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Brendan Gooley

Southern District of New York Issues Order on Post-Judgment Interest and Fees in Arbitration Case

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The Southern District of New York recently modified an arbitrator’s award regarding post-judgment interest and declined to award fees and costs related to the prevailing party’s motion to confirm the arbitration award.

Negocios y Telefonia Nedetel S.A. entered into a contract with Kenmar Securities LLC for Kenmar to provide advisory and investment banking services to Nedetel related to a potential sale of Nedetel. The contract included a “success fee” provision that required Nedetel to pay Kenmar a fee if a “transaction” for the sale of Nedetel closed. Nedetel terminated the contract and subsequently entered into a stock purchase agreement to sell 70% of Nedetel and a shareholders’ agreement to sell the remaining 30%. Kenmar claimed those agreements triggered the “success fee” provision and initiated arbitration. An arbitrator ruled in favor of Kenmar and awarded, among other things, post-award interest at the rate of 9%.

Kenmar moved to confirm the award. Nedetel did not dispute the merits of the arbitration award but claimed that post-judgment interest was limited to a rate lower than 9%. The court agreed. The court explained that 28 U.S.C. § 1961 sets a post-judgment interest rate tied to the weekly average one-year constant maturity Treasury yield. The court noted that the parties may contract for a different post-judgment interest rate. Nedetel claimed that the parties had not done that. Kenmar responded that the parties had agreed to a different rate by agreeing to submit the question of post-judgment interest to the arbitrator. The court rejected that argument, explaining that “the parties did not explicitly submit the issue of post-judgment interest to the arbitrator” and that, even if they had, “parties’ agreement to submit the interest rate issue to the arbitrator is insufficient to deviate from Section 1961” because “parties must expressly agree (1) on the interest rate and (2) that this rate applies specifically to post-judgment interest.” The court therefore ordered that post-judgment interest would accrue at the lower rate (approximately 3.28%) sought by Nedetel.

Kenmar also sought the fees and costs that it incurred to confirm the arbitration award. The court declined to award those fees and costs, explaining that “the parties did not agree to award the prevailing party fees and costs stemming from proceedings to confirm the arbitration award” and that it was unaware of any authority that allowed it to otherwise award those fees and costs.

Kenmar Securities LLC v. Negocios Y Telefonia Nedetel S.A. , No. 1:24-cv-06737 (S.D.N.Y. Dec. 19, 2024).

Second Circuit Rejects Challenge to Arbitration Award

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The Second Circuit Court of Appeals recently rejected an attempt to vacate an arbitration award related to a maritime contract.

Spliethoff Transport B.V. initiated arbitration against Phyto-Charter Inc. related to an alleged breach of a maritime contract. Spliethoff prevailed and moved to confirm the arbitral award. Phyto-Charter moved to vacate the award, arguing that the arbitrator exceeded the scope of his authority, acted in “manifest disregard” of the parties’ choice of law clause and selection of venue, and made various evidentiary and procedural errors, including failing to follow the Federal Rules of Civil Procedure and Federal Rules of Evidence.

The district court rejected Phyto-Charter’s arguments, and the Second Circuit affirmed. The Second Circuit rejected the argument that the arbitrator manifestly disregarded the parties’ choice of law and selection of venue clauses and noted that “[n]one of the evidentiary or procedural rulings about which Phyto-Charter complain[ed] deprived it of ‘fundamental fairness’ in the arbitration proceedings.” The court also concluded that the arbitrator did not exceed his authority and, in response to Phyto-Charter’s argument about the arbitrator not following the Federal Rules of Civil Procedure and Federal Rules of Evidence, stated that “an arbitrator need not follow all the niceties observed by the federal courts.”

Spliethoff Transport B.V. v. Phyto-Charter Inc., No. 23-7308 (2d Cir. Dec. 19, 2024).

 

Seventh Circuit Refuses to Vacate Arbitration Award Under Public Policy Exception

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The Seventh Circuit Court of Appeals recently refused to invalidate an arbitration award in a breach of contract case involving patent royalties based on purported violations of public policy.

Dr. John Insall patented various knee replacement devices and licensed them to medical device company Zimmer Biomet Holdings Inc. Zimmer paid Dr. Insall, and later his estate, royalties in return. Dr. Insall’s last patent expired in 2018, and Zimmer informed his estate it would be ceasing royalty payments because it believed further payments ran “counter to the policy and purpose of patent laws.” The estate claimed that was improper and the parties arbitrated the matter. An arbitration panel concluded that the payments could continue and thus ruled for the estate. Zimmer moved to vacate the award on public policy grounds. The district court confirmed the award.

The Seventh Circuit affirmed. It noted that even if Zimmer’s arguments that there is a “well-defined public policy that a party may not be compensated for patent rights after the patent’s expiration,” the arbitration award still needed to be confirmed because “the panel determined that the royalty payments in question were not grounded in any patent rights” but were instead “untied” to Dr. Insall’s “patents, products, or technology.” Put differently, the panel interpreted the contract as providing for payments for “non-patent rights” that were “closely related” to patents. The court noted that the Federal Arbitration Act does not allow it to question whether the arbitrators erred or even clearly erred in interpreting a contract, but to only determine whether it interpreted the contract.

Zimmer Biomet Holdings, Inc. v. Insall, No. 23-1888 (7th Cir. July 12, 2024).

Ninth Circuit Holds That Arbitration Clause in “Sign-In Wrap Agreement” Is Enforceable

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The Ninth Circuit Court of Appeals recently reversed the denial of a motion to compel arbitration after concluding, contrary to the district court’s decision, that a “sign-in wrap agreement” provided conspicuous notice of terms and that an arbitration clause in the terms was therefore enforceable.

Warners Bros. Entertainment Inc. developed Game of Thrones: Conquest, a mobile game that users could download on their phones. To play the game, users had to press a button labeled “play.” That button was directly over a notice informing users that, by pressing “play,” they agreed to the game’s terms of use. The phrase “terms of use” was a hyperlink to the terms. The first paragraph of the terms advised users in all capitals that the terms required “the use of arbitration on an individual basis to resolve disputes” and involved “waiving your right to a jury trial and class action relief.” An arbitration clause was further down in the terms.

A group of plaintiffs sued Warners Bros. for false and misleading advertising. Warner Bros. moved to compel arbitration. The district court denied that request, concluding that the notice of the terms was “insufficiently conspicuous to bind users to them.”

Warner Bros. appealed and the Ninth Circuit reversed and remanded. The court concluded that the terms were “sufficiently conspicuous” under California law. The court found that the “context of the transaction” supported the enforceability of the terms because users downloaded the app to play the game rather than just accessing a website and thus knew that they would be playing the game for extended periods. The Ninth Circuit also concluded that the visual placement of the notice of the terms — immediately under the “play” button — was clear and conspicuous. The Ninth Circuit also rejected the argument that the terms were substantively unconscionable because the arbitration agreement purportedly banned injunctive relief.

Keebaugh v. Warner Bros. Entertainment Inc., No. 22-55982 (9th Cir. Apr. 26, 2024).

Federal Court Rejects Argument That Subsequent Opt-Out of Arbitration Clause Precluded Arbitration

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The U.S. District Court for the Northern District of Illinois has rejected an argument that opting out of arbitration clauses precluded arbitration under prior arbitration agreements in a dispute between Uber drivers and Uber.

A group of Illinois Uber drivers sued Uber under the Fair Labor Standards Act and Illinois law claiming that Uber misclassified them as independent contractors. Uber moved to compel arbitration, arguing that the drivers had signed multiple platform access agreements that included broad arbitration clauses. The platform access agreements allowed drivers to opt out of the arbitration clauses if they so chose, however. The drivers had not opted out of one or more of the agreements but, when subsequent platform access agreements were presented to them, had opted out of those. They argued that the subsequent opt-outs precluded Uber from enforcing the earlier agreements to arbitrate. The district court disagreed, citing the plain language of the opt-out provision, which provided: “If you opt out of this Arbitration Provision and at the time of your receipt of this Agreement you were bound by an existing agreement to arbitrate disputes arising out of or related to your use of our Platform and Driver App, that existing arbitration agreement will remain in full force and effect.” The court also concluded that the arbitration clauses were not unconscionable under Illinois law. One of the plaintiffs had previously filed suit and obtained a ruling that he was not required to arbitrate any claims, however. The district court gave effect to that decision under issue preclusion principles.

Agha v. Uber Technologies, Inc., No. 1:23-cv-17182 (N.D. Ill. Apr. 22, 2024).