Confirmation / Vacation of Arbitration Awards

Pursuant to the FAA, a motion to vacate, modify, or correct an arbitration award must be served within three months after the award is filed or delivered. 9 U.S.C. § 12. Thus, a Maryland federal court held that the defendants’ request, via its answer on August 27, 2018, to vacate an arbitration award issued on January 31, 2018, was untimely.

The court also rejected the defendants’ argument that there was a genuine dispute of material fact regarding the existence of the franchise agreement based on the date of the subject franchise agreement referenced in the plaintiff’s papers. The defendants admitted that they entered into the franchise agreement attached to the plaintiff’s motion for summary judgment to confirm the arbitration award. The agreement contained the arbitration clause underlying their dispute. Thus, the court held that the “[p]laintiff’s failure to reference the accurate franchise agreement date in both their application to confirm arbitration award and motion for summary judgment does not create a genuine issue of material fact regarding the franchise agreement’s existence.”

Choice Hotels Int’l, Inc. v. Gopi Hosp., LLC, No. 8:18-cv-01680 (D. Md. July 18, 2019).

The case involved an AAA arbitration centering on the lack of performance under an exclusive distributorship agreement (EDA) that a medical supplier signed with a product manufacturer. The supplier failed to order sufficient amounts of the product under the EDA, but contended that the manufacturer fraudulently induced the supplier to enter into the EDA by making representations that the product was unique. The EDA, however, included an integration clause stating that the agreement constituted the entire agreement between the parties. The arbitrator ruled in favor of the manufacturer, finding that the supplier was barred by the parol evidence rule from asserting that it was fraudulently induced into signing the EDA.

The manufacturer then filed a petition with a district court to confirm the award. Although the supplier failed to file a response to the manufacturer’s petition, the court refused to simply enter a default judgment, holding that a default is not appropriate on a petition to confirm an arbitration award. The court then found that the evidence and the law showed that the arbitrator’s decision was more than “colorable” and confirmed the award. Included in the award was an award of attorneys’ fees. On review, the court found that the manufacturer’s attorneys complied with evidentiary requirements, including submission of an affidavit describing their experience, rate, amount of time spent on the case, and a statement that the requested rates are reasonable in their community. As a result, the district court confirmed the requested amount of fees in their entirety, noting specifically that the supplier had not presented any evidence to the contrary.

Intellisystem, LLC v. McHenry, No. 2:19-cv-01359 (E.D. Pa. June 26, 2019).

The Eighth Circuit recently vacated a judgment confirming an arbitration award after concluding that the district court lacked personal jurisdiction over the defendant.

Federated Mutual Insurance Co., a Minnesota insurer, owns various trademarks containing the word “Federated.” A Florida insurer changed its name to Federated National Holding Co. After Federated Mutual expressed concern about possible confusion related to its marks, the insurers entered into an agreement requiring Federated National to adopt a new name, inform Federated Mutual of its new name, and provide Federated Mutual with an opportunity to object. Federated National adopted the name “FedNat,” continued to use the name Federated National as well, and failed to give Federated Mutual the required notice and opportunity to object. Federated Mutual initiated arbitration.

The arbitrator allowed FedNat to continue using FedNat, but ordered it to stop using “Federated.” Federated Mutual filed a petition to confirm the award in the U.S. District Court for the District of Minnesota. Federated Mutual’s petition was successful.

FedNat appealed, and the Eighth Circuit vacated the award and remanded with instructions to dismiss the petition based on a lack of personal jurisdiction over FedNat. It ruled that the agreement between the parties, despite being relevant, did not give rise to personal jurisdiction merely because the agreement contained a Minnesota choice-of-law provision. The court also explained that FedNat had no meaningful connection to Minnesota: It did not do business or have a physical presence there, and the fact that FedNat’s name disrupted Federated Mutual’s business in Minnesota did not create contacts on the part of FedNat with Minnesota. Finally, the panel disagreed with the district court’s conclusion that the agreement between the parties contemplated regular communications in Minnesota. The agreement only required notice of Federated National’s new name and was silent as to where the notice was to be given. Such sporadic communications were not enough to establish personal jurisdiction in Minnesota.

Federated Mut. Ins. Co. v. FedNat Holding Co., No. 18-2430 (8th Cir. June 27, 2019).

Tracey Schusterman and Rosa Mazzone jointly owned a financial services group. Pursuant to their agreement, they were bound to arbitrate any disputes regarding the financial services group before the Financial Industry Regulatory Authority Inc. Schusterman initiated an arbitration against Mazzone alleging that she attempted to solicit clients in violation of their agreement. The arbitration panel found that Mazzone breached the agreement and issued an award in favor of Schusterman. Schusterman then filed an action to confirm the award. Shortly thereafter, Mazzone made a payment to Schusterman in the full amount of the award and filed a motion to dismiss the petition asserting that the motion was not ripe, and the claims now moot based on her payment, along with a request for sanctions. The court confirmed the award and denied the motion to dismiss. The court explained that prior compliance “does not negate the right of the prevailing party … to seek judicial confirmation of the arbitral decision.” The court further held that sanctions were not appropriate. The court explained that Mazzone did not follow the proper procedures in filing the sanctions motion and further that Schusterman did not act with “objective unreasonableness” as she had the right under the FAA to petition to confirm an arbitration award.

Schusterman v. Mazzone, No. 1:19-cv-00212 (S.D.N.Y. June 19, 2019)