245 Park Member LLC v. HNA Grp. (Int’l) Co., 1:22-cv-5136-JGK (S.D.N.Y. July 25, 2022)
In 2017, Petitioner 245 Park JV LLC, a U.S. affiliate of Respondent HNA Group (International) Company Limited (“HNA”), bought property at 245 Park Avenue in New York City. In June 2018, Petitioner 245 Park Member LLC made a preferred equity investment of $148 million in 245 Park JV LLC.
As inducement for the investment, Petitioner secured contractual rights and protections, including an absolute, unconditional, and irrevocable Guaranty from HNA. The Guaranty contained an arbitration clause providing for binding arbitration in New York, administered by “JAMS in accordance with JAMS Streamlined Arbitration Rules and Procedures ….” It also provided for an expedited schedule; each party would make its submissions within seven days of the appointment of the arbitrator, and the final award would be rendered within 30 calendar days of those submissions.
Petitioner commenced an expedited JAMS arbitration on December 21, 2021, arguing that events had occurred that triggered HNA’s obligations under the Guaranty. In a scheduling order, the arbitrator denied Respondent’s request for discovery and an evidentiary hearing. The arbitrator reasoned that the parties had established an extremely expedited process in their arbitration agreement that did not contemplate time for discovery, and that the Guaranty did not provide for a hearing. The arbitrator then issued an award in favor of Petitioner.
The Court Proceedings
Petitioner sought to confirm the award and Respondent moved to vacate it. Respondent argued that, since the arbitrator denied the request for discovery and an evidentiary hearing, the arbitration process and award were fundamentally unfair and contrary to the terms of the arbitration agreement.
The court disagreed. It reasoned that an award is fundamentally unfair only if the challenging party’s “right to be heard has been grossly and totally blocked.” Arbitrators are given wide discretion to decide whether or not to hear evidence and, as long as a decision based solely on documentary evidence is reasonable, the proceeding is not fundamentally unfair. Here, the arbitrator considered extensive submissions by the parties in connection with the scheduling decision and the final merits decision, and there was no fundamental unfairness in either decision.
The court also rejected Respondent’s argument that the procedure imposed by the arbitrator was contrary to the terms of the parties’ arbitration agreement. The court noted that an award must stand as long as an arbitrator provides a “barely colorable justification” for his or her interpretation of the contract. Here, while the JAMS Rules provide for discovery and a hearing, the arbitrator noted that the JAMS Rules also explicitly allow parties to waive an oral hearing and agree on procedures not contained in the rules. The arbitrator provided more than a colorable justification for her finding that the terms of the arbitration agreement conflicted with, and displaced, the JAMS Rules. The arbitration procedure was thus not contrary to the parties’ agreement.
The court accordingly granted the petition to confirm the award and denied the motion to vacate.
This Article was originally published in the North America Newsletter.