Soleimani v. Andonian

Background

Jeffrey Soleimani, Jan Soleimani, and Bergi Andonian owned and operated Renaissance Carpets & Tapestries, Inc. (RCT). Jan Soleimani owned 45% of RCT’s shares, Jeffrey Soleimani owned 10%, and Andonian owned 45%. Because Jeffrey Soleimani’s shares were nonvoting, Jan Soleimani and Andonian each exercised 50% of RCT’s voting control.

After the business relationship deteriorated, the Soleimanis sought dissolution of RCT in New York state court. The parties later agreed to arbitrate their disputes. In October 2019, they agreed that the arbitration would resolve the division of RCT’s assets and proceed under the American Arbitration Association’s Commercial Rules.

RCT owned a 91% interest in China Renaissance, a company organized in the People’s Republic of China. China Renaissance owned two floors of a textile factory in Yantai, China, which Andonian helped sell for approximately 7.9 million renminbi. The parties had agreed that the net proceeds would be divided, with 91% going to RCT and 9% to nonparty Philippe Hecquet.

The arbitrator issued a final award on January 7, 2021. Among other things, the award ordered Andonian personally to pay RCT $807,687 based on the factory-sale proceeds. It also directed Andonian, unless the parties agreed to another procedure, to arrange an auction in China for remaining property and have the proceeds paid to RCT for division among the shareholders. The arbitrator also awarded the Soleimanis $32,350 in American Arbitration Association fees and expenses and $58,440 in the arbitrator’s compensation and expenses.

Motions and legal standard

The Soleimanis petitioned to confirm the award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly called the New York Convention. Andonian moved to vacate, or cancel, three portions under section 10(a)(4) of the Federal Arbitration Act, arguing that the arbitrator exceeded the authority granted by the parties. He also argued that parts of the award showed a manifest disregard of law, meaning that the arbitrator knowingly ignored a clearly established and clearly applicable legal rule.

The court explained that review of arbitration awards is very limited. Under the New York Convention, a court generally must confirm an award unless a specified ground for refusing or delaying enforcement exists. Under section 10(a)(4) of the Federal Arbitration Act, vacatur is available when arbitrators exceeded their powers. The court’s question was whether the arbitrator had authority to decide the issues, not whether the arbitrator made a legal or factual error.

Section VIII.F: payment of $807,687

Andonian argued that the arbitrator improperly determined the rights of China Renaissance and Hecquet, who were not parties to the arbitration. The court rejected that argument. It read section VIII.F as requiring Andonian personally to pay RCT $807,687, not as directing China Renaissance or any other nonparty to distribute assets. The award therefore decided rights and obligations between arbitration parties—RCT and Andonian—without determining the legal rights of the nonparties.

The court also rejected Andonian’s argument that the award disregarded Chinese law. The court interpreted the provision as requiring Andonian to pay RCT the specified amount, not as directing China Renaissance to distribute assets without regard to its legal liabilities.

Section VIII.H.1: auction of remaining property

Andonian argued that the arbitrator lacked authority over China Renaissance’s assets because China Renaissance was not a party to the arbitration. The court held that the provision bound only Andonian. The Soleimanis sought to enforce it only against him, and the provision did not purport to bind China Renaissance or Hecquet.

The court recognized that the provision could be read in a way that would require Andonian to violate Chinese law. But it concluded that the arbitrator intended Andonian to arrange an auction through legally and practically necessary steps, rather than to misappropriate property or violate Chinese law. The court also understood the provision to require payment to RCT of proceeds remaining after payments legally due to other parties.

Under section 11(c) of the Federal Arbitration Act, a court may modify an arbitration award when a defect in form does not affect the merits and modification can express the arbitrator’s clear intent. The court therefore modified section VIII.H.1 to state that Andonian must take all legally and practically necessary steps to arrange an auction in China within 90 days after confirmation of the award, unless the parties agree otherwise. It further stated that proceeds, net of payments due to other parties, must be paid to RCT for division among its shareholders. The court said these changes preserved the substance of the award and clarified that the auction and distribution must comply with applicable law.

Section VIII.J.3: arbitration costs

Andonian argued that the arbitrator exceeded his authority by assigning the arbitration’s costs to him. The court disagreed. The parties had adopted the American Arbitration Association’s Commercial Rules, and Rule R-47(c) authorized the arbitrator to assess and allocate administrative fees, expenses, and the arbitrator’s compensation.

The court determined that Andonian’s argument challenged the arbitrator’s interpretation of the parties’ agreement rather than the arbitrator’s authority. The arbitrator had interpreted the agreement to mean that RCT would initially pay the costs but that the costs could later be allocated to Andonian under Rule R-47. Because the arbitrator had authority to allocate the costs and was interpreting the parties’ agreement, the court would not vacate that part of the award.

Disposition

The court denied Andonian’s motion to vacate the award under section 10 of the Federal Arbitration Act. It granted the Soleimanis’ motion to confirm the award under the New York Convention, except as to section VIII.H.1, which it modified as described above. The court directed the clerk to terminate the pending motions.