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You are here: Home / Archives for Arbitration / Court Decisions / Arbitration Process Issues

Arbitration Process Issues

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).

 

Filed Under: Arbitration / Court Decisions, Arbitration Process Issues

Vacation of Arbitration Award for Manifest Disregard of the Law Is “Exceedingly Rare,” Requires “Egregious Impropriety”

August 30, 2024 by Benjamin Stearns

The U.S. District Court for the Southern District of New York denied a petition to vacate a $65 million arbitration award based on the petitioner’s argument that the arbitrator’s decision was in “manifest disregard of the law.” The court explained that a “litigant seeking to vacate an arbitration award based on alleged manifest disregard of the law bears a heavy burden, as awards are vacated on grounds of manifest disregard only in those exceedingly rare instances where some egregious impropriety on the part of the arbitrator is apparent.”

A court may vacate an award for manifest disregard of the law only if the court finds both that:

  1. The arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether; and
  2. The law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case.

In contrast, a court must uphold an arbitration award so long as “the arbitrator has provided even a barely colorable justification for his or her interpretation of the contract.”

Here, the court found that the arbitrator’s award was “extensively reasoned” and “correctly applied New York law.” As such, the court granted the respondent’s cross-motion to confirm the arbitration award.

The court denied the respondent’s motion for attorneys’ fees, despite noting that it retained “inherent equitable powers to award attorney’s fees when the opposing counsel acts in bad faith, vexatiously, wantonly, or for oppressive reasons,” and despite the fact that it dispatched the petitioner’s motion to vacate with relative ease. Although the petitioner’s arguments failed, the court did not find that counsel had acted “in bad faith … or for oppressive reasons.” The respondent argued that the petitioner’s motion breached clear provisions of the arbitration agreement prohibiting such filings, and it should therefore be awarded the fees it had been forced to expend. But the court noted that the agreement “effectively incorporated FAA review into [the] contract” and, further, that “courts have held provisions that prevent or discourage petitioners from challenging arbitral awards are unenforceable.”

Risen Energy Co. v. Focus Futura Holding Participações S.A., No. 1:23-cv-10993 (S.D.N.Y. June 11, 2024).

Filed Under: Arbitration / Court Decisions, Arbitration Process Issues, Confirmation / Vacation of Arbitration Awards

South Carolina Supreme Court Vacates Award, Finds Arbitration Panel Manifestly Disregarded Statutory Law

May 24, 2024 by Benjamin Stearns

National Golf Management LLC sold 13 golf courses to a buyer represented by broker Andrew Waldo. NGM was represented in a previous transaction by Michael Cousins. Although Cousins had no written representation agreement with any of the parties involved in the 13-golf course deal, he and his real estate brokerage company sued Waldo, Waldo’s company, and NGM, among others, for a commission from the sale of the golf courses.

As a result of both Waldo and Cousins’ membership in a local realtor association, they were required to arbitrate their professional dispute. Despite South Carolina statutes stating that oral agreements for a commission from a real estate transaction were unenforceable, the arbitration panel ruled that Cousins was entitled to half of the commission Waldo earned from the sale.

Waldo petitioned the circuit court, which vacated the award. However, the court of appeals reversed, finding that there was a “barely colorable” ground for the arbitration award based on a line of cases upholding oral and implied contracts for real estate commissions that, while in conflict with statutory law, had not been directly overruled.

The South Carolina Supreme Court reversed. While acknowledging and reaffirming the “rare and narrow basis” upon which courts may disturb an arbitration award, the court found that the circumstances of this case constituted just such a “rare” occasion. The court explained that subsequent to the issuance of the opinions cited by the appellate court, the South Carolina legislature had enacted laws that “fundamentally changed real-estate licensing.” Cousins argued that he was a “cooperating broker” or a “subagent” of Waldo and therefore was entitled to a share of the commission. However, the newly enacted laws, which were in effect at the time of the transaction in question, required a subagent agreement to “be in writing” and to “set forth all material terms of the parties’ agency relationship.”

The law went further and explicitly prohibited oral or implied agency relationships, providing that “[f]or all real estate transactions, no agency relationship … exists unless the buyer, seller … and the brokerage company … agree, in writing, to the agency relationship. No type of agency relationship may be assumed … or created orally or by implication.” The court found that the arbitrators were aware of these statutes but nevertheless ordered the commission to be shared with Cousins.

The court noted that courts “may now vacate an arbitration award, but only when it is untethered from controlling legal principles known to, but shrugged off by, the arbitrator….  As we have held, ‘manifest disregard is an exacting standard, but it is not insurmountable.’” In light of the above facts, the court found that the arbitration award was in manifest disregard of the law and vacated the award.

Waldo v. Cousins, No. 2022-000134 (S.C. May 1, 2024).

Filed Under: Arbitration / Court Decisions, Arbitration Process Issues, Confirmation / Vacation of Arbitration Awards

Second Circuit Affirms District Court Order Confirming Chinese Arbitration Award

May 10, 2024 by Kenneth Cesta

In Huzhou Chuangtai Rongyuan Investment Management Partnership v. Qin, the Second Circuit Court of Appeals affirmed a district court order granting summary judgment confirming a Chinese arbitration award totaling approximately $450 million, rejecting Respondent/Appellant’s contention that he was not provided with adequate notice of the underlying arbitration.

The underlying arbitration involved a contract dispute between the original shareholders and subsequent investors in a Chinese company that owned and operated movie theaters. The petitioners initiated the arbitration before the China International Economic and Trade Arbitration Commission (CIETAC), alleging that the respondent breached a capital increase agreement. The petitioners were awarded approximately $450 million in connection with the arbitration, which was confirmed by the district court. The respondent then appealed, contending that he was not provided with adequate notice of the arbitration and was unable to participate in the selection of the arbitrators.

In affirming the district court’s order, the Second Circuit first confirmed its standard of review, noting that “we review legal issues de novo and findings of fact for clear error.” Citing the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the court recognized that lack of proper notice of the arbitration is a defense to enforcement under Article V(1)(b) of the New York Convention. The court further noted, however, that the review of arbitral awards under the New York Convention is “very limited in order to avoid undermining the twin goals of arbitration … settling disputes efficiently and avoiding long and expensive litigation.” The court then rejected the respondent’s contention that he was not provided with adequate notice of the arbitration and was unable to participate in the selection of the arbitrators, finding that CIETAC’s efforts to provide notice to the respondent were “reasonably calculated to provide notice under the circumstances of this case,” thus satisfying due process. The court affirmed the district court’s orders granting the petitioners’ motion to confirmation the arbitration award and denying the respondent’s motion for reconsideration.

Huzhou Chuangtai Rongyuan Investment Management Partnership v. Qin, No. 23-0747 (2d Cir. Mar. 20, 2024).

Filed Under: Arbitration / Court Decisions, Arbitration Process Issues, Confirmation / Vacation of Arbitration Awards

New Jersey Supreme Court Reinstates Arbitrator’s Decision Demoting School Official

March 21, 2024 by Benjamin Stearns

Under New Jersey’s Tenure Employees Hearing Law, when a school district files tenure charges against an employee, the state commissioner of education must refer the case to arbitration if he or she determines that the charges are “sufficient to warrant dismissal or reduction in salary of the person charged.” Amada Sanjuan, an assistant principal, was charged with “conduct unbecoming” after lying about the cause of a fall she had taken down a flight of stairs, which was caught on a security camera. The commissioner referred the case to arbitration, and, after a hearing, the arbitrator determined that Sanjuan should be demoted and reinstated without back pay.

Sanjuan filed a complaint seeking to vacate the arbitration award against her and to be reinstated as a tenured administrator with back pay. She argued that New Jersey law limited the possible penalties an arbitrator could impose to termination or a reduction of salary. Sanjuan argued that demotion was not an available penalty, and because the arbitrator had already heard and decided against termination, the arbitrator was collaterally estopped from firing her upon rehearing. The trial court ruled against Sanjuan, but the Appellate Division reversed.

On appeal, the New Jersey Supreme Court determined that the law limited the matters that could be referred to an arbitrator to those that could merit termination or a reduction in salary, but the law did not limit the arbitrator’s power to only those two possible remedies. Rather, the court found that arbitrators traditionally had wide-ranging discretion to fashion an appropriate remedy, and nothing in the law changed or limited that discretion. Nor did any contractual agreement relevant to the matter impose any additional limits on the penalties that the arbitrator could impose. As a result, the arbitrator had the authority to order Sanjuan’s demotion. The Supreme Court reversed and ordered that the arbitrator’s decision be reinstated.

Sanjuan v. School District of West New York, No. 087515 (N.J. Feb. 12, 2024).

Filed Under: Arbitration / Court Decisions, Arbitration Process Issues

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