Ballabon v. Straight Path IP Group, Inc. f/k/a Innovative Communications Technologies, Inc.
Filing
36
OPINION & ORDER....Ballabons September 25, 2015 petition to vacate the February 26, 2015 Award is denied. Pursuant to Section 9 of the FAA, which mandates confirmation of an arbitral award upon denial of a motion to vacate or modify, the Award is co nfirmed. Because the Court finds that the arguments and evidence submitted with Ballabons reply memorandum do not alter the decision reached here, Straight Paths October 23 motion to strike is denied as moot. The Clerk of Court shall enter judgment for Straight Path and close the case. (Signed by Judge Denise L. Cote on 11/10/2015) (gr)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------- X
:
In the Matter of the Application of
:
JEFFREY BALLABON,
:
:
Petitioner,
:
:
-v:
:
STRAIGHT PATH IP GROUP, INC. f/k/a
:
INNOVATIVE COMMUNICATIONS
:
TECHNOLOGIES, INC.,
:
:
Respondent.
:
:
-------------------------------------- X
APPEARANCES
For petitioner Jeffrey Ballabon:
Ronald Coleman
ARCHER & GREINER P.C.
44 Wall Street, Suite 1285
New York, NY 10005
For respondent Straight Path IP Group, Inc.:
Casey D. Laffey
Christopher P. Hoffman
Nicole Lapsatis
REED SMITH LLP
599 Lexington Avenue, 22d Floor
New York, NY 10022
Jason Cyrulnik
Edward Normand
BOIES, SCHILLER & FLEXNER LLP
333 Main Street
Armonk, NY 10504
15cv5016(DLC)
OPINION & ORDER
DENISE COTE, District Judge:
Jeffrey Ballabon (“Ballabon”) has petitioned pursuant to
N.Y. CPLR § 7511 to vacate an arbitration award entered against
him on February 26, 2015.
The arbitration concerned an
employment contract between Ballabon and his former employer,
Straight Path IP Group, Inc. (“Straight Path”), which was known
at the time as Innovative Communications Technologies, Inc.
(“ICTI”).
Ballabon challenges the award essentially on the
grounds that the arbitrator was partial and reached erroneous
conclusions.
Straight Path moves to strike certain arguments
and evidence included with Ballabon’s reply memorandum.
For the
following reasons, Ballabon’s petition is denied, and the Award
is confirmed.
Straight Path’s motion to strike is denied as
moot.
BACKGROUND
Straight Path is a special-purpose, non-practicing entity
created from what was originally a division of IDT Corporation
(“IDT”), and was established under the name ITCI on March 14,
2011.
It owns and licenses a portfolio of patents relating to
digital communications technology.
As IDT assessed whether to
take ITCI public, Ballabon was recruited to become CEO of ITCI
and, after approximately two months of negotiation, signed the
employment agreement (“Contract”) at issue here on May 17, 2011,
with an effective date of May 5, 2011.
2
The Contract provided that Ballabon would serve as CEO of
ITCI for a term of four years and that he would be appointed to
ITCI’s Board of Directors.
In addition to Ballabon’s annual
base salary, the Contract provides an “equity grant” giving
Ballabon stock options permitting him to purchase shares in an
amount equal to a percentage of ICTI’s capitalization.
The
Contract states that the options would vest in monthly
installments, that the exercise price per share would be “equal
to the fair market value of [his shares] on the date of the
grant,” and that the price would be determined with reference to
a “stock option plan” and “stock option agreement.”
Ballabon
and ICTI never reached agreement on a stock option plan or stock
option agreement, and thus never reached agreement on, inter
alia, the duration and expiration of the options and the
conditions for and means of exercising the options.
The Contract provides that Ballabon’s employment could be
terminated for “no cause,” “cause,” or for “good reason.”
“Cause” is defined to mean, among other things, “gross
negligence” and “willful or continued failure to perform his
duties”; if the latter was alleged, the Contract requires that
Ballabon be given written notice and 30 days to cure the alleged
performance failures.
If Ballabon’s employment was terminated
with cause or he resigned without good reason, all vested
options would be cancelled.
3
If Ballabon’s employment was terminated without cause,
however, he was entitled to a severance payment equal to half of
his salary for the duration of his employment period, and his
options would vest in full.
To receive the severance payment,
the Contract first requires Ballabon “to execute and deliver . .
. a general release in form and substance satisfactory” to
Straight Path “no later than five (5) days following” the date
of termination.
The Contract contains a broad arbitration provision.
It
provides, in pertinent part, that
[a]ny claim, controversy or dispute between the
Executive and the Company . . . arising out of or
relating to this Agreement, the Employment of the
Executive, the cessation of Employment of the
Executive, or any matter relating to the foregoing
shall be submitted to and settled by commercial
arbitration in a forum of the American Arbitration
Association . . . conducted in accordance with the
National Rules for the Resolution of Employment
Disputes.
It further provides that
[a]ny arbitration award shall be final and binding
upon the Parties, and any court, state or federal,
having jurisdiction may enter a judgment on the award.
The foregoing requirement to arbitrate claims,
controversies, and disputes applies to all claims or
demands by the Executive, including . . . federal,
state, or local laws or regulations pertaining to
the Executive's Employment or the termination of the
Executive's Employment.
The Contract is fully integrated and contains a merger
clause and a provision barring subsequent oral modification.
4
The Contract provides that it “shall be governed by, construed
and enforced in accordance with the laws of the State of New
York, irrespective of any conflict-of-law principle.”
On June 20, the Board of Directors of IDT voted unanimously
not to make ITCI a public corporation.
Ballabon remained CEO of
ITCI as a subsidiary even after this decision was reached.
In August of 2012, Ballabon began receiving negative
performance reviews.
On October 26, 2012, Ballabon’s employment
was terminated by Howard Jonas, CEO of parent company IDT, and
Ballabon received an email memorializing that termination.
The
Arbitrator determined that this termination was without cause.
After October 26, however, Ballabon received several notices
from superiors at IDT regarding supposed performance
deficiencies.
The final letter, dated December 11, 2012,
purported to formally notify Ballabon that his employment was
terminated for cause.
The same day -- December 11, 2012 -- Straight Path
commenced an arbitration proceeding (the “Arbitration”) pursuant
to the Contract’s arbitration clause.
It sought a declaration
that Ballabon was fired for cause; that Straight Path had not
breached the Contract; and that Ballabon was only entitled to
the equity that had vested since the Contract took effect, not
the full equity Ballabon would receive if he had been fired
without cause.
On March 13, Ballabon filed an Answering
5
Statement and Counterclaim Request which sought millions of
dollars in salary, severance pay, and equity in Straight Path
Communications, Inc., the current parent company of Straight
Path.
The parties agreed upon an arbitrator (the “Arbitrator”)
and over the course of 23 months engaged in discovery -including depositions of eight witnesses and over 70,000 pages
of document production -- as well as motion practice, including
a motion for summary judgment.
Amid this, approximately two
years into the Arbitration and two months before the Arbitration
hearing, Ballabon replaced his lead counsel for the third time
and sought a month-long adjournment of the arbitral proceedings.
The Arbitrator denied this request, citing the length of the
proceedings to that point. 1
In October 2014, the parties submitted briefs and, on
November 3-7 and 20, took part in a hearing (the “Hearing”)
before the Arbitrator.
The Hearing included opening and closing
arguments as well as testimony from twelve fact and expert
witnesses; upon Ballabon’s request the parties also engaged in
post-Hearing briefing.
On February 26, 2015, the Arbitrator issued a 24-page
Award.
The Award concludes that “Ballabon’s grievances against
Neither party has indicated the specific dates on which these
events occurred.
1
6
[Straight Path] are many and not without some merit,” but
explained that unless “grievances and the facts underlying them
make out a cognizable contract claim,” the Arbitrator could not
remedy them in the Award.
The Award denies Straight Path’s
claim regarding the termination, finding that “the facts proved
[Ballabon] right.”
Specifically, the Award holds that the
October 26 termination notice was intended to be effective; the
company’s reasons for terminating Ballabon’s employment were not
as stated; and its post-hoc efforts to justify the termination
of Ballabon’s employment “could not undo history.”
The
Arbitrator therefore concluded that the termination of
Ballabon’s employment had not been “for cause.”
Even though the Award finds that Ballabon was not dismissed
for cause, the Award denies Ballabon’s counterclaims for
damages.
First, the Award holds that Ballabon had failed to
provide a general release and thus to satisfy the express
condition precedent for severance pay provided by Section 7(c)
of the Contract.
Second, the Award concludes that Ballabon is
not entitled to the monetary value of his stock options for four
reasons: Ballabon and Straight Path never reached a definite
agreement on the material terms of the stock options, rendering
that provision of the Contract unenforceable; because he
rejected Straight Path’s offer to purchase his stock options at
fair market price, Ballabon “forfeited [them] by failing to
7
exercise them in a timely fashion or take appropriate steps to
evidence an intent to do so”; Ballabon failed to prove he had
the financial wherewithal to exercise the options even had they
been provided to him; and Ballabon would have suffered no
damages in any event because the options were worth less than
their exercise price at any time he could have exercised them.
On May 27, 2015, Ballabon filed a petition in New York
state court, pursuant to Section 7511 of New York's Civil
Practice Law and Rules (“CPLR”), to vacate the Award.
The
petition included no evidentiary exhibits or memorandum of law
in support of its allegations.
It was removed to federal court
on June 26.
Straight Path’s memorandum in opposition to the petition,
filed on August 20, repeatedly observed that Ballabon’s petition
was “lacking even a single citation to legal authority” and was
“devoid of evidentiary support.”
At the September 18 initial
pretrial conference, after ascertaining that Ballabon intended
to file an amended petition, the Court advised Ballabon’s
counsel to carefully consider the arguments in Straight Path’s
memorandum in so doing.
Ballabon filed his amended petition on September 25. 2
The
amended petition was not accompanied by any evidentiary exhibits
Subsequent references to the “petition” refer to the September
25 amended petition, unless otherwise noted.
2
8
or a memorandum of law.
Briefing on the petition was fully
submitted on October 16.
On October 23, Straight Path moved to strike several
arguments made in and eight exhibits -- seven letters from
Ballabon’s counsel sent to the Arbitrator before and during the
Arbitration and Ballabon’s post-Hearing brief -- that were
submitted with Ballabon’s October 16 reply memorandum.
That
motion was fully submitted on November 6.
DISCUSSION
The Federal Arbitration Act (“FAA”) provides the standards
that will govern this petition to vacate the Award. 3
A two-part
test determines whether the FAA applies to review of an
arbitration award.
First, there must be “federal subject matter
jurisdiction, i.e. diversity jurisdiction”; and second, “the
contract calling for arbitration [must evidence] a transaction
involving interstate commerce.”
Barbier v. Shearson Lehman
Hutton Inc., 948 F.2d 117, 120 (2d Cir. 1991) (citation
omitted).
This case was properly removed on the basis of diversity
jurisdiction.
The underlying transaction also involves
interstate commerce.
The Contract is an employment agreement
between Ballabon, a domiciliary of New York, and Straight Path,
In their submissions, the parties have relied on both Section
7511 of the CPLR and Section 10 of the FAA.
3
9
a Delaware corporation with its principal place of business in
Virginia.
Straight Path, moreover, exists to hold over twenty
domestic and foreign patents.
Both the patent industry and the
market for managerial talent to oversee patent holdings are
self-evidently matters of interstate commerce.
Accordingly, the
FAA governs the appeal of the Award. 4
Under the FAA, the “role of a district court in reviewing
an arbitration award is narrowly limited and arbitration panel
determinations are generally accorded great deference.”
Kolel
Beth Yechiel Mechil of Tartikov, Inc. v. YLL Irrevocable Trust,
729 F.3d 99, 103 (2d Cir. 2013) (citation omitted).
“A court's
review of an arbitration award is severely limited so as not to
frustrate the twin goals of arbitration, namely, settling
disputes efficiently and avoiding long and expensive
litigation.”
United Bhd. of Carpenters & Joiners of Am. v.
Tappan Zee Constructors, LLC, --- F.3d ---, 2015 WL 6143213, at
*4 (2d Cir. Oct. 20, 2015) (citation omitted).
“Consequently,
While in some circumstances the parties’ “agree[ment] to abide
by state rules of arbitration” may be strictly enforced as
“fully consistent with the goals of the FAA,” Volt Info.
Sciences, Inc. v. Bd. of Trustees of Leland Stanford Junior
Univ., 489 U.S. 468, 479 (1989), this is not such a case. Far
from a specific requirement that Article 75 of the CPLR govern
arbitration appeals, the Contract’s provision for review is a
typical choice-of-law clause stating only that New York law is
to govern “the construction and enforcement of the Contract.”
In any event, the outcome of this case would be the same under
the CPLR’s substantively similar grounds for vacatur.
4
10
the burden of proof necessary to avoid confirmation of an
arbitration award is very high, and a district court will
enforce the award as long as there is a barely colorable
justification for the outcome reached.”
Kolel, 729 F.3d at 103-
04 (citation omitted).
“A district court must confirm an arbitration award unless
the party seeking vacatur establishes any of the limited
exceptions listed in § 10(a) of the FAA.”
Id. at 104.
Section
10(a) provides, in pertinent part, that an award may be vacated
“where there was evident partiality or corruption in the
arbitrators, or either of them”; where “arbitrators were guilty
of misconduct in refusing to postpone the hearing, upon
sufficient cause shown, or in refusing to hear evidence
pertinent and material to the controversy”; and “where the
arbitrators exceeded their powers.”
9 U.S.C. § 10(a).
In
addition, in this Circuit, “as [a] judicial gloss on these
specific grounds for vacatur of arbitration awards,” a court
“may set aside an arbitration award if it was rendered in
manifest disregard of the law.”
Schwartz v. Merrill Lynch &
Co., 665 F.3d 444, 451 (2d Cir. 2011) (citation omitted).
The petition is a lengthy document that accuses both
Straight Path and the Arbitrator of misconduct.
Many of these
accusations are conclusory and provide no basis for setting
aside the Award.
At the end of the petition, there is a list of
11
twelve overlapping grounds that Ballabon contends warrant
vacating the Award.
Straight Path’s opposition memorandum (the
second one it filed in this action) dealt in detail with the
various accusations in the petition, and in his reply Ballabon
abandoned many of his claims.
As a consequence, this Opinion
will address those claims that Ballabon continued to press in
his reply of October 16.
Ballabon asserts in his reply that the Award should be
vacated on the following five grounds.
He argues that the
Arbitrator made three errors in managing the Arbitration:
he
improperly applied the doctrine of attorney-client privilege to
exclude material evidence, failed to prevent Straight Path’s
interference with his deposition and cross-examination of a
witness, and unfairly permitted Straight Path to present a
rebuttal witness at the Hearing.
On the basis of these
failings, Ballabon also argues that the Arbitrator was partial.
Finally, Ballabon challenges the reasoning and conclusions of
the final Award.
None of these grounds justifies vacatur.
I. Evidentiary Rulings
Ballabon argues that the Arbitrator made essentially three
evidentiary decisions favoring Straight Path that rendered the
arbitration fundamentally unfair.
Arbitrators may be “guilty of
misconduct” if they “refus[e] to hear evidence pertinent and
material to the controversy.”
9 U.S.C. § 10.
12
But,
“[a]rbitration proceedings require merely an expeditious and
summary hearing, with only restricted inquiry into factual
issues.”
Kolel, 729 F.3d at 107 (citation omitted).
In
addition, arbitrators are “accorded great deference in their
evidentiary determinations, and need not follow all the niceties
observed by the federal courts.”
Id. (citation omitted).
A
court’s review is “restricted to determining whether the
procedure was fundamentally unfair.”
Id. (citation omitted).
“Fundamental fairness” requires that arbitrators provide each
party “an adequate opportunity to present its evidence and
argument” -- but it does not require arbitrators “to hear all
the evidence proffered by a party.”
Tempo Shain Corp. v.
Bertek, Inc., 120 F.3d 16, 20 (2d Cir. 1997) (citation omitted)
(emphasis added).
Ballabon principally takes issue with the Arbitrator’s
rulings on the application of the attorney-client privilege.
In
addition, he argues that he was prejudiced by interference with
his opportunity to depose and cross-examine Ira Greenstein
(“Greenstein”), and by the Arbitrator’s decision to permit
Straight Path to call Dov Schwell (“Schwell”) as a rebuttal
witness at the Hearing.
Ballabon’s arguments are unavailing.
A. Attorney-Client Privilege
Ballabon complains in his reply memorandum that the
Arbitrator erred in excluding documents on the ground that they
13
are privileged communications. 5
But, Ballabon’s reply memorandum
does not describe the documents that were excluded in error
because of the Arbitrator’s enforcement of the attorney-client
privilege.
His petition, however, does identify one. 6
In his petition, Ballabon claims that the Arbitrator
misapplied the rules concerning the attorney-client privilege by
excluding a report regarding the value of ITCI’s patent
portfolio.
The report analyzed the likelihood of success from,
among other things, an aggressive litigation campaign to enforce
patent rights.
The report was requested by ITCI, the holder of
the patent portfolio, and authored by a third-party legal
consulting group.
Ballabon argues that the exclusion of the
report interfered with his ability to present expert testimony
because Ballabon’s expert relied upon the report in rendering an
opinion on damages. 7
The reply memorandum also refers to the Arbitrator’s “overexclusion” of a “raft of documentary evidence.” Ballabon did
not submit copies of the excluded documents with his petition
and has not provided an adequate basis to assess this complaint.
5
The letters Ballabon submitted with his reply memorandum
mention other valuation reports, all prepared by third parties
at the behest of ITCI or IDT. Ballabon does not refer to these
other valuation reports in his reply memorandum or the petition.
6
Ballabon’s expert apparently had used the report even though
the Arbitrator had already rendered an initial ruling declaring
that the report was privileged.
7
14
The issue of privilege was briefed and argued before the
Arbitrator.
The Award itself acknowledges the Arbitrator’s
consideration of Ballabon’s arguments, noting that “[v]arious
[prehearing] motions were filed, for example addressing
privilege issues, and resolved.” 8
The Contract provides that any arbitration was to be
“conducted in accordance with the National Rules for the
Resolution of Employment Disputes.”
Those rules -- since
renamed “Employment Arbitration Rules and Mediation Procedures,”
without change to the operative provision -- provide that “[t]he
arbitrator shall be the judge of the relevance and materiality
of the evidence offered, and conformity to legal rules of
evidence shall not be necessary.”
Am. Arbitration Ass’n,
Employment Arbitration Rules and Mediation Procedures (Nov. 1,
2009), available at
https://www.adr.org/aaa/ShowProperty?nodeId=/UCM/ADRSTG_004362.
Where an arbitrator is “not bound by the particulars of federal
law governing the attorney-client privilege,” the Court of
Appeals for the D.C. Circuit has observed that an arbitrator’s
misapplication of those rules does not answer the pertinent
Ballabon also argues that he was prejudiced by the Arbitrator’s
failure to “rule in writing” on evidentiary disputes. Because
Ballabon has failed to show prejudice from any evidentiary
ruling or that the Arbitrator acted in bad faith, this complaint
about the procedures the Arbitrator employed need not be
discussed further.
8
15
question, which remains whether the exclusion amounted to
misconduct.
Howard Univ. v. Metro. Campus Police Officer's
Union, 512 F.3d 716, 722 (D.C. Cir. 2008) (applying FAA
precedent).
Ballabon appears to rest his misconduct claim, however, on
the Arbitrator’s failure to apply correctly the standards that
govern the attorney-client privilege.
But, even if that inquiry
were pertinent, Ballabon has not carried the heavy burden of
showing that the Arbitrator acted in manifest disregard of that
law in ruling that the valuation report was privileged.
“To
vacate an award on the basis of a manifest disregard of the law,
the court must find something beyond and different from mere
error in the law or failure on the part of the arbitrators to
understand or apply the law.”
Jock v. Sterling Jewelers Inc.,
646 F.3d 113, 121 n.1 (2d Cir. 2011) (citation omitted).
Courts
undertake a two-part inquiry: first, “whether the governing law
alleged to have been ignored by the arbitrators was well
defined, explicit, and clearly applicable, and, second, whether
the arbitrator knew about the existence of a clearly governing
legal principle but decided to ignore it or pay no attention to
it.”
Id. (citation omitted).
Here, Ballabon has not shown that
well defined privilege law would have permitted disclosure of
the report or that the Arbitrator ignored such law.
16
B.
Greenstein and Schwell
Ballabon also challenges the Arbitrator’s failure to stop
or control Straight Path’s “interference” with his attempts to
depose and examine Greenstein, as well as the Arbitrator’s
decision to allow Straight Path to offer rebuttal testimony from
Schwell.
Neither of these challenges requires vacatur.
Greenstein, a friend of Ballabon, was a former director and
President of ITCI.
Greenstein testified at the Hearing, and was
deposed before the Hearing.
Although Ballabon complains that
Straight Path cut short Ballabon’s deposition of Greenstein and
made too many objections during Ballabon’s examination of
Greenstein at the Hearing, Ballabon has not identified any
testimony which he sought to elicit from Greenstein at the
Hearing but was unable to obtain because of Straight Path’s
conduct.
There is no basis to find, therefore, that the Hearing
was fundamentally unfair to Ballabon in this regard.
Schwell serves as outside legal counsel for Straight Path
and was involved in the negotiation of the Contract and
consulted in the decision to fire Ballabon.
According to
Straight Path, Ballabon’s Hearing witnesses quoted Schwell as
having made certain statements about these issues to them.
the objection of Ballabon, the Arbitrator permitted Straight
Over
Path to call Schwell as a rebuttal witness and rejected
Balloban’s request to depose Schwell in advance of that
17
testimony. 9
Ballabon argued that he expected Schwell’s testimony
to be cumulative.
Ballabon complains that it was misconduct for
the Arbitrator to permit Schwell to testify and to deny Ballabon
the opportunity to depose him.
“Arbitrators must be given discretion to determine whether
additional evidence is necessary or would simply prolong the
proceedings.”
Tempo Shain, 120 F.3d at 19 (citation omitted).
Whether to permit Schwell to testify or allow Ballabon to depose
Schwell were discretionary determinations for the Arbitrator,
and Ballabon has not shown that either decision was
fundamentally unfair to him.
II. Partiality
Relying principally on these evidentiary rulings, Ballabon
argues that the Arbitrator was partial.
Partiality is a ground
for vacatur expressly provided in Section 10.
But, “[e]vident
partiality may be found only where a reasonable person would
have to conclude that an arbitrator was partial to one party to
the arbitration.”
Kolel, 729 F.3d at 104 (citation omitted).
“[A] party seeking vacatur must prove evident partiality by
showing something more than the mere appearance of bias,” and
petitioners “bear a high burden of demonstrating objective facts
Weeks before it sought to call Schwell as a rebuttal witness,
Straight Path gave notice that it would be offering rebuttal
testimony and two days before offering his testimony identified
Schwell as a rebuttal witness.
9
18
inconsistent with impartiality.”
omitted).
Id. at 104-05 (citation
Accordingly, “a showing of evident partiality may not
be based simply on speculation.”
Scandinavian Reinsurance Co.
v. Saint Paul Fire & Marine Ins. Co., 668 F.3d 60, 72 (2d Cir.
2012) (citation omitted).
Typically, partiality is alleged on the grounds of conduct
occurring external to the arbitration itself, such as
preexisting relationships between the arbitrator and one party,
e.g. Applied Indus. Materials Corp. v. Ovalar Makine Ticaret Ve
Sanayi, A.S., 492 F.3d 132, 137-38 (2d Cir. 2007), or statements
and conduct that imply bias, e.g. Kolel, 729 F.3d at 105.
“[A]dverse rulings alone rarely evidence partiality.”
Scandinavian Reinsurance, 668 F.3d at 75.
Absent objective
indicators of bias, an arbitrator’s “consistent[] reli[ance] on
evidence and reach[ing] conclusions favorable” to one party
“does not establish evident partiality.”
Bell Aerospace Co.
Div. of Textron v. Local 516, Int'l Union, United Auto.,
Aerospace & Agr. Implement Workers of Am. (UAW), 500 F.2d 921,
923 (2d Cir. 1974).
Ballabon does not allege any relationship, preexisting or
otherwise, between Straight Path and the Arbitrator, and thus
the typical indicia of “evident partiality” are absent here.
Nor do the rulings on which Ballabon relies here present the
rare case in which adverse rulings provide evidence of
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partiality.
For the reasons stated above, Ballabon has shown
neither that the Arbitrator committed misconduct in his
procedural rulings nor that any evidentiary decisions were made
in bad faith.
III. The Substance of the Award
Finally, Ballabon challenges the Award’s failure to give
him adequate compensation despite a finding that his employment
was terminated without cause.
Ballabon asserts that the
Contract, when read as a whole, does not support the Award.
An Award based on a contract will be vacated “where the
arbitrator's award is in manifest disregard of the terms of the
parties' relevant agreement.”
(citation omitted).
Schwartz, 665 F.3d at 452
“[V]acatur for manifest disregard of a
commercial contract is appropriate only if the arbitral award
contradicts an express and unambiguous term of the contract or
if the award so far departs from the terms of the agreement that
it is not even arguably derived from the contract.”
Tappan Zee
Constructors, 2015 WL 6143213, at *4 (citation omitted); see
also Jock, 646 F.3d at 122.
Thus, an “interpretation of the
contract terms . . . will not be overruled simply because [of
disagreement] with that interpretation.”
452 (citation omitted).
Schwartz, 665 F.3d at
“If the arbitrator has provided even a
barely colorable justification for his or her interpretation of
the contract, the award must stand.”
20
Id. (citation omitted).
In other words, a court’s “task is not to adopt either party's
interpretation or to craft [its] own,” but “to determine whether
the arbitrator is even arguably construing or applying the
contract and acting within the scope of his authority.”
Tappan
Zee Constructors, 2015 WL 6143213, at *5 (citation omitted).
Even the fact “that a court is convinced [an arbitrator]
committed serious error does not suffice to overturn his
decision.”
Id. at *4 (citation omitted).
The Arbitrator concluded that the Contract’s plain text
required Ballabon to execute a release of claims as a condition
precedent for receiving a severance payment when employment was
terminated without cause, and that this provision operated even
in the unusual circumstances surrounding the termination of
Ballabon’s employment.
Because Ballabon did not execute such a
release and chose instead to file counterclaims against Straight
Path, the Arbitrator concluded, he had not met the condition
precedent.
While it may seem counterintuitive to rely upon
Ballabon’s failure to execute a release at a time when Straight
Path is asserting that it has fired him for cause, the
Arbitrator premised his ruling on a strict enforcement of the
terms of the Agreement.
Since this determination is arguably
derived from the terms of the Agreement, it must stand.
Similarly, Ballabon’s argument that the Arbitrator’s
decision that Ballabon had a contractual duty to execute a
21
release if he wanted to obtain a severance payment “ignore[d]
legal (and moral) rule[s]” of breach of contract finds no
purchase.
According to Ballabon, Straight Path’s breach of the
Agreement excused his own duty to execute a release.
But, as
Ballabon concedes, the Arbitrator fully considered this
argument.
Even assuming, however, that the Arbitrator’s ruling
reflected a “misunderstanding with respect to the law” governing
breach of contract, it is not a ground for vacatur.
T.Co
Metals, LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329, 339
(2d Cir. 2010) (citation omitted).
Ballabon has not shown that
the Arbitrator’s error, if any, constituted “manifest disregard”
of the law.
See Jock, 646 F.3d at 122.
Finally, the Arbitrator rejected Ballabon’s claim for stock
options by relying on the terms of the Agreement and his fact
finding.
Ballabon has not shown that the Arbitrator exceeded
his authority in doing so.
The Award’s conclusion that the
stock option agreement was unenforceably indefinite was a
straightforward application of contract law and does not evince
the “egregious impropriety” that would warrant closer scrutiny.
T.Co Metals, 592 F.3d at 339 (citation omitted).
To the extent
Ballabon takes issue with the Arbitrator’s factual findings -that Ballabon forfeited his right to the options; that Ballabon
failed to prove he had the resources to exercise the options;
and that the options were worth less than their exercise price
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at any time Ballabon could have exercised them -- that challenge
also fails.
“An arbitrator's factual findings are generally not
open to judicial challenge, and [a court] accept[s] the facts as
the arbitrator found them.”
Westerbeke Corp. v. Daihatsu Motor
Co., 304 F.3d 200, 213 (2d Cir. 2002) (citation omitted).
After
all, “[i]t is the arbitrator's view of the facts . . . that the
parties have agreed to accept.”
Id. at 214 (citation omitted).
The Arbitrator’s factual determinations here will not be
disturbed.
CONCLUSION
Ballabon’s September 25, 2015 petition to vacate the
February 26, 2015 Award is denied.
Pursuant to Section 9 of the
FAA, which mandates confirmation of an arbitral award upon
denial of a motion to vacate or modify, the Award is confirmed.
Because the Court finds that the arguments and evidence
submitted with Ballabon’s reply memorandum do not alter the
decision reached here, Straight Path’s October 23 motion to
strike is denied as moot.
The Clerk of Court shall enter
judgment for Straight Path and close the case.
SO ORDERED:
Dated:
New York, New York
November 10, 2015
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