$100 Million Arbitration Award Supported by “Even a Barely Colorable Justification” Upheld Under the FAA
A $100 million arbitration award against NutraSweet was reinstated by a New York state appellate court due to the “emphatic federal policy in favor of arbitral dispute resolution embodied in the FAA, a policy that applies with special force in the field of international commerce.” NutraSweet’s acquisition of a Korean aspartame producer went sour, and the two companies proceeded to arbitration. The arbitration panel ruled against NutraSweet on all of the issues and rendered an award in excess of $100 million to Daeseng Corp. However, when Daeseng petitioned a New York trial court for confirmation of the award, the court reversed and remanded, finding the arbitrators had “manifestly disregarded the law and had misconstrued the procedural record.”
On appeal, the New York appellate court held the reversal to be in error, stating that “ordinary errors” of law are insufficient to constitute the required “manifest disregard of the law” necessary to overturn an arbitration award. The doctrine of manifest disregard of the law is “severely limited” and is a “doctrine of last resort limited to the rare occurrences of apparent egregious impropriety on the part of the arbitrators.” To modify or vacate an award on that ground, a court must find that “the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case.”
Under this demanding standard, even if the court held the arbitrators had made a mistake in their application of the law, that would not be sufficient to set the award aside where the issue was “far from obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator.” The court walked through each of NutraSweet’s arguments, and, without deciding that the arbitrators’ decisions were correct, nevertheless found that there was at least a “barely colorable justification” for each of them, and therefore they must be upheld. In re Daeseng Corp. v. NutraSweet Co., Case No. 2018 NY Slip Op. 06331 (NY. Sup. Ct. App. Div., Sept. 27, 2018).