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Confirmation / Vacation of Arbitration Awards

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

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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

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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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PARTY CANNOT APPEAL DECISION THAT DISTRICT COURT DID NOT MAKE REGARDING MOTION TO VACATE ARBITRATION AWARD

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The Sixth Circuit has declined to rule on a motion to vacate an arbitration award, which was brought at the same time as a successful motion to dismiss the action for forum non conveniens, when the district court had not decided that motion. The Court found that no exceptional circumstances existed that would justify ruling on an issue not addressed by the district court and that, given its other ruling, the district court was correct not to address the motion.

The case was initially brought in federal court in Tennessee by Milan Express, which alleged various claims against Applied Underwriters relating to an agreement to provide workers’ compensation coverage. The parties later agreed to submit the matter to arbitration, but the arbitration panel determined that the arbitration clause in the parties’ agreement was unenforceable. Returning to federal court, Applied Underwriters filed two motions: a motion to dismiss for forum non conveniens and a motion to vacate the arbitration award. The district court granted the motion to dismiss but did not rule on the motion to vacate. Applied Underwriters appealed, claiming that the court’s non-ruling on the motion to vacate was “in effect a denial of the motion.” Applied Underwriters further contended that the arbitrators, in finding the arbitration clause unenforceable, “exceeded their powers and acted with manifest disregard for the law,” and that both parties agreed that this presented a pure question of law that the Sixth Circuit could decide. The Court disagreed, however, finding that the district court’s silence could not be construed as confirming the validity of the arbitration award, an issue the district court was constrained not to decide once it decided that the Nebraska courts had exclusive jurisdiction over the case. Milan Express Co., Inc. v. Applied Underwriters Captive Risk Assurance Co., Inc., No. 16-5270 (6th Cir. Dec. 2, 2016)

This post written by Jason Brost.

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ARBITRATION AWARD IN INTERNATIONAL COAL SHIPPING DISPUTE UPHELD AS WITHIN TRIBUNAL’S AUTHORITY

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An arbitration tribunal awarded damages to Sino East after Kailuan International wrongfully terminated a coal shipping contract after the delivery was delayed. The two Hong Kong-based companies’ agreement for Sino East to ship coal from Virginia to China was thrown into conflict when Sino East was delayed in loading and shipping the coal. Sino East petitioned for arbitration under the agreement when discrepancies in shipping documents and an ultimately late delivery of coal to China prompted Kailuan to terminate the contract and refuse payment for the shipment. The arbitration tribunal considered whether Kailuan wrongfully terminated the contract and whether Sino East failed to timely present the required shipping documents, and awarded damages to the latter. Kailuan then moved to vacate the arbitration award in New York federal court.

Under the limited review of arbitral decisions afforded to courts under the Federal Arbitration Act (“FAA”), the court analyzed whether the arbitrator’s consideration of Kailuan’s untimely exercise of its termination rights under the contract overstepped the panel’s authority to consider the issues submitted to it. The court concluded that the tribunal acted squarely within its authority in determining the issue of whether Kailuan adequately preserved its termination rights was critical to the determination of the wrongfulness of the ultimate termination—one of two issues submitted to the panel. Because the arbitrators acted within the scope of their authority, and did not exhibit manifest disregard for the law or the agreement, the court denied Kailuan’s motion to vacate.

Kailuan (Hong Long) Int’l Co., Ltd. v. Sino East Minerals, Ltd., Case No. 16-2160 (USDC S.D.N.Y. Dec. 9, 2016).

This post written by Thaddeus Ewald .

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FOURTH CIRCUIT REFUSES TO VACATE FINRA ARBITRATION AWARD, DESPITE PARTY’S CLAIM THAT IT HAD NO OPPORTUNITY TO PARTICIPATE IN SELECTION OF ARBITRATORS AND CHALLENGES TO DAMAGES CALCULATION

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UBS Financial Services’ motion to vacate a FINRA arbitration award was denied, despite its claims that the panel was improperly chosen and that the panels damages award was flawed in that it did not impose an offset.

UBS brought the arbitration against Padussis seeking repayment of a loan, and Padussis counterclaimed. FINRA mailed a list of potential arbitrators to the parties, which then had twenty days to rank and strike the arbitrators. Padussis did so, but UBS did not. After the deadline passed, UBS moved to extend its time to rank and strike, claiming it never received the list. FINRA denied this motion and selected a panel of three arbitrators based on Padussis’ preferences. The panel ultimately awarded over $1.6 million to UBS and over $900,000 to Padussis, but did not provide that these amounts would offset. Padussis then claimed that he could not pay the $1.6 million award “due to a statutory lien and the prospect of bankruptcy,” such that UBS would receive nothing yet need to pay Padussis more than $900,000.

UBS claimed the award should be vacated because the panel was not selected in accordance with the parties’ agreement. The Court disagreed, finding that FINRA had followed its own rules by mailing the list to the parties and selecting arbitrators based on the responses it received. Further, the Court held that whether to grant UBS an extension to respond to the list was a procedural question that was completely within FINRA’s discretion.

UBS also asked the Court to impose an offset, but the Court declined to do so, noting that the “arbitration award expressly denied ‘[a]ny and all relief not specifically addressed’ by the award, and the award did not mention an offset.” Imposing an offset would thus be a modification of the award and “would not effectuate the intent of the arbitrators,” whose intent could not be assumed. Such a presumption of an offset was made part of FINRA’s rules for awards issued after October 24, 2016, but this change came too late to assist UBS. UBS Financial Services, Inc. v. Padussis, No. 15-2145 (4th Cir. Nov. 22, 2016)

This post written by Jason Brost.

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