Confirmation / Vacation of Arbitration Awards

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).

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).

In this case, plaintiff Rodrigo Pagaduan was injured while serving as a motorman on a Carnival Cruise Line ship. The Second Circuit previously affirmed the Eastern District of New York’s order compelling arbitration, and the case was ordered to be arbitrated in the Philippines. The Philippine labor arbiter’s decision granted Pagaduan $5,100 in “sickness allowance,” plus attorneys’ fees of 10% of the award, but declined to provide other relief. Pagaduan filed a motion seeking nonenforcement and/or vacatur of the award, which was denied by the district court.

Pagaduan appealed the district court’s denial, invoking the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), which provides that a court “shall confirm [a foreign arbitral] award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention.” Pagaduan argued that the award should not be confirmed based on two grounds of the New York Convention.

First, Pagaduan argued that article V(1)(b) of the New York Convention applied, which allows for nonenforcement where “[t]he party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case.” Pagaduan argued that he had not been given proper notice of the proceedings and was unable to present his case. The Second Circuit rejected Pagaduan’s argument, finding that Pagaduan submitted multiple lengthy briefs, medical records, and affidavits before the labor arbiter, but chose to focus his arguments almost entirely on whether the arbiter had jurisdiction over the case, which left him limited room to argue the merits of his case (such as how the Jones Act or Philippine law would provide a greater recovery). Although Pagaduan pointed to errors in the arbitration proceedings, the Second Circuit found that none of them suggested that he was denied the opportunity to be heard in a meaningful time or manner. Therefore, the Second Circuit did not believe that the first ground applied.

Second, Pagaduan argued that article V(2)(b) of the New York Convention applied, which allows for nonenforcement where “[t]he recognition of enforcement of the award would be contrary to the public policy of that country.” Pagaduan argued that the lesser remedies available under Philippine law contravene U.S. policy to provide special solicitude to seamen under the Jones Act. The Second Circuit again rejected Pagaduan’s argument, finding the fact that the award was arguably smaller than Pagaduan might have recovered under the Jones Act was not so contrary to public policy as to “violate our most basic notions of morality and justice.” As federal public policy is not violated “merely because foreign law would provide a lesser or different remedy in a particular area of the law,” the Second Circuit declined to set aside the award and affirmed the order of the district court.

Pagaduan v. Carnival Corp., No. 19-3400 (2d Cir. Nov. 25, 2020).

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)