Confirmation / Vacation of Arbitration Awards

The Second Circuit Court of Appeals has rejected a challenge to a confirmation of an arbitration award upholding the nonrenewal of a master franchise agreement for Subway restaurants.

Beginning in the 1990s, Subway International B.V. entered into a series of master franchise agreements with Subway Russia that allowed Subway Russia to operate Subway sandwich franchises in Russia. In 2020, Subway decided not to renew the master franchise agreement, claiming that it had the right to do so because of certain “defaults” by Subway Russia. Subway Russia disagreed and the parties arbitrated the matter.

An arbitrator ruled in favor of Subway. The parties cross-moved to confirm and vacate that award. The district court remanded the case for the arbitrator to decide one additional issue. After the arbitrator had ruled on that issue, the parties again cross-moved to confirm and vacate the award and the district court confirmed the award.

Subway Russia appealed and the Second Circuit affirmed. The court rejected Subway Russia’s arguments that: (1) Subway’s second petition to confirm was untimely; (2) the district court erred in changing its initial decision; and (3) the district court’s decisions were contradictory. The court explained that the district court appropriately remanded the case and thus exercised jurisdiction over the second petition for confirmation. The court held that the district court had authority to correct its first decision, which remanded the matter for a further ruling, and that its second decision did not conflict with its first decision.

Subway International B.V. v. Subway Russia Franchising Co., No. 24-1702 (2d Cir. May 12, 2025).

In Preferred Wireless LLC v. T-Mobile USA Inc., the U.S. District Court for the Southern District of Ohio addressed a motion by defendant T-Mobile to confirm an arbitrator’s award of attorneys’ fees and costs, and also addressed a motion by plaintiff Preferred Wireless to vacate that award.

The underlying arbitration arose out of the merger between T-Mobile and Sprint in April 2020. Preferred Wireless was a Sprint retailer operating more than 80 stores at the time of the merger. After the merger, T-Mobile absorbed Sprint’s operations, and Preferred Wireless and T-Mobile entered into a retailer services agreement (RSA). After T-Mobile closed several stores, Preferred Wireless filed a lawsuit alleging that T-Mobile misrepresented the number of stores it intended to close, which “induc[ed] Preferred Wireless to sign the RSA.” Preferred Wireless filed its complaint in the Delaware County Court of Common Pleas alleging fraud, fraudulent inducement, breach of contract, and violations of the Washington Consumer Protection Act and the Washington Franchise Investment Protection Act. T-Mobile removed the case to the U.S. District Court for the Southern District of Ohio, and the parties then agreed to arbitration.

The arbitrator dismissed the Washington Franchise Investment Protection Act claim and then held a five-day hearing, after which all remaining claims of Preferred Wireless were dismissed. T-Mobile then filed a fee petition requesting more than $3.3 million in attorneys’ fees and costs under the RSA, which provided that the “prevailing party” is entitled to recover reasonable attorneys’ fees and costs. Preferred Wireless opposed the fee application, arguing that “because the Interim Arbitration Award did not include an award of damages, Defendants were not considered the prevailing party under the RSA.” The arbitrator rejected the argument, reduced the amount of the fee request, and awarded T-Mobile approximately $2.9 million. The court granted T-Mobile’s motion to confirm the award, finding that the arbitrator did not exceed his authority in awarding fees to T-Mobile as the prevailing party and rejecting the argument that a prevailing party must be awarded monetary relief to be entitled to a prevailing party fee award. The court also found that the arbitrator did not “act in manifest disregard of the law” by awarding fees without contemporaneous billing records to support the application, finding that the fee request was reasonable. The court confirmed the award of $2.9 million in attorneys’ fees, costs, and expert fees, and denied the motion by Preferred Wireless to vacate the award.

Preferred Wireless LLC v. T-Mobile USA Inc., No. 2:22-cv-00978 (S.D. Ohio, May 6, 2025).

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).

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).