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Eddystone Rail Co. v. Jamex Transfer Servs., LLC, No. 17-cv-1266 (S.D.N.Y. Feb. 7, 2018) [click for opinion]

A district court in the Southern District of New York recently refused to allow a group of would-be Intervenors, all former affiliates and/or officers of Jamex Transfer Services, LLC (“Jamex”), to intervene in a proceeding brought by Eddystone Rail Company, LLC, to enforce $139 million agreed arbitration award in Eddystone’s favor against Jamex. The Court rejected the Intervenors’ request in spite of the fact that Eddystone had separately filed an action in the Eastern District of Pennsylvania (the “Pennsylvania Action”), alleging that the Intervenors stripped Jamex of its assets before orchestrating a sham transaction in which Jamex was sold to a shell company. The Court recognized that Eddystone aimed in the Pennsylvania Action to have the Intervenors declared to be alter-egos of Jamex, in order to “move one step closer to enforcing a confirmed arbitration award” against the Intervenors, but nevertheless excluded the Intervenors from enforcement proceedings.

In the district court’s own words, the legal question presented by the Intervenors, who were not parties to the arbitration proceedings between Edyystone and Jamex, was “whether a non-party to an underlying arbitration may intervene in a federal proceeding for the purpose of challenging the validity of an arbitration award.” The court refused to allow an intervention for multiple reasons.

First, the district court held that the Intervenors had no standing to intervene in enforcement proceedings because they had not established a constitutionally-required injury in fact. The Intervenors’ alleged injury amounted to the possibility that they might be declared alter egos of Jamex in the Pennsylvania Action, and subsequently be responsible for the award amount. The court held, “The proposed intervenors seek to vacate the arbitration award as part of their defense strategy in the Pennsylvania Action … [b]ut that reason alone is insufficient to demonstrate an injury in fact because it is just not possible for a litigant to prove in advance that the judicial system will lead to any particular result in his case.”

Similarly, the district court held that the Intervenors lacked a requisite “substantial interest” in the arbitration to intervene. In doing so, the court observed that, as a general rule, “a non-party to the arbitration may not seek to overturn its outcome.” The court then considered one exception to this general rule, applied by various courts in the Second Circuit, which had determined that, “in certain limited situations, a non-party may have so substantial an interest in an arbitration that it should be permitted to intervene as of right in a subsequent federal confirmation proceeding.” The court held that the Intervenors lacked such an interest, largely due to their position in the Pennsylvania Action that they were not alter egos of Jamex and that they bore no responsibility for the arbitration award. The court pointed out that the Intervenors “straddle[d] untenable positions”; that is, on the one hand, they claimed a substantial interest in the arbitration and award, but, on the other, they disavowed any affiliation with Jamex or liability for the award.

Finally, the court noted that enforcement actions are designed to be straightforward proceedings. In the court’s words, “Inviting non-parties to this arbitration confirmation proceeding, whose interests are conditioned on the outcome of a separate, pending action in another jurisdiction, would unduly delay what is otherwise supposed to be a straightforward action.”

In sum, the court viewed the Intervenors’ only interest in the enforcement action as “an inchoate fear that any judgment confirming the Arbitration Award may be enforced against them if Eddystone is successful in the Pennsylvania Action,” and refused to allow an intervention. In view of the district court’s holdings, parties concerned about possible alter ego liability for an arbitration award should consider intervening in the underlying arbitration itself, thereby avoiding any bar on intervention by non-parties in enforcement proceedings.

A version of this post originally appeared in the May 2018 edition of Baker McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky and Grant Hanessian.


David Zaslowsky has been practicing international litigation and international arbitration for almost 40 years. He has been Chambers-ranked in international arbitration and also sits as an arbitrator. He specializes in technology cases and is the editor of the Firm's Blockchain Blog and its International Litigation & Arbitration Newsletter.