Confirmation / Vacation of Arbitration Awards

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

December 29, 2016 by Rob DiUbaldo

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

December 28, 2016 by Rob DiUbaldo

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

December 27, 2016 by Rob DiUbaldo

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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EIGHTH CIRCUIT UPHOLDS ARBITRAL IMMUNITY IN CHALLENGE TO AAA’S REMOVAL OF ARBITRATOR

December 19, 2016 by Michael Wolgin

Owens, a terminated CEO, engaged in a AAA arbitration with his former company before a three-member panel. In the course of the proceeding, the company sought to remove an arbitrator for making an incomplete disclosure regarding conflicts of interest. The AAA removed the conflicted arbitrator without holding a hearing or consulting the panel, and the remaining two arbitrators ultimately awarded Owens $3 million. The company then successfully moved for dismissal of the award in the district court. Following dismissal, Owens sued the AAA for breach of contract, unjust enrichment, and tortious interference, but his claims were dismissed by the court based on arbitral immunity. On appeal, the Eighth Circuit affirmed, explaining that the reason courts extend immunity to arbitrators is to protect them and the arbitration process from undue influence and attacks from dissatisfied litigants. The Court concluded that “the removal of arbitrators is similarly protected by arbitral immunity because it is just as much a part of the arbitration process as the appointment of arbitrators.” Owens v. American Arbitration Association, Inc., Case No. 16-1055 (8th Cir. Nov. 18, 2016).

This post written by Gail Jankowski.

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SDNY CONFIRMS ARBITRATION AWARD UNDER FAA AND THE NEW YORK CONVENTION DESPITE AWARD BEING SILENT ON TAX LIABILITY

December 15, 2016 by John Pitblado

An arbitration award required respondent to pay a series of royalty payments, audit costs and interest, but did not address either party’s tax obligations. Respondent made several payments to petitioner, but withheld 20% from some of the payments citing its obligation under Taiwanese tax laws and regulations. The arbitration panel declined to amend the award in regards to the tax law issue, stating it was without power or jurisdiction, and further, no claims regarding these deductions was ever made or determined in the arbitration.

Respondent argued against enforcement of the final award for three reasons. The first reason, that enforcement of the award would violate Taiwanese tax law and therefore public policy, was rejected because the award said nothing about obligations to pay taxes, and thus did not prevent respondent from paying taxes directly rather than withholding taxes from its payment of the award. The second reason, that due process was violated under the New York Convention, was rejected, as respondent never “attempted to make a ‘case’ regarding tax withholding, much less that it was ‘unable to present’ one” during the arbitration. The third reason, that respondent had satisfied its obligation through prior payments net of tax withholding, was also rejected because respondent “provided no basis from which to infer that the tribunal implicitly authorized [respondent[ to deduct taxes,” as expressly stated by the arbitration panel when asked to amend the award. The Court confirmed the award.

Mondis Technology Ltd. v. Wistron Corp., No. 15-CV-02340 (USDC SDNY Nov. 3, 2016)

This post written by Nora A. Valenza-Frost.

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