Digests of Cases Discussing AAA Rules (Arranged Alphabetically) - AAA Yearbook on Arbitration and the Law - 25th Edition
Stephen K. Huber
Ben H. Sheppard Jr.
STEPHEN K. HUBER is Professor Emeritus at the University of Houston Law Center, and has served as a visiting professor at the University of Texas, Rice University (Political Science), Pepperdine Law School (Dispute Resolution Program), and the University of East Africa (Dar es Salaam, Tanzania). Mr. Huber is a member of the State Bar of Texas, and the editor of Alternative Resolutions, the quarterly journal of the Dispute Resolution Section. He is the author of numerous publications relating to arbitration.
BEN H. SHEPPARD, JR. is a Distinguished Lecturer and Director of the A.A. White Dispute Resolution Center at the University of Houston Law Center. From 1969 through 2005 he practiced at Vinson & Elkins L.L.P. where he was a Partner and Co-Chair of the firm's international dispute resolution practice. He was chair of AAA/ICDR task force that promulgated the 2006 amendment to the ICDR International Arbitration Rules that established a pre-arbitral emergency arbitrator procedure. He was the author of the report and recommendation to the ABA House of Delegates in support of the 2004 Revision to the AAA/ABA Code of Ethics for Arbitrators in Commercial Disputes. He chaired one of the two working groups that promulgated the CPR Protocol on Disclosure of Documents and Presentation of Witnesses in Commercial Arbitration. He is a past chair of the Disputes Division of the ABA Section of International Law and for five years served as editor-in-chief of The International Arbitration News. He is a member of the American Law Institute and a Fellow of the College of Commercial Arbitrators.
Supreme was the prime vendor under a contract with the United
States to supply food and other supplies to U.S. forces in several Middle East countries (Zone 1).
The agreement called for a monthly fee of 3.5 percent of net revenues. Supreme could terminate
Agility, but it still would be obligated to pay a “post-termination fee” of 1.75 percent of monthly
net revenue for the life of the prime contract.
Performance went smoothly until late 2007, at which time Supreme learned of a criminal
investigation into Agility’s procurement activities. In early 2008, Supreme declared Agility in
material breach under the agreement for refusing to provide pricing information. Per the contract,
Agility sought arbitration under the auspices of the AAA’s International Centre for Dispute
Resolution. The arbitration was underway when, in late 2009, the Department of Justice indicted
Agility for “Major Fraud against the United States.”
At this juncture, Agility—no doubt thinking that the indictment would be fatal to the
outcome in arbitration—sought a stay of the arbitration proceeding pending resolution of the
criminal charges. This request was rejected by the arbitration panel. Supreme added a claim for
fraudulent inducement “by making promises [Agility] intended to fill only by illegal means.”
Supreme sought testimony from four senior officials at Agility, all of whom refused to appear.
Although the Fifth Amendment was not expressly claimed, the arbitral award stated that they “quite
clearly” declined to appear because answering questions under oath could have a negative impact
in the criminal proceeding.
The reasoned ICDR decision (56 page opinion plus a 17 page dissent) awarded $38.7
million to Agility. The panel enforced the original agreement: Supreme’s termination of the
contract was proper, but Supreme still owed Agility 1.75 percent of net revenues for the duration
of the contract. On this issue, all three arbitrators ruled for