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Confirmation / Vacation of Arbitration Awards

NEW YORK DISTRICT COURT CONFIRMS FOREIGN ARBITRATION AWARD, REASONING THAT COURTS WITH SECONDARY JURISDICTION MAY NOT REFUSE TO CONFIRM AN AWARD DUE TO AMBIGUITY

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Pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, codified at 9 U.S.C. § 201 et seq. (the “Convention”), Petitioner, a German corporation, sought an order confirming a final arbitration award of a money judgment against Respondent, a Turkish national, issued by a Swiss tribunal. In opposition to Petitioner’s motion to confirm the final award, Respondent argued, among other things, that the final award was so ambiguous as to be unenforceable.

The District Court, however, was not persuaded by that argument. Specifically, the Court held, “[w]hatever ambiguity existed by looking solely to the award section of the Final Award, it is resolvable by the record and the Arbitral Tribunal’s thorough Final Award opinion; it is clear what the Arbitral Tribunal decided.” More significant was the Court’s holding on ambiguity as grounds for refusal to confirm the award generally. In this regard, the Court held that “[w]hen sitting in secondary jurisdiction, as the Second Circuit has recently reminded district courts, the parameters within which a district court may refuse enforcement are rigidly circumscribed: ‘[T]he [New York] Convention is equally clear that when an action for enforcement is brought in a foreign state, the state may refuse to enforce the award only on the grounds explicitly set forth in Article V of the [New York] Convention.’” Therefore, because ambiguity is not a ground “explicitly set forth” in Article V, the Court determined that it is not a ground for consideration when determining whether or not to confirm a foreign award. BSH Hausgeräte GMBH v. Jak Kamhi, Case No. 17-5776, (USDC S.D.N.Y. Mar. 3, 2018).

This post written by Gail Jankowski.

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FOURTH CIRCUIT INSTRUCTS DISTRICT COURT TO VACATE ARBITRATION AWARD THAT WAS NOT MUTUAL, FINAL, AND DEFINITE

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The Fourth Circuit reversed and remanded the district court’s order granting Norfolk Southern Railway Company’s motion to confirm an arbitration award determining the amount Sprint must pay to Norfolk Southern for continued use of railroad rights. Under the parties’ contract, because the parties’ respective appraisers disagreed as to the proper amount, a third appraiser was instructed to arrive at a compromise with one (or both) of the other appraisers. Ultimately, the third appraiser agreed with the amount set forth by Norfolk Southern’s appraiser, but conditioned his assent to the award subject to two conditions- (1) that Norfolk Southern had marketable title and (2) that the value used by Norfolk Southern’s appraiser was reasonable. The third appraiser also reserved the right to withdraw his assent if his assumptions proved to be incorrect. The AAA panel found that this decision constituted a final and binding arbitration award, which upon Norfolk Southern’s motion, the district court confirmed.

Sprint appealed the district court’s confirmation of the award, and despite the deferential standard of review accorded to arbitration awards, the Fourth Circuit found that the district court did err in determining that the third appraiser’s decision was a “final” award. Specifically, the Fourth Circuit found significant that the third appraiser “made clear that he might withdraw his assent — thus dissolving the compromise and the arbitration award itself — at some point in the future.” Moreover, the Court noted that the third appraiser “did not merely base his assent on certain assumptions, but rather reserved the right to withdraw his assent [even] if his assumptions proved to be incorrect… [and therefore, could not] be squared with any conception of ‘finality.’” As such, the Fourth Circuit instructed the district court to vacate the award. Norfolk So. Railway Co. v. Sprint Comm’s Co. L.P., Case No. 16-2017 (4th Cir. Feb. 22, 2018).

This post written by Gail Jankowski.

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D.C. CIRCUIT COURT RULES ON CURRENCY CONVERSION ISSUE IN ARBITRAL AWARD

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Following a Greek arbitration, Petitioner sought to confirm an arbitration award and enter judgment in the U.S. District Court for the District of Columbia. The arbitral award was issued on July 2, 2013 for €39,818,298 in damages and $162,500 in costs. Apply Rule 59(e), the District Court converted the entire award (plus interest) into U.S. dollars using the exchange rate in effect on July 2, 2013 – the date of the arbitral award – making the total judgment $62,731,104.80. Since the euro had declined over the course of the litigation, the judgment increased its value by approximately $11.9 million.

On Appeal, the D.C. Circuit Court found the District Court had erred in two ways: (1) it incorrectly concluded that Rule 59(e) precedent did not apply to Petitioner because it was not a “losing party;” and (2) it incorrectly concluded that it was “manifestly unjust to award [Petitioner] judgment in euros even though [Petitioner] had expressly sought relief in euros at least three times and had not asked for dollars until its post-judgment motion.”

The Circuit Court held that “under Rule 59(e), a district court may not convert a judgment to dollars if the movant contracted in euros, received its arbitral award in euros, requested euros in its complaint and filed three proposed order seeking euros, before reversing course post-judgment.” The matter was remanded with instructions to reenter judgment in accordance with the arbitral award.

Leidos, Inc. v. Hellenic Republic, No. 17-7082 (D.C. Cir. Feb. 2, 2018)

This post written by Nora A. Valenza-Frost.

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COURT INTERPRETS CONTRACT CONTAINING MANDATORY DE NOVO REVIEW PROVISION OF ARBITRATION AWARD

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The Tenth Circuit Court of Appeals determined that an ADR provision of an agreement which called for arbitration, but also indicated that either party may “notwithstanding any provision of law bring an action against the other in a federal district court for the de novo review of any arbitration award” was legally invalid, rendering the arbitration clause unenforceable.

Relying on the Supreme Court’s decision in Hall Street Associates, LLC v. Mattel, Inc., which “makes clear de novo review is entirely incompatible with the expedited process envisioned in the FAA,” the Tenth Circuit was “unwilling to treat the mere provision of a federal forum in [the Indian Gaming Regulatory Act] as some implicit rejection of the applicability of the FAA review standards to arbitrations involving gaming compacts.”

The Court recognized that the ADR provision “makes clear that the parties’ agreement to engage in binding arbitration was specifically conditioned on, and inextricably linked to, the availability of de novo review in federal court” and would not sever the de novo language from the parties’ agreement.

Citizen Potawatomi Nation v. State of Oklahoma, No. 16-6224 (10th Cir. Feb. 6, 2018)

This post written by Nora A. Valenza-Frost.

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SECOND CIRCUIT REJECTS MANIFEST DISREGARD OF LAW AS A BASIS FOR VACATING AN ARBITRATION AWARD

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A panel of the Second Circuit has, in an unpublished summary order, emphasized the high bar that must be cleared by a party seeking to vacate an arbitration award.  The matter arose from the decision of a financial advisor not to follow instructions from a client to transfer all assets from a trust for the benefit of their children to one for the benefit of the client’s wife. After the client passed away, Ms. Pfeffer (the deceased client’s wife) sued the advisor before a FINRA arbitration panel, alleging that this failure to follow instructions constituted a breach of fiduciary duty.  The advisor responded that the client’s instructions were not followed due to concerns that he was not competent, a concern supported by the opinion of two physicians.

The panel denied Ms. Pfeffer’s claim, and she moved to vacate the award in federal district court, alleging that this decision “was procured by undue means, evident partiality, and misconduct because the Panel was intimidated by defense counsel and refused to consider relevant evidence.” The district court confirmed the award, and Ms. Pfeffer appealed.  The Second Circuit emphasized that it “does not recognize manifest disregard of the evidence as a proper ground for vacating an arbitration panelʹs award, and will only find a manifest disregard for the law where there is no colorable justification for a panelʹs conclusion.”  Finding no evidence in the transcript of the arbitration proceeding “that the award was produced by undue means, evident partiality, or misconduct,” or that “the Panel failed to abate defense counsel’s abrasive manner . . . [or] was intimidated by him,” the court found no support for the conclusion that the panel had manifestly disregarded the law and affirmed the lower court’s decision confirming the award.

Pfeffer v. Well Fargo Advisors, LLC, et al., No. 17-1819-cv (2d. Cir. Feb. 15, 2018).

This post written by Jason Brost.
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