Carlton Fields

This case arises out of an underlying arbitration between First Capital Real Estate Investments LLC and SDDCO Brokerage Advisors LLC. First Capital appealed from an order of the district court denying First Capital’s petition to vacate an arbitration award, granting SDDCO’s petition to confirm the award, and granting SDDCO attorneys’ fees and prejudgment interest.

First Capital argued that the district court’s opinion and order failed to address First Capital’s argument that the award should be vacated because one of the arbitrators was not selected properly. The U.S. Court of Appeals for the Second Circuit affirmed the order of the district court. The Second Circuit explained that the district court did address First Capital’s argument in that it specifically stated in its opinion that “it had ‘considered all of the arguments raised by the parties’ and that as to any arguments ‘not specifically addressed, the arguments are either moot or without merit.'” Additionally, the Second Circuit reasoned that the district court opinion explained that “First Capital waived its objection to the arbitrator in question by failing to seek disqualification before the arbitration began.”

The Second Circuit also raised the issue of whether this was properly brought on appeal and noted that “if First Capital genuinely believed that the District Court overlooked one of its arguments, it did not attempt to bring the matter to the District Court’s attention through a motion for reconsideration.”

Accordingly, the Second Circuit held that the district court did not improperly fail to address First Capital’s argument and affirmed the award.

First Capital Real Estate Invs., LLC v. SDDCO Brokerage Advisors, LLC, No. 19-670 (2d Cir. Dec. 19, 2019).

This case arises out of plaintiff John B. Napoleone’s failure to repay a sign-on bonus of $100,000 to his former employer, defendant S2K Financial LLC, under the terms of his employment agreement. S2K commenced an arbitration to recover the sign-on bonus by filing a statement of claim with FINRA. FINRA informed the parties that the case would be decided by a single arbitrator, unless all parties agreed in writing to three arbitrators, pursuant to FINRA’s Code of Arbitration Procedure for Industry Disputes. S2K filed a motion to expand the panel to three arbitrators, to which Napoleone opposed, arguing that S2K participated in selecting the single arbitrator and, therefore, waived its right to amend the number of arbitrators. In two instances thereafter, Napoleone advanced his position that the arbitration panel should not be expanded. The sole arbitrator issued an award finding that Napoleone was liable for breach of contract and granted S2K $100,000 in compensatory damages plus interest.

Thereafter, Napoleone filed a petition to vacate the arbitration award arguing that the arbitrator exceeded his power and acted in manifest disregard for the law by rendering an award without amending the panel to three arbitrators. S2K moved to confirm the arbitration award arguing that Napoleone was judicially estopped from asserting this basis for vacatur.

The court denied Napoleone’s petition to vacate the arbitration award and granted S2K’s petition to affirm the arbitration award. The court explained that “judicial estoppel protects the sanctity of the oath and integrity of the judicial process by preventing a party from asserting a factual position in a legal proceeding that is contrary to a position previously taken by that party in a prior legal proceeding.” A party invoking judicial estoppel must show that: “(1) the party against whom the estoppel is asserted took an inconsistent position in a prior proceeding and (2) that position was adopted by the first tribunal in some manner, such as by rendering a favorable judgment.” The court reasoned that Napoleone opposed a three-member arbitration panel in three separate instances in the underlying arbitration. This inconsistent position was adopted by the arbitrator twice. As such, the court ruled that Napoleone was judicially estopped from asserting this basis for vacatur, and denied his petition to vacate the arbitration award.

Napoleone v. S2K Financial, LLC, No. 1:18-cv-03124 (S.D.N.Y. Dec. 6, 2019).

Plaintiff David Balch entered into a contract with Oracle Corp. to close a large government contract known as the “Mega Deal.” After closing the Mega Deal, Balch received a bonus that was less than he believed he was owed. Pursuant to the contract, Balch initiated an arbitration proceeding against Oracle to resolve the dispute. The arbitrator issued an award in favor of Oracle.

Balch filed a petition to vacate the award in a Maryland state court. Oracle removed to the U.S. District Court for the District of Maryland and filed a motion to confirm the award. The district court explained that an award can only be vacated on four narrow grounds set out in 9 U.S.C. § 10. Section 10 allows for vacating an award (1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or misconduct on the part of the arbitrator; or (3) where the arbitrator exceeded his or her powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. In addition, a court may overturn a legal interpretation of an arbitrator if it is “in manifest disregard of the law.”

The court ruled in favor of Oracle and confirmed the award. The court reasoned that the arbitrator did not fail to follow the essence of the contract. The court further explained that the arbitrator “had full discretion to determine the case on summary judgment … and the arbitrator otherwise afforded Mr. Balch a full and fair hearing through extensive briefing and discovery.” Lastly, the court held that the arbitrator did not act in manifest disregard of the law because the arbitrator identified the controlling principles of the Maryland Wage Payment and Collection Law, reasonably determined that an ambiguity existed in the application of the law to apposite cases, and heeded the legal principles laid out in the cases he perceived to be correct and on point.

Balch v. Oracle Corp., No. 1:19-cv-01353 (D. Md. Nov. 15, 2019).

Metso Minerals Canada Inc. and Metso Minerals Industries Inc. entered into a contract with ArcelorMittal Exploitation Miniere Canada and ArcelorMittal Canada Inc. to supply a specialized mill to a mining mill that ArcelorMittal operated in Quebec, Canada. The contract contained an arbitration clause requiring the parties to submit all disputes arising from the contract to arbitration. ArcelorMittal initiated an arbitration proceeding asserting causes of action under Quebec law, including contract-based claims and a claim for breach of the duty to inform. The breach-of-duty-to-inform claim was based on the allegation that Metso knew of a potential defect in the mill but did not inform ArcelorMittal.

The panel granted an award in favor of Metso stating that the mill met the design criteria in the contract, and therefore a duty to inform about possible defects was meaningless. Metso moved to confirm the arbitration award against ArcelorMittal, and ArcelorMittal cross-moved to vacate the award. The court confirmed the award. The court explained that courts may vacate an arbitration award on four narrow grounds under 9 U.S.C. § 10. In addition, an award can be vacated for “manifest disregard of the law.” “Manifest disregard” is one of “last resort” and is limited to “exceedingly rare instances where some egregious impropriety on the part of the arbitrators is apparent.” In evaluating a motion to vacate an award based on manifest disregard of the law, a court looks to three questions: (1) whether the law that was allegedly ignored was clear and explicitly applicable to the matter before the arbitrator; (2) whether the applicable law was in fact improperly applied resulting in an erroneous outcome; and (3) whether the arbitrator intentionally disregarded the law. The court explained that despite the fact that the law regarding the duty to inform was potentially unclear, it was plausible for the panel’s majority to find that the undisclosed risks ArcelorMittal identified were insufficiently important to warrant disclosure and that the only facts Metso had to disclose were those regarding whether the mill could meet contractual design criteria and fulfill ArcelorMittal’s expectations under the contract. As such, the court confirmed the award in favor of Mesto.

Metso Minerals Canada, Inc. v. ArcelorMittal Exploitation Miniere Canada, No. 1:19-cv-03379 (S.D.N.Y. Nov. 4, 2019).

City Beverages LLC, doing business as Olympic Eagle Distributing, and Monster Energy Co. entered into an agreement under which Monster had exclusive distribution rights for its products in a certain territory for 20 years. Monster exercised its contractual right to terminate the agreement and, in response, Olympic invoked Washington’s Franchise Investment Protection Act, which prohibits termination of a franchise contract absent good cause. Monster thereafter initiated an arbitration proceeding before JAMS pursuant to a mandatory arbitration clause in the parties’ agreement. The parties chose an arbitrator, who submitted disclosure statements prior to the arbitration. The arbitrator ultimately issued a final award in favor of Monster.

Monster filed a petition to confirm the award, and Olympic cross-petitioned to vacate the award based on later-discovered information that Olympic alleged demonstrated that the arbitrator was not impartial. The court vacated the arbitration award. Initially, the court explained that the Federal Arbitration Act permits a court to vacate an arbitration award when there is evident partiality on the part of the arbitrators. Evident partiality includes instances in which the arbitrator fails to disclose to the parties any dealings or interests that might create an impression of possible bias. Here, the arbitrator failed to disclose his ownership interest in JAMS, and that JAMS had administered 97 arbitrations for Monster over the past five years. Based on these facts, the court held that vacatur of the arbitration award was necessary on grounds of evident partiality.

Monster Energy Co. v. City Beverages, LLC, Nos. 17-55813, 17-56082 (9th Cir. Oct. 22, 2019).