Clearview AI, Inc. v. Investigative Consultants, Inc.et al

Background

Clearview AI, Inc. and Investigative Consultants, Inc. entered into a contract requiring Investigative Consultants to provide approximately 690 million arrest records and 390 million photographs within eleven weeks. Clearview paid $873,000, but Investigative Consultants did not deliver the required data until February 2020. Clearview later claimed that the data did not satisfy the contract’s requirements.

Clearview began arbitration against Investigative Consultants and Donald Berlin. After an evidentiary hearing, the arbitrator awarded Clearview $873,000 in compensatory damages, 9% interest from August 1, 2019, and $193,228.39 in costs and fees. The arbitrator also held Investigative Consultants and Berlin jointly and individually responsible for $64,409.47 in costs and fees. The arbitrator denied the remaining claims and Investigative Consultants’ counterclaim. The arbitrator later denied Respondents’ request to modify the award.

Clearview then asked a New York state court to confirm the award. Respondents removed the case to federal court and cross-moved to vacate, modify, or correct the award. The court had already entered a partial final judgment confirming the uncontested portions of the award. Clearview also moved for permission to file a sur-reply.

Issues and rulings

The court considered whether to change or vacate two contested parts of the award. First, Respondents argued that Berlin was not personally a party to the arbitration and therefore should not be responsible for part of the fees and costs. Second, they argued that interest on the compensatory damages should begin when the contract was breached, rather than when Clearview made its payment on August 1, 2019. Respondents also argued that the federal post-judgment interest rate should apply instead of the 9% rate stated in the award.

The court denied Clearview’s motion to file a sur-reply because the additional briefing was not necessary. It also applied the Federal Arbitration Act’s narrow standards for reviewing an arbitration award. Under those standards, a court may correct an award for an obvious material calculation or description error, an award on a matter not submitted to the arbitrator, or a formal defect that does not affect the dispute’s merits. An award may also be vacated for “manifest disregard of the law,” meaning an exceptionally serious and deliberate failure to apply a clearly controlling legal rule.

Court’s reasoning

The court held that the arbitrator had properly considered Berlin’s responsibility for fees and costs. The arbitrator had rejected Berlin’s effort to leave the arbitration, found that he had participated in the proceedings in ways that increased costs, and again addressed his responsibility when denying the modification request. The court concluded that the arbitrator had more than the minimum justification required for the award and declined to correct it.

The court also rejected Respondents’ challenge to the starting date for prejudgment interest. Respondents had not identified an obvious mathematical or clerical mistake. Instead, they challenged the arbitrator’s substantive choice about when interest should begin, which was outside the narrow correction authority provided by the Federal Arbitration Act. The court further held that Respondents had not shown that the arbitrator knowingly and deliberately disregarded a clearly applicable New York interest rule. The arbitrator could reasonably have applied the American Arbitration Association’s rules, which allowed him to choose the interest rate and starting date.

The court agreed with Respondents, however, that federal law governs post-judgment interest. It ruled that the federal rate applies after entry of the court’s order, rather than the 9% rate stated in the arbitration award or the 9% rate under New York law.

Disposition

The court granted Clearview’s motion to confirm the arbitration award and denied Respondents’ cross-motion to vacate the award. It denied Clearview’s motion to file a sur-reply, directed the Clerk to enter final judgment confirming the award, and ordered the case closed.