Ballinasmalla Holdings Ltd. v. FCStone Merch. Servs., No. 18-cv-12254 (S.D.N.Y. Apr. 11, 2019)
Corrib Oil Biofuels, LLC (“Corrib Oil”) contracted with FCStone Merchant Services, LLC (“FCSTONE”) to purchase degummed soybean oil. Ballinasmalla Holdings Limited (“BHL”), a company based in Ireland, agreed to act as a guarantor for Corrib Oil on the purchase contract. BHL also agreed to act as a guarantor on payments owed by Corrib Oil Company, Ltd. (“Corrib Ltd.”) to INTL FCStone Markets, LLC (“INTL FCSTONE”) on swap transactions pursuant to an International Swap Dealers’ Association (“ISDA”) agreement. Both guaranty agreements included similar arbitration provisions calling for arbitration in New York administered by the American Arbitration Association (the “AAA”) in accordance with its Commercial Arbitration Rules.
Following a dispute over the quality of certain soybean deliveries and payment on the ISDA agreement, FCSTONE and INTL FCSTONE demanded arbitration against BHL and Corrib Oil. INTL FCSTONE concurrently filed a lawsuit in New York State court against Corrib Ltd. seeking to collect monies owed under the ISDA agreement. In the arbitration, the arbitrator initially stayed arbitration on the ISDA Guaranty Claim pending adjudication in the New York State court proceeding of the underlying debt owed by Corrib Ltd. After an evidentiary hearing in the arbitration, the arbitrator issued a partial final award ordering BHL and Corrib Oil to pay FCSTONE $360,128.50. The arbitrator also dismissed the ISDA Guaranty Claim asserted against BHL after “[h]aving received no further submissions on this claim.”
Less than a month after the partial final award issued, the New York State court granted summary judgment in favor of INTL FCSTONE. Corrib Ltd. appealed. FCSTONE and INTL FCSTONE then asked the arbitrator to reinstate their ISDA Guaranty Claim in the arbitration and the arbitrator agreed. After a hearing on the ISDA Guaranty Claim, the arbitrator issued its final award. The final award found BHL liable on the ISDA Guaranty Claim and awarded FCSTONE and INTL FCSTONE a total of $5 million, including the partial final award, plus interest, fees, and costs.
BHL and Corrib Oil brought this action in an effort to vacate the final award, presenting three arguments: (1) the arbitrator exceeded his powers and did not make a final and definite award because Corrib Oil’s pending appeal in New York may result in a change in the parties’ legal obligations; (2) the arbitrator acted in manifest disregard of the law when he did not stay his decision on the ISDA Guaranty Claim until the New York action was complete; and (3) the arbitrator acted in manifest disregard of the law in his award of attorney’s fees. FCSTONE and INTL FCSTONE filed a counter-petition seeking an order confirming the final award.
The district court first determined that award was a final and definite award. Although BHL and Corrib Oil speculated that further litigation may be necessary—depending on the determination of the New York appellate court—such speculation would not justify vacatur under section 10(a)(4) of the Federal Arbitration Act. Under New York law, a judgment is enforceable and binding upon entry of judgment and while pending appeal. There was no evidence that Corrib Ltd. filed for an automatic stay or that any stay was granted. As a result, the judgment was an existing debt which INTL FCSTONE could pursue against BHL in the arbitration, and the related award was definite and final for purposes of section 10(a)(4).
The district court also concluded that BHL and Corrib Oil had failed to demonstrate that the arbitrator’s decision not to stay the ISDA Guaranty Claim while the New York State appeal was pending was a manifest disregard of the law. To vacate an award for manifest disregard of the law, a court must determine (1) that governing law was “well defined, explicit, and clearly applicable,” and (2) that the arbitrator “appreciate[d] the existence of a clearly governing legal principle but decided to ignore or pay no attention to it.” Here, the AAA Rules and existing New York law recognized the power to stay proceedings as a discretionary one. The arbitrator did not ignore or deliberately reject any discretionary factors when considering whether to stay the proceedings, and the decision not to stay the proceedings was not a manifest disregard of the law.
Finally, the district court rejected BHL and Corrib Oil’s argument that the $150,000 in attorney’s fees awarded was made without explanation and without any supporting evidence. According to BHL and Corrib Oil, New York law requires an award of attorneys’ fees to be supported by “competent evidence,” and requires an arbitrator to consider enumerated factors such as the lawyer’s experience, customer fees, and time and labor expended. However, there was no evidence that the arbitrator knew of a governing legal principle and refused to apply it or intentionally ignored it. Indeed, the arbitrator solicited post-hearing briefing on the issue of the reasonableness of the attorneys’ fees, and had letters explaining the amount of time and number of attorneys used to prepare the various stages of the arbitration, the qualifications and skill level of attorneys working on the matter, the technical and scientific nature of the underlying contract claim issues, and the amount of discovery taken. From these submissions, there was at least a “barely colorable justification” for the attorneys’ fee award.
Accordingly, the district court denied BHL and Corrib Oil’s petition to vacate the final award and granted FCSTONE and INTL FCSTONE’s petition to confirm the final award.
A version of this post originally appeared in the July 2019 edition of Baker McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky.
