Confirmation / Vacation of Arbitration Awards

EB Safe commenced arbitration proceedings against Mark Hurley arising out of a business dispute. The arbitrators ruled in Hurley’s favor and awarded him expenses and attorneys’ fees totaling more than $2 million. A New York district court subsequently denied EB Safe’s petition to vacate the award and granted Hurley’s cross-petition to confirm. On appeal, EB Safe argued the award should have been vacated because it was in manifest disregard of the law and/or because Hurley procured the award by fraud through committing perjury at the arbitration.

The Second Circuit disagreed in both respects, noting first that the “manifest disregard of the law” standard is limited only to the “exceedingly rare instances where some egregious impropriety on the part of the arbitrators is apparent.” EB Safe claimed that in deciding Hurley’s fee request, the arbitrators failed to apply the “reasonableness” standard required by Delaware law. But the court found no basis for the argument in the record, and thus found it was properly rejected by the district court. In addition, despite inconsistencies in Hurley’s arbitration testimony, the court found EB Safe failed to meet the burden for vacating an award purportedly procured by fraud. Because the inconsistencies could have been equally attributable to confusion, mistake, or faulty memory, the court found EB Safe failed to show clear proof of “willful intent to provide false testimony.” As such, the Second Circuit affirmed the district court order in its entirety.

EB Safe, LLC v. Hurley, 19-cv-3859 (2d Cir. Oct. 20, 2020)

This appeal concerns the validity of arbitration proceedings in a dispute between a seller of a power generator, Imperial Industrial Supply Company, and its buyer, Quintina Maria Thomas. In October 2018, Thomas’s home in Hawaii caught on fire, which she claimed was caused by a power generator purchased from Imperial.

Thomas initiated arbitration proceedings against Imperial. She began by sending Imperial an alleged agreement that purported to be a “binding self-executing irrevocable contractual agreement” evidencing Thomas’s acceptance of Imperial’s offer. The alleged agreement did not define what Imperial offered but stated that “a product sale-purchase agreement and warranty for the [generator] creat[ed] an ongoing contractual relationship between [Imperial] and [Thomas].” The alleged agreement further provided that Imperial would need to propound 15 different “Proofs of Claim” to Thomas in order to avoid (1) breaching the alleged agreement; (2) admitting, by “tacit acquiescence,” that the generator caused the fire; and (3) participating in arbitration proceedings.

Thereafter, Imperial received a notice of arbitration hearing and timely objected. Without responding to Imperial’s objections, the arbitration association sent Imperial the final arbitration award, which awarded Thomas $1.5 million for breach of the alleged agreement on the basis that Imperial consented to the arbitration by “tacit acquiescence.”

Imperial sued Thomas seeking to vacate the arbitration award. The United States District Court for the Southern District of Mississippi vacated the award, and Thomas appealed.

Applying Mississippi law, the Fifth Circuit panel held “tacit acquiescence” to the alleged agreement is insufficient to constitute a valid contract. The panel noted that tacit acquiescence between relative strangers ignores the basic tenets of contract law because, absent a long-standing relationship between the parties, silence or inaction does not constitute acceptance of an offer. “If Thomas’s argument was valid, it would turn the notion of mutual assent on its head in ordinary purchase cases like this one: buy an item from a dealer or manufacturer, then mail a letter saying ‘you agree if you don’t object,’ and you can have whatever deal you want if the dealer/manufacturer doesn’t respond,” the panel wrote.

Because Thomas offered no evidence of previous dealings with Imperial, the panel found that the conspicuous lack of mutual assent means that a valid contract was never formed. The panel did not address Thomas’ other challenges, finding them to be without merit, and affirmed the district court’s judgment vacating the arbitration award.

Imperial Indus. Supply Co. v. Thomas, No. 20-60121 (5th Cir. Sept. 2, 2020)

Pao Tatneft filed suit in Washington, D.C., district court seeking to enforce a $112 million foreign arbitral award entered in its favor against the nation of Ukraine. Confirmation was sought pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the “New York Convention.”

Ukraine argued against confirmation of the award on the grounds that the arbitration panel was not impartial, and that confirmation would be contrary to U.S. public policy. Regarding impartiality, Ukraine claimed the panel’s neutral arbitrator was, in fact, not neutral, having failed to disclose that he accepted an offer from Pao Tatneft’s law firm to serve as an arbitrator in a wholly separate arbitration in which he would earn upwards of $300,000. The parties disputed the standard by which to assess any alleged impartiality. Ukraine argued that the less stringent “evident partiality” standard set forth in Section 10(a)(2) of the Federal Arbitration Act applied. Pao Tatneft argued that Article V of the New York Convention contained the only grounds upon which the court could refuse to enforce the award. The court agreed with Pao Tatneft, but found Ukraine failed to meet its burden under both standards in any event. Ukraine argued alternatively that the award should not be confirmed based on U.S. public policy, but these claims were found to be speculative and/or factually unsupported. As such, the court granted Pao Tatneft’s petition to confirm the award and left the total amount payable after interest for additional briefing.

Pao Tatneft v. Ukraine, Case No. 17-cv-00582 (D.D.C Aug. 24, 2020)

The arbitration awards involved several agreements for the sale, lease, and maintenance of Imax theater systems in South and Central America and the Caribbean. The arbitral tribunal issued a partial final award, and then several months later the tribunal issued its final award that resolved requests for relief on which it had deferred ruling. The tribunal ordered Imax to pay the opposing party $971,525.38 in arbitration costs, representing $800,000 in attorneys’ fees, and 70% of the administrative fees and expenses of the International Dispute Resolution Procedures of the American Arbitration Association, as well as 70% of the compensation and expenses of the arbitrators, which totaled $171,525.38. Imax challenged the awards, but the district court denied vacatur. The Eleventh Circuit then affirmed the denial, finding that the district court properly denied vacatur because Imax “failed to carry its burden to establish” (1) a defense under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards or (2) that the arbitral tribunal exceeded its powers under the Federal Arbitration Act.

IMAX Corp. v. Giencourt Investments, S.A., No. 20-10491 (11th Cir. May 28, 2020).