Shenzhen Lanteng Cyber Tech. Co. v. Amazon.com Servs., LLC; US Rising Star

• Court: Court of Appeals for the Second Circuit
• Decided: October 1, 2024
• Docket: 23-7593-cv; 23-7809-cv
• Status: Unpublished

Opinion

23-7593-cv; 23-7809-cv Shenzhen Lanteng Cyber Tech. Co. v. Amazon.com Servs., LLC; US Rising Star Inc. v. Amazon.com, Inc.

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SUMMARY ORDER RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007 IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 1st day of October, two thousand twenty-four.

PRESENT: JOSEPH F. BIANCO, EUNICE C. LEE, MARIA ARAÚJO KAHN, Circuit Judges. _______________________________________

SHENZHEN LANTENG CYBER TECHNOLOGY CO., LTD.,

Petitioner-Appellant,

v. 23-7593

AMAZON.COM SERVICES, LLC, A DELAWARE LIMITED LIABILITY COMPANY, AMAZON.COM, INC., A DELAWARE CORPORATION,

Respondents-Appellees. _______________________________________

US RISING STAR INC.,

v. 23-7809 AMAZON.COM, INC., DELAWARE CORPORATION, AMAZON.COM SERVICES, LLC, A DELAWARE LIMITED LIABILITY COMPANY,

Respondents-Appellees. _______________________________________

FOR PETITIONERS-APPELLANTS: Julie Guo, Esq., New York, New York.

FOR RESPONDENTS-APPELLEES: John Magliery, Davis Wright Tremaine LLP, New York, New York (John A. Goldmark, Arthur Simpson, Theo A. Lesczynski, Davis Wright Tremaine LLP, Seattle, Washington, on the brief).

Appeal from the judgments of the United States District Court for the Southern District of

New York (Gregory H. Woods and Colleen McMahon, Judges).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND

DECREED that the judgments, entered on September 26, 2023 and October 18, 2023, are

AFFIRMED.

In these tandem appeals, Shenzhen Lanteng Cyber Technology Co., Ltd. (“Lanteng”) and

US Rising Star Inc. (“Rising Star”) (together, “Appellants”) appeal from the district court’s

judgments confirming arbitration awards in favor of Amazon.com Services, LLC and

Amazon.com, Inc. (together, “Amazon”). Lanteng and Rising Star previously operated as third-

party sellers on Amazon’s online marketplace. In 2021, Amazon suspended Lanteng’s and Rising

Star’s accounts, accusing each company of manipulating customer reviews. After Lanteng and

Rising Star admitted to offering compensation in exchange for positive reviews and failed to

adequately verify the identities of their account holders, Amazon determined that each company

had used its account to engage in deceptive, fraudulent, or illegal activity in violation of Amazon’s

Business Solutions Agreement (the “BSA”) to which Appellants had agreed. Amazon then

2 terminated Lanteng’s and Rising Star’s third-party seller accounts and withheld approximately two

weeks’ worth of payments owed to each company as liquidated damages pursuant to Section 2 of

the BSA. 1 Lanteng and Rising Star filed demands for arbitration, arguing that: (1) Section 2 was

procedurally and substantively unconscionable; (2) Section 2 was unenforceable as a penalty

provision; and (3) Amazon had breached the BSA by failing to disburse the withheld funds. Both

arbitrators denied Lanteng’s and Rising Star’s claims in their entirety and issued awards in favor

of Amazon. The district court affirmed both awards. On appeal, Lanteng and Rising Star argue

that the district court erred in denying their respective motions to vacate, and instead confirming

the arbitration awards, because the arbitrators manifestly disregarded the law and enforcement of

the arbitration awards would violate public policy. We assume the parties’ familiarity with the

underlying facts, procedural history, and issues on appeal, to which we refer only as necessary to

explain our decision to affirm.

“In reviewing a district court’s confirmation of an arbitral award, we review legal issues

de novo and findings of fact for clear error.” Banco de Seguros del Estado v. Mut. Marine Off.,

Inc., 344 F.3d 255, 260 (2d Cir. 2003). Where, as here, “a party challenges the district court’s

review of an arbitral award under the manifest disregard standard, we review the district court’s

application of the standard de novo.” Wallace v. Buttar, 378 F.3d 182, 189 (2d Cir. 2004) (internal

quotation marks and citation omitted). It is well established, however, that “[a] motion to vacate

filed in a federal court is not an occasion for de novo review of an arbitral award [itself].” Id.

“A litigant seeking to vacate an arbitration award based on alleged manifest disregard of

the law bears a heavy burden.” Zurich Am. Ins. Co. v. Team Tankers A.S., 811 F.3d 584, 589 (2d

1 Section 2 of the BSA provides: “If we determine that your account . . . has been used to engage in deceptive, fraudulent, or illegal activity (including the sale of counterfeit goods), or to repeatedly violate our Program Policies, then we may in our sole discretion permanently withhold any payments to you.” No. 23-7593 App’x at 335 (emphasis omitted); No. 23-7809 App’x at 51 (emphasis omitted). 3 Cir. 2016) (alteration adopted) (internal quotation marks and citation omitted). A reviewing court

may vacate an arbitral award for manifest disregard of the law only if it “finds both that (1) the

arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and

(2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case.”

Wallace, 378 F.3d at 189 (alterations adopted) (internal quotation marks and citation omitted). As

we have emphasized, an arbitrator’s “refusal or neglect to apply a governing legal principle clearly

means more than error or misunderstanding with respect to the law.” Id (internal quotation marks

and citation omitted). “A federal court cannot vacate an arbitral award merely because it is

convinced that the arbitrat[or] . . . made the wrong call on the law.” Id. at 190. Instead, the “award

should be enforced, despite a court’s disagreement with it on the merits, if there is a barely

colorable justification for the outcome reached.” Banco de Seguros del Estado, 344 F.3d at 260

(internal quotation marks and citation omitted). “With respect to contract interpretation, this

standard essentially bars review of whether an arbitrator misconstrued a contract.” T.Co Metals,

LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329, 339 (2d Cir. 2010).

Here, Appellants argue that the arbitration awards in favor of Amazon should be vacated

because the arbitrators manifestly disregarded Washington state law in concluding that Section 2

of the BSA was an enforceable liquidated damages provision rather than an unenforceable penalty

clause. 2 In particular, Appellants contend that the arbitrators manifestly disregarded the two-part

test for determining whether liquidated damages clauses are enforceable as set forth in Watson v.

Ingram, 124 Wash. 2d 845, 850 (1994) (en banc). We disagree. In Watson, the Supreme Court of

Washington explained that liquidated damages clauses should be upheld if (1) “the amount fixed

[is] a reasonable forecast of just compensation for the harm that is caused by the breach” and (2)

2 The parties agree that, pursuant to the BSA, Washington state law applies. 4 “the harm . . . is incapable or very difficult of ascertainment.” Id. Despite Appellants’ assertions

to the contrary, both arbitrators referenced that two-part test and applied it to Section 2 of the BSA.

In the award against Lanteng, the arbitrator cited Watson and concluded that Section 2 was not an

unenforceable penalty clause because “the BSA’s terms were a reasonable forecast of the harm

caused by a breach” and “the harm caused by a breach of the BSA was not capable of being

assessed at the time the parties entered into the BSA.” No. 23-7593 App’x at 481. In the award

against Rising Star, the arbitrator recited Watson’s two-part test and determined that Rising Star

had “failed to establish that Section 2 of the BSA was either an unenforceable liquidated damages

clause or an improper penalty clause” because, inter alia, “the amount of harm to Amazon from

the reviews abuse is at least very difficult of accurate estimation” and “Amazon withholds at most

only 14 days of a seller’s accrued sales proceeds.” No. 23-7809 App’x at 272–73.

Although Appellants disagree with the arbitrators’ application of the Watson test, “[a] mere

demonstration that [the arbitrators] . . . made ‘the wrong call on the law’ does not show manifest

disregard.” Telenor Mobile Commc’ns AS v. Storm LLC, 584 F.3d 396, 407 (2d Cir. 2009) (quoting

Wallace, 378 F.3d at 190). Appellants further argue that the arbitrators did not provide enough

reasoning to support their conclusions, but this does not evince manifest disregard either. See T.Co

Metals, LLC, 592 F.3d at 339 (“Even where explanation for an award is deficient or non-existent,

we will confirm it if a justifiable ground for the decision can be inferred from the facts of the

case.”). Because the arbitrators had at least a “colorable justification” for finding Section 2

enforceable, we conclude that Appellants have failed to meet their burden of establishing manifest

disregard. Banco de Seguros del Estado, 344 F.3d at 260 (internal quotation marks and citation

omitted).

5 Appellants additionally argue that the arbitration awards should be vacated because

enforcing Section 2 of the BSA would violate Washington state’s public policy. We find this

argument unpersuasive. To be sure, we have recognized a narrow public policy exception with

respect to arbitral awards “where enforcement would violate our most basic notions of morality

and justice.” Europcar Italia, S.p.A. v. Maiellano Tours, Inc., 156 F.3d 310, 315 (2d Cir. 1998)

(internal quotation marks and citation omitted). However, that exception only applies where

enforcement of the arbitration award would violate public policy. Commodities & Mins. Enter.

Ltd. v. CVG Ferrominera Orinoco, C.A., 49 F.4th 802, 818–19 (2d Cir. 2022). When, instead, “a

party claims that an underlying contract is invalid for violating public policy, that claim is ‘to be

determined exclusively by the arbitrators.’” Id. at 819 (emphasis added) (quoting Europcar Italia,

156 F.3d at 315). Here, Appellants contend that enforcing the arbitration awards would violate

public policy because Section 2 violates Washington state’s interests in fair dealing, fair

competition, and customer protection. Although couched as a challenge to the enforcement of the

awards, this argument is, in effect, another challenge to the validity of the underlying contract—

namely, Section 2 of the BSA. Thus, this was an issue “to be determined exclusively by the

arbitrators,” and to the extent that Appellants claim that Washington state’s interests in fair dealing,

fair competition, and customer protection provide another basis for invalidating Section 2, they

forfeited that claim by failing to raise it in arbitration. Europcar Italia, 156 F.3d at 315; see also

Commodities & Mins. Enter. Ltd., 49 F.4th at 818 (“In reviewing an arbitral award for violations

of public policy, a court may not revisit or question the fact-finding or the reasoning which

produced the award.” (internal quotation marks and citation omitted)). In any event, Appellants

have failed to provide a sufficient basis for concluding that enforcement of the awards would

6 violate “our most basic notions of morality and justice.” Europcar Italia, 156 F.3d at 315 (internal

quotation marks and citation omitted).

Finally, Rising Star separately asserts that the class action waiver in Section 18 of the BSA

is unenforceable. However, that particular challenge was neither made before the arbitrator nor

raised in the district court. Thus, we conclude that the argument is waived. See Bogle–Assegai v.

Connecticut, 470 F.3d 498, 504 (2d Cir. 2006) (“It is a well-established general rule that an

appellate court will not consider an issue raised for the first time on appeal.” (alteration adopted)

(internal quotation marks and citation omitted)); see also Gaul v. Chrysler Fin. Servs. Ams. LLC,

657 F. App’x 16, 18 n.3 (2d Cir. 2016) (summary order) (holding that a challenge to the

enforceability of the arbitration agreement’s class action waiver, which was raised for the first time

on appeal, was waived).

* * *

We have considered Appellants’ remaining arguments and find them to be without merit.

Accordingly, we AFFIRM the judgments of the district court.

FOR THE COURT: Catherine O’Hagan Wolfe, Clerk of Court