Robert E. Derecktor, Inc. v. Bruderman et, al

Background

The related cases arose from repair services that Robert E. Derecktor, Inc. performed on M/Y Independence. The parties entered a Yard Services Agreement containing a broad arbitration clause covering controversies or claims arising from or relating to the contract. After disputes arose, Derecktor demanded arbitration, filed one of these actions, and had the yacht arrested. Ducky-Momo later filed the related action asserting claims including breach of contract, negligence, and fraud.

The court stayed the cases pending arbitration but retained jurisdiction over issues concerning the yacht’s custody, care, preservation, substitute security, and bonding. In the first arbitration phase, the panel issued a partial final award stating that Derecktor would be entitled to $56,106.75 if that award were final. The court confirmed that partial award but declined to enter judgment because the panel had not yet issued a comprehensive final award.

The panel issued its final award on February 28, 2020. It concluded that Ducky-Momo was entitled to a net recovery of $1,628,754.00 from Derecktor, including damages for breach of the Yard Services Agreement and a later settlement agreement, damage to the yacht, unfinished or defective work, attorneys’ fees and expenses, arbitration fees and expenses, and interest. The award also found that Derecktor’s arrest of the yacht was wrongful and awarded damages connected to that finding.

The parties’ motions

Ducky-Momo and Matthew J. Bruderman moved under the Federal Arbitration Act to confirm the final award. They also sought entry of judgment with interest, release of Ducky-Momo’s $331,000.00 substitute security from the court registry, payment under Derecktor’s $331,000.00 bond, and attorneys’ fees and expenses incurred in bringing the motion.

Derecktor moved to partially vacate or modify the final award. It argued that the arbitration panel exceeded its authority by deciding the wrongful-arrest issues, which Derecktor contended were reserved for the court. Derecktor also argued that the panel’s $1,358,659.00 attorneys’ fee award was inexplicable and contrary to controlling law.

Analysis and ruling

The court explained that judicial review of an arbitration award is highly deferential. Under the Federal Arbitration Act, a court may vacate an award only on narrow grounds, such as corruption, arbitrator misconduct, or the arbitrators’ exceeding their powers. The court also recognized the limited ground of “manifest disregard of the law,” which requires more than a legal mistake and requires evidence that the arbitrators knowingly ignored a clearly applicable legal rule.

The court rejected Derecktor’s argument that the panel exceeded its authority. The arbitration clause broadly covered claims arising from or relating to the Yard Services Agreement. The court’s earlier order retained jurisdiction over the yacht’s custody, care, preservation, substitute security, and bonding, but the court found that it did not retain jurisdiction over the separate question of whether the arrest was wrongful. The court also found that the panel’s damages were not based on claims for conversion, replevin, or claims under Supplemental Admiralty Rule D that had been withdrawn; instead, the panel based them on Derecktor’s failure to complete contracted work and its wrongful arrest of the yacht.

The court also rejected Derecktor’s challenge to the attorneys’ fee award. Derecktor did not identify a clearly applicable legal rule that the panel intentionally ignored. The Yard Services Agreement expressly gave the panel authority to award reasonable attorneys’ fees, which provided a basis for the award. The court therefore declined to vacate the liability award and confirmed the final award.

The court did not enter judgment at that time. Derecktor had an unresolved claim for $248,969.00 in expenses incurred to maintain the yacht while it was under arrest. The court needed more information about whether Derecktor was entitled to any offset against Ducky-Momo’s award and whether the arbitration panel had addressed that claim. For the same reason, the court found payment under Derecktor’s bond premature.

The court did order release of the $331,000.00 that Ducky-Momo had deposited in the court registry as substitute security. The court reasoned that Derecktor’s in-rem claims against the yacht had been adjudicated and that Ducky-Momo’s confirmed damages substantially exceeded Derecktor’s claimed expenses. Any amount later found owing to Derecktor for expenses of justice could be subtracted from Ducky-Momo’s recovery.

Finally, the court declined to impose sanctions against Derecktor or its counsel. Although the court rejected Derecktor’s challenge to the arbitration award, it was not convinced that Derecktor or its counsel acted in bad faith or for an improper purpose.

Disposition

Ducky-Momo and Bruderman’s motion to confirm the final arbitration award and release security was granted in part and denied in part. Derecktor’s motion to partially vacate and/or modify the final award was denied. The final award was confirmed. The Clerk was instructed to release the $331,000.00 in registry funds, plus accrued interest, to Blank Rome LLP as Ducky-Momo’s attorneys. The parties were ordered to submit letters addressing Derecktor’s outstanding expenses-of-justice claims.