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The one-year statute of limitations for seeking federal court confirmation of an award under the Federal Arbitration Act is to be strictly construed, a Southern District of New York judge has ruled. Running contrary to most other federal courts that have considered the issue, Senior Judge Whitman Knapp said that the “plain language” of the act, and an analogous ruling by the 2nd U.S. Circuit Court of Appeals, dictate that the one-year limitation period is mandatory and not permissive. Knapp’s decision in Photopaint Technologies v. Smartlens Corporation, 01 Civ. 8877, effectively reopens a dispute over a license agreement by refusing to confirm an arbitration award of more than $300,000 to Photopaint. Photopaint’s 1997 license agreement with Smartlens to develop patented technology contained an arbitration clause invoked in 1998 when Smartlens allegedly breached the agreement. The arbitrator who heard the dispute signed a final award on May 26, 2000, that gave either party the right to rescind the license agreement within 30 days of receipt of the award. While Photopaint was entitled to receive about $320,000 if it chose to rescind, the company was set to receive approximately $384,000 if Smartlens opted to rescind the agreement. The parties then signed a series of extensions while they worked on a settlement. But unable to settle the case, Photopaint chose to rescind in July 2000. And when Smartlens refused to pay the $320,000, Photopaint filed a petition with Judge Knapp seeking confirmation of the arbitration award on Oct. 3, 2001, under the Federal Arbitration Act, 9 U.S.C. � 9. Smartlens moved to dismiss the petition, claiming it was time-barred under � 9′s one-year statute of limitations, which states that “a party wishing to confirm an arbitration award may apply to the court for a confirmation order any time within one year after the award is made.” Smartlens’ argument was that the one-year period began running with the arbitrator’s entry of a final award on May 26, 2000. Photopaint countered by arguing that the use of the phrase “may apply” by Congress implied a permissive rather than a mandatory limit. “The interpretation urged by Photopaint would impermissibly read the phrase ‘one year’ out of Section 9,” Knapp said. “Such a reading is unwarranted where, as here, the phrase ‘may apply’ can be reconciled with the one-year limitations period enumerated in Section 9 without rendering that limitations period altogether superfluous.” The use of the term “may,” he said, merely “qualifies a party’s right” to apply to the court for an order confirming the award. Although there was no 2nd Circuit decision directly on point, Knapp said the circuit reached a similar conclusion when confronted with a three-year limitations period in the Convention on the Recognition and Enforcement of Foreign Arbitral Awards in Seetransport v. Navimpex Centrala Navla, 989 F.2d 572 (1993). Knapp also said his decision “is at odds with the contrary interpretation of Section 9 adopted by the majority of federal courts which have addressed the issue,” including a 1996 decision by Southern District of New York Judge Lawrence M. McKenna. McKenna had found the limitations period in the act a “permissive provision” in In the Matter of the Arbitration Between Gronager v. Gilmore Securities & Co., 104 F.3d 355 (S.D.N.Y. 1996). But Knapp said: “With due respect to the courts which have determined that 9 U.S.C. Section 9 does not impose a one-year statute of limitations, we find that the plain language of the statute compels a contrary conclusion.” BENEFIT OF DOUBT Knapp then addressed Photopaint’s argument that it should be given the benefit of the doubt. While the arbitrator forwarded his decision to the American Arbitration Association (AAA) in May 2000, the company said, the AAA did not notify the parties until Oct. 3, 2000. Knapp was not persuaded. “Although the Final Award may not have been delivered to the parties until October 3, 2000, the arbitrator here decided the dispute before him on May 26, 2000,” he said. “Even if we had reason to doubt the arbitrator’s assessment of when he rendered the Final Award, we would still find that he made his decision with respect to the award on May 26th, for the Final Award constitutes a complete determination that was not contingent on any further decrees on the arbitrator’s part.” The judge rejected Photopaint’s argument that Smartlens should be equitably estopped from invoking the statute of limitations because it agreed to toll all time periods during the doomed settlement talks. Kevin M. Hart and Craig S. Hilliard of Stark & Stark in Princeton, N.J., represented Photopaint. Michael Sweedler and Kandis M. Khan of New York-based Darby & Darby represented Smartlens.

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