Gerald Metals, LLC v. Davidson
| Decision Date | 27 October 2021 |
| Docket Number | CIVIL 3:20-CV-00686 (JCH) |
| Court | U.S. District Court — District of Connecticut |
| Parties | GERALD METALS, LLC, Petitioner, v. GREGORY DAVIDSON ET AL., Respondents. |
GERALD METALS, LLC, Petitioner,
v.
GREGORY DAVIDSON ET AL., Respondents.
CIVIL No. 3:20-CV-00686 (JCH)
United States District Court, D. Connecticut
October 27, 2021
RULING ON PETITIONER'S SECOND AMENDED PETITION TO VACATE (DOC. NO. 36) AND RESPONDENTS' CROSS-MOTION TO AFFIRM (DOC. NO. 20)
Janet C. Hall United States District Judge
I. INTRODUCTION
The petitioner, Gerald Metals, LLC (“Gerald”), brings this action under the Federal Arbitration Act (“FAA”), sections 10 and 12 of title 9 of the United States Code, or, alternatively, sections 52-418(a)(3) and 52-418(a)(4) of the Connecticut General Statutes, to vacate a Final Arbitration Award issued in favor of the respondents, Gregory Davidson (“Davidson”) and Windrose Trading, LLC (“Windrose”). Davidson and Windrose cross move to affirm the Award under section 9 of title 9 of the United States Code.
Before the court are the petitioner's Second Amended Petition to Vacate (Doc. No. 36) (“Am. Pet.”) and the respondents' Cross-Motion to Affirm (Doc. No. 20). For the reasons set forth below, the petitioner's Motion is denied and the respondents' Cross-Motion is granted.
II. BACKGROUND
A. Factual Background[1]
In 2013, petitioner Gerald, a commodity trading company, contracted with respondent Davidson's company, Windrose. Under this contract and a subsequent agreement, Windrose operated a fund for Gerald known as the “Diversified Desk.” In January 2017, Windrose terminated its existing agreement so that Windrose could start a new fund independent of Gerald. The parties decided to negotiate a new agreement allowing Windrose to operate its own separate fund.
To that end, the parties entered into the services agreement relevant to this case (“Services Agreement”) effective January 1, 2017. See Am. Pet. at ¶¶ 1-6; Services Agreement (Doc. No. 20-3). Under the Services Agreement, the parties consented to submit “any dispute, controversy, or claim arising out of or relating to this Agreement or the performance by the Parties of its or their terms” to arbitration before the American Arbitration Association (“AAA”). Services Agreement at ¶ 21(b). The Services Agreement also specified that Gerald's Diversified Desk and Windrose's new fund would be run using the same strategies and taking the same positions. Id. at ¶ 4. Windrose's compensation under the Services Agreement consisted of base compensation as well as a profit sharing bonus tied to the performance of the Diversified Desk. Id. at ¶ 5. The Services Agreement also included a non-solicitation provision, id. at ¶¶ 9-10; a provision related to Chinese tax issues and Gerald's subsidiary, GEMSHA, id. at Schedule C; a provision requiring Windrose to forgo
compensation if it terminated the agreement, id. at ¶ 5(b)(2); and a provision defining “for cause” termination. Id.
When the parties entered into the Services Agreement, Gerald's fiscal year ran from May through April. However, in 2017, Gerald changed its fiscal year to a calendar year. Based on the fiscal year ending April 30, 2017, Gerald paid $935, 000 to Windrose for the first fifty percent of the 2017 profit sharing bonus. Of the $935, 000, $374, 000 was paid to a Windrose employee not party to this case, Mr. Campbell, while the remainder was paid to Davidson. From May to December of 2017, the Diversified Desk incurred losses. Thus, in October 2017, when Davidson requested the remainder of the 2017 bonus, Gerald claimed that Windrose was not entitled to any further bonus and that Gerald was entitled to claw back the initial fifty percent payment. The parties met in January 2018, to attempt to resolve the dispute and negotiate a new contract. Ultimately, they failed to reach an agreement and terminated the Services Agreement.
On September 24, 2018, Davidson and Windrose demanded AAA arbitration of their claims against Gerald, who filed counterclaims. See Am. Pet. At ¶¶ 10-11. Arbitrator Rocco Scanza heard the dispute, which concerned two issues arising out of the Services Agreement: (1) whether Davidson and Windrose were entitled to compensation in the form of a performance bonus and base compensation and (2) whether Gerald had a right to claw back the performance bonus as well as damages. See Am. Pet. at ¶ 12-13. Ultimately, on March 13, 2020, Mr. Scanza issued a Final Arbitration Award in favor of Davidson and Windrose, denying Gerald's counterclaims. Id. at ¶¶ 16-17; Award. In his Decision, the arbitrator determined the following:
1. Gerald, not Davidson and Windrose, terminated the Service Agreement on January 30, 2018. See Award at 39
2. The termination of the Service Agreement was not for cause. See id. at 49.
3. Gerald was not entitled to claw back the bonus money paid to Davidson and Windrose. See id. at 50-51.
4. Davidson and Windrose were entitled to be paid the remaining portion of the profit-sharing bonus on the basis of the May 2016 to April 2017 fiscal year within sixty days of the Service Agreement's January 30, 2018 termination. See id. at 56.
5. Because Gerald terminated Davidson before he could address lingering GEMSHA tax issues, Gerald's actions in withholding the second half of Davidson and Windrose's bonus was unreasonable and in contravention of the Services Agreement. See id. at 59.
6. Because Gerald was required to give Windrose sixty days' written notice of termination and continue to pay consulting fees during the notice period, Windrose and Davidson were entitled to $75, 000 in fees for the two months following the agreement's termination. Id. at 59-61.
7. Davidson was entitled only to the portion of the performance bonus that would have been allocated to him, not to his employee, Mr. Campbell. Id. at 62.
B. Procedural Background
Following the arbitration Decision, Gerald filed its initial Petition to Vacate the Arbitration Award under the FAA, raising no state law claims. See Pet. to Vacate (Doc. No. 1). Gerald filed an Amended Petition on July 7, 2020, which, likewise, sought to vacate the award under the FAA. See First Am. Pet. to Vacate (Doc. No. 7). Around one month later, on August 20, 2020, Gerald filed a Notice of Removal of a state court action filed against it by the respondents. See Notice of Removal (Doc. No. 20). The court remanded the state case to the Connecticut Superior Court on October 6, 2020.
On September 20, 2020, Davidson and Windrose filed a Cross-Motion to Confirm the Arbitration Award along with a response to Gerald's Amended Complaint. See
Resp'ts' Cross-Mot. to Confirm (Doc. No. 20). In their Cross-Motion, Davidson and Windrose argued, in part, that Gerald failed to timely serve notice of its FAA claims against the respondents. See Resp'ts' Mem. in Support of Cross-Mot. to Confirm at 1 (Doc. No. 20-1). In an attempt to avoid these timeliness issues, Gerald then filed a Motion to Amend on November 19, 2020, seeking for the first time to assert state law claims. Mot. to Amend (Doc. No. 29). The respondents opposed Gerald's Motion, arguing that the state law claims were likewise untimely, despite an Executive Order issued by Governor Lamont on March 19, 2020, which suspended many Connecticut limitations periods. See Mem. in Opp'n to Mot. for Leave to Amend (Doc. No. 31). The court granted Gerald's Motion, noting that “the Respondents raise serious questions on whether the Executive Order applies here . . . .” See Order (Doc. No. 34).
Gerald filed its Second Amended Petition to Vacate the Arbitration Award on May 21, 2021, adding state law grounds to vacate the Award. See Am. Pet. (Doc. No. 36). The Respondents opposed this Petition. See Resp'ts' Opp'n to Am. Pet. (Doc. No. 39).
III. LEGAL STANDARD
A. FAA
Confirmation of an arbitration award is generally “a summary proceeding that merely makes what is already a final arbitration award a judgment of the court.” D.H. Blair & Co., Inc. v. Gottdiener, 462 F.3d 95, 110 (2d Cir. 2006) (quoting Florasynth, Inc. v. Pickholz, 750 F.2d 171, 176 (2d Cir.1984)).[2] It is well settled
that the court's function in confirming or vacating an arbitrator's award is “severely limited”, Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp., 103 F.3d 9, 12 (2d Cir.1997) (citations omitted) (“Willemijn”), and the district court “must grant” a petition to confirm the arbitration award “unless the award is vacated, modified, or corrected.” 9 U.S.C. § 9. The arbitrator need not explain his rationale for an award, and the district court will confirm the award “if a ground for the arbitrator's decision can be inferred from the facts of the case.” D.H. Blair, 462 F.3d at 110 (quoting Barbier v. Shearson Lehman Hutton, Inc., 948 F.2d 117, 121 (2d Cir.1991)).
B. Connecticut State Law
Under Connecticut law, “the scope of review for arbitration awards is exceedingly narrow . . . . [E]very reasonable inference is to be made in favor of the arbitral award and of the arbitrator's decisions.” Benistar Emp. Servs. Tr. Co. v. Benincasa, 189 Conn.App. 304, 310, cert. denied, 331 Conn. 932 (2019) (citation omitted). Although Connecticut courts afford “wide berth” to arbitrators, three grounds exist for vacating arbitration awards: (1) “when the arbitrator has ruled on the constitutionality of a statute”; (2) “when the award violates clear public policy”; and (3) when “the award contravenes one or more of the statutory proscriptions of . . . § 52-418.” Bd. of Educ. of Town of Plainfield v. Loc. R1-126, Nat. Ass'n of Gov't Emps., 108 Conn.App. 35, 39-40 (2008) (citation omitted).
Where claims under section 52-418 are at issue, “the arbitrators are empowered to decide factual and legal questions and an award cannot be vacated on the grounds that . . . the interpretation of the agreement by the arbitrators was erroneous.” Id. at 40. Furthermore, where a submission is unrestricted, [3] courts will not review the evidence nor the arbitrators'...
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