Trajkovski Invest AB v. I.Am.Plus Electronics, Inc., No. 2:20-cv-00152-ODW (C.D. Cal. May 7, 2020) [click for opinion].
Petitioners, a collection of Swedish technology start-up entrepreneurs owning shares in the Bluetooth headphone company, Earin AB, sought damages from Respondent I.Am.Plus Electronics, Inc. for breaching a contract under which Respondent agreed to purchase Earin AB. Petitioners filed a request for arbitration with the Arbitration Institute of the Stockholm Chamber of Commerce (“SCC”) to resolve the dispute.
Article 51(3) of the SCC Arbitration Rules states that parties must pay the arbitration costs upfront. When Respondent failed to respond to the SCC’s request for payment, Petitioners volunteered to pay Respondent’s half to avoid dismissal of the case. Having received the full payment from Petitioners, the SCC’s Secretariat referred the matter to the Arbitration Tribunal.
Article 51(5) of the SCC Arbitration Rules grants the Arbitration Tribunal the authority to award Petitioners a reimbursement of an advanced payment made on behalf of Respondent. Petitioners thus immediately filed a request for an independent and separate award for reimbursement of those fees (the “Separate Award”). Respondent did not submit any comments to the Arbitration Tribunal throughout its consideration of the Separate Award, despite receiving two opportunities to do so. The Arbitration Tribunal granted the Separate Award.
Petitioners thereafter moved to enforce the Separate Award in the U.S. District Court for the Central District of California. Respondent opposed the application, arguing that the district court should not enforce the Separate Award because it was not a final and binding award and because Petitioners had failed to demonstrate a need for immediate relief. The district court found that the New York Convention applied, disagreed with both arguments, and granted the motion to enforce the Separate Award.
The district court acknowledged that judicial review of non-final arbitration awards is generally disfavored. However, it went on to note that courts can confirm interim arbitral awards when they finally and conclusively resolve a discrete issue. In so holding, the court distinguished SensorDynamics AG Entwicklungs Und Produktionsgesellschaft v. Memsco LLC (“SensorDynamics“), a 2008 Central District of California case concerning an International Chamber of Commerce International Court of Arbitration (“ICC”) arbitration award heavily relied on by Respondent.
Respondent relied on SensorDynamics to argue that the ultimate outcome of the SCC arbitration may alter the arbitration cost calculus, such that the Separate Award was not final and thus not confirmable. However, the district court highlighted important differences between the SensorDynamics case and the instant one. First, the Separate Award unambiguously ordered Respondent to pay its half of the advanced costs, whereas the interim award in SensorDynamics expressly acknowledged that the allocation of the advance costs would be subject to later adjustment. Second, Article 30(2), now 37(5), of the ICC Arbitration Rules states that advance costs may be subject to readjustment throughout arbitration proceedings, whereas the SCC Arbitration Rules do not contain such a clause. In other words, the advance costs in an ICC arbitration could potentially change, therefore rendering enforcement of a related interim award inappropriate, but, according to the court, advance costs in the instant SCC matter would not change and the Separate Award was thus confirmable.
Additionally, the district court ruled that Petitioners did not need to demonstrate an immediate need for relief in order to enforce the Separate Award. Respondent again relied on SensorDynamics to argue that this was required to confirm an interim award. However, the district court distinguished the case as an outlier inconsistent with other authority. The court stated that imposing an “immediate need” requirement would be inconsistent with the New York Convention’s mandate that a party seeking to avoid enforcement of an award bears the burden of showing an applicable defense. To require the party seeking enforcement of the award to affirmatively demonstrate an immediate need for relief would improperly flip the burden of proof.
The district court therefore granted Petitioner’s motion to recognize and enforce the Separate Award.