Confirmation / Vacation of Arbitration Awards

Sujit Ghosh, President of Open Orbit Corporation, entered into a Personal Guaranty for the “full and timely performance of and by” Open Orbit under a Retailer Agreement with DISH Network, LLC. The Personal Guaranty included a final and binding arbitration clause of “any and all disputes, controversies or claims arising out of or in connection with this Personal Guaranty.” A dispute arose, and arbitration commenced. Ghosh requested the arbitrator remove him from the arbitration which was denied, as the arbitrator required a written agreement signed by DISH releasing Ghosh from the Personal Guaranty. DISH prevailed and obtained a $220,000 arbitration award (plus post-award interest).

The District Court confirmed the award, and the Tenth Circuit affirmed, noting “Ghosh elected to appear in the existing arbitration, where he professed faith in the arbitrator, claimed to have provided all the evidence relevant to his request to nullify or cancel his liability under the Personal Guaranty, and acknowledged that the arbitrator’s decision would be final and binding.” There were no allegations of arbitrator misconduct.

The Tenth Circuit also rejected Ghosh’s argument that, because he was not a party to the arbitration, issue preclusion is not applicable, as Ghosh “raised and actually litigated the validity of his personal guaranty in the arbitration even though he was not a party to the arbitration itself.” Furthermore, exceptions to the rule again nonparty preclusion were present.

DISH Network, LLC v. Ghosh, No. 18-1131 (10th Cir. Oct. 11, 2018)

This post written by Nora A. Valenza-Frost.

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After Hurricane Sandy hit the east coast in 2012, the Army Corps of Engineers contracted with Environmental Chemical Corp. (ECC) to conduct clean up on Fire Island, New York. ECC subcontracted most of the work to Coastal Environmental Group, Inc. (Coastal). Both entities incurred unexpected costs, which ECC blamed on Coastal and Coastal blamed on factors outside of its control. ECC then refused to pay Coastal a portion of the money it was otherwise due under the contract, and Coastal commenced an arbitration that ended with an award in Coastal’s favor.

ECC moved to vacate the award, focusing on two main issues: (1) Coastal’s failure to disclose the interest of its creditor Signature Bank in the matter; and (2) the arbitrator’s decision that ECC was estopped from challenging certain calculations of costs that Coastal had provided during the litigation because ECC has used those same calculations in submissions to the Army Corps of Engineers.

Documents filed after the award was issued showed that all of Coastal’s rights to payment under its agreement with ECC had been assigned to Signature Bank, which had agreed to take over all efforts to collect amounts due under the contract. ECC argued that Signature Bank was thus the real party in interest, and that Coastal’s failure to disclose this assignment of claims tainted the entire proceeding, including because this prevented the arbitrator from performing a proper conflict check. However, the court found that ECC had presented no evidence that Coastal or its attorneys ever made any affirmative misrepresentations on the question of Signature Bank’s role in the matter and that Coastal had informed ECC prior to the arbitration that one of its attorneys was also an attorney for Signature Bank. The court also found that ECC presented no evidence that a conflict check that included Signature Bank would have led the arbitrator to be conflicted out of the matter, and that “raising only the specter of potential but totally unknown conflicts” was not enough to show objective facts inconsistent with impartiality, as is needed to vacate an award on the basis of “evident partiality.”

Regarding the arbitrator’s invocation of equitable estoppel, ECC argued that, by raising the issue sua sponte and without briefing from the parties, the arbitrator exceeded his authority. The court disagreed, finding that the relevant portion of the contract specifically said that Coastal’s rights to certain compensation should be based on what “is equitable under all of the circumstances,” thus inviting the arbitrator to consider the equitable doctrine of estoppel. The court also noted that ECC had provided no authority suggesting that an arbitrator cannot consider an issue that was not briefed by the parties. Thus, the court confirmed the award.

Environmental Chemical Corp. v. Coastal Environmental Group, Inc., 18 Civ. 3082 (S.D.N.Y. Sept. 14, 2018).

This post written by Jason Brost.

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Ameriprise sought vacatur of the award under grounds set forth in the FAA, namely fraud, evident partiality, arbitrator misconduct, and exceeding of powers. In refusing Ameriprise’s request, the court first noted that judicial review of an arbitral award is “among the narrowest known in the law” and is “exceedingly deferential.” This standard “ensures arbitration’s essential virtue of resolving disputes straight away is maintained and avoids costly full-bore legal and evidentiary appeals.” With respect to Ameriprise’s claim that there was “evident partiality” on the part of one of the arbitrators, the court rejected it due to its “broad and speculative nature” and because the facts underlying the claim could have been discovered prior to the arbitration by “the most basic method of contemporary due diligence: a Google search.” With regard to Ameriprise’s argument that the panel engaged in “misconduct” by declining to give due weight to evidence in support of its case, the court declined Ameriprise’s invitation to “conduct a post-mortem of the arbitrators’ cognition processes and how they reached their decision.” As to Ameriprise’s argument regarding fraud, the court held that Ameriprise failed to present “clear and convincing evidence.” The court, however, did reverse the arbitration panel’s award of $123,712 in attorney’s fees, which the court declared was either in excess of the powers of the panel, or in manifest disregard of the law. Ameriprise Financial Services, Inc. v. Brady, Case No. 18-10337-DPW (USDC D. Mass. Sept. 11, 2018).

This post written by Benjamin E. Stearns.

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The background of this case can be found here. Floridians for Solar Choice, Inc. (“FSC”), is a Florida not-for-profit corporation formed for the purpose of qualifying for a solar energy amendment ballot initiative in Florida’s general election. FSC initially filed a complaint in Florida federal court in December 2015 against Defendants PCI Consultants, Inc. (“PCI”), a “national leader in obtaining signed petitions for ballot initiatives,” and PCI’s principal, Angelo Paparella (“Paparella”). The case stemmed from a failed ballot initiative to qualify a solar constitutional amendment for the 2016 election in Florida. In its complaint, FSC alleged causes of action for breach of contract, fraud in the inducement, conversion, and unjust enrichment against PCI, and fraud in the inducement and conversion against Paparella. FSC also filed a motion to compel arbitration, arguing that the claims asserted relate to contracts which contain arbitration clauses. The Florida district court granted the motion to compel in January 2016 and closed the case. In October 2017, Defendants filed a motion to reopen case, which was granted. In its motion, Defendants advised the court that the parties had participated in an arbitration administered by the American Arbitration Association (“AAA”) in April 2017, that the “sole arbitrator issued a non-final award on July 20, 2017 and on October 10, 2017, the arbitrator issued a ‘Final Award’ adopting the non-final award.” Defendants moved to vacate the award, and FSC moved to confirm the award.

In their motion to vacate, Defendants made five arguments: 1) the award must be vacated because FSC employed “fraud and/or undue means” to procure an arbitration award in its favor; 2) the arbitrator, acting alone, lacked jurisdiction under the AAA rules to enter an award exceeding one million dollars; 3) the arbitrator had “irrefutable bias” against Defendants; 4) the arbitrator failed to hear evidence related to FSC’s “surprise damages claim;” and 5) the AAA Rules barred entry of the October final award in favor of FSC because the July award was a “final award” that terminated the arbitrator’s jurisdiction. In response, FSC argued that the arbitrator’s award is supported by the record evidence and that Defendants failed to meet their burden on their claim of fraud or undue means and on their claim of arbitrator bias. FSC further argued that the Arbitrator had jurisdiction to issue an award above one million dollars and to enter the October final award. FSC also moved to confirm the July award, as amended by the October final award (and a later corrected November 1, 2017 award).

The court found that Defendants failed to meet their burden to demonstrate that FSC defrauded or used undue means to influence the arbitrator. The court also found that the arbitrator had the authority to enter the arbitration awards. The court also denied the motion to vacate on the ground that the arbitrator was biased. As to the arbitrator’ evidentiary rulings, the court noted that “[a]rbitrators enjoy wide latitude in conducting an arbitration hearing, and they are not constrained by formal rules of procedure or evidence,” and found that Defendants were not deprived of a fair hearing. Thus, the Florida federal court denied Defendants’ motion to vacate. As the Defendants did not meet the “heavy burden” to vacate the award, the Florida federal court also granted FSC’s motion to confirm the award.

Floridians for Solar Choice, Inc. v. PCI Consultants, Inc., No. 15-cv-62688 (USDC S.D. Fla. June 11, 2018).

This post written by Jeanne Kohler.

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