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July 14, 2016 Practice Points

Sabotage of Arbitration Results in Dismissal of Lawsuit

By Michael S. Oberman

On July 1, 2016, the Second Circuit issued a summary order that affirmed the district court’s decision to: (1) deny the plaintiffs’ motion to lift the stay of their pro se lawsuit in favor of arbitration; and (2) dismiss the plaintiffs’ case. Gaul v. Chrysler Fin. Servs. Am. LLC (Case No. 15-1337). 

The court said that its prior decisions had not explicitly stated what standard of review should apply to an order that denies a motion to lift a stay of litigation in favor of arbitration, but that the plaintiffs’ motion failed even under a de novo standard. The reason was that the plaintiffs had sought to frustrate the court’s ruling that they should arbitrate their dispute: 

The record indisputably evidences that the Gauls in effect failed to comply with the district court’s order compelling arbitration. Jeffrey Gaul bombarded the AAA with inappropriate, hostile, and threatening emails, which resulted in its refusal to conduct the arbitration. As the district court reasoned, litigants may not “obtain the result they prefer by sabotaging the process the law requires.” Apr. 8, 2015, Decision & Order at 8 (Dist. Ct. Dkt. 155) (Supplemental App’x at 293).

The court cited a number of decisions to support its position. See Orion Shipping & Trading Co. v. E. States Petroleum Corp. of Panama, S.A., 284 F.2d 419, 421 (2d Cir. 1960) (party who has agreed to arbitration “should not be permitted to avoid it” by “merely running to the judge with charges so futile that they may reasonably appear to the court only a device for getting delay”); Motorola Credit Corp. v. Uzan, 561 F.3d 123, 129 (2d Cir. 2009) (the unclean hands doctrine “closes the doors of a court of equity to one tainted with inequitableness or bad faith relative to the matter in which he seeks relief” (quoting Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806, 814 (1945))).  

The clear lesson from the case is that a party who is ordered to arbitrate its claims must comply with the court’s order in good faith and cannot evade its obligation to arbitrate by directing inappropriate actions at the arbitrator or the arbitral association.  

Keywords: alternative dispute resolution, adr, litigation, motion to lift stay, sabotage, bad faith, dismiss 

Michael S. Oberman is with Kramer Levin Naftalis & Frankel LLP in New York, New York.

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