Confirmation / Vacation of Arbitration Awards

New York Federal Court Confirms Arbitration Award

August 16, 2018 by John Pitblado

The background and full procedural history of this case can be found here. In sum, the dispute stems from a 2011 agreement by KT Corporation and KTSAT Corporation (“KT”), a Korean satellite communications provider, to sell the KOREASAT-3 satellite for $500,000 to Asia Broadcast Satellite Global Ltd. and Asia Broadcast Satellite Holdings, Ltd. (“ABS”), a Bermuda satellite communications provider based in Hong Kong. It was also agreed that KT would operate the satellite for ABS for an $800,000 fee and additional technical engineering fees. The parties entered into a Purchase Agreement and Operating Agreement, both of which had arbitration clauses. In 2013, however, the Korean government declared the sale “null and void” because KT had failed to obtain a permit necessary to comply with the Foreign Trade Act. The parties then submitted issues relating to the Purchase Agreement and Operating Agreement to an International Chamber of Commerce (“ICC”) arbitration panel. The ICC panel first issued a partial award, which held that ABS has the title to the satellite and that no Korean mandatory law was violated when title passed. KT then moved to vacate the partial award in New York federal court and sought remand of the case to the ICC. ABS cross-moved to confirm the partial award. In April 2018, the New York federal court confirmed the partial award, finding that the ICC panel had not exceeded its authority and had not manifestly disregarded the law. In the meantime, in March 2018, the ICC panel issued its final award, which held that ABS had properly terminated the Purchase and Operating Agreements in response to KT’s breaches and was owed approximately $1 million in damages. ABS then moved to confirm the final award in New York federal court, and KT cross-moved to vacate the final award.

KT’s petition to vacate was based on two grounds: 1) the ICC panel acted in manifest disregard of New York law by failing to award KT the purchase price or other compensation after awarding ABS the title to the satellite; and 2) the ICC panel exceeded its authority by resting its holding on the invalidity of the Korean government’s order. The New York federal court denied KT’s motion to vacate, finding that the ICC panel did not exceed its authority because it found that KT had breached the Purchase and Operating Agreements. Thus, regardless of whether the ICC panel was correct or not in interpreting the Korean government’s order, the court held that the ICC panel had sufficient basis to find that KT had breached the Agreements, which was “squarely in its authority.” The court also held that the ICC panel did not act in manifest disregard of the law.

The New York federal court also granted ABS’ motion to confirm the final award. In so doing, the court noted that KT’s claim that the final award violated public policy is the same argument it made previously, which was rejected by the court in its previous opinion confirming the partial award. For the same reasons, the court again rejected the argument.

KT Corporation, et al. v. ABS Holdings, Ltd., et al., Case No. 17-Civ-7859 (USDC S.D.N.Y. July 12, 2018).

This post written by Jeanne Kohler.
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Two Federal Appellate Courts Decline to Find “Evident Partiality” Due to Trivial Omissions in Arbitrator’s Disclosures

July 30, 2018 by Michael Wolgin

In two separate appellate decisions, two circuit courts of appeal declined to overturn orders enforcing arbitration awards where the appellants had challenged the respective awards based on “evident partiality” under the FAA. In Republic of Argentina v. AWG Group Ltd., Argentina contended that there was evident partiality by one of the arbitrators who did not disclose that she at one time (more than a year before the arbitration panel found Argentina liable) sat on the board of directors for a company with investments in two of the parties. Argentina appealed, but the appellate court affirmed, reasoning that the company on whose board the arbitrator sat had only trivial interest in the parties, and therefore, the arbitrator’s interests in the parties were insignificant.

Similarly, in Ploetz v. Morgan Stanley Smith Barney LLC, an arbitrator had submitted a disclosure report stating that he was currently serving as an arbitrator in two other cases that had Morgan Stanley as a party and that he had served as an arbitrator in eight closed cases in which an affiliate of Morgan Stanley had been a party. However, the arbitrator failed to disclose that he had once served as a mediator in another case, which was unsuccessful, in which an arbitration panel (on which he did not sit), ultimately found that Morgan Stanley owed the claimant $75,000 in damages. Despite this omission, the appellate court affirmed the order denying vacatur of the award. The appellate court reasoned that because the arbitrator timely disclosed the ten other cases he arbitrated where a member of the Morgan Stanley family was a party, his undisclosed mediation of the omitted case represented at most a trivial and inconsequential addition to that relationship. Republic of Argentina v. AWG Group Ltd., Case No. 1:15-cv-01057 (D.C. Cir. July 3, 2018); Ploetz v. Morgan Stanley Smith Barney LLC, Case No. 17-2405 (8th Cir. July 2, 2018).

This post written by Gail Jankowski.

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Second Circuit Joins Sister Circuits in Holding Party-Appointed Arbitrators Not Subject to Same Disclosure Requirements as Neutral Arbitrators

July 17, 2018 by Rob DiUbaldo

The Second Circuit recently held that parties seeking to vacate awards under Federal Arbitration Act Section 10(a)(2) must satisfy a higher burden in showing evident partiality by a party-appointed arbitrator. The parties arbitrated a workers compensation reinsurance dispute and the losing party (Lloyds) moved to vacate the ultimate arbitral award on the ground that the prevailing party (ICA)’s selected arbitrator displayed evident partiality by failing to fully disclose his connections to ICA. The lower court vacated the award, finding that ICA’s appointed arbitrator’s undisclosed relationships were “more significant, more numerous, and involve[d] more financial entanglements” than would be acceptable, particularly in light of the “apparent willfulness” of the non-disclosure.

On appeal, the Second Circuit addressed as an issue of first impression what the appropriate standard is for a Section 10(a)(2) evident partiality challenge to a party-appointed arbitrator. The court disagreed with the lower court and instead followed the approach of other circuits in distinguishing between a heightened burden standard for party-appointed arbitrators and a reasonable person standard for neutral arbitrators. Despite the heightened burden, party-appointed arbitrators are subject to certain “baseline limits to partiality.” First, undisclosed relationships are material—and therefore warrant vacatur—if they violate the arbitration agreement. Here, the court noted, the only limitation in the arbitration agreement was that arbitrators be “disinterested,” in terms of financial and personal stake in the outcome. Second, undisclosed relationships are material if the complaining party can demonstrate the partiality had a prejudicial effect on the award.

As a result of this new framework, the Second Circuit remanded to the trial court to determine whether ICA’s arbitrator’s undisclosed relationships betrayed his disinterest or had a prejudicial effect on the arbitral award.

Certain Underwriting Members of Lloyds of London v. Ins. Co. of Am., No. 17-1137 (2d Cir. June 7, 2018).

This post written by Thaddeus Ewald .

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Ninth Circuit Confirms Arbitration Award Due to Failure to Preserve Objection to Arbitrability

July 12, 2018 by Michael Wolgin

Pioneer Roofing Organization (PRO) appealed an order from a federal district court granting summary judgment in favor of Sheet Metal Workers’ Local Union No. 104 on PRO’s petition to vacate the arbitrator’s award. PRO primarily argued that the arbitrator lacked authority to resolve the underlying grievance, arguing that it was a jurisdictional dispute not subject to arbitration. Reviewing de novo, the Ninth Circuit affirmed, finding that PRO waived its arbitrability challenge by failing to preserve the issue through either of the two recognized methods for doing so: (1) objecting to the arbitrator’s authority, refusing to argue the arbitrability issue before the arbitrator, and proceeding to the merits of the grievance; or (2) making an objection as to jurisdiction and expressly reserving the question on the record. Pioneer Roofing Organization v. Sheet Metal Workers’ Local 104, Case No. 17-15296 (9th Cir. June 4, 2018).

This post written by Gail Jankowski.

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Fourth Circuit Upholds Arbitration Award Involving Termination of Employee

July 5, 2018 by John Pitblado

Affirming the trial court’s ruling, the Fourth Circuit upheld the denial of a motion to vacate or modify an arbitration award involving the termination of an employee.

The first challenge to the award was that “the arbitrator impermissibly ruled on whether 3D systems breached the Agreement’s manager terms – a matter not submitted to arbitration – and awarded damages based upon the breach.” The Court declined to vacate the award on this ground because “even if the arbitrator erred in determining that 3D Systems breached the manager term, the damages award is sufficiently supported by the arbitrator’s finding of three other breaches.”

The second challenge to the award was that “the arbitrator awarded [the employee] all of the potential earn-out and the amended award violated AAA Commercial Rule 50 and the common law doctrine of functus officio.” The Court declined to vacate the award on this ground, as the “district court did not err in refusing to modify the damages pursuant to 9 U.S.C. § 11(a) because 3D Systems failed to allege a mathematical error that appears on the face of the award.” Moreover, the amended award did not violate functus officio or AAA Commercial Arbitration Rule 50 because it contained only minor changes for clarification purposes.

The third challenge to the award was that “the arbitrator failed to follow the parties’ agreed-upon methodology or the Agreement’s fee-sharing provision in calculating attorney’s fees and costs” The Court again declined to vacate the award on this ground, as “3D Systems again fails to show [it is] entitled to modification of the award under 9 U.S.C. § 11(a)” and, moreover “the arbitrator’s methodology followed the exact language of the unambiguous fee-sharing provision … the arbitrator was not bound the parties’ agreed-upon methodology.”

Barranco, et al. v. 3D Systems Corp., et al., No. 17-1744 (4th Cir. May 31, 2018)

This post written by Nora A. Valenza-Frost.

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