Confirmation / Vacation of Arbitration Awards

Reversing the Court of Chancery’s ruling vacating an arbitration award, the Delaware Supreme Court held in SPX Corporation v. Garda USA, Inc. that the arbitrator’s decision should have been affirmed because the arbitrator’s decision did not manifestly disregard the law. The award under review concerned whether SPX Corporation properly stated certain reserves on its balance sheets in connection with the sale of one of its subsidiaries to Garda World Security Corporation. The net purchase price for the subsidiary was subject to certain adjustments to the SPX balance sheets as set forth in the parties’ Stock Purchase Agreement (“SPA”). SPX was to provide Garda with a pre-closing balance sheet and an “Effective Date Balance Sheet” reflecting those adjustments. Post-closing, Garda challenged SPX’s calculation of the workers compensation reserve on the balance sheet and submitted the matter to arbitration, arguing the reserve calculation violated the SPA. After reviewing the parties’ briefs and addressing several rounds of questions to the parties, the arbitrator determined that SPX had not failed to comply with the SPA and that the balance sheets did not need to be restated. The arbitrator did not provide an explanation for its decision. Garda asked the Court of Chancery to vacate the award, which found that the arbitrator manifestly disregarded the SPA’s terms.

On appeal, the Delaware Supreme Court applied the Delaware Arbitration Act which provides that an arbitration award will be vacated when “the arbitrators exceeds their powers, or so imperfectly executed them that a final and definite award upon the subject matter submitted was not made.” The high court interpreted this provision as analogous to the Federal Arbitration Act which authorizes vacatur of an award where the arbitrator acts in “manifest disregard of the law.” This standard requires a party seeking vacatur to provide that the arbitrator was “fully aware of the existence of a clearly defined governing legal principle but refused to apply it, in effect, ignoring it.” The parties had submitted to the arbitrator two colorable interpretations of the relevant SPA provisions. While the arbitrator’s interpretation of those provisions may have been wrong, it was not without basis in the contract. Accordingly, under the “manifest disregard” standard, the arbitrator’s award was not subject to vacatur. SPX Corporation v. Garda USA, Inc., No. 332, 2013 C.A. No. 7115-VCL (Del. June 16, 2014).

This post written by Leonor Lagomasino.

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A transported liquid chemical had been found degraded after shipping from Texas to South Korea. The chemical company contended that the shipper was responsible for the losses as samples taken from the chemical prior to its transport tested satisfactorily. The dispute went to arbitration where the panel determined that the company failed to show that the chemical was damaged aboard the ship, and denied the claim. The chemical company attempted to vacate the award but the court found there was no manifest disregard of the law, because the petitioners could not show error beyond a possible erroneous interpretation of the Carriage of Goods by Sea Act, and in any event, “there [was] no indication the majority [of the panel] knew that was not the law but chose to hold petitioners to a different standard.” The court also found there was no misconduct by one of the arbitrators who failed to disclose that he was suffering from a terminal brain tumor at the time of his service on the panel, notwithstanding potential arbitration rule or ethics code violations. The nondisclosure did not cause prejudice and did not rise to “evident partiality or corruption” or misconduct under the FAA, under which “an arbitrator is under no duty to disclose medical conditions.” Finding no reason to vacate the award, the court ordered the award confirmed and granted the respondents’ motion to award attorney’s fees and costs incurred in connection with the motion to vacate. Zurich American Insurance Co. v. Team Tankers A.S., Case No 13cv8404 (USDC S.D.N.Y. June 30, 2014).

This post written by Michael Wolgin.

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In prior proceedings, Glory Wealth obtained an England arbitration award against Industrial Carriers, Inc. (ICI) and a confirmation of the award in the United States District Court for the Southern District of New York.

Glory Wealth instituted an admiralty case in the Eastern District of Virginia to attach a vessel to satisfy the confirmed arbitration award, naming ICE and Freight Bulk PTE, Inc. (FBP) as defendants. FBP moved to vacate the arbitration confirmation judgment of the Southern District of New York, relying on Rule 60(b)(4), Fed.R.Civ.P., contending the New York judgment was void for lack of jurisdiction. The Virginia district court held that FBP could not collaterally attach the New York confirmation judgment, since FBP was not a party to the New York proceeding. Strong elements of judicial estoppel appear to have influenced the Virginia district court’s decision, since the court noted that FBP had repeatedly denied any status as ICI’s alter ego, yet in the motion at bar to dismiss Glory Wealth’s action, FBP contended it had standing as a party to the New York case to move to vacate the New York judgment. Flame S.A and Glory Wealth Shipping PTE Ltd. v. Industrial Carriers, Inc., Vista Shipping, Inc. and Freight Bulk PTE, Inc., Case No. 2:13-cv-658 (U.S.D.C., E.D. Va., July 17, 2014).

This post written by Kelly A. Cruz-Brown.

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