Opinion
0601044/2007.
March 31, 2008.
DECISION AND ORDER ON PETITION TO CONFIRM ARBITRATION AWARD PURSUANT TO CPLR §§ 7510, 7514
The following papers, numbered 1 to 8 were read on this motion toConfirm Award
PAPERS NUMBERED 1 2,3,4,7 5,6,8
Notice of Motion/ Order to Show Cause — Affidavits — Exhibits . . . Answering Affidavits — Exhibits Replying AffidavitsCross-Motion: [X]Yes [ ] No
Upon the foregoing papers, it is ordered that this motion
MOTION IS DECIDED IN ACCORDANCE WITH ACCOMPANYING MEMORANDUM DECISION.
By notice of petition and petition filed March 29, 2007, Chase Bank USA, N.A. s/h/a Bank One ("Chase" or "petitioner") commenced this proceeding pursuant to sections 7510 and 7514 of the Civil Practice Law and Rules ("CPLR") to confirm an arbitration award to petitioner and against respondent Andrea Hale ("Hale" or "respondent") of $5,600 in attorneys' fees and, upon confirmation, to enter judgment accordingly. The arbitration award was originally rendered by a single arbitrator appointed by the National Arbitration Forum ("NAF") in an order dated March 31, 2006 (the "March 31, 2006 Order"), which order was then amended by the same arbitrator on May 5, 2006 (the "Amended Order") and was affirmed on November 19, 2007 (the "November 19, 2007 Order") by a three-member appellate panel of NAF-appointed arbitrators after a document hearing. Respondent opposes the petition and cross-moves to vacate or modify the arbitration award. For the reasons stated below, the cross-motion is denied and the petition to confirm the arbitration award is granted.
The March 31, 2006 Order was amended to add a direction to Chase to produce to Hale a breakdown of its attorneys' fees or costs within fifteen days of the date of the order. In all other respects, including the award itself, the Amended Order is identical to the March 31, 2006 Order.
I. FACTUAL AND PROCEDURAL BACKGROUND
In September 1998, Hale opened a Visa credit card account with Chase. Pursuant to the Cardmember Agreement between the parties, Chase issued three "convenience checks" to Hale along with her January 26, 2004 statement. The convenience checks could be used by Hale to make purchases or balance transfers that would be charged to her account. The convenience checks were mailed to Hale as part of a promotional offer inviting her to use the checks for purchases or balance transfers at a reduced annual percentage rate ("APR") of 4.99%, provided that the checks were used between January 27, 2004 and May 25, 2004. It is uncontroverted that Hale never used the checks. Nevertheless, Hale asserted that the lower APR associated with the convenience checks should have been applied to her monthly account statements for February through May of 2004, and that Chase's failure to do so violated the Truth in Lending Act ( 15 USC §§ 1601 et seq. ["TILA"]) and the Periodic Statement section of Regulation Z of the Board of Governors of the Federal Reserve System ( 12 CFR § 226.7) . By letter dated February 24, 2005, pursuant to the Cardmember Agreement, Hale brought a claim before the NAF for redress of the violation on the ground stated above seeking $2,000 in statutory damages and any attorneys' fees to which Hale might be entitled under TILA.
TILA provides for the recovery of damages of up to $1,000 per violation. ( 15 USC § 1640). In the arbitration proceeding, Hale alleged two violations of TILA.
On March 3, 2006, Chase opposed the claim in a pre-hearing memorandum, contending that Hale's claim was frivolous, and requesting attorneys' fees and costs. (Supplemental Reply Mem. of Law in Further Support of Petitioner's Notice of Pet. to Confirm the Arbitration Award and in Opp. to Respondent's Request to Vacate or Modify the Arbitration Award, Exh. P).
On March 14, 2006, a hearing on Hale's claim was held before arbitrator David E. Robbins, Esq. ("Robbins" or the "original arbitrator"). On March 31, 2006, Robbins issued an order denying Hale's TILA-based claim, including her request for attorneys' fees pursuant to TILA, on the ground that the claim was "completely without merit in law," and awarded Chase $5,600 in attorneys' fees. (Pet., Exh. B). On May 5, 2006, the original arbitrator issued the Amended Order.
The Amended Order reiterated the March 31, 2006 Order and added a directive to Chase to provide to Hale a copy of the breakdown of Chase's attorneys' fees, which had already been provided to the arbitrator on March 15, 2006, within fifteen days of the date of the Amended Order. (Pet., Exh. C). On May 15, 2006, Chase complied with the directive. The NAF confirmed Chase's compliance and directed that the $5,600 attorneys' fee award was the original arbitrator's final decision. (Pet., Exh. D).
On March 29, 2007, Chase filed the instant petition seeking confirmation of the original arbitrator's award as affirmed in the May 5, 2006 Amended Order. Hale opposed the petition and cross-moved for vacatur of the arbitration award pursuant to CPLR section 7511(b) (1) (iii) or modification of the award pursuant to section 7511(c).
By letter dated November 30, 2007, counsel for Chase advised this court that Hale had appealed the original arbitrator's award and that on October 29, 2007, a panel of three NAF arbitrators had conducted a document hearing and, in an order dated November 19, 2007, had affirmed the award of $5,600 in attorneys' fees. On December 6, 2007, this court conducted a telephone conference with counsel for both parties in which it was agreed that the November 19, 2007 Order would be deemed the order in dispute, that papers submitted by both parties would be deemed applicable to the award as affirmed in that order and that the parties would be permitted to file supplemental papers in light of the November 19, 2007 Order.
In its supplemental submission, Chase also seeks recovery of the $1,350 administrative fee it paid to NAF as a party to the appeal before the arbitration panel. (See Supplemental Reply Mem. of Law in Further Support of Petitioner's Notice of Pet. to Confirm the Arbitration Award and in Opp. to Respondent's Request to Vacate or Modify the Arbitration Award, Exh. W).
The sole issue before this court is whether it may confirm the award of attorneys' fees.
II. DISCUSSION
The first question this court must answer is whether federal law or state law governs this proceeding.
A. Does Federal Law, Delaware Law or New York Law Govern this Proceeding?
1. Parties' Contentions
Hale contends that this proceeding is governed by both federal law, including both TILA and the Federal Arbitration Act ("FAA"), and New York law. Chase responds that the FAA governs because the Arbitration Agreement section of the Cardmember Agreement ("Arbitration Agreement") so provides.
2. Legal Standards
The FAA governs the enforcement of written arbitration agreements relating to transactions affecting interstate commerce. (See Citizens Bank v. Alafabco, 539 US 52, 56-57; Wien Malkin LLP v. Helmsley-Spear, Inc., 6 NY3d 471, 478; Morgan Stanley DW Inc. v. Afridi, 13 AD3d 248, 249 [1st Dept. 2004]). Where the FAA governs an arbitration agreement, judicial review of an award made pursuant to that agreement is also governed by the FAA. (See Morgan Stanley DW Inc. v. Afridi, supra, 13 AD3d at 249-50; Sawtelle v. Waddell Reed, 304 AD2d 103, 107 [1st Dept. 2003]).
Where an arbitration agreement affecting interstate commerce expressly states that it is governed by the law of a state or other jurisdiction, the law of the state or jurisdiction agreed upon by the parties governs the agreement to the extent it does not "undermine the goals and policies of the FAA." (See Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University, 489 US 468, 477-78; Diamond Waterproofing Systems, Inc. v. 55 Liberty Owners Corp., 4 NY3d 247, 252-53;Smith Barney, Harris Upham Co. v. Luckie, 85 NY2d 193, 201,cert. denied sub nom Manhard v. Morrill, Lynch, Pierce, Fenner Smith, Inc., 516 US 811; Roffler v. Spear, Leeds Kellogg, 13 AD3d 308, 314 [1st Dept. 2004]; see also Orner v. Country Grove Investment Group, LLC, 2007 WL 3051152 at *6 n. 14 [Del. Ch. Oct. 12, 2007] [courts enforce private arbitration agreements in accordance with their terms, applying law of state specified in agreement]).
3. Analysis
It is self-evident that both parties agreed to be bound by the terms of the Arbitration Agreement. Among those terms is a provision specifying the governing law as follows:
GOVERNING LAW: THIS AGREEMENT AND YOUR ACCOUNT WILL BE GOVERNED BY THE LAW OF THE STATE OF DELAWARE AND, AS APPLICABLE, FEDERAL LAW.
(Pet., Exh. A, at 4).
The Arbitration Agreement also reflects the parties' choice of law with regard to enforcement of the Agreement as follows:
An award in arbitration will be enforceable as provided by the FAA or other applicable law by any court having jurisdiction.
(Id.).
Thus, with respect to the issue of whether Hale's monthly statements reflected the correct interest rate, which was the substantive issue before the arbitrators, Delaware law, as well as applicable federal law, provides the standards of review. With respect to the enforceability of the arbitrators' award, the court must look to the FAA "or other applicable law" for the proper standard of review. (Id.). This requires the court to interpret the contract in order to determine the meaning of "other applicable law."
Where the meaning of a contract provision may be in dispute, the issue is normally resolved by reference to the contract itself. (See Seabury v. Jeffrey Chain Corp., 289 F.2d 63, 68 [2nd Cir. 2002]; Slamow v. Del Col, 79 NY2d 1016; Banc of Amer. Securities LLC v. Solow Bldg. Co. II, LLC, 47 AD3d 239, 243 [1st Dept. 2007]; Continental Ins. Co. v. Rutledge Co., 750 A.2d 1219, 1228 [Del. Ch.], reh'q denied, 2000 WL 268297 at *4 [Del. Ch. Feb. 15, 2000]). A review of the Arbitration Agreement reveals that it makes no mention of New York law. Rather, the only governing law mentioned in the Agreement other than the FAA and federal law is Delaware law. Therefore, with respect to enforcement of the arbitration award in this proceeding, this court should first look to the FAA and, should the FAA not address a pertinent enforceability issue, then to Delaware law.
The FAA and Delaware law both require that the court establish that an arbitration award will be neither vacated nor modified before the award can be confirmed. ( 9 USC § 9; Del. Code Ann. tit. 10, § 5713). Accordingly, this court will address the issues pertaining to Hale's cross-motion to vacate or modify the award before addressing Chase's petition to confirm the award.
With respect to confirmation of arbitration awards, the FAA provides that:
at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified, or corrected. . . .
( 9 USC § 9).
Under Delaware law, an arbitration award shall be confirmed as follows:
The Court shall confirm an award upon complaint or application of a party in an existing case made within one year after its delivery to the party, unless within the time limits hereinafter imposed grounds are urged for vacating or modifying or correcting the award. . . .
(Del. Code Ann. tit. 10, § 5713).
B. Did the Arbitrators Exceed their Authority by Awarding Attorneys' Fees to Chase?
1. Parties' Contentions
Hale contends that the arbitration award should be vacated because the arbitrators exceeded their authority in awarding attorneys' fees to Chase. Specifically, Hale avers that TILA provides strictly for the award of attorneys' fees against a creditor, such as Chase, and in favor of a consumer, such as Hale, rather than the reverse. Chase contends that this proceeding is governed by the FAA, not TILA, and that the FAA authorizes arbitrators to award attorneys' fees.
2. Legal Standards
Section 10 [a] [4] of the FAA provides that, upon motion, an arbitration award shall be vacated:
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.
( 9 USC § 10[a][4]).
In language virtually identical to the FAA, Delaware law provides for the vacatur of an arbitration award, upon motion, where:
the arbitrators exceeded their powers, or so imperfectly executed them that a final and definite award upon the subject matter submitted was not made.
. . .
(Del. Code Ann. tit. 10, § 5714[a][3]).
3. Analysis
In this proceeding, Hale argues that the arbitrators exceeded their power by awarding attorneys' fees to Chase. Whether Hale is correct in this assertion depends on the answer to two questions. The first question is whether the original arbitrator had the power to award attorneys' fees. If so, then the second question is whether he exercised his power appropriately.
Generally, pursuant to the "American Rule," parties are to bear their own costs in litigation as well as in arbitration. (Alyeska Pipeline Svc. Co. v. Wilderness Society, 421 US 240, 247; Todd Shipyards Corp. v. Cunard Line, Ltd., 943 F.2d 1056, 1064 [9th Cir. 1991]). A recognized exception to the general "American Rule" may be found where the court finds that one of the parties has engaged in "bad faith" conduct, in which case attorneys' fees may be awarded to the non-offending party. (Id.; InterChem Asia 2000 Pte. Ltd. v. Oceana Petrochemicals AG, 373 F.Supp.2d 340, 355 [SDNY 2005]). The rationale for this exception is that if a party brings an unsupportable claim in bad faith, causing the opposing party to incur legal fees in opposing a claim that should never have been raised in the first instance, the opposing party should be compensated for those fees by the offending party. (See Synergy Gas Co. v. Sasso, 853 F.2d 59, 65 [2nd Cir. 1988],cited in Allied Int'l Union v. Tristar Patrol Svcs., Inc., 2007 WL 2845227 at *3 [SDNY Sept. 26, 2007]).
Under federal law, arbitrators have broad authority to decide disputes and to fashion remedies, especially where a commercial contract is governed by applicable rules of an arbitration forum authorizing the arbitrators to do so. (See Todd Shipyards Corp. v. Cunard Line, Ltd.,supra, 943 F.2d at 1064.) Thus, where arbitrators find a claim to have been brought in bad faith, they may, in the exercise of their broad powers to fashion remedies, award attorneys' fees. (Id.).
Here, the Arbitration Agreement provides that "[a]rbitration is conducted under the rules of the selected arbitration administrator. . . ." (Pet., Exh. A at 4). In this case, the parties selected NAF. Thus, the Arbitration Agreement incorporates the NAF rules by reference.
Rule 37(C) of the NAF Code of Procedure authorizes an arbitrator to award attorneys' fees as follows:
An award may include fees and costs awarded by an Arbitrator in favor of any Party only as permitted by law. A Party with a Claim for attorney fees or costs may seek to recover those expenses by bringing a timely request in accord with Rules 18 and 12B. An opposing Party may object in accord with Rule 18. The Arbitrator may include attorney fees and costs in the final award or in a separate Award.
(National Arbitration Forum Code of Procedure dated August 1, 2007 ["NAF Code"], Rule 37[C]).
Rule 18 sets forth the procedures by which a request is made for an arbitrator's order and how an opposing party may object to a request. Rule 12B sets forth the procedures by which a claimant may seek costs or attorneys' fees.
Rule 46 of the NAF Code, which authorizes an arbitrator to impose sanctions by requiring an offending party to pay the fees of another party, provides:
An Arbitrator may Sanction a Party or Representative, or both, for violating any Rule, notice, ruling, Order or for asserting an unsupportable Claim or Response.
A Party may be Sanctioned on the initiative of the Arbitrator or at the Request of the Forum or a Party. An Arbitrator shall Sanction a Party who refuses to pay fees as required by agreement, these Rules, an Arbitrator Order, or the applicable law, unless the offending Party establishes reasonable neglect. A Sanction Order may require an offending Party to pay for fees and costs incurred by another Party, unpaid fees, and other appropriate monetary Sanctions, and may require payment to another Party or the Forum.
(NAF Code, Rule 46).
Thus, pursuant to the applicable NAF rules as incorporated into the Arbitration Agreement, the arbitrators were empowered to award both attorneys' fees and sanctions as permitted by law, which requires that the arbitrators find bad faith conduct by one of the parties in order to exercise their power. Having found that it was within the power of the arbitrators to award attorneys' fees, this court must now determine whether those powers were exercised appropriately.
A court may appropriately award attorneys' fees where "the losing party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons." (Todd Shipyards Corp. v. Cunard Line, Ltd., supra, 943 F.2d at 1064, quoting Dollar Systems Inc. v. Avcar Leasing Systems, Inc., 890 F.2d 165, 175 [9th Cir. 1989]).
Here, the original arbitrator reviewed the facts as presented by Hale and found that Hale's claim was "completely without merit" in light ofSchnall v. Marine Midland Bank. (Pet., Exh C). This finding of frivolous conduct on Hale's part is analogous to a finding of bad faith conduct, which, under the Alyeska standard, justifies awarding of attorneys' fees as an exception to the American Rule. (Alyeska Pipeline Svc. Co. v. Wilderness Society,supra, 421 US at 258-59; see Todd Shipyards Corp. v. Cunard Line, Ltd.,supra, 943 F.2d at 1064). Accordingly, the arbitrators did not exceed their authority in awarding the attorneys' fees to Chase.
C. Did the Arbitrators Act in "Manifest Disregard of the Law" in Awarding Attorneys Fees to Chase?
1. Parties' Contentions
Hale next argues that the award should be vacated pursuant to the FAA because, in making the award, the arbitrators acted in manifest disregard of the law. Hale bases her contention on the original arbitrator's reliance in the May 5, 2006 Amended Order on Schnall v. Marine Midland Bank, 225 F.3d 263 (2nd Cir. 2000). Hale maintains that that decision is not binding on fora other than the courts of the Second Circuit, such as arbitration panels. In addition, Hale argues that Schnall constituted an aberrational departure from TILA jurisprudence. She further maintains that 22 NYCRR § 130-1.1 ("Rule 130-1.1"), a New York court rule empowering courts to award attorneys' fees as sanctions in civil actions and also cited by the original arbitrator in the May 5, 2006 Amended Order, does not apply to private arbitration proceedings. Hale asserts that, in basing the award on an aberrational decision and an inapplicable rule, the arbitrator exhibited manifest disregard of the law without any colorable justification.
Section 130-1.1(a) provides, in pertinent part:
The court, in its discretion, may award to any party or attorney in any civil action or proceeding before the court . . . costs in the form of reimbursement for actual expenses reasonably incurred and reasonable attorneys' fees, resulting from frivolous conduct as defined in this Part
( 22 NYCRR § 130-1.1[a]). Section 130-1.1[c] [1] provides that:
conduct is frivolous if: . . . it is completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law. . . .
( 22 NYCRR § 130-1 .1 [c] [1])
While the May 5, 2006 Amended Order cites section 130.1-1 and quotes the definition of "frivolous conduct" as set forth in section 130-1.1(c) (1) as a basis for making the award, the November 19, 2007 Order does not.
Chase disputes the assertion that the May 5, 2006 Amended Order wrongly relied upon Schnall, stating that this argument ignores the fact that the Arbitration Agreement provides that an arbitrator "will apply applicable substantive law consistent with the FAA . . ." (Pet., Exh. A at 4), and that, in Schnall, the Second Circuit ruled on the same issues, based on similar facts to those presented here.
2. Legal Standards
Where a party has agreed to arbitration, it retains the right to judicial review of the arbitrator's decision,
but the court will set that decision aside only in very unusual circumstances. See, e.g., 9 U.S.C. § 10 (award procured by corruption, fraud, or undue means; arbitrator exceeded his powers); Wilko v. Swan, 346 US 427, 436-37 (1953) (parties bound by arbitrator's decision not in "manifest disregard" of the law), overruled on other grounds, Rodriguez de Quijas v. Shearson American Express, 490 US 477 (1989).
(First Options of Chicago, Inc. v. Kaplan, 514 US 938, 942). InWilko, the Supreme Court, in shielding from judicial review arbitral errors in interpretation which did not amount to "manifest disregard" of law, cited its own long-standing precedent (see, e.g., United States v. Farragut, 89 US 406, 420; Burchell v. Marsh, 58 US 344, 349-350). Some courts, including the United States Court of Appeals for the Second Circuit, have thus interpreted Wilko as recognizing an additional common law ground for vacation of an arbitral award beyond those listed in FAA § 10. (See, e.g., Hoeft v. MVL Group, 343 F.3d 57, 64 [2nd Cir. 2003]).
The Supreme Court has now announced, however, that section 10 of the FAA provides the exclusive route for expedited judicial vacatur of an arbitral award under the statutory scheme. In Hall Street Assocs., LLC v. Mattel, Inc., No. 06-989, 2008 WL 762537 (U.S. Mar. 25, 2008), the Court examined the "manifest disregard" standard of the Wilko Court for the first time, and found the concept ambiguous:
Maybe the term "manifest disregard" was meant to name a new ground for review, but maybe it merely referred to the § 10 grounds collectively, rather than adding to them. . . . Or, as some courts have thought, "manifest disregard" may have been shorthand for vacatur when the arbitrators were "guilty of misconduct" or "exceeded their powers."
(Id. at *5 [citations omitted]). Although the Court in Hall Street did not settle on its own definition of the term, it rejected the notion that "manifest disregard" embodies a separate, non-statutory ground for judicial review. (Id. at *6, *8). Nonetheless, by favorably citing the above-quoted language from its earlier decision in Kaplan, supra, theHall Street Court appears to have done nothing to jettison the "manifest disregard" standard of Wilko. (Id. at *5). Accordingly, this court will view "manifest disregard of law" as judicial interpretation of the section 10 requirement, rather than as a separate standard of review. It seems appropriate, however, since the standard has apparently not been overruled by the Court, to resort to existing case law to determine its contours.
An arbitrator is deemed to have manifestly disregarded the law where the record shows that "the arbitrator knew of the relevant [legal] principle, appreciated that this principle controlled the outcome of the disputed issue, and nonetheless willfully flouted the governing law by refusing to apply it." (Westerbeke Corp. v. Daihatsu Motor Co., 304 F.3d 200, 217 [2nd Cir. 2002]; see also Travelers Ins. Co. v. Nationwide Mut. Ins. Co., supra, 886 A.2d at 48 [arbitrator must have been cognizant of the controlling law but clearly have chosen to ignore it in reaching a decision]). In addition, it must be found that "the law ignored by the arbitrators was well defined, explicit and clearly applicable to the case." (Wallace v. Buttar, 378 F.3d 182, 189 [2nd Cir. 2004]; Banco de Seguros del Estado v. Mutual Mar. Off., Inc., 344 F.3d 255, 263 [2nd Cir. 2003]).
Mere error in law or erroneous interpretation of the law on the part of the arbitrators will not suffice to establish "manifest disregard." (Duferco Intern. Steel Trading v. T. Klaveness Shipping A/S, supra, 333 F.3d at 389]; see also Travelers Ins. Co. v. Nationwide Mut. Ins. Co., supra, 886 A.2d at 49 [error must be "so obvious that it would instantly be perceived as such by the average person qualified to serve as an arbitrator"]). Thus, the doctrine of manifest disregard "gives extreme deference to arbitrators." (DiRussa v. Dean Witter Reynolds, 121 F.3d 818, 821 (2nd Cir. 1989)]; see also Beebe Medical Center v. Insight Health Svcs. Corp., 751 A.2d 426, 441 [Del. Ch. 1999] [court applies manifest disregard standard notwithstanding "deferential scrutiny" applied to arbitration awards]). Moreover, a court must confirm an arbitrator's award if there is so much as a barely "colorable justification for the arbitrator's judgment, even if the reasoning is based on an error of fact or law." (Wallace v. Buttar, supra, 378 F.3d 182, 193; Duferco Intern. Steel Trading v. T. Klaveness Shipping A/S, supra, 333 F.3d at 389; Westerbeke Corp. v. Daihatsu Motor Co., supra, 304 F.3d 200 at 218; InterChem Asia 2000 Pte. Ltd. v. Oceana Petrochemicals AG, 373 F.Supp.2d 340, 355 [SDNY 2005]).
3. Analysis
To the extent that this court has correctly understood the Hall Street decision and "manifest disregard of the law" remains an applicable interpretive standard in this proceeding, the original arbitrator did not violate that standard.
Here, far from flouting the law, the original arbitrator took into account the Second Circuit decision in Schnall, which decision was adverse to Hale's position on the same issue, and apparently concluded that Hale commenced an arbitration proceeding in an attempt to have yet another forum revisit the issues previously presented unsuccessfully to the Second Circuit by Hale's counsel. The appellate panel in its November 19, 2007 Order affirmed the May 5, 2006 Amended Order and ordered that the case be dismissed with prejudice, and that Hale pay Chase's attorneys' fees of $5600.
Undoubtedly, the fact that Hale's counsel and husband was the plaintiff in Schnall was not lost on the arbitrators. Had the arbitrators been made aware of the series of other meritless filings made by respondent, her counsel and other members of their family, that would have been all the more reason for the arbitrator to award attorneys' fees as sanctions in the subject arbitration proceeding. (See Supplemental Reply Mem. of Law in Further Support of Petitioner's Notice of Pet. to Confirm the Arbitration Award and in Opp. to Respondent's Request to Vacate or Modify the Arbitration Award, Exh. A-X.)
The original arbitrator apparently reasoned that under these circumstances, where Hale submitted to arbitration a claim she knew to be frivolous, it was appropriate to award attorneys' fees to Chase as a sanction against her. The citation to Rule 130-1.1 in the Amended Order was not intended as a citation to a provision authorizing the arbitrator to award attorneys' fees, but rather, explains the arbitrator's rationale for doing so: in submitting a frivolous claim, Hale acted in bad faith, thereby entitling Chase to the award pursuant to the "bad faith" exception to the American Rule.
Moreover, even if the arbitrator had applied Rule 130-1.1 erroneously, such error would not constitute manifest disregard of the law as that term has been recognized historically. (See, e.g., Wallace v. Buttar, supra, 378 F.3d at 193; Duferco Intern. Steel Trading v. T. Klaveness Shipping A/S, supra, 333 F.3d at 389; Westerbeke Corp. v. Daihatsu Motor Co., supra, 304 F.3d 200 at 218; InterChem Asia 2000 Pte. Ltd. v. Oceana Petrochemicals AG, supra, 373 F.Supp.2d at 355; see also Travelers Ins. Co. v. Nationwide Mut. Ins. Co., supra, 886 A.2d at 49). There is no evidence here that the arbitrators "knew of the relevant [legal] principle, appreciated that this principle controlled the outcome of the disputed issue, and nonetheless willfully flouted the governing law by refusing to apply it." (Westerbeke Corp. v. Daihatsu Motor Co., supra, 304 F.3d at 217).
In any event, the original arbitrator's finding of bad faith in submitting a frivolous claim far exceeds, the threshold "barely colorable" interpretive standard of review for manifest disregard of law to be applied by this court under FAA § 10(a)(4). Therefore, the court finds that neither the original arbitrator nor the appellate panel of arbitrators manifestly disregarded the law in awarding attorney's fees to Chase.
D. Should the Arbitrators' Award be Vacated Pursuant to New York Law?
Hale also argues that the award should be vacated pursuant to CPLR § 7511. Although the Arbitration Agreement does not expressly provide for enforcement of arbitration awards pursuant to New York law (Pet., Exh. A at 4), even were it the case that New York law constituted "other applicable law" as contemplated by the Arbitration Agreement, the result would be no different.
CPLR § 7511 sets forth the possible grounds for vacatur of an arbitration award. Of these possible grounds, the only one alleged by Hale is that the arbitrator:
exceeded his power or so imperfectly executed it that a final and definite award on the subject matter submitted was not made. . . .
(CPLR § 7511[b][iii]).
As noted above, pursuant to the applicable NAF Rules, the arbitrators had the authority to award attorneys' fees (NAF Code, Rule 37) and to impose sanctions (NAF Code, Rule 46). Further, the Arbitration Agreement provides that "[i]f the law authorizes such relief, the arbitrator may award . . . attorney fees." (Pet., Exh. A at 4). New York law does permit such relief where the arbitration agreement so provides. (See, e.g., Matza v. Oshman, Hel fenstein Matza, 33 AD2d 493, 494 [1st] Dept. 2006] [arbitrators may award attorneys' fees if statute or arbitration agreement so provides or at parties' request during arbitration process]). Thus, in finding that Hale's claim was completely without merit" and awarding attorneys' fees to Chase accordingly, the original arbitrator followed both the applicable NAF rules and New York law. Accordingly, to the extent New York law applies, the original arbitrator did not exceed his authority and the arbitration award should not be vacated on this basis.
E. Were the Arbitrators' Awards Irrational or Violative of Strong Public Policy Under TILA?
1. Parties' Contentions
Hale further contends that the award must be vacated as irrational, in that the arbitrators offered no rationale for the award and that the award violates TILA's strong public policy favoring the consumer. She argues that the award has a chilling effect on her ability to seek redress as a private attorney general acting to enforce TILA, citingSosa v. Fite, 498 F.2d 114, 121 (5th Cir. 1974).
Chase responds that it was reasonable for the arbitrators to recognize that the Second Circuit had already held that a bank is not required to disclose the reduced rate of a special offer in monthly statements (Schnall v. Marine Midland Bank, 225 F.3d 263, 269 [2nd Cir. 2000]) and that Hale, through her counsel, was well aware of that holding, yet still pursued an arbitration claim based on the same issue. Such conduct, Chase avers, may reasonably be characterized as frivolous, justifying an award of attorneys' fees as a sanction. Chase notes that the arbitration panel undoubtedly was influenced by the fact that Hale's counsel in the instant proceeding was the plaintiff in the Schnall case. Chase further argues that Hale's reliance on the concerns of the civil liability provision of TILA in opposing the arbitration award is misplaced, as the arbitrators based their award of attorneys' fees not upon TILA, but upon their power to sanction Hale for her frivolous conduct.
2. Legal Standards
Historically, it has been held that courts may vacate an arbitration award where the award is either irrational (I/S Stavbourg (O.H. Meling, Manager) v. National Metal Converters, Inc., 500 F.2d 424, 431 [2nd Cir. 1974]; Falcon Steel v. HCB Contractors, Inc., 1991 WL 50139 at *2 [Del. Ch. Apr. 4, 1991]) or violative of some strong public policy (United Paperworkers Int'l Union, AFL-CIO v. Misco, Inc., 484 US 29, 43;Beebe Medical Center Inc. v. InSight Health Svcs. Corp., 751 A.2d 426, 433 [Del. Ch. 1999] [arbitration award vacated as violative of Delaware public policy disfavoring "evident partiality" of arbitrator]). Assuming that these lines of cases may be viewed nerely as judicial interpretations of section 10(a) (4) of the FAA and not as establishing any additional common law grounds for vacation of arbitral awards, they would retain vitality for analysis post-Hall Street.
3. Analysis
The original arbitrator reviewed Hale's TILA-based claim, namely, that Chase had violated TILA by failing to reflect the lower interest rates associated with their special offer of convenience checks on Hale's monthly statements and rejected it as completely without merit in that the Second Circuit had addressed and rejected an identical claim inSchnall. The original arbitrator then determined that, in light of Hale's frivolous claim, an award of attorneys' fees was appropriate. The arbitration panel affirmed this award based on its review of the factual record. There is nothing irrational in the findings and conclusions of any of the arbitrators, each of whom proffered grounds for making and affirming the award, despite being under no obligation to do so under the Arbitration Agreement. (See Pet., Exh. A at 4 ["The arbitrator will make any award in writing but need not provide a statement of reasons unless requested by a party."]). Even had the arbitrators not stated their reasoning, however, where the grounds for the arbitrators' decision can be inferred from the facts of the case, the award must be confirmed. (See Siegel v. Titan Indus. Corp., 779 F.2d 891, 894 [2nd Cir. 1985];Prudential-Bache Securities, Inc. v. Caporale, 664 F.Supp. 72, 75 [SDNY 1987]; Falcon Steel Co., Inc. v. HCB Contractors, Inc., supra, 1991 WL 50139 at *2]). Although the arbitration panel did not refer either to the Schnall case or Rule 130-1.1 in its November 19, 2007 Order, it may be inferred from the order that the arbitration panel's reasoning in affirming the award was congruent with that of the original arbitrator, namely, that the award was intended as a sanction against Hale for submitting a frivolous claim.
With respect to the argument that the award violates TILA's strong public policy favoring consumers in that it would deter the enforcement of TILA by aggrieved consumers seeking redress as private attorneys general, the arbitrators found that Hale's claim was completely without merit. Sosa v. Fite, cited by Hale, makes clear that the statute's public policy of enforcement of TILA-based rights by private attorneys general applies only to those whose claims are meritorious. (Sosa v. Fite, 498 F.2d at 121). As Hale's claim was not meritorious, she does not qualify as a "private attorney general" as contemplated by TILA and the arbitrators did not violate public policy concerns by making the award of attorneys' fees.
Therefore, this court finds that the arbitration award was neither irrationally based nor violative of strong public policy. Accordingly, there is no legal basis for vacatur of the arbitration award under FAA § 10(a)(4) on these grounds.
F. Should the Arbitration Award Be Modified?
1. Parties' Contentions
Hale argues that the award should be modified by striking the award of attorneys' fees on the ground that the matter of attorneys' fees was never properly submitted to the arbitrator. Chase responds that the request for attorneys' fees was made in its opposition brief, a copy of which was served on Hale.
2. Legal Standards
The FAA provides that an arbitration award shall be modified:
[w]here the arbitrators have awarded upon a matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter submitted.
( 9 USC § 11[b]).
Similarly, Delaware law provides that an arbitration award may be modified where the arbitrators:
have awarded upon a matter not submitted to them and the award may be corrected without affecting the merits of the decision upon the issues submitted . . .
(Del. Code Ann. tit. 10, § 5715[a]).
3 Analysis
Prior to the original arbitration hearing, Chase submitted to the arbitrator and served on Hale its brief, which included its request for attorneys' fees. Hale never opposed this application. Therefore, petitioner's request for attorneys' fees was properly submitted to the arbitrators and the award should not be modified on this basis. (See 9 USC § 11[b]; Del. Code Ann. tit. 10, § 5715[a])
Accordingly, this court finds that Hale has failed to state a factual or legal basis for modification of the arbitrators' award of attorneys' fees to Chase under either the FAA or Delaware law, and Hale's cross-motion on this ground must be denied.
G. Is Chase's Petition to Confirm the Arbitration Award Procedurally Deficient?
Having established that the order will neither be vacated nor modified, the court now turns to the question of whether confirmation should be denied due to an alleged deficiency in Chase's petition.
Hale advances four arguments to support her claim that Chase's petition to confirm the arbitration award is procedurally defective. She first contends that the petition is deficient in that the arbitrators failed to state specific grounds for the award in either the May 5, 2006 Amended Order or the November 19, 2007 Order. Hale next argues that Chase failed to provide proof of its authority to do business in the state as a foreign corporation in accordance with New York Business Corporation Law § 1312. Respondent next alleges that Chase failed to furnish proof that the arbitrators affirmed their awards in conformity with the terms of CPLR § 7507. Hale's final argument is that the awards of the arbitrators failed to provide, with the requisite degree of specificity, the calculations upon which they were based. In support of her position Hale cites MBNA Bank, N.A. v. Nelson, NYLJ 6/22/07 (Civ. Ct. Richmond Co. 2007). None of these claims has any merit.
With respect to confirmation of arbitration awards, the FAA provides that:
at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified, or corrected. . . .
As noted earlier, the Delaware Uniform Arbitration Act contains a similar provision:
The Court shall confirm an award upon complaint or application of a party in an existing case made within one year after its delivery to the party, unless within the time limits hereinafter imposed grounds are urged for vacating or modifying or correcting the award. . . .
(Del. Code Ann. tit. 10, § 5713).
As it is uncontroverted that the arbitration award was timely delivered to Hale, and since the award in question will neither be vacated nor modified, the arbitration award meets the standards under both the federal and Delaware statutes and must be confirmed.
In any case, respondent's pleas to the contrary are unavailing. As to the first contention, as noted, both orders state the reasoning for the award of attorneys' fees to Chase.
With respect to Chase's alleged lack of standing as a foreign corporation authorized to commence this special proceeding under BCL § 1312, Hale has failed to carry her burden of establishing either the applicability of BCL § 1312 or Chase's failure to satisfy its terms. Non-compliance with section 1312 is an affirmative defense, as to which the party seeking to assert it bears the burden of establishing that the corporation in question is a foreign business corporation lacking authority to do business in New York. (Domino Media, Inc. v. Kranis, 9 F.Supp.2d 374, 385 [SDNY 1998], aff'd, 173 F.3d 843 [2nd Cir. 1999]; accord, Scaffold-Russ Dilworth Ltd. v. Shared Management Group, Ltd., 289 AD2d 932, 934 [4th Dept. 2001]). Hale has proffered no evidence to support this claim.
Business Corporation Law § 1312 (a) provides, in pertinent part:
A foreign corporation doing business in [New York] without authority shall not maintain any action or special proceeding in [New York] unless and until such corporation has been authorized to do business in [New York]. . . .
(N.Y. Bus. Corp. Law § 1312 [a]).
Similarly, Hale has not established the applicability of New York CPLR § 7507 to these proceedings, which are governed by the FAA and Delaware law. Were that provision applicable, however, its requirements would have been met here, as both the Amended Order and the November 19, 2007 Order were signed and affirmed by the arbitrators.
Additionally, with respect to the calculations upon which the award was based, the original arbitrator issued his Amended Award on May 5, 2006, directing Chase to produce to Hale a breakdown of its attorneys' fees. Chase complied with this directive on May 15, 2006. Thus, Hale had the opportunity to review Chase's detailed claim for attorneys' fees and to bring any objections to Chase's calculations to the attention of the NAF appellate panel prior to its October 29, 2007 document hearing, but failed to do so.
Finally, in contrast to the situation in MBNA, where a bank successfully commenced an arbitration against a credit cardholder and then sought confirmation of the arbitration award without any appearance having been made by the cardholder, the instant arbitration was initiated by Hale, who appeared in the arbitration as well as in this proceeding, where she has actively opposed Chase's petition for confirmation. Here respondent has had ample opportunity to review the details of Chase's claim for attorneys' fees and raise objections (although she chose not do do so), further distinguishing her case from that of MBNA.
For all of these reasons, therefore, there is no factual or legal basis for Hale's claim that the award and petition are deficient.
H. Should Chase's Claim for Administrative Fees be Granted?
With respect to Chase's request to recover from Hale the $1,350 administrative fee it paid to the NAF as the respondent in Hale's appeal, the Arbitration Agreement provides:
Enforcement, finality, appeals. . . . Each party will bear their own fees, costs and expenses for any appeal, but a party may recover any or all fees, costs and expenses from another party, if the majority of the panel of arbitrators, applying applicable law, so determines.
(Pet., Exh. A at 4). Thus, the Arbitration Agreement makes clear that Chase was required to raise any request for recovery of fees from Hale before the arbitration panel, rather than in the first instance before this court. Accordingly, Chase's request for recovery of the administrative fee is denied.
III. CONCLUSION
For the reasons stated above, respondent's cross-motion to vacate or modify the arbitration award is denied and the petition to confirm the arbitration award is granted. Petitioner's motion to recover $1,350 in administrative fees is denied.
The foregoing constitutes the decision, order and judgment of this court.