Court confirms the award. 21

22 23 24 1 I. BACKGROUND1 2 ENH is a third-party seller that operates on Amazon’s online marketplace. Dkt. No. 1-1 at 3 3. To sell merchandise on Amazon’s platform, ENH signed the Amazon Services Business

4 Solutions Agreement (“BSA”). Id.; Dkt. No. 1-2 at 4. The BSA incorporates Amazon’s Funds 5 Withholding Policy. Dkt. No. 14 at 7. The policy specifies that “[i]f we determine that your 6 account—or any other account you have operated—has been used to engage in deceptive, 7 fraudulent, or illegal activity (including the sale of counterfeit goods), or to repeatedly violate our 8 Program Policies, then we may in our sole discretion permanently withhold any payments to you.” 9 Dkt. No. 1-2 at 13–14. Under the BSA, Amazon remitted sale proceeds to sellers on a 14-day 10 basis. Id. at 33 (referencing Section 2). 11 ENH operated an Amazon store called MIB SHOP. Dkt. No. 1-2 at 5. On November 18, 12 2020, Amazon deactivated ENH’s seller account for being related to another seller account, DC

13 TRADE CANADA. Id. Upon deactivation, Amazon withheld certain sales proceeds or funds 14 from ENH’s account, totaling $294,610.77. Id. at 5–6. ENH objected to the withholding, arguing 15 that Amazon had already collected and deducted all costs and commissions it was entitled to under 16 the BSA. Id. at 6. 17 In its deactivation notice to ENH, Amazon notified ENH that it would investigate ENH’s 18 account and that “[i]f we find that you have engaged in deceptive, fraudulent, or illegal activity; 19 or have abused our systems or repeatedly violated our Policies, we may withhold some or all funds 20 in your account.” Dkt. No. 1-2 at 65. Through its investigation, Amazon concluded that ENH had 21 violated its policies by operating multiple seller accounts without authorization, receiving over 22

1 The Court bases the factual background on ENH’s petition to vacate the arbitration award, its attached exhibits, and 24 the final arbitration award. Dkt. No. 1. 1 3,000 infringement notices in 2020, and inflating the prices for its products. Dkt. No. 1-1 at 6–7, 2 Dkt. No. 12-6 at 7–9. 3 On March 20, 2024, ENH filed a demand for arbitration with the American Arbitration

4 Association (“AAA”). Dkt. No. 1 at 3, Dkt. No. 1-2. ENH asserted claims for damages for breach 5 of contract, conversion, unfair competition under the Washington Consumer Protection Act 6 (“CPA”), and attorney’s fees and costs based on Amazon’s alleged breach of the BSA. Id. ENH 7 based these claims on Amazon’s refusal to disburse net proceeds of sales for goods entrusted to 8 Amazon by ENH and which were sold on ENH’s behalf. Id. ENH sought damages pursuant to 9 the BSA and the CPA. Id. 10 The AAA appointed the Honorable Jeff L. Rose as the arbitrator for this case. Dkt. No. 1 11 at 4. On November 22, 2024, Arbitrator Rose issued a final arbitration award (the “Final Award”), 12 concluding the BSA is a valid and enforceable agreement, the BSA expressly authorized Amazon’s

13 conduct, and as such, ENH failed to establish a breach of the BSA. Dkt. No. 1-1 at 2–3. 14 On December 17, 2024, ENH filed a petition to vacate the arbitration award in this Court. 15 Dkt. No. 1. In January 2025, ENH moved to vacate the final award. Dkt. Nos. 11, 12. The parties 16 fully briefed the motions, and the matter is ripe for the Court’s consideration. 17 II. LEGAL STANDARD 18 The Court’s review of arbitration awards is “both limited and highly deferential.” Comedy 19 Club, Inc. v. Improv W. Assocs., 553 F.3d 1277, 1288 (9th Cir. 2009). Under the Federal 20 Arbitration Act (“FAA”), courts may only modify, correct, or vacate arbitration awards as 21 prescribed in 9 U.S.C. §§ 10 and 11. Bosack v. Soward, 586 F.3d 1096, 1102 (9th Cir. 2009). 22 Arbitration awards may be vacated if “the arbitrators exceeded their powers, or so imperfectly

23 executed them that a mutual, final, and definite award upon the subject matter submitted was not 24 made.” Id. § 10. The Ninth Circuit has “held that arbitrators exceed their powers when the award 1 is completely irrational or constitutes a manifest disregard of the law.” Aspic Eng’g & Constr. Co. 2 v. ECC Centcom Constructors LLC, 913 F.3d 1162, 1166 (9th Cir. 2019) (cleaned up). 3 In cases involving contracts such as this one, “the ‘completely irrational’ standard is

4 extremely narrow and is satisfied only ‘where [the arbitration decision] fails to draw its essence 5 from the agreement.’” Comedy Club, 553 F.3d at 1288 (adopting the Eighth Circuit’s view from 6 Hoffman v. Cargill, Inc., 236 F.3d 458, 461–62 (8th Cir. 2001)). “An arbitration award ‘draws its 7 essence from the agreement’ if the award is derived from the agreement, viewed ‘in light of the 8 agreement’s language and context, as well as other indications of the parties’ intentions.’” Aspic, 9 913 F.3d at 1166 (quoting Bosack, 586 F. 3d at 1106). This standard requires that courts only 10 decide whether the arbitrator’s decision “draws its essence” from the contract—not whether the 11 arbitrator’s contract interpretation is correct. Id. 12 Moreover, “[m]anifest disregard of the law means something more than just an error in the

13 law or a failure on the part of the arbitrators to understand or apply the law.” Wawock v. CSI Elec. 14 Contractors, Inc., 649 F. App’x 556, 557 (9th Cir. 2016). “The moving party must show that the 15 arbitrator understood and correctly stated the law, but proceeded to disregard the same.” Collins 16 v. D.R. Horton, Inc., 505 F.3d 874, 879 (9th Cir. 2007) (cleaned up). “[T]here must be some 17 evidence in the record, other than the result, that the arbitrators were aware of the law and 18 intentionally disregarded it.” Bosack, 586 F.3d at 1104 (alteration in original). “Neither erroneous 19 legal conclusions nor unsubstantiated factual findings justify federal court review[.]” Id. at 1102. 20 III. ANALYSIS 21 The Court has jurisdiction over this matter under 9 U.S.C. § 10 and 28 U.S.C. § 1331. 22 ENH argues that the award should be vacated because Arbitrator Rose (1) irrationally

23 construed Section 2 of the BSA as a valid liquidated damages clause, (2) showed manifest 24 disregard of the law by failing to apply the Watson test, and (3) improperly foreclosed ENH’s 1 ability to seek attorney’s fees under the CPA. Dkt. No. 12 at 8–19. The Court addresses each 2 ground in turn, and concludes that the award should not be vacated because Arbitrator Rose did 3 not exceed the scope of his authority.

4 A. The Arbitrator Did Not Manifestly Disregard the Law When Interpreting Section 2 of the BSA. 5 The arbitrator ruled that Section 2 of the BSA, under which Amazon withheld the funds at 6 issue, constitutes “an enforceable liquidated damages provision designed to compensate Amazon 7 for harms caused by a seller who acts fraudulently or violates Amazon’s policies.” Dkt. 12-2 at 5. 8 In so holding, the arbitrator rejected ENH’s claim that Section 2 is an unlawful penalty provision 9 and unenforceable as unconscionable. Id. ENH renews those arguments here as objections to the 10 arbitrator’s decision. As detailed below, the Court concludes the arbitrator did not manifestly 11 disregard the law such that vacatur is appropriate. 12 1. The Arbitrator’s Decision Enforcing Section 2 Was Not Completely Irrational. 13 First, ENH contends that the arbitrator’s interpretation of Section 2 as an enforceable 14 liquidated damages provision was “completely irrational” and posits that drafting deficiencies in 15 the clause “raise the question of whether Amazon really intended Section 2 of the BSA to serve as 16 a liquidated damages clause” or whether Amazon merely seeks to characterize it as such for 17 litigation purposes. Dkt. No. 12 at 9. Specifically, ENH argues that Section 2 fails to identify 18 itself as a liquidated damages clause and does not distinguish the amount to be paid under the 19 clause from a penalty or forfeiture. Id. ENH further argues that the arbitrator should have found 20 Section 2 unconscionable. Id. at 14. 21 The Court disagrees. In interpreting Section 2, the arbitration award properly “draws its 22 essence from the agreement” because Arbitrator Rose considered the agreement’s specific 23 language and context, as well as the parties’ intent. Aspic, 913 F.3d at 1166; see Dkt. No. 12-2 at 24 1 4 (quoting the Funds Withholding Policy), 4–5 (“It is undisputed from the record and testimony 2 herein that [ENH] agreed to the BSA and was aware of the policies at issue here …”), 5 (quoting 3 deposition testimony of ENH’s operator). ENH’s arguments regarding the structure and phrasing

4 of Section 2 amount to mere disagreement with the arbitrator’s interpretation, which is an 5 inappropriate basis for vacatur. See Bosack, 586 F.3d at 1106; Haines v. Amazon.com Servs. LLC, 6 No. 2:24-cv-00543-JHC, 2025 WL 509532, at *3 (W.D. Wash. Feb. 14, 2025). The operative 7 question is “whether the arbitrator (even arguably) interpreted the parties’ contract[.]” Glob. 8 Indus. Inv. Ltd. v. 1955 Cap. Fund I GP LLC, No. 23-2662, 2024 WL 3250369, at *1 (9th Cir. July 9 1, 2024). The answer here is yes. Even if the Court disagreed with Arbitrator Rose’s analysis, his 10 interpretation controls. Id. 11 This case is unlike Aspic, a case in which the Ninth Circuit affirmed vacatur of an 12 arbitration award.2 Aspic involved an arbitration award that expressly refused to enforce the 13 parties’ contractual provisions and altered the terms of the contract. Aspic, 913 F.3d at 1167–68. 14 Specifically, the arbitrator found that the appellant “was not held to the[] strict provisions” of 15 certain Federal Acquisition Regulations (“FAR”), despite the underlying subcontracts’ 16 requirement to apply the FAR. Id.; see also United Food & Com. Workers Union, Loc. 1119, AFL- 17 CIO v. United Markets, Inc., 784 F.2d 1413, 1416 (9th Cir. 1986) (affirming vacatur because the 18 arbitrator added to the terms of the agreement); Pac. Motor Trucking Co. v. Auto. Machinists 19 Union, 702 F.2d 176, 177 (9th Cir. 1983) (affirming vacatur because the arbitrator acknowledged 20 the underlying contract “gave the company discretion over the [employee] position” but “ruled 21 that the company could not demote [the employee] from [the position] because to do so would be 22 2 ENH also cites one other decision—an arbitration award in which an arbitrator concluded that Section 2 of the BSA 23 was not a valid liquidated damages provision. Dkt. No. 12 at 9–10. This authority is neither persuasive nor binding. That unrelated arbitration decision was based on separate facts and a different petitioner. And the fact that a better interpretation of Section 2 might exist—either by the hands of another arbitrator or this Court—remains insufficient 24 to warrant vacating the award. Glob. Indus., 2024 WL 3250369, at *1. 1 ‘unreasonable and unconscionable’”). In contrast, ENH does not argue that Arbitrator Rose 2 modified or ignored Section 2; it merely takes issue with the arbitrator’s interpretation and 3 application of the term. Therefore, the Court declines to vacate the award on this basis.

4 For the same reasons, the Court rejects ENH’s proposition that Arbitrator Rose showed 5 manifest disregard for the law when he determined that Section 2 was not unconscionable. To do 6 so, ENH must point to “some evidence in the record, other than the result, that the arbitrators were 7 aware of the law and intentionally disregarded it.” Bosack, 586 F.3d at 1104. Again, ENH’s 8 evidence of the arbitrator’s “intentional disregard” is sparse and primarily based on the arbitrator’s 9 conclusion. See Dkt. No. 12 at 15 (“Arbitrator Rose’s casual rejection manifestly disregards the 10 law on this matter.”). In the decision, Arbitrator Rose summarized Section 2 of the BSA and 11 considered the plain language of Amazon’s Funds Withholding Policy. Dkt. No. 12-2 at 4. The 12 arbitrator found that these policies were not one-sided or overly harsh, and therefore,

13 unconscionable. Id. Rather, the arbitrator determined that even if Amazon’s policies were 14 “onerous,” based on the undisputed record, they were fully disclosed and agreed to by ENH. Id. 15 at 4–5. 16 ENH provides no evidence that the arbitrator applied a different or incorrect standard for 17 determining unconscionability. Rather, ENH reiterates the same arguments it made during 18 arbitration. At most, ENH provides a conclusory assertion that the arbitrator “disregarded textbook 19 law in an effort to prevent what he deemed an unfair result” without any citation to the record. 20 Dkt. No. 12 at 9. This is likewise insufficient to support vacatur. 21 2. The Arbitrator’s Decision Did Not “Manifestly Disregard” the Watson Test. 22 ENH argues that the arbitrator exhibited manifest disregard of the law when he “failed to

23 apply the Watson test” to the analysis of Section 2, referring to Watson v. Ingram, a Washington 24 Supreme Court case. Dkt. No. 12 at 10 (citing 881 P.2d 247 (Wash. 1994)). In Watson, the state 1 supreme court held that “[l]iquidated damages clauses are favored in Washington, and courts will 2 uphold them if the sums involved do not amount to a penalty or are otherwise unlawful.” 881 P.2d 3 at 249. The Watson court provided two factors to consider in determining whether a liquidated

4 damages clause is valid. Id. “First, the amount fixed must be a reasonable forecast of just 5 compensation for the harm that is caused by the breach. Second, the harm must be such that it is 6 incapable or very difficult of ascertainment.” Id. 7 According to ENH, the arbitrator failed to examine whether Section 2 complied with either 8 factor because the decision “is silent on any recital or application of law at all.” Dkt. No. 12 at 10 9 (emphasis omitted). ENH claims that this omission shows that the arbitrator “simply decided 10 where he wanted to go and worked backwards from there.” Id. at 11. 11 As an initial matter, the mere fact that the arbitrator did not explicitly cite Watson does not 12 indicate manifest disregard of the law. “Arbitrators are not required to set forth their reasoning

13 supporting an award” and the award “may be made without explanation of their reasons and 14 without a complete record of their proceedings.” Bosack, 586 F.3d at 1104 (cleaned up). 15 Arbitrator Rose considered the briefing, evidence, and sworn testimony submitted by the parties. 16 Dkt. No. 12-2 at 2. Both parties cited and relied on Watson in their briefs. Dkt. No. 12-5 at 25– 17 30, Dkt. No. 12-6 at 17. The parties debated the issue of whether Section 2 reasonably forecasted 18 compensation, and ENH argued that it did not because the withheld amount fluctuates. Dkt. No. 19 12-5 at 25–27. In response, Amazon argued that Section 2 ties damages to the seller’s actual 20 performance by limiting the potential withholding amount to 14 days of available funds because 21 sellers are paid every 14 days. Dkt. No. 12-6 at 33–34. Amazon further explained that doing so 22 was reasonable because when a seller first agrees to the BSA, Amazon does not know what types

23 of products the seller will list, the amount of sales it will have, or the likelihood that the seller will 24 violate the BSA. Id. at 33. Therefore, Amazon contended that basing liquidated damages on sales 1 velocity provides a “reasonable forecast” for the harm caused, more so than an arbitrary number. 2 Id. 3 Upon his review of the record and the parties’ arguments, the arbitrator found Amazon’s

4 argument more compelling, and expressly rejected ENH’s argument that Section 2 provides an 5 “unlawful penalty or invalid liquidated damages provision.” Dkt. No. 12-2 at 5. Again, “there 6 must be some evidence in the record, other than the result, that the arbitrators were aware of the 7 law and intentionally disregarded it.” Bosack, 586 F.3d at 1104. As evidence, ENH only points 8 to the lack of explicit citation to Watson in the award, the arbitrator’s legal conclusion and result, 9 and Arbitrator Rose’s reference to submitted deposition testimony. Dkt. No. 12 at 10, 14, 15. This 10 does not indicate that Arbitrator Rose intentionally disregarded the two-prong test in Watson and 11 cannot provide an adequate foundation for vacatur. Yunnan Duobang Network Tech. Co. v. 12 Amazon.com Servs. LLC, No. C23-1137-JCC, 2023 WL 8717180, at *2 (W.D. Wash. Dec. 18,

13 2023) (“To the extent Plaintiff argues that the arbitrator applied the standard incorrectly (as 14 opposed to applying the wrong standard), this does not constitute a ‘manifest disregard of the law,’ 15 even if Plaintiff disagrees with the outcome.”) (denying vacatur where the arbitrator applied what 16 the parties agreed was the correct legal standard for evaluating whether Amazon’s BSA includes 17 a valid liquidated damages clause). 18 Accordingly, the arbitrator did not exceed his powers, and the Court denies ENH’s request 19 to vacate the award. 20 B. The Arbitrator’s Rejection of ENH’s Request for Attorney’s Fees Under the CPA Was Not Irrational nor a Manifest Disregard of the Law. 21 Lastly, ENH claims that the arbitrator “manifestly disregarded the entire [CPA]” which led 22 to an improper denial of attorney’s fees to ENH. Dkt. No. 15 at 14–15, Dkt. No. 12 at 19. In the 23 award decision, the arbitrator found that the CPA claims were “precluded by the existence of 24 1 contractual terms governing the parties’ relationship.” Dkt. No. 12-2 at 5. Specifically, the 2 arbitrator cited the BSA terms relating to Amazon’s purportedly unfair or deceptive practice of 3 withholding seller funds, and noted that “[w]hether onerous or not,” the terms were fairly disclosed

4 and agreed to by ENH. Id. at 4–5. As such, because ENH failed to establish any unfair or deceptive 5 act, the CPA claim failed, and the arbitrator concluded that ENH was not entitled to attorney’s fees 6 or costs. Id. at 8. 7 The arbitrator’s decision was not irrational or in disregard of the law. In deciding the CPA 8 claim, the arbitrator considered whether ENH received full disclosure of Amazon’s Funds 9 Withholding Policy and Section 2, whether ENH was aware of these policies (it was), and whether 10 the contract was at-will (i.e., whether ENH had the means to avoid these policies by declining to 11 sell through Amazon). Dkt. No. 12-2 at 4–5. The arbitrator further concluded that Amazon acted 12 consistently with the BSA, and its actions were “justified” because ENH “breached the terms of

13 the BSA in multiple respects through ongoing, repeat policy violations.” Dkt. No. 12-2 at 6. The 14 decision then summarized ENH’s thousands of violations of Amazon’s Intellectual Property Policy 15 and Fair Pricing Policy and concluded that ENH had been repeatedly warned about the policy 16 violations and ultimately admitted the alleged conduct. Id. at 6–7. On this basis, where Amazon 17 sought to enforce the BSA and ENH violated it, the arbitrator concluded that ENH was not entitled 18 to CPA damages or fees. 19 At bottom, ENH claims that the arbitrator erred by misinterpreting and misapplying case 20 law to hold that a party to a contract can never bring a CPA claim against a counter party. See 21 Dkt. No. 12 at 13 (citing Robinson v. Avis Rent A Car Sys., Inc., 22 P.3d 818, 826 (Wash. Ct. App. 22 2001)); Dkt. No. 15 at 14. ENH’s argument fails for two reasons. First, ENH misreads the

23 decision. The arbitrator found that in this case, ENH could not show an unfair practice where 24 Amazon acted in conformance with the contract, which the arbitrator had already ruled was not 1 unconscionable, where the terms were disclosed and not overly harsh. Second, even if the decision 2 did in fact misapply case law (it did not), a manifest error of law must be more than an “error in 3 the law or a failure on the part of the arbitrators to understand or apply the law.” Wawock, 649 F.

4 App’x at 557. Here, ENH does not argue that the arbitrator understood the law and “proceeded to 5 disregard the same.” Collins, 505 F.3d at 879 (cleaned up). Nor does ENH identify any well- 6 defined, explicit, and clearly applicable governing law that the arbitrator ignored. Id. Rather, 7 ENH merely disagrees with the arbitrator’s decision, which is insufficient to support a motion for 8 vacatur. Dkt. No. 15 at 14. 9 IV. CONCLUSION 10 Finding no grounds on which the award may be “vacated, modified, or corrected,” the 11 Court accordingly CONFIRMS the award under 9 U.S.C. § 9. ENH’s motion to vacate (Dkt. Nos. 12 11, 12) is DENIED. Amazon’s cross-motion to confirm the award (Dkt. No. 13) is GRANTED.

13 14 Dated this 20th day of May, 2025. 15 a 16 Kymberly K. Evanson 17 United States District Judge

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