Whittaker v. MHR Fund Management LLC

Background

Keith Whittaker brought a proceeding under the Federal Arbitration Act asking the court to vacate or modify arbitration awards issued in a dispute with MHR Fund Management LLC, MHR Institutional Advisors II LLC, and MHR Institutional Advisors III LLC, collectively referred to as MHR. The dispute arose from Whittaker’s employment with MHR and a restrictive covenant agreement containing an arbitration clause.

MHR had asserted arbitration claims for breach of restrictive covenants, failure to repay parts of a bonus, and breach of fiduciary duty. The arbitrator awarded MHR damages on those claims, granted limited declaratory relief concerning some contract provisions, dismissed the tax-advance claim without prejudice because it was not yet ready for decision, and later awarded MHR sanctions in the form of attorneys’ fees. The arbitrator then issued a final award calculating those fees.

MHR asked the court to confirm the earlier awards and the final award. Whittaker sought vacatur, meaning cancellation, based on alleged arbitrator bias, an alleged excess of authority, lack of finality, and conflict with New York public policy.

Court’s analysis

The court applied the Federal Arbitration Act’s narrow standards for reviewing arbitration awards. It held that Whittaker had not shown evident partiality. The arbitrator had disclosed that she was serving in another arbitration involving a different dispute in which MHR’s attorney was lead counsel. Whittaker did not object or seek further information for nearly a year, and the court found that the alleged relationship was not material enough to justify vacatur. The court also rejected Whittaker’s reliance on rulings against him, explaining that unfavorable rulings alone rarely establish bias.

The court also held that the arbitrator did not exceed her authority. Although the restrictive covenant agreement excluded certain unfair-competition and confidential-information claims from arbitration, the parties had repeatedly agreed that the arbitrator would decide Whittaker’s jurisdictional objections. The court therefore reviewed her decision deferentially and found more than a minimally reasonable basis for her conclusion that the claims involving non-solicitation and breach of loyalty were arbitrable. The court separately concluded that the arbitrator had decided a breach-of-loyalty claim, not a prohibited claim for misuse of confidential information.

The court rejected Whittaker’s argument that the awards were not final and definite. The awards expressly resolved the submitted claims, and the arbitrator had ruled on the issues Whittaker identified, including the tax-advance claim, the declaratory-judgment request concerning the restrictive covenants, and Whittaker’s request for sanctions based on alleged set-offs. The court treated Whittaker’s complaints about the arbitrator’s factual and legal reasoning as challenges to the merits of the decisions that the court could not review under the governing standard.

The court also rejected Whittaker’s public-policy challenge. The arbitrator had found that the bonus was entirely discretionary and therefore was not an earned wage protected from forfeiture. The arbitrator had also found that Whittaker breached his duty of loyalty and was required to forfeit compensation received during the period of disloyal conduct. The court held that these factual findings did not establish an explicit conflict with New York law or public policy.

Disposition

The court granted MHR’s motion to confirm the PFA and Sanctions Award. It also granted MHR’s supplemental motion to confirm the Final Award. The petition was dismissed.

The court directed entry of judgment against Whittaker for $1,574,627.00 plus 9% interest from July 19, 2018; $593,797.50 plus 9% interest from July 30, 2018; $384,807.69 plus 9% interest from May 1, 2020; and $121,190.19 in attorneys’ fees plus 9% interest from November 3, 2020. The court ordered post-judgment interest at the statutory rate and allowed MHR to submit an application for recoverable costs by October 12, 2021.