Confirmation / Vacation of Arbitration Awards

On December 12, 2013, we reported on a United States District Court’s confirmation of a roughly $400 million Mexican arbitration award entered against an oil company affiliated with the Mexican government, notwithstanding that a Mexican court had subsequently nullified the award based on a subsequent change in Mexican law governing arbitration. The U.S. court had held that the Mexican judgment “violated basic notions of justice in that it applied a law that was not in existence at the time the parties contract was formed and left [the party in arbitration] without an apparent ability to litigate its claims.” The case was then appealed to the Second Circuit.

The Second Circuit has determined that the trial court did not violate the Panama Convention on enforcement of foreign judgments when the trial court refused to afford comity to the Mexican judgment. The Mexican judgment, the Second Circuit explained, amounted to a taking of property by the government without compensation and for the sole benefit of the government; i.e., if the action were to be enforced in the United States, it would be an unconstitutional taking. The Second Circuit, for these and other reasons, thus upheld the original confirmation of the arbitration award that pre-dated the change in Mexican law. The court concluded that “in the rare circumstances of this case,” the trial court “did not abuse its discretion by confirming the arbitral award at issue because to do otherwise would undermine public confidence in laws and diminish rights of personal liberty and property.” Corporación Mexicana De Mantenimiento Integral, S. De R.L. De C.V. v. Pemex‐Exploración Y Producción, Case No. 13-4022 (2d Cir. Aug. 2, 2016).

This post written by Joshua S. Wirth.

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Foundation Surgery Affiliate of Southwest Houston, LLC (“Southwest”), the owner of a surgical and imaging facility in Houston, entered into a purchase and sale agreement in 2008 with Rainier Capital Acquisitions, LP, which assigned its interest to Rainier DSC (together with the other related defendants-appellees, “Rainier”). Rainier DSC purchased the subject property and sold fractional tenant-in-common interests to Plaintiffs (the “Investors”), who each signed an agreement with Rainier DSC that contained an arbitration provision.  After several years, Southwest ceased making certain payments required by the agreement.  The Investors sued Southwest, Rainier and individual physician members of Southwest, among others, alleging various state law claims and violations of federal securities laws.  After the suit was removed, Rainier moved to compel arbitration.  The Investors ultimately agreed to arbitrate their claims against Rainier.

An arbitrator decided in favor of Rainier on all claims, and awarded Rainier over $500,000 in attorneys’ fees and expenses. A federal district court confirmed the award.  The Investors then appealed to the U.S. Court of Appeals for the Fifth Circuit, arguing that the arbitration award should be vacated because: (1) the district court’s failure to stay the underlying litigation of the non-arbitrating parties was “misbehavior” that prejudiced the Investors’ right to a fair arbitration against Rainier; and (2) the arbitrator purportedly refused to hear pertinent and material evidence.  Applying the standard set forth in Section 10 of the Federal Arbitration Act (“FAA”), the Fifth Circuit confirmed the arbitrator’s award.  First, the circuit court found that the Investors’ argument pertaining to the arbitrator’s misconduct was premised on purported misbehavior by the district court, and thus outside the scope of Section 10(a)(3) of the FAA, which provides that misconduct by “arbitrators” provides a basis for vacatur.  Second, the circuit court held that the arbitrator’s decision to admit into evidence the deposition testimony of certain witnesses who the arbitrator refused to subpoena to testify at the arbitration did not warrant vacatur of the award, as the Investors were allowed to depose the witnesses and had failed to provide the arbitrator with any basis as to why their testimony was required at the hearing. Rainier DSC 1, et al. v. Rainier Capital Management, L.P., et al., No. 15-20383 (5th Cir. July 7, 2016).

This post written by Rob DiUbaldo.
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A construction company appealed an order confirming an international arbitration award, which had denied the company’s demand for unpaid monies against an Antiguan medical school. The award also granted the medical school’s counterclaim, which had sought a refund of certain tax payments it had made to the company during the project that were earmarked for the company to pay the Antiguan and Barbudan tax authorities, but which the company never paid. In upholding the arbitration award, the Second Circuit rejected the company’s argument that the panel had committed a manifest disregard of the law by declining to apply res judicata and related claim or issue preclusion defenses due to a prior litigation between the parties. The court “correctly concluded that the arbitral panel ‘manifestly did not ‘ignore’ or ‘pay no attention to’ these doctrines; instead, it explicitly considered and rejected applying both doctrines, and in each case had more than ‘barely colorable justification.’” American University of Antigua-College of Medicine v. Leeward Construction Co., Ltd., Case No. 15-1595-cv (2d Cir. June 24, 2016).

This post written by Barry Weissman.

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