Confirmation / Vacation of Arbitration Awards

In a challenge to an arbitration award on the basis that the arbitrators exceeded their powers in determining damages, the Third Circuit affirmed the District of New Jersey’s confirmation of the award.

First, the appellant argued that the arbitrator erred by using sales data instead of supply data in arriving at a damages figure. The court stated that this “is precisely the type of decision we have no authority to second-guess under the Federal Arbitration Act. … All that matters is that the arbitrator’s decision had some basis in the record.”

Second, the appellant argued that the arbitrator manifestly disregarded the law in ordering quarterly royalty payments be made to the appellee, since the appellant cannot be made to pay royalties until its claims regarding patent invalidity and unenforceability have been adjudicated. The court noted that the “arbitrator clearly grappled with the import of the Lear decision” and found the appellee’s arguments to be more persuasive. “That good faith effort is more than enough to demonstrate that he did not manifestly disregard Lear.”

PNY Technologies, Inc. v. NETAC Technology Co., No. 19-1635 (3d Cir. Feb. 10, 2020).

Following a 2007 settlement concerning the allocation of investigation and remediation costs incurred due to environmental contamination at an industrial complex, the parties agreed to resolve the litigation between the parties and arbitrate the allocation of certain environmental costs. The parties engaged in arbitration from May 2017 to May 2019. The panel issued a final unanimous award assigning 100% of the allocable costs to the plaintiff. The plaintiff sought to vacate the award on the basis that: (1) the arbitrators exceeded their powers by imposing the burden of proof on the plaintiff in violation of the 2007 settlement agreement; (2) the arbitrators manifestly disregarded the legal principle that rejects incremental cost allocation; and (3) the award violated public policy requiring polluters to pay for the environmental harm they cause. The court disagreed with the plaintiff’s arguments and confirmed the award.

As to the plaintiff’s first argument concerning the burden of proof, the court concluded that the settlement agreement was silent as to which party should bear the burden of proof at arbitration. Additionally, the section cited by the plaintiff merely established the procedure by which the parties may initiate arbitration and required “the initiating party to state the amount of Allocable Costs it contends should be assigned to each party, including a brief statement in support of that allocation, presumably to notify the other party what issues will be arbitrated.”

As to the plaintiff’s second argument as to incremental cost allocation, the court found that the panel did not disregard any legal principal but simply found that the plaintiff failed to prove that the defendant “had actually contributed in any material way to the contamination at the Site, or that [the defendant’s] activities were the cause of any of the costs at issue.”

As to the plaintiff’s third argument regarding public policy, the panel found that the “evidence did not establish the amount of contamination caused by [the defendant’s] alleged poor remediation, or the fact or amount of any cost for remediation of any such contamination” for which the defendant would be financially responsible. Thus, 100% of the allocable costs were assigned to the plaintiff, which was not in violation of any public policy.

PolyOne Corp. v. Westlake Vinyls, Inc., No. 5:19-cv-00121 (W.D. Ky. Feb. 11, 2020).

In addition to awarding monetary damages against the defendants, the arbitration panel ordered that the defendants be divested of their shares in the plaintiff corporation. The defendants sought to vacate the award, arguing that the panel was improperly constituted and the award included speculative or punitive damages, rendering it unenforceable (among other reasons). The trial court’s judgment confirming the arbitration award was affirmed.

As to the argument that the panel was improperly constituted, the plaintiffs appointed five arbitrators and the defendants appointed two. The defendants argued that the method of selection was against the terms of the contract, which required an equal number of appointed arbitrators per side. While the court agreed that if the selection of the arbitration panel fundamentally departed from the contract’s selection process, the award should be vacated. However, the court found that there was no such departure here, as the contract’s selection process contemplated the number of parties, not the number of sides. Here there were seven parties and seven arbitrators.

As to the argument that the award included speculative or punitive damages, the court found that, while the panel did not have the authority to issue punitive damages per the parties’ agreement, it did possess powers to grant court-enforceable injunctive relief. Divesting the defendants of their shares in the plaintiff corporation “operates to achieve what the panel considered a fair result” to compensate the parties financially and achieve a just outcome, which “is precisely a matter of equity” and therefore distinguishable from punitive damages.

Soaring Wind Energy, LLC v. Catic USA Inc., No. 18-11192 (5th Cir. Jan. 7, 2020).