Cognac Ferrand S.A.S. v. Mystique Brands LLC, No. 20 Civ. 5933 (S.D.N.Y. Jan. 31, 2021) [click for opinion]
In 2008, Petitioner and Cross-Respondent Cognac Ferrand S.A.S (“Ferrand”), a French producer of liquor and spirits, entered into an exclusive marketing agreement with Respondent and Cross-Petitioner Mystique Brands LLC (“Mystique”). In the agreement, Mystique agreed to purchase certain minimum amounts of Ferrand’s products each year and to enter into a marketing agreement with Calvin Broadus a/k/a Snoop Dogg at Mystique’s expense to promote Ferrand’s products.
In 2009, Ferrand terminated the agreement with Mystique, citing Mystique’s purported insolvency and unpaid royalties to Snoop Dogg. Mystique disagreed with Ferrand’s contract termination and initiated arbitration proceedings for damages. Ferrand counterclaimed for damages. After two years of arbitration, both parties moved for summary judgment dismissing some or all of the other’s claims.
In June 2012, the arbitrator issued an interim award granting Ferrand’s motion and denying Mystique’s. The interim award held that Mystique was undisputedly insolvent and had failed to make the Snoop Dogg royalty payments when Ferrand terminated the agreement, and that Ferrand therefore did not breach the contract by doing so. The arbitrator also rejected Mystique’s affirmative defenses, denied its motion for summary judgment on Ferrand’s breach of contract claim, and directed the case to proceed to an evidentiary hearing on that and most of Ferrand’s other counterclaims.
In January 2013, however, Mystique filed for bankruptcy, and the initial arbitration was automatically stayed pending the bankruptcy proceedings, and then dismissed. Four years after the initial proceeding was dismissed, after the bankruptcy proceedings were ended and the automatic stay lifted, Ferrand reinstated the arbitration. A new arbitrator was appointed, who ultimately dismissed Ferrand’s claims. The arbitrator awarded Mystique its fees and costs of almost $2 million as the “prevailing party” because “Ferrand’s claims failed entirely”.
Ferrand brought an action in the U.S. District Court for the Southern District of New York, seeking to vacate the award of fees and costs under the New York Convention on the Recognition of Foreign Arbitral Awards (the “New York Convention“), implemented by 9 U.S.C. §§ 201-208. Ferrand further sought to enjoin Mystique’s parallel effort to enforce the award in France. Mystique opposed Ferrand’s motion and request for preliminary injunction, filed a cross-petition to confirm the award, and moved for sanctions against Ferrand under 28 U.S.C. § 1927 and Federal Rule of Civil Procedure 11(b).
Ferrand argued that the award of costs and fees should be vacated because, in determining that Mystique was the prevailing party, the arbitrator exceed her authority by disregarding the proceeding before the first arbitrator, manifestly disregarding certain terms of the contract, and failing to render a final, definite award by not addressing Ferrand’s requests for fees and costs. Ferrand primarily argued that Mystique lost on its claims in the first arbitration, which the second arbitrator did not consider.
The court first determined that the Federal Arbitration Act (the “FAA“) governed the dispute because the arbitration itself took place within the United States. After recognizing that review of an arbitral award under the FAA is severely limited, the court determined that the arbitration award could not be vacated because the arbitrator did not exceed her powers, did not demonstrate a manifest disregard of the law, and the award was final and definite and did not leave any issue unresolved, stating: “[i]n the end, the Court does not have the legal charter to second-guess the Arbitrator’s application of the prevailing-party provision to the quirky facts here” even though “the Arbitrator marshalled scant reasoning for some of her conclusions, and arguably gave insufficient attention to some aspects of the dispute”.
The court also granted Mystique’s petition to confirm the award, but denied its motion for sanctions holding that, although “Ferrand’s arguments fail—resoundingly”, they were not without color or brought in bad faith under the facts of the case and that “Ferrand’s arguments clear the level of frivolity, albeit by a narrow margin”. In addition, because the court confirmed the award, the court determined that Ferrand’s request for a preliminary injunction to enjoin enforcement of the award by Mystique in France was moot.
A version of this post originally appeared in the March 2021 edition of Baker McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky and Jacob Kaplan.