758 F. Supp. 2d 222
S.D.N.Y.2010Background
- Bayou Group funds' accounts at Goldman Sachs were involved in a Ponzi scheme; fraud was uncovered after 2005, and receivership followed.
- Bayou Funds filed bankruptcy; Creditors' Committee pursued claims against Goldman Sachs, alleging fraudulent transfers and inadequate diligence.
- FINRA arbitration (No. 08-01763) resulted on June 22, 2010 in a $20,580,514.52 award to the Creditors' Committee, without accompanying reasons.
- Goldman Sachs petitioned to vacate the award; Creditors' Committee cross-petitioned to confirm the award.
- The district court denied vacatur and cross-petition to confirm; Goldman Sachs seeks reversal by vacatur under 9 U.S.C. § 10 and manifest disregard theory.
- Court addresses whether the arbitration panel manifestly disregarded the law or exceeded powers, and evaluates deference to arbitration rulings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether manifest disregard survives Hall Street | Goldman Sachs contends manifest disregard is a basis for vacatur. | Creditors' Committee argues manifest disregard may apply post-Hall Street as a limited exception. | Not a viable independent ground after Hall Street; court declines vacatur on this basis. |
| Whether arbitrators exceeded their powers | Sachs argues the panel misapplied law on initial transferee and return credits. | Creditors' Committee contends panel reasonably applied applicable law to the facts. | Panel did not exceed powers; no grounds to vacate. |
| Whether Goldman Sachs had transferee liability as initial transferee | Gredd and related authority show dominion/control sufficient for initial transferee liability; panel could have found dominion and control. | Goldman Sachs insists it lacked dominion and control; proper law limits liability. | Arbitration panel could reasonably find dominion and control; no manifest disregard. |
| Credit for monies returned pre-petition | Arbitration panel should credit pre-petition returns as equitable reduction. | Cases cited are distinguishable; accounting is complex and not dollar-for-dollar. | No clear error; panel’s implicit findings support no automatic credit. |
Key Cases Cited
- Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (U.S. 2008) (limits manifest disregard as independent basis after Hall Street)
- Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 130 S. Ct. 1758 (S. Ct. 2010) (clarifies limits of independent grounds for vacatur)
- Duferco Int'l Steel Trading v. T. Klaveness Shipping A/S, 333 F.3d 383 (2d Cir. 2003) (three-factor test for manifest disregard applicability)
- Wallace v. Buttar, 378 F.3d 182 (2d Cir. 2004) (review standards for arbitral findings; implicit facts)
- Bear Stearns Sec. Corp. v. Gredd (In re Manhattan Investment Fund, Ltd.), 397 B.R. 1 (S.D.N.Y. 2007) (transferee liability with dominion/control similar to initial transferee theory)
- In re Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey, 130 F.3d 52 (2d Cir. 1997) (corporate liability doctrines under bankruptcy context)
- Bonded Fin. Servs., Inc. v. European American Bank, 838 F.2d 890 (7th Cir. 1988) (early articulation of related transferee liability concepts)
- In re Chase & Sanborn Corp., 848 F.2d 1196 (11th Cir. 1988) (bankruptcy liability framework for financial intermediaries)
- In re Kaiser Steel Corp., 110 B.R. 514 (D. Colo. 1990) (reorganization-era transferee considerations)
- In re Sawran, 359 B.R. 348 (Bankr. S.D. Fla. 2007) (equitable credits for transfers; non-criminal context)