Benjamin Stearns

Court Finds No Manifest Disregard of the Law or Exceeding of Powers in Upholding Arbitration Award Related to Dispute Over Earn-Out Payment

December 18, 2019 by Benjamin Stearns

Markmidco S.àr.l., a Luxembourg company, sold to Zeta Interactive Corp. its interest in a customer relationship management business consisting of several companies that provided to retailers email and text message marketing, database management, and related services. The parties’ agreement called for several earn-out payments to be made upon the determination that the CRM business had surpassed certain revenue thresholds laid out in the contract. Zeta refused to make the first earn-out payment of $4 million, claiming the revenue threshold had not been reached as of the deadline. Markmidco disagreed and referred the parties’ dispute to an arbitrator. The arbitrator agreed with Markmidco and awarded it the earn-out payment.

The parties’ dispute then moved to federal court where Markmidco’s award was confirmed over several arguments from Zeta seeking its vacatur. Zeta argued that the parties’ contract called for a “manifest error” standard of review. However, the court held that the parties “cannot contract for more judicial review than the FAA and Convention grant them.” Zeta next argued that the award should be vacated due to the arbitrator’s manifest disregard of the law, but failed to identify any instance of the arbitrator ignoring the applicable law.

The court also denied Zeta’s claim that the arbitrator exceeded his powers, stating that his findings were reasonable interpretations based on analysis of specific provisions of the purchase agreement. When presented with an argument that an arbitrator has exceeded his powers, the “sole question” for the court is “whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.” As such, Zeta’s argument failed.

Zeta also argued that the grounds for vacatur stated in the Delaware Uniform Arbitration Act should apply rather than those provided by the Federal Arbitration Act because the parties’ contract included a choice-of-law provision selecting Delaware law. The court held that, under Third Circuit law, state law vacatur standards apply only when the parties express a clear intent to supplant the FAA standards with state law standards. A choice-of-law provision that applied broadly to the parties’ contract was not a sufficiently clear expression of the parties’ intent to opt out of the FAA scheme.

Lastly, Zeta argued that enforcement of the award was premature because other proceedings between the two parties were ongoing. The court held that Zeta’s claims in the collateral proceeding did not overlap with the issues submitted by the parties to the arbitrator. The court also held that issuing a stay or denying enforcement of the award at this time “would transform a summary proceeding into a protracted dispute,” contrary to the “basic purpose” of arbitration. The court ordered enforcement of the arbitration award.

Markdutcho 1 B.V. v. Zeta Interactive Corp., No. 1:17-cv-01420 (D. Del. Nov. 12, 2019).

Court Denies Motion to Set Aside Confirmation of Arbitration Award, Rejecting Arguments of Excusable Neglect, Manifest Disregard of the Law, and Exceeding Powers

November 25, 2019 by Benjamin Stearns

The case involved a dispute over an automobile equipment supply contract. The parties’ disagreement was arbitrated, and the prevailing party filed in federal court for confirmation of the award. The supplier, after losing the arbitration, failed to timely respond to the petition for confirmation due to the unexpected death of the husband of the firm’s paralegal. The death “caused unexpected disruptions in the paralegal and legal assistant’s schedules, leading to the [supplier’s] inadvertent failure to meet the award confirmation response deadline.”

The court noted that “the Sixth Circuit has considered excusable neglect in different contexts and repeatedly underscored that it is a difficult standard to satisfy.” The standard is so high that it is “met only in extraordinary cases.” In this case, the court found that the supplier acted in good faith but held that all three of the other factors weighed against a finding of excusable neglect. “Respondent must demonstrate more than just good faith to establish excusable neglect, and it has not done so here.”

Although the court had already determined the supplier had not met the standard to set aside the judgment for excusable neglect, it nevertheless went on to consider the grounds the supplier advanced for vacation of the arbitration award. The court rejected the supplier’s argument that the arbitrator manifestly disregarded the law by, among other things, failing to apply the Uniform Commercial Code and prohibiting the introduction of parol evidence allegedly showing that the supplier did not anticipatorily breach the contract at issue. The court found that the “arbitrator made clear that the contract was unambiguous and fully integrated as written, eliminating the need for parol evidence under the UCC.” The court also rejected the supplier’s argument that the arbitrator exceeded his powers when the arbitrator found that the supplier did not meet the standard to allege fraudulent misrepresentations outside the contract. The court explained that the arbitrator cited the exact case upon which the respondent was relying before the arbitrator had made his ruling. The court further found no basis for the supplier’s argument that “the award [was] not well-reasoned.”

Thyssenkrupp Presta Danville, LLC v. TFW Indus. Supply & CNC Machine, LLC, No. 2:19-mc-50863 (E.D. Mich. Oct. 31, 2019).

Fifth Circuit Affirms Confirmation of Arbitration Ruling in Favor of Ameriprise Financial

November 7, 2019 by Benjamin Stearns

The Fifth Circuit affirmed the confirmation of an arbitration ruling in favor of Ameriprise Financial Services Inc. In 2015, Ameriprise sought a temporary restraining order against Jeremy Walker, a former employee of an Ameriprise franchisee, to prevent him from using confidential customer information. The matter was referred to a FINRA arbitration panel, which resulted in an award against Walker and in favor of Ameriprise for injunctive relief, compensatory damages, and attorneys’ fees.

In 2017, Walker filed a FINRA arbitration against Ameriprise, primarily alleging that he was improperly enjoined by the 2015 arbitration. Ameriprise moved to dismiss under FINRA Code of Arbitration Procedure for Industry Disputes Rule 13504(a)(6)(C), which provides that dismissal may be granted when the “non-moving party previously brought a claim regarding the same dispute against the same party that was fully and finally adjudicated on the merits and memorialized in an order, judgment, award, or decision.” The 2017 arbitration panel found the 2015 arbitration and award met the requirements of Rule 13504(a)(6)(C) and unanimously dismissed the arbitration. Walker filed a motion to vacate arguing that the 2017 panel was “guilty of misconduct” under 9 U.S.C. § 10(a)(3) and “exceeded its powers” under 9 U.S.C. § 10(a)(4). The district court disagreed, denied Walker’s motion to vacate, and granted Ameriprise’s motion to confirm.

On appeal, the Fifth Circuit affirmed. Walker grounded his argument for vacatur under § 10(a)(3) upon the panel’s supposed failure to allow him to present evidence and testimony. However, the Fifth Circuit found that Walker was not prevented from presenting either. With regard to Walker’s argument that the panel exceeded its powers under § 10(a)(4), Walker argued that the panel erred in determining that the elements of Rule 13504(a)(6) had been met. However, this argument was insufficient under the § 10(a)(4) standard for vacatur, which requires a finding that the arbitration panel “acts contrary to express contractual provisions.” Even if Walker were correct that the panel had made a legal error, such errors “lie far outside the category of conduct embraced by § 10(a)(4).”

Walker v. Ameriprise Fin. Servs., Inc., No. 18-11641 (5th Cir. Oct. 9, 2019).

Ninth Circuit Reverses Dismissal of Case Involving Foreign Arbitration Award Based on Comity for French Appellate Ruling and Quasi in Rem Jurisdiction

October 17, 2019 by Benjamin Stearns

The parties entered into a contract under which the plaintiff Cerner Middle East Limited would provide hardware, software, and services to iCapital S/E to facilitate iCapital’s fulfillment of a contract that it had been awarded by the United Arab Emirates Ministry of Health. The contract required the parties to submit any disputes to binding arbitration under the rules of the International Chamber of Commerce, specified that the seat of arbitration would be in Paris, and provided a choice-of-law clause electing the law of the state of Missouri.

A dispute arose and Cerner issued a request for arbitration when iCapital failed to make payments due under the contract, to which iCapital responded by objecting to the arbitration. The principal of iCapital, Ahmed Saeed Mahmoud Al-Badi Al-Dhaheri, declined to respond at all. The International Court of Arbitration concluded that the arbitration should proceed against both iCapital and Dhaheri and appointed a tribunal. The tribunal issued an award against both iCapital and Dhaheri for $62 million in July 2015, determining that it had jurisdiction over the latter as he was the sole proprietor of iCapital and, alternatively, because he was the alter ego of the reorganized iCapital LLC.

Cerner sought to enforce the arbitration award in Oregon state court seeking to attach funds in an Oregon bank account owned by Dhaheri. Cerner relied on a quasi in rem theory to establish jurisdiction. The case involved “type two” quasi in rem jurisdiction, which requires that (1) a court of competent jurisdiction render a judgment against the defendant; and (2) the defendant owns property in the forum state. The defendants removed to federal court and moved to dismiss for lack of personal jurisdiction, arguing that Cerner did not possess a valid judgment against Dhaheri and therefore could not rely on quasi in rem to establish jurisdiction. The district court agreed and dismissed the case.

Cerner appealed to the Ninth Circuit Court of Appeals. While the appeal was pending, the Court of Appeal of Paris affirmed a French trial court decision that confirmed the arbitration award and found that the tribunal had jurisdiction over Dhaheri in addition to iCapital. In light of this development, the Ninth Circuit determined that it was not required to decide whether the district court was correct in deciding that the tribunal’s award had to be confirmed as valid by another court before quasi in rem jurisdiction could be exercised.

The defendants then argued that the Ninth Circuit should not recognize the tribunal’s award (or the Paris court’s ruling), in part because the French decision was not entitled to recognition under the principles of international comity. Citing to the U.S. Supreme Court, the Ninth Circuit stated that foreign decisions should be accorded deference unless an underlying issue renders the judgment suspect. The Ninth Circuit found that none of the grounds for disregarding a foreign judgment applied here, noting that a foreign judgment may be entitled to comity even if the U.S. court disagrees with its reasoning. The decision of the Paris court met the minimum standard of reasonableness, and therefore the decision deserved recognition under principles of international comity. The requirements for quasi in rem jurisdiction were thus met, and the action seeking to enforce the award should not have been dismissed for lack of jurisdiction.

Cerner Middle E. Ltd. v. iCapital, LLC, No. 17-35514 (9th Cir. Sept. 23, 2019).

Ninth Circuit Affirms Confirmation of Arbitration Award, Finding Plaintiffs Failed to Show Prejudice From Denial of Discovery

September 24, 2019 by Benjamin Stearns

Pro se plaintiffs Henry and Ijeamaka Ekweani characterized a district court’s confirmation of an arbitration award against them and in favor of American Express Travel Related Services as a “rubber stamp” that violated their due process rights. The Ninth Circuit Court of Appeals recently affirmed the award.

The Ekweanis argued that the district court abused its discretion by denying their request for additional discovery but the Ninth Circuit disagreed, finding that the Ekweanis showed no prejudice resulting from the ruling. “A decision to deny discovery will not be disturbed except upon the clearest showing that the denial of discovery results in actual and substantial prejudice to the complaining litigant.”

Ekweani v. Am. Express Travel Related Servs. Co., No. 18-16925 (9th Cir. Aug. 27, 2019).