A contract dispute between a financial advisory firm and a medical device developer was submitted to an arbitration presided over by an independent International Chamber of Commerce (“ICC”) arbitrator. A final arbitration award was issued in favor of the medical device developer. The financial advisory firm petitioned to vacate the arbitration award and the medical device developer filed cross-petition to confirm the award. At issue was the discretion of the arbitrator in denying requests for time to find expert witnesses.
The Financial Firm agreed to provide strategic banking and financial advisory services to the Developer. The agreement said that the Firm was to be “its exclusive financial advisor” for an exclusive engagement. A dispute arose as to whether the Financial Firm was owed a $450,000 fee. The dispute hinged on the proper interpretation of the agreement. Expert testimony was to be proffered by both parties.
Because the ICC does not have rules for taking evidence, the court order provided that discovery was to be governed by the Rules on the Taking of Evidence in International Arbitration (“IBA Rules”). The parties were ordered to submit written statements on their legal claims or defenses, with statements for any fact or expert witnesses.
The Financial Firm failed to submit expert witness statements by the deadline. The Medical Device Developer then moved to preclude the Firm from introducing evidence that had not been submitted by that date. The Financial Firm argued that it misinterpreted the order and that it had put forth a “good faith” effort to comply. The Arbitrator found that the Financial Firm did not reference where the order was ambiguous. Even so, assuming that the Financial Firm acted in good faith, the Arbitrator said “there [was] no reasonable basis for its belief” that it did not have to attach its expert witness statements.
However, even though the Financial Firm failed to comply with the deadline, the Arbitrator gave them more time. With the extension, the Arbitrator explained that any evidence submitted after the second deadline would be “subject to an adverse inference and/or deemed inadmissible” unless the Firm could show good cause why that evidence should be admitted and would not be unduly unfair or prejudicial to the Developer.
As of the extended discovery deadline, the Firm still had not submitted any expert witness statements. Instead, it requested another week to “engage” an expert witness. The Firm did not say when it might submit an expert witness statement to the Arbitrator, and it also failed to explain if there was any “good cause” for not submitting the witness statements or whether further delay “would not be unduly unfair or prejudicial” as the court had ordered. As a result, the Arbitrator denied the Financial Firm’s request for another extension. The Arbitrator issued a 34–page written award finding the contract was unambiguous and denying the Firm’s claims.
The Firm alleged to the District Court that the Arbitrator was guilty of misconduct for her procedural rulings. It contended that the rulings—including the denial of the Firm’s motion for a second extension of the deadline to submit witness statements—constituted arbitral misconduct.
District Judge John G. Koeltl of the U.S. District Court for the Southern District of New York wrote in his opinion that an implied ground for vacating an arbitral award is manifest disregard of the law. The judge stated that procedural rulings can only lead to vacating an award if the ruling denied the petitioner “fundamental fairness.”
An Arbitrator has discretion to limit discovery, he held. Arbitrators “must be empowered to enforce procedural deadlines,” and “[t]he time frames that arbitrators allow under approved schedules for discovery … deadlines [which are] binding on all parties, ordinarily are sufficient to provide them with adequate opportunity to present evidence and arguments.” Similar to the deference given to trial court rulings by appellate courts, Judge Koeltl explained that federal courts do not “superintend” arbitration proceedings. The court held that the Arbitrator’s decision denying the Financial Firm’s request for a second extension to submit expert witness statements was well within her broad discretion to enforce deadlines.
“[I]f the arbitrator [makes] a factual and procedural determination that under their governing rules proffered evidence is untimely … absent evidence of misconduct that determination is beyond judicial review,” the judge wrote, quoting a 2007 Southern District decision.
The judge noted that the Financial Firm repeatedly missed deadlines, filed improper, untimely requests even after being given a second chance to comply, and failed to follow Orders. The Arbitrator was empowered to enforce the deadlines and did not commit misconduct by doing so.
Nonetheless, the judge held that since the Arbitrator found the contract was unambiguous, extrinsic evidence would have been irrelevant. The denial of the Financial Firm’s discovery requests and refusal to grant a second extension for expert testimony did not violate due process because the evidence would have been irrelevant.
The Financial Firm’s petition to vacate the Award was denied, and the Medical Device Developer’s cross-petition to confirm the Award was granted.