Forwarding on Counsel¹s behalf. From: "McNicholas, Edward R." <emcnicholas@sidley.com> Date: Friday, October 16, 2015 at 8:23 PM To: "McNicholas, Edward R." <emcnicholas@sidley.com>, León Felipe Sánchez Ambía <leonfelipe@sanchez.mx> Cc: ACCT-Staff <acct-staff@icann.org>, Holly Gregory <holly.gregory@sidley.com>, "Rosemary E. Fei" <rfei@adlercolvin.com>, Sidley ICANN CCWG <sidleyicannccwg@sidley.com>, ICANN-Adler <ICANN@adlercolvin.com>, Accountability Cross Community <accountability-cross-community@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@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 **************************************************************************** ************************ This e-mail is sent by a law firm and may contain information that is privileged or confidential. If you are not the intended recipient, please delete the e-mail and any attachments and notify us immediately. **************************************************************************** ************************