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Confirmation / Vacation of Arbitration Awards

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).

After Reviewing the Arbitration Record, Court Enters Default Judgment Confirming Default Arbitration Award

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Plaintiff Choice Hotels International Inc. filed an application to confirm arbitration award and a motion for default judgment against a fanchisee company and its owner in connection with an arbitration initiated before the AAA as a result of the franchisees’ failure to pay royalties and fees under the governing franchise agreement. Choice Hotels alleged that it sent notices of the arbitration to the defendants “by regular mail, certified mail and/or overnight FedEx delivery,” but “Defendants failed to appear or participate during any proceeding.” The arbitrator noted that the defendants had “failed to respond” and “failed to submit documents after due notice by mail in accordance with the Rules.” The arbitrator awarded $83,726.63 in damages, and $2,750 for reimbursement of fees.

The court found that Choice Hotels was entitled to a default judgment because it met its obligation under the FAA to show that it was entitled to confirmation of the award as a matter of law. The court explained that Choice Hotels’ claims were properly before the AAA pursuant to the arbitration clause in the parties’ franchise agreement and that Choice Hotels was authorized under the AAA’s rules to present its evidence by supporting documentation and the submission of an affidavit. The court found that, after “having fully reviewed and considered” this evidence, the arbitrator entered its award, and there was “no reason in the record” to question its validity. The court therefore ruled that the confirmation of the award was proper and granted the default judgment in favor of Choice Hotels.

Choice Hotels Int’l, Inc. v. Laxmee, Inc., No. 8:18-cv-01818 (D. Md. Aug. 9, 2019).

NDNY Finds Party Waived Right to Pursue Employment-Related Claims and Confirms Arbitration Award

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The plaintiff voluntarily signed an employment agreement that provided that any and all employment-related disputes arising out of the plaintiff’s employment would be subject to confidential arbitration. Following his termination, the plaintiff filed suit, asserting claims of retaliation and discrimination, which action was stayed pending arbitration. The employment agreement “clearly and expressly states that, by signing the agreement, Plaintiff agrees to arbitrate all claims regarding his employment against Defendant under the terms of the” agreement. “Plaintiff has not provided any reason as to why this agreement is somehow unenforceable. As a result, the Court finds that the Arbitrator had jurisdiction to preside over the parties’ dispute.” The court affirmed the arbitration award, as the plaintiff failed to show the existence of grounds to vacate the award.

McNeill v. Ramours Furniture Co., No. 6:15-cv-01473 (N.D.N.Y. Aug. 1, 2019).