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The Second Circuit Court of Appeals held that default judgments under Rule 55 of the Federal Rules of Civil Procedure are “generally inappropriate” in proceedings to confirm or vacate an arbitration award. The significance of the holding is limited primarily to challenges to arbitration awards since the Federal Arbitration Act (FAA) requires courts to grant an unopposed motion for confirmation.
In D.H. Blair & Co., Inc. v. Gottdiener, No. 04-3260, 2006 WL 2551218 (2nd Cir. Sep. 5, 2006), D.H. Blair and Gottdiener submitted an investment dispute to arbitration. The arbitrators awarded Gottdiener $255,000 in compensatory damages and $450,000 in punitive damages. The award also included prejudgment interest on all damages.
Following arbitration, D.H. Blair filed a petition in New York state court, seeking an order vacating part of the award—specifically, the award of prejudgment interest on punitive damages—and confirming the remainder. Gottdiener removed the case to federal court, explicitly reserving all defenses but taking no further action.
Since Gottdiener did not respond to the petition, D.H. Blair obtained a certificate of default and moved the district court for default judgment pursuant to Rule 55(b)(2) of the Federal Rules of Civil Procedure. In opposing the motion, Gottdiener argued there was no default under the rule because the petition was a motion rather than a complaint or pleading. The district court granted a default judgment, vacating the award of prejudgment interest on punitive damages and confirming the rest of the award.
On appeal, the Court determined that “default judgments in confirmation/vacatur proceedings are generally inappropriate” because “they are motions in an ongoing proceeding rather than a complaint initiating a plenary action.” Still, Gottdiener “should have responded in some fashion,” but the Court allowed her “some slack” given “the prior dearth of caselaw on the treatment of removed petitions to confirm or vacate arbitration awards.”
According to the Court, the district court should have treated the petition as a motion for summary judgment. More specifically, the motion to confirm should have been treated as an unopposed motion for summary judgment because Gottdiener raised no defense to that motion. Conversely, the motion to vacate should have been treated as a contested motion for summary judgment because Gottdiener raised the defense that the arbitrators were never apprised of the rule against prejudgment interest on punitive damages.
Applying that framework, the Court held that “confirmation of the entire arbitral award [wa]s appropriate” because the ‘motion to confirm was unopposed.” However, vacatur was improper because D.H. Blair failed to carry the “very high” burden of proof necessary to avoid confirmation. Specifically, D.H. Blair failed to demonstrate manifest disregard of the law because there was no evidence that the arbitrators were aware of the rule against prejudgment interest on punitive damages.
This decision should not be misconstrued as raising the bar for an unopposed motion to confirm an arbitration award. Under section 9 of the FAA, the court “must grant” a motion to confirm “unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title.” Sections 10 and 11 allow the court to vacate or modify award only “upon application” by a party.
Accordingly, if no one opposes a motion to confirm an arbitration award, the moving party is entitled to confirmation. See Eichleay Corp. v. International Ass’n of Bridge, Structural & Ornamental Iron Workers, 944 F.2d 1047, 1061 (3d Cir. 1991) (“Quite simply, the district court may not sua sponte raise a motion to vacate when a party has failed to file a timely petition.”); Taylor v. Nelson, 788 F.2d 220, 225 (4th Cir. 1986) (noting “confirmation can only be denied if an award has been corrected, vacated, or modified in accordance with the [FAA]”).
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