AKF Inc. v. Skybell Technologies Inc.

Background

AKF Inc., doing business as FundKite, entered into a revenue-purchase agreement with Skybell Technologies Inc., doing business as Skybell/Skybell Powering Our Partners. Under the agreement, AKF agreed to purchase future receivables with a stated face value of $440,776.00 for $324,100.00. The other respondents acted as guarantors. Skybell was required to remit an agreed percentage of future receivables, and the agreement allowed AKF to collect scheduled payments through automated bank debits.

The parties disputed whether AKF performed the required reconciliations and whether the parties later changed the payment arrangement. The arbitrator found that the parties had agreed to a change eliminating the reconciliation requirement and setting a weekly payment of $18,365.67. After Skybell’s scheduled payments were declined for insufficient funds, AKF pursued arbitration. On January 19, 2024, the arbitrator awarded AKF $360,540.08, plus costs and post-judgment interest. The arbitrator found Ronald G. Carriques, RTL LLC, Big Top Tech LLC, Gee Partnership Holdings, LLC, LGXK Skybell LLC, and Desiree Carleen Mejia liable as applicable under the claims, but found Giovanni Tomaselli not liable.

AKF later filed a state-court petition to confirm the award. The respondents removed that proceeding to federal court. AKF moved to remand the case to state court, and the respondents moved to vacate, meaning cancel, the arbitration award.

Motion to Remand

The court denied AKF’s motion to remand. AKF argued that New York procedural law required the confirmation request to be made in the earlier state-court proceeding rather than in a separate action. The court held that federal law governs removal and that this state-court filing issue did not prevent removal. The respondents also met the federal 30-day deadline for removal, and the court found no defect in the removal notice.

Motion to Vacate

The court applied the Federal Arbitration Act because the case was in federal court based on diversity jurisdiction and the agreement expressly stated that the Federal Arbitration Act, rather than state arbitration law, governed the arbitration. Under that law, judicial review of an arbitration award is very limited. A court generally must uphold an award if there is a barely supportable justification for the arbitrator’s result.

The respondents raised four principal arguments:

1. Public policy and usury. The respondents argued that enforcing the award would violate public policy because the transaction was actually a criminally usurious loan. The court held that this was a challenge to the underlying contract’s validity, an issue the parties had submitted to the arbitrator. The arbitrator had considered and rejected that argument, and the respondents’ disagreement with the arbitrator’s reasoning did not justify vacating the award.

2. Disregard of the law. The respondents argued that the arbitrator ignored controlling New York law concerning usurious loans. The court found that the arbitrator had considered the respondents’ legal authorities and applied them. An alleged legal mistake or disagreement with the arbitrator’s interpretation was not enough to establish the rare circumstance known as manifest disregard of the law.

3. Irrational award. The respondents argued that the arbitrator improperly created a new contract. The court rejected that characterization and found that the arbitrator had credited AKF’s account of an agreement changing the reconciliation provision. Because the respondents did not challenge that modification argument before the arbitrator, the court also held that the issue had been forfeited.

4. Exceeding authority. The respondents argued that the arbitrator exceeded his authority by calling the change a “novation,” which ordinarily replaces the original contract, without separately finding that the arbitration clause and guaranties continued to apply. The court focused on the substance of the award rather than the arbitrator’s terminology. It concluded that the arbitrator had treated the change more like a contract modification: only the reconciliation requirement was removed, while other provisions—including the arbitration clause and the 25-percent default fee—continued to apply. That provided the required minimal justification for upholding the award.

Disposition

The court denied Respondents’ motion to vacate. Because the challenge failed, the court granted AKF’s petition to confirm the January 19, 2024 arbitration award. The confirmed amount is $360,540.08, along with AKF’s costs of confirmation and interest from January 19, 2024, through entry of judgment at nine percent per year. Post-judgment interest will accrue under 28 U.S.C. § 1961. The court also directed the clerk to enter judgment, close the pending motions, and close the case.