[CCWG-ACCT] FW: Question on binding IRP

Sat Oct 17 06:47:59 UTC 2015

Forwarding on Counsel¹s behalf.

From:  "McNicholas, Edward R." <emcnicholas at sidley.com>
Date:  Friday, October 16, 2015 at 8:23 PM
To:  "McNicholas, Edward R." <emcnicholas at sidley.com>, León Felipe Sánchez
Ambía <leonfelipe at sanchez.mx>
Cc:  ACCT-Staff <acct-staff at icann.org>, Holly Gregory
<holly.gregory at sidley.com>, "Rosemary E. Fei" <rfei at adlercolvin.com>, Sidley
ICANN CCWG <sidleyicannccwg at sidley.com>, ICANN-Adler
<ICANN at adlercolvin.com>, Accountability Cross Community
<accountability-cross-community at icann.org>
Subject:  RE: Question on binding IRP

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 arbitrator¹s
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
³no.²  Federal Rule of Civil Procedure 17(b) (3)(A) provides that ³a
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.²
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 ³substantive right.²
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 Int¹l 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 arbitrator¹s award.  In
California, that is an uncertain test:  whether there is a ³group of two or
more persons joined by mutual consent for a common lawful purpose, whether
organized for profit or not.²  Cal. Corp. Code § 18035(a); see also Cal.
Code Civ. P. § 369.5.  ³The 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.² Barr v. United
Methodist Church, 90 Cal. App. 3d 259, 266 (Cal. Ct. App. 1979).  And at
least some courts have recognized that an ³organization² that ³has 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
business² as an entity  is not an unincorporated association with capacity
to sue or be sued. Cal. Clippers, Inc. v. U.S. Soccer Football Ass¹n, 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]
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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