Benjamin Stearns

Sixth Circuit Confirms Arbitration Award Despite Argument That Case Was International and Beyond Arbitrator’s Authority

November 1, 2024 by Benjamin Stearns

The arbitration award stemmed from the pro se complaint of Joseph Ruzindana for wrongful termination against his former employer, FCA US. In the arbitration, Ruzindana claimed that he was harassed and discriminated against by FCA US.

After the arbitrator rendered an award in favor of FCA US, Ruzindana filed a motion to vacate, arguing that the case “was an international one beyond the Arbitrator’s and state Authority because some of FCA US’s vehicles would be sold in Brazil and some of his colleagues were located in Brazil.” However, the arbitration agreement between the parties authorized the arbitrator to decide “whether the challenged personnel decision or action was (1) lawful under applicable federal, state and local law, or (2) consistent with the Company’s At Will employment policy.” As a result, the resolution of Ruzindana’s employment-related claims fell within the arbitrator’s powers, regardless of any connection between those claims and Brazil.

Under the Federal Arbitration Act, a district court may vacate an arbitration award under only four circumstances:

Where the award was procured by corruption, fraud, or undue means;
Where there was evident partiality or corruption in the arbitrators, or either of them;
Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy, or of any other misbehavior by which the rights of any party have been prejudiced; or
Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

Ruzindana did not allege that the arbitration award was procured by corruption, fraud, or undue means or that the arbitrator was partial, corrupt, or guilty of any misconduct. He did allege that the matter was “beyond the arbitrator’s” authority but, as noted above, the district court and the Sixth Circuit held to the contrary.

Because Ruzindana did not satisfy any of the grounds for vacating an arbitration award under 9 U.S.C. § 10(a), the Sixth Circuit held that the district court properly denied his motion to vacate the arbitration award.

Ruzindana v. FCA US, LLC, No. 23-1649 (6th Cir. July 3, 2024).

Vacation of Arbitration Award for Manifest Disregard of the Law Is “Exceedingly Rare,” Requires “Egregious Impropriety”

August 30, 2024 by Benjamin Stearns

The U.S. District Court for the Southern District of New York denied a petition to vacate a $65 million arbitration award based on the petitioner’s argument that the arbitrator’s decision was in “manifest disregard of the law.” The court explained that a “litigant seeking to vacate an arbitration award based on alleged manifest disregard of the law bears a heavy burden, as awards are vacated on grounds of manifest disregard only in those exceedingly rare instances where some egregious impropriety on the part of the arbitrator is apparent.”

A court may vacate an award for manifest disregard of the law only if the court finds both that:

The arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether; and
The law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case.

In contrast, a court must uphold an arbitration award so long as “the arbitrator has provided even a barely colorable justification for his or her interpretation of the contract.”

Here, the court found that the arbitrator’s award was “extensively reasoned” and “correctly applied New York law.” As such, the court granted the respondent’s cross-motion to confirm the arbitration award.

The court denied the respondent’s motion for attorneys’ fees, despite noting that it retained “inherent equitable powers to award attorney’s fees when the opposing counsel acts in bad faith, vexatiously, wantonly, or for oppressive reasons,” and despite the fact that it dispatched the petitioner’s motion to vacate with relative ease. Although the petitioner’s arguments failed, the court did not find that counsel had acted “in bad faith … or for oppressive reasons.” The respondent argued that the petitioner’s motion breached clear provisions of the arbitration agreement prohibiting such filings, and it should therefore be awarded the fees it had been forced to expend. But the court noted that the agreement “effectively incorporated FAA review into [the] contract” and, further, that “courts have held provisions that prevent or discourage petitioners from challenging arbitral awards are unenforceable.”

Risen Energy Co. v. Focus Futura Holding Participações S.A., No. 1:23-cv-10993 (S.D.N.Y. June 11, 2024).

District Courts May Not “Look Through” Applications to Modify, Confirm, or Vacate Arbitral Awards

August 8, 2024 by Benjamin Stearns

Ascension Data & Analytics LLC terminated its contract with Pairprep Inc. for data extraction services after an alleged data breach involving Pairprep’s servers and Pairprep’s alleged “failure to extract reliable data.” Ascension subsequently initiated arbitration proceedings against Pairprep pursuant to the parties’ contract in an attempt to recover the remediation costs incurred as a result of Pairprep’s data breach. Pairprep asserted counterclaims against Ascension, and the arbitration panel ultimately rendered a monetary award in Pairprep’s favor.

Ascension petitioned the Northern District of Texas to vacate the arbitration award. Shortly thereafter, Pairprep filed an application to confirm the arbitration award in Texas state court. The state court confirmed the award and entered a final judgment in favor of Pairprep. In the federal proceeding, Ascension filed a motion for a preliminary injunction against the state court proceeding, while Pairprep argued that the district court lacked subject matter jurisdiction. The district court agreed and dismissed the matter due to a lack of subject matter jurisdiction.

The Fifth Circuit Court of Appeals affirmed the dismissal, relying on the U.S. Supreme Court’s recent decision in Badgerow v. Walters. There, the Supreme Court concluded that district courts may not “look through” the application for confirmation or vacation of an arbitration award to determine whether the court has jurisdiction over the matter. Rather, “a court may look only to the application actually submitted to it in assessing its jurisdiction.”

The fact that a petition seeks enforcement or vacation of an arbitration award rendered under the Federal Arbitration Act is not sufficient. Rather, the court must identify some additional “independent basis for its jurisdiction,” such as satisfaction of the requirements for diversity jurisdiction or federal question jurisdiction. The court noted that an arbitration award “is no more than a contractual resolution of the parties’ dispute … [a]nd quarrels about legal settlements — even settlements of federal claims — typically involve only state law, like disagreements about other contracts.” As such, if there is no other additional basis for federal jurisdiction that is shown on the petition to modify, confirm, or vacate an arbitration award, then the matter is one for state courts, not federal courts.

Ascension Data & Analytics, LLC v. Pairprep, Inc., No. 23-11026 (5th Cir. June 25, 2024)

South Carolina Supreme Court Vacates Award, Finds Arbitration Panel Manifestly Disregarded Statutory Law

May 24, 2024 by Benjamin Stearns

National Golf Management LLC sold 13 golf courses to a buyer represented by broker Andrew Waldo. NGM was represented in a previous transaction by Michael Cousins. Although Cousins had no written representation agreement with any of the parties involved in the 13-golf course deal, he and his real estate brokerage company sued Waldo, Waldo’s company, and NGM, among others, for a commission from the sale of the golf courses.

As a result of both Waldo and Cousins’ membership in a local realtor association, they were required to arbitrate their professional dispute. Despite South Carolina statutes stating that oral agreements for a commission from a real estate transaction were unenforceable, the arbitration panel ruled that Cousins was entitled to half of the commission Waldo earned from the sale.

Waldo petitioned the circuit court, which vacated the award. However, the court of appeals reversed, finding that there was a “barely colorable” ground for the arbitration award based on a line of cases upholding oral and implied contracts for real estate commissions that, while in conflict with statutory law, had not been directly overruled.

The South Carolina Supreme Court reversed. While acknowledging and reaffirming the “rare and narrow basis” upon which courts may disturb an arbitration award, the court found that the circumstances of this case constituted just such a “rare” occasion. The court explained that subsequent to the issuance of the opinions cited by the appellate court, the South Carolina legislature had enacted laws that “fundamentally changed real-estate licensing.” Cousins argued that he was a “cooperating broker” or a “subagent” of Waldo and therefore was entitled to a share of the commission. However, the newly enacted laws, which were in effect at the time of the transaction in question, required a subagent agreement to “be in writing” and to “set forth all material terms of the parties’ agency relationship.”

The law went further and explicitly prohibited oral or implied agency relationships, providing that “[f]or all real estate transactions, no agency relationship … exists unless the buyer, seller … and the brokerage company … agree, in writing, to the agency relationship. No type of agency relationship may be assumed … or created orally or by implication.” The court found that the arbitrators were aware of these statutes but nevertheless ordered the commission to be shared with Cousins.

The court noted that courts “may now vacate an arbitration award, but only when it is untethered from controlling legal principles known to, but shrugged off by, the arbitrator…. As we have held, ‘manifest disregard is an exacting standard, but it is not insurmountable.’” In light of the above facts, the court found that the arbitration award was in manifest disregard of the law and vacated the award.

Waldo v. Cousins, No. 2022-000134 (S.C. May 1, 2024).

Pennsylvania’s “One-Document Rule” Invalidates Carvana’s Arbitration Agreement

April 15, 2024 by Benjamin Stearns

Dana Jennings and Joseph Furlong each bought a car from Carvana, a nationwide online used car dealer. On the day of their purchases, each signed three separate documents: a “retail purchasing agreement,” a “retail installment sales contract,” and an arbitration agreement.

The purchasers filed a class action lawsuit against Carvana alleging that Carvana breached a contractual promise to properly license, title, and register their vehicles with Pennsylvania. Carvana moved to compel arbitration, but the district court denied the motion, finding that the arbitration agreements were not enforceable under Pennsylvania’s Motor Vehicle Sales Finance Act because they were not expressly incorporated into the retail installment sales contracts signed by the purchasers.

On appeal, the Third Circuit affirmed. Under Pennsylvania’s Motor Vehicle Sales Finance Act, a contract governing an installment sale of a vehicle must: (1) be in writing; (2) contain all agreements between the buyer and the installment seller relating to the installment sale of the motor vehicle; and (3) be signed by the buyer and seller. The second requirement creates a so-called one-document rule, which provides that no other agreement is enforceable as part of the sale unless it is included within the installment sales contract, in this case, the retail installment sales contract.

But here, the arbitration agreements were separate from the retail installment sales contracts. In addition, the retail installment sales contract included an integration clause, which expressly stated that the contracts constituted the complete and exclusive agreements between the parties. Because of the integration clause, the parol evidence rule applied and precluded consideration of other written agreements entered into by the parties.

Carvana argued that because all the agreements were executed on the same day and as part of the same transaction, they should collectively be deemed one contract, which would render the arbitration agreements enforceable. The Third Circuit disagreed, pointing out that although the “same transaction concept” exists in Pennsylvania, the contracts relating to the same transaction are enforceable only if they reference or incorporate one another, which the agreements here did not do.

As a result, the Third Circuit affirmed the district court’s ruling that the arbitration agreements were unenforceable and remanded for further proceedings.

Jennings v. Carvana, LLC, No. 22-2948 (3d Cir. Mar. 21, 2024).