Sanctions for Baseless Motion to Vacate Arbitration Award

The District Court for the Southern District of New York has awarded attorney’s fees to a party who incurred those expenses responding to a motion to vacate an arbitration award, upon a finding that the motion was brought without any legal basis, and constituted “a largely dilatory effort.”

In Digitelcom, Ltd. v. Tele2 Sverige AB, the court ruled on a motion to vacate or modify an arbitration award, and a cross-motion filed in response seeking to confirm the award and impose attorneys’ fees pursuant to 28 U.S.C. § 1927.  The motion to vacate was based on allegations that the arbitration tribunal had (a) so imperfectly exercised their powers that an appropriate final award was not rendered; (2) manifestly disregarded the law of contract interpretation and of the award of attorneys’ fees; and (3) rendered an award so inconsistent with undisputed facts that it gave rise to a strong inference of bias.

On the first ground, the court found that, at heart, the movants merely disagreed with the tribunal’s interpretation of the contract.  On the second, the movants failed to cite any particular principle of law that the tribunal is supposed to have considered but ignored.  And on the third ground, movants alleged no improper relationship or interest suggesting bias, but rather claimed that impartiality could be inferred from the result alone.  All three grounds were therefore rejected.  The court also rejected the challenge to the tribunal’s award of attorneys’ fees on the ground that such apportionments were well within the arbitrator’s discretion, consistent with ICDR Rules (under which the proceeding had been conducted) and not properly subject to judicial review.

The court then took up the cross-motion for sanctions.  Noting that § 1927 required both a finding of meritless claims and an improper purpose in advancing those claims, and must be supported by specific factual findings, the court determined that both requirements were satisfied.  Additionally — and notably — the court seemed to be motivated by public policy considerations reflecting judicial support for the arbitral process itself.  “[L]itigants must be discouraged from defeating the purpose of arbitration by bringing such petitions based on nothing more than dissatisfaction with the tribunal’s conclusion,” wrote Distict Judge Richard Sullivan.  When the court is satisfied that a motion to vacate an arbitration award “appears to be largely a dilatory effort” to delay the effectiveness of the award, “sanctions are particularly appropriate.”

Here, plaintiffs’ representation of facts that were purportedly undisputed was “disingenuous at best,” and they failed to cite any legal basis for their manifest disregard claim.  Neither can mere disagreement with a substantive outcome imply bias in the tribunal. 

Concluded the court: “This kind of petition serves only to cause the parties to incur unnecessary expense and delay the implementation of the Award.”   That, of course, is exactly what § 1927 is supposed to address.

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