Confirmation / Vacation of Arbitration Awards

Eleventh Circuit Affirms Confirmation of Arbitration Award Over Claims of Fraud, AAA Rule-Breaking, and Lack of Jurisdiction

By: Brendan N. Gooley

The Eleventh Circuit recently affirmed the confirmation of an arbitration award in a dispute involving a contract to obtain signatures for a Florida solar energy ballot initiative over claims that the prevailing party engaged in fraud, violated AAA rules, and that the arbitrator lacked jurisdiction to add attorneys’ fees to his award months after the arbitration hearing.

PCI Consultants Inc. contracts with entities and organizations to obtain signatures for petitions for ballot initiatives in exchange for a fee. In 2015, PCI contracted with Floridians for Solar Choice Inc. and Solar Alliance for Clean Energy Inc. (together, the Solar parties) to obtain signatures to support a proposed ballot initiative for a solar energy amendment to the Florida Constitution. A dispute arose regarding payment. The Solar parties believed they paid PCI what it was due, but PCI withheld 217,000 signed petitions due to purported nonpayment. The dispute concerned additional expenses for a different ballot initiative concerning medical marijuana. PCI claimed the Solar parties agreed to share expenses with the medical marijuana campaign while the Solar parties disputed that they agreed to cover those expenses.

Floridians for Solar Choice sued alleging various claims in a U.S. District Court in Florida and moved to compel arbitration. The court granted that motion, and Solar Alliance subsequently appeared in the arbitration. After a three-day hearing, the single arbitrator who heard the dispute ruled in favor of the Solar parties and awarded $1,271,250 in damages. Several months later, the arbitrator also tacked on interest, costs, and fees for a total award of approximately $2,015,900.

The district court confirmed the award over PCI’s motion to vacate, agreeing that the award of interest, costs, and fees was proper. PCI appealed to the Eleventh Circuit.

On appeal, PCI claimed (1) the Solar parties committed fraud during the arbitration proceedings by altering their damages analysis; (2) the Solar parties violated AAA rules that PCI claimed required the appointment of three arbitrators rather than one; and (3) the arbitrator lacked jurisdiction to award fees months after the arbitration hearing.

The Eleventh Circuit rejected all of PCI’s claims and affirmed the award’s confirmation.

First, PCI claimed that the Solar parties committed fraud by increasing their claimed damages in their post-hearing brief. The Eleventh Circuit disagreed, noting that the requirements of the test it applied for the FAA’s fraud exception were not satisfied. The court noted that PCI cited no case holding that “a change in damages theory constitutes ‘fraud’ or ‘undue means’ under” the FAA’s fraud exception. The Solar parties’ post-hearing demand for more than $1,000,000 was supported by the record even though they initially sought less than $500,000. (The Solar parties apparently initially sought partial reimbursement for the per-signature fee of the 217,000 withheld petitions, but later successfully argued they were entitled to full reimbursement for those petitions.)

Second, the court rejected PCI’s contention that it was entitled to a three-arbitrator panel, noting that AAA rules allowed the parties to agree on one or three arbitrators and provided that if the parties were unable to agree and the claim involved more than $1 million, then the matter would be heard by three arbitrators. The facts established that PCI had agreed to a single arbitrator knowing that this case potentially involved more than $1 million. In its statement of claim, Floridians for Solar Choice demanded $500,000 to $1 million-plus punitive damages, and when Solar Alliance was added as a party it sought additional damages. Despite being on notice that the claimed damages exceeded $ million, PCI did not request a three-arbitrator panel and instead stipulated to one arbitrator.

Third, the Eleventh Circuit rejected PCI’s contention that the arbitrator lacked jurisdiction to award fees when he did so several months after the arbitration because the arbitrator lost jurisdiction over the case 30 days after the hearing. The court noted that it has rejected the notion that arbitrators act outside their authority merely because they do not follow the AAA’s rules regarding the time for issuing decisions. It also noted that several other circuits have held that whether an arbitration award was timely is not a jurisdictional issue. In this case, the parties also stipulated that all motions for attorneys’ fees would be resolved after the hearing.

Floridians for Solar Choice, Inc. v. Paparella, No. 18-12907 (11th Cir. Mar. 3, 2020).

The defendant sought to vacate an arbitration award, arguing that the arbitrator prejudiced the defendant by refusing to order discovery it requested and failed to apply California law to the analysis of attorneys’ fees and costs. The Southern District of California disagreed with the defendant’s argument and confirmed the award.

As to the defendant’s argument concerning discovery, the court recognized that the arbitrator issued a series of procedural orders specifically addressing discovery and ordering the disclosure of documents. The court found that the defendant “failed to demonstrate that the arbitrator’s refusal to order disclosure of certain requested documents demonstrated deprived the defendant of an adequate opportunity to present its evidence and arguments” and concluded that the “arbitrator’s refusal to order disclosure of certain requested documents was not done in bad faith and was not so gross as to amount to affirmative misconduct.”

As to the defendant’s argument that the arbitrator failed to apply California law to the award of attorneys’ fees, the court found that the arbitrator did not exceed its authority by applying ICC rules to the award of costs and fees. The parties’ agreement provided that the arbitration “shall be conducted in accordance with the Rules of Conciliation and Arbitration of the ICC.” California law permits the parties to incorporate by reference into their contract the terms of another document. Here, the reference to the application of the ICC rules was “clear and unequivocal.” Moreover, the parties’ agreement provided that the arbitration award “may include an award of costs, including reasonable attorney’s fees and disbursements.” The court determined, “pursuant to the parties’ agreement, the award of attorneys’ fees in the arbitration award is governed by ICC Rules” and concluded that the arbitrator did not exceed its authority.

Aeryon Labs, Inc. v. Datron World Communications, Inc., No. 3:19-cv-02168 (S.D. Cal. Mar. 4, 2020).

In a challenge to an arbitration award on the basis that the arbitrators exceeded their powers in determining damages, the Third Circuit affirmed the District of New Jersey’s confirmation of the award.

First, the appellant argued that the arbitrator erred by using sales data instead of supply data in arriving at a damages figure. The court stated that this “is precisely the type of decision we have no authority to second-guess under the Federal Arbitration Act. … All that matters is that the arbitrator’s decision had some basis in the record.”

Second, the appellant argued that the arbitrator manifestly disregarded the law in ordering quarterly royalty payments be made to the appellee, since the appellant cannot be made to pay royalties until its claims regarding patent invalidity and unenforceability have been adjudicated. The court noted that the “arbitrator clearly grappled with the import of the Lear decision” and found the appellee’s arguments to be more persuasive. “That good faith effort is more than enough to demonstrate that he did not manifestly disregard Lear.”

PNY Technologies, Inc. v. NETAC Technology Co., No. 19-1635 (3d Cir. Feb. 10, 2020).

Following a 2007 settlement concerning the allocation of investigation and remediation costs incurred due to environmental contamination at an industrial complex, the parties agreed to resolve the litigation between the parties and arbitrate the allocation of certain environmental costs. The parties engaged in arbitration from May 2017 to May 2019. The panel issued a final unanimous award assigning 100% of the allocable costs to the plaintiff. The plaintiff sought to vacate the award on the basis that: (1) the arbitrators exceeded their powers by imposing the burden of proof on the plaintiff in violation of the 2007 settlement agreement; (2) the arbitrators manifestly disregarded the legal principle that rejects incremental cost allocation; and (3) the award violated public policy requiring polluters to pay for the environmental harm they cause. The court disagreed with the plaintiff’s arguments and confirmed the award.

As to the plaintiff’s first argument concerning the burden of proof, the court concluded that the settlement agreement was silent as to which party should bear the burden of proof at arbitration. Additionally, the section cited by the plaintiff merely established the procedure by which the parties may initiate arbitration and required “the initiating party to state the amount of Allocable Costs it contends should be assigned to each party, including a brief statement in support of that allocation, presumably to notify the other party what issues will be arbitrated.”

As to the plaintiff’s second argument as to incremental cost allocation, the court found that the panel did not disregard any legal principal but simply found that the plaintiff failed to prove that the defendant “had actually contributed in any material way to the contamination at the Site, or that [the defendant’s] activities were the cause of any of the costs at issue.”

As to the plaintiff’s third argument regarding public policy, the panel found that the “evidence did not establish the amount of contamination caused by [the defendant’s] alleged poor remediation, or the fact or amount of any cost for remediation of any such contamination” for which the defendant would be financially responsible. Thus, 100% of the allocable costs were assigned to the plaintiff, which was not in violation of any public policy.

PolyOne Corp. v. Westlake Vinyls, Inc., No. 5:19-cv-00121 (W.D. Ky. Feb. 11, 2020).