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Kuehne + Nagel Inc. v. Baker Hughes Co., 21 Civ. 8470 (S.D.N.Y. June 23, 2022) [click for opinion]

Plaintiff Kuehne + Nagel Inc. (“K+N”) is a logistics service provider that arranges transportation of freight on behalf of its customers. In 2018, K+N entered into an agreement (the “Agreement”) with the Global Shippers Association (“GSA”) that governed transactions between K+N and members of GSA. The Agreement included an alternative dispute resolution clause which provided that either party may refer a dispute under the Agreement to arbitration if mediation failed.

Defendant Baker Hughes Company (“Baker Hughes”) was named a GSA member by amendment in August 2020. In September 2020, Baker Hughes enlisted K+N’s services to ship air cargo to Brazil. K+N asserted that, because of the conduct of one of its subcontractors (and through no fault of its own), Baker Hughes’s cargo was seized by customs authorities in Brazil because the subcontractor failed to ensure that the required security manifest traveled with the cargo.

In December 2020, Baker Hughes sent a demand letter to K+N “to commence the claim process so that [it] could be promptly compensated for its losses.” After negotiations failed, Baker Hughes requested mediation, noting that it intended to promptly commence arbitration pursuant to the Agreement in the event mediation failed.

K+N responded with an action for declaratory and injunctive relief in the U.S. District Court for the Southern District of New York. It contended that the dispute resolution clause did not apply to the type of loss being asserted by Baker Hughes because it did not cover claims related to cargo where there was no actual loss or damage to the cargo. Baker Hughes countered that the underlying dispute arose from and related to the Agreement and was therefore subject to the Agreement’s ADR provision. It moved to compel arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1-16.

The court noted that the “threshold question facing any court considering a motion to compel arbitration is whether the parties have indeed agreed to arbitrate.” The court further noted that neither party disputed the validity of the Agreement—K+N merely disputed its applicability to the particular dispute. The court then classified the ADR provision in the Agreement as “broad,” meaning “taken as a whole, [the language] evidences the parties’ intent to have arbitration serve as the primary recourse for disputes connected to the agreement containing the clause.” The court held that the underlying dispute fell within the scope of that provision because it “touched matters covered by” the Agreement.

The court rejected each of K+N’s remaining arguments. First, K+N argued that the issue of arbitrability should be decided by the court because the Agreement did not unambiguously delegate such matters to arbitration. Noting that the Agreement itself was silent on this issue, the court held that both sets of procedural rules incorporated by reference into the Agreement expressly empowered the arbitrator to determine issues of arbitrability. This evidenced the parties’ intent to delegate the question of arbitrability to the arbitrator.

Second, K+N argued that the ADR provision was not mandatory. The court rejected this argument because, generally, provisions with the word “may” trigger mandatory arbitration. Moreover, even with permissive arbitration clauses, once either party initiates arbitration, both parties must arbitrate the dispute; to conclude otherwise would render the arbitration clause meaningless. Third, K+N contended that the Agreement did not apply to the transportation services at issue, as Baker Hughes had failed to take the necessary steps to request a spot quote as required by the Agreement. Fourth, K+N argued that, under the terms of the Agreement, K+N was not responsible for the subcontractor’s actions or inactions. The court held that K+N’s third and fourth arguments related to the merits of K+N’s claims and therefore must be decided by the arbitrator.

The court accordingly granted Baker Hughes’s motion to compel arbitration and stayed the matter pending arbitration.

Shane Kelly of the Chicago office contributed to this summary.

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