Confirmation / Vacation of Arbitration Awards

SDNY Vacates Arbitration Award in International Maritime Shipping Dispute

March 25, 2021 by Carlton Fields

Petitioner Copragri and respondent Agribusiness United DMCC are foreign buyers and sellers of feed and grain, respectively, who entered into sales agreements for grain cargoes. Pursuant to its obligations under the sales agreements, Agribusiness chartered a vessel from Vitosha Maritime Ltd. to transport the grain cargoes from Louisiana to Morocco. The vessel’s master issued bills of lading for the cargoes to Agribusiness. Copragri was not a party to the bills of lading, the back of which included a provision calling for arbitration in New York.

After Vitosha Martina presented a claim against Agribusiness for delays of the vessel and other expenses at the discharge port in Morocco, Agribusiness presented an indemnity claim to Copragri. Six years later, Agribusiness commenced arbitration of this claim, and an arbitration panel was selected without Copragri’s participation. Copragri objected to the arbitration on several grounds, primarily because the governing contracts between the parties were the sales agreements for grain cargoes, and not the bill of lading under which Agribusiness had initiated the New York arbitration. These objections were provided both to Agribusiness and to the arbitration panel. However, Copragri’s objections were ignored, and the arbitration panel issued an award to Agribusiness for $208,300. The award did not address Copragri’s various objections or issues of arbitrability or jurisdiction, nor did it include any legal citations.

Copragri thereafter filed a petition in the Southern District of New York to vacate the award, which the court granted. The court held that because Copragri was not a party to the bill of lading and therefore did not consent to arbitration in New York, the arbitration panel acted outside its scope and authority when issuing its award. The court also held that the arbitration panel’s failure to analyze or even address Copragri’s various objections — a number of which could have been outcome-determinative — constituted a manifest disregard for the law, further justifying vacatur.

Fourth Circuit Declines to Vacate Arbitration Award Where Challenge to the Award Was Nothing More Than an Ordinary Disagreement With Its Outcome

February 23, 2021 by Carlton Fields

Tecnocap LLC appealed a decision by the U.S. District Court for the Northern District of West Virginia, where it declined to vacate an arbitration award in favor of an employee and labor union in a grievance proceeding related to Tecnocap’s termination of an employee covered by the parties’ collective bargaining agreement.

The parties’ collective bargaining agreement prohibited Tecnocap from “summarily discharging” covered employees and required that termination of employment be “for just cause.” The agreement also subjected grievances involving the interpretation of express provisions of the arbitration agreement. Separate from the agreement, Tecnocap instituted an attendance program wherein employees accrued points for certain absences from work and were then subject to different disciplinary procedures based on the number of accrued points.

After a Tecnocap employee accrued nine points in the attendance program and failed to timely submit paperwork that would allocate one of his absences to FMLA leave, Tecnocap terminated his employment. The union then filed a grievance protesting the employee’s termination, which proceeded through arbitration.

The arbitrator determined that the grievance was arbitrable, rejecting Tecnocap’s argument that the grievance was untimely and should be denied or dismissed on procedural grounds, pointing to the parties’ past conduct of inattentiveness to grievance deadlines as evidence of a waiver of such deadlines. The arbitrator also ruled that Tecnocap did not have “just cause” to terminate the employee because it improperly assessed him with a ninth point.

Tecnocap filed an action in the U.S. District Court for the Northern District of West Virginia under section 301 of the Labor Management Relations Act, 29 U.S.C. § 185, to vacate the arbitrator’s award, and the union filed an action under the same provision to enforce the arbitrator’s decision, which it alleged Tecnocap had refused to follow.

The district court found Tecnocap failed to present evidence that would warrant overturning the arbitrator’s award, including any evidence that the award: (i) was the product of the arbitrator’s bias; (ii) ignored the evidence in favor of the arbitrator’s own brand of “industrial justice”; or (iii) altered the language of the collective bargaining agreement.

Tecnocap then appealed, arguing that the district court should have concluded that the arbitrator’s award did not draw its essence from the collective bargaining agreement and therefore should have been vacated. Affirming the district court’s decision, the panel rejected Tecnocap’s challenge, finding that Tecnocap presented nothing more than an ordinary disagreement with the outcome of the arbitration award based on Tecnocap’s preferred application of the collective bargaining agreement to the underlying facts.

The panel determined that the collective bargaining agreement plainly delegated authority to the arbitrator to adjudicate grievances involving the interpretation or application of the express provisions of the agreement and that upon being delegated with that authority, the arbitrator had the authority to review whether Tecnocap fulfilled its obligations under the agreement and whether the termination comported with the agreement’s “just cause” limitation. The panel held that the arbitrator’s decision was a clear exercise in applying the agreement’s provisions and that Tecnocap failed to point to any limitation in the agreement that prevented the arbitrator from making her decision.

Tecnocap, LLC v. United Steel, Paper & Forestry, Rubber, Mfg., Energy, Allied Industrial & Serv. Workers Int’l Union AFL-CIO/CLC, Local Union No. 152M, No. 19-1263 (4th Cir. Jan. 19, 2021).

New York Federal Court Confirms $2M Arbitral Award to Defunct Liquor Distributor in Dispute Over Royalties Owed to Rapper Snoop Dogg

February 5, 2021 by Carlton Fields

This royalties dispute arose out of an agreement between Cognac Ferrand S.A.S., a French company that produces and sells various liquors and spirits, and Mystique Brands LLC, a company that imports and markets liquors and spirits in the United States, involving the importation and marketing of Ferrand’s cognac in the United States.

In 2008, the parties executed a contract in which Ferrand granted Mystique the five-year exclusive right to import and market certain products in the United States. Under that agreement, Mystique agreed to purchase certain minimum amounts of Ferrand’s products each year and to enter into a marketing agreement with the musical artist Calvin Brodus, aka Snoop Dogg, for the promotion of those products, the costs of which Mystique would pay. The agreement granted Ferrand the right to terminate the agreement if Mystique became insolvent or filed a bankruptcy petition, or if Mystique committed a “material breach” that it failed to cure within 30 days.

Ferrand terminated the agreement roughly a year later in 2010, citing Mystique’s purported insolvency and unpaid royalties owed to Snoop Dogg. Mystique then initiated arbitration proceedings before the International Centre for Dispute Resolution in New York (ICDR) against Ferrand claiming wrongful termination. Ferrand fought back with a $4.5 million counterclaim, alleging it had been fraudulently induced to enter the deal because Mystique lied about its finances.

The arbitration proceeding was stayed after Mystique filed bankruptcy in 2013, but once Mystique emerged from Chapter 11 in 2017, Ferrand sought to reinstate the arbitration proceeding so that it could pursue its counterclaims against Mystique. The ICDR advised that the matter had been closed administratively, and directed Ferrand to file a new notice of arbitration. The parties proceeded in a new arbitration before a new ICDR arbitrator in New York.

In May 2020, the new arbitrator in New York found in Mystique’s favor and dismissed all of Ferrand’s claims. There, the arbitrator found that Mystique did not breach its minimum purchase obligation or repudiate the agreement and that Mystique’s insolvency did not constitute a material breach. The arbitrator also rejected Ferrand’s breach of contract claim for Mystique’s failure to pay Snoop Dogg because Ferrand had not offered evidence of damages or causation. Finding that Mystique was the “prevailing party,” the arbitrator also awarded Mystique $2 million in attorneys’ fees and costs.

Ferrand thereafter sought relief in the U.S. District Court for the Southern District of New York, filing a petition to vacate the arbitral award pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Ferrand argued that the arbitrator erred by finding that Mystique was the prevailing party in the arbitration and wrongly awarded Mystique nearly $2 million in fees and costs. Mystique opposed the petition and cross-petitioned to confirm the award, also seeking sanctions under both 28 U.S.C. § 1927 and Federal Rule of Civil Procedure 11 against Ferrand for pursuing this action.

The district court denied Ferrand’s petition to vacate the award, finding that the arbitrator did not exceed her authority or act in manifest disregard and that the award was final and definite. The district court determined that Ferrand’s challenge amounted to a mere substantive disagreement with the arbitrator’s reasoning and ultimate determination, which is not a valid basis to overturn the award. Because Ferrand failed to show that any aspect of the award should be vacated, the district court granted Mystique’s cross-petition to confirm the award.

Cognac Ferrand S.A.S. v. Mystique Brands, LLC, No. 1:20-cv-05933 (S.D.N.Y. Jan. 13, 2021).

New York Federal Court Grants $12M Foreign Arbitration Award Under New York Convention

February 3, 2021 by Alex Silverman

The petitioner sought confirmation of an international arbitration award issued in its favor by the Society of Maritime Arbitrators. The petitioner and the respondent had entered into an agreement for the petitioner to charter a vessel to transport iron ore. The respondent objected to the arbitration in part on the ground that the parties’ agreement was procured by fraud and therefore void. The panel ruled in the petitioner’s favor and issued a final award of more than $12 million plus interest, finding no evidence of fraud or corruption. In opposition to the motion to confirm the award, the respondent argued that the panel lacked jurisdiction to arbitrate the dispute; that the award violated article V.1(c) of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention); and that the award violated article V.2(b) of the New York Convention because it was procured by corruption and thus enforcement would be against U.S. public policy.

Article V of the New York Convention sets forth seven grounds upon which a court may refuse to enforce a foreign arbitration award. The court acknowledged that district courts are “strictly limited” to those seven defenses in determining whether to confirm a foreign award. The party opposing enforcement bears the “heavy” burden of proving that one of the seven defenses applies. Here, having found that the panel had jurisdiction to decide a threshold arbitrability issue, the court found that the respondent failed to establish any basis to disturb the award pursuant to the New York Convention. The court thus granted the petition to confirm. In addition, given the respondent’s failure to comply with the award or otherwise put forth a good faith basis for not complying, the court also granted the petitioner’s request for attorneys’ fees and costs arising from the proceeding.

Commodities & Minerals Enterprise, Ltd. v. CVG Ferrominera Orinoco, C.A., No. 1:19-cv-11654 (S.D.N.Y. Dec. 10, 2020).

Third Circuit Affirms Order Unsealing Arbitration Award

January 20, 2021 by Brendan Gooley

The Third Circuit Court of Appeals recently affirmed an order unsealing an arbitration award because the award had been filed with the district court as part of confirmation proceedings and the recipient of the award had not demonstrated a specific harm sufficient to overcome the presumption of public access to documents filed with the courts.

Pennsylvania National Mutual Casualty Insurance Co. arbitrated whether it “was entitled to proceeds based on insurance claims it made to [two of its] reinsurers.”

The arbitration panel issued an award in Penn National’s favor, and Penn National petitioned the district court to confirm that award. As part of the confirmation process, Penn National filed the award with the court, which granted Penn National’s motion to seal the award.

The parties settled before the court confirmed the award.

After the settlement, Everest Reinsurance Co. moved to intervene and unseal the award. The district court originally denied that motion, but the Third Circuit remanded the case after concluding that the court had applied the wrong standard.

On remand, the district court granted Everest’s motion.

The Third Circuit affirmed. It rejected Penn National’s argument “that the arbitration award [was] not a judicial record to which the common-law right of access applies,” explaining that “Penn National filed the arbitration award on the docket with the District Court as part of its motion to confirm the award. Thus, according to [the Third Circuit’s] precedents, the award became a judicial record subject to the common-law right of access.” The court also held that the district court did not err by “holding that [Penn National] did not demonstrate a specific harm sufficient to overcome the presumption of public access.” The Third Circuit explained that an affidavit submitted by one of Penn National’s officers that “other reinsurers might choose to forego paying Penn National and contest their contractual obligation to pay if they learned of the contents in the arbitration award” was insufficient because the court “could not ‘determine how many possible relationships could be impacted, the amount of money that could be at stake, the types of actions other parties may pursue, or the likelihood that any such actions would be successful.’”

Pennsylvania National Mutual Casualty Insurance Co. v. New England Reinsurance Corp., Nos. 20-1635 & 20-1872 (3d Cir. Dec. 24, 2020).