Factual Background
In March 2020, Pepsico, Inc. (Pepsi) entered into an agreement with Vital Pharmaceuticals d/b/a VPX Sports (VPX) to distribute VPX’s energy products in the United States. VPX terminated the distribution agreement, asserting that Pepsi was not using commercially reasonable means to distribute its products. Pepsi filed an arbitration demand with the American Arbitration Association (AAA) in which it disputed VPX’s claims and asserted that VPX was required to give three year’s notice before terminating the agreement without cause. Pepsi asked the AAA to appoint an emergency arbitrator and then asked the emergency arbitrator for an injunction preventing VPX from interfering with its exclusive distribution rights until the arbitration panel was convened and could decide the case.
The emergency arbitrator held a hearing and concluded that Pepsi was entitled to an interim injunction. The arbitrator ruled that Pepsi was likely to prevail and had shown that it would suffer immediate loss unless the injunction were granted. VPX appealed the decision to the AAA using the AAA’s Optional Appellate Arbitration Rules. Pepsi moved to confirm the interim injunction in federal court.
The District Court’s Decision
The district court held that:
the Emergency Arbitrator's Order granting equitable relief to Pepsi is sufficiently final to be confirmed under the [Federal Arbitration Act (FAA)]. Despite its interim nature, the Emergency Arbitrator's award "is a preliminary injunction, and confirmation of the injunction is necessary to make final relief meaningful." . . . Indeed, although the Eleventh Circuit has not ruled on this specific issue, this Court and many others have found that confirmation of interim arbitral orders granting injunctive relief is appropriate under Section 9 of the FAA . . . .
The Emergency Arbitrator's Order "is not the type of relatively inconsequential procedural decision or preliminary ruling of which judicial review, in the interest of retaining the efficiency that is the raison d'être of our arbitration system, is disfavored." Rather, it resolves the issue of whether the parties are required to maintain the status quo and continue to perform their contractual obligations during the pendency of the arbitration. District courts must have the power to confirm and enforce such injunctive relief as "final" for it to have teeth . . . .
VPX argued that the injunction was not sufficiently final to enforce under the FAA because VPX had “appealed” the order under the AAA Optional Appellate Arbitration Rules. Section 9.11(b) of the distribution agreement provided that "either party may appeal the decision of the arbitration panel to the AAA in accordance with AAA rules." Rule A-2 of those rules provides that "[t]he parties agree to stay any already initiated judicial enforcement proceedings until the conclusion of the appeal process." VPX argued that, in accordance with these rules, Pepsi's motion for confirmation should be stayed until VPX's appeal was decided.
The district court disagreed. It held that the language quoted from the distribution agreement did not make the AAA’s appeal procedure available. The court pointed out that the distribution agreement states that "either Party may appeal the decision of the arbitration panel to the AAA in accordance with AAA rules" [emphasis in original]. In the court’s view, the distribution agreement “[did] not provide for appeals of interim injunctive relief from an Emergency Arbitrator” [emphasis added]. The district court concluded that the AAA’s appellate rules did not apply.
Moreover, by the time the issue came before the district court, the AAA had decided not to allow the arbitration appeal go forward. Instead, the AAA sent the dispute, including the question of the applicability of the AAA Optional Appellate Arbitration Rules, to the full arbitral panel for resolution.
[T]he AAA has already notified the parties that the AAA appellate process will not commence "[a]bsent a court order or an agreement by the parties" and has forwarded the parties' dispute—including the issue on seeking appellate review of the Emergency Arbitrator's Order—to the arbitration panel.
In the court’s view, the AAA’s decision reinforced the court’s own conclusion. None of VPX’s other arguments was credited.
Practice Points
The district court’s decision raises some practice points. First, like many other federal courts, this court was willing to confirm an order for injunctive relief under the FAA even though the order was interim and not denominated as an “award.” Second, parties negotiating for inclusion of an optional appellate mechanism into their arbitration agreements should be careful to decide whether that appeals process should or should not encompass a ruling by an emergency arbitrator. And third, an arbitration agreement that authorizes parties to seek interim relief from a judicial forum does not prevent an arbitral panel or, as here, an emergency arbitrator from granting that relief.
