Confirmation / Vacation of Arbitration Awards

COURT FINDS THAT ENRON’S FRAUD DOES NOT VOID CONTRACT ENTERED INTO WITH ENRON SUBSIDIARY

January 17, 2017 by Rob DiUbaldo

A federal appellate court has upheld a district court order enforcing an arbitration award by the ICC against the Republic of Nigeria in favor of Enron Nigeria Power Holdings, Ltd. (“ENPH”), a former subsidiary of Enron International Corporation (“Enron”), for breach of a contract. Nigeria claimed that enforcing the contract was against public policy due to that fraud that became apparent when Enron collapsed in 2001. However, the court rejected this argument, noting that Enron was not a party to or mentioned in this contract.

The operative contract, agreed to in 1999, contemplated ENPH engaging in three phases of construction, but the dispute was limited to the second phase under which ENPH was to have built a power plant in Nigeria. ENPH made various efforts through 2005 to get Nigeria to move forward with the second phase of the contract, but Nigeria refused to do so, leading ENPH to take the matter to arbitration with the ICC.

Nigeria argued that the contract was void as against public policy because of false statements regarding Enron’s financial attributes made to Nigeria in order to induce Nigeria to enter the contract. The ICC found no clear evidence that these statements induced Nigeria to enter the contract, emphasizing that the contract contained no express or implied guarantees from Enron, which was not a party to nor required to do anything under the contract. Further, the ICC found that Enron’s accounting fraud had no connection to ENPH nor to the second phase of the contract. When Nigeria refuse to pay ENPH, ENPH successfully sought enforcement in federal court. On appeal, the court upheld the order granting enforcement of the award, noting the deference due to both the factual determinations and interpretations of the contract made by the ICC.

Despite finding in ENPH’s favor, the court rejected three arguments advanced by ENPH. First, ENPH argued that Nigeria had failed to identify a well-defined public policy, but the court found that enforcing a contract tainted by fraud was plainly against public policy. Second, ENPH argued that Nigeria contractually waived any right to challenge the award anywhere except London, where the arbitration was held, but the court found that a party cannot waive such a public policy argument, as that would effectively “elevat[e] the parties’ contractual choices above the fundamental need of the federal courts to protect their own integrity.” Third, the court rejected the argument that Nigeria forfeited the argument that ENPH should be held responsible for Enron’s fraud as its alter ego by not properly raising it before the district court, finding that a party cannot waive this sort of public policy argument that courts are bound to decide.

Enron Nigeria Power Holding, Ltd. v. Federal Republic of Nigeria, No. 15-7121 (D.C. Cir. Dec. 27, 2016)

This post written by Jason Brost.

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ELEVENTH CIRCUIT RESOLVES JURISDICTIONAL ISSUES REGARDING THE CONFIRMATION OF AN ARBITRATION AWARD

January 16, 2017 by Rob DiUbaldo

The Eleventh Circuit recently held that a district court retained jurisdiction over a motion to confirm an arbitral award, even though the plaintiff had voluntarily dismissed its claims while the motion to confirm was pending.

After PTA-FLA and affiliated entities (“ClearTalk plaintiffs”) filed a series of lawsuits across multiple jurisdictions against ZTE USA, ZTE moved to compel arbitration and the disputes were addressed in a consolidated arbitration proceeding. The arbitration resulted in a zero dollar award for both sides meant to bind ZTE and the ClearTalk plaintiffs.

While ZTE’s motion to confirm the arbitral award was pending, PTA-FLA voluntarily dismissed its claims, but the district court confirmed the arbitral award based upon its supplemental jurisdiction to do so. The Eleventh Circuit affirmed, finding that the lower court’s diversity jurisdiction granted it power both to compel the arbitration and confirm the resulting award. It held that the zero dollar award did not destroy diversity jurisdiction because the amount in controversy was satisfied at the time the case was filed. Likewise, it decided that the voluntarily dismissal did not destroy diversity jurisdiction because the confirmation of an arbitral award is a collateral claim over which the district court had independent jurisdiction.

Furthermore, the Eleventh Circuit confirmed that the lower court had supplemental jurisdiction to confirm the award against those ClearTalk plaintiffs that were joined for the consolidated arbitration. In doing so, it confirmed that the exception to supplemental jurisdiction excluding claims by plaintiffs against parties added under certain Federal Rules applied only to the “original” plaintiffs, and not third-party, counter, or cross plaintiffs.

PTA-FLA, Inc. v. ZTE USA, Inc., No. 15-15159 (11th Cir. Dec. 15, 2016)

This post written by Thaddeus Ewald .

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COURT HOLDS ALLEGED INDUSTRY BIAS AMONG ARBITRATORS INSUFFICIENT TO VACATE AWARD

January 12, 2017 by Michael Wolgin

The case concerned two purchase orders whereby defendant BJB LLC dba Agri Trading (Agri Trading) agreed to purchase corn oil from plaintiff Hardy Industrial Technologies, Inc. (Hardy). A dispute arose and was submitted for arbitration pursuant to language in the purchase orders incorporating the American Fats and Oils Association, Inc.’s (AFOA) trade rules. A three-member panel of the AFOA Arbitration Tribunal issued its award finding in favor of Agri Trading that both purchase orders were invalid.

Hardy moved to vacate, modify, or correct the arbitration award, principally relying on “evident partiality” on the part of the arbitrators, namely, that the arbitrators were biased in favor of Agri Trading. In support of its motion, Hardy argued that the arbitrators were biased because Agri Trading was a member of the AFOA but Hardy was not, and because the president of Agri Trading attended AFOA meetings with the arbitrators, worked on AFOA committee meetings, served on the AFOA Board of Directors, and socialized with them.

The Court rejected this argument, finding that Hardy failed to establish that the alleged partiality was direct, definite, and capable of demonstration, or that specific facts existed which indicated improper motives on the part of the arbitrators. The Court reasoned that Hardy’s claim was “one of institutional bias, which, at best, establishes an appearance of bias.” Furthermore, the Court noted that the AFOA’s arbitration rules, which required that three-member panels be comprised of one arbitrator designated as a buyer, one as a seller, and one as other, undermined Hardy’s argument that the arbitrators were biased. As such, the Court denied Hardy’s motion to vacate and affirmed the arbitration award. Hardy Indus. Tech., LLC v. BJB, LLC, Case No. 1:12-cv-3097 (USDC N.D. Ohio Dec. 16, 2016).

This post written by Gail Jankowski.

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COURT FINDS ARBITRATION AWARD THAT INCLUDED ATTORNEYS’ FEES WAS NOT A MANIFEST DISREGARD OF THE LAW

January 11, 2017 by Michael Wolgin

The court confirmed an arbitration award entered in favor of Astanza Design, LLC against Giemme Stile, S.p.A. and Giemme USA, LLC (Giemme) in which the arbitrator awarded both damages and attorneys’ fees to Astanza in a dispute arising from the parties’ agreement that Astanza was to serve as the exclusive representative for Giemme’s furniture sales to the LDS Church. Among other things, Giemme contended that the arbitrator lacked authority to award attorneys’ fees. The court disagreed.

The parties’ contract contemplated that the AAA International Center for Dispute Resolution Rules of Procedure would apply, and Article 34 of those rules provides that the tribunal “shall fix the costs of arbitration in its award.” In confirming the award, the court noted that the parties’ “bargained for the arbitrator’s construction of their agreement”, and noted that an arbitration award “even arguably construing or applying the contract must stand, regardless of this court’s view of its merits.” The award “drew its essence from the contract and was far from a manifest disregard of the law.” Astanza Design, LLC v. Giemme Stile, S.p.A., Case No. 1:16CV1238 (USDC M.D.N.C. Dec. 15, 2016).

This post written by Brooke L. French.

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NINTH CIRCUIT APPLIES NEW YORK LAW IN DETERMINING ASSIGNMENT OF RIGHTS TO ARBITRATION PROCEEDS WAS NOT A MATERIAL BREACH OF SETTLEMENT AGREEMENT

January 5, 2017 by John Pitblado

Finding the alleged breach of an anti-assignment provision in a Settlement Agreement was not material, the Ninth Circuit held that the FAA did not provide grounds for vacatur of an arbitration award. In so holding, the Court held the award was not procured by fraud; the arbitrator did not exceed his powers; and the plaintiffs-appellants cited no case wherein a court vacated an award based on an arbitrator’s failure to consider an argument the parties did not present during the arbitration.

The Central District of California previously held that, even if the assignment breached the Settlement Agreement, it did not relieve plaintiffs-appellants “of its duty to arbitrate because the agreement was merely a personal ‘covenant not to assign’ that ‘[gave] rise only to a right to sue for damages.’” The purpose of the Settlement Agreement was to resolve certain disputes between the parties, while reserving others for arbitration. “Under these facts, the alleged assignment of rights in one claim does not ‘defeat the purposes of the entire’ Settlement Agreement, which resolved $550,000 worth of other claims.”

The Ninth Circuit Court thus affirmed the District Court’s decision to deny the motion to vacate the arbitration award.

Watermill Ventures, Ltd. et al. v. Cappello Cap. Corp., No. 15-55145 (9th Cir. Dec. 1, 2016).

This post written by Nora A. Valenza-Frost.

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