Judge Denies ex-Seller’s Petition to Vacate Arbitration Award in Amazon’s Favor

U.S. District Judge Jennifer Rochon for Southern New York in Manhattan denied former Amazon third-party seller Shenzhen Zongheng Domain Network's petition to vacate an arbitration award in Amazon’s favor, and granted Amazon’s cross-motion to confirm that award, said her signed opinion and order Tuesday (docket 1:23-cv-03334).

Zongheng sought recovery of $508,000 in sales proceeds that Amazon seized, and the arbitrator let Amazon keep, when it deactivated the seller’s online store for allegedly manipulating customer product reviews (see 2305080023). The judge previously denied Zongheng’s motion to remand the petition to New York Supreme Court where it originated before Amazon removed it to federal court April 20 (see 2307210035)

There’s “no basis” for the court to find that the arbitrator “manifestly disregarded the law,” as Zongheng alleged, in concluding that Section 2 of Amazon’s business solutions agreement (BSA) is enforceable, said Rochon’s opinion and order. “To the contrary,” the arbitrator applied “the very legal standard” that Zongheng pressed “in evaluating whether Section 2 was an unenforceable penalty,” it said.

If there’s a “barely colorable justification” for the arbitrator’s findings, which the court finds there is, the award shouldn’t be vacated, said the opinion and order. Zongheng’s reliance on a few arbitration awards that have reached different conclusions about the enforceability of the BSA's Section 2 doesn’t “justify vacatur of the award here,” it said.

The judge also rejected Zongheng's argument that the award should be vacated because it was “completely irrational” for the arbitrator to find that Section 2 is enforceable, said the opinion and order. That’s because the 2nd Circuit U.S. Court of Appeals has declined to recognize “complete irrationality” as a ground for vacatur under the Federal Arbitration Act, it said.

Even if "examination under such a standard" were appropriate, the court “has no basis” to find the arbitrator’s decision was completely irrational because the arbitrator applied Zongheng's “requested legal standard” to the issue of Section 2’s enforceability “and made reasonable factual findings under this standard,” said the opinion and order. Rochon also disagrees with Zongheng's claim the award should be vacated because Section 2 of the BSA “violates public policy as an unenforceable penalty,” it said.

On Zongheng's suggestion that the mandatory arbitration clause in Section 18 of the BSA violates public policy and is unenforceable because it’s part of Amazon’s strategy to control sellers, Zongheng “has waived any such argument by its conduct in this action,” said the opinion and order. Zongheng failed to raise any objection to arbitrability or the enforcement of Section 18 before the arbitrator, it said.

To the contrary, Zongheng sought relief from the arbitrator under Section 18 for an award of costs and fees, said the opinion and order. Because there’s no basis to vacate the award, Amazon’s cross-motion to confirm the award is granted, it said.