Simon Bloom of Bloom Sugarman. (Courtesy photo)
In what a prevailing lawyer described as needed guidance “solidifying” an arbitrator’s venue-setting authority, the U.S. Court of Appeals for the Eleventh Circuit upheld an international arbitration award levying nearly $900,000 against an Israeli company accused of defaming its onetime Georgia business partner.
The Israeli company, Profimex, commenced the dispute in 2014 by filing a breach of contract action against Norcross-based OA Development in Georgia, only to be hit with counterclaims accusing it of circulating dozens of emails claiming OAD was dishonest.
Both sides received damages, but Profimex, a subsidiary of the named plaintiff Bamberger Rosenheim Ltd., asked a federal judge to void the award against it by arguing a clause in the companies’ 2008 contract mandated any dispute be arbitrated in the challenged company’s chosen venue. That meant the counterclaims should have been arbitrated in Tel Aviv instead of Atlanta.
The Georgia-based arbitrator rejected that position, and last year Judge Eleanor Ross of the U.S. District Court for the Northern District of Georgia agreed. Ross confirmed the award, though she did reduce the total by more than $57,000 to reflect damages for two defamatory statements she found were improperly included.
Profimex filed the breach of contract action against OAD in Atlanta in 2014 seeking hundreds of thousands of dollars in fees from the sale of an apartment complex.
Ross’ judgment included general and punitive damages and almost $235,000 in attorney fees. OAD’s lawyers also have filed a request for an additional $170,000 for expenses tied to the federal court challenge.
Monday’s Eleventh Circuit decision was written by Eighth Circuit Senior Judge Michael Melloy, sitting by designation on a panel that included Judges Beverly Martin and Jill Pryor.
Profimex argued the arbitrator and trial court flouted rules governing international arbitration and those of the Federal Arbitration Act, but the appellate panel ruled the arbitrator properly interpreted the venue-selection clause. The court ruled it lacks authority to second-guess that decision.
“[W]hile venue may impact the rules and laws applicable in international arbitration … we see no reason why arbitral venue must be a question presumptively reserved to the courts,” Melloy wrote.
While substantive questions such as whether an arbitration clause is binding or applicable to a particular dispute may be proper for court review, procedural questions—such as the interpretation of the venue clause at issue—reside with the arbitrator.
If the parties don’t want an arbitrator to resolve arbitral-venue disputes, they are free to make that clear in their arbitration agreement, Melloy said.
Simon Bloom, who represents OAD with Bloom Sugarman colleague Troy Covington, said the ruling confirmed his position: That Profimex, unsatisfied with the arbitrator’s ruling, attempted to bootstrap the award-confirmation process into an improper appeal of the award itself.
“This whole post-award litigation mechanics is nothing more than an effort to delay the inevitable collection of the defamation damages,” Bloom said.
“I think the Eleventh Circuit got it right because, if arbitration is going to be a valuable means of resolving disputes, when the gavel drops it’s got to mean something. This party has used it as a precursor to normal litigation procedure. … If there’s no finality, who’s going to go to the trouble and expense of arbitration?”
“The bar has been yearning for a solidification of the principle that the venue for an arbitration is a procedural matter that must be made by the arbitrator and given deference by the courts,” Bloom said.
The lawyers for Profimex, Greg Hecht and Jon Jordan of Stockbridge’s Hecht Walker, said via email that they “continue to believe bargained-for forum selection clauses in international arbitration agreements to be critical to international commerce. We believe that the unique legal significance of international forum selection agreements make them questions of substantive arbitrability and that too much deference to arbitrators on such issues may have a chilling effect on international parties’ willingness to engage in arbitration agreements.”
“Though we respect the panel’s decision, our client is considering further appeal of these very critical issues of international arbitration law,” they said.
OAD filed its answer and counterclaims for defamation that originally involved five emails from Profimex principals accusing AOD of fraud, breach of trust and claiming the firm had “crooks in Atlanta and crooks in Israel. Birds of a feather!!!”
OAD’s lawyers subsequently added dozens more instances of Profimex officers bad-mouthing OAD staff by accusing them of lying and hiding money, both in English and Hebrew. The arbitrator allowed more than 30 statements to be added to complaint over Profimex’s objections.
Profimex argued OAD’s counterclaims should be arbitrated in Tel Aviv, but arbitrator Nisbet Kendrick III of Kennesaw’s Kendrick Conflict Resolution ruled Atlanta was the proper venue because Profimex initially filed the dispute against OAD.
Kendrick entered his final award in 2015 granting Profimex $401,676, including $296,052 in principal, $34,674 in preaward interest and $70,949 in attorney fees on its breach of contract claims.
Kendrick awarded OAD $950,000 on its defamation counterclaims, including $500,000 in general damages, $200,000 in punitive damages and $250,000 in attorney fees.
OAD did not challenge the damages awarded against it, but Profimex filed a petition to have the defamation damages vacated.
Other than reducing Kendrick’s award to OAD, which was unopposed by OAD, Ross declined to do so.
In affirming her decision, Melloy wrote that Profimex “concedes that the arbitration clause in the [contract] was binding. Similarly, Profimex does not dispute that the arbitration clause applied to the defamation counterclaim. Profimex merely argues that the arbitration was conducted in the wrong arbitral venue.”
“We conclude that questions of arbitral venue, even those arising in international arbitration, are presumptively for the arbitrator to decide,” he wrote.
Citing the U.S. Supreme court’s 2013 decision in Oxford Health Plans LLC v. Sutter, Melloy wrote “[t]he arbitrator’s construction holds, however good, bad, or ugly.”
Alston & Bird partner Randall Allen, who co-chairs the firm’s International Arbitration & Dispute Resolution practice and is not involved in the case, said the appellate opinion “is really not all that remarkable. Again, the court has recognized the need to give considerable deference to the arbitral tribunal when parties choose to arbitrate. That is an approach deeply embedded in the policy of the U.S. courts, but also seems to contain a dose of common sense on these somewhat unusual facts.”