Drip Capital, Inc. v. M/s. Goodwill Apparels

Background

Drip Capital, Inc. petitioned under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, known as the New York Convention, and the Federal Arbitration Act. It asked the court to confirm and enforce an arbitration award issued against M/s. Goodwill Apparels.

Drip Capital is a corporation organized under Delaware law with its principal place of business in California. Goodwill Apparels is a partnership firm organized under Indian law, represented through Mr. S. Kittusamy and Mr. S. Somasundaram, with an office in Tamil Nadu, India. The parties entered into a factoring agreement in December 2018. Under that agreement, Drip Capital would advance Goodwill Apparels 80% of the value of certain receivables, while the third party owing the receivables would pay the full invoice value directly to Drip Capital. The agreement allowed Drip Capital to demand full payment from Goodwill Apparels if the agreement was breached.

Goodwill Apparels received advances and made partial payments, but stopped paying around May 2019. The arbitration award stated that $294,254.28 was owed, with interest at 8.7% annually from December 1, 2019, plus arbitration costs. The award also directed that $22,440.58 held by Drip Capital be applied against the amounts awarded. Drip Capital stated that the total awarded amount was $331,916.85 as of April 5, 2022, including principal, interest, and costs.

Arbitration and Court Proceedings

The parties’ agreement provided for arbitration in Mumbai before a sole arbitrator appointed by the factor. Rahul Rameshwar Totala was appointed as arbitrator in November 2019. The arbitration proceeded under India’s Arbitration and Conciliation Act. Goodwill Apparels communicated jurisdictional objections and later asked the arbitrator not to proceed, but did not continue participating to contest the substance of Drip Capital’s claims. The arbitrator found that Goodwill Apparels had notice and an opportunity to participate, and issued the award on November 25, 2020.

Drip Capital filed the petition to confirm the award on April 5, 2022. The court authorized service by email, and Drip Capital served Goodwill Apparels. After the Clerk entered a certificate of default, Drip Capital moved for a default judgment. Goodwill Apparels later filed letters stating that the award was under appeal before the High Court of Bombay and requesting additional time to appear through an attorney. It eventually filed a submission without counsel and has not appeared through counsel in this action.

Jurisdiction and Default Judgment

The court found that it had jurisdiction under the New York Convention. The arbitration agreement was written, the arbitration took place in a country that is a signatory to the Convention, the factoring arrangement was commercial, and the dispute had an international character.

The court denied Drip Capital’s request for a default judgment. It explained that default judgments are generally inappropriate in proceedings to confirm arbitration awards. The court treated Goodwill Apparels’ October 28, 2022 and January 12, 2023 submissions as opposition to the petition and motion, rather than as a failure to respond.

Confirmation of the Award

The New York Convention generally requires a court to confirm a foreign arbitration award unless the opposing party proves one of seven specific defenses. Those defenses include lack of notice or opportunity to present a case, an invalid arbitration agreement, an award beyond the scope of the arbitration, improper arbitral procedure, or an award that is not binding, has been set aside, or has been suspended. The opposing party carries a heavy burden to prove a defense.

Goodwill Apparels argued that the award should not be enforced because an appeal was pending before the High Court of Bombay and because Drip Capital was pursuing enforcement in India. The court declined to delay its decision. It explained that the New York Convention does not require a court in the United States to wait for all challenges in the country where the arbitration occurred. The court also noted that Goodwill Apparels had not shown that it had appealed to another arbitral tribunal or appeals tribunal, or that an Indian court had set aside or suspended the award.

The court concluded that the award was final, binding, and entitled to confirmation. It also found that Goodwill Apparels had not established any of the other defenses under the New York Convention.

Disposition

The court granted Drip Capital’s petition to confirm the award. It directed Drip Capital to file a proposed judgment in accordance with the award by April 5, 2023, and directed the Clerk to terminate the motion docketed as ECF No. 4.