Carte Blanche (Singapore) PTE. Ltd. v. CARTE BLANCHE INTERN.
| Decision Date | 08 April 1988 |
| Docket Number | No. 88 CIV. 0662 (PKL).,88 CIV. 0662 (PKL). |
| Parties | In the Matter of the Arbitration of Certain Controversies Between CARTE BLANCHE (SINGAPORE) PTE. LTD., Petitioner, v. CARTE BLANCHE INTERNATIONAL, LTD., Respondent. |
| Court | U.S. District Court — Southern District of New York |
Orans, Elsen & Lupert, New York City, for petitioner; Sheldon H. Elsen, Clement L. Colucci, of counsel.
Kay, Collyer & Boose, New York City, for respondent; Robert Kay, Mark C. Morril, Barry A. Brust, of counsel.
Petitioner Carte Blanche (Singapore) PTE. Ltd. ("CBS") seeks confirmation of an arbitration award in its favor against respondent Carte Blanche International ("CBI"). CBI has cross-moved to vacate the arbitration award, or, in the alternative, to modify the award.
CBS is a corporation organized and existing under the laws of Singapore and having its principal place of business in Singapore. CBI is a corporation organized and existing under the laws of the State of Delaware and having its principal place of business in the State of New York.
On August 11, 1980, CBS and CBI entered into an agreement that made CBS a franchisee of CBI to market and service Carte Blanche credit cards in Malaysia, Singapore and Brunei (the "Franchise Agreement"). By early 1981, however, it became clear that CBI's international franchise business was no longer viable, and in June of 1981, CBI determined to close down its international franchise business as soon as possible. The relationship between CBI and CBS proceeded smoothly through 1984, despite the fact that CBS was the sole international franchisee of CBI after 1981.
Carte Blanche International Ltd. Franchise Agreement, annexed as Exhibit A to the Petition and Affidavit of Sheldon H. Elsen, Esq. (hereinafter "Elsen Aff."), sworn to on January 29, 1988, at 29. CBI placed CBS on formal notice of default under the Franchise Agreement. CBS contended that such transfers did not breach the Franchise Agreement, or were at most technical violations, because they were only transfers of shares, not assignments of interests.
In October of 1985, CBI and CBS filed essentially contemporaneous demands for arbitration with the International Chamber of Commerce ("ICC").1 CBS claimed, among other things, that "CBI has engaged in a reduction of essential services...." CBS Demand for Arbitration, annexed as Exhibit I to the Petition and Affidavit of Mark C. Morril, Esq. (hereinafter "Morril Aff."), sworn to on February 8, 1988, at 3. CBI claimed, inter alia, that the Franchise Agreement was subject to termination because of CBS's material breach by violating paragraph 7.10 of the Franchise Agreement. CBI Demand for Arbitration, annexed as Exhibit J to Morril Aff., at 2-4.
On or about May 30, 1986, CBS filed an Amended Demand for Arbitration. Morril Aff., Exhibit K. By this amendment, CBS sought specific damages in the amount of $4,945,000 for the value of stock, $697,000 for reimbursement of certain loans, and loss of earnings on the foregoing amounts, estimated to be in excess of $1,000,000. Id. at 10.
On April 29, 1986, the ICC duly confirmed the appointments of William Piel, Esq., Professor Hans Smit, and Theodore Sorenson, Esq., as arbitrators for the arbitration to take place in New York City. The panel held hearings for eleven days during June, July and August of 1986 in the Southern District of New York.
On February 18, 1987, a majority of the panel consisting of Mr. Piel and Professor Smit found for CBS on all claims and handed down an Interim Award, from which Mr. Sorensen dissented. Interim Award (hereinafter "IA"), annexed as Exhibit C to Elsen Aff. The majority held that "damages should therefore be awarded to CBS for the value of a promised business opportunity destroyed or gravely impaired...." Id. at 11. Mr. Sorenson's dissent expressed his view that CBI did not breach the Franchise Agreement, that the agreement terminated by its own terms in March of 1985, and that no damages could be awarded for the period after March 31, 1985.
After the interim award, CBS sought leave to amend its pleading and the Terms of Reference to assert a claim for $3.5 million in consequential damages. CBI expressed its objection to such an amendment, and no formal amendment was ever made. Chairman Piel suggested that CBS could proceed with a claim for consequential damages without amending its pleadings or the Terms of Reference. Morril Aff. at ¶ 38. Nine days of further hearings were conducted on the issue of an appropriate remedy. In these hearings, CBS sought a total of $16,745,994 in damages, costs and fees. CBI argued that CBS failed to mitigate damages and urged that the interim award be withdrawn based on CBS's concealment of its plan to convert the CBS business to a MasterCard business.
On January 25, 1988, the arbitrators made a written Final Award. Final Award (hereinafter "FA"), annexed as Exhibit D to Elsen Aff. CBS was awarded damages and costs in the following amounts:
fair and reasonable value of
CBS, including reasonable
prospects for future profitability: $4,300,000.00
consequential damages (operating
losses and expenses): 5,116,477.00
costs: 312,161.20
-------------
9,728,638.20
Subtotal
Less: credit for CBI's transfer to
CBS of rights in cardholder
accounts: 735,000.00
-------------
TOTAL: 8,993,638.20
CBS was also awarded interest and injunctive relief. The award was delivered2 to the parties by Chairman Piel on January 28, 1988, and this action was commenced on February 1, 1988, by the filing of the Petition and Affidavit of Sheldon Elsen, Esq. On February 1, 1988, the Court ordered respondent to show cause on February 9, 1988, why an order should not be made confirming the award of the arbitrators.
Shortly after the filing of the action, respondent served notices of deposition on Professor Smit and Louis A. Craco, Esq., who had originally been designated as CBS's party arbitrator under paragraph 7.09 of the Franchise Agreement. On February 4, 1988, the Court ordered the depositions so noticed to be stayed, and ordered respondent to show cause on February 9, 1988, why an order should not be entered quashing the notices of deposition. On February 8, 1988, the Court received a letter from Mr. Morril stating that the notices of deposition and accompanying subpoenae had been withdrawn.
On February 9, 1988, the parties appeared before the Court, and, after some discussion of the issues, the Court instructed petitioner to submit answering papers to respondent's cross-motion. The Court now decides that the award made by the arbitrators should be confirmed for the reasons stated below.
Petitioner seeks confirmation of the arbitration award pursuant to section 9 of the Federal Arbitration Act.3 Because the Franchise Agreement encompasses a transaction involving commerce within the meaning of section 1 of the Federal Arbitration Act, and because the arbitration took place in the Southern District of New York, this Court has proper jurisdiction, and venue lies in this District.
As the Second Circuit has often noted, the scope of a district court's review of an arbitration award is limited. See, e.g., Ottley v. Schwartzberg, 819 F.2d 373, 376 (2d Cir.1987); Sperry International Trade, Inc. v. Government of Israel, 689 F.2d 301, 304 (2d Cir.1982). The court must grant confirmation of an award unless a statutory basis for vacatur or modification of the award is present, or because of the nonstatutory ground of "`manifest disregard' of the law." Id. at 305.
Respondent contends that the award must be vacated pursuant to section 10 of the Act,4 or, in the alternative, modified pursuant to section 11.5 Respondent also contends that the award must be set aside because of the arbitrators' manifest disregard of applicable law. The Court notes at the outset that respondents have demonstrated no statutory basis for modification of the award pursuant to section 11. The only reasons proferred for vacatur are actions in excess of the arbitrators' power pursuant to section 10(d), and the nonstatutory basis of manifest disregard of law. The Court will address each of respondent's arguments for vacating the award.
Respondent contends that the arbitrators failed to apply California law and the express provisions of the Franchise Agreement, and that such failure requires vacatur of the award. Specifically, respondent maintains that vacatur is required by the arbitrators' failure to follow applicable law or by actions exceeding their powers with regard to: (1)...
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