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

Arbitration Process Issues

SECOND CIRCUIT FINDS DISTRICT COURT ERRED IN DECISION ON ENFORCEMENT OF INTERNATIONAL ARBITRATION AWARD

March 28, 2017 by John Pitblado

The factual and procedural background of this case can be found here. In sum, beginning in the 1990s, the appellants, a group of Brazilian companies (collectively, “CBF”) entered into a series of contracts with Primetrade AG, a Swiss company, for the purchase and sale of pig iron. Primetrade transferred its assets, including the contracts with CBF, to another Swiss company, Steel Base Trade, AG (“SBT”), which “began operating with the same officers and directors as Primetrade AG and at the same offices.” AMCI International Gmb (“AMCI”) later acquired SBT. The following year, CBF entered into additional purchase and sale contracts with SBT that did not purport to bind any assigns or successors-in-interest. The contracts each contained an arbitration clause which provided for arbitration in Paris. In 2008, as commodity prices fell, SBT defaulted on its obligations under the contracts with CBF. CBF then commenced arbitration. During the course of arbitration, CBF alleged that SBT stalled the arbitration while it was fraudulently transferring its assets to Prime Carbon, a shell company formed and operated by the principals of SBT. In 2010, SBT filed for bankruptcy in Switzerland, and in 2011, SBT’s bankruptcy administrator informed the arbitration panel that the company had insufficient funds to participate in the arbitration and conceded CBF’s claims against SBT. The arbitration panel later issued a final award in favor of CBF for the amount of $48 million plus interest and costs. The award further held that CBF “did not introduce sufficient evidence . . . to demonstrate the existence of fraud in the bankruptcy proceedings.” In 2013, CBF commenced an action in New York federal court against various individuals and corporate entities alleged to be the “alter egos” and “successors in interest” of SBT. CBF sought to enforce the award and to assert various state law fraud claims relating to the underlying dispute. The New York district court dismissed the action because: (i) the award had not been first confirmed by a court of competent jurisdiction; and (ii) the fraud claims were barred by the doctrine of issue preclusion because the arbitration panel had denied similar claims. The appellants appealed.

On appeal, the Second Circuit vacated the district court’s judgment on two grounds: (i) the lower court erred by requiring the appellant, an award debtor, to bring a confirmation action prior to enforcement in a secondary jurisdiction; and (ii) the fraud claims were not barred by the doctrine of issue preclusion.

First, the Second Circuit held that there was no requirement to confirm an arbitration award at the arbitral seat of the arbitration before enforcing it in a secondary jurisdiction. The Second Circuit explained that the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) eliminated the “double exequatur” requirement, which mandated confirmation at the seat as a precondition to the enforcement of arbitral awards abroad. Under the Convention, the Second Circuit noted that CBF needed only to commence a summary, single-step proceeding to achieve recognition and enforcement of the award in a court in the United States. Thus, the Second Circuit held that the district court erred in holding that appellants were required to confirm their foreign arbitral award at the seat of the arbitration before they would be allowed to enforce it.

Next, the Second Circuit noted that the liability of the appellees for satisfaction of the arbitration award would be determined under the applicable law in the New York district court. Thus, as there were further legal and factual inquiries on the question of veil-piercing and alter ego liability, the Second Circuit remanded the case back to the district court to consider the issues under the applicable law in the New York district court.

Finally, with respect to issue preclusion, the Second Circuit noted that the doctrine is applicable to issues resolved by an earlier arbitration, but that the doctrine’s application is constrained by equity. The Third Circuit then noted that CBF claimed that it was denied a full and fair opportunity to litigate the fraud claims before the arbitration panel because the appellees deliberately misled the panel as to the extent of their fraud. Thus, the Second Circuit held that the grant of issue preclusion was inappropriate and that CBF should be afforded the opportunity to conduct discovery on its fraud claims, and that the appellees may be given the opportunity to re-raise the issue preclusion issue after discovery at the district court’s discretion.

CBF Indústria De Gusa S/A, et al. v. AMCI Holdings Inc., et al., No. 15-1133 (2nd Cir. Mar. 2, 2017).

This post written by Jeanne Kohler.

See our disclaimer.

Filed Under: Arbitration Process Issues, Week's Best Posts

ELEVENTH CIRCUIT LOOKS TO ALABAMA’S DOCTRINE OF “INTERTWINING” TO DETERMINE NON-SIGNATORY CANNOT BE COMPELLED TO ARBITRATE

March 27, 2017 by John Pitblado

Under Alabama law, “arbitration may be compelled under the doctrine of ‘intertwining’ where arbitrable and nonarbitrable claims are so closely related that the party to a controversy subject to arbitration is equitably estopped to deny the arbitrability of the related claim. But if the language of the arbitration provision is party specific and the description of the parties does not include the nonsignatory, the inquiry is at an end and the claims against the non-signatory cannot be submitted to arbitration.”

The Eleventh Circuit Court of Appeals held that a non-signatory cannot be compelled to arbitrate because the language of the agreements to arbitrate is party specific, does not include the non-signatory, and expressly states that all other disputes are not subject to arbitration.

The Court did, however, stay the action against the non-signatory, overturning the decision of the District Court for abuse of discretion in refusing to grant the stay, as the claims against the non-signatory and signatories “are based on the exact same factual allegations, the vast majority of which relate to the [signatories] only.”

Variable Annuity Life Insurance Company, et al. v. Brett Laferrera, et al., No. 16-14519 (11th Cir. Feb. 27 2017)

This post written by Nora A. Valenza-Frost.

See our disclaimer.

Filed Under: Arbitration Process Issues, Jurisdiction Issues, Week's Best Posts

FEDERAL COURT RESOLVES ARBITRATION CHALLENGES TO DISSOLUTION OF LAWYER AND NON-LAWYER PARTNERSHIP

March 23, 2017 by Rob DiUbaldo

A federal court recently decided a host of different motions related to an arbitration dissolving the now-defunct Beltway Law Group (“BLG”), a firm that operated websites and other marketing efforts to attract clients on behalf of unaffiliated trial law firms. The arbitrator had previously resolved the primary dispute between the parties—non-lawyer partners who provided marketing services and the lawyer-partner—by ordering the dissolution of the firm. The opinion discussed herein arose from the parties’ various motions challenging or supporting an arbitrator’s resolution of the secondary disputes between the parties: attorneys’ fees and costs (awarded to the lawyer-partner), motions to vacate and to confirm, and supervision of the winding down process.

The non-lawyer partners sought to vacate the arbitration award under each of the four statutory bases recognized by the Federal Arbitration Act, as well as for manifest disregard of the law. In turn, the court rejected each of these challenges and upheld the arbitral award. First, the court rejected vacatur based on “undue means” because the challenging partners did not present clear and convincing evidence of fraudulent conduct or undue means that denied them a “fundamentally fair hearing.” Second, the court rejected vacatur based on “evident partiality” because the challenging party failed to meet the “heavy burden” of showing that the circumstances indicated any improper motives on behalf of the arbitrator. Third, the court rejected vacatur based on “”misconduct” by the arbitrator because the arbitrator’s refusal to stay the proceedings and allow one of the non-lawyer partners more discovery was not unreasonable nor an abuse of discretion. Fourth, the court addressed the challenging parties’ contention that the arbitrator acted with “manifest disregard” of the law—the legal viability of which as a basis to vacate an arbitration award remains uncertain. The court declined to resolve that issue by finding that the challenging parties’ failed to meet the manifest disregard standard (even assuming it is viable) – that the arbitrator knowingly refused to apply a governing legal principle that was well defined and clearly applicable.

Proceeding to the other pending motions before it, the court next granted the lawyer-partner’s motion to confirm the arbitral award because there was no valid basis to vacate it. It further denied the non-lawyer partners’ motion to appoint a receiver to facilitate the winding down of BLG because appointment of a receiver must be ancillary to primary relief—not primary relief itself—and because the issue of receivership was already adjudicated in the underlying arbitration. Finally, the court rejected the lawyer-partner’s motion seeking sanctions against the non-lawyer partners because their positions were not frivolous or deceptive.

Ray v. Chafetz, Case No. 16-428 (USDC D.D.C. Feb. 17, 2017)

This post written by Thaddeus Ewald .

See our disclaimer.

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

SIXTH CIRCUIT FINDS IT HAS NO JURISDICTION OVER APPEAL OF ORDER COMPELLING ARBITRATION AND ENJOINING STATE COURT PROCEEDINGS

March 21, 2017 by Rob DiUbaldo

The Sixth Circuit has dismissed the appeal of an order granting a motion to compel arbitration and to enjoin certain state court proceedings, finding the order was not appealable because the district court stayed the matter pending arbitration rather than dismissing it.

The case began in state court where the administratrix of an estate brought various claims against a nursing home where the decedent had resided. The nursing home moved in federal court to compel arbitration and enjoin the administratrix from pursuing her claims in state court, which the district court granted.

The Sixth Circuit’s opinion hinged on the district court’s decision to stay the case pursuant to 9 U.S.C. § 3 rather than to dismiss it. The Sixth Circuit noted that, under 9 U.S.C. § 16(b)(1), such an order is not appealable except as provided for in 28 U.S.C. § 1292(b), which allows interlocutory orders to be appealed only if the district court states in writing that the “order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation.” As the district court made no such finding, the order was not appealable. Similarly, the Sixth Circuit found that it had no jurisdiction to review the district court’s order enjoining the state court proceeding, which was entered pursuant to the court’s power to direct arbitration provided by 9 U.S.C. § 4, as 9 U.S.C. § 16(b)(2) specifically prohibits appeals of such an interlocutory order.

Brandenburg Health Facilities v. Mattingly, Case No. 16-6161 (6th Cir. Feb. 24, 2017)

This post written by Jason Brost.

See our disclaimer.

Filed Under: Arbitration Process Issues, Jurisdiction Issues, Week's Best Posts

NINTH CIRCUIT REAFFIRMS ISKANIAN RULE, REJECTS WAIVER OF REPRESENTATIVE ACTION UNDER PAGA

March 14, 2017 by Michael Wolgin

Defendants appealed an order from a California federal district court that denied their motion to compel individual arbitration of a former employee’s representative claim under California’s Private Attorney General Act (PAGA). On appeal, the defendants argued that the plaintiff’s arbitration agreement, wherein she agreed to arbitrate all disputes regarding her employment on an individual basis, applied to her PAGA claim as well. The Ninth Circuit affirmed the district court’s order denying defendants’ motion to compel arbitration. The panel reaffirmed the Iskanian rule, which holds that under California law, an employment agreement that compels the waiver of representative claims under the PAGA, is contrary to public policy and therefore unenforceable. Hernandez v. DMSI Staffing, LLC, Case No. 15-15366 (9th Cir. Feb. 16, 2017).

This post written by Gail Jankowski.

See our disclaimer.

Filed Under: Arbitration Process Issues, Week's Best Posts

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