Confirmation / Vacation of Arbitration Awards

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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SECOND CIRCUIT SUMMARILY AFFIRMS DENIAL OF PETITION TO VACATE ARBITRATION AWARD BASED ON PARTIALITY CLAIM

November 27, 2015 by Carlton Fields

Late last month, the Second Circuit Court of Appeals summarily affirmed denial of a petition to vacate an arbitration award where a party was arguing that the arbitrator was biased. The case involved a dispute between an Israeli medical device company and a New York-based investment company and whether the medical device company owed a fee when it located an investor. The investment company argued that “the Arbitrator’s procedural rulings and fee award in [the medical device company]’s favor, along with her professional affiliations, evince[d] partiality.” The investment company attempted to point to the facts that (i) the arbitrator struck six of its ten document requests and refused to grant it an extension of time to engage an expert witness and (ii) the arbitrator came from the International Chamber of Commerce, where two attorneys of the medical device company were affiliated, neither of which the trial court accepted as bases for vacating the arbitration award. The Second Circuit entered an order summarily affirming. Landmark Ventures, Inc. v. InSightec, Ltd., No. 14-4599-cv (2d Cir. Oct. 30, 2015).

This post written by Zach Ludens.

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TEXAS COURT AFFIRMS ARBITRATION AWARD IN LAW FIRM FEE ROW

November 19, 2015 by Carlton Fields

A Texas district court denied Curtis International, Ltd.’s (“Curtis”) counter-motion to vacate an arbitration award in a row over attorney and expert witness fees and expenses. Curtis, a manufacturer and distributor of electronic and home appliances, retained McKool Smith as counsel to handle several patent infringement lawsuits. Upon settlement of these underlying actions, McKool Smith sought over $1.4 million dollars in unpaid legal fees and expert witness expenses. An arbitrator awarded McKool Smith fees and expenses with interest, after the dispute stalled at mediation. Curtis sought to vacate the award based on public policy, arbitrator authority, and manifest disregard of the law concerns.

Curtis argued that the arbitrator award conflicted with the Texas Disciplinary Rules of Professional Conduct in contravene to Texas public policy. The court quickly dismissed this argument finding that “[t]he Fifth Circuit has foreclosed the use of non-statutory grounds for vacatur, including public policy grounds.” The court again invoked the Fifth Circuit regarding manifest disregard of the law, finding the ground invalid when applying for vacatur. The court finally addressed Curtis’ concerns that the arbitrator exceeded his authority. The court noted that the engagement agreement between the parties explicitly stipulated that Curtis would be responsible for the expenses incurred by the use of expert witnesses. The court also found that contrary to Curtis’ assertions, McKool Smith did discuss the use and retention of expert witnesses. For these and other reasons, the court denied Curtis’ motion and confirmed the arbitration award. McKool Smith, P.C. v. Curtis Int’l, Ltd., No. 3:15-cv-01685-M (N.D. Tex. Oct. 14, 2015)

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

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SIXTH CIRCUIT CLARIFIES PRIOR REVERSAL OF AN ORDER THAT HAD VACATED ARBITRATION AWARD AS A MANIFEST DISREGARD OF THE LAW

November 16, 2015 by Carlton Fields

After an arbitrator ruled that indemnification agreements between an acquiring company and certain former directors and trustees of employee stock ownership plans, were void under ERISA, the district court vacated the arbitrator’s ruling as a manifest disregard of the law. On the initial appeal of that ruling, the directors argued that district court properly found a manifest disregard of the law based on ERISA, and also because the arbitrator ignored the directors’ alternative arguments based on fraud and estoppel. The Sixth Circuit reversed the vacatur ruling under ERISA, but in passing appeared to reject the remaining arguments asserted by the directors. Accordingly, on remand, the district court precluded the directors from asserting their alternative fraud and estoppel arguments, as the “law of the case.” The directors appealed, and, in a candid opinion, the Sixth Circuit reversed, noting “[w]e regret the extent to which [the Court’s] language was misleading.” The directors’ fraud and estoppel theories were not rejected, and on remand, “the district court should address that argument in the first instance.” Schafer v. Multiband Corp., Case No. 14-2518 (6th Cir. Oct. 20, 2015).

This post written by Michael Wolgin.

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