Eletson Holdings Inc. v. Levona Holdings Ltd.

Background

Levona Holdings Ltd. filed a letter motion seeking three forms of relief: permission to amend its cross-petition to vacate an arbitration award, discovery from Eletson Holdings, Inc. and Eletson Corporation concerning their capacity and authority from 2018 through the present, and permission to file supplemental briefs based on the discovery. The petitioners opposed all three requests. The court heard argument on January 22, 2024.

Levona argued that disclosures in a related bankruptcy proceeding revealed possible irregularities involving Eletson Holdings, Inc.’s board of directors. Specifically, Levona asserted that Eletson Holdings’ articles of incorporation required a three-person board with at least two independent directors, but that none of the directors were described as independent as of October 10, 2023. Levona sought discovery to determine whether the petitioners had authority and legal capacity to enter the arbitration agreement, begin the arbitration, and file the petition to confirm the final arbitration award.

Waiver of the proposed defenses

The court explained that a party generally cannot oppose confirmation of an arbitration award or seek to vacate the award based on an argument that it could have raised during the arbitration but did not. The court found that Levona had access to the relevant information during the arbitration. In a January 12, 2023 deposition, Levona asked a director of Eletson Holdings for the names of the other directors, and the director identified them as family members. The court also noted that the articles of incorporation were publicly available.

The arbitrator had allowed the parties to include defenses in written submissions due May 5, 2023, and warned that a defense raised at or after the evidentiary hearing but omitted from that submission would be denied. Because Levona did not raise its authority and capacity arguments during the arbitration, the court held that those arguments were waived.

The court separately held that Levona’s challenge to Eletson Holdings’ capacity to maintain the federal proceeding was untimely. Capacity to sue is not jurisdictional and can be waived. The court stated that such a defense ordinarily must be included in the initial response to a claim, subject to limited exceptions when the defense is raised at the first practically possible time without unfair prejudice. Levona first raised the defense on January 11, 2024—more than four months after filing its cross-petition to vacate the award and nearly six months after the proceeding began. Because Levona had access to the relevant information as early as January 2023, the court found that it had not raised the defense at the first practically possible time.

Amendment and discovery requests

The court held that amendment would be futile because the proposed amendment would assert defenses that had already been waived. It also stated that allowing Levona to raise those defenses in the middle of the proceeding would conflict with the Federal Arbitration Act’s goal of expedited judicial review of arbitration awards.

The court denied discovery as well. Discovery in a court proceeding to confirm an arbitration award is available only in limited circumstances when it is relevant and necessary to an issue properly before the court. The court found that Levona’s requested discovery was not relevant to the issues in the petition to confirm the award or the motion to vacate. The court also found that Levona had an opportunity to obtain the information during the arbitration and would not receive another opportunity to delay the current proceeding. Because the court denied discovery, it denied as moot Levona’s request for supplemental briefing based on that discovery.

Disposition

The court denied Levona’s motion to file an amended cross-petition, conduct discovery into the petitioners’ capacity and authority, and file supplemental briefing on that discovery. The order did not decide the underlying petition to confirm or motion to vacate the arbitration award.