Confirmation / Vacation of Arbitration Awards

Second Circuit Affirms District Court Order Confirming Chinese Arbitration Award

May 10, 2024 by Kenneth Cesta

In Huzhou Chuangtai Rongyuan Investment Management Partnership v. Qin, the Second Circuit Court of Appeals affirmed a district court order granting summary judgment confirming a Chinese arbitration award totaling approximately $450 million, rejecting Respondent/Appellant’s contention that he was not provided with adequate notice of the underlying arbitration.

The underlying arbitration involved a contract dispute between the original shareholders and subsequent investors in a Chinese company that owned and operated movie theaters. The petitioners initiated the arbitration before the China International Economic and Trade Arbitration Commission (CIETAC), alleging that the respondent breached a capital increase agreement. The petitioners were awarded approximately $450 million in connection with the arbitration, which was confirmed by the district court. The respondent then appealed, contending that he was not provided with adequate notice of the arbitration and was unable to participate in the selection of the arbitrators.

In affirming the district court’s order, the Second Circuit first confirmed its standard of review, noting that “we review legal issues de novo and findings of fact for clear error.” Citing the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the court recognized that lack of proper notice of the arbitration is a defense to enforcement under Article V(1)(b) of the New York Convention. The court further noted, however, that the review of arbitral awards under the New York Convention is “very limited in order to avoid undermining the twin goals of arbitration … settling disputes efficiently and avoiding long and expensive litigation.” The court then rejected the respondent’s contention that he was not provided with adequate notice of the arbitration and was unable to participate in the selection of the arbitrators, finding that CIETAC’s efforts to provide notice to the respondent were “reasonably calculated to provide notice under the circumstances of this case,” thus satisfying due process. The court affirmed the district court’s orders granting the petitioners’ motion to confirmation the arbitration award and denying the respondent’s motion for reconsideration.

Huzhou Chuangtai Rongyuan Investment Management Partnership v. Qin, No. 23-0747 (2d Cir. Mar. 20, 2024).

Fourth Circuit Holds That District Court Lacks Jurisdiction to Confirm Arbitration Award

April 5, 2024 by Brendan Gooley

The Fourth Circuit Court of Appeals recently held that a district court lacked jurisdiction to confirm an arbitration award because the court did not have an independent basis for jurisdiction on the face of the application and could not “look through” to see if it had such jurisdiction.

An arbitration panel issued an award in favor of SmartSky Networks LLC. SmartSky moved to enforce that award. The district court confirmed the award and the parties who lost the arbitration appealed to the Fourth Circuit. They claimed that the district court lacked subject matter jurisdiction to confirm the award under the U.S. Supreme Court’s 2022 decision in Badgerow v. Walters, which held that to enforce or vacate an arbitration award under Sections 9 or 10 of the Federal Arbitration Act, a court “must have a basis for subject matter jurisdiction independent from the FAA and apparent on the face of the application” (i.e., the court cannot “look through” to see if it has jurisdiction in applications under Sections 9 or 10).

The Fourth Circuit agreed that the district court lacked jurisdiction:

At the time the parties filed their respective Section 9 and 10 applications, they were no longer litigating over their fraught business relationship — those issues and claims had been resolved by the Tribunal. Instead, the parties’ dispute focused on the enforceability of the arbitral award. To find it had jurisdiction over what was in essence a contract dispute among the parties, the district court had to “look through” to the civil lawsuit and determine that a federal claim existed.

The Fourth Circuit explained that the district court could not do that under Badgerow.

The Fourth Circuit also rejected SmartSky’s argument that the district court had jurisdiction because it had stayed the action pending arbitration and therefore retained jurisdiction. The court explained: “Section 8 [of the FAA] is the only section that expressly provides that a district court may ‘retain’ jurisdiction to enforce, vacate, or modify an award. Sections 9 and 10 do not contain such language and … do not provide any escape from Badgerow’s holding that there must be an independent basis for subject matter jurisdiction for applications.”

SmartSky Networks, LLC v. DAG Wireless, Ltd., No. 22-1253 (4th Cir. Feb. 13, 2024).

D.C. Circuit Affirms Decision Vacating and Remanding Arbitration Decision

April 3, 2024 by Brendan Gooley

The D.C. Circuit Court of Appeals recently affirmed a district court’s decision to vacate and remand an arbitration decision in a case concerning companies’ withdrawal from a retirement fund.

For many years, various companies made contributions on behalf of their employees to the IAM National Pension Fund. Several of those companies decided to withdraw from the fund, however. Pursuant to the Multiemployer Pension Plan Amendments Act (MPPAA), the employers had to pay fees associated with their withdrawal. The fees were calculated by an actuary. Under the MPPAA, employers who seek to challenge the fees assessed must do so through arbitration. In this case, several employers initiated arbitration to dispute the fees.

The arbitrator concluded that the fund “erred in its calculations” by using certain assumptions and issued an array of other rulings. The fund sought to confirm in part and vacate in part the arbitrator’s award. The district court vacated the arbitration award and remanded the case to the arbitrator after ruling, in relevant part, that the actuaries had broader discretion to make assumptions that the arbitrator had concluded. The fund and several companies appealed.

The D.C. Circuit affirmed, holding that the district court “correctly found that the arbitrator erred in concluding that an actuary must use” certain assumptions and methods as of a particular date “when calculating withdrawal liability” under the MPPAA.

Trustees of the IAM National Pension Fund v. M&K Employee Solutions, LLC, No. 22-7157 (D.C. Cir. Feb. 9, 2024).

Eleventh Circuit Finds District Court Lacked Jurisdiction to Freeze Defendant’s Assets During Pendency of Action to Confirm Arbitration Award Against Him

December 13, 2023 by Alex Bein

In Noble Prestige Ltd. v. Galle, the Eleventh Circuit Court of Appeals considered whether the trial court properly granted a preliminary injunction barring the defendants from dispersing assets during the pendency of the plaintiff’s motion to confirm an arbitration award rendered in its favor and against the defendants.

In that case, plaintiff Noble Prestige Ltd. issued a $500,000 loan to defendant Paul Horn to pursue litigation against AT&T, a telecommunications company. Under the terms of the loan, Horn agreed to repay Noble $5 million or 5% of his recovery from the litigation, whichever was greater. Noble also obtained a “security interest lien” in that portion of any recovery from AT&T. Thereafter, a Colorado state court found that Horn was unable to manage his own affairs due to various neurological disorders and placed Horn’s estate into a conservatorship. The Colorado court named defendant Craig Thomas Galle, Horn’s long-time attorney, as conservator of his estate.

The AT&T litigation ultimately settled for $57.5 million, and Noble sought to collect the $5 million it claimed it was owed by Horn under the loan. But the Colorado probate court refused to authorize Galle to repay the loan from Horn’s estate, and Noble initiated an arbitration proceeding in Hong Kong to enforce the terms of the loan. The arbitral panel found in Noble’s favor, and Noble filed a petition to confirm the award in federal court in the Southern District of Florida.

In the proceeding before the district court, Noble sought an order confirming the award rendered by the arbitral panel, and also sought an order freezing the AT&T settlement funds pending judgment in the confirmation proceeding. The district court denied the defendants’ motion to dismiss the petition and issued an order freezing the AT&T settlement funds pending a final judgment as requested by Noble. The defendants appealed.

On appeal, the Eleventh Circuit declined to exercise appellate jurisdiction over the district court’s denial of the motion to dismiss, noting that the denial of the defendants’ motion was not a final, appealable judgment. But the court held that the asset freeze order was immediately appealable as a preliminary injunction under 28 U.S.C. § 1292(a)(1). The court then vacated the preliminary injunction on two main grounds. First, the court applied the doctrine of “prior exclusive jurisdiction,” holding that because the Colorado probate court had already exercised exclusive in rem jurisdiction over Horn’s estate pursuant to Colorado probate law, the district court lacked the jurisdiction to assert equitable control over the same real property in the form of an asset freeze.

Second, the court held that the district court lacked authority to award preliminary injunctive relief under Federal Rule of Civil Procedure 65(b), noting that Noble’s petition in the district court sought final relief only in the form of a legal remedy (confirmation of the arbitration award) and did not otherwise invoke the court’s equitable jurisdiction. In so holding, the court noted that the existence of Noble’s lien against the Horn estate, standing alone, was insufficient to invoke the court’s equitable jurisdiction, as Noble had not affirmatively petitioned the district court to exercise its equitable authority in the form of an order of foreclosure on that lien. The court otherwise took no position as to whether Noble could state a claim for foreclosure of the lien in the district court.

The Eleventh Circuit rejected Noble’s remaining arguments, vacated the asset freeze order, and remanded to the district court to address the merits of Noble’s pending petition to confirm the arbitration award.

SDNY Confirms Arbitration Award Under New York Convention

November 10, 2023 by Kenneth Cesta

In Exclusive Trim Inc. v. Kastamonu Romania, S.A., the U.S. District Court for the Southern District of New York granted a petition to confirm and enforce a foreign arbitration award issued in an arbitration held before the International Centre for Dispute Resolution.

The parties entered into a supply agreement, which, among other terms, set forth the minimum amount of product to be purchased by the petitioner from the respondent in the first year. The agreement also included an arbitration provision requiring all controversies and claims be resolved through arbitration administered by the American Arbitration Association (AAA), and “judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.” A dispute arose between the parties and the petitioner filed an arbitration proceeding with the AAA alleging breach of contract and unjust enrichment. The matter was assigned to the AAA’s international division, the International Centre for Dispute Resolution. After an evidentiary hearing held in New York, the arbitrator issued an award for the petitioner on its claims and rejected the respondent’s counterclaim. The award required the respondent to make payment within 30 days.

After the respondent failed to satisfy the award, the petitioner filed a petition under the New York Convention and the Federal Arbitration Act to confirm and enforce the award. The respondent did not oppose the petition. In reviewing the petition, the district court concluded it had jurisdiction over the matter, noting that the four requirements for determining whether an arbitration agreement falls within the scope of the New York Convention had been met: “(1) there must be a written agreement; (2) it must provide for arbitration in the territory of a signatory of the convention; (3) the subject matter must be commercial; and (4) it cannot be entirely domestic in scope.” The court then analyzed the applicable standard of review for the matter, noting that it must enforce the arbitration award unless one of the seven defenses under the New York Convention was established. The court noted that the respondent had not appeared in the action or opposed the petition, and “if a petition to enforce an arbitration award is unopposed, a court need not inquire on its own into whether an exception to enforcement applies” and, in any event, there was no suggestion in the record that any of the defenses under the New York Convention were applicable. The court held that the petitioner established it was entitled to judgment in its favor in accordance with the award and granted the petition.

Exclusive Trim, Inc. v. Kastamonu Romania, S.A., No. 1:23-cv-03410 (S.D.N.Y. Oct. 12, 2023).