Confirmation / Vacation of Arbitration Awards

FEDERAL COURT CONFIRMS ARBITRATION AWARD DESPITE DISSENTING ARBITRATOR’S “FAR MORE PERSUASIVE” ANALYSIS

August 25, 2016 by Carlton Fields

Although a New York federal district court would have found the same result as the dissenting arbitrator if it were resolving this case as an original matter, the limited scope of judicial review of arbitral decisions prevented the court from vacating the arbitration award. The petitioner and respondent were parties to a license agreement concerning the operation of a Benihana restaurant. The respondent allegedly committed various breaches of the license agreement, and petitioner exercised its option to terminate the agreement. The respondent commenced arbitration to declare it was not in default. The panel construed the license agreement “to permit termination only when reasonable,” finding the petitioner was not reasonable as respondent’s breaches were “trivial” and it had taken corrective measures to cure them. A dissenting arbitrator concluded that the petitioner had been justified as a result of the numerous material breaches by the respondent, as New York law holds “a non-breaching party may terminate a contract where the other party committed a material breach” – precisely what occurred here.

The court was unable to review the panel’s findings of fact, even for manifest disregard, nor can a claim of factual error support vacatur. As to the petitioner’s challenge that principles of equity were not properly considered, it fell “short of showing either that the panel ‘ignored’ these principles where their application was clear, or that this misapplication ‘led to an erroneous outcome.’” Nor did the court find the panel exceeded its authority by construing the license agreement as it did, as the license agreement did not define “reasonableness,” a term the arbitration panel was left to determine. As to the petitioner’s last challenge – that the panel refused to hear evidence by rejecting the petitioner’s request to submit a decision in a separate case between the parties relating to similar misconduct of the respondent – such conduct did not rise to the level of a violation of fundamental fairness. Benihana, Inc. v. Benihana of Tokyo, LLC, Case No. 15 Civ. 7428 (USDC S.D.N.Y. July 15, 2016).

This post written by Nora A. Valenza-Frost.

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FIFTH CIRCUIT CONFIRMS AWARD UNDER FEDERAL ARBITRATION ACT’S “EXCEEDINGLY DEFERENTIAL” STANDARD

August 24, 2016 by Carlton Fields

The United States Court of Appeals for the Fifth Circuit recently confirmed an arbitration award in an underlying employment dispute, finding that the appellant failed to demonstrate that the award was the product of corruption and adhering to the “exceedingly deferential” standard of review of an arbitrator’s factual findings required by the Federal Arbitration Act.

Plaintiff Tommy L. Parker brought suit against his former employer, ETB Management, L.L.C., alleging age discrimination and retaliation. The United States District Court for the Northern District of Texas compelled arbitration of the dispute, and an arbitrator found in ETB’s favor after hearing witness testimony and analyzing documentary evidence and briefing. After the District Court confirmed the award, Parker appealed seeking vacatur under the FAA on the grounds that the award was “procured by corruption” and that the arbitrator acted with “evidence of partiality or corruption.” Specifically, Parker argued that the arbitrator ignored conflicting statements given by ETB’s witnesses regarding the events that immediately preceded Parker’s firing, and thus that there was no factual basis to support the arbitrator’s findings. The Fifth Circuit rejected Parker’s arguments, declining to reexamine the witness credibility determinations of the arbitrator pursuant to the deferential standard of review afforded to arbitral decisions under the FAA, and noting that Parker had failed to make any showing that the arbitrator or the process was corrupt. Parker v. ETB Management L.L.C., No. 15-11128 (5th Cir. Aug. 4, 2016).

This post written by Rob DiUbaldo.

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COURT CONFIRMS INTERIM AWARD OF INJUNCTIVE RELIEF BUT REFUSES TO CONFIRM NON-FINAL OPINION OF ARBITRATOR THAT ARBITRATION WAS BINDING

August 18, 2016 by Carlton Fields

In a real estate broker commission dispute, the arbitrator had granted injunctive relief in favor of the plaintiff broker, ordering a percentage of the sale of certain real estate to be placed in an escrow account pending the outcome of the arbitration. The arbitrator had also suggested in an email to the parties, his belief that the arbitration proceeding was binding. The plaintiff then sought to confirm these two “awards.” Regarding the award of injunctive relief, the defendants contended that the arbitrator committed a manifest disregard of the law by misconstruing the legal standard for entry of an injunction. The court, however, confirmed the injunction award, finding that there was no record of the basis for the arbitrator’s injunction, and therefore the court could find no manifest disregard of the law. Regarding the arbitrator’s email stating that the arbitration would be binding, the court refused to confirm, holding that there were no formal orders or opinions memorializing that ruling. Bowers v. Northern Two Cayes Co. Ltd. Lighthouse Reef Resort Ltd., Case No. 1:15-cv-00029-MR-DLH (USDC W.D.N.C. July 7, 2016).

This post written by Joshua S. Wirth.

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SECOND CIRCUIT UPHOLDS CONFIRMATION OF MEXICAN ARBITRATION AWARD AND DENIAL OF COMITY TO A CONTRARY MEXICAN JUDGMENT

August 16, 2016 by Carlton Fields

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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FEDERAL COURT FINDS ARBITRATOR HAD AUTHORITY TO DETERMINE IT HAD JURISDICTION OVER CORPORATION’S PRINCIPALS AND NON-SIGNATORIES WERE BOUND TO ARBITRATE

August 11, 2016 by John Pitblado

New World Solutions, Inc. (“NWS”) and Asta Funding Inc. (“Asta”) entered into an agreement which contained an arbitration clause. After a dispute arose and the parties undertook arbitration, the arbitrator entered an award against NWS and its principals. Asta sought to confirm the award, while the principals challenged the arbitrator’s jurisdiction and sought to vacate the award.

Acknowledging that it is the court which decides the issue of the arbitrator’s jurisdiction to hear a case, the Court noted that a party’s agreement “may validly provide that the arbitrator is to determine his or her own jurisdiction.” Here, the arbitration clause provides arbitration will be conducted “in accordance with the Commercial Arbitration Rules of the American Arbitration Association.” Section R-7(a) of the Rules provides that “the arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.” This conferred the authority to determine jurisdiction over the principals to the arbitrator.

The Court further determined the claims against NWS’ principals were arbitrable under New Jersey law. Even though the principals were non-signatories to the arbitration agreement, they were bound under the theories of corporate veil-piercing/alter ego, estoppel and successor in interest.

The award was ultimately confirmed, despite the principals’ objections on a number of substantive grounds including: alleged false statements made to the arbitrator by Asta; alleged refusal of the arbitrator to hear evidence; that the arbitrator exceeded his authority by issuing pre-hearing subpoenas and by awarding injunctive relief and damages. The Court held that none of these grounds were supported by the record.

Asta Funding, Inc. v. David Shaun Neal, et al., 14-2495 (UDSC D.N.J. June 30, 2016)

This post written by Nora A. Valenza-Frost.

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