Opinion
14 Civ. 706 (RMB)
09-21-2015
OLIVIER V. ATTIA, Petitioner, v. AUDIONAMIX, INC. and AUDIONAMIX, SA, Respondents.
DECISION & ORDER
This Decision and Order resolves the parties' respective cross-motions to confirm and to vacate two arbitration awards issued by Arbitrator Rosemary Townley on November 5, 2013 and November 13, 2014, pursuant to 9 U.S.C. §§ 9 & 10.
I. Background
On November 1, 2008, Olivier Attia ("Petitioner" or "Claimant" or "Attia"), a French citizen, entered into an employment contract ("Contract" or "Employment Agreement") with Audionamix, Inc., a New York corporation and subsidiary of Audionamix, S A., a French corporation with its principal place of business in Paris, France ("ADX," "ADX SA" or, collectively, "Respondents"). Under the terms of the Contract, Attia was appointed Chief Executive Officer of ADX, and Chief Executive Officer and Chairman of ADX, SA. See Petition ("Pet.") Ex. 25. Conflict arose between Attia and Respondents with respect to Attia's employment, and Attia was terminated on August 30, 2012. Pet. ¶ 47.
On November 16, 2012, pursuant to the Contract's arbitration clause, Attia filed a Claim for Arbitration ("Arbitration Claim"), alleging that Respondents had breached the Employment Agreement by failing to (1) "pay Attia $225,000 per year in salary," (2) "review Attia's salary in November of each year with the understanding that he would receive an annual increase," (3) "pay Attia an annual bonus," (4) "pay Attia three months' salary as and for notice [of termination] payment," (5) "pay Attia $56,225 as and for indemnification if his employment is not terminated for cause," (6) "pay Attia a housing allowance for a Paris residence," (7) "pay Attia his annual salary and benefits until his employment is properly and legally terminated," and (8) "pay Attia for all accrued but unused vacation days up to 25 days per year." Pet. Ex. 25 ¶ 35. In addition, Attia alleged that Respondents "continue to use the name, portrait or picture of Attia on its website without the written consent of Attia," thereby violating "Section 51 of the New York Civil Rights Law." Id. Ex. 25 ¶¶ 39-40. Attia claimed that, "[a]s a direct and proximate result of the above-described breaches, [he] has suffered damages in an amount to be determined by an American Arbitration Association Arbitrator, but in no event less than $675,000." Id. Ex. 25 ¶ 38.
Pursuant to Section 8 of the Employment Agreement, the American Arbitration Association ("AAA") has jurisdiction to hear and adjudicate the claim and counterclaim. See Pet.'s Ex. 25 ("If the parties fail to resolve any dispute amicably within twenty (20) days of its notification by either party, it will be submitted to the American Arbitration Association for binding arbitration . . . before a single arbitrator in accordance with the then applicable Employment Arbitration Rules of the AAA.").
On November 20, 2012, Respondents filed a counterclaim in the arbitration alleging (1) "Attia breach[ed] his fiduciary duties owed to Respondents," (2) Attia breach[ed] his duty of loyalty owed to ADX, Inc.," (3) "unlawful competition with Respondents," (4) "misappropriation of Respondents' confidential, proprietary, and trade secret information," and (5) "violation of the Computer Fraud and Abuse Act," 18 U.S.C. § 1030(e). Pet. Ex. 2 ¶ 1. Respondents claimed that the "relief requested herein falls within the range of $1,000,000 to $5,000,000." Id. Ex. 2 at 29.
On May 3, 2013, while the arbitration was ongoing, Respondents wrote to Arbitrator Townley to provide notice of an "anticipated motion for sanctions against Mr. Attia relating to his apparent destruction of evidence belonging to Respondents, including its confidential and proprietary information which Mr. Attia was obligated to return under his Employment Agreement and had agreed to return following the termination of his employment." Id. Ex. 3 at 1. Respondents alleged that Attia had "intentionally reinstalled the MAC OS X operating system on his ADX laptop computer . . . intentionally reverted his ADX iPad to factory settings . . . logged into the Respondents' hosting company's [] website several times after his termination - using Respondents' credentials that he had failed to return in violation of his Employment Agreement - and intentionally deleted his entire Audionamix email mailbox . . . failed to return any emails from the email accounts from which he conducted ADX business . . . [and] removed the SD cards from his ADX Blackberries before returning them to Respondents." Id. at 3-4.
On May 16, 2013, Attia responded to Respondents' evidence allegations, contending, among other things, that "[t]he way the ESI [electronically stored information] was stored and secured by Mr. Attia while CEO and as Chairman of the Board, it could not be destroyed by anyone including Mr. Attia because everything was stored at remote locations." Id. Ex. 4 at 1. Attia also argued that "[t]he end user on a laptop, an iPad, a desktop computer, a BlackBerry mobile device, whatever that tool was, could not destroy evidence because the data continues to exist at remote locations." Id. Attia contended that "if one deletes something, wipes everything clean, one does not destroy evidence. And if one restores an iPad to its factory settings, it is actually benefitting the ultimate user of that piece of equipment by giving him a device that is not bogged down with someone else's software." Id.
On May 24, 2013, Respondents moved for "terminating sanctions . . . against Mr. Attia [i.e., dismissing his Arbitration Claim]," and that "the parties be heard on these issues prior to the issuance of any determinations." Id. Ex. 5 at 3.
On June 4, 2013, Arbitrator Townley issued a scheduling order directing "that a prehearing regarding Respondents' spoliation allegations would be scheduled for the week of August 19, 2013." See Pet. ¶ 20. On June 20, 2013, Arbitrator Townley scheduled the hearing to take place on August 21, 2013. Resps.' Mem. in Opp. at 6. On July 9, 2013, Respondents wrote to Arbitrator Townley to "request a telephone conference . . . to discuss the August 21 spoliation hearing. Specifically, [Respondents] would like to gain a better understanding of the format of the hearing, as well as the anticipated topics of testimony." Pet. Ex. 6 at 4.
Arbitrator Townley responded, in part, as follows:
With respect to the anticipated topics of testimony, Respondent is reminded that it suggested the hearing day in order to explore the issues raised in its spoliation claim. Accordingly, Respondent's expert would be called first to testify with respect to the technical aspects of Respondent's answers to Claimant's claims, and vice-versa, unless the parties agree to utilize a more effective format. With respect to anticipated topics, the experts would be addressing the technical aspects of the claims and answers as set forth in the submission papers. In addition, any areas of inquiry that might have arisen as a result of discovery since our last conference call would be explored with the experts.Id. at 3.
On August 1, 2013, Attia notified Arbitrator Townley that he "does not have the necessary funds with which to pay his expert witness fees, his attorneys' fees and other ancillary costs of proceeding to preliminary hearing on August 21st." Declaration of Christie Del Rey-Cone, dated February 13, 2015, Ex. E. Attia requested "a ninety (90) day postponement of the August 21st hearing to afford Claimant the opportunity to raise the funds necessary to continue in these proceedings." Id. On August 6, 2013, Arbitrator Townley "met with the parties in a telephone conference . . . to discuss Claimant's request for an adjournment of the [scheduled] August 21, 2013 hearing." Pet. Ex. 7.
On August 7, 2013, Arbitrator Townley issued a scheduling order notifying the parties that "after a review of the Motion papers, she is able to rule on the Motion [for terminating sanctions] without the input of expert witnesses." Id. Arbitrator Townley cancelled the August 21, 2013 hearing and set a "deadline for submission of affidavits or additional argument, if any, on the motion for [terminating] sanctions." Id.
On September 13, 2013, Attia and Respondents submitted final briefs concerning the allegations of spoliation of evidence and whether terminating sanctions were warranted. Pet. ¶ 25. Respondents argued that "Mr. Attia's behaviors of spoliation have depleted any opportunity for Respondents to defend against Mr. Attia's claims and effectively prosecute their counterclaims against him." Pet. Ex. 11 at 1. Respondents requested "that terminating sanctions be imposed against Mr. Attia as to his claims and that a default judgment be granted against Mr. Attia as to Respondents' counterclaims." Id. at 4 (emphasis added). Respondents submitted a "declaration from their forensics expert [Matthew Blake] in further support of their motion for terminating sanctions." Id. Exhibit A, Declaration of Matthew Blake, dated September 12, 2013 ("Blake Declaration").
The Blake Declaration stated, in part, that: (1) "Attia reinstalled the Mac OS X operating system on [the laptop] thereby removing from it all data and information it contained during his employment," (2) "Attia reverted the iPad to factory settings [which] made all data on the iPad unrecoverable," (3) "Attia removed the SD cards from [ADX Blackberries] and kept the cards [and] the SIM cards were missing from each phone when they were returned," (4) "Attia [] wrongfully and surreptitiously logged into the Respondents' hosting company's . . . website several times after his termination and intentionally deleted his entire ADX e-mail account, including his former inbox, sent mail, and deleted items, " and (5) "Attia [] cut-off ADX employees' access to ADX documents on a Google Docs account tied to Attia's personal Gmail account and controlled by Attia but used for ADX business purposes." Pet. Ex. 11 Exhibit A ¶¶ 5, 7, 9, 10, 14 (emphasis in original). Finally, Blake alleged that a "review of the [emails Attia did produce] also revealed that Attia selectively produced e-mails in his possession and that there are e-mails that still remain unaccounted for." Id. ¶ 30.
Attia argued, in opposition, that "Respondents do not and cannot make any showing that Claimant either [sic] destroyed a single document, material to the claims and defenses in this arbitration, and therefore fail to make out even a prima facie case for spoliation." Pet. Ex. 9 at 1. Attia further argued that Respondents "do not and cannot refute the facts set forth in Claimant's affidavit, that after his termination, Claimant merely removed Respondents' access to (i) his emails; (ii) his personal Google Drive; and (iii) deleted his personal information and applications on his Company laptop and iPad, but preserved, and produced all company emails and documents either before or during this arbitration." Id. at 2. Attia did not submit an affidavit from an expert witness. He provided his own supporting affidavit which, among other things, stated that "no documents had been destroyed, that all emails and other materials had been preserved and disclosed." Pet. ¶ 25; see also Pet. Ex. 9, Affidavit of Olivier Attia, dated September 13, 2013 ("Attia's Affidavit").
Thereupon, Respondents moved to strike Attia's Affidavit, contending that "[i]n denying Respondents' request for limited additional discovery from the Claimant, [Arbitrator Townley] indicated that [the September 13, 2013] submissions were to be from experts only as the hearing previously set would have only included testimony from experts." Pet. Ex. 10 at 3. Counsel for Attia responded that "as set forth in his affidavit, Mr. Attia is an expert and his affidavit should in no way be stricken." Id. at 2. Arbitrator Townley granted Respondents' motion to strike Attia's Affidavit. She held that "[t]he proposition that any claimant would be qualified by a judge or an arbitrator to serve as an 'expert' witness in a matter involving his own claim lacks any basis in case law, federal or state rules of evidence, as well as logic." Id. at 1.
On November 5, 2013, Arbitrator Townley issued her "Partial Final Order" ("Partial Order"). She found that "[t]he history of Claimant's actions during the discovery clearly support Respondent's request for terminating sanctions," and that "Attia had a duty to preserve evidence, including electronically stored information ('ESI'), that may be relevant to reasonable foreseeable litigation." Partial Order at 1, 7. Arbitrator Townley also found that "Claimant's position [that the data was secured at "remote locations"] is disingenuous, at best, and is emblematic of his conduct throughout the discovery process, which has been far from exhibiting good faith." Id. at 13. Relying upon the Blake Declaration (see supra n. 2), Arbitrator Townley concluded that:
The foregoing conduct of Claimant warrants terminating sanctions, especially the intentional deletion of evidence and proprietary information after specific notice for their return, as well as the very late production of tens of thousands of e-mail pursuant to discovery orders. It is clear that Respondents' concerns about their ability to defend against Claimant's allegations and prosecute their counterclaims are fully supported by the record. Accordingly, Respondent's motion for terminating sanctions against Claimant is hereby granted and a default judgment is entered against Claimant.Id. at 15-16 (emphasis added).
On January 31, 2014, Respondents submitted their "Request for Damages and Final Award on Entry of Default Judgment." Pet. Ex. 20. Respondents "estimate[d] that Claimant's misconduct resulted in compensatory damages amounting to $9,051,916.81 . . . [and] Respondents are entitled to punitive damages in the amount of $3,000,000," along with attorneys' fees and costs. Id. at 6. In support, Respondents submitted the affidavit of David Ristow, Director of Investments at Eurovestech PLC, and board member of ADX, SA. Pet. Ex. 20, Declaration of David Ristow, dated January 31, 2014 ("Ristow Declaration"). On April 3, 2014, Attia filed an opposition to Respondents, arguing that:
(i) Respondents never sought a default judgment on counterclaims at any time and therefore Claimant never had reasonable notice nor a reasonable opportunity to respond to a request for relief, (ii) the Arbitrator did not retain jurisdiction to hear an application for counterclaim damages and did not grant a default judgment on Respondents' counterclaims, (iii) Respondents cannot prove and have not proven even a solitary dollar of damages coming from their frivolous and unfounded counterclaims, (iv) Respondents' theories of damages, even if supported with evidence (which they are not), are not causally related to the claims asserted, and (v) all of the counterclaims, including breach of contract, breach of fiduciary duty and faithless servant, are not well pleaded and cannot sustain entry of a default judgment in the form of money damages.Pet. Ex. 22 at 1.
On November 13, 2014, Arbitrator Townley issued a Final Award ("Final Award"). Pet. ¶ 38; see also Final Award. Arbitrator Townley noted that, "Claimant raised many issues related to liability and causation in its brief dated April 5, 2014, that shall not be addressed, given the matters are mooted by the Partial Final Order [dated November 5, 2013], This would include arguments regarding 'frivolous counterclaims . . . which are not well pleaded'; 'theories of damages' are 'not casually related to the claims asserts' and many others." Final Award at 10. Arbitrator Townley held that "Respondents are to be awarded $9,051,916.81 in compensatory damages," along with "attorneys' fees of $170,699.50 and costs incurred in the amount of $73,342.50." Id. at 12, 14. Arbitrator Townley ruled that the "administrative fees and expenses of the [International Centre for Dispute Resolution], totaling $17,200.00, and the compensation and expenses of the Arbitrator, totaling $56,250.00, shall be borne entirely by Claimant." Id. at 14. Arbitrator Townley also determined that "no punitive damages are to be awarded," because "an arbitration award is not designed to be punitive in nature, but rather is to be compensatory." Id. at 12. In total, the amount that Attia was required to pay pursuant to the Final Award was $9,371,378.72.
In their November 20, 2012 counterclaim, Respondents had stated that the "relief requested herein falls within the range of $1,000,000 to $5,000,000." Pet. Ex. 2 at 29. Attia argues that "[t]he Arbitrator grossly exceeded her authority to issue an award in excess of $9,000,000 since Claimant had absolutely no notice that such an award would even be considered." Pet. ¶ 93. --------
For the reasons set forth below, Attia's Petition to vacate is granted, and Respondents' cross-petition to confirm is denied.
II. Legal Standard
"Although judicial scrutiny of arbitration awards necessarily is limited, such review is sufficient to ensure that arbitrators comply with the requirements of the statute at issue." Gilmer v. Interstate/Johnson Lane Corp., 111 S. Ct. 1647, 1655 (1991) (quoting Shearson/Am. Express Inc. v. McMahon, 107 S. Ct. 2332, 2340 (1987)). A "denial of fundamental fairness [in] the arbitration proceeding [will] warrant vacating the award." Cong. Sec., Inc. v. Fiserv Correspondent Servs., Inc., 102 F. App'x 190, 191-92 (2d Cir. 2004); see also Kaplan v. Alfred Dunhill of London, Inc., No. 96 Civ. 259 (JFK), 1996 WL 640901, at *7 (S.D.N.Y. Nov. 4, 1996) ("The deference due an arbitrator does not extend so far as to require a district court to countenance, much less confirm, an award obtained without the requisites of fairness or due process.").
Under the Federal Arbitration Act ("FAA"), "the validity of an award is subject to attack only on those grounds listed in [9 U.S.C.] § 10, and the policy of the FAA requires that an award be enforced unless one of those grounds is affirmatively shown to exist." Wall Street Assocs. L.P. v. Becker Paribas Inc., 27 F.3d 845, 849 (2d Cir. 1994). For example, FAA § 10 provides that the Court may vacate an arbitral award "where the arbitrators were guilty of . . . refusing to hear evidence pertinent and material to the controversy." 9 U.S.C. § 10(a)(3).
"A fundamentally fair hearing requires that the parties be permitted to present evidence and cross-examine adverse witnesses." Kaplan, 1996 WL 640901 at *5 (citing Robbins v. Day, 954 F.2d 679, 685 (11th Cir. 1992)). "If the arbitrator refuses to hear pertinent and material evidence to the prejudice of one of the parties, the arbitration award may be set aside." Id. (citing Hoteles Condado Beach, La Concha & Convention Ctr. v. Union De Tronquistas Local 901, 763 F.2d 34, 39-40 (1st Cir. 1985)).
III. Analysis
The Arbitrator Excluded Evidence that was Pertinent and Material to the Controversy.
In seeking to vacate the Partial Order, Attia contends, among other things, that (1) "Arbitrator Townley issued her order of 'terminating sanctions' without a hearing and without submission of any admissible factual evidence, in the form of factual affidavits or otherwise," (2) "Arbitrator Townley denied Petitioner's attempt to submit an affidavit [refuting spoliation] on his own behalf, and denied Petitioner an opportunity to respond to several of Respondents' claims that were made for the first time in Respondents' final written submission [dated September 13, 2013];" and (3) the denial of Atria's Affidavit amounted to "[e]xcluding evidence that is plainly 'pertinent and material to the controversy' [under] 9 U.S.C. § 10(a)(3), [and] is misconduct rising to the level of fundamental unfairness." See Pet. ¶¶ 64, 67.
Respondents counter that "both parties had equal opportunity to submit expert and factual evidence . . . Arbitrator Townley never refused to hear or consider Attia's explanations," and "Arbitrator Townley allowed Attia every opportunity to make whatever submissions he required (short of deeming himself an expert in his own case)." Resps.' Mem. in Opp. at 16.
On August 7, 2013, following the Arbitrator's cancellation of the noticed August 21, 2013 spoliation hearing, Arbitrator Townley advised the parties that "she [was] able to rule on the Motion [for sanctions] without the input of expert witnesses." Pet. Ex. 8 at 1 (ermphasis added). Arbitrator Townley instructed that the parties were "free to append affidavits to their supplemental submissions to address any of the technical matters that might have [been] the subject of testimony by the experts at the August 21st hearing." Id. When Attia submitted his September 13, 2013 letter opposing terminating sanctions, which included his own Affidavit explaining that "no Audionamix data or documents were lost or destroyed," Attia's Affidavit ¶ 26, Respondents' moved to strike Attia's Affidavit. Pet. Ex. 10 at 3. As noted, the Arbitrator agreed with Respondents, holding that "Claimant's affidavit as an 'expert witness' is hereby stricken from his opposing brief on Respondent's Motion for Sanctions." Pet. Ex. 10 at 1; see supra pp. 6-7.
Arbitrator Townley's rationale that the "proposition that any claimant would be qualified by a judge or an arbitrator to serve as an 'expert' witness in a matter involving his own claim lacks any basis in case law, federal or state rules of evidence, as well as in logic," Pet. Ex. 10 at 1, was legally incorrect and Attia was severely prejudiced as a result. Nothing in the Federal Rules of Evidence prohibits a party from serving as an expert witness. See Tagatz v. Marquette University, 861 F.2d 1040, 1042 (7th Cir. 1988) (Posner, J.) ("nothing in [Rule 702's] language suggests that a party cannot qualify as an expert."); Rodriguez v. Pacificare of Texas, Inc., 980 F.2d 1014, 1019 (5th Cir. 1993) ("Nothing in the Federal Rules of Evidence prohibits a party from serving as an expert witness. The fact that the witness is a party is properly considered when the court assesses the witnesses' credibility."); Ralston-Purina Co. v. Bertie, 541 F.2d 1363, 1367 (9th Cir. 1976) ("[Defendant's] interest in the action and recent business failures would affect the weight, not the admissibility of his testimony."); Liberty Mut. Ins. Co. v. B. Frank Joy Co., 424 F.2d 831, 832-33 (D.C. Cir. 1970) ("[D]isinterestedness is not required of expert witnesses any more than it is required of ordinary witnesses. The interest of a witness is merely one matter that goes to the weight of his testimony."); see also Christopher B. Mueller & Laird C. Kirkpatrick, 3 Federal Evidence § 7:8 (4th ed.) ("A party to a suit, if otherwise qualified as an expert, may testify as such in the case, and neither Rule 702 nor concerns over the fact that such a person is obviously self-interested should prevent a party from qualifying as an expert witness in his own cause.").
And, even assuming arguendo, that Attia were not able to qualify as an expert, his Affidavit would be generally admissible as the testimony of a fact witness. See Sealey v. Giltner, 197 F.3d 578, 586 (2d Cir. 1999) ("Triers of fact, whether juries or judges, have the obligation to assess the credibility of witnesses . . . [and] plaintiff's testimony in support of his own claim, if credited and persuasive, will normally suffice."); N.L.R.B. v. Combined Century Theatres, Inc., 278 F.2d 306, 308-09 (2d Cir. 1960) ("The statement of a party, not inherently improbable or impossible, is entitled to the weight the trier of facts believes he should attach to it. . . . . It needs no support or corroboration to achieve validity."). The Court notes that Attia's testimony, if credited, would undermine (vitiate) any termination and default against him.
Respondents, in fact, proceeded as if Attia were a critical witness who would be testifying at the August 21, 2013 spoliation hearing. Pet. Ex. 8 at 1 (Following the cancellation of the August 21, 2014 hearing, Respondents notified Arbitrator Townley that "[m]uch of what we had hoped to present would have been through the anticipated testimony of Claimant himself at the previously-scheduled August 21 hearing."). Respondents were first informed otherwise on August 8, 2013, when Arbitrator Townley instructed the parties that "Claimant would not be testifying under any circumstances." Id. At no time prior to August 8, 2013 did Claimant or Respondents request or suggest that the scope of the spoliation hearing should be limited solely to expert testimony. Indeed, Arbitrator Townley's August 7, 2013 scheduling order stated that "[t]he Arbitrator notes that, after a review of the Motion papers, she is able to rule on the Motion without the input of expert witnesses" and set a deadline for "submission of affidavits or additional argument, if any, on the motion for sanctions." Pet. Ex. 7.
Respondents' September 13, 2013 filing in support of their motion for terminating sanctions alleged that "Mr. Attia had reinstalled the MAC OS X operating system on the ADX laptop, reverted the iPad to factory settings . . . with regard to the two ADX blackberries . . . removed the SD and SIM data storage cards from these devices . . . and intentionally delet[ed] his entire ADX e-mail account, including his former inbox, sent mail, and deleted items." Pet. Ex. 11 at 1-2.
Attia's Affidavit directly refuted Respondents' spoliation claims. See Pet. Ex. 9, Attia's Affidavit ¶ 13 ("On August 30, 2012, I received notice of my termination, and 'un-linked' my emails from the server, so that all emails (approximately 74,631), so I could then separate my persona] emails from business emails."); id. ¶ 15 ("I [] retained a network systems expert named Robert Drangel who converted the Gmail emails to .PST format for production to Respondents."); id. ¶ 17 ("I did not destroy any Audionamix emails."); id. ¶ 22 ("I did not delete any Company documents that were on my Google Docs account drive, and I provided copies of all documents to David Ristow [Board member of ADX, SA] in November 2012, on a USB drive and Micro SD card [which] contained all Audionamix documents in my possession.").
The Court finds that the testimony included in Attia's Affidavit was "evidence pertinent and material to the controversy." See 9 U.S.C. § 10(a)(3). Arbitrator Townley's decision to strike the Affidavit was fundamentally unfair and in violation of 9 U.S.C. § 10(a)(3) and Attia obviously was prejudiced as a result. See Tempo Shain Corp. v. Bertek, Inc., 120 F.3d 16, 20 (2d Cir. 1997).
Attia's testimony was clearly germane to Respondents' spoliation claims, and was evidence that should have been taken into consideration by Arbitrator Townley prior to issuing the Partial Order. See Kaplan, 1996 WL 640901 at *5, 7 ("[A]n affidavit that Crichlow engaged in various misconduct . . . that contributed to the decision to terminate his employment. . . . bears directly on the issue of whether Dunhill had just cause to terminate Crichlow and is therefore pertinent and material within the meaning of § 10(a)(3)."); see also Elkouri & Elkouri, How Arbitration Works, 407 (5th Ed. 1999) ("[T]he more serious danger is not that the arbitrator will hear too much irrelevancy, but rather that he will not hear enough of the relevant."); see also Cooley, John W. & Steven Lubet, Arbitration Advocacy, Second Edition, 124 (NITA 1997) ("Most arbitrators conduct arbitrations with a commonsense notion of what is important to resolve a case. They apply a low threshold for admitting evidence, and they weigh the reliability and importance of the evidence as the hearing continues and issues evolve . . . Also, many arbitrators liberally admit evidence in arbitration in order to obviate a later court challenge to their awards based on allegations of unfair preclusion of critical evidence").
Attia was prejudiced by Arbitrator Townley's decision to strike his Affidavit. It resulted in a $9,051,916.81 award against him. Attia, as CEO and Chairman of ADX and ADX, SA, had direct knowledge about Respondents' electronically stored documents. There was no other witness equally "competent to address the substantive core of [his] claims [refuting spoliation]." See Commercial Risk Reinsurance Co. v. Sec. Ins. Co. of Hartford, 526 F. Supp. 2d 424, 429 (S.D.N.Y. 2007). Attia was further prejudiced because the decision to strike his Affidavit left the declaration of Respondents' expert, Matthew Blake, entirely unchallenged. See Tempo Shain, 120 F.3d at 20 (Vacating an arbitral award under § 10(a)(3) after finding that "[Plaintiffs'] unsupported oral testimony . . . was unrebutted because Pollock, who allegedly made the representations on [Defendant's] behalf, was not allowed to testify, and he is the only person who could have done so."); see also Hoteles Condado, 763 F.2d at 40 (Affirming the vacatur of an arbitral award where the Arbitrator "refused to give any weight [to] . . . testimony [that] was unquestionably relevant to a determination of whether Otero actually engaged in immoral conduct in violation of the Company's disciplinary regulations . . . no other evidence was available to substantiate or to refute the Company's charges that Otero had violated the rules regarding employment.").
Attia's prejudice was compounded by the fact that Arbitrator Townley relied on the Blake Declaration in issuing her Partial Order which terminated Attia's Arbitration Claim, and also led to the default judgment entered against him on Respondents' counterclaims and the Final Award in the amount of $9,051,916.81. See Final Award at 6-7 ("The November 2013 Partial Final Order granting terminating sanctions as a matter of law included an entry of default judgment against Claimant as the spoliating party, thereby resolving the issue of liability and causation . . . . Accordingly, in this instant matter, the only question on damages is that of the amount to be awarded to Respondents.").
"Principles of fundamental fairness required that [Claimant] be given a full opportunity to present [his] case to the arbitrator for consideration." Kaplan, 1996 WL 640901 at *7 (quoting Teamsters, Chauffeurs, Warehousemen & Helpers, Local Union No. 56 v. E.D. Clapp Corp., 551 F. Supp. 570, 578 (N.D.N.Y. 1982), aff'd 742 F.2d 1441 (2d Cir. 1983)). Attia was denied a "fundamentally fair hearing," and, therefore, the Partial Order rendered against him must be set aside. See Cong. Sec., Inc., 102 F. App'x at 191-92.
"Given this result, the Court need not reach [Claimant's] other asserted grounds for vacating the arbitration awards." Kaplan, 1996 WL 640901, at *7. And because the Partial Order was the precursor of the Final Award, the Final Award is also vacated. See Square Plus Operating Corp. v. Local Union No. 917, No. 90 CIV. 1713 (LJF), 1992 WL 116610, at *2 (S.D.N.Y. May 15, 1992) (finding that "arbitration award must be vacated in its entirety" upon showing of violation under 9 U.S.C. § 10); see also PoolRe Ins. Corp. v. Organizational Strategies, Inc., 783 F.3d 256, 265 (5th Cir. 2015) (affirming vacatur of arbitral award, including "attorney's fees, expenses, and costs . . . in the amount of $451,244.44," where "the arbitrator exceeded his authority . . . [and] tainted the entire process.").
IV. Conclusion & Order
Claimant's motion to vacate the arbitration awards [No. 13] is granted, and Respondents' cross-motion to confirm the awards [No. 14] is denied. The arbitration awards are vacated and the matter is remanded to the AAA for rehearing and further proceedings in accordance with this Decision & Order. Dated: New York, New York
September 21,2015
/s/ _________
RICHARD M. BERMAN, U.S.D.J.