Eletson Holdings Inc. v. Levona Holdings Ltd.

Background

The court had previously partly granted and partly denied Eletson’s request to confirm an arbitration award under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Federal Arbitration Act. In that earlier ruling, the court held that the arbitrator exceeded his authority by awarding damages based on the arbitrator’s conclusion that an affiliate of Levona violated a status quo injunction. The affiliate was not a party to the arbitration. The alleged violations included filing an involuntary bankruptcy petition against Holdings and starting bondholder litigation.

The court had directed the parties to submit proposed judgments consistent with that earlier ruling. Eletson argued that the only additional part of the award that should be excluded was $3,007,266.20 in attorneys’ fees, costs, and expenses connected with the bankruptcy and bondholder litigation. Levona argued that the punitive-damages award should be vacated in its entirety because it was based at least partly on violations of the status quo injunction. The parties agreed that the judgment should exclude at least the $3,007,266.20 tied to those violations.

Punitive-Damages Award

The arbitrator awarded $43,455,122.21 in punitive damages, equal to the amount of compensatory damages. The award’s explanation referred both to violations of the status quo injunction and to other alleged misconduct, including bribery, an intentional breach of a confidentiality agreement, and efforts to avoid producing documents through shell entities.

The court found the award ambiguous. It could be read to mean that the arbitrator would have awarded punitive damages in the same amount even without finding a violation of the status quo injunction. It could also be read to mean that punitive damages would not have been awarded without that finding, or that punitive damages would have been awarded but in a lower amount.

Ruling

The court held that remand to the arbitrator was appropriate because the award was ambiguous and clarification could resolve the ambiguity without changing the substance of the award. The court remanded the award for clarification limited to two questions: whether the arbitrator would have awarded punitive damages without the finding that the status quo injunction was violated, and whether the arbitrator would have used a different multiplier for calculating punitive damages without that finding.

The court stated that the arbitrator did not need to provide reasons for the clarification, but needed to explain the ambiguous award enough to permit effective judicial review. After the clarification, the parties may return to court to seek entry of judgment. The court reserved the question whether a clarification stating that punitive damages depended on the injunction-violation finding would permit or require vacating the punitive-damages award in its entirety.