Confirmation / Vacation of Arbitration Awards

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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FEDERAL CIRCUIT ENFORCES ARBITRATION AWARD, REJECTS FOREIGN SOVEREIGN’S IMMUNITY CHALLENGE

September 24, 2015 by Carlton Fields

In 1973, Chevron and Ecuador signed an agreement allowing Chevron to develop oil fields in Ecuador. Years later, litigation ensued and eventually Chevron commenced an arbitration action before a tribunal in the Hague. Ecuador objected to the arbitral tribunal’s jurisdiction. The tribunal rejected the jurisdictional challenge and ultimately awarded Chevron $96 million. After appeals in the Dutch courts, Chevron sought to confirm the award in a federal district court under the New York Convention. Ecuador challenged the court’s jurisdiction under the Foreign Sovereign Immunities Act (“FSIA”), lost and appealed.

The main issue before the Federal Circuit Court was whether the district court had subject-matter jurisdiction under the FSIA. Resolution of that issue turned, in great part, the arbitration provision contained in the U.S.-Ecuador Bilateral Investment Treaty (“BIT”) pursuant to which Chevron initiated the arbitration. The appellate court rejected Ecuador’s argument that Ecuador’s offer in the BIT to arbitrate certain types of disputes was not an agreement to arbitrate the Chevron dispute. The court found that BIT included a “standing offer to all potential U.S. investors to arbitrate investment disputes” and that Chevron properly accepted that offer. Thus, the court concluded, the FSIA allowed the district court to exercise jurisdiction over Ecuador to consider an action to confirm or enforce the arbitral award.

The appellate court noted that the FSIA required Chevron to make a prima facie showing that there was an agreement to arbitrate. Once Chevron met that burden, the burden shifted to Ecuador to demonstrate that the notice to arbitrate in the BIT did not constitute a valid arbitration agreement. Resolution of this question was critical, the appellate court noted, to the district court’s jurisdictional analysis: “The statute requires the District Court to satisfy itself that the party challenging immunity has presented prima facie evidence of an agreement between the parties and that the sovereign asserting immunity has failed to sufficiently rebut that evidence.” The district court had failed to make that determination, which might have been reversible error. However, the appellate court found that because the district court had separately determined that there was a valid agreement to arbitrate, there was no need to remand. Chevron Corp. v. Republic of Ecuador, No. 13-7103 (D.C. Cir. Aug. 4, 2015).

This post written by John A. Camp.

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ACTION TO VACATE ARBITRAL AWARD DISMISSED FOR LACK OF SUBJECT-MATTER JURISDICTION

September 22, 2015 by Carlton Fields

A disappointed claimant in a FINRA arbitration filed suit under section 10 of the Federal Arbitration Act (“FAA”) in United States District Court to vacate the arbitral award. The court dismissed the case for lack of subject-matter jurisdiction. The court noted the well established principle that the FAA is not itself a source of subject-matter jurisdiction. Stating that the parties were not diverse, the court proceeded to evaluate whether it could exercise subject-matter jurisdiction based upon the existence of a federal question. The plaintiff proposed two bases for federal question jurisdiction: (1) the failure of its opponent to produce certain documents, which it argued constituted a violation of FINRA rules, or a disregard by the panel of FINRA rules; and (2) the fact that the claims pursued in the arbitration included claims under federal securities laws and SEC regulations. The court rejected both contentions, finding with respect to the first issue that many courts have held that “manifest disregard” of FINRA or NASD rules do not constitute manifest disregard of federal law for purposes of the FAA. With respect to the second contention, the court followed a Second Circuit opinion which held that a court may not “look through” the petition to the claims in the underlying arbitration for a basis for subject-matter jurisdiction. The court rejected the argument that jurisdiction was supported by Vaden v. Discover Bank, 556 U.S. 49 (2009), which held that, with respect to petitions to compel arbitration under section 4 of the FAA, courts may look through the petition to determine whether it is predicated on an action that “arises under” federal law. Citing textual differences between sections 4 and 10 of the FAA, the court held that Vaden did not provide support for looking through the petition for purposes of evaluating whether the court had subject-matter jurisdiction over an action predicted on section 10 of the FAA. Doscher v. Sea Port Group Securities, LLC, Case No. 15-cv-384 (USDC S.D.N.Y. August 5, 2015).

This post written by Rollie Goss.

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