Confirmation / Vacation of Arbitration Awards

STATE STATUTE OF LIMITATIONS FOR RECOGNITION OF FOREIGN JUDGMENTS HELD NOT PREEMPTED BY FAA

December 31, 2015 by Carlton Fields

National Aluminum Co., Ltd. (“NALCO”) prevailed in arbitration held in India against Peak Chemical Corp. in 2005. Ultimately, the award was affirmed on appeal by an Indian court in February 2012. When earlier this year, NALCO attempted to enforce the Indian judgment in a federal district court in Illinois, Peak contended that the judgment was barred by the FAA’s three-year statute of limitations for the recognition of international arbitration awards. The court, however, agreed with NALCO, which distinguished the recognition of the award itself from the recognition of the Indian judgment affirming the award; while the former may be time barred, the latter was still enforceable under Illinois’ 15-year statute of limitations for the enforcement of foreign judgments. The court observed that there was “little case law on the issue,” but that case law from other courts, as well as policy considerations, supported its determination that the FAA does not preempt a state’s power to recognize a former judgment. The court then rejected Peak’s alternative arguments attempting to preclude the recognition of the foreign judgment under Illinois law. National Aluminum Co., Ltd. v. Peak Chemical Corp., Inc., Case No. 1:14-cv-01314 (USDC N.D. Ill. Sept. 23, 2015).

This post written by Michael Wolgin.

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ARBITRATION AWARD THAT ATTEMPTED TO INDIRECTLY ADJUDICATE NON-PARTY VACATED AS EXCEEDING ARBITRATOR’S AUTHORITY

December 10, 2015 by Carlton Fields

The dispute involved whether a defense contractor, its owners, and its captive insurance companies (collectively, “OSI”) were entitled to a return of their premiums from a non-party insurer (“PoolRe”) that serviced a risk pool in which OSI had decided not to participate. This unsuccessful risk pool arrangement had been arranged by a law firm and related companies (collectively, “Capstone Companies”) that were responsible for forming and administering the captives. Following a contested arbitration in Texas, which culminated in an award that was vacated, and a concurrent Delaware litigation that culminated in a dismissal in favor of a second arbitration in Delaware, a Delaware arbitrator awarded OSI reimbursement of the premiums it had paid to non-party PoolRe. However, since PoolRe was not a party to the agreement between OSI and Capstone Companies, the arbitrator exercised its equitable powers and ordered the Capstone Companies “to arrange for the payment” from PoolRe to OSI.

Capstone Companies moved to vacate the award, and the Delaware district court granted the motion, ruling that the arbitrator exceeded his authority by awarding relief against non-party PoolRe. While the award did not technically require any action on the part of PoolRe because all the obligations were imposed upon the Capstone Companies to arrange for payment, the court found that the award effectively imposed an obligation upon a non-party. The court was also persuaded by the fact that a separate arbitration proceeding was pending between OSI and PoolRe before the International Chamber of Commerce, and the Delaware award’s attempt to adjudicate PoolRe through Captstone could result in a conflicting award. Hendricks, et al. v. Feldman Law Firm LLP, et al., Case No. 1:14-cv-00826 (USDC D. Del. Sept. 25, 2015).

This post written by Barry Weissman.

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COURT VACATES ARBITRATION DECISION THAT ALLOWED CLASS MEMBERS TO OPT-OUT OF INJUNCTIVE RELIEF CLASS, FINDING ARBITRATOR EXCEEDED HER AUTHORITY AND MANIFESTLY DISREGARDED LAW

December 7, 2015 by Carlton Fields

Reviewing a previously conferred arbitration award, a district court in New York granted defendant Sterling Jewelers’ motion to vacate the decision to the extent that it would have allowed class members the opportunity to opt-out. In 2008, plaintiff Laryssa Jock and others sued defendant for sex discrimination. After significant motion practice and discovery that extended multiple years, an arbitrator certified a class for declaratory and injunctive relief claims. The arbitrator subsequently allowed class members the opportunity to opt-out.

On review, defendant first alleged that the arbitrator exceeded its authority to certify a class by binding over 40,000 absent class members, and not just those class members whom had affirmatively opted-in to the class or whom were represented by counsel in the arbitration. The court did not find this argument persuasive noting that all class members agreed to arbitration in prior employment agreements thereby granting an arbitrator the power over absent class members. The court did find, however, that the arbitrator exceeded her authority and manifestly disregarded the law by permitting class members to opt-out of injunctive and declaratory relief based on Rule 23(b)(2). The court found that under Rule 23, “the relief sought must perforce affect the entire class at once.” Instead, the arbitrator failed to consider the U.S. Supreme Court’s Wal-Mart v. Dukes decision, whereby “opt-out classes may not be certified for the purposes of seeking classwide injunctive relief.” For these reasons the court vacated the class determination award’s opt-out provision for injunctive and declaratory relief but upheld the rest of the award. Jock v. Sterling Jewelers, Inc., Case No: 08 Civ. 2875 (JSR) (USDC S.D.N.Y. Nov. 16, 2015).

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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DISTRICT COURT RECOGNIZES THE VIABILITY OF MANIFEST DISREGARD OF LAW DOCTRINE IN THE SECOND CIRCUIT

December 1, 2015 by John Pitblado

The Eastern District of New York recently denied plaintiff’s request to vacate an arbitration award in a contractual dispute between Incredible Foods Group, LLC, (“IFG”) and Unifoods, S.A. de C.V., (“UF”) over a shared Sub-License Agreement (the “Agreement”). Pursuant to the Agreement, plaintiff and sub-licensee IFG were licensed to “manufacture, market, distribute and sell” a fruit beverage in various states throughout the United States. IFG identified an American manufacturer to manufacture the beverage, and sub-licensor UF approved the selection. Shortly after manufacturing commenced, the bottles containing the beverage bulged and leaked, affecting sales.

Once it was determined that the presence of yeast at the manufacturing site was interacting with the beverage recipe to cause the bottles to bulge, IFG commenced arbitration, alleging breach of contract over lost profits. The Arbitrator denied IFG’s claims in full because he found that IFG had failed to establish that any act or omission by UF breached the Agreement. IFG requested in district court that the award be vacated, arguing that the Arbitrator’s determination fails “to draw its essence from the agreement.” The district court noted that beyond the four grounds pursuant to 9 U.S.C. § 10(a) on which a court may vacate an arbitration award, the Second Circuit has “recognized a judicially-created ground, namely that an arbitral decision may be vacated when an arbitrator has exhibited a manifest disregard of law.” Nevertheless, the district court held that the arbitration award should stand because IFG had failed to demonstrate any of the five grounds for vacatur were implicated on these facts.

Incredible Foods Group, LLC v. Unifoods, S.A. de C.V., No. 14-cv-5207 (USDC E.D.N.Y. Sept. 29, 2015).

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

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SECOND CIRCUIT FINDS ARBITRATOR DID NOT EXCEED AUTHORITY BY ISSUING AWARD, CONTRARY TO EARLIER AWARD

November 30, 2015 by John Pitblado

This appeal is from a judgment entered by a district court in New York, denying a petition of United Brotherhood of Carpenters and Joiners of America (“UBC”) to enforce a May 4, 2014 arbitration award (“May 4 Award”) and to vacate a subsequent award on May 13, 2014 (“May 13 Award”), and granting Tappan Zee Constructors, LLC’s cross petition, seeking enforcement of the May 13 Award. UBC appealed the district court’s conclusion that the May 4 Award was not final and that the arbitrator did not exceed his authority by issuing the May 13 Award.

The contract at issue provided that the arbitrator must “render a short-form decision within 5 days of the hearing based upon the evidence submitted at the hearing, with a written decision to follow within 30 days of the close of the hearing”. The Second Circuit, under the “heightened standard of deference” courts apply to arbitration awards, concluded that it must defer to the arbitrator’s interpretation of the contract as allowing him to alter the earlier short‐form decision when rendering his later written decision. The Court noted that the contract does not define the term “short‐form”, nor does it specifically require that the second decision echo the result of the first. Thus, the Court held that, absent any such definitions or provisions, the arbitrator had the authority to interpret the contract as allowing him to change or alter the first award in consideration of certain criteria under the National Plan for the Settlement of Jurisdictional Disputes in the Construction Industry, which governed the arbitration. Accordingly, the Court affirmed the district court’s ruling, confirming the May 13 Award and vacating the May 4 Award.

United Brotherhood of Carpenters and Joiners of America v. Tappan Zee Constructors, LLC, No. 15-1002 (2d Cir. Oct. 20, 2015).

This post written by Jeanne Kohler.

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