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Enforcement of Interim and Partial Awards: Emerging Coherence in US Law?

Modern institutional arbitration rules encourage international arbitrators to address complex disputes surgically, by issuing partial and interim awards to prioritize solving the most difficult and contentious issues.  But American arbitration law offers arbitrators little helpful guidance about when their non-final awards may be confirmed or vacated.  And counsel in arbitrations seated in the US must do some educated guesswork as they try to fashion effective arbitration strategies with an eye toward judicial review . This is especially so as regards interim measures of protection, as the option of obtaining relief from the arbitral tribunal may be unattractive if the measures obtained cannot be judicially enforced.

The courts have identified three categories of non-final awards that are reviewable. Only one of the categories has the imprimatur of the US Supreme Court — and that in an unusual fashion  This might be termed the “procedural hardship exception,” and it is a by-product of the US Supreme Court decision in the Stolt-Nielsen case. In that case the arbitral tribunal made a “Partial Final Clause Construction Award,” finding that class arbitration was not prohibited by the arbitration clause, and in proceedings in the District Court and Second Circuit, no argument was raised that the Award was not eligible for judicial review under the FAA. That argument also was not raised as an objection to the granting of certiorari, but Justice Ginsburg in the dissenting opinion asserted that certiorari had been improvidently granted because the Award was not “ripe” for review. Whereas Justice Ginsburg’s dissent then surveyed the various approaches of lower federal courts to reviewability of non-final awards under the FAA, the question raised by the dissent apparently was one of statutory interpretation: i.e. what non-final dispositions by arbitrators are FAA awards? But Justice Alito for the majority treated the dissent as having questioned “ripeness” in the constitutional sense (i.e. the requirement of a “case or controversy” as a requirement for the exercise of the federal judicial power), and held that in the constitutional sense the matter was “ripe,” based largely on the procedural hardship imposed by the class arbitration process if a court might ultimately hold that the arbitrators lacked power to impose it.  The majority did not answer the statutory definition question. Nevertheless, after Stolt-Nielsen, courts have frequently cited its ” ripeness footnote”  to support the position that interlocutory class arbitration clause construction awards are reviewable under the FAA.

A second category, narrow and not as controversial, covers cases where the parties have stipulated to bifurcation of liability and damages and agreed that a partial award on liability should be made. (E.g. Global Gold Min. LLC v. Caldera Resources, Inc., 2013 WL 1655994 (S.D.N.Y. Apr. 15, 2013)).

The third category embraces what the courts have termed “separate and independent claims.” Stated in simple terms, if the matter resolved by the tribunal could have been a complete arbitration by itself, if the Claimant had elected not to advance the other claims, then a “separate and independent claim” has been resolved and the fact that other claims remain unresolved should not preclude courts from exercising jurisdiction to confirm or annul the partial award.  But this category has spawned definitional difficulties, as the distinction between an “issue” and a “claim” may be drawn liberally or restrictively depending on the court’s perception of the utility of judicial action in relation to the ongoing arbitration proceedings. To take some recent examples:

1) In a dispute over a contract to build a luxury passenger craft, the tribunal in the course of a multi-year arbitration concerning a contract with ongoing performance, issued several partial awards on merits issues. The one presented to the District Court for annulment held that the customer had not established grounds for termination of the contract based on cosmetic defects unrelated to regulations governing seaworthiness and passenger safety, and also had failed to establish that a contractual cap on liquidated damages was unconscionable. The District Court, seeing these as dispositions of issues within the overall claim for breach of contract, held that the separate and independent claim test was not met. (Pearl Sea Cruises LLC v. Irving Shipbuilding, Inc., 2011 WL 577333 (D.Conn. Feb. 9, 2011)).

2) In a dispute over termination of a distribution contract, Claimant obtained an Emergency Arbitrator’s award directing the return of certain records, needed urgently by Claimant to comply with statutory reporting requirements. While the relief was secured from an Emergency Arbitrator under the AAA’s Commercial Arbitration Rules, this appears not to have been an instance of provisional relief, but partial final relief, as the contract specifically called for return of the records upon contract termination, and the only remaining claims were for money damages. The District Court granted confirmation — except for the portion of the Emergency Interim Award that concerned attorneys’ fees and arbitration costs. But here the Court considered that it was no longer sufficient merely to find that there was a separate and independent claim. The Sixth Circuit in two decisions in a class arbitration case, one before and one after Stolt-Nielsen, had applied “ripeness” analysis to the FAA reviewability issue, and the District Court here considered that it was now the law in the Sixth Circuit that a “ripeness” analysis of whether the Court should exercise FAA jurisdiction is required in any FAA confirmation or annulment case involving an award that does not complete the arbitration. (Draeger Safety Diagnostics, Inc. v. New Horizon Interlock, Inc., 2011 WL 653651 (E.D. Mich. Feb. 14, 2011)).

3) In a dispute over termination of a health services contract, Claimant obtained a preliminary injunction from an AAA Emergency Arbitrator requiring continued performance during the pendency of the arbitration — a traditional grant of arbitral interim relief. The District Court held that such provisional relief fell squarely within the “separate and independent claim” exception, as it addressed an issue separate from the ultimate merits of the dispute as to whether the contract should continue to be performed during the arbitration. And while this case emanated from the same federal judicial district as the Draeger case discussed above, this decision — correctly, I believe — did not consider that a “ripeness” approach was required in addition to analysis of whether there was a separate and independent claim. (Blue Cross Blue Shield of Michigan v. Medimpact, 2010 WL 2595340 (E.D. Mich. June 24, 2010).

The last-mentioned case notwithstanding, until recently there has been little coherence to the case law concerning enforceability of an arbitrator’s interim award granting provisional relief that does not finally resolve any aspect of the merits. But in a recent opinion that may gain wide acceptance, a judge of the Southern District of New York held that an interim award granting a Mareva-type freezing order against assets of the Respondent, as security for the sums claimed as damages by the Claimant, was “separable from the merits,” — thus apparently satisfying the “separate and independent claim” exception, although this formulation is not expressly mentioned — and so this arbitral Mareva relief granted under Article 21 of the AAA International Arbitration Rules was entitled to recognition and enforcement under the New York Convention and FAA Chapter Two. (CE International Resources Holdings LLC v. S.A. Minerals Ltd., Index No. 12CV8087 (S.D.N.Y), ECF Docket Document No. 23 (Dec. 10, 2012)).  As if to add an exclamation point to this holding, the same court in the same case entered judgment six weeks later against the non-compliant Respondent for civil contempt, imposing daily-accruing civil fines and a civil commitment order. (CE International Resources Holdings LLC v. S.A. Minerals Ltd., 2013 WL 324061 (S.D.N.Y. Jan. 24, 2013)).

Whereas the enforceability judicially of arbitral interim measures is important to the efficacy of international arbitration, the Court’s focus on separability from the merits is helpful, and deserves to be enshrined at the appellate level in an appropriate case. In many situations where a party seeks interim relief from the tribunal, it is not seeking any portion of the final relief. And the granting of interim relief will not necessarily entail a final adjudication of any claim or even any issue. The earlier nomenclature of “separate and independent claim” does not come from the interim measures context, and if applied too inflexibly courts might insist on “claim” attributes that the applicant for enforcement of arbitral interim relief cannot honestly say are present. A request for security or Mareva relief, for example, entails final resolution of the applicant’s claim that there is a substantial risk of dissipation of assets. But as to the merits of the Claimant’s underlying requests for final relief and theories of recovery, the Tribunal will usually make no decision and only satisfy itself that the Claimant’s claims have some degree of legitimacy. The theme of separability from the merits usefully puts the focus on a special breed of finality: that the tribunal will not, indeed cannot, modify the allowed interim relief at any time prior to the Final Award.

Further, while it is not a principle stated explicitly in the recent S.A. Minerals decision, one can find in the leading Second Circuit case cited therein (Banco de Seguros del Estado v. Mutual Marine Offices, Inc., 344 F.3d 255 (2d Cir. 2003)) what might be termed a “principle of effectiveness” that should inform the statutory construction issue of whether a non-final arbitral decision is an FAA “award.” Unless an arbitrator’s interim award is entitled to confirmation, it lacks effectiveness because the arbitrators cannot harness the police power of the state to secure compliance.  If the powers conferred on the arbitrators by agreement of the parties — notably the power to grant any interim relief the arbitrators are persuaded is necessary — would be substantially eviscerated if interlocutory judicial review is not available, then there may be substantial reason to treat the interlocutory decision as an award under the FAA.

This writer is counsel for the Claimant in the S.A. Minerals case and the underlying arbitration.

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