Trafelet v. Cipolla & Co. LLC.

Background

Trafelet retained Cipolla & Co., LLC (“CCO”) to provide forensic accounting services in connection with her divorce proceedings. Under the retainer agreement, Trafelet was responsible for CCO’s bills. CCO billed more than $3.6 million through October 2017, and Trafelet later refused to pay CCO’s remaining invoices.

CCO began arbitration before the American Arbitration Association to recover unpaid fees and interest. CCO later added a defamation claim based on statements Trafelet made in a New York state-court petition seeking to stop the arbitration. Trafelet asserted counterclaims for breach of contract, malpractice, breach of fiduciary duty, and fraud. After a 23-day hearing, the arbitrator issued a merits award and a fee award.

The merits award held Trafelet liable for $2.53 million in unpaid forensic accounting fees, more than $1.45 million in accrued interest, 15% annual interest thereafter, and $2.5 million in compensatory and punitive damages for defamation. The fee award required Trafelet to pay an additional $1.9 million in expert fees, $2.26 million in attorney’s fees, interest, arbitration costs, and other amounts. Across the awards, CCO received more than $11 million in damages, interest, fees, and costs.

Trafelet’s Motion to Vacate or Modify

Trafelet moved under Sections 10 and 11 of the Federal Arbitration Act to vacate or modify the awards. The court explained that judicial review of an arbitration award is very limited. A court generally must confirm an award unless the party challenging it proves one of the narrow statutory grounds for vacatur, such as corruption, arbitrator misconduct, evident partiality, or the arbitrator’s exceeding her authority. An award may also be set aside in an extreme case where the arbitrator deliberately disregarded clearly applicable law.

Alleged Arbitrator Misconduct and Bias

Trafelet argued that the arbitrator improperly excluded material evidence and denied her a fair opportunity to present her case. The court rejected that argument. It held that the arbitrator acted within her discretion in declining to hear testimony that was cumulative or improper opinion testimony because Trafelet had presented an expert on the same subjects. Trafelet did not show that the evidentiary rulings so severely blocked her right to be heard that she was denied a fair hearing.

Trafelet also argued that the arbitrator was evidently partial because of rulings concerning destroyed evidence and privileged communications. The court held that Trafelet had not provided clear and convincing evidence of partiality. Disagreement with adverse rulings, without more, did not establish that the arbitrator was biased. The court therefore denied Trafelet’s motion to vacate the awards in their entirety.

Defamation Award

Trafelet separately argued that the defamation award should be vacated because the arbitrator deliberately disregarded the law and exceeded her authority. She contended that the litigation privilege protected her state-court filings, that CCO had not proved actual harm, and that the parties’ agreement barred punitive damages.

The court rejected these arguments. The arbitrator had considered the litigation privilege and concluded that it did not protect statements that were not material and pertinent to the state-court proceeding. The arbitrator also reviewed the evidence and concluded that CCO lost at least one engagement because of the statements and suffered reputational harm. The court held that these findings provided at least a minimally supportable basis for the damages award and were not a deliberate disregard of the law.

The court also held that the arbitrator did not exceed her authority by awarding punitive damages. The agreement’s limitation on punitive damages applied to claims arising from CCO’s accounting services, while the arbitrator determined that CCO’s defamation claim did not arise from those services. The court therefore denied Trafelet’s motion to vacate the defamation award.

Expert Costs

Trafelet challenged the $1.9 million award for CCO’s own expert costs, arguing that the arbitrator exceeded her authority and disregarded the retainer agreement. The agreement required Trafelet to pay CCO’s reasonable collection costs, including attorney’s fees, arbitration and court costs, and interest.

The court held that the arbitrator had authority to decide whether CCO could recover those expert costs. The arbitrator had reviewed CCO’s affidavit and detailed invoices, and Trafelet’s assertion that the claimed hours and costs were unreasonable was unsupported. The court denied Trafelet’s motion to vacate the expert-cost award.

Interest and Future Attorney’s Fees and Costs

Trafelet argued that the 15% interest rate should apply only to unpaid principal, that the awards improperly used compound interest, and that interest should have been paused during certain periods. The court held that these arguments asserted only legal errors and did not identify a statutory basis or deliberate disregard of law sufficient to vacate or modify the awards. The court denied Trafelet’s motion concerning the interest awards.

The court also rejected Trafelet’s challenge to the award of future attorney’s fees and costs. The retainer agreement allowed CCO to recover reasonable fees and costs for defending or enforcing the award when the other party unsuccessfully challenged it. Because Trafelet’s challenge was unsuccessful, the court held that CCO was entitled to that prospective relief. The court denied Trafelet’s motion to vacate the award of future fees and costs.

Confirmation and Disposition

The Federal Arbitration Act requires a court to confirm an arbitration award unless it has been vacated, modified, or corrected. Because the court denied Trafelet’s motion to vacate or modify the awards, it granted CCO’s cross-motion to confirm them.

Judge Analisa Torres denied Trafelet’s petition to vacate the awards and granted CCO’s petition to confirm the awards. The Clerk was directed to enter judgment in CCO’s favor in the amount of the awards, terminate the two motions, and close the case.