For some reason, the District Court in Connecticut has been the center of interesting opinions over the last couple of days.  However, the cases’ principles have a broader application.

Securing of assets and the arbitration rules

While a number of states may have provisions permitting pre-award security during arbitration, Awosogba v. Mendelson, 2021 U.S. Dist. LEXIS 229687 (D. Conn. December 1, 2021), arises out of the interpretation of a specific Connecticut statute, Section 52-422 of the Connecticut General Statutes. The relevant portion of the statute, as quoted by the court, provides:

At any time before an award is rendered pursuant to an arbitration under . . . chapter [909], the superior court for the judicial district in which one of the parties resides. . . upon application of any party to the arbitration, may make forthwith such order or decree, issue such process, and direct such proceedings as may be necessary to protect the rights of the parties pending the rendering of the award and to secure the satisfaction thereof when confirmed. (Emphasis, elisions, and brackets in the opinion).

The parties’ underlying dispute arises out of Plaintiffs’ claim that defendants failed to pay wages and salary for several months.  In September 2021, the court ordered that the parties arbitrate the matter. Plaintiffs, thereafter, filed an application pursuant to 52-422 to attach defendants’ assets in the amount of approximately $130,000 and to require defendants to disclose assets which might be subject to the attachment.[1]

The opinion centers on the language which the court italicized in the above quote from Section 52-422.  Judge Dooley holds that, because the plaintiffs have avenues within the arbitration process itself to secure any ultimate award, they fail to meet the “necessity” standard in the attachment statute.  “’Unless a party to an arbitration affirmatively can establish that its rights will be lost irretrievably in the absence of judicial intervention’ the court should not intervene. . . .”  (citations omitted, emphasis in the opinion).  Since the arbitration in this matter is being administered under the AAA’s Employment Arbitration Rules, Plaintiffs may seek interim relief, including security, under Rule 32: “At the request of any party, the arbitrator may grant any remedy or relief that would have been available to the parties had the matter been heard in court.“   In response to the Plaintiffs’ fear that another creditor might get in line ahead of them in attaching defendants’ assets, the Court points to AAA Employment Rule 0-1, which calls for the speedy appointment of an emergency arbitrator to consider measures of protection. Therefore, plaintiffs’ relief would not be delayed during the sometimes-lengthy process of selecting a merits arbitrator.

Based on her finding that the AAA rules provide relief which precludes any necessity for judicial intervention, Judge Dooley denies the application. The case, however, raises an interesting question. What would happen if this were a ad hoc arbitration, rather than one administered by the AAA?  The Revised Uniform Arbitration Act, which Connecticut applies to proceedings under arbitration agreements executed after October 1, 2018, allows arbitrators to “issue such orders for provisional remedies, including interim awards, as the arbitrator finds necessary to protect the effectiveness of the arbitration proceeding. . . to the same extent and under the same conditions as if the controversy were the subject of a civil action. . . .”   This provision seems very close to AAA Rule 32.  However, the Revised Act’s judicial process for selecting an arbitrator, which requires the court to hold a hearing, will inevitably be slower than the four-day window between the application for the appointment of an emergency arbitrator and the scheduling of a hearing on the relief sought which Employment Rules O-2 and O-3 establish. Would the court consider such delay sufficient to make judicial relief “necessary?”  From her opinion, it appears Judge Dooley would not, as she opines that “even if emergency relief is not forthcoming, as acknowledged by Plaintiffs, interim relief on a non-expedited basis is still available.” (Emphasis added).  If Judge Dooley is right, does Section 52-422 ever provide an arbitration party with the opportunity for preaward security?

Quick Hits

Arbitrability of charging liens – Another Connecticut case, RTM Capital Partners, Inc. v. Barnes, 2021 U.S. Dist. LEXIS 228696 (D. Conn. November 30, 2021)(Vatti, Mag. J.), addresses whether issues related to a post-judgment charging lien against the defendants’ interests in a partnership are subject to arbitration.  Opining that there is an overriding public policy “by which federal courts have supervisory authority over their judgments and should not cede that authority to an arbitration forum,” the court denies plaintiff’s motion compel arbitration.

Arbitrator’s preclusion of evidence by Respondent as a discovery sanction; miscalculation of damages  – The arbitrator in DuPree Productions, LLC v. RDE, Inc., 2021 U.S. Dist. LEXIS 228356 (N.D. Ill, November 30, 2021), spent nine months trying to obtain discovery compliance from the Respondents.  Ultimately, he or she made a finding that the Respondents had committed “willful non-compliance with discovery orders [which go] to the heard of Claimant’s claims of misrepresentation. . . ” and entered sanctions precluding the Respondent from presenting evidence and making an adverse inference.  Then, based on the remaining record, the Arbitrator entered an award under AAA Rule 58 in favor of Claimant in the amount $195,000, plus attorneys’ fees.  The court, Durkin, J., applying the usual rubric that “the scope of judicial review under the FAA [is] ‘exceedingly narrow,’” denies Respondent’s motion to vacate the award.  While the review of sanctions is the decision’s primary focus, the court also discusses the scope of 9 U.S.C. § 11(a) which allows the District Court to modify an award where there was an “evident material miscalculation of figures.”  That provision, the court holds, applies in instances such as where “an arbitrator unambiguously and mistakenly permits double recovery. . . or omits a damages measure unambiguously meant for inclusion.” (Citations omitted).  It does not apply where, as here, the arbitrator chose to compute damages in a way which the challenging party opposed.

Fees for filing an application to confirm an arbitration – Sometimes Circuit Judges must ask themselves why a matter is even on their desk. Pieczynski v. Pennsylvania, 2021 U.S. App. LEXIS 35601 (3^rd Cir. December 2, 2021)(Circuit Judges Greenaway, Porter and Nygaard, per curiam) is one such case.  The pro se plaintiff disputed whether an application to confirm an award is a miscellaneous matter, with a filing fee of $47, or a standard civil action, with a fee of $400.  Get out your checkbook – the higher fee applies.

I am the arbitrator in a week-long matter starting on Monday.  So, there will probably not be an ADR Highlights next week.  Be safe – and, if you celebrate Christmas, get those gifts in the mail.  The lines at the shipping center today were already long.

David A. Reif
Reif ADR
Dreif@reifadr.com
Reifadr.com

[1] Under Rule 64 of the Federal Rules of Civil Procedure, any remedy to secure satisfaction of a judgment available under the law of the state in which the District Court sits is available in federal court.