Normally, efforts to halt arbitrations are dead on arrival if an arbitration agreement exists between the parties. This is especially so when there is no dispute over the scope of the arbitration provision or the claims that are subject to arbitration.
In Shawn C. Carter p/k/a Jay-Z, et al. v. Ionix Brand Group, Inc., et al., (N.Y. Sup. Ct., New York County, Petition filed Nov. 18, 2018), Jay-Z accomplished the extraordinary, at least temporarily. He convinced the Court to enter a temporary restraining order (“TRO”) halting arbitration before the American Arbitration Association (“AAA”) of contract claims asserted against him despite his not disputing that the claims were covered by an arbitration provision requiring AAA arbitration. Jay-Z’s challenge to the arbitration is highly unusual. He contends that the AAA’s procedures violate New York’s public policy against racial discrimination because the AAA did not – and could not – make available for possible selection even a single African-American arbitrator with the background and experience needed to preside over the arbitration.
Under the applicable AAA procedures, Jay-Z, Iconix and the AAA were each to submit four names from the AAA’s Large and Complex Cases roster of arbitrators for possible selection as the arbitrator of the dispute. Thereafter, each of Jay-Z and Iconix were to strike four of the twelve selected names. The single arbitrator for the dispute would then be selected from the remaining candidates. Jay-Z complained that based upon his review of the more than 200 potential arbitrators in the New York area on the Large and Complex Cases roster, not one African-American arbitrator had the necessary qualifications to oversee the arbitration. As a result, Jay-Z refused to engage in the selection process until his concerns were addressed. In response, the AAA stated that it would select his four arbitrators in order to form a list of 12 potential arbitrators who would then be subject to the strike-out procedure. Thereafter, the AAA sent Jay-Z and Iconix a list of 12 potential arbitrators and set a deadline of November 30 for the parties to submit the names of the four they chose to strike.
Rather than engage in this process, Jay-Z went to court and sought to enjoin the process based on the lack of diversity in the “Large and Complex Cases” arbitrator roster. In addition to his contention that no qualified African-American arbitrator was included in the roster, his application also relied on statements on the AAA’s website regarding diversity, including that the AAA roster of arbitrators “is composed of 24% women and minorities, and this figure is increasing.” According to Jay-Z, the actual numbers are lower in commercial cases and the percentage of “minority” arbitrators is never broken out from the percentage of women and minority arbitrators.
In his Petition, Jay-Z contends that the AAA’s procedures and lack of qualified African-American arbitrators renders the agreement to arbitrate before the AAA void because it is in violation of New York’s public policy against racial discrimination, the equal protection clause in New York’s Constitution, New York State and New York City anti-discrimination laws and New York State’s Deceptive Practices Act (based upon the allegedly misleading assertions regarding diversity on the AAA’s website).
The parties are scheduled to return court on December 11th. At that time, Jay-Z will seek to extend the injunction for a 90-day period to permit the parties to work with the AAA to add additional African-American arbitrators to the roster. Notably, Jay-Z’s filings do not specify a process to expand the roster or the number of new diverse arbitrators he maintains are required to cure the alleged violations of law and public policy. Further, his filing also requests a permanent stay of the arbitration if the parties and AAA are unable to cure the alleged violations in the 90-day period.
Whether Jay-Z will succeed in extending the injunction, and the implications for AAA arbitrations beyond the Iconix arbitration if he does, will be the subject of close scrutiny in the coming days. Stay tuned!