Arbitration Process Issues

Foreign arbitration awards must generally be upheld in the United States under treaty obligations. Upholding a foreign award requires that there actually be an arbitration award, however. For that matter, it requires an actual arbitration proceeding. A recent Ninth Circuit decision confronted a strange situation where there was no arbitration to confirm.

Michael Castro signed an employment agreement to be a commercial fisherman for Tri Marine. The agreement contained a mandatory arbitration provision that required him to arbitrate any disputes in and subject to the procedural rules of American Samoa. Castro was injured on the job. He released his claims in exchange for a cash settlement. The release also contained an arbitration clause requiring arbitration in American Samoa. Castro was then advised to go to an arbitrator in the Philippines with a representative of Tri Marine, though claimed he was told and believed he was merely picking up his settlement check. At the arbitrator’s office, Tri Marine filed a motion to dismiss the arbitration, even though there was not an arbitration case filed (indeed, there wasn’t even a case number assigned to the matter). The arbitrator granted that motion. Castro later required additional surgery and sought to bring suit in Washington state court in the United States. Tri Marine removed to Washington federal court, which dismissed the case.

The Ninth Circuit reversed. The court recognized that foreign arbitration awards must generally be upheld under the New York Convention, but concluded that there was no arbitral award under the facts. Although the arbitrator had issued a decision on a motion to dismiss, the parties had settled their dispute before the “case” was even filed. There was nothing to arbitrate. But even if there was an “arbitration,” it did not comply with the arbitration agreement’s arbitration clause or choice-of-venue provision. There was no evidence Castro waived those provisions. And even putting aside all those problems, the “arbitration” did not comply with the law of the Philippines concerning arbitration. The Ninth Circuit was careful to note that it was not infringing on “consent awards” whereby settlements reached during arbitration are turned into arbitration awards. That did not happen in this case. The court then remanded the case to the district court and instructed it to consider whether jurisdiction existed.

Castro v. Tri Marine Fish Co., No. 17-35703 (9th Cir. Feb. 27, 2019).

A New York federal court recently confirmed an arbitration award related to the alleged theft of more than $100 million from a Luxembourg company, SLS Capital. SLS’s liquidator in bankruptcy court then initiated a FINRA arbitration against CRT Capital, which had sold its majority interest in SLS to David Elias, who allegedly stole SLS’s assets.

CRT prevailed after a lengthy arbitration and was awarded more than $4 million, which includes costs and fees. CRT sought to confirm the award. SRT opposed that motion and sought to vacate the award. SRT argued that the arbitrators had improperly: (1) excluded expert rebuttal testimony it proffered; (2) applied the Federal Rules of Evidence during the hearing; and (3) awarded fees. The New York district court rejected those arguments and confirmed the award. The court concluded that the arbitration panel had numerous independent grounds for excluding the proffered rebuttal testimony, acted within its discretion to apply the evidentiary rules, and, under a highly circumscribed review, did not manifestly disregard the law of New York with respect to the award of costs and fees.

CRT Capital Grp. LLC v. SLS Capital, S.A., No. 1:18-cv-03986-VSB (S.D.N.Y. Mar. 31, 2019)