Ducky-Momo, LLC v. Robert E. Derecktor, Inc.

Background

These related cases arose from repair work that Robert E. Derecktor, Inc. performed on the vessel M/Y Independence. The parties’ Yard Services Agreement required arbitration of disputes relating to the agreement. After disputes arose, Derecktor demanded arbitration, filed a federal action, and had the yacht arrested. Ducky-Momo later filed a related action asserting claims including breach of contract, negligence, and fraud.

The court stayed the cases while arbitration proceeded but retained jurisdiction over issues concerning the yacht’s custody, care, preservation, substitute security, and bonding. In the first phase of arbitration, 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 did not enter judgment because the panel had not yet issued a comprehensive final award.

In the second phase, the panel considered Ducky-Momo’s claims concerning the repair work and the yacht’s arrest. On February 28, 2020, it issued a final award granting Ducky-Momo a net recovery of $1,628,754 from Derecktor. The award included damages for breach of the Yard Services Agreement and a later settlement agreement, damage to the yacht, unfinished or defective work, attorney’s fees and expenses, arbitration fees and expenses, and interest.

Ducky-Momo and Bruderman moved under the Federal Arbitration Act to confirm the final award, enter judgment, release Ducky-Momo’s security deposit, obtain payment under Derecktor’s bond, and recover fees and expenses for bringing the motion. Derecktor moved to partially vacate or modify the award, challenging the panel’s findings and awards concerning the allegedly wrongful arrest and the attorney’s fees.

Rulings on the Arbitration Award

The court applied the highly deferential standard governing review of arbitration awards. Under the Federal Arbitration Act, a court may vacate an award only in narrow circumstances, including corruption, arbitrator misconduct, or an arbitrator’s decision beyond the authority granted by the parties. The court also recognized the limited doctrine allowing vacatur when an award shows manifest disregard of the law, meaning the arbitrators intentionally ignored a clearly applicable legal rule.

The court rejected Derecktor’s argument that the panel exceeded its authority by deciding Ducky-Momo’s wrongful-arrest claim. The arbitration clause broadly covered any controversy or claim arising out of or relating to the Yard Services Agreement. The court’s earlier order retaining jurisdiction over the yacht’s custody, care, preservation, substitute security, and bonding did not reserve jurisdiction over whether the arrest itself was wrongful. The court distinguished managing the yacht during the case from deciding whether the conduct leading to the litigation was legally wrongful.

The court also rejected Derecktor’s argument that Ducky-Momo and Bruderman had withdrawn the wrongful-arrest claim. The court concluded that the cited email withdrew consideration of claims for replevin, conversion, and claims under Admiralty Rule D, but not the wrongful-arrest claim. The panel had expressly declined to decide the conversion claim and had based the challenged damages on Derecktor’s failure to complete contracted work and its allegedly grossly negligent and wrongful arrest of the yacht.

The court further held that Derecktor had not shown that the panel awarded $1,358,659 in attorney’s fees in manifest disregard of the law. Derecktor identified no clearly applicable legal rule that the panel intentionally ignored. The Yard Services Agreement expressly gave the panel authority to award reasonable attorney’s fees. The court therefore declined to vacate the liability award and confirmed the final award under the Federal Arbitration Act.

Judgment and Security

The court did not enter judgment immediately. Derecktor had asserted a possible claim for $248,969 in expenses incurred to maintain the yacht while it was under arrest. The court needed more information about whether that claim remained pending and whether the arbitration panel had addressed it. Because any allowable expenses might be set off against Ducky-Momo’s recovery, the court found entry of judgment premature.

For the same reason, the court found payment under Derecktor’s $331,000 bond premature. The court noted, however, that Ducky-Momo’s damages and attorney’s fees exceeded the security and countersecurity deposited by the parties, even if Derecktor ultimately recovered some expenses.

The court ordered release of the $331,000 that Ducky-Momo had deposited in the court registry as substitute security for release of the yacht. Derecktor’s in-rem claims against the yacht had been adjudicated in the first phase of arbitration, and Ducky-Momo’s final award substantially exceeded Derecktor’s claimed expenses. The court stated that any amount ultimately allowed for Derecktor’s expenses could be subtracted from Ducky-Momo’s recovery.

Sanctions

The court denied Ducky-Momo and Bruderman’s request for sanctions against Derecktor and its counsel. Although the court rejected Derecktor’s challenges to the arbitration award, it was not convinced that Derecktor or its counsel acted in bad faith or for an improper purpose by refusing to stipulate to confirmation of the award or release of the security.

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 or modify the final award was denied. The final award was confirmed. The clerk was instructed to release the $331,000 security deposit, plus accrued interest, to Blank Rome LLP as Ducky-Momo’s attorneys. The parties were directed to submit letters addressing whether Derecktor had any remaining expenses-of-justice claims.