[CCWG-ACCT] Question on binding IRP

[Seun Ojedeji]

Thanks for sharing this Leon, I expect this is one of the puzzle that will
need to handled/cracked by the subgroup. Considering that there is still an
ongoing concern of whether the SO/AC would want to have such legal status,
2 options comes to mind:

- Can the IRP be given this legal status to enforce? If yes how do we
ensure they don't enforce unilaterally?

- Can an individual similar to the *Ombudsman* be engaged for such role?

It will be good to hear why those options may not work.

Regards
Sent from my Asus Zenfone2
Kindly excuse brevity and typos.
Dear Ed,

Thank you very much. That was fast!

Best regards,


León

El 16/10/2015, a las 8:23 p.m., McNicholas, Edward R. <
emcnicholas at sidley.com> escribió:


Please use this version.

León –

Holly and Rosemary asked me to respond to the question about whether an
entity that has no legal personhood ( i.e., is not an unincorporated
association, partnership, corporation or natural person) can enter into
binding arbitration under California law or applicable federal law.  It is
important to emphasize that the issue involves *binding* arbitration.
Nonbinding arbitration and mediation proceedings can involve any sort of
entity.  Ultimately they are not intended to be binding or enforceable, and
so there is no significance to whether an entity could be bound or bind
another entity in that context.

In contrast, if arbitration is intended to be binding, then the entity
involved must be subject to be being bound itself and be able to bind the
other entity.  Unless the losing party complies after the arbitrator’s
decision, arbitral awards must be taken into a court and recognized in a
court judgment in order to enforced.  Ultimately, arbitration relies upon
the courts for enforcement; and courts must examine whether they are
dealing with a legal entity.  The legally significant point is whether a
non-legal person can enforce an arbitration award, and the answer to that
question is “no.”  Federal Rule of Civil Procedure 17(b) (3)(A) provides
that “a partnership or other unincorporated association with no . . .
capacity under that state's law may sue or be sued in its common name to
enforce a substantive right existing under the United States Constitution
or laws.”  This Rule does not – and cannot – bestow capacity to sue on a
non-legal person when that non-legal person tries to enforce a substantive
right, and we are not aware of any case that stands for that proposition.
SO/ACs will need to demonstrate legal personhood to enforce an arbitration
agreement (assuming that they are either parties themselves to the
arbitration agreement or third-party beneficiaries).

There was a question about whether some case law suggests that even if an
entity lacks legal personhood  and therefore cannot enforce an arbitration
award under state law, Federal Rule of Civil Procedure 17(b) permits that
entity to sue in federal court because arbitration is a “substantive
right.”   Specifically,  some  case law indicates that an entity lacking
capacity to compel arbitration or enforce an arbitration award in its own
name under state law may in some circumstances do so under Rule 17(b).  *See,
e.g.*, *O & Y Landmark Assocs. of Va. v. Nordheimer*, 725 F. Supp. 578, 581
(D.D.C. 1989) (finding that a partnership seeking to compel arbitration had
capacity even though D.C. law did not recognize such); *Local 4076, United
Steelworkers of Am. V. United Steelworkers of Am., AFL-CIO*, 327 F. Supp.
1400, 1403 (W.D. Pa. 1971); *see also Day v. Avery*, 548 F.2d 1018, 1022
(D.C. Cir. 1976) (recognizing arbitration as a substantive right), *Laundry,
Dry Cleaning & Dye House Workers Int’l Union v. Mahoney*, 491 F.2d 1029
(8th Cir. 1974) (enforcing arbitration in an equally divided concurring
opinion).  None of these cases, however,  suggest that an entity entirely
lacking legal personhood may file suit in federal court simply because the
right to arbitrate is at issue.  Rather, Rule 17(b) lets the partnership,
union, or other unincorporated association – each a legal person –  sue in
its name, as opposed to forcing its members to sue in theirs.  It bears
emphasis that in each instance these entities were legal persons.   For
instance, in *Local 4076*, Pennsylvania law did not allow the local union
to sue in its own name because its charter had been cancelled, requiring
instead that the suit be filed in the name of a member or members as
trustees*ad litem* for the association.  327 F. Supp. at 1403.  Rule 17(b)
overrode this pleading requirement.  *Id.*  *Mahoney* dealt with a similar
issue.  In each of these cases, an entity with legal personhood existed at
some point; the question was whether the entity itself or the individual
members must be the nominal party in the suit.

The question of legal personhood is a key enforcement issue for any model
that relies on individual SOs and ACs for enforcement. It  would be
necessary for the SO/ACs to show that they are unincorporated associations
(or some other type of legal person) to enforce any arbitrator’s award.  In
California, that is an uncertain test:  whether there is a “group of two or
more persons joined by mutual consent for a common lawful purpose, whether
organized for profit or not.”  Cal. Corp. Code § 18035(a); *see also *Cal.
Code Civ. P. § 369.5.  “The criteria applied to determine whether an entity
[is capable of suing or being sued as] an unincorporated association are no
more complicated than (1) a group whose members share a common purpose, and
(2) who function under a common name under circumstances where fairness
requires the group be recognized as a legal entity.”  *Barr v. United
Methodist Church*, 90 Cal. App. 3d 259, 266 (Cal. Ct. App. 1979).  And at
least some courts have recognized that an “organization” that “has no
charter, by-laws or articles, no office or place of business, no mailing
address, no bank account, no assets or obligations, and has never
transacted business” as an entity – is not an unincorporated association
with capacity to sue or be sued.  *Cal. Clippers, Inc. v. U.S. Soccer
Football Ass’n*, 314 F. Supp. 1057, 1068 (N.D. Cal. 1970).  In our case,
some SO/ACs have indicated that they do not view themselves as
unincorporated associations, and, in that case, it would involve a
significant risk to enforceability to suggest that they could enforce an
arbitration award.  Of course, if an unincorporated association exists or
is timely created, it is a legal person and there will be no problem with
lack of personhood; this email is only to be clear that *lack* of
personhood is problematic.

*Please note that, as a general matter, this legal analysis is provided on
a level in keeping with the question posed.  Our legal analysis is tailored
to the context in which the particular question arises.  It is provided to
inform and help facilitate your consideration of the governance
accountability models under discussion and should not be relied upon by any
other persons or groups for any other purpose.  Unless otherwise stated,
our legal analysis is based on California law and in particular the laws
governing California nonprofit public benefit corporations (California
Corporations Code, Title 1, Division 2).  In our effort to respond in a
limited time frame, we may** not have completely identified, researched and
addressed all potential implications and nuances involved.*

Please let us know if there are any questions or concerns.

All the best,

Ed
*EDWARD* *R. McNICHOLAS*
Partner \ Privacy, Data Security & Information Law Practice Co-Leader
*Sidley Austin llp*
1501 K Street, N.W.
Washington, DC 20005
202 736 8010 office
*From:* León Felipe Sánchez Ambía [mailto:leonfelipe at sanchez.mx
<leonfelipe at sanchez.mx>]
*Sent:* Friday, October 16, 2015 2:49 PM
*To:* Gregory, Holly; Rosemary E. Fei
*Cc:* ACCT-Staff; Sidley ICANN CCWG; ICANN-Adler; Accountability Cross
Community
*Subject:* Question on binding IRP

Dear Holly, dear Rosemary,

One key question that has been in the air and I believe is important to
answer is the following:

Does an entity that has no legal personhood ( i.e., is not an
unincorporated association, partnership, corporation or natural person) can
enter into binding arbitration under California law or applicable federal
law?

Could you please guide us on this issue. This, of course, certifies this
question for you to work on it.


Best regards,


León




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