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Confirmation / Vacation of Arbitration Awards

Fifth Circuit Affirms Confirmation of Arbitration Ruling in Favor of Ameriprise Financial

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The Fifth Circuit affirmed the confirmation of an arbitration ruling in favor of Ameriprise Financial Services Inc. In 2015, Ameriprise sought a temporary restraining order against Jeremy Walker, a former employee of an Ameriprise franchisee, to prevent him from using confidential customer information. The matter was referred to a FINRA arbitration panel, which resulted in an award against Walker and in favor of Ameriprise for injunctive relief, compensatory damages, and attorneys’ fees.

In 2017, Walker filed a FINRA arbitration against Ameriprise, primarily alleging that he was improperly enjoined by the 2015 arbitration. Ameriprise moved to dismiss under FINRA Code of Arbitration Procedure for Industry Disputes Rule 13504(a)(6)(C), which provides that dismissal may be granted when the “non-moving party previously brought a claim regarding the same dispute against the same party that was fully and finally adjudicated on the merits and memorialized in an order, judgment, award, or decision.” The 2017 arbitration panel found the 2015 arbitration and award met the requirements of Rule 13504(a)(6)(C) and unanimously dismissed the arbitration. Walker filed a motion to vacate arguing that the 2017 panel was “guilty of misconduct” under 9 U.S.C. § 10(a)(3) and “exceeded its powers” under 9 U.S.C. § 10(a)(4). The district court disagreed, denied Walker’s motion to vacate, and granted Ameriprise’s motion to confirm.

On appeal, the Fifth Circuit affirmed. Walker grounded his argument for vacatur under § 10(a)(3) upon the panel’s supposed failure to allow him to present evidence and testimony. However, the Fifth Circuit found that Walker was not prevented from presenting either. With regard to Walker’s argument that the panel exceeded its powers under § 10(a)(4), Walker argued that the panel erred in determining that the elements of Rule 13504(a)(6) had been met. However, this argument was insufficient under the § 10(a)(4) standard for vacatur, which requires a finding that the arbitration panel “acts contrary to express contractual provisions.” Even if Walker were correct that the panel had made a legal error, such errors “lie far outside the category of conduct embraced by § 10(a)(4).”

Walker v. Ameriprise Fin. Servs., Inc., No. 18-11641 (5th Cir. Oct. 9, 2019).

Court Confirms Arbitration Award Under FAA’s Strong Presumption in Favor of Such Awards

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This case arises from a dispute over the parties’ obligations under several oil and gas leases. The parties engaged in an arbitration pursuant to an arbitration agreement. The arbitration panel entered awards in favor of defendants Alan Larson and others. Northeast Natural Energy LLC filed a complaint in the U.S. District Court for the Western District of Pennsylvania. Under the Federal Arbitration Act, there is a strong presumption in favor of an arbitration award and a court must grant an order confirming an arbitration award, except in few enumerated instances. One ground for vacating an award includes “where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” The court may also vacate an arbitration award when the arbitrators displayed a “manifest disregard” of the law. This means there must be “absolutely no support at all in the record justifying the arbitrator’s determinations.”

The court denied Northeast Energy’s motion to vacate the arbitration award and held that the panel did not exceed its powers and did not manifestly disregard the law. The court explained that there was nothing in the record to support that the panel exceeded its powers by rewriting the leases and failing to interpret the leases as written. The court further explained that the panel did not remove a provision from the leases, and the record supported the panel’s interpretation. The court found that the panel’s application of the parol evidence rule was not “completely irrational” as it cited appropriate legal authority and did not misapply Pennsylvania law. Lastly, the court held that the panel did not manifestly disregard the law in making awards to non-testifying defendants because the record revealed that the panel had sufficient information to make such findings.

Ne. Natural Energy LLC v. Larson, No. 3:18-cv-00240 (W.D. Penn. Sept. 20, 2019).

Second Circuit Confirms Arbitration Awards That Are (Literally) Out of This World

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Arbitration over whether a South Korean company or a Bermuda company headquartered in Hong Kong owns a geostationary satellite in light of an order from a South Korean regulatory agency can be complicated. The Second Circuit recently affirmed a decision confirming an arbitration award adjudicating ownership of the satellite in question and awarding damages related to a party’s failure to obtain regulatory approvals necessary to complete the sale over claims that the arbitration panel exceeded its power, disregarded the law, and violated public policy.

KT Corp., a Korean company, agreed to sell a satellite to ABS Holdings Ltd., a Bermuda company headquartered in Hong Kong. The companies signed a purchase agreement to convey the title to the satellite and an operations agreement under which KT agreed to operate the satellite on behalf of ABS. Both agreements contained New York choice-of-law provisions and mandatory arbitration clauses. The purchase agreement required KT to obtain and maintain all necessary licenses and authorizations for the sale and the continued operation of the satellite.

The sale was completed and title to the satellite was transferred.

Nearly two years later, a South Korean regulatory agency issued an order declaring the purchase agreement null and void because KT had failed to obtain a required export permit. The agency canceled KT’s permission to use certain frequencies to operate the satellite.

KT and ABS arbitrated who held title to the satellite and whether KT had violated the purchase agreement before a panel of the International Chamber of Commerce. In two awards, the panel concluded that ABS held title to the satellite because title had lawfully passed when the conditions precedent to the purchase agreement were completed when there was no requirement that KT obtain an export permit. And even if that was not the case, the panel concluded, the regulatory order had no effect because it was issued retroactively without notice to the parties in violation of New York law, and KT breached its obligations by failing to obtain all the approvals necessary for the continued operation of the satellite (even though an export permit may not have been required for the sale of the satellite, one was necessary to maintain the satellite’s operations).

KT petitioned the Southern District of New York to vacate the award, and ABS petitioned the court to confirm it. The district court granted ABS’ petition and confirmed the panel’s award.

The Second Circuit affirmed. KT argued that the panel had exceeded its authority and that the award disregarded the law and violated public policy. KT claimed that the panel’s conclusion that the regulatory order was without effect violated due process principles. The court disagreed, noting that KT had not challenged the order, its counsel had questioned its validity, and the panel did not rest on the validity of the order; the panel referenced the propriety of the order as an alternate basis for its primary conclusion that title to the satellite properly changed hands. The court also rejected KT’s argument that the panel had disregarded New York contract law. Regarding public policy, although the court recognized that it is the public policy of the United States to enforce foreign judgments that are not repugnant to U.S. policy, it was unclear whether that public policy extended to foreign regulatory orders, and it was not even clear that the regulatory order in this case was enforceable under South Korean law according to KT’s expert.

KT Corp. v. ABS Holdings, Ltd., No. 18-2300 (2d Cir. Sept. 12, 2019).

District Court Dismisses Petition to Confirm Interim Arbitration Award for Lack of Subject-Matter Jurisdiction

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The petitioner sought to confirm an arbitration award, which the respondent opposed for lack of subject-matter jurisdiction. The respondent argued that the district court only had jurisdiction to confirm final arbitration awards and that the petitioner was seeking to enforce an interim ruling. The award at issue was governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, as the petitioner was not a U.S. citizen. Under the Convention, the district courts lack authority to confirm an arbitration award unless it is “final,” meaning it resolves the rights and obligations of the parties definitively enough to preclude the need for further adjudication. An interim arbitration decision is “final” as to certain claims under certain circumstances – when, for example, it definitively disposes of specific claims in the arbitration, even if others remain.

The petitioner sought to enforce an award titled “interim emergency award.” While the title itself was not decisive on the issue, the court found that the ruling facially and substantively only “paused” the parties’ business relationship until a full arbitration panel could be convened. Because the award did not definitively dispose of any independent claim submitted to arbitration, the court found that it lacked subject-matter jurisdiction over the petition to confirm and therefore granted the respondent’s motion to dismiss.

Al Raha Grp. for Tech. Servs. v. PKL Servs., Inc., No. 1:18-cv-04194 (N.D. Ga. Sept. 6, 2019).

Ninth Circuit Affirms Confirmation of Arbitration Award, Finding Plaintiffs Failed to Show Prejudice From Denial of Discovery

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Pro se plaintiffs Henry and Ijeamaka Ekweani characterized a district court’s confirmation of an arbitration award against them and in favor of American Express Travel Related Services as a “rubber stamp” that violated their due process rights. The Ninth Circuit Court of Appeals recently affirmed the award.

The Ekweanis argued that the district court abused its discretion by denying their request for additional discovery but the Ninth Circuit disagreed, finding that the Ekweanis showed no prejudice resulting from the ruling. “A decision to deny discovery will not be disturbed except upon the clearest showing that the denial of discovery results in actual and substantial prejudice to the complaining litigant.”

Ekweani v. Am. Express Travel Related Servs. Co., No. 18-16925 (9th Cir. Aug. 27, 2019).