Benjamin Stearns

District Court’s Order Details 28 USC § 1782 Requirements for Granting Ex Parte Petition for Discovery of Documents in Foreign Proceeding

May 18, 2022 by Benjamin Stearns

The U.S. District Court for the Southern District of New York granted an ex parte petition under 28 U.S.C. § 1782(a) for the discovery of documents held by Aimbridge Hospitality, Norton Rose Fulbright, and White & Case for use in a proceeding in the British Virgin Islands. In so doing, the court noted that such ex parte petitions are “routinely grant[ed].”

A district court has the authority to grant a section 1782 petition where:

The person from whom discovery is sought resides or is found in the district of the district court to which the application is made;
The discovery is for use in a foreign proceeding before a foreign or international tribunal; and;
The application is made by a foreign or international tribunal or any interested person.

The court also described the following discretionary factors that the court may consider:

Whether the person from whom discovery is sought is a participant in the foreign proceeding, in which case the need for section 1782(a) aid generally is not as apparent;
The nature of the foreign tribunal, the character of the proceedings underway abroad, and the receptivity of the foreign court or agency abroad to U.S. federal court judicial assistance;
Whether the section 1782(a) request conceals an attempt to circumvent foreign proof-gathering restrictions; and
Whether the request is unduly intrusive or burdensome.

The petition, supported by declarations and memoranda of law, satisfied the required section 1782 criteria, where the petitioner averred that the respondents all resided in or were found in the Southern District, and the documents would be used to “strengthen [the petitioner’s] position” in ongoing litigation in the British Virgin Islands, which the petitioner had initiated, making it an “interested party.” In addition, each of the discretionary factors, including the fact that courts in the Southern District “routinely grant § 1782 applications for discovery for use in the BVI,” also weighed in favor of granting the petition.

In re Application of Tethyan Copper Co. Pty. Ltd., No. 1:21-mc-00377 (S.D.N.Y. Apr. 28, 2022).

State Court Disregards State Law Authorizing Award of Attorneys’ Fees in Arbitration Dispute Governed by FAA

April 28, 2022 by Benjamin Stearns

The Nevada Supreme Court affirmed the denial of attorneys’ fees pursuant to section 38.243, N.R.S. and in association with the confirmation of an arbitration award. The Nevada statute provides “on application of a prevailing party to a contested judicial proceeding under [Nevada laws seeking confirmation, vacatur, or modification of an arbitration award], the court may add reasonable attorney’s fees and other reasonable expenses of litigation incurred.”

The Nevada Supreme Court first affirmed the lower court’s confirmation of the arbitration award, finding that the arbitrator had not exceeded its authority in rendering the award. The court then recognized that a court may not award attorneys’ fees “absent authority under a statute, rule, or contract.” Despite Nevada law authorizing such an award, the Nevada Supreme Court noted that the parties both agreed that the FAA governed judicial review of this particular arbitration award, and because neither the FAA nor the arbitration agreement itself authorized an award of post-arbitration attorneys’ fees or costs, the lower state court was correct in denying fees, contrary Nevada law notwithstanding.

In re Petition of CLA Properties LLC, No. 80427 (Nev. Mar. 17, 2022).

Arbitration Provisions Delegating “All Disputes” to Arbitration Are Sufficiently “Clear and Unmistakable Evidence” of Parties’ Intent to Arbitrate Arbitrability

March 29, 2022 by Benjamin Stearns

An arbitration provision providing that “all controversies which may arise between the parties” was sufficiently broad and clear to require disputes related to the arbitration panel’s jurisdiction to be settled by the arbitration panel itself. “The question of who decides arbitrability is itself a question of contract.” “In determining whether the arbitrability of a dispute is to be resolved by the court or the arbitrator, the arbitration agreement is determinative.” In determining whether the parties have agreed “to arbitrate arbitrability,” a court should require “clear and unmistakable evidence that they did so.”

The Southern District of New York ruled that this “clear and unmistakable” standard was satisfied by the contract’s delegation of “all controversies” to the “exclusive jurisdiction” of the arbitration panel. “The Court finds that the meaning of this provision is plain indeed: any and all controversies are to be determined by arbitration. The wording is inclusive, categorical, unconditional, and unlimited.”

Having found that the arbitration panel had jurisdiction over the dispute, the court next addressed the argument that the panel had “manifestly disregarded” the law in its interpretation of the underlying contract at issue, sufficient to warrant vacatur of the panel’s award. The court noted that the Second Circuit follows a three-part test in evaluating such claims: (1) the law allegedly ignored must have been clear and explicitly applicable to the matter before the arbitrators; (2) disregard of the law must have led to an erroneous outcome; and (3) the arbitrators must have known of the law’s existence and its applicability to the case, and must have disregarded it intentionally. The court found that the litigant fell well short of satisfying that standard. A “straightforward dispute over contractual interpretation” is “precisely the sort of Panel determination to which the Court is required to defer.” There was no support for the argument that the panel ignored clear and explicitly applicable law or any evidence of the panel’s subjective intent to disregard the law. As such, the court confirmed the panel’s award.

Katalyst Securities LLC v. Marker Therapeutics Inc., No. 1:21-cv-08005 (S.D.N.Y. Mar. 9, 2022).

First Circuit Clarifies Standard of Review and Evidentiary Proof Applicable to Motion to Compel Arbitration

March 2, 2022 by Benjamin Stearns

Air-Con Inc. is a Puerto Rico corporation that specializes in the sale and distribution of air conditioners in Puerto Rico and the Caribbean. A dispute arose between Air-Con and its supplier, Daikin Applied Latin America LLC. Daikin moved to compel arbitration after Air-Con filed suit in a Puerto Rican court. The district court of Puerto Rico granted Daikin’s request, finding that Air-Con and Daikin had operated pursuant to the terms of an agreement between Air-Con and Daikin’s parent company since the inception of their distribution relationship and the arbitration provision of the agreement between Air-Con and Daikin’s parent applied to the dispute. In addition, the district court read certain allegations from Air-Con’s complaint as admitting that its written agreement with Daikin’s parent applied to the dispute.

The First Circuit reversed. Initially, the court determined that, in light of section 4 of the FAA’s direction that the court “hear the parties” with regard to a motion to compel, the summary judgment standard should apply. The court reasoned that section 4’s command appears to contemplate the submission and consideration of evidentiary materials in support of and opposition to the motion. Given that a court should evaluate a motion to compel arbitration against the summary judgment standard, the court determined that it should review the court’s order de novo.

Applying Puerto Rican law, the court determined that the district court erred in applying the arbitration clause contained in Air-Con’s contract with Daikin’s parent to Air-Con’s dispute with Daikin. The court noted that the parent company is “an entity separate and distinct” from its subsidiary. In concluding that the contract should apply, the district court impermissibly put the burden of disproving the existence of a valid arbitration agreement on Air-Con, the non-moving party. The district court’s decision noted that Air-Con “failed to show” that the agreement between Air-Con and the parent company did not apply, but the focus should instead have been on whether Daikin affirmatively demonstrated the existence of a binding agreement to arbitrate.

In addition, the district court erred by construing allegations in Air-Con’s initial complaint as an admission that the arbitration provision of Air-Con’s agreement with the parent company applied. Daikin did not offer any evidence in support of its motion to compel arbitration but rather relied solely on the uncontroverted allegations from the complaint. In such a case, the court should review the motion like a motion to dismiss and therefore should draw all reasonable inferences in favor of the non-moving party (i.e., Air-Con). The district court erred by improperly construing the allegations of the complaint against Air-Con.

Without the district court’s misallocation of the burden of proof and improper construal of the complaint’s allegations against Air-Con, the First Circuit was left with the language of the agreement, which named Air-Con and Daikin’s parent company as the parties to the contract and further contained a non-assignability clause. That clause provided that the rights and obligations of the parties could not be assigned or otherwise transferred without the written consent of the other party. No such consent was entered into evidence. As the parent company was a separate entity from Daikin, and no written consent to an assignment was in the record, the district court erred by compelling Air-Con to arbitrate its dispute with Daikin.

Air-Con, Inc. v. Daikin Applied Latin America, LLC, No. 19-2248 (1st Cir. Dec. 20, 2021).

International Arbitration Award Under the New York Convention and Against the Haitian Government Confirmed by Southern District of New York

February 10, 2022 by Benjamin Stearns

The Southern District of New York confirmed an international arbitration panel’s award in favor of a Haitian company (PRH) and against the Haitian Bureau de Monetisation des Programmes d’Aide au Developpement (BMPAD). PRH entered into a series of contracts to source, ship, and deliver fuel to BMPAD. The first four fuel deliveries proceeded without a hitch, but BMPAD allegedly fell behind on payments on the fifth order. Eventually, PRH stopped the fuel shipments, alleging that BMPAD owed approximately $27.2 million.

PRH served a notice upon BMPAD demanding arbitration of their dispute pursuant to the arbitration clause in their agreements. The clause provided that if BMPAD did not appoint a second arbitrator within 10 days, then PRH would be entitled to select the second arbitrator, which PRH proceeded to do after the deadline had lapsed. The two PRH-selected arbitrators then selected a third and final arbitrator, again, pursuant to the procedure provided by the arbitration clause.

After PRH submitted its initial claim statement and request for an interim partial award of security to the arbitration panel, BMPAD indicated that it did not recognize the panel’s jurisdiction and that it had sought a stay of the arbitration proceeding in New York state court. However, in the absence of any injunctive relief issued by the New York state court, the panel ruled that the arbitration would proceed. BMPAD continued to object and refuse to participate, citing a recent COVID-19 surge in Haiti and the recent assassination of the Haitian president, among other things. Despite BMPAD’s objections, the panel ruled in PRH’s favor and directed BMPAD to deposit approximately $23 million into an escrow account.

PRH sought and obtained confirmation of the arbitration award from the Southern District of New York. The court ruled that none of the grounds provided by the New York Convention for refusing to confirm an arbitration award applied. The court held that BMPAD was estopped by the doctrine of res judicata (stemming from the stay proceeding it had initiated in New York state court) from arguing that the arbitration provision was illegal under Haitian law or that service of notice regarding the arbitration was not properly effected. Even if res judicata did not apply, the court found that the arbitration provision was not illegal under Haitian law and that service was proper because it complied with the method required by the parties’ agreement.

BMPAD also argued that the arbitration panel’s composition was improper based on an alleged “appearance of a conflict of interest.” However, the court noted that the New York Convention “specifically requires a showing that the composition of the panel was not in accordance with the agreement of the parties.” Here, the procedure for appointing the arbitration panel provided by the parties’ arbitration agreement was followed properly, which was the only relevant consideration under the Convention.

Finally, BMPAD argued that the public policy exception in Article V(2)(b) of the Convention should prevent confirmation of the award. The court noted that the law of the Second Circuit requires the public policy exception to be “construed very narrowly to encompass only those circumstances where enforcement would violate our most basic notions of morality and justice.” To the contrary, the court found that enforcement of the award would not violate morality and justice but rather would further America’s strong public policy in favor of international arbitration.

Preble-Rish Haiti, S.A. v. Republic of Haiti, No. 1:21-cv-06704 (S.D.N.Y. Jan. 26, 2022).