Arbitration in the Courts

February 2022 | Vol. 9
Where Advocacy Meets Business

Arbitration in the Courts, February 2023
(Vol. 9)

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Functus Officio gets a new exception:

Second Circuit holds that district courts remand of unreasoned award to arbitrator does not violate the functus officio doctrine.

Smarter Tools, Inc. v. Chongqing SENCI Import & Export Trade Co., Ltd., No. 21-724, (2d Cir. January 17, 2023).

The functus officio doctrine – Latin for having “completed one’s office” – dictates that “once arbitrators have fully exercised their authority to adjudicate the issues submitted to them, their authority over those questions is ended, and the arbitrators have no further authority, absent agreement of the parties, to redetermine those issues.”  Its principal purpose is to prevent “re-examination of an issue by a nonjudicial officer potentially subject to outside communication and unilateral influence.”  But courts have developed a number of exceptions to the doctrine, permitting arbitrators to revisit their awards to make non-substantive modifications, lest the doctrine waste tremendous efforts and resources.

In Smarter Tools v. SENCI, the Second Circuit Court of Appeals held that the doctrine warranted another exception – permitting remand to the arbitrator to provide the requisite reasoning for his award.

The underlying arbitration arose out of a series of contracts between Smarter Tools Inc. (STI) and Chongqing SENCI Import & Export Trade Co. Ltd. (SENCI) for the supply of gas-powered generators.  After STI failed to pay the purchase price for a number of generators, SENCI commenced arbitration before the Arbitration Association’s International Centre for Dispute Resolution (“ICDR”) to recover the outstanding amounts.  STI counter-petitioned, claiming that it was SENCI who had breached the contract by delivering generators that failed to comply with California Air Resources Board (CARB) standards. The arbitrator ultimately issued an award in favor of SENCI, finding that the parties’ contract did not specify that the generators had to comply with CARB standards.  However, although the parties had agreed that the arbitrator would issue a reasoned award, the arbitrator’s award contained scant reasoning.

STI petitioned the United States District Court for the Southern District of New York to vacate the award, arguing the arbitrator had exceeded his authority by issuing an unreasoned award.  The district court agreed, finding the award contained no rationale for rejecting STI’s counterclaims.  But, rather than vacate the award, the court remanded the case to the arbitrator “for clarification of his findings.”  The arbitrator issued an amended award granting the same relief and providing further reasoning and explanation for his findings.  STI again moved to vacate the award on the ground that remand was improper because the arbitrator was functus officio after issuing his original award.  SENCI cross-moved to confirm the award.  The district court confirmed the award and STI appealed.

On appeal, the Second Circuit noted that it was an “open question” as to “whether a court may remand for an arbitrator to produce a reasoned award,” but it was a “permissible choice” under these circumstances because “[i]t simply makes no sense to redo an entire arbitration proceeding over an error in the form of the award issued.”  Remand to provide further reasoning was analogous to well-recognized exceptions to functus officio, such as permitting arbitrators to clarify an ambiguous award.  As with such other exceptions, the arbitrator was not changing his merits determination and therefore remand would not “undermine the functus office doctrine’s purpose” of protecting against the risk the arbitrator would change his ruling “after issuance due to outside influence by an interested party.”

The court also rejected STI’s argument that the arbitrator had exceeded his powers by issuing an unreasoned award, and the lower court’s only option under the Federal Arbitration Act (FAA) was to vacate the award under Section 10(a)(4).  Awards are presumptively valid and vacatur is narrowly construed, and here “the question was whether the arbitrator’s original award was reasoned; there was no question that the arbitrator here had the power to reach the issues addressed.”  Accordingly, the failure to issue a reasoned award “best fits under Section 11 of the FAA,” which permits a court to “make an order modifying or correcting the award … where the award is imperfect in matter of form not affecting the merits of the controversy.”  The award’s failure to provide the requisite reasoning rendered it “imperfect in matter of form,” and remand to the arbitrator to produce an award comporting to the parties’ agreement best “effects the intent” of the parties and “promotes justice” between them.

Read the court’s full decision here.


Ninth Circuit holds that FAA Chapter 1 grounds are available to vacate New York Convention awards seated in the U.S.:

Confirming the award, the court reinforced that an arbitrator’s mere error of law does not warrant vacatur under FAA, §10(a)(4).

HayDay Farms, Inc. v. FeeDx Holdings, Inc., 55 F.4th 1232 (9th Cir. 2022).

The Convention on the Recognition and Enforcement of Arbitral Awards (New York Convention) is codified in Chapter 2 of the FAA,  9 U.S.C. § 201 et seq.  It governs not only awards issued outside of the U.S., but also “non-domestic” awards – those awards issued by tribunals seated in the U.S., but involving one or more foreign parties or having some other reasonable relation with one or more foreign states.  HayDay v. FeeDx concerned whether the grounds for vacating domestic awards under Chapter 1 of the FAA apply to non-domestic awards governed by the Convention.  This was a question of first-impression for the Ninth Circuit Court of Appeals, which has jurisdiction over appeals from U.S. district courts in several western states, including California.  The Ninth Circuit joined the Second, Third, Fifth, Sixth, Tenth and D.C. Circuits in finding that Chapter’s 1’s vacatur standards (set forth in FAA, § 10) apply to non-domestic awards.  (The Eleventh Circuit is the only federal appeals court to have addressed the issue and found chapter 1 inapplicable to nondomestic awards, although the Eleventh Circuit is now in the process of reconsidering the issue.  See Corporacion AIC, SA v. Hidroelectrica Santa Rita S.A., 50 F.4th 97, 98 (11th Cir. 2022).)

The arbitration in HayDay arose out a series of contracts between Cayman corporation FeeDx and California corporation HayDay, which culminated in an exclusive global distribution agreement signed in 2014, under which FeeDx would purchase and distribute HayDay’s forage crops and pay Hayday $8 million to expand its operations.  Under a supplemental agreement, Hayday agreed to provide FeeDx at least 170,000 metric tons of crops per year at $360 per ton.  After disputes arose between them, the parties entered into a settlement agreement under which HayDay would pay FeeDx $8 million in monthly installments, and once this amount was fully paid, the parties would mutually release all claims under their distribution agreement, with their respective obligations to buy and sell HayDay’s crops terminating in December 2016.  Neither party performed the settlement.  HayDay paid only $1 million of the $8 million due.  FeeDx failed to continue purchasing HayDay’s crops through December 2016.  Arbitration ensued before a panel of three arbitrators seated in California before the American Arbitration Association’s International Centre for Dispute Resolution.

Over four years, the arbitrators issued various partial awards finding that: (i) the settlement agreement supplemented rather than supplanted the distribution agreement; (ii) FeeDx had breached the settlement agreement by failing to continue purchasing crops through December 2016; (iii) FeeDx breached the distribution agreement prior to entering into the settlement; and (iv) the settlement agreement did not release HayDay’s claims under the distribution agreement because FeeDx breached the settlement agreement. The Tribunal awarded HayDay approximately $21 million in lost profits. The tribunal rejected FeeDx’s argument that HayDay’s damages should be reduced by the remaining $7 million it owed under the settlement agreement, finding that FeeDx’s breach of the settlement agreement excused HayDay’s payment obligation.

FeeDx petitioned the United States District Court for the Central District of California to vacate the award under Section 10(a)(4) of the FAA on the grounds that the arbitrators had exceeded their authority.  The district court agreed in part and vacated $7 million from the award, finding that the arbitrators’ refusal to reduce HayDay’s damages by the $7 million outstanding under the settlement agreement violated California law precluding a party from receiving a windfall on a breach of a contract claim.  FeeDx appealed the court’s refusal to vacate the entire award; HayDay appealed the partial vacatur of the award.

On appeal, the Ninth Circuit first addressed the threshold question whether the vacatur grounds in Section 10 of Chapter 1 of the FAA applied to Convention awards in arbitrations seated in the U.S.  The court held that Section 10 applied.  In doing so, it adopted the Second Circuit’s oft-cited decision in Yusuf v. Toys “R” Us, 126 F.3d 15 (2d Cir. 1997), which held that Article V(1)(e) of the Convention – permitting an enforcing court to refuse enforcement of an award that “has been set aside or suspended by a competent authority of the country in which … [it] was made” – necessarily contemplates that the courts at the seat may apply the seat’s domestic arbitration laws to vacate a Convention award.

Turning to the merits, the court reversed the lower court’s partial vacatur.  Section 10(a)(4) permits vacatur of an arbitration award “where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.”  The court held that Section 10(a)(4) permits only an “extremely limited” review of the award, and an arbitrator exceeds its authority in two circumstances – (i) when the arbitrator manifestly disregards the applicable law or (ii) his or her decision is completely irrational.  An arbitrator manifestly disregards the law only when there is “some evidence in the record other than the result, that the arbitrators were aware of the law and intentionally disregarded it.”  An award is “completely irrational” only where it “completely ignores controlling terms of the parties’ contract.”  If the arbitrator even “arguably construes the contract,” the court “must defer to the arbitrator’s decision.”  Neither standard is met by showing that the arbitrator merely “committed an error–or even a serious one.”

The court agreed with the lower court that the arbitrator likely erred in deciding that FeeDx was not entitled to credit for HayDay’s failure to make the $7 million payment, which resulted in a “seemingly unfair damages award that likely violates” California law.  Nevertheless, this error, without more, was insufficient to meet the stringent standard for vacatur.  To hold otherwise would frustrate the FAA, which reflected Congress’s decision to “carefully limit” judicial review of arbitration awards to protect the contractual choice to “forego the procedural rigor and appellate review” of judicial proceedings in favor of expediency and finality of arbitration.

Read the court’s full decision here.


SDNY holds that Section 1782 does not authorize discovery for use before ICSID tribunal:

ICSID panel does not qualify as a “foreign or international tribunal” under Section 1782 because it is not “imbued with governmental authority.”

In re Webuild S.p.A., 22-mc-140(LAK) (S.D.N.Y. Dec. 19, 2022).

28 U.S.C. § 1782 authorizes U.S. courts to order persons in the United States to give testimonial or document discovery “for use in a proceeding in a foreign or international tribunal.”  Whether Section 1782 discovery is available in aid of foreign arbitrations had split federal appellate courts.  In June 2022, the Supreme Court took up this issue in ZF Auto. US, Inc. v. Luxshare, Ltd., 142 S. Ct. 2078 (2022).  The Court held that neither commercial arbitration tribunals nor ad hoc investor-state tribunals qualified as foreign or international tribunals under the statute.  In so holding, the Court explained that a “foreign tribunal” is “imbued with governmental authority by one nation,” and an “international tribunal” is “imbued with governmental authority by multiple nations.”  Neither the commercial tribunal nor ad hoc investor-state tribunal before it fit either definition.

Webuild applied ZF Auto to determine whether Section 1782 permitted discovery for use before an International Center for Investment Disputes (ICSID) tribunal.  The case arose after an Italian investor arbitrating claims against Panama under the Italy-Panama bilateral investment treaty (BIT) before an ICSID tribunal obtained an ex parte order pursuant granting it Section 1782 discovery from a non-party U.S. company for use in the arbitration.  The non-party moved to vacate the order and quash the ensuing subpoena.

The court granted the motion and quashed the subpoena, finding that under ZF Auto, the ICSID tribunal did not constitute “a foreign or international tribunal” within the statute because Italy and Panama did not “imbue it with governmental authority.”  The court noted that although ZF Auto “did not provide a test for lower courts to apply, it did set forth several factors that it considered in determining that such an intent did not exist.”  In a methodical opinion, the court explained how, under each of the factors set forth in ZF Auto, the ICSID tribunal here was analogous to the private commercial and ad hoc investor-state panels ZF Auto found not to be governmental or intergovernmental authorities. 

The court highlighted the following attributes demonstrating that the ICSID tribunal was not akin to a governmental body: (i) “ICSID does not have standing or pre-existing arbitration panels,” but rather it convenes tribunals in response to requests from the parties; (ii) the Panama-Italy BIT did not create the ICSID tribunal, but merely provides the set of rules that govern the tribunal’s formation; (iii) the ICSID tribunal “functions independently of and is not affiliated with either” Italy or Panama, with arbitrators chosen by the parties, who lack “any official affiliation” with either state; (iv) the ICSID tribunal is funded by the parties and “does not receive any government funding;” (v) the ICSID tribunal’s proceedings are confidential and not public; and (vi) the panel derives its authority from the “parties’ consent to arbitrate,” rather than any state law.

Accordingly, the court held that “Italy and Panama did not intend to imbue the ICSID Panel with governmental authority,” and therefore the ICSID panel was not a “foreign or international tribunal” under Section 1782.  In October 2022, the United States District Court for the Eastern District of New York likewise held that an ICSID tribunal empaneled pursuant to the Malta-China BIT did not constitute a “foreign or international tribunal” for purposes of Section 1782.  See In re Alpene, Ltd., 2022 WL 147008 (E.D.N.Y. Oct. 27, 2022).  It remains to be seen whether other federal courts will likewise hold that Section 1782 discovery is not available for use in ICSID arbitrations.

Read the court’s full decision here.


“Service of Suit” Clause complements rather than supersedes agreement to arbitrate: 

Parties’ agreement to submit to jurisdiction of court of competent jurisdiction merely ensured a judicial forum for enforcing the agreement to arbitrate and the arbitrator’s awards.

Upper Room Bible Church, Inc. v. Sedgwick Delegated Auth., No. 22-340 (E.D. La. Dec. 16, 2022).

Insurance contracts, particularly those issued by foreign insurers, often include both an arbitration clause requiring that all disputes be resolved in arbitration, and a “service of suit” clauses providing that the foreign insurer will submit to the jurisdiction of local courts.  Upper Bible Room confirmed that the two clauses can co-exist without vitiating the right to arbitrate.

Upper Room Bible Church was seeking coverage from a group of insurance companies under two policies of commercial property insurance for property damage allegedly sustained from Hurricane Ida and Tropical Storm Nicholas.  After the insurers denied these claims, Upper Room brought suit in the United States District Court for the Eastern District of Louisiana.  The insurers moved to compel arbitration based on the arbitration clause in the policies requiring that “all matters in difference between the Insured and the Companies … shall be referred to an Arbitration Tribunal.”

Upper Room opposed the motion, arguing that the policies’ arbitration clause was superseded by a separate policy endorsement stating that the “insurance shall be subject to the applicable state law to be determined by the court of competent jurisdiction as determined by the provisions of the Services of Suit Clause (USA).”  The “Service of Suit Clause,” in turn, stated, “in the event of failure of the Underwriters hereon to pay any amount claimed to be due hereunder, the Underwriters hereon … will submit to the jurisdiction of a Court of competent jurisdiction within the United States.”  Upper Room therefore argued that the endorsement reflected the parties’ intent that all coverage disputes be resolved in court, rather than through arbitration.

The court disagreed and granted the motion to compel arbitration.  Drawing on twenty years of precedent rejecting similar arguments, it noted that “courts have consistently held that endorsements and service of suit clauses like those in Upper Room’s policy do not nullify otherwise valid arbitration agreements.”  Rather, the arbitration and service of suit provisions were in harmony, and the service of suit clause was properly construed “as complementing the arbitration clause by providing a judicial forum for compelling or enforcing arbitration.”

Read the court’s full decision here.

Marcel Engholm to Speak at the 2022 ARIAS Fall Conference

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November 2022— Chaffetz Lindsey’s Marcel Engholm is set to speak at the 2022 ARIAS Fall Conference on Friday, November 4th.  Marcel will be joined by Michael Carolan (Troutman Pepper),  Stephanie Denker (Saul Ewing), Peter Golfman (Zelle), Shermineh Jones (Troutman Pepper) and Gina Santangelo (Arch Re) during the “Rapid Fire Case Presentations” session Friday morning where young practitioners will be given five minutes to convince the audience they have found the most important case in insurance and reinsurance law. The audience will vote on the most important case presented.

Marcel will be making a case that the Second Circuit’s decision in Fireman’s Fund v. OneBeacon this past September, a victory secured by Chaffetz Lindsey’s Steve Schwartz, is the most important of the year.

Conference Details:

Thursday, November 3rd– Friday, November 4th

New York Hilton Midtown (1335 6th Ave New York, NY 10019)

Learn more here.

About ARIAS

The AIDA Reinsurance and Insurance Arbitration Society, ARIAS U.S. is a nonprofit corporation dedicated to improving the insurance and reinsurance arbitration process for the international and domestic markets

Marcel Engholm Cardoso Publishes “NYIAC Grand Central Forum: Double-Hatting and the ICSID-UNCITRAL Draft Code of Conduct for Adjudicators in International Investment Disputes”

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August 2022— The latest feature on the Kluwer Arbitration Blog spotlights an article by Chaffetz Lindsey’s Marcel Engholm Cardoso and Holland & Knight’s Arantxa Cuadrado. The publication titled “NYIAC Grand Central Forum: Double-Hatting and the ICSID-UNCITRAL Draft Code of Conduct for Adjudicators in International Investment Disputes” reviews the topics discussed at The New York International Arbitration Center’s (“NYIAC”) annual Grand Central Forum which took place on July 13th, 2022.

The piece addresses the issues surrounding “double-hatting” in the newest draft of the Code of Conduct, reflecting the discussions from panelists Andrea Bjorklund (McGill University, Montreal), Lauren Mandell (WilmerHale, Washington D.C.), Kate Brown de Vejar (DLA Piper, Mexico City), Andrés Jana (Jana y Gil, Santiago) and moderator Donald Donovan (Arbitration Chambers, New York).

Visit the Kluwer Arbitration Blog for the full article and review of the event.

Kluwer Arbitration Blog (KAB) is a publication of Kluwer Law International providing information and news on international arbitration.

NYIAC Annual Grand Central Forum: Exploring the UNCITRAL-ICSID Code of Conduct for Adjudicators

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July 2022— Chaffetz Lindsey is pleased to be involved in the upcoming NYIAC Annual Grand Central Forum taking place on Wednesday, July 13th from 6:30pm-9:30pm EDT. The event is available to attend both virtually and in-person at Debevoise & Plimpton, NYC.

The program will highlight the newly-released draft UNCITRAL-ICSID Code of Conduct and the important questions that remain regarding the challenges of so-called “double-hatting” by arbitrators in international investment arbitration.  The interactive session will include speakers Andrea Bjorklund, Kate Brown de Vejar, Andrés Jana, Lauren Mandell and will be moderated by Donald F. Donovan.

The schedule will include time for Q&A, discussion and networking:

  • 6:00pm: Welcome | Delegate Check-In
  • 6:30pm: Substantive Session
  • 7:45pm: Q&A
  • 8:00pm: Networking | Cocktails & Canapés
  • 9:00pm: Close of Session

To attend the event in-person click here; to attend virtually click here.  The event has been organized under the direction of co-chairs of the NYIAC Program Committee Marisa Marinelli and Chaffetz Lindsey’s James Hosking, together with co-secretaries of the committee Arantxa Cuadrado and Chaffetz Lindsey associate Marcel Engholm.

About NYIAC:

The New York International Arbitration Center (“NYIAC”) is a nonprofit organization formed to advance, strengthen and promote the conduct of international arbitration in New York.

Filed Under: Uncategorized

Marcel Engholm Cardoso to Present in CJA/CBMA’s Young Arbitration Practitioners’ Careers Webinar

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December 2021 — Marcel Engholm Cardoso, Associate at Chaffetz Lindsey will present at the Young Arbitrators Committee of the Brazilian Center for Mediation and Arbitration (Comitê de Jovens Arbitralistas do Centro Brasileiro de Mediação e Arbitragem – CJA/CBMA) webinar series “Young Arbitration Practitioners’ Careers.” The webinar will take place on Wednesday, December 15th at 6pm EST/8pm Brasilia Standard Time. In this round table event, Marcel Engholm Cardoso will be joined by international arbitration professionals André Luís Monteiro, Emily Westphalen, Mariana Almeida Issa, and Igor Ribeiro de Oliveira in a discussion highlighting international arbitration careers abroad. The panel will be moderated by Daniel Isaac Nino and Ana Paula Martins, Executive Directors of CJA/CBMA. The online event will be broadcast in Portuguese on the committee’s YouTube channel (no registration is required for viewing).

Marcel Engholm Cardoso Moderates ICDR Y&I Webinar on “Identifying the Law Applicable to the Arbitration Agreement”

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November 2021 – On Thursday, November 11th, ICDR Young and International (Y&I) will be hosting two virtual panel discussions on the law applicable to the arbitration agreement, topics that are the subject of this year’s Vis Moot problem. The panels will discuss how to determine which jurisdiction’s law should apply and how different laws (i.e., substantive laws, procedural laws, specialized laws (such as the CISG)) can or should apply to interpret an arbitration agreement.  Chaffetz Lindsey’s Marcel Engholm Cardoso – along with Jessica Beess und Chrostin (King and Spalding) – will moderate esteemed panels that include: Maxi Scherer (Wilmer Hale, London); Patricia Shaughnessy (Stockholm University, Stockholm); Joseph Schwartz (WAGNER Arbitration, Berlin); Dana MacGrath (MacGrath Arbitration, New York); Franco Ferrari (New York University, New York); Samantha J. Rowe (Debevoise & Plimpton, London).

The program is scheduled for 9:30 a.m. EST / 3:30 p.m. CET / 8:00 p.m. IST.  To register for “Where to Go and What to Do When You Get There: Identifying the Law Applicable to the Arbitration Agreement,” click here.

ICCA Research Project Co-Edited by James Hosking and Yasmine Lahlou Shortlisted as GAR Awards 2021 “Best Development”

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June 2021 –Global Arbitration Review has included the ICCA research project, “Does a Right to A Physical Hearing Exist in International Arbitration?” on the shortlist for the “Best Development” of 2021 award. The ICCA report, co-edited by James Hosking, Yasmine Lahlou and Giacomo Rojas Elgueta, with support from Marcel Engholm Cardoso and Benedetta Mauro, surveys nearly 80 New York Convention jurisdictions, in which country reporters have provided reliable, jurisdiction-specific, information on the core legal questions posed by the increased use of remote hearings in international arbitration.

The project is 1 of 12 included in GAR’s “Best Development” shortlist. The winner, picked by GAR readers, will be announced, along with several other categories, at the virtual GAR Awards 2021 ceremony on July 1.

Registration for the GAR Awards 2021 is available here. Proceeds of the ceremony will go towards supporting GAR’s in-house charity, the Swawou School for Girls in Sierra Leone.

Insurance/Reinsurance Report, December 2020
(Vol. 9)

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Exhaustion of underlying policies vs. follow-the-settlements?  It comes down to policy language 

Reinsurer was bound by cedent’s settlement allocation based on pre-settlement exposure analysis.

Fireman’s Fund Ins. Co. v. OneBeacon Ins. Co., Case No. 1:14-cv-04718-PGG (S.D.N.Y. Oct. 19, 2020).

In its 2004 ruling in North River Ins. Co. v. ACE Am. Reins. Co., 361 F.3d 134, 139-40 (2d Cir. 2004), the Second Circuit held that a follow-the-settlements clause requires a reinsurer to follow not only the cedent’s settlement of a claim, but also its post-settlement allocation of a claim affecting multiple policies.  Specifically, the Second Circuit upheld the cedent’s use of a “rising bathtub” allocation, in which the settlement was allocated to lower layer policies before higher layer policies, despite a reinsurer’s contention that the allocation should have been in accordance with the cedent’s pre-settlement exposure analysis.

In Fireman’s Fund, these roles were reversed.  The cedent allocated a settlement in accordance with its exposure analysis, while the reinsurer argued, in effect, that the cedent should have used the rising bathtub method.  The court, however, held that follow-the-settlements applied, and that the allocation was therefore binding on the reinsurer.  The case presented issues including both (i) the effect of North River, and (ii) whether the cedent’s lower layer policies could be deemed to have been exhausted by the settlement.

The policyholder, ASARCO, was in the business of mining and processing asbestos.  It faced thousands of claims arising from injuries resulting from asbestos exposure.  ASARCO had several layers of insurance in several years during which the underlying claimants had been exposed to asbestos.  ASARCO turned to its insurers to cover its losses.

Fireman’s Fund had issued three excess liability insurance policies to ASARCO.  Policy 1 was effective  during the 1982 underwriting year, and Policies 2 and 3 were effective during the 1983 year.  Policies 1 and 2 covered $20M excess $30M, while Policy 3 covered the higher $20M excess $75M layer.

Fireman’s Fund’s pre-settlement exposure analysis indicated that its total potential exposure was $50.3 million.  This estimate meant that all three policies were exposed.

Fireman’s Fund eventually settled ASARCO’s coverage claims for $35 million.  It then allocated the settlement amount across its three policies, assigning each a percentage of the settlement amount commensurate with its estimated exposure.  This resulted in an allocation of $8.1 million to Policy 3.

OneBeacon was a facultative reinsurer of Policy 3.  It denied Fireman’s Fund’s billing on two main grounds, arguing that:  (1) the $35M settlement could not have exhausted the two lower layer policies, whose total limits were $40M; and (2) the Second Circuit’s North River decision required Fireman’s Fund to adopt a rising bathtub allocation.  Fireman’s Fund filed suit.

OneBeacon’s first argument was based on the Payment of Loss provision in Policy 3.  The provision stated that “the insurance afforded under this policy shall apply only after all the underlying insurance has been exhausted.”  OneBeacon contended that this language unambiguously required that the full limits of the underlying policies be paid to ASARCO before coverage under the reinsured Policy 3 was triggered.  Fireman’s Fund argued that the term “exhausted” did not clearly require actual payment of the full underlying limits to ASARCO, but rather allowed exhaustion by settlement.  Further, Fireman’s Fund argued that follow-the-settlements gave it the discretion adopt this reasonable interpretation of the policy.

The court agreed with Fireman’s Fund on this point.  Its review of the case law showed that cases requiring actual exhaustion of underlying policies explicitly required exhaustion ‘“as a result of payment of losses thereunder,’” which the court noted “is not present here.”  In contrast, it noted, the exhaustion language in Policy 3 “does not ‘require collection of the primary policies as a condition to the right to recover excess insurance.’”  Absent that explicit requirement, it was at least arguable that the underlying policies could be exhausted by settlement, and reasonable for Fireman’s Fund to read them that way.  As a result, follow-the-fortunes made this reading binding on OneBeacon.

The court also rejected OneBeacon’s suggestion that the North River decision required Fireman’s Fund to adopt a rising bathtub allocation.  The court ruled that the decision had held only that such an allocation is permissible, not that “the ‘rising bathtub’ approach was mandated.”  Accordingly, the court held that OneBeacon was bound by Fireman’s Fund’s allocation based on its exposure analysis, and granted summary judgment to Fireman’s Fund.

Full disclosure:  Chaffetz Lindsey represented Fireman’s Fund before the S.D.N.Y.

Read the court’s full decision here.


Eight or Sixteen Corners?  Court Can Look Outside The Language Of Complaint To Find No Duty To Defend

Undisputed facts outside complaint against insured demonstrated that claim fell within policy’s pollution exclusion.

BBG Design Build, LLC v. S. Owners Ins. Co., 820 F. App’x 962 (11th Cir. 2020).

A liability insurer’s duty to defend is ordinarily determined by looking solely at the language within the four corners of the complaint and comparing it against the four corners of the policy.  Courts sometimes refer to this rule of contract application as the “eight corners rule.”  If the complaint can be read to allege a potentially covered claim, the duty to defend is triggered.  However, in certain circumstances, the court may look outside the operative complaint when assessing the duty to defend.  BBG Design presented such a case.

The insured, BBG Design, was a general contractor.  Patricia Armor was an employee at a recreational facility on which BBG was performing work. Armor was exposed to construction debris, and she filed a complaint against BBG in Florida court.  Armor’s First Amended Complaint alleged only that she had sustained “bodily injury” from “construction debris” at the site.

However, prior to filing suit, Armor’s attorney sent a pre-suit demand package to BBG’s insurer, Southern Owners, which included a letter alleging that she had been injured after being “exposed to hazardous fumes and dust” due to BBG’s construction activities, and medical records indicating that Armor suffered from bronchitis after being exposed to fiberglass.  In her original complaint, Armor alleged that she suffered respiratory illness after BBG’s failure to implement proper controls caused “dust and airborne fiberglass” to be released into the air.

BBG sought a defense from Southern Owners under its commercial general liability policy.  Southern Owners denied any duty to defend BBG, relying on the policy’s pollution exclusion for bodily injury “which would not have occurred in whole or party but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ at any time.”  The policy defined “pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”  BBG argued that the operative First Amended Complaint triggered Southern Owner’s duty to defend because it alleged only that Amber suffered bodily injury from construction debris, and therefore did not unequivocally plead facts that fit “solely and entirely” within the policy’s exclusion exception.

Southern Owners argued that that there was no coverage, applying an exception recognized by Florida courts to the general rule that the duty to defend depends only on the facts alleged in the four corners of the complaint.  Under this exception, the court may “consider extrinsic facts if those facts are undisputed, and, had they been pled in the complaint, they clearly would have placed the claims outside the scope of coverage.”  This is a judicially crafted “equitable remedy when it is manifestly obvious to all involved that the actual facts placed the claims outside the scope of coverage.”  The rule recognizes that “the right to an early resolution of a coverage issue should turn on the merits – on whether a policy exclusion applies and not on creative pleading.”

The district court agreed with Southern Owners and the Eleventh Circuit affirmed, holding that the undisputed facts set forth in Armor’s pre-suit demand package and her original complaint clearly demonstrated that the claim fell squarely within the unambiguous terms of the pollution exclusion, which “clearly encompasses the construction debris of the sort of which Armor complained.”  Accordingly, Armor’s First Amendment Complaint was “an attempt to plead into coverage despite the uncontroverted facts.”  Considering those undisputed facts, “Southern Owners did not breach its duty to defend BBG in the underlying lawsuit.”

Read the court’s full decision here.


Fifth Circuit Holds Insurer Had No Duty To Defend Criminal Complaint Against Insured For Environmental Contamination

Criminal complaint was not a “claim” under policy because it did not seek clean-up costs from insured.

Waste Mgmt., Inc. v. AIG Specialty Ins. Co., 974 F.3d 528 (5th Cir. 2020).

Following a series of heavy storms, a landfill in Hawaii owned by Waste Management, Inc. was flooded discharging contaminated water into the Pacific Ocean.  This resulted in two proceedings against Waste Management and related entities.  First, in January 2011, the EPA issued an Administrative Order on Consent (or AOC) requiring Waste Management to remediate the discharge.  Waste Management completed the remediation required by the Administrative Consent Order by August 2011.  Second, in 2014, two Waste Management employees and a subsidiary were indicted for criminal violations of the Clean Water Act.  The Waste Management parties entered into a plea and were sentenced to pay fines, restitution, and assessments.

AIG Specialty Insurance Company (ASIC) had issued a policy to Waste Management covering losses from “a Claim for Clean-Up Costs resulting from a Pollution Condition.”  The policy defined a “claim” as “a written demand … alleging liability or responsibility and seeking a remedy on the part of the Insured for Loss under” the clean-up cost coverage.  It also excluded “Claims or Loss . . . due to any criminal fines, criminal penalties or criminal assessment.”

Waste Management sought defense coverage for the criminal proceedings, arguing that the Administrative Consent Order constituted a clean-up claim that triggered ASIC’s duty to defend the related criminal proceedings.  Alternatively, Waste Management argued that the criminal indictment itself constitute a “claim” under the policy.  The Fifth Circuit affirmed the district court’s summary judgment in favor of ASIC, holding that, as a matter of law, ASIC owed no duty to defend.

First, the court found that, on their face, the Administrative Consent Order and the criminal complaints were independent.  The Administrative Consent Order issued months before the commencement of the grand jury proceedings, and Waste Management completed the required clean-up work nearly three years before the indictments were issued.  The court further held that the unambiguous policy language defeated Waste Management’s argument that the Administrative Consent Order and the criminal complaints were related based on federal enforcement guidelines.  The court pointed to the policy’s requirement that “[w]hen there is a claim for clean-up costs, ASIC has a duty to defend against ‘such claim,’” which it held was a “common-sense limit on ASIC’s duty to defend” to the specific claim for clean-up costs.  According to the court, accepting Waste Management’s argument “that the AOC, read in combination with the guidance documents, triggered a duty of ASIC to defend in all criminal or civil proceedings arising from the same pollution incidents, would effectively [read] this bargained-for restriction [on defense coverage] out of the contract.”  The court held it was “not at liberty to do so.”

In addition, the court held that the indictment itself did not meet the policy definition of a “claim,” because it did not seek a remedy from Waste Management.  The court rejected Waste Management’s argument that the lack of an explicit demand in the indictment introduced an ambiguity about whether there was a “claim,” because “clean-up costs were a potential outcome of the criminal proceedings.”  The court declined to “look outside the pleadings, or imagine factual scenarios that might trigger coverage.”  “Under the plain language of the contract,” “the indictment does not seek a remedy, so it did not trigger the duty to defend.”

Read the court’s full decision here.


In Case Of First Impression, California Law Rejects Tort Liability Of Reinsurer For Breach Of The Implied Covenant Of Good Faith

Reinsurance does not implicate the same policy concerns that warrant tort liability for certain direct insurers.

Cal. Capital Ins. Co. v. Maiden Reinsurance N. Am., Inc., Case 2:20-cv-01264-ODW-JPR (C.D. Cal. July 16, 2020)

In California Capital Insurance Company, the court resolved a question of first impression under California law – can a cedent recover tort damages for a reinsurer’s breach of the implied covenant of good faith and fair dealing?  The court predicted that the California Supreme Court would hold it could not.

From 2006 through 2016, Maiden Reinsurance North America, Inc. (MNRA) provided multi-line treaty reinsurance to California Capital Insurance and related entities (CIG).  CIG alleged that, after MNRA’s acquisition by a company in the business of purchasing failing reinsurance companies, MNRA “began fabricating reinsurance coverage disputes.”  CIG alleged that MNRA breached the implied covenant of good faith and fair dealing by, among other things, failing to pay previously accepted claims, failing to conduct appropriate investigations, seeking reimbursement for previously paid claims, and unreasonably delaying the payment of valid claims.  CIG sought tort damages for MNRA’s alleged bad faith, including attorneys’ fees and statutory penalties, arguing that reinsurance is a form of insurance, and therefore the same tort remedies available in some direct insurance cases should be available in the reinsurance context.

MRNA moved to dismiss CIG’s claim for breach of the implied covenant of good faith, arguing that reinsurers cannot be held liable in tort for breach of the implied covenant.  The court dismissed the claim to the extent it sought tort damages.

The court first found that, under California law, tort damages are generally not available for breach of contract.  While the California courts have recognized a narrow exception to this rule in certain insurance cases involving “elements of adhesion, public interest, and fiduciary responsibility,” that exception is itself narrow, as demonstrated by California decisions holding that tort damages are not even available in certain insurance contexts.

The court further held that reinsurance contracts do not implicate the same policy considerations applicable to certain direct insurance.  First, the district court determined that reinsurance contracts are not contracts of adhesion.  Second, because reinsurance contracts are intended to increase profits, rather than provide peace of mind or protect against calamity, reinsurance contracts do not implicate the same public interest concerns as some insurance contracts.  Finally, reinsurance contracts lack the elements of fiduciary responsibility present in some insurance contracts, such as liability policies that call upon insurers to defend third party claims on behalf of the insured.  Reinsurers “have no comparable duties to investigate or defend claims between third parties and the underlying liability insurers or their insureds, nor do they owe any duty of good faith and fair dealing to the original insureds, unless the reinsurance agreement somehow specifically so provides.”

Read the court’s full decision here.

Practical Considerations for Holding a Remote Arbitration Hearing

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June 2020 – James Hosking and Marcel Engholm Cardoso recently wrote an article about things to consider when participating in virtual arbitration hearings. Publication of the article is forthcoming in the New York Dispute Resolution Lawyer, Summer 2020, Vol. 13 No 2, a publication of the New York State Bar Association Dispute Resolution Section. The full article is available below.

It is not uncommon for portions of arbitrations to be held “remotely,” i.e. without all participants being in the same room.  For years, procedural conferences, oral arguments and some witness testimony have been conducted using telephones and video platforms.  But it has taken the COVID-19 pandemic to cause us to hold entire hearings remotely and, given social distancing restrictions, to do so where all participants (arbitrators, counsel, witnesses, court reporters, etc) are attending remotely.  Necessity is the mother of invention.

Although not always known for being enthusiastic about change, this is one innovation lawyers should embrace.  There are undoubtedly benefits to remote hearings: reduced travel (with its cost, jetlag and environmental impact); potentially fewer calendar restrictions; and ideally more streamlined arguments.  After all, our clients have been negotiating and closing complex deals remotely for years.  But not all cases are suited to being held remotely.  Arbitrators should carefully consider whether a remote hearing is appropriate and, if so, devise the best procedure to ensure it runs smoothly and fairly.

This article suggests some practical aspects of conducting a remote hearing—whether as arbitrator or counsel—that should guide one in deciding whether, and how, to proceed remotely.  But the note is not intended to be prescriptive.  Importantly, remote hearings offer a fresh opportunity to all participants to re-think what procedures may best meet the specific needs of the case.

I. Technological Considerations

The two most fundamental issues are the technological set-up and the choice of video platform.

(a) The Technological Set-Up

Whether as counsel or arbitrator, the practitioner should have enough devices to (a) see all participants; (b) hear the participants and any required interpretation; (c) see documents the parties project on-screen, as well as access soft copies of the record; (d) have a live-transcript feed; and (e) have an open line of communication with immediate colleagues.  All of this could be accomplished with a single laptop.  However, some additional equipment can vastly improve the experience.

The preferred set-up would have a separate screen or device for each of the aforementioned components, as seen in the following photograph.[1]

Thus, in addition to a laptop screen, consider using an external larger screen or smart TV to see video feeds, a tablet to access documents or see the live-transcript, and a phone with a text message or WhatsApp group.  Video quality can be improved by using a computer with a powerful graphics card, as well as an external HD camera. Using a headset improves audio quality and can be particularly helpful when separate audio channels are used for the witness and live interpretation.  The headset may have a built-in microphone or, if possible, use an external remote microphone—do not rely on a laptop.  Finally, a continuous and fast internet connection is essential.  Rather than connecting to a wi-fi network, if possible, use a direct ethernet connection.

(b) The Platform

There are multiple products providing video-conference services, such as BlueJeans, Cisco WebEx, Microsoft Teams and Zoom.  Consider whether the platform addresses the needs of the particular case, which may include (a) whether it supports the required number of attendees; (b) does it allow an additional channel for interpretation; (c) whether it allows for parallel break-out rooms; (d) and if it permits live presentation of documents, among others.  Check carefully the security protocols available, bearing in mind that some countries, institutions or companies may have specific security needs.  For institutional arbitrations, a decisive factor may be which platform the institution is familiar with and whether a tribunal secretary or case manager will be able to assist with logistics.  In this respect, there is a wealth of knowledge amongst institution staff who have seen what works and what does not.

Importantly, access to the platform should be obtained early to allow everyone to get familiar with its operation.  Whether arbitrator, counsel or witness, conduct a mock hearing to ensure you are fully prepared.  Do so with enough advance time to remedy any problems.

II. Considerations for Arbitrators

Technological challenges make early planning even more important than in an in-person hearing. A comprehensive protocol, whether agreed or ordered by the tribunal, is essential to ensuring the hearing runs smoothly.  Consider addressing the following.

    1. Parties’ agreement to a remote hearing. If not agreed, have a well-reasoned order as to why the arbitration is proceeding with a remote hearing. If possible, include an explicit waiver of any challenge to the award based on the hearing being conducted remotely.
    2. Hearing times. Hearing days may need to be shorter or have unusual start/finish times to accommodate different time-zones.  Consider having more frequent short breaks to allow participants to re-focus and address any technological issues.
    3. Host. Establish the host’s level of control (e.g., mute microphones, switch cameras on and off, and control who joins the room).  Establish whether this role will be exercised by the institution, a tribunal secretary, the chair, IT staff, or a combination of them.
    4. Privacy and security. At a minimum, the hearing room must be password protected.  The parties should disclose a participant list in advance and the host should ensure there are no unauthorized attendees.  Consider other security issues like two-factor authentication, is a video/audio recording being made and separate passwords for virtual break-out rooms.  Entering into a cyber-security protocol is even more important than usual.
    5. Contingency measures in case of sudden technical failures. Consider a protocol whereby in the event of a problem, microphones and cameras are turned off to avoid concerns with ex parte Key participants may be required to have backup devices.  Arbitrators should have alternative communication channels if necessary to confer.
    6. Video directives. Determine if all participants should have their cameras on at all times.  It may be preferable to limit the screen to only the Tribunal, the witness and the examining lawyer, especially with a large number of participants.  Some platforms may also offer more advanced split-screen technology or use of a non-static camera, but remember that simpler may be better.
    7. Audio directives. Agree to have all participants muted except for the immediate speaker (and any interpreter) to avoid background noise. As to interpreters, this may be as simple as opening a separate audio-only meeting.  But more sophisticated platforms may offer a separate audio channel in the same meeting.  The court reporter may also need an open line to raise any problems immediately.
    8. Documents. Determine how document bundles will be shared (hard copies, FTP or Virtual Data Room); if possible, use an agreed joint bundle and/or key-documents to avoid switching folders or systems. When using electronic copies, determine if references will be made to the .pdf/.doc page or to a page number embedded in the document.  Consider providing in advance a hard copy cross-examination bundle, rather than screen sharing, to avoid unnecessary delays and save screen real estate.  If so, agree on a protocol for delivery, whether electronically or in hard copies,  and have the witness undertake not to access the bundle before testifying.
    9. Examination of witnesses. The twin objectives are to ensure the best audio/video quality while protecting due process.  If witnesses are able to leave home, consider having testimony from a neutral location with good IT (e.g. a law firm or hearing center).  Give directives to ensure there is no one else in the room to coach the witness (e.g., use a 360-degree camera or ask the witness to show the room).  Alternatively, consider whether it may be more efficient to have a party representative present (abiding by social distancing directives) to assist with logistical issues.  Technology and time zone constraints may mean that witness evidence needs to be staggered.
    10. Objections. Competing voices will make the hearing incomprehensible.  Establish a protocol for making objections (to the extent they are necessary).  This could be as simple as unmuting and turning video on, or using the “raise hand” functionality.  Consider allowing the host to mute the witness once an objection is raised.
    11. Narrower scope. A remote hearing is most efficient when it can focus on the evidence and issues that cannot be dealt with exclusively through written submissions and documents.  Consider procedural tools like an agreed list of issues, agreed facts or bifurcation of stand-alone issues to narrow the remote hearing to focused evidentiary issues.

In addition to these issues that may appear in a procedural order, consider how the arbitrators will attend the remote hearing and how deliberations will be conducted.  The arbitrators might be able to sit “together” in the same location with social distancing precautions.  If not, schedule regular breaks with a secure audio/video line to be able to discussing issues timely. In addition, many arbitrators use email, messaging or WhatsApp to allow real-time comments on pressing issues.

III. Considerations for Counsel

Remote hearings should not just duplicate an in-person hearing.  Consider some of the following unique challenges, opportunities and strategies.

    1. Written submissions are even more important than usual. Watching the hearing through a screen is less dynamic than being present in an actual hearing room.  As a result, it may be more difficult to assess whether the tribunal is following along.  Submission of written pre-hearing briefs or focused openings may be useful.  Perhaps it is possible to have, for example, an “afternoon off” between openings and witness testimony to allow the tribunal to focus.  Post-hearing briefs and directed questions from the tribunal may be all the more important.
    2. Witness preparation. Obviously, it is incumbent on producing counsel to ensure the witness is familiar with the video platform, with using electronic bundles, and has a secure internet connection. For a technologically insecure witness, consider agreeing to having someone (perhaps a third party paralegal) available to assist.  At the same time, make sure the witness is not lulled into being too relaxed by the less formal setting of a remote hearing.
    3. Pace and scope of cross-examination and redirect. Cross-examinations are, arguably, less effective due to video lag and the fact that there is less immediacy.  Counsel should be less expansive and more surgical in planning their cross-examination.  Consider also how the witness will interact with exhibits, which almost certainly is more time-consuming.  Accordingly, use exhibits sparingly.   For redirect, counsel may have to react quickly to “share” an exhibit or a screen-shot of the transcript.
    4. Use of exhibits. In general, less is more. Consider constructing a cross-examination that is less dependent on documentary exhibits, e.g. focused more on statements.  To avoid the potential for time delays and errors in loading a document from a joint bundle folder, consider using a set electronic cross-bundle  or, even better, a hard copy bundle sent in advance.
    5. Advocacy style. Given possible audio constraints, the live transcript may be even more important than in an in-person hearing.  To this end, be extra careful about moderating speed of presentation and consider using clear verbal “signposts” so that the tribunal can follow along in real-time and in using the transcript in deliberations.  Counsel should also consider that the camera frame will have the tribunal focus exclusively on the speaker’s face, affecting the perception of non-verbal cues.  While it is unclear whether this aids or hinders the viewer’s focus, counsel must be mindful of this particularity and consider adjusting delivery style.
    6. Team communication. Hurriedly scribbled Post Its are a thing of the past.  Have an open line of communication, such as a permanently open break room, email feed or WhatsApp group.  It may be best to have a designated colleague reviewing the feed and filtering comments to the first chair.  More generally, and more so than usual, counsel may need to assign specific roles to team-members to better manage the several moving parts of the remote hearing.

IV. What other resources are available to help?

As initial fears about remote hearings have faded, their use has become almost common place.  Of course, the real test will arrive once the public health emergency abates and in-person hearings become a more viable option—the authors are confident that remote hearings (especially when not constrained by social distancing) will remain an important part of the arbitration scene.  In the meantime, there are a number of excellent practical resources available to aid arbitrators and counsel (many of which are collated on the NYIAC website).[2]  These include:

    1. Guidance Notes:
      1. AAA-ICDR Virtual Hearing Guide for Arbitrators and Parties[3]
      2. CIArb Guidance Note on Remote Dispute Resolution Proceedings[4]
      3. Delos Checklist on holding Arbitration and Mediation Hearings in Times of COVID-19[5]
      4. Hague Conference Draft Guide to Good Practice on the Use of Video Links[6]
      5. ICC Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19 Pandemic[7]
      6. ICCA-NYC Bar-CPR Protocol on Cybersecurity in International Arbitration[8]
      7. Joint Statement on Arbitration and COVID-19[9]
      8. Seoul Protocol on Video Conferencing in International Arbitration[10]
    2. Model Procedural Orders:
      1. AAA-ICDR Model Order and Procedures for a Virtual Hearing via Videoconference[11]
      2. CPR’s Annotated Model Procedural Order for Remote Video Arbitration Proceedings[12]

 

Publication forthcoming in the New York Dispute Resolution Lawyer, Summer 2020, Vol.  13 No. 2,  a publication of the New York State Bar Association Dispute Resolution Section.

 

[1]      Image used with the kind permission of Patricia Saiz González.  Email: patricia.saiz@esade.edu

[2]      https://nyiac.org/resources/covid-19-resources/.

[3]      https://go.adr.org/rs/294-SFS-516/images/AAA269_AAA%20Virtual%20Hearing%20Guide%20for%20Arbitrators%20and%20Parties%20Utilizing%20Zoom.pdf.

[4]      https://www.ciarb.org/media/8967/remote-hearings-guidance-note.pdf.

[5]      https://delosdr.org/wp-content/uploads/2020/03/Delos-checklist-on-holding-hearings-in-times-of-COVID-19-v2-as-of-20-March-2020.pdf.

[6]      https://assets.hcch.net/docs/e0bee1ac-7aab-4277-ad03-343a7a23b4d7.pdf.

[7]      https://iccwbo.org/publication/icc-guidance-note-on-possible-measures-aimed-at-mitigating-the-effects-of-the-covid-19-pandemic/.

[8]      https://www.arbitration-icca.org/publications/ICCA_Report_N6.html.

[9]      https://iccwbo.org/content/uploads/sites/3/2020/04/covid19-joint-statement.pdf.

[10]     https://globalarbitrationreview.com/digital_assets/9eb818a3-7fff-4faa-aad3-3e4799a39291/Seoul-Protocol-on-Video-Conference-in-International-Arbitration-(1).pdf.

[11]     https://go.adr.org/rs/294-SFS-516/images/AAA270_AAA-ICDR%20Model%20Order%20and%20Procedures%20for%20a%20Virtual%20Hearing%20via%20Videoconference.pdf.

[12]     https://www.cpradr.org/resource-center/protocols-guidelines/model-procedure-order-remote-video-arbitration-proceedings.

 

 

Click here to view our full list of COVID-19 Information and Resources.

Filed Under: Uncategorized

Marcel Engholm Cardoso Authors Article About Impecunious Parties in International Commercial Arbitration

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June 2020 – Chaffetz Lindsey foreign associate Marcel Engholm Cardoso was recently published in Oxford Arbitration International, Volume 36, Issue 1. Marcel’s article, “Impecunious Parties in International Commercial Arbitration,” outlines the possible effects that a party’s lack of funds can have on an arbitration agreement and analyzes different theories used to deal with the issue.

Launched in 1985, Arbitration International provides quarterly coverage for national and international developments in the world of arbitration.

More information about Marcel’s article is available here.

Chaffetz Lindsey Wins Enforcement of $26 Million Arbitral Award Against Kyrgyz Republic

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April 2020 – On April 22, 2020, a federal district court in the District of Columbia granted our petition on behalf of Turkish-based Entes Industrial Plants Construction & Erection Contracting Co. to enforce an arbitral award for over $26 million (including interest) against the Kyrgyz Republic.  The award resulted from a Bishkek-seated UNCITRAL arbitration chaired by Michael E. Schneider.

Previously, in October 2019, the District Court had granted our petition to confirm the award against the named debtor, the Kyrgyz Ministry of Transport and Communications.  In its second decision, the court now found that the Republic “properly [could] be held liable for the actions taken and the money owed by the Ministry.”  More specifically, the court ruled that the Ministry was not entitled to a presumption of separateness under the United States Supreme Court’s decision in First National City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611 (1983), and that an agency relationship existed between the Republic and the Ministry.

The Chaffetz Lindsey team was led by Andreas Frischknecht and included Ted Debonis, Lilian Marques, Marcel Cardoso and Luke Muhammad.

Read Law360 and Global Arbitration Review‘s coverage of the case.

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