Brendan Gooley

Fourth Circuit Upholds Confirmation of Hong Kong Arbitration Award

February 24, 2025 by Brendan Gooley

The Fourth Circuit Court of Appeals recently rejected challenges to a district court’s decision to confirm a Hong Kong arbitration award, including arguments that confirming the award violated public policy and international comity because it was inconsistent with Chinese currency control laws.

Stephany Yu entered into a business partnership Xu Hongbiao and Ke Zhengguang to develop real property in China. Ke subsequently passed away. Disputes arose and a Hong Kong arbitration panel ordered Yu to pay Xu and Ke’s estate around $1.63 million.

Ke’s estate commenced an action pursuant to the New York Convention in the District of Maryland, where Yu lived, to enforce the award. Yu argued: (1) Maryland was a forum non conveniens; (2) Ke’s estate failed to join indispensable parties; and (3) enforcing the award would violate public policy because it would violate Chinese currency control laws.

The district court rejected Yu’s arguments and confirmed the award, ordering Yu to pay Ke’s estate $3.6 million based on the original award plus costs, fees, and interest.

Yu appealed but the Fourth Circuit affirmed. First, the Fourth Circuit noted that it is unclear whether forum non conveniens is a defense under the New York Convention but held that it did not need to decide the issue because the District of Maryland was not an inconvenient forum for Yu even if such a defense is valid. Yu is a U.S. citizen who lives in Maryland and holds assets there. Second, the Fourth Circuit found Yu’s arguments about purportedly indispensable parties unpersuasive. While Ke’s estate had indeed not joined all the parties to the underlying real estate partnership, those parties were not indispensable because Ke’s estate only sought to confirm the award and obtain money from Yu. Thus, Yu and Ke’s estate were “the only parties necessary for complete relief.” Third, the Fourth Circuit rejected Yu’s argument about Chinese currency laws. The court noted that “China controls the outflow of [currency] from China as part of its currency management” but explained that the arbitration award, never mind the order confirming it, simply did not constitute a transaction in China that required the export of currency. “[N]othing about an award by a Hong Kong arbitration panel made in [Chinese currency, which is “a widely traded international currency”] violates U.S. public policy.” Finally, the Fourth Circuit also disagreed with Yu’s argument that the district court erred by issuing an award in U.S. dollars. The court noted that a judgment in foreign currency may be appropriate in certain circumstances but that the district court acted reasonably by issuing its award in U.S. dollars, as is customary for U.S. courts.

Estate of Ke Zhengguang v. Yu, 105 F.4th 648 (4th Cir. 2024).

Fourth Circuit Holds It Lacks Jurisdiction to Consider Petition to Vacate

February 3, 2025 by Brendan Gooley

The Fourth Circuit Court of Appeals recently held that it lacked jurisdiction over a petition to vacate an arbitration award.

Petitioners Stanley and Gail Friedler and several other individuals opened brokerage accounts with Stifel, Nicolaus & Co. The petitioners were unhappy with the management of their accounts and filed claims for arbitration alleging mismanagement with FINRA. The arbitration panel ruled for Stifel. The petitioners moved to vacate FINRA’s award. The district court denied the petitioners’ motion, and the petitioners appealed to the Fourth Circuit.

The Fourth Circuit questioned whether the federal courts had jurisdiction in light of the Supreme Court’s decision in Badgerow v. Walters, 596 U.S. 1 (2022), which held that “the face of [a] petition [to vacate arbitration awards] must contain an independent jurisdictional basis beyond the Federal Arbitration Act (‘FAA’) itself.” Both parties argued the courts had jurisdiction.

The Fourth Circuit disagreed. It rejected the parties’ argument “that because the ‘face of the petition’ asserts that the arbitration panel manifestly disregarded federal securities laws, the district court had federal-question jurisdiction over the dispute.” The Fourth Circuit explained that a “petition to vacate an arbitration award doesn’t raise the merits of the underlying claim, but rather the ‘enforceability of an arbitral award,’ which is ‘no more than a contractual resolution of the parties’ dispute.’” The court also disagreed with the argument “that a claim of manifest disregard is a creature of federal common law that itself gives rise to federal-question jurisdiction.”

The Fourth Circuit therefore vacated and remanded the district court’s decision with instructions to dismiss the petition to vacate the arbitration award.

Friedler v. Stifel, Nicolaus & Co., No. 22-1895 (4th Cir. July 18, 2024).

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

January 17, 2025 by Brendan Gooley

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

January 15, 2025 by Brendan Gooley

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

November 15, 2024 by Brendan Gooley

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).