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You are here: Home / Archives for Arbitration / Court Decisions / Confirmation / Vacation of Arbitration Awards

Confirmation / Vacation of Arbitration Awards

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).

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

SDNY Confirms Arbitration Order, Holding Order Was Final and Arbitrator Did Not Exceed Authority

December 3, 2024 by Kenneth Cesta

In Subway Franchise Systems of Canada ULC v. Subway Developments 2000 Inc., the U.S. District Court for the Southern District of New York addressed whether an arbitrator exceeded her authority when ordering that one of the parties to the arbitration must continue making interim payments during the pendency of the arbitration, and whether the arbitrator’s order was final and subject to appeal.

The underlying arbitration involved claims brought by Subway Developments 2000 Inc. against Subway Franchise Systems of Canada ULC alleging that Subway Franchise wrongfully terminated two development-agent agreements between the parties. The development-agent agreements included a mandatory arbitration provision that covered disputes regarding the termination of the agreements. The agreements further provided that any arbitration initiated under the agreements is limited to a determination by the arbitrator of the validity of the termination of the agreement by Subway Franchise, potential reinstatement of Subway Development if the termination is found to be invalid, and for a determination of damages. The agreements also included a provision requiring Subway Franchise to make 50% of the periodic payments due to Subway Development during the pendency of the arbitration until the arbitrator issued a decision. Subway Franchise initially took the position that it was excused from making the required payments but later made the payments either directly to Subway Developments or to Subway Franchise’s attorney trust account. Subway Developments objected and brought the matter to the arbitrator’s attention. After a hearing, the arbitrator issued an order requiring Subway Franchise to resume making the payments required under the development-agent agreements directly to Subway Developments during the pendency of the arbitration. Three months later, the arbitrator entered another order imposing sanctions if Subway Franchise failed to comply with the prior order and denying Subway Franchise’s motion to stay the order.

Subway Franchise then filed a petition in the district court seeking to vacate the arbitrator’s order, contending that the arbitrator exceeded her authority by compelling it to make interim payments directly to Subway Developments during the pendency of the arbitration. Subway Developments opposed the petition, arguing that the arbitrator’s order was not final and thus not subject to appeal, or in the alternative, to confirm the arbitrator’s order. In reviewing the petition, the court noted that the case is governed by the New York Convention since both parties to the proceeding maintained their principal place of business outside the United States and that the domestic provisions of the Federal Arbitration Act (FAA) also applied since the arbitration was being conducted in the United States. The court then addressed whether the arbitrator’s order was final and subject to appeal, concluding that since the order “determines temporary control over the money that would be used to secure any potential judgment” the order is “final for the purpose of judicial review.” The court then addressed Subway Franchise’s petition to vacate the order under section 10(a)(4) of the FAA, which allows a party to seek to vacate an arbitration award when the arbitrator “exceeded her powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” After a thorough review of applicable case law and the record submitted, the court concluded that Subway Franchise “fails to meet the high standard to demonstrate that the arbitrator exceeded her authority here” and denied Subway Franchise’s petition to vacate the order. The court then addressed Subway Developments’ petition to confirm the arbitration order, concluding that it must confirm the arbitration order under the New York Convention since no grounds exist to vacate the award.

Subway Franchise Systems of Canada, ULC v. Subway Developments 2000, Inc., No. 1:24-cv-00593 (S.D.N.Y. June 21, 2024).

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

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

District Courts May Not “Look Through” Applications to Modify, Confirm, or Vacate Arbitral Awards

August 8, 2024 by Benjamin Stearns

Ascension Data & Analytics LLC terminated its contract with Pairprep Inc. for data extraction services after an alleged data breach involving Pairprep’s servers and Pairprep’s alleged “failure to extract reliable data.” Ascension subsequently initiated arbitration proceedings against Pairprep pursuant to the parties’ contract in an attempt to recover the remediation costs incurred as a result of Pairprep’s data breach. Pairprep asserted counterclaims against Ascension, and the arbitration panel ultimately rendered a monetary award in Pairprep’s favor.

Ascension petitioned the Northern District of Texas to vacate the arbitration award. Shortly thereafter, Pairprep filed an application to confirm the arbitration award in Texas state court. The state court confirmed the award and entered a final judgment in favor of Pairprep. In the federal proceeding, Ascension filed a motion for a preliminary injunction against the state court proceeding, while Pairprep argued that the district court lacked subject matter jurisdiction. The district court agreed and dismissed the matter due to a lack of subject matter jurisdiction.

The Fifth Circuit Court of Appeals affirmed the dismissal, relying on the U.S. Supreme Court’s recent decision in Badgerow v. Walters. There, the Supreme Court concluded that district courts may not “look through” the application for confirmation or vacation of an arbitration award to determine whether the court has jurisdiction over the matter. Rather, “a court may look only to the application actually submitted to it in assessing its jurisdiction.”

The fact that a petition seeks enforcement or vacation of an arbitration award rendered under the Federal Arbitration Act is not sufficient. Rather, the court must identify some additional “independent basis for its jurisdiction,” such as satisfaction of the requirements for diversity jurisdiction or federal question jurisdiction. The court noted that an arbitration award “is no more than a contractual resolution of the parties’ dispute … [a]nd quarrels about legal settlements — even settlements of federal claims — typically involve only state law, like disagreements about other contracts.” As such, if there is no other additional basis for federal jurisdiction that is shown on the petition to modify, confirm, or vacate an arbitration award, then the matter is one for state courts, not federal courts.

Ascension Data & Analytics, LLC v. Pairprep, Inc., No. 23-11026 (5th Cir. June 25, 2024)

Filed Under: Arbitration / Court Decisions, 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

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