Confirmation / Vacation of Arbitration Awards

The Southern District of New York confirmed an international arbitration panel’s award in favor of a Haitian company (PRH) and against the Haitian Bureau de Monetisation des Programmes d’Aide au Developpement (BMPAD). PRH entered into a series of contracts to source, ship, and deliver fuel to BMPAD. The first four fuel deliveries proceeded without a hitch, but BMPAD allegedly fell behind on payments on the fifth order. Eventually, PRH stopped the fuel shipments, alleging that BMPAD owed approximately $27.2 million.

PRH served a notice upon BMPAD demanding arbitration of their dispute pursuant to the arbitration clause in their agreements. The clause provided that if BMPAD did not appoint a second arbitrator within 10 days, then PRH would be entitled to select the second arbitrator, which PRH proceeded to do after the deadline had lapsed. The two PRH-selected arbitrators then selected a third and final arbitrator, again, pursuant to the procedure provided by the arbitration clause.

After PRH submitted its initial claim statement and request for an interim partial award of security to the arbitration panel, BMPAD indicated that it did not recognize the panel’s jurisdiction and that it had sought a stay of the arbitration proceeding in New York state court. However, in the absence of any injunctive relief issued by the New York state court, the panel ruled that the arbitration would proceed. BMPAD continued to object and refuse to participate, citing a recent COVID-19 surge in Haiti and the recent assassination of the Haitian president, among other things. Despite BMPAD’s objections, the panel ruled in PRH’s favor and directed BMPAD to deposit approximately $23 million into an escrow account.

PRH sought and obtained confirmation of the arbitration award from the Southern District of New York. The court ruled that none of the grounds provided by the New York Convention for refusing to confirm an arbitration award applied. The court held that BMPAD was estopped by the doctrine of res judicata (stemming from the stay proceeding it had initiated in New York state court) from arguing that the arbitration provision was illegal under Haitian law or that service of notice regarding the arbitration was not properly effected. Even if res judicata did not apply, the court found that the arbitration provision was not illegal under Haitian law and that service was proper because it complied with the method required by the parties’ agreement.

BMPAD also argued that the arbitration panel’s composition was improper based on an alleged “appearance of a conflict of interest.” However, the court noted that the New York Convention “specifically requires a showing that the composition of the panel was not in accordance with the agreement of the parties.” Here, the procedure for appointing the arbitration panel provided by the parties’ arbitration agreement was followed properly, which was the only relevant consideration under the Convention.

Finally, BMPAD argued that the public policy exception in Article V(2)(b) of the Convention should prevent confirmation of the award. The court noted that the law of the Second Circuit requires the public policy exception to be “construed very narrowly to encompass only those circumstances where enforcement would violate our most basic notions of morality and justice.” To the contrary, the court found that enforcement of the award would not violate morality and justice but rather would further America’s strong public policy in favor of international arbitration.

Preble-Rish Haiti, S.A. v. Republic of Haiti, No. 1:21-cv-06704 (S.D.N.Y. Jan. 26, 2022).

A federal court in the Southern District of New York recently confirmed an arbitration award in an employment dispute between Gould Paper Corp. and its former employee David Berkowitz. On July 19, 2019, Berkowitz initiated arbitration proceedings against Gould under JAMS rules. Berkowitz generally alleged age discrimination, and Gould asserted counterclaims for conversion and unjust enrichment. The arbitrator issued a final award dated February 18, 2021, and an amended award dated March 17, 2021, finding for Berkowitz on his age discrimination claim and for Gould on its unjust enrichment counterclaim. In the award, the arbitrator ordered Gould to pay a net amount to Berkowitz of $45,533.49 and rejected all other relief sought by the parties, including fees, costs, liquidated damages, and emotional distress damages.

On August 4, 2021, Berkowitz filed a petition in federal court seeking to confirm the award of compensatory damages and to vacate and/or modify the award so as to grant an additional award of attorneys’ fees and costs, liquidated damages, and emotional distress damages. As a threshold issue, the court considered whether Berkowitz’s petition to modify the award was timely filed. Under the Federal Arbitration Act, the statutory period during which a motion to vacate or modify may be filed is three months after the arbitration award is “filed or delivered.” According to the court, neither party disputed whether the three-month limitation applied, but they disagreed over when the period began to run — namely, when the award was first transmitted to the parties by email, or when Berkowitz was first “served” with the award by mail in compliance with established JAMS procedures. However, noting that the question of when an award is considered “filed or delivered” has not been definitively settled in the Second Circuit, the court declined to rule on the issue.

Next, the court considered Berkowitz’s entitlement to a modification of the award so as to grant attorneys’ fees and costs, liquidated damages, and emotional distress damages pursuant to 9 U.S.C. § 11(c), which allows a court to modify or correct an award “[w]here the award is imperfect in matter of form not affecting the merits of the controversy.” Noting that this provision of the FAA has been interpreted narrowly to permit modification “to reflect the clear intent of the arbitrator,” the court concluded that the arbitrator had in fact indicated a clear intent not to award such damages, and rejected Berkowitz’s argument accordingly.

The court then considered whether the arbitrator’s refusal to award attorneys’ fees and costs, liquidated damages, and emotional distress damages constituted “manifest disregard of the law” warranting vacatur in part. Noting that a movant seeking vacatur based on “manifest disregard” bears a heavy burden in establishing that (1) the arbitrator knew of a governing legal principle yet refused to apply it or ignored it altogether and (2) the law ignored by the arbitrator was well defined, explicit, and clearly applicable to the case, the court concluded that Berkowitz was unable to meet this standard. Specifically, the court found that Berkowitz had failed to adequately cite controlling law or statutory provisions supporting his entitlement to the requested fees, costs, and damages in the underlying arbitration and thus could not meet the first prong of the “manifest disregard” standard.

Finally, the court considered whether the arbitrator exceeded his authority in refusing to award attorneys’ fees and costs, liquidated damages, and emotional distress damages to Berkowitz. Noting that Berkowitz’s “real objection” was that the arbitrator committed a legal error in denying the damages sought, the court concluded that Berkowitz’s claim that the arbitrator exceeded his authority was without merit. Based on the above, the court denied Berkowitz’s petition and granted Gould’s motion to confirm.

Berkowitz v. Gould Paper Corp., No. 1:21-cv-06582 (S.D.N.Y. Jan. 12, 2022).

International Engineering and Construction (IEC) commenced arbitration against Baker Hughes (formerly GE Oil and Gas) over construction delays in the building of a liquefied natural gas power plant in Nigeria. The three-arbitrator panel issued an award finding that both GE and IEC breached the construction contracts. While the panel awarded IEC more than $7 million plus interest from GE, it also ordered IEC to pay GE $11 million plus interest, as well as 95% of the arbitration costs and GE’s costs. The net result was that IEC was ordered to pay more than $8 million plus interest.

GE moved to confirm the arbitration award and IEC cross-moved to vacate the award on the grounds that the arbitrators manifestly disregarded the law and the plain language of the parties’ contracts. Although the district court noted that IEC’s arguments “might have traction” if the court were writing on a blank slate, based upon the strong deference owed to arbitrators, the court found that IEC’s vacatur arguments “fell short,” and confirmed the award in favor of GE.

Baker Hughes Energy Services, LLC v. International Engineering & Construction S.A., No. 1:21-cv-01961 (S.D.N.Y. Nov. 16, 2021)