Southern District of New York Holds that Arbitrators Did Not Manifestly Disregard the Law

by Jeremy Clare

The United States District Court for the Southern District of New York confirmed an arbitration award and granted attorney’s fees in favor the defendant because the plaintiffs’ claims were meritless and lacked any proper purpose.

Background

In DigiTelCom, Ltd., et al., v. Tele2 Sverige AB, No. 12-CV-3253 (S.D. N.Y. July 25, 2012), two Russian telecommunications companies, DigiTelCom, Ltd. (“DTC”) and Tele2 Sverige AB (“Tele2”), were in a dispute regarding three different contractual agreements. According to the three agreements, the parties initiated arbitration before the International Centre for Dispute Resolution. The arbitration panel ultimately dismissed all of DTC’s claims and awarded attorney’s fees and costs to Tele2.

District Court

DTC’s motion to vacate the award contended that the arbitral tribunal (1) imperfectly exercised its powers by rewriting the contracts in question; (2) manifestly disregarded the applicable law; and (3) created a strong inference of partiality or bias with an inconsistent and irrational decision. First, the district court concluded that the arbitral tribunal properly exercised its powers when it interpreted the contracts. Second, the court noted that DTC did not cite any particular principle or law that the tribunal ignored and concluded that DTC’s disagreement with the award was inadequate to establish a manifest disregard of the law. Third, the court concluded that DTC’s speculative allegations of partiality were not enough to establish grounds to vacate the award.

DTC also asked the court to vacate the fee award on the grounds that the tribunal manifestly disregarded the law. The court first noted that DTC never objected to the distribution of costs and fees to the tribunal and that there was no evidence that the tribunal was aware of the law and consciously disregarded it. Therefore, DTC’s objection was deemed waived. In dicta, the court also concluded that there was no evidence that the tribunal’s decision was inconsistent with applicable rules and laws.

Finally, Tele2 requested that the court impose attorneys’ fees against DTC. The court noted that it should be careful not to chill parties’ good-faith challenges to arbitration awards, but must also discourage parties from bringing petitions based on mere dissatisfaction with the tribunal’s conclusions. The court concluded that DTC’s claims were entirely meritless and DTC acted for improper purposes. The court consequently confirmed the award and granted attorneys’ fees for Tele2.

Jeremy Clare is a law clerk at Karl Bayer, Dispute Resolution Expert. Jeremy received his J.D. from the University of Texas School of Law in 2012 and received a B.A. from the University of South Carolina where he studied political science.