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You are here: Home / Archives for Arbitration / Court Decisions / Contract Interpretation

Contract Interpretation

Delaware Federal Court Confirms Arbitration Award, Holds Arbitrator Did Not Exceed Authority in Finding Unambiguous Contract Provision Was Unconscionable

May 26, 2022 by Alex Silverman

QAD Inc. petitioned the Delaware federal court to confirm an arbitration award it obtained against Block & Company Inc. Block cross-moved to vacate the award. The arbitrator awarded QAD more than $740,000 in connection with a contract dispute between the parties. In moving to vacate the award, Block claimed the arbitrator exceeded his authority in declaring that a limit of liability provision in the contract was unconscionable, despite also finding the contract language itself was unambiguous. Block argued that QAD drafted the provision, and there was no evidence of a gross imbalance between the two sophisticated parties in negotiating the term. The court nonetheless confirmed the award, and denied Block’s motion to vacate, finding Block had not satisfied its “heavy burden” under FAA section 10(a)(4) to show that the award was not “rationally derived from the agreement or supported by the record.” Even if the arbitrator had erred in his interpretation of the case law on unconscionability, the court explained that its power to vacate the award would be constrained because “[e]xceeding one’s powers … is not synonymous with making a mistake.” Because the arbitrator based his assessment of unconscionability on the facts on the record and applicable law, the court held that it could not re-litigate the merits of the unconscionability ruling, regardless of whether the arbitrator reached the correct decision.

QAD, Inc. v. Block & Co., Inc., No. 1:21-mc-00370 (D. Del. Apr. 25, 2022).

Filed Under: Arbitration / Court Decisions, Confirmation / Vacation of Arbitration Awards, Contract Interpretation

Virginia Supreme Court Declines to Enforce Arbitration Clause in a Trust, Agrees Trusts Aren’t “Contracts” Under FAA and Virginia Law

May 24, 2022 by Alex Silverman

Linda Anderson sued Sarah Boyle alleging that Boyle breached her duties as trustee of an irrevocable trust to which Anderson and Boyle were beneficiaries. Boyle moved to compel arbitration, citing an arbitration clause in the trust. The lower court denied the motion and Boyle appealed.

The Virginia Supreme Court granted the appeal solely to decide whether the Virginia Uniform Arbitration Act (VUAA) or the Federal Arbitration Act (FAA), each of which requires arbitration for “contracts,” compels enforcement of an arbitration provision in a trust. The court explained that a trust is, in general, a “donative instrument,” not an “agreement between two or more persons which creates an obligation to do or not to do a particular thing.” As such, the court held that a trust is not a “contract,” as required to fall within the ambit of both the VUAA and the FAA. While the VUAA also compels arbitration for certain “written agreements,” the court disagreed with Boyle that a trust qualifies as an “agreement.” Further, even if it did, the court noted that an arbitration clause would not be enforceable under the VUAA as it relates to claims between a trustee and a beneficiary, the latter of whom is not a party to any “written agreement to submit any existing controversy to arbitration.” The court therefore affirmed the lower court order denying Boyle’s motion, agreeing that neither the VUAA nor the FAA compels arbitration.

Boyle v. Anderson, No. 210382 (Va. Apr. 14, 2022).

Filed Under: Arbitration / Court Decisions, Contract Interpretation

New York Federal Court Confirms Arbitration Award Under Cyprus-Libya Bilateral Investment Treaty

April 15, 2022 by Brendan Gooley

On March 23, 2022, a New York federal court confirmed an award in an arbitration before a tribunal of the International Chamber of Commerce (ICC) between Olin Holdings Ltd. and the state of Libya under a bilateral investment treaty. In the underlying ICC arbitration, Olin claimed that the Libyan government obstructed the operation of, and ultimately expropriated, Olin’s dairy factory in Libya’s capital city Tripoli in violation of the bilateral investment treaty between Libya and Cyprus, where Olin was formed. Olin sought $147,882,000 as compensation for the damages it allegedly incurred as a result.

In June 2016, the ICC tribunal issued a jurisdictional award, concluding that the bilateral investment treaty included an agreement to arbitrate the dispute and that Olin’s prior lawsuits against Libya in Libyan court did not preclude Olin from invoking the arbitration clause. The tribunal held an evidentiary hearing on the merits and issued a final award awarding Olin €18,225,000 in damages; $773,000 for the costs of arbitration; and €1,069,687.70 for general legal costs and expenses, plus simple interest at a rate of 5% per annum from the date of the final award.

Olin petitioned to confirm the final award in New York state court, and Libya removed the petition to federal court. Noting that courts are required to review arbitrators’ decisions “with considerable deference” if the record supplies “clear and unmistakable evidence” that the parties agreed to submit a given issue to arbitration, the court concluded that the terms of reference agreement entered into by the parties at the outset of the ICC arbitration constituted such clear and unmistakable evidence of the parties’ intent to arbitrate with respect to both arbitrability and the substantive issues in the dispute, indicating that deferential review was warranted.

The court noted that under this deferential standard, if the arbitrators “explain their conclusions in terms that offer even a barely colorable justification for the outcome reached, confirmation of the award cannot be prevented by litigants who merely argue, however persuasively, for a different result.” The court further noted that under the New York Convention, the court was required to confirm the final award unless it finds one of the seven grounds for refusal or deferral of recognition or enforcement of the award specified in the Convention. In finding that the ICC tribunal presented more than a “barely colorable justification” for the final award, the court noted that the final award was 143 pages long, and thoughtfully and thoroughly considered and rejected each of Libya’s defenses to Olin’s claims. The court further considered each of the seven enumerated grounds for refusing to confirm an award under the Convention and found that none of those grounds had been met. As a result, the court granted Olin’s motion to confirm the final award. The court separately denied Libya’s motion to dismiss the petition on forum non conveniens grounds, finding that Libya failed to meet its burden to establish any of the factors that would support dismissal of the action in favor of a foreign jurisdiction.

Olin Holdings Ltd. v. State of Libya, No. 1:21-cv-04150 (S.D.N.Y. Mar. 23, 2022).

Filed Under: Arbitration / Court Decisions, Contract Interpretation

Tenth Circuit Concludes Enforceability of Arbitration Clause Was Issue for Arbitrator

April 12, 2022 by Brendan Gooley

The Tenth Circuit Court of Appeals recently concluded that whether an arbitration agreement could be enforced against a non-signatory who was allegedly a third-party beneficiary of the arbitration agreement was for the arbitrator, not the court, to determine where the arbitration provisions contained delegation language that the alleged beneficiary did not specifically challenge.

Ladonna Kay Rainwater was a patient at Casa Arena Blanca Nursing Center. Rainwater’s daughter Melanie Burris signed an admission agreement and a dispute resolution agreement that contained an arbitration clause as part of Rainwater’s admission to Casa Arena. The agreement provided that it was “between Kay Rainwater (‘Resident’) and/or Melanie Burris (‘Representative’), and Casa Arena Blanca (‘Facility’)” and further provided that Rainwater was a “third-party beneficiary of the agreement.” The agreement also included a “delegation clause” and incorporated JAMS rules, including JAMS rules regarding delegation.

After Rainwater passed away, her estate filed a wrongful death lawsuit alleging that Casa Arena failed to care for Rainwater properly. Casa Arena moved to compel arbitration. The district court denied Casa Arena’s motion and Casa Arena appealed.

The Tenth Circuit reversed and remanded. The court explained that there was no dispute that a contract had been formed, that the contract contained an arbitration clause, or that the arbitration clause included a delegation clause. The dispute was whether the arbitration clause should be enforced against Rainwater’s estate as a third-party beneficiary of the agreement.

That issue, the Tenth Circuit explained, was for the arbitrator in light of the delegation clause and the fact that Rainwater’s estate had not specifically challenged the delegation clause (and instead had generally asserted its arguments regarding enforceability as to the estate).

Casa Arena Blanca LLC v. Rainwater, No. 21-2037 (10th Cir. Mar. 22, 2022).

Filed Under: Arbitration / Court Decisions, Contract Interpretation

Texas Supreme Court Finds Erotic Dancer and Club Had “Meeting of the Minds” to Enforce Arbitration Agreement

April 7, 2022 by Alex Silverman

Stephanie Sotero Hernandez was killed in a car accident after leaving work at Baby Dolls Topless Saloons Inc. Hernandez’s estate filed a wrongful death suit against the club alleging it continued serving alcohol to Hernandez’s co-worker, the driver of the car, after knowing she was intoxicated. The club moved to compel arbitration based on the arbitration clause in its contract with Hernandez. A Texas court of appeals affirmed a trial court order denying the club’s motion, finding the terminology in the contract was “uncertain” and lacked “definiteness,” thus invalidating any agreement to arbitrate. The Texas Supreme Court reversed.

Hernandez’s estate argued the motion should be denied because there was never a “meeting of the minds” between Hernandez and the club. The court disagreed, finding that to conclude otherwise, as did the court of appeals, ignores that Hernandez and the club operated under the contract on a weekly basis for nearly two years before her untimely death. The court therefore rejected the notion that the parties never entered a valid contract. Hernandez’s estate also argued that the arbitration clause itself was limited in scope and inapplicable, but the court again disagreed, emphasizing the bolded and capitalized clause in the contract explicitly delegating gateway arbitrability issues of this sort to the arbitrator. The court thus reversed and remanded with instruction to grant the club’s motion to compel arbitration.

Baby Dolls Topless Saloons, Inc. v. Sotero, No. 20-0782 (Tex. Mar. 18, 2022).

Filed Under: Arbitration / Court Decisions, Contract Formation, Contract Interpretation

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