October 2018


The warmth of summer is behind us and the crisp air of fall is upon us.  The election is today, so we will see tomorrow the direction that the US will pursue. My sincere hope is that we find civility and that our leaders place the interests of our country before their party or themselves.

As regular readers of this Newsletter know, in each issue I present a summary of recent research reports, legal decisions and news articles that I hope my readers will find of interest and worthy of their time to peruse and perhaps download and read in their entirety.  I focus on two areas:  corporate governance and alternative dispute resolution (“ADR”).  Additionally, I almost always include two to three articles concerning matters of general interest in my “Interesting Cases/Articles of the Month” section.

Beginning with Governance, this month I present four articles.  First, I present “Commonsense Principles 2.0,” an update of the common principles for corporate governance put forth by prominent executives of America’s leading corporations including Warren Buffett, Jamie Dimon, and Larry Fink.  Also presented are the result of a research report regarding proxy access proposals, articles regarding Elon Musk’s unfortunate and ill-conceived Tweets regarding the privatization of Tesla.  Lastly, presented is guidance from the Department of Justice regarding cyber-security.

For my ADR readers, I present two cases and an update regarding the UNCITRAL Settlement Convention.  Beginning with the UNCITRAL convention update, efforts are being made to create and adopt an international convention regarding the enforcement of settlement agreements similar to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.  The status of those efforts is reported.  The two cases presented address grounds for vacating an arbitral award.  The first, the NutraSweet case, reverses a trial court decision which many believed was wrongly decided and imperiled New York as a venue for arbitrations.  The second case, an 11th Circuit decision, considers whether a non-signatory to an arbitration agreement can be compelled to arbitrate.

Lastly, I present articles of general interest in my “Interesting Cases/Articles of the Month” section.  This month, I present three pieces.  First, a comparison of the Led Zeppelin rock hit “Stairway to Heaven” to Randy Wolfe’s “Taurus.”  Wolfe asserts that guitarist Jimmy Page and vocalist Robert Plant, who claim that they wrote “Stairway to Heaven” for the band Led Zeppelin, copied his tune and infringed on his copyright.  Links to clips of both pieces are provided.  Who cares how the court rules – you decide.  Also presented is a discussion of the relationship between economic crises and political turnover, and a discussion of gross flaws in supposedly peer-reviewed academic papers.

This Month’s Articles


  • Commonsense Principles 2.0:  13 prominent executives of America’s largest corporations came together in 2016 to present and sign the “Commonsense Principles of Corporate Governance.”  In October, this group, joined by 8 others, updated and refreshed their “Principles” with “Commonsense Principles 2.0.”  The updated Principles 2.0 are presented, along with a discussion of the changes.
  • Proxy Access Still of Significant Focus to Shareholders Despite Slow Down in Proposals: The Principles 2.0 set forth best practices in corporate governance, including a stance in support of proxy-access. A survey by Shearman & Sterling LLP reveals that proxy access remains an important topic to shareholder proponents despite a slowdown in the pace at which companies adopted proxy access by-laws. The survey is presented.
  • Tesla/Musk Settlements Focus on Controls and Governance Improvements:  It was widely publicized that Elon Musk’s Tesla “going private” tweets created market disruption that resulted in a SEC investigation and settlement agreement.  Presented is a quick review of what happened and why it matters.
  • Legal World Embraces Cybersecurity: Updated DOJ Guidelines and Cyber Insurance: October was Cyber Security Awareness Month, hence I am sharing the Department of Justice’s Best Practices for Victim Response and Reporting Cyber Incidents. These guidelines provide steps for identifying cybersecurity risks, implementing policy to prevent them, and reporting cyber incidents should they occur. Also presented is an article related to the American Institute of Architects’ update to standard construction contract forms to include requirements for cyber insurance.

Alternative Dispute Resolution

  • The UNCITRAL Update:   Set to be signed in August 2019, the Singapore Mediation Convention could increase the appeal of mediation for resolving cross-border commercial disputes by permitting the non-breaching party, in certain circumstances, to enforce a Mediated International Settlement Agreement in courts without pursuing a new breach of contract legal proceeding.
  • The NutraSweet Decision: The New York Appellate Division reversed the trial court’s application of the “manifest disregard” doctrine to overturn an arbitral award. The decision provided added certainty that awards from arbitrations seated in New York will be affirmed, helping New York maintain its position as a preeminent place of arbitration.
  • The Outokumpu Stainless decision: The Eleventh Circuit recently held that it could not compel arbitration demanded by a non-signatory to an arbitration agreement when the New York Convention and Chapter 2 of the FAA applied because there was no agreement in writing between the parties before the court.

Interesting Articles/Cases of the Month

  • Stairway to Heaven: The Ninth Circuit recently ordered a new trial in a copyright infringement suit alleging that Led Zeppelin copied the song “Stairway to Heaven” from the band Spirit’s instrumental song “Taurus.” Listen for yourself and see what you think!
  • Why Economic Crises Trigger Political Turnover in Some Countries but Not Others:  In the midst of midterm elections and the trade wars between the United States and others, I present an article from Kellog Insight where researchers studied the relationship between economic downturn, political turnover, and trust.  The study provides a suggestion as to why some countries experience more political turnover than others during times of economic turmoil.
  • Hoaxers Slip Breastaurants and Dog-Park Sex into Journals:  Has fake news reached academia? Three scholars raised this question after various academic journals published their hoax papers. The subject of these hoax papers included the rationalization for why men eat at Hooters and human reactions to dogs having sex. The papers elicited mixed responses from academics across the country.

I hope you find one or more of these articles of interest and worthy of your inbox’s space.

Warm regards,

Jim Reiman


Articles / Corporate Governance

Principles 2.0:  
In July, 2016, 13 representatives of America’s largest investment firms, pension funds, and corporations, including Warren Buffett, Jamie Dimon, Mary Barra, and Larry Fink, joined each other in signing the Commonsense Principles of Corporate Governance.  On October 18, 2018, 12 of the original 13 plus 9 others (including Ed Breen – DowDupont, Alex Gorsky – Johnson & Johnson, and Ginni Rometty – IBM) signed a refreshed and updated set of principles (Jeff Immelt did not sign the Principles 2.0). The original “Principles” were intended in part to address the “precipitous decline in the number of public companies in our country – a phenomenon that is distinctly and uniquely American.”  One of the reasons for that decline, and one of the purposes of the Principles: “our country’s public market participants are too short-term oriented, thus discouraging companies with a longer-term view from going public.  We need to fix that problem, so that all Americans have the opportunity to participate in the economic growth generated by our country’s innovation and ingenuity.”

The authors’ original Principles were intended in part to stimulate a dialogue “about the responsibilities and need for constructive engagement of those companies, their boards and their investors.”  It succeeded in that goal, with others joining the dialogue and publishing principles of their own:  “Among them are an investor-led effort by the Investor Stewardship Group (ISG) called the Framework for U.S. Stewardship and Governance, a business-led effort by the Business Roundtable (BRT) called Principles of Corporate Governance, and a piece by the International Business Council of the World Economic Forum called The New Paradigm.”  The 21 authors of the Principles 2.0 “endorse the ISG Framework, the BRT Principles and The New Paradigm as counterweights to unhealthy short-termism.”

The authors’ Principles update focuses on “areas of director elections, shareholder engagement, shareholder rights and the role and responsibilities of investors, including in the proxy voting process,” and restates many of the beliefs espoused in the original Principles, including their opinion that dual-class voting is “not a best practice,” and a that companies with dual-class voting “ordinarily should have specific sunset provisions.”

Unlike the original Principles, the Commonsense Principles 2.0 adopt a stance on proxy access.  They also set forth several new principles.  Below are several of the new principles, with a note regarding whether they are new or just updated:

Duties of Loyalty and Care (new, and interesting that the authors believed it necessary to expressly state this)

  • Directors are accountable to shareholders and owe duties of loyalty and care to the company. Directors’ performance should be evaluated through the company’s long-term performance, financial and otherwise.

Composition (materially updated)

  • A board must not be beholden to the CEO or management. A significant majority of the board (and all of the members of the audit, compensation and nominating and governance committees of the board) [new] should be independent, consistent with the New York Stock Exchange rules or similar standards.

Elections of Directors (new or materially updated)

  • It is a fundamental right of shareholders to elect directors whom they believe are best suited to represent shareholder interests. [new]
  • In uncontested elections, directors should be elected by a majority of the votes cast “for” and “against/withhold” (i.e., abstentions and non-votes should not be counted for this purpose).  An individual director who fails to receive such a majority should tender an offer of resignation.  The board ordinarily should accept the resignation; if it does not, it should clearly explain its rationale to the company’s shareholders. [last 2 sentences new]
  • No matter how frequently a company chooses to elect directors, a director ordinarily should refrain from joining a board on which he or she is not committed to serving for at least three years. [new]
  • Requiring all directors to stand for election on an annual basis may help promote board accountability to shareholders.  If a company chooses to hold elections on a staggered basis or otherwise elect directors less frequently than annually, the board should explain clearly (ordinarily in the company’s proxy statement) its rationale for doing so. [new]

Key Shareholder Concerns (new):

  • It is important that companies engage with shareholders and receive feedback about matters relevant to long-term shareholder value.
  • Shareholder proposals.  In the event that a company receives a shareholder proposal, it should consider engagement with the proposing shareholder (as well as other shareholders, to the extent appropriate) early in the process, preferably before the proposal appears in the proxy.  Should the proposal receive majority shareholder support, the company should consider further engagement with shareholders and either implement the proposal (or a comparable alternative) or promptly explain why doing so would not be in the best long-term interests of the company.  As a best practice, the company also should consider further engagement with shareholders to discuss shareholder proposals that receive significant but less than majority support and formulate an appropriate response.  And while such response may include the adoption of the proposal (or a comparable alternative), the board should be mindful of the fact that a majority of the company’s shareholders did not support the proposal.
  • Management proposals.  Similarly, in connection with a management proposal, the company should consider engagement with shareholders early in the process.  Should the proposal be defeated or receive significant shareholder opposition, the company should consider further engagement with shareholders and formulate an appropriate response, again mindful of how a majority of the company’s shareholders voted.

Shareholder Rights (new or materially updated):

  • Public companies should allow for some form of proxy access, subject to reasonable requirements that do not make proxy access unduly burdensome for significant, long-term shareholders. [new] Among the larger market capitalization companies that have adopted proxy access provisions, generally a shareholder (or group of up to 20 shareholders) that has continuously held a minimum of 3% of the company’s outstanding shares for three years is eligible to include on the company’s proxy statement nominees for a minimum of 20% (and, in some cases, 25%) of the company’s board seats. A higher threshold of ownership (e.g., 5%) often has been adopted for smaller market capitalization companies (e.g., less than $2 billion). In either case, as a general matter, only shares in which the shareholder has a full, unhedged economic interest should count toward satisfaction of the ownership/holding period requirements.
  • Dual class voting is not a best practice. If a company has dual class voting, which sometimes is intended to protect the company from short-term behavior, the company ordinarily should have specific sunset provisions, based upon time or a triggering event, which would eliminate dual class voting. In addition, all shareholders should be treated equally in any corporate transaction.
  • Poison pills and other anti-takeover measures can diminish board and management accountability to shareholders.  Insofar as a company adopts a poison pill or other antitakeover measure, the board ordinarily should put the item to a vote of the shareholders and clearly explain why its adoption is in the best interests of the company’s shareholders.  On a periodic basis, the board should review such measures to determine whether they remain appropriate. [new]

Board Leadership (new or materially updated):

  • Independent leadership of the board is essential to a well-functioning board and, in particular, effective oversight of the company and its management.  There are two common structures for independent board leadership in the U.S.:  (1) an independent chair; or (2) a lead independent director. [new]
  • If a board decides to combine the chair and CEO roles, it is critical that the board has in place a strong designated lead independent director and governance structure.  The role of the lead independent director should be clearly defined and sufficiently robust to ensure effective and constructive leadership.  The responsibilities of the lead independent director and the executive chair should be clearly delineated, agreed upon by the board, and disclosed to shareholders. [last 2 sentences new]

Investors’ Role in Corporate Governance (new or materially updated):

  • [Asset managers, o]n behalf of their clients, asset managers are significant owners of public companies and, therefore, often are in a position to influence the corporate governance practices of those companies and otherwise encourage companies and their boards to focus on long-term value creation.
  • Asset managers should exercise their voting rights thoughtfully, devoting sufficient time and resources to evaluate matters presented for shareholder vote in the context of long-term value creation.  Asset managers should actively engage, as appropriate, based on the issues, with the management and board of the company, both to convey the asset manager’s point of view and to understand the company’s perspective.  Ideally, such engagement will occur early in the process to facilitate alignment on resolution of issues where possible and avoid unnecessary disruption. [new]  Asset managers should give due consideration to the company’s rationale for its positions, including its perspective on certain governance issues where the company might take a novel or unconventional approach.
  • Asset managers may rely on a variety of information sources to support their evaluation and decision-making processes.  While data and recommendations from proxy advisors may form pieces of the information mosaic on which asset managers rely in their analysis, ultimately, their votes should be based on independent application of their own voting guidelines and policies.  To the extent they use recommendations from proxy advisors in their decision-making processes, asset managers should disclose that they do so, and should be satisfied that the information upon which they are relying is accurate and relevant.  Proxy advisors whom they use should have in place processes to avoid or mitigate conflicts of interest. [last 2 sentences new]
  • Asset managers should make public their proxy voting process and voting guidelines and have clear engagement protocols and procedures.  They should disclose their policies for dealing with potential conflicts in their proxy voting and engagement activities. [last sentence new]
  • Compensation of portfolio managers investing in public companies should be structured to consider performance over an appropriate term, given the strategy and investment time horizon applicable to the portfolio.  Ordinarily, that will mean using performance benchmarks over three- and five-year periods (and other periods, as appropriate) – as well as a one-year period – for some portion of a portfolio manager’s compensation. [all new]
  • Institutional asset owners such as pension plans and endowments are in a position to influence public companies either directly (insofar as they direct their own investments) or through their interactions with asset managers (insofar as those managers invest on their behalf).  In either case, such asset owners can use their position to advance sound and long-term oriented corporate governance.  When investing through asset managers, owners may wish to encourage such practices through, for example:
    • the use of benchmarks and performance reports consistent with the asset owner’s strategy and investment time horizon
    • interactions and dialogue with asset managers concerning corporate governance issues; and
    • the evaluation of asset managers on how they discharge their own role in corporate governance matters, as set forth above in VIII.a (“Asset managers”). [all of institutional asset owners new]

 Text of Commonsense Principles 2.0:


Letter issued with Commonsense Principles 2.0 signed by authors of Principles:


Comparison of Commonsense Principles 1.0 to 2.0:


Analysis of Commonsense Principles 2.0 by Aabha Sharma and Howard Dicker, Weil, Gotshal & Manges LLP:


 “Comparison of Commonsense Principles of Corporate Governance to Other Key Best Practice Recommendations,” Holly J. Gregory, Rebecca Grapsas and Christine Duque (September 8, 2016)


Proxy Access Still of Significant Focus to Shareholders Despite Slow Down in Proposals:
One of the most significant and debated principle of the “Commonsense Principles 2.0” is the authors’ position on proxy access.  This “hot topic” was the subject of a survey by Shearman & Sterling LLP.  The results:  despite a slowdown in the pace at which companies adopted proxy access by-laws, shareholder proponents still view proxy access an important topic.

In their most common formulation, the headline terms of proxy access by-laws permit “shareholders owning at least 3% of company stock for at least three years to submit proxy access nominees up to a maximum of 20% of the board/minimum of two directors with up to 20 shareholders being able to aggregate their holdings to meet the minimum ownership requirements.

”The survey also revealed a considerably smaller amount of shareholder proposals for proxy access adoption compared to 2017, with “22 in 2018 through June 30, 2018 versus 100 through August 31, 2017.”  The survey’s authors believe that the “number of shareholder proposals voted on compared to the number submitted remained low because many companies adopted proxy access and negotiated withdrawals of the proposal.” They note that the percentage of proposals that passed did so with “an average vote in favor of 73%, which is nearly unchanged from last year despite the lower amount of proposals.

Although the number of adoption proposals decreased, shareholders with proxy access are proposing second-tier terms of their by-laws that go beyond the headline terms. Second-tier terms include provisions on loaned shares, treatment of investment funds, restrictions on re-nomination, compensation arrangements, and interplay of proxy access and advance notice, among other proxy access interplays. The charts below breakdown the presence of second-tier terms in the by-laws of the “Top 100” companies.

This year also saw a decrease in the amount of “fix-it” proposals, or “proposals that seek to amend the terms of a company’s existing proxy access bylaw,” compared to 2017, “which followed a significant increase in such proposals compared to 2016.” Of the 103 fix-it proposals made since 2016, only two have been passed. Despite this low amount, “these proposals continue to merit attention as companies commence preparation for the 2019 proxy season and shareholder proponents continue to submit these proposals.”

Fix-it proposals come in three different types: “tailored,” “two/three termed,” and “shareholder cap” proposals. Tailored proposals request amendments to four or five headline or second-tier terms. In contrast, shareholder cap proposals only seek to increase or remove the limit the “on the number of shareholders that can aggregate their holdings to satisfy the minimum percentage ownership requirement.” Thus far, “37 companies have amended their proxy access by-laws, although only 1 of these amendments occurred in 2018.” These amendments were made in response to a combination of factors, including “upcoming votes on ‘adopt’ or ‘fix-it’ proposals,” as well as “shareholder proposals that have passed,” and “behind-the-scenes pressure from institutional investors seeking more favorable terms.”

Notably, “the rate of exclusions/withdrawals of shareholder proposals declined precipitously in 2018 as compared to 2017 (from approximately 70% to approximately 20%).” More refined shareholder proposals and decisions by the SEC to allow certain exclusions based on “shareholder cap” proposals may be the reason for this decline. Despite the prevalence of proxy access over recent years, only one nomination has been attempted, but the candidate was disqualified by the company before reaching the proxy statement.


Stephen T. Giove & Arielle Katzman, Shearman.com, “Proxy Access — the March Forward Continues but at a Slower Pace,” October 1, 2018.

Tesla/Musk Settlements Focus on Controls and Governance Improvements  
On August 7, 2018 Tesla CEO and then Chairmen, Elon Musk sent which read, “Am considering taking Tesla private at $420.  Funding secured.”  The tweet caused confusion about the future of Tesla that resulted in stock price gyrations, more statements from Musk about taking the company private, NASDAQ halting the trading of Tesla shares, and an SEC investigation.

As reported, Musk did not have “funding secured” and the SEC sued Musk claiming that he mislead investors and moved to ban him from running any public company.  Musk initially resisted the suit and then fanned the flames in typical Musk style tweeting:  “Just want to [say] that the Shortseller Enrichment Commission is doing incredible work. And the name change is so on point!”  Tesla and the SEC ultimately settled, with Musk agreeing to step down as chairman of Tesla for 3 years and paying a $20 million fine.

While the case is entertaining for those not invested in Tesla stock, I present it and the settlement for two reasons:  First, the SEC sued not just Musk, but also the Tesla company for “failing to have disclosure controls and procedures relating to Musk’s tweets.”  Second, it is “speculated that the SEC viewed Musk’s Twitter account as a ‘recognized channel of distribution,’ and thus did not charge Tesla or Musk for violating selective disclosure of material information in violation of the fair disclosure laws.”  Indeed, Tesla had filed an 8-K in November 2013 giving notice that it intended to use Musk’s Twitter account “as a means of announcing material information about Tesla and encouraged investors to review Musk’s tweets for such information.”

The settlement, which was approved by a federal judge on October 16, 2018, contains the following terms:

  • Musk will step down as Tesla’s Chairman and be replaced by an independent Chairman. Musk will be ineligible to be re-elected Chairman for three years (but may remain on the board and may remain CEO);
  • Tesla will appoint a total of two new independent directors to its board;
  • Tesla will establish a new committee of independent directors to put in place additional controls and procedures to oversee Tesla’s and/or its senior executive’s communications and to review and resolve human resources issues or issues raising conflicts of interest that involve any member of executive management;
  • Musk and Tesla will each pay a separate $20 million penalty. The $40 million in penalties will be distributed to harmed investors under a court-approved process.

The settlement further requires Tesla to implement the following strategies to prevent improper disclosures in the future:

  • Employ or designate an experienced securities lawyer acceptable to the SEC to review all social media communications by Tesla’s senior officers and to advise on federal securities law issues;
  • Implement mandatory procedures and controls over Musk’s social media communications and preapprove all such written communications that contain, or reasonably could contain, material information;
  • Certify such compliance in the form of a narrative supported by exhibits sufficient to demonstrate compliance to the SEC staff.

As PJ Himelfarb and Alicia Alterbaum write in an analysis of the episode posted on the Weil, Gotshal & Manges LLP website:

Together with the SEC guidance from 2008, available here, and from the Spring of 2013, available here, the latter of which was issued after the Netflix CEO’s use of his personal Facebook page to announce material information about Netflix, this development is an important reminder that use of social media as a primary means to distribute material news about a company can be dangerous without careful application of a well-designed set of disclosure controls and procedures and must be carefully vetted. This is also a reminder that an essential component of such controls and procedures is rigorous oversight of all communications of material information about the company. Otherwise, companies run the risk that the SEC, via its enforcement powers, itself will impose corporate governance reforms.

 P.J. Himelfarb & Alicia Alterbaum, Weil.com, “Tesla/Musk Settlements Focus on Controls and Governance Improvements,” October 3, 2018.


 Erik Larson, Bloomberg, “Elon Musk’s Settlement With SEC Over Tweets Approved by U.S. Judge,” October 16, 2018.


Updated DOJ Guidelines and Cyber Insurance:
The Department of Justice released updated cybersecurity incident response guidelines in September 2018 — right in time for Cyber Security Awareness Month. The updated guidelines came after a “cyber security roundtable discussion on best practices for companies when responding to and reporting cyber security incidents.” At the discussion, representatives from the Department of Homeland Security, National Security Council, and the DOJ commented on the issues associated with managing data breach investigations. The updated guidelines, titled Best Practices for Victim Response and Reporting Cyber Incidents, addresses “news issues such as creating relationships with incident response firms, cloud computing, ransomware attacks, and information-sharing with law enforcement.” The guidelines, outlined below, stress the importance of risk assessment, informed preparation, and a quick but careful response in the face of cyber threats:

I. Steps to Take Before a Cyber Intrusion or Attack Occurs

  • Educate Senior Management about the Threat
  • Identify Your “Crown Jewels”
  • Have an Actionable Plan in Place … Now!
  • Engage with Law Enforcement Before an Incident
  • Have Appropriate Workplace Policies in Place
  • Institute Basic Cybersecurity Procedures
  • Procure Appropriate Cybersecurity Technology and Services Before an Incident Occurs
  • Have Appropriate Authorization in Place to Permit Network Monitoring
  • Ensure Your Legal Counsel is Familiar with Technology and Cyber Incident Management
  • Establish Relationships with Private and Public Cyber Information-Sharing and Analysis Organizations

II. Responding to a Cyber Incident: Executing Your Incident Response Plan

  • Step 1: Make an Initial Assessment
  • Step 2: Implement Measures to Minimize Continuing Damage

III. Step 3: Record and Collect Information

IV. Step 4: Notify

V. What Not to Do Following a Cyber Incident

VI. Use a Compromised System to Communicate

VII. Hack into or Damage Another Network

VIII. What to do After a Cyber Incident Appears to be Resolved

IX. The guidelines can be found in their entirety on the DOJ’s website below, along with a Cyber Incident Preparedness Checklist.

Cybersecurity updates are also emerging from places we would not normally expect. The American Institute of Architects (AIA) revised about 30 standard construction forms and contracts to promote the use of cyber insurance. The forms include “standard A-series owner/contractor agreement forms (A101, A102, A133, etc.), which go into mandatory use starting this October 31, 2018.”

A large part of the AIA’s update is the insurance and bond exhibit, which the AIA believes will “minimize vagueness and provide clarity” with respect to the types of insurance required. The new exhibit seeks to “highlight the various types of insurance” that the AIA “highly recommend[s] owners and contractors obtain.” The update makes cyber insurance a foundational part of construction contract forms.

Owners and contractors should be aware that cyber insurance coverage varies by type. Some policies cover only third-party claims while others will pay for both your own expenses and those related to third-party claims. Policies may also have “tricky exclusions and requirements” on how to manage cyber incidents. A thorough understanding of your cyber insurance coverage is essential to reducing risks and implementing internal policies designed to maximize your coverage.

 “Best Practices for Victim Response and Reporting Cyber Incidents,” U.S. Department of Justice, Revised September 2018.


BuckleySandler.com, “DOJ Issues Updated Cybersecurity Incident Response Guidance,” October 4, 2018.


Adrienne S. Ehrhardt & Michelle W. Ebben, MichaelBest.com, “Don’t Let Cyber Insurance Haunt You: Standard Construction Contract Forms Require Cyber Insurance as a Default Starting this Halloween,” October 2, 2018.



Articles / Alternative Dispute Resolution

An UNCITRAL Convention for the Mediated Settlement of International Disputes
The General Assembly of the United Nations is set to sign the Singapore Mediation Convention in August 2019, a potentially ground-breaking framework based upon the New York Convention.  The Convention, if approved and ratified by member states, could at the least “greatly increase the appeal of mediation as a mechanism of resolving commercial disputes with a cross-border dimension,” similar to how the New York Convention “made international arbitration the pre-eminent process for the resolution of cross-border commercial disputes.” Once approved by the UN General Assembly, the Convention will take effect after three UN member states ratify it.

Because there is currently no international legal framework for directly enforcing settlement agreements of international disputes that are the result of a formal mediation procedure (a “Mediated International Settlement Agreement”), if one party breaches such an agreement’s terms generally the non-breaching party’s sole remedy is to sue for breach of contract in a new legal proceeding.  If the Singapore Mediation Convention becomes law, then under certain circumstances the non-breaching party could enforce the terms of a Mediated International Settlement Agreements in courts with jurisdiction over the breaching party.  Moreover, such courts would be bound to enforce the terms of the Mediated International Settlement Agreements through a judgment entered by such courts.  Thus, the Singapore Mediation Convention would give Mediated International Settlement Agreements the same status as the New York Convention gives to arbitral awards, increasing the appeal of mediation for resolving cross-border commercial disputes.

The United Nations Commission on International Trade Law (UNCITRAL) devised the overarching legal framework, which includes two separate instruments:

(i) the Singapore Mediation Convention, or the “United Nations Convention on International Settlement Agreements” to give it its full title; and
(ii) the model legislative text amending the pre-existing UN Model Law on International Commercial Conciliation (2002) (the Model Law on Mediation).

Similar to the New York Convention, a country that chooses to sign the Singapore Mediation Convention will likely have to incorporate its terms into its domestic law, which could be done by adopting the Model Law on Mediation.

The Singapore Mediation Convention would apply to “international agreements resulting from mediation” and concluded “in writing” by parties to resolve a “commercial dispute”.  It would exclude settlement agreements which:

(i) have been approved by a court or have been concluded in the course of court proceedings,
(ii) are enforceable as a judgment in the state of that court; or
(iii) that have been recorded and are enforceable as an arbitral award.

It is thought that such settlement agreements are governed by other widely accepted international instruments such as the New York Convention and the Hague Convention on the Choice of Court Agreements.

Under the Singapore Mediation Convention, parties seeking enforcement would provide the competent authority of a Contracting State, such as a court, with a signed Mediated International Settlement Agreement and evidence that such an agreement resulted from mediation

There are certain situations where enforcement could be refused. A court in a Contracting State could refuse to grant relief if it finds that:

(i) granting such relief would be contrary to the public policy of that Contracting State; or
(ii) the subject matter of the dispute is not capable of settlement by mediation under the law of that Contracting State.

Furthermore, a party against whom an application is made can request that the court refuse to grant the relief on a variety of factual grounds such as incapacity, the agreement is null and void, the agreement is not clear and comprehensible, or there was a serious breach by the mediator of applicable standards.

Notably, some of these possible exceptions are quite broad and could generate substantial litigation. However, there is indication that UNCITRAL has recognized this possible risk, so it remains to be seen if there are further changes before the document is signed next year.

Sam Stevens, Lexology, “The Singapore Convention: a bright new dawn for cross-border dispute resolution?,” Oct. 1, 2018.


The NutraSweet Decision:  an analysis and strict limitation of the manifest disregard doctrine
In Daesang Corp. v NutraSweet Co., the New York’s Appellate Division, First Department, reversed a lower court’s decision to set aside a $100 million arbitral award because of a tribunal’s “manifest disregard” of the law.

The case arose out of the sale of Daesang’s aspartame business to NutraSweet in 2003.  NutraSweet initially paid Daesang per the purchase/sale agreement, but before all sums were paid stopped making payments and informed Daesang that it was rescinding the purchase/sale contract because of antitrust class actions brought against Daesang.  Daesang invoked the arbitration provisions of the purchase/sale agreement, and the matter proceeded to arbitration.  The tribunal found for Daesang and awarded Daesang $100 million to Daesang.  Daesang thereupon commenced the action in New York’s courts to enforce the award.

Arguing against enforcement, NutraSweet claimed that the tribunal had shown “manifest disregard” for state and federal law, that Daesang was an admitted antitrust violator, and that the agreements were induced by fraud and misrepresentation. The trial court agreed with NutraSweet and vacated the award.

The lower court’s decision was controversial because it was based upon the “doctrine of manifest disregard,” which no New York court had ever before used to vacate an international arbitration award.

Under the “doctrine of manifest disregard,” arbitral awards may be set aside if a tribunal manifestly disregards the applicable law. Currently, the Fifth, Eighth and Eleventh Circuits have ruled against applying the “manifest disregard standard,” while the Second, Fourth, and Ninth Circuits have held it is valid as a “judicial gloss” on the ground that the Federal Arbitration Act’s (“FAA”) sections 10(a)(3) and (4) authorize vacatur when the arbitrators are “guilty of misconduct” or “exceeded their powers.”  State courts have also adopted their own views.

The Court of Appeals for the Second Circuit reversed the trial court’s decision and reinstated the award.  The Appellate Court noted that the scope of judicial review for arbitration awards is “extremely limited,” and concluded that NutraSweet’s fraud counterclaim “does not meet the high standard required to establish manifest disregard of the law, namely, a showing that ‘the arbitrator[s] knew of the relevant principle, appreciated that this principle controlled the outcome of the disputed issue, and nonetheless willfully flouted the governing law by refusing to apply it.”  Moreover, the Appellate Court rejected the lower court judge’s review of the tribunal, noting “[a] court is not empowered by the FAA to review the arbitrators’ procedural findings, any more than it is empowered to review the arbitrators’ determinations of law or fact.”

The Second Circuit clarified the issue, stating:  the “manifest disregard” doctrine requires “more than a simple error in law” and not a mere mistake by the arbitrator, noting that “[e]rrors, mistakes, departures from strict legal rules, are all included in the arbitration risk” and do not justify setting aside an arbitral award.  Rather, per the Second Circuit, the standard is that there must be an intentional, blithe disregard for the law — “a showing that ‘the arbitrators knew of the relevant principle, appreciated that this principle controlled the outcome of the disputed issue, and nonetheless willfully flouted the governing law by refusing to apply it.’”

Many welcomed the decision for confirming that the manifest disregard doctrine is only available in international arbitration in the most extreme cases where arbitrators knowingly refuse to apply clearly applicable legal principles. Claudia T. Salomon, global co-chair of Latham & Watkins LLP’s international arbitration practice noted that “[t]his decision makes clear that arbitration is not a prelude to the judicial review process . . . In arbitration, finality is a two-edged sword, but this decision makes clear that the court process is not an avenue for appeal.”

Overall, the decision provided added certainty that awards from arbitrations seated in New York will be affirmed. This will help New York maintain its position as a preeminent place of arbitration, which has become increasingly important in light of growth competition for cities and countries to position themselves as favorable arbitral seats, because of the vital importance of knowing that the judiciary in the seat of arbitration is unlikely to set aside an award.

Caroline Simson, Law360, “Revived $100M Award Boosts NY’s Pro-Arbitration Reputation,” October 5, 2018.


Derek A. Soller and Grant Hanessian, Thomson Reuters, “New York Appellate Division, First Department, reverses Supreme Court decision vacating ICC arbitration award for ‘Manifest Disregard of the Law’,” October 4, 2018.


Jeremy Heep, Lexology, “NY Appellate Court Weakens ‘Manifest Disregard’ Exception to Arbitration Enforcement,” October 19, 2018.


Daesang Corp. v NutraSweet Co., New York Appellate Division, First Department, 2018 NY Slip Op 06331, September 27, 2018.


The Outokumpu Stainless Decision:  compelling arbitration 
In Outokumpu Stainless USA, LLC v. Converteam SAS, the Eleventh Circuit held that it could not compel arbitration demanded by a non-signatory to an arbitration agreement when the New York Convention applied.

The case involved an arbitration agreement between a buyer (Outokumpu) of three mills from a seller (FLI), where the seller’s sub-contractor (GE Energy) invoked the arbitration clause.  FLI subcontracted with GE Energy to supply motors for the three mills, which failed.  After Outokumpu filed suit in Alabama state court, GE Energy removed to federal court and then moved to dismiss the suit and compel arbitration. The District Court granted the motion to dismiss and compel arbitration.  The Eleventh Circuit Court of Appeals reversed, holding that arbitration could not be compelled.

The Eleventh Circuit first determined that the New York Convention and Chapter 2 of the FAA implementing the New York Convention governed because GE Energy was a foreign corporation.

The court then inquired whether the parties before the court had agreed to arbitrate their dispute. The court applied the four-factor test from Bautista v. Star Cruises, 396 F.3d 1289 (11th Cir. 2005) for determining when a party may compel arbitration under the New York Convention, focusing on the first requirement that “there is an agreement in writing within the meaning of the Convention.”  Here, there was no agreement in writing between the parties before the court.  GE Energy, while relying on an arbitration agreement in contracts between Outokumpu and FLI, was “undeniably not a signatory” to those contracts, but instead “was a stranger to the Contracts, and, at most a potential subcontractor.”

Notably, the decision turned on the applicability of the New York Convention and Chapter 2, not Chapter 1, of the FAA.  Under Chapter 2, GE Energy could not assert theories such as estoppel and third-party beneficiary to compel arbitration because “Congress has specified that the [New York] Convention trumps Chapter 1 of the FAA where the two are in conflict,” and the Convention’s requirement that the agreement in writing be signed by the parties trumps the potentially broader Chapter 1 of the FAA, which “does not expressly restrict arbitration to the specific parties to an agreement.”

Gilbert A. Samberg, Lexology, “Non-Signatory to Arbitration Agreement Cannot Compel Arbitration When New York Convention Applies,” August 30, 2018.


Outokumpu Stainless USA, LLC v. Converteam SAS (c/k/a GE Energy Power Conversion France SAS, Corp., Court of Appeals for the Eleventh Circuit, No. 1:16-cv-00378, August 30, 2018.



Articles / Interesting Case of the Month

How Good Are “Peer Reviewed” Articles?  Hoaxers Slip “Breastaurants” and “Dog Park Sex” into Journals
Three scholars caused quite a stir when several humanities journals published their hoax papers. Topics of the papers included “thematic analysis of table dialogue” to learn why men enjoy eating at Hooters, “human reactions to rape culture and queer performativity” after observing canine sex, and an updated version of Hitler’s “Mein Kampf.”  The papers, which have since been retracted by the journals, sparked a debate on “the ethics of hoaxes, the state of peer review and the excesses of academia” in today’s world.

The authors deny any political motivation behind their papers.  Rather they are concerned that “scholarship based less upon finding truth and more upon attending to social grievances” has become prevalent in “certain fields within the humanities.”  The authors set out to write papers with “politically favorable conclusions” to see whether journals would publish their work despite its questionable qualitative methodology and ideologically-driven interpretations.  Their plan worked!  Of the twenty papers they wrote, “four papers had been published; three had been accepted but not yet published; seven were under review and six had been rejected.” Journals that accepted the papers included Hypatia, Cogent Social Sciences, The Journal of Poetry Therapy, and Fat Studies.

The hoax elicited mixed responses from academics across the country. Scholars skeptical of work with emphasis on “race, gender, sexuality, and other forms of identity” seemed to appreciate the hoax.  Harvard political scientist Yascha Mounk commented, “What [the authors] have shown is that certain journals, and perhaps to an extent certain fields, can’t distinguish between serious scholarship and a ridiculous intellectual hoax.”

But even those skeptical of these humanities took issue with the ethical implications of the situation. Political theorist Jacob T. Levy of McGill University of Montreal, was less amused.  He believes the papers are “potentially unethical” and “that this kind of thing could also be done in [his] discipline if people were willing to dedicate a year to it. One of the duped journal editors, Ann Garry of Hyptia, expressed her disappoint, commenting that “Referees put in a great deal of time and effort to write meaningful reviews, and the idea that individuals would submit fraudulent academic material violates many ethical and academic norms.”

See the articles below for the details of the authors’ “findings.”

Jennifer Schuessler, N.Y. Times, “Hoaxers Slip Breastaurants and Dog-Park Sex Into Journals,” October 4, 2018.


James A. Lindsay et al., Areo, “Academic Grievance Studies and the Corruption of Scholarship,” October 2, 2018.


Why Economic Crises Trigger Political Turnover in Some Countries but Not Others:
This piece appeared in Kellogg Insight and presents the research of Nancy Qian (professor of managerial and decision sciences at the Kellogg School) and her colleagues Nathan Nunn of Harvard University and Jaya Wen of Yale University.

Qian observed a lack of political unrest in European countries outside of Greece following the severe recession in 2009 and sought to explain that observation using the metric: “how much the people of a country typically trust other people.”

Qian and her colleagues collected publicly available data sets on political turnover, trust, and economic downturn from most countries across the world.  To measure political turnover, they “gathered global data from 1945 to 2014 from the Archigos database on whether the head of government was replaced in any given year.” Then, the researchers calculated the average trust level by country from various sources including the World Values Survey.  Representative populations from each country were asked questions such as: “Generally speaking, would you say that (A) most people can be trusted or (B) that you need to be very careful in dealing with people?”  The responses turned into a metric of average trust based on “the fraction of respondents from each country who said most people can be trusted.” Lastly, they used the “data to measure how political turnover correlated with economic

The study found that trust did indeed play a role in political turnover after a recession.  In high-trust countries, “[e]conomic downturns were less likely to cause political turnover.” It should be noted that this correlation was seen only in democratic countries where officials could be voted out of office.  Qian explained that although correlation is not a causal link, “high-trust countries that did not vote governments out of office after a recession tended to bounce back faster than nations that voted for a change in the ruling party.” Other factors may have played a role in their recovery, “such as more media freedom, higher incomes, and stronger democracies ….”

Despite the nature of the international economy, the study found that “a downturn in one country did not trigger political events in a neighboring nation or trade partner.” To Qian, this finding provides a basis for the implication that voters are able to discern “what’s happening in their home country, where they might want to blame their politicians, from what’s beyond their leaders’ control.” An interesting implication in light of the United States’ ongoing trade wars…

Jyoti Madhusoodanan, Kellog Insight, “Why Economic Crises Trigger Political Turnover in Some Countries but Not Others,” September 4, 2018.


Stairway to Heaven:  Original or Pirated Work? 
Those who follow the rock music world know that for years an obscure musician, Randy Wolfe, has claimed that he penned the original tune for Led Zeppelin’s famous “Stairway to Heaven” and that guitarist Jimmy Page and vocalist Robert Plant copied his work.  In late September, the Ninth Circuit Court of Appeals, considering the copyright infringement claim of Wolfe, reversed a lower court’s finding in favor of Page and Plant, and ordered a new trial.  While the case has relevance to those who follow copyright law, I presented it here for sheer entertainment:  listen to the two tracks and decide for yourself.  The Wolfe song is an instrumental named “Taurus.”  When listening to “Taurus,” pay special attention at time 1:37 and see what you think.

Stay tuned for future developments in this suit!

Jonathan Zavin and Mary Jean Kim, Lexologyl, “Skidmore v. Led Zeppelin,” September 28, 2018.


LISTEN: YouTube recording of “Taurus” (note sound at time 1:37)


LISTEN: Stairway to Heaven soundtrack