Confirmation / Vacation of Arbitration Awards

COURT GRANTS DEFAULT JUDGMENT CONFIRMING ARBITRATION AWARD, WITH A LESSON ON JURISDICTION

November 30, 2016 by Michael Wolgin

Choice Hotels filed an application to confirm an arbitration award of over $247,000 for the alleged breach of a franchise agreement by two defendants, which failed to timely commence construction of a hotel. The defendants had not participated in or submitted any written materials for arbitration. However, the court denied Choice Hotels’ first motion for a default judgment because it failed to adequately establish subject matter jurisdiction and jurisdiction under the FAA. The Court explained that the FAA is not an independent source of jurisdiction, and further held that Choice Hotels’ failed to plead the requirements of diversity jurisdiction. Additionally, because there was no record in the application or the arbitration award itself that the arbitration occurred in Maryland, which was required by the arbitration agreement, the court could not determine that jurisdiction existed under the FAA. Choice Hotels filed a second motion for default judgment, which successfully alleged diversity jurisdiction and established that the case was within the scope of the FAA. The Court then granted the motion for default judgment and confirmed the award. Choice Hotels Int’l, Inc. v. HSL Inv., Inc., Case No. TDC-15-2386 (USDC D. Md. Oct. 20, 2016).

This post written by Gail Jankowski, a law clerk at Carlton Fields in Washington, DC.

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SDNY CONFIRMS ARBITRATION AWARD FOLLOWING RESPONDENT’S DEFAULT

November 25, 2016 by John Pitblado

On an unopposed petition to confirm an arbitration award, a New York federal court treated the petition and accompanying record as a motion for summary judgment. “Thus, like unopposed summary judgment motions, unopposed confirmation petitions must fail where the undisputed facts fail to show that the moving party is entitled to judgment as a matter of law.”

As the parties’ were in diversity and the amount in controversy was met for jurisdiction, the Court, pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. § 9, reviewed the parties’ broad arbitration clause and, finding no grounds for vacatur or modification of the award, granted petitioner’s request.

McGroarty v. U.S. Rare Earths, Inc., 1:16-cv-02687 (USDC S.D.N.Y. Sept. 23, 2016)

This post written by Nora A. Valenza-Frost.

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ELEVENTH CIRCUIT AFFIRMS DISTRICT COURT’S CONFIRMATION OF ARBITRATION AWARD, FINDING THAT ARBITRATOR’S REFUSAL TO POSTPONE HEARING DOES NOT WARRANT VACATUR UNDER THE FEDERAL ARBITRATION ACT

November 22, 2016 by John Pitblado

The background of this case is as follows. CM South East Texas Houston LLC and South East Texas KCH Co. LLC (collectively, “CM South”) asserted breach of contract claims against CareMinders Home Care Inc. (“CareMinders”) and demanded arbitration. After months of initial proceedings, a five day hearing was scheduled for December 2014. A scheduling conflict arose and both sides requested new hearing dates, and the hearing was rescheduled for February 2015. Yet another conflict arose, and both sides requested a new date, and this time the hearing was rescheduled for March 9-13, 2015. One of CareMinders’ key witnesses then had a family emergency. CareMinders asked the arbitrator to reschedule the hearing for some time between May and September, 2015, advising that CM South agreed to the rescheduling. After conferring with the parties and discussing available dates, the arbitrator rescheduled the hearing to March 18-21, 2015, reducing it from five to four days. The hearing took place and CareMinders’ witness attended the hearing. The arbitrator then issued an award in favor of plaintiff CM South, awarding it damages. CM South filed a motion to confirm the award in Georgia federal court, and CareMinders filed a motion to vacate the award, contending that the arbitrator engaged in misconduct by refusing to postpone the hearing when both parties agreed to the rescheduling. The district court denied the motion to vacate, finding that CareMinders failed to show that the arbitrator’s refusal to postpone the hearing amounted to misconduct or that it prejudiced CareMinders’ ability to defend the case. The court also confirmed the arbitration award, which CareMinders appealed.

The Eleventh Circuit affirmed the Georgia district court’s order confirming the arbitration award. In doing so, the Court held that an arbitrator’s refusal to postpone a hearing after it had been already rescheduled twice does not warrant vacatur of the award under the Federal Arbitration Act. The Court also noted that CareMinders’ witness attended and provided testimony at the hearing. As such, the Court further ruled that the parties were not prejudiced or deprived of a fair hearing and vacatur was not warranted.

CM South East Texas Houston v. CareMinders Home Care Inc., No. 16-11054 (11th Cir. Oct. 7, 2016).

This post written by Jeanne Kohler.
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COURT CONFIRMS AWARD, HOLDS ARBITRATOR DID NOT ERR IN DETERMINING VESTING STATUS OF FORMER EXECUTIVE’S SHARES

November 9, 2016 by Michael Wolgin

The case arose from an arbitration initiated under an employment agreement, after the chief operating officer of ACP Investment Group resigned. Addressing a provision in the agreement that required the COO’s forfeiture of only his unvested shares, the arbitrator determined that out of approximately 3 million shares that the COO had accrued, just over 2 million had vested. However, the arbitrator refused to value these shares or order their disposition because she believed that part of the dispute was outside the purview of the arbitration clause.

After the award, ACP sought clarification in a letter, asking the arbitrator whether the portions of the award addressing the vesting status of the COO’s shares were non-binding dicta, and arguing that the arbitrator’s determination was outside the jurisdiction of the American Arbitration Association. The arbitrator denied ACP’s request, reasoning that because the employment contract provided only for forfeiture of the COO’s unvested shares, she was acting within the scope of her authority by determining the vesting status of the shares.

ACP sought a temporary restraining order, which the court denied, and the COO moved to confirm the arbitration award. ACP argued that the arbitrator exceeded her scope, disregarded terms of the employment agreement, and that there were procedural irregularities during arbitration. The court dismissed ACP’s arguments, confirming the award, holding that the vesting determination was squarely within the scope of the arbitrator’s authority. The court also noted the great deference given by federal courts to arbitral panels, as well as the lack of any “abundantly clear” improper procedure at play. ACP Investment Group, LLC et al v. Blake, Case No. 15-CV-9364 (USDC S.D.N.Y. Oct. 13, 2016).

This post written by Gail Jankowski, a law clerk at Carlton Fields in Washington, DC.

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NINTH CIRCUIT REVERSES CONFIRMATION OF ARBITRATION AWARD, REQUIRES EVIDENCE AS TO CONTRACT INTERPRETATION

November 7, 2016 by Michael Wolgin

The hotel management agreement (HMA) between hotel manager Four Seasons and hotel owner Burton Way provided that Four Seasons could not license any of the “Four Seasons Operational Benefits” within 14 miles of the Four Seasons Los Angeles, but provided an exception permitting Four Seasons to “manage or operate” the Regent Beverly Wilshire hotel. A dispute arose as to whether Four Seasons’ provision of Four Seasons Operational Benefits to the Regent Beverly Wilshire was permitted under the “manage or operate” exception. Both parties at arbitration presented extrinsic evidence as to the interpretation of the exception, and the panel made determinations as to the credibility of both interpretations.

On appeal of the district court’s order confirming the arbitration award, the Ninth Circuit reversed, holding that such fact-finding at summary judgment by the panel was legal error and required an evidentiary hearing. The court also reversed the confirmation of the panel’s determination of sanctions against Four Seasons for spoliation of evidence, remanding for purposes of re-determining the question of prejudice to Burton Way. The Ninth Circuit affirmed, however, on the issues of fiduciary duty and fraudulent inducement. On the issue of fiduciary duty, the court held that it was not legal error for the panel to conclude that negotiations between the two parties over the terms of their management agreement fell outside the scope of the principal-agent relationship. Regarding the inducement claim, the court held that it was not legal error for the panel to conclude that Burton Way waived its fraudulent inducement claim where, despite the fact that it included a clause reserving its claims, it signed a later agreement continuing the relationship. Burton Way Hotels, Ltd. V. Four Seasons Hotels Ltd., Case No. 14-56846 (9th Cir. Oct. 18, 2016).

This post written by Gail Jankowski, a law clerk at Carlton Fields in Washington, DC.

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