Jay-Z Wins Bid to Halt Arbitration for Racial Bias

In a $200 million licensing dispute, Jay-Z successfully argues that too few black arbitrators deprives him of the opportunity for equal protection under the law.
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Jay-Z

Jay-Z has broken new ground. On Wednesday, a New York judge at least for the moment granted the hip-hop mogul's ambitious gambit to pause an arbitration because of a lack of black arbitrators.

"This is historic," said Jay-Z's attorney, Alex Spiro.

In a petition earlier in the day, Jay-Z (aka Shawn Carter) argued that an arbitration provision in his company's agreement with Iconix Brand Group flouted New York's public policy against discrimination.

Jay-Z and Iconix have been feuding over the scope of a $200 million deal signed a decade back over the use of the "Roc Nation" trademark on baseball caps and other merchandise. The parties have been locked in public litigation, but in October, Iconix commenced new proceedings at the American Arbitration Association under a settlement agreement that predated the lawsuits.

"After a preliminary conference with the AAA, Mr. Carter and his companies sought to choose an arbitrator pursuant to the parties’ agreement, which required consultation of a list of more than 200 prospective neutrals," wrote Spiro, a litigator at Quinn Emanuel in a petition to stay the arbitration. "When Mr. Carter began reviewing arbitrators on the AAA’s Search Platform, however, he was confronted with a stark reality: he could not identify a single African-American arbitrator on the 'Large and Complex Cases' roster, composed of hundreds of arbitrators, that had the background and experience to preside over the Arbitration. After repeated requests to the AAA for diverse arbitrators with expertise in complex commercial law, the AAA was able to provide only three neutrals it identified as African-American: two men — one of whom was a partner at the law firm representing Iconix in this arbitration and thus had a glaringly obvious conflict of interest — and one woman."

The court paper from Jay-Z presented this as "shocking" and stated it would "deprive black litigants like Mr. Carter and his companies of the equal protection of the laws, equal access to public accommodations, and mislead consumers into believing that they will receive a fair and impartial adjudication."

Typically, judges afford tremendous deference to the arbitration system under the Federal Arbitration Act, but in the super rare instances when litigants are able to escape decision-making, it's because of a lack of inherent due process.

New York Supreme Court Justice Saliann Scarpulla on Wednesday granted the motion and issued a temporary restraining order that halts the arbitration at least until Dec. 11, the next court date. Spiro believes it is the first decision of its nature throughout the country and an advance for civil rights. "Today's order is a victory for everyone," he said.

A review of the transcript reveals a bit of nuance. Scarpulla was sitting in for another judge, who was on vacation. She was a bit skeptical of the government's place to solve the diversity problem although did express some interest in giving Jay-Z's side some time to work with AAA on the issue.

For instance, at one point, the judge asked Spiro, "So you're asking me to say any time a gay designer does arbitration, then the arbitration panel has to have gay members because there's something about a business dispute that reflects someone's personal preferences — or I'm trying to figure out what the argument is."

Then again, Scarpulla asked an attorney for Iconix if there was an objection to allowing more time to solve the issue, and the Iconix lawyer said, "I do... It would be unusual and defeating to allow one party to work with the AAA to add new members to the population for the purpose of trying to —"

"To be more diverse?" interrupted Scarpulla. "How can you oppose that? How can you possibly oppose that?"

The judge did indeed grant a TRO, although it will certainly not end the matter. Nevertheless, it is very notable development that could lead to more challenges on the diversity front in jurisprudence and impact others beyond Jay-Z as arbitration has in many ways become the dispute-resolution forum of choice in Hollywood, not to mention corporate America at large. 

(This story has been updated upon further review of the transcript of the hearing.)