An Israeli company has asked a federal judge in Atlanta to declare that an arbitrator had no authority to levy hundreds of thousands of dollars in damages against it in response to claims of defamation made by a Norcross company.
The case stems from a sprawling dispute between Israel-based Profimex and Norcross-based OA Development (OAD). It started when Profimex claimed to an arbitrator in Kennesaw that OAD owed Profimex hundreds of thousands of dollars in fees from real estate deals. OAD responded with counterclaims that Profimex officials defamed OAD to investors in emails, some of which were written in Hebrew.
The arbitrator, Nisbet Kendrick III of Kennesaw’s Kendrick Conflict Resolution, in December awarded Profimex $401,675 in unpaid fees, interest and attorney fees. But Kendrick also awarded OAD $950,000 on its counterclaims, leaving OAD ahead by about $550,000.
Profimex argues that OAD’s claims should have been handled in Tel Aviv, Israel, because the arbitration clause in the companies’ contract mandated that any dispute be arbitrated in the defendant company’s chosen venue, Atlanta for claims against OAD and Tel Aviv for claims against Profimex.
Lawyers for OAD argue that Profimex’s effort to have their claims set aside turns the federal court into an appellate forum for arbitration awards losing parties don’t like. Allowing Profimex’s case to go forward, OAD’s lawyers said, threatens to undermine the very reasons that binding alternative dispute resolution exists.
Attorneys on each side argue that the contract’s language and International Chamber of Commerce rules—which the contract specified should govern any disputes—support their contentions.
“The agreement that has the arbitration clause specifically provides that any claims against our client by OAD are to be arbitrated in Tel Aviv,” said Jon Jordan of Stockbridge’s Hecht Walker, who represents Profimex with firm partner Greg Hecht.
Jordan noted that there is little case law dealing with such a dispute, but he pointed to a 2010 decision out of the Ninth U.S. Circuit Court of Appeals. It held 2-1 that claims and counterclaims between a California company and one based in Belarus should have been adjudicated separately in each party’s home venue.
The appellate court in Polimaster Ltd. V. RAE Sys. Inc. 623 F.3d 832, said Jordan, “said the arbitrator never should have considered the counterclaim, no matter how much more inconvenient it may be, even if there’s redundancy, the parties’ agreement is the parties’ agreement.”
But Simon Bloom, who represents OAD with firm colleague Troy Covington, said his opponents are simply trying to misuse the Federal Arbitration Act’s provision that an arbitration award be confirmed, vacated or modified by a federal court.
“They want to do away with the whole award; they’re trying to manipulate the FAA confirmation process to create an appeal process,” said Bloom. Profimex has detailed what it claims are errors in the arbitrator’s award “in an effort to bootstrap their challenge to the merits of the award itself,” he said.
“The rules say the final award is the final word,” Bloom said. “If we’re serious about persuading parties to pursue binding arbitration, there must be deference paid to the rules; otherwise it’s a complete farce and waste of money and we shouldn’t be telling clients to include arbitration clauses in their contracts.”
Both sides claim the issue is clear-cut. But Alston & Bird partner Randall Allen, who co-chairs the firm’s International Arbitration and Dispute Resolution practice and reviewed some of the dispute’s filings at the Daily Report’s request, said the issue was not straightforward.
He said the Ninth Circuit case Profimex is relying on involved a different contractual agreement than that at issue in the local dispute.