Confirmation / Vacation of Arbitration Awards

FINRA PANEL DID NOT EXCEED AUTHORITY OR MANIFESTLY DISREGARD LAW BY FAILING TO AWARD “PREVAILING PARTY” ATTORNEY’S FEES

October 29, 2015 by Carlton Fields

A broker sought to vacate his FINRA compensatory damages award against a broker/dealer because the award did not include his attorney’s fees. The broker believed he was entitled to those fees as the “prevailing party” within the meaning of his contract with the broker/dealer. The broker argued that the panel exceeded its authority and manifestly disregarded the law by ignoring the contract and failing to award fees. The court, however, found that the panel did not exceed its authority because the panel’s authority was to award fees to the prevailing party, the panel had “interpreted that authority to include authority to award no fees,” and the panel was “arguably construing the contract before it and acting within its scope.” The court further found that the panel did not manifestly disregard the law because the panel never declared the broker to be the “prevailing party,” and the panel “was well within the limits of California law in deciding that despite recovering some damages, [the broker] was not a prevailing party, and was thus not entitled to attorney’s fees as a matter of right.” Lehner v. LPL Financial, LLC, Case No. 1:15-cv-01178 (USDC N.D. Ohio Aug. 7, 2015).

This post written by Michael Wolgin.

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FEDERAL CIRCUIT COURT UPHOLDS ENFORCEMENT OF FOREIGN ARBITRATION AWARD

October 22, 2015 by John Pitblado

The U.S. Court of Appeals for the Eighth Circuit upheld a federal district court’s enforcement of an arbitration award after finding that the Appellant’s claims were precluded by foreign proceedings. American Hearing Systems, doing business as Interton, appealed the enforcement of the foreign arbitration award, arguing that the district court did not have subject-matter jurisdiction under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“the Convention”). Additionally, Interton argued, even if the court had subject matter jurisdiction, the written arbitration agreement did not apply to the current dispute between the parties.

AVR Communication, Ltd., an Israeli company, sought arbitration in Israel asserting a number of claims governed by a previous arbitration agreement. Interton argued that the disputes giving rise to the claims were outside of the scope of the contract containing the arbitration provision. Interton failed to prevail on this argument in both the Israeli arbitration and later in the enforcement of the award by AVR in federal district court.

On appeal, Interton interpreted the language of the Convention to impose a subject matter jurisdiction requirement to include presentment of a written contract. The Eighth Circuit summarily dismissed this argument. The court found that the issue was not whether there was a written agreement, but whether the disputes in question were covered by the agreement to arbitrate. The court held that this question was precluded by the foreign arbitration proceeding and upheld the award. AVR Communications, Ltd. v. American Hearing Systems, Inc., Case No. 14-2313 (8th Cir. July 14, 2015)

This post written by Joshua S. Wirth, a law clerk at Carlton Fields in Washington, DC.

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THIRD CIRCUIT ADOPTS CONSTRUCTIVE KNOWLEDGE STANDARD TO REVERSE VACATUR OF AWARD

October 13, 2015 by Carlton Fields

The Third Circuit reversed an order vacating an arbitration award after concluding that the plaintiff had waived its right of waiver. In the decision, the Third Circuit joined the First, Second, Eighth, and Ninth Circuits in adopting a “constructive knowledge” standard for finding waiver in the context of arbitration.

Defendant-appellants, Goldman, Sachs & Co. and others contested an order vacating an arbitration decision in favor of plaintiff-appellee, Athena Venture Partners, L.P. During arbitration, one of the three arbitrators disclosed that he had been charged with the unauthorized practice of law in an unrelated case. Neither Athena, Goldman, nor the other members contested his continued participation in the arbitration. Only after an unfavorable result, did Athena conduct a background check on the arbitrator and found that he significantly misrepresented the scope of his legal problems. Athena’s successful motion to vacate the arbitration award in District Court was premised on violation of the parties’ agreement to arbitrate due to the arbitrator’s failure to disclose. The Third Circuit reversed, adopting the “constructive knowledge” approach to waivers. Constructive knowledge requires that parties use reasonable care and diligence to investigate potential conflicts. The court noted that this standard “prevents the losing party from receiving a second bite at the apple” (citations omitted). The Ninth Circuit held that Athena failed to apply timely diligence in conducting an investigation only until after it had lost the arbitration. Athena knew or should have known of the conflict and failed to act in a timely manner, thus waiving its rights to challenge the award. Goldman, Sachs & Co. v. Athena Venture Partners, L.P., Case No. 13-3461, (3rd Cir. Sept. 29, 2015).

This post written by Joshua S. Wirth, a law clerk at Carlton Fields in Washington, DC.

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SIXTH CIRCUIT REVERSES VACATUR OF AWARD STRESSING LIMITED SCOPE OF PERMISSIBLE JUDICIAL REVIEW

October 7, 2015 by Carlton Fields

The district court had vacated an arbitration award that had reinstated a terminated hospital employee under a collective bargaining agreement. The district court based its ruling on its interpretation of the CBA, which it believed did not authorize an arbitrator to modify the degree of discipline imposed on an employee. The Sixth Circuit reversed, holding that at best, the district court had adopted one of multiple reasonable interpretations of the CBA (another reasonable one being the interpretation of the arbitrator). Because the arbitrator was “arguably construing” the contract, and was not acting fraudulently or dishonestly, the district court should have refrained “from imposing [its] interpretation of the contract on the parties.” The Sixth Circuit reversed and reinstated the arbitration award. Oakwood Healthcare, Inc. v. Oakwood Hospital Employees Local 2568, Case No. 14-2155 (6th Cir. June 15, 2015).

This post written by Michael Wolgin.

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OIL SUPPLIER APPEALS CONOCO’S RIGHT TO BUY STAKE IN REFINERY UNIT

September 29, 2015 by John Pitblado

In a long-standing dispute between Venezuelan state-owned Oil Company Petroleos de Venezuela SA (“Petroleos”) and ConocoPhillips, a New York district court judge upheld ConocoPhillips’ acquisition of a 50% stake in a Texas refinery. The two parties were former joint partners in an oil refining operation but disagreements between them led to the triggering of a contract provision that automatically dissolved the joint venture. Following the dissolution, the parties proceeded to arbitration.

The arbitration action concerned a range of disputes, one of which involved the parties’ Transfer Agreement, pursuant to which mandatory transfers of joint venture interests acted as a remedy for ConocoPhillips in the event of Petroleos’s breach. This was referred to as the “Call Option,” which Petroleos contended at arbitration acted as a penalty because it resulted in a purchase price of zero dollars for its share of the joint venture. The arbitration panel concluded that the Call Option was valid and enforceable under New York law and did not constitute an impermissible contractual penalty. Petroleos petitioned to vacate the portion of the award regarding the Call Option, but the district court denied the petition, and granted ConocoPhillips petition to confirm.

PDV Sweeny, Inc. v. ConocoPhillips Co., No. 14-cv-5183 (U.S.D.C. S.D.N.Y. Sept. 1, 2015).

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

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