Vallco Property Owner, LLC. v. American Arbitration Association, Inc.

Background

Vallco Property Owner, LLC. sued the American Arbitration Association, Inc. (AAA) seeking injunctive relief. The underlying arbitration involves a terminated design agreement between Vallco and Rafael Vinoly Architects (RVA) concerning a redevelopment project in Cupertino, California. RVA filed an arbitration demand through the AAA’s New York office seeking more than $9 million in alleged unpaid fees and asserting claims on behalf of California subconsultants.

The agreement required disputes to be arbitrated under the AAA Construction Industry Arbitration Rules but did not specify an arbitration location. Rule 12 provided that, when the agreement is silent and the parties cannot agree, the location would be the city nearest the project site, subject to the arbitrator’s power to finally determine the location. Vallco argued that this rule required the arbitration to occur in California. The AAA’s Administrative Review Council and later a three-arbitrator panel determined that New York would remain the location for the case and evidentiary hearings. The arbitration was still in preliminary discovery, and the panel had issued no substantive rulings.

Legal standard

A temporary restraining order is a short-term remedy intended to preserve the current situation and prevent irreparable harm until a hearing on a preliminary injunction. The court applied the same factors used for a preliminary injunction: likely success on the merits, likely irreparable harm without an injunction, the balance of hardships, and the public interest. The court explained that likely success on the merits is the most important factor.

Court’s analysis

Vallco relied on Sections 10 and 11 of the Federal Arbitration Act (FAA), which provide limited grounds for vacating or modifying arbitration awards. The court held that Section 10 applies to final arbitration awards, not ordinary interim rulings made during an ongoing arbitration. Federal courts generally may not intervene in the middle of an arbitration, although narrow exceptions may exist for extreme circumstances involving severe irreparable injury or manifest injustice.

The court was not persuaded that Vallco’s disagreement with the panel’s interpretation of AAA Rule 12 constituted such an extreme circumstance. The court stated that a district court generally cannot vacate an arbitration decision merely because a party believes the arbitrator interpreted the contract or arbitration rules incorrectly. The court also found that Vallco’s claims about travel costs, inconvenience, and delay were insufficient. Those harms, the court explained, generally do not justify intervention during arbitration.

The court acknowledged Vallco’s concern that locating the arbitration in New York could make it difficult to compel testimony from California witnesses. Under FAA Section 7 and Federal Rule of Civil Procedure 45, however, the court found that the parties were not entirely without possible remedies. The difficulty of enforcing subpoenas did not, on the current record, establish an extreme case requiring intervention before an arbitration award. The court also found no indication that the panel exceeded its authority, acted irrationally, or deliberately disregarded the law.

Disposition

The court concluded that Vallco had not shown either a likelihood of success on the merits or irreparable harm. It therefore DENIED Vallco’s ex parte application for a temporary restraining order. The order did not alter the arbitration’s New York location or decide the underlying fee dispute.