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Arbitration / Court Decisions

SDNY Confirms Arbitration Award in Employment Dispute, Finds Arbitrator Did Not Manifestly Disregard Law

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A federal court in the Southern District of New York recently confirmed an arbitration award in an employment dispute between Gould Paper Corp. and its former employee David Berkowitz. On July 19, 2019, Berkowitz initiated arbitration proceedings against Gould under JAMS rules. Berkowitz generally alleged age discrimination, and Gould asserted counterclaims for conversion and unjust enrichment. The arbitrator issued a final award dated February 18, 2021, and an amended award dated March 17, 2021, finding for Berkowitz on his age discrimination claim and for Gould on its unjust enrichment counterclaim. In the award, the arbitrator ordered Gould to pay a net amount to Berkowitz of $45,533.49 and rejected all other relief sought by the parties, including fees, costs, liquidated damages, and emotional distress damages.

On August 4, 2021, Berkowitz filed a petition in federal court seeking to confirm the award of compensatory damages and to vacate and/or modify the award so as to grant an additional award of attorneys’ fees and costs, liquidated damages, and emotional distress damages. As a threshold issue, the court considered whether Berkowitz’s petition to modify the award was timely filed. Under the Federal Arbitration Act, the statutory period during which a motion to vacate or modify may be filed is three months after the arbitration award is “filed or delivered.” According to the court, neither party disputed whether the three-month limitation applied, but they disagreed over when the period began to run — namely, when the award was first transmitted to the parties by email, or when Berkowitz was first “served” with the award by mail in compliance with established JAMS procedures. However, noting that the question of when an award is considered “filed or delivered” has not been definitively settled in the Second Circuit, the court declined to rule on the issue.

Next, the court considered Berkowitz’s entitlement to a modification of the award so as to grant attorneys’ fees and costs, liquidated damages, and emotional distress damages pursuant to 9 U.S.C. § 11(c), which allows a court to modify or correct an award “[w]here the award is imperfect in matter of form not affecting the merits of the controversy.” Noting that this provision of the FAA has been interpreted narrowly to permit modification “to reflect the clear intent of the arbitrator,” the court concluded that the arbitrator had in fact indicated a clear intent not to award such damages, and rejected Berkowitz’s argument accordingly.

The court then considered whether the arbitrator’s refusal to award attorneys’ fees and costs, liquidated damages, and emotional distress damages constituted “manifest disregard of the law” warranting vacatur in part. Noting that a movant seeking vacatur based on “manifest disregard” bears a heavy burden in establishing that (1) the arbitrator knew of a governing legal principle yet refused to apply it or ignored it altogether and (2) the law ignored by the arbitrator was well defined, explicit, and clearly applicable to the case, the court concluded that Berkowitz was unable to meet this standard. Specifically, the court found that Berkowitz had failed to adequately cite controlling law or statutory provisions supporting his entitlement to the requested fees, costs, and damages in the underlying arbitration and thus could not meet the first prong of the “manifest disregard” standard.

Finally, the court considered whether the arbitrator exceeded his authority in refusing to award attorneys’ fees and costs, liquidated damages, and emotional distress damages to Berkowitz. Noting that Berkowitz’s “real objection” was that the arbitrator committed a legal error in denying the damages sought, the court concluded that Berkowitz’s claim that the arbitrator exceeded his authority was without merit. Based on the above, the court denied Berkowitz’s petition and granted Gould’s motion to confirm.

Berkowitz v. Gould Paper Corp., No. 1:21-cv-06582 (S.D.N.Y. Jan. 12, 2022).

Tenth Circuit Finds Non-Signatory May Compel Arbitration Based on Equitable Estoppel

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Defendant SemGroup Corp. and intervenor-defendant Cypress Environmental Management-TIR appealed an Oklahoma district court order denying their motions to compel arbitration. The plaintiff, Robert Ferrell, was a Cypress employee. He and Cypress entered into an employment agreement containing an arbitration clause, but SemGroup was not a party to that agreement. After Ferrell filed a putative class action against SemGroup, SemGroup moved to dismiss and compel arbitration, relying on the arbitration clause in the Ferrell/Cypress employment agreement. Cypress intervened, and both Cypress and SemGroup moved to dismiss and compel arbitration, arguing: (1) there was a question of arbitrability to be decided by the arbitrator as to whether a delegation clause in the arbitration agreement applied to non-signatories, such as SemGroup; and (2) arbitration of Ferrell’s claims was required based on theories of equitable estoppel. The district court denied the motions to compel, ruling that, based on Belnap v. Iasis Healthcare, 844 F.3d 1272 (10th Cir. 2017), the court, not the arbitrator, is required to decide the arbitrability issue. The court also rejected the movants’ estoppel arguments, finding they did not justify estopping Ferrell from avoiding arbitration.

On appeal, the Tenth Circuit held initially that the district court misapplied Belnap, clarifying that in Belnap the court “expressly declined to consider” whether responsibility for determining if a non-signatory may compel arbitration must be delegated to the arbitrator. The Tenth Circuit declined to decide that issue here as well, ruling instead that the motion to compel should have been granted based on equitable estoppel. Noting that the posture and issues in this case were nearly identical to those raised in a prior Tenth Circuit decision also involving Cypress, the court found the Oklahoma Supreme Court would recognize a “concerted misconduct estoppel” theory where, as here, a signatory (Ferrell) asserted allegations of “substantially interdependent and concerted misconduct” by a non-signatory (SemGroup) and another signatory (Cypress). This case, the court ruled, is “precisely the type of lawsuit that ‘concerted misconduct estoppel’ was designed to address.” As such, the Tenth Circuit reversed and remanded the district court order, finding Ferrell should be estopped from avoiding arbitration.

Ferrell v. Cypress Environmental Management-TIR, LLC, No. 20-5092 (10th Cir. Nov. 30, 2021).

Third Circuit Finds Publishing Company Waited Too Long to Challenge Arbitration Award Under Labor Management Relations Act

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Under a collective bargaining agreement that ran from 2014 to 2017 between the Newspaper Guild of Pittsburgh and PG Publishing, the publisher of the Pittsburgh Post-Gazette, PG was required to cover a portion of increases to newsroom employees’ health care costs. PG stopped making the contributions after the agreement expired in 2017. After bringing their labor dispute before the NLRB, the parties pursued arbitration to decide whether the guild’s grievance was arbitrable, and if so, whether PG breached the agreement in declining to make the required contributions. In December 2019, the arbitrator found in favor of the guild and directed PG to cover the health care premium increases.

In February 2020, PG sought to vacate the award in federal court through a complaint under both the Labor Management Relations Act (LMRA) and the Federal Arbitration Act (FAA). The U.S. District Court for the Western District of Pennsylvania dismissed PG’s complaint as time-barred and entered an order to enforce the arbitration award. PG appealed.

Agreeing with the district court, the Third Circuit found that PG’s bid to vacate the arbitration award was untimely. The panel noted that even though PG filed its complaint within 90 days of the arbitrator’s award, which is the limitations period applicable to motions to vacate under the FAA, PG’s general references to the FAA in its complaint were not sufficient to invoke the FAA as a means of seeking vacatur distinct from the LMRA. The Third Circuit reasoned that under the LMRA, the limitations period was 30 days from the December 2019 award, and PG did not file its complaint more than 30 days after the issuance of the award. In addition, the Third Circuit rejected PG’s attempt to take advantage of the longer statute of limitations available under the FAA, as PG failed to challenge the award by motion practice, which is required under the FAA.

PG Publishing, Inc. v. Newspaper Guild of Pittsburgh, Communication Workers of America, AFL-CIO LOCAL 38061, No. 20-3475 (3d Cir. Nov. 30, 2021).

SDNY Recognizes Strong Deference Owed to Arbitrators, Confirms Arbitration Award

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International Engineering and Construction (IEC) commenced arbitration against Baker Hughes (formerly GE Oil and Gas) over construction delays in the building of a liquefied natural gas power plant in Nigeria. The three-arbitrator panel issued an award finding that both GE and IEC breached the construction contracts. While the panel awarded IEC more than $7 million plus interest from GE, it also ordered IEC to pay GE $11 million plus interest, as well as 95% of the arbitration costs and GE’s costs. The net result was that IEC was ordered to pay more than $8 million plus interest.

GE moved to confirm the arbitration award and IEC cross-moved to vacate the award on the grounds that the arbitrators manifestly disregarded the law and the plain language of the parties’ contracts. Although the district court noted that IEC’s arguments “might have traction” if the court were writing on a blank slate, based upon the strong deference owed to arbitrators, the court found that IEC’s vacatur arguments “fell short,” and confirmed the award in favor of GE.

Baker Hughes Energy Services, LLC v. International Engineering & Construction S.A., No. 1:21-cv-01961 (S.D.N.Y. Nov. 16, 2021)

Ninth Circuit Affirms Denial of Motion to Compel Arbitration Against Non-Signatory Spouse of Contracting Party

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In a case brought under the Telephone Consumer Protection Act (TCPA), the Ninth Circuit Court of Appeals affirmed an order denying the defendant corporation’s motion to compel arbitration, which the company filed pursuant to a truck purchase agreement signed by the plaintiff’s husband, but not by her. The company contended that the plaintiff was bound by the arbitration clause because she was designated as her husband’s agent and authorized third party on the subject account, made payments on the account, made substantive changes to the account, called the company regarding the account, and filed a TCPA claim that arose out of the contract containing the arbitration agreement. The Ninth Circuit, however, held that the district court correctly ruled that under Florida law, which governed the contract, the plaintiff was not bound to her spouse’s agreement to arbitrate. The court further held that the plaintiff was not equitably estopped from avoiding the arbitration agreement, observing that, generally, Florida courts do not apply equitable estoppel to estop non-signatories. The court concluded that the plaintiff had not derived sufficient benefit under the contract to warrant application of estoppel.

Canady v. Bridgecrest Acceptance Corp., No. 20-15997 (9th Cir. Nov. 8, 2021).