645 F.Supp.3d 290
S.D.N.Y.2022Background
- Parties: Petitioners LiveWire Ergogenics, Inc. and CEO Bill Hodson; Respondent JS Barkats PLLC (managed by Sanny "Sunny" Barkats), who acted as LiveWire’s counsel under a November 3, 2015 retainer agreement.
- Retainer: JSB was retained to assist with SEC reporting and financing; the retainer contained a broad arbitration clause and a preemptive conflict waiver for financings procured through entities the firm represented or partially owned.
- Financing/Note: An entity, American E Group LLC (owned by Barkats and his wife), loaned LiveWire $30,000 under a note charging 20% interest plus $50,000 in stock as additional consideration; a federal court later held the Note criminally usurious and unenforceable.
- Arbitration: JSB demanded arbitration over fees; LiveWire counterclaimed for legal malpractice, breach of fiduciary duty, and related claims. After a four-day AAA hearing, the arbitrator found JSB liable for malpractice and breach and awarded Petitioners consequential damages ($330,434.02), disgorgement ($6,000), and AAA fees ($16,005).
- Confirmation: Petitioners filed to confirm the award in federal court. JSB opposed, arguing the arbitrator exceeded authority (particularly in awarding attorneys’ fees related to federal litigation and in light of New York law). The district court granted confirmation and declined to augment the award or award additional fees for the confirmation proceeding.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether to confirm the arbitration award under the FAA | FAA §9 requires confirmation unless vacatur grounds under §§10–11 exist; award is final | Arbitrator exceeded powers; award inconsistent with later Second Circuit denial of sanctions | Confirmed; no §10 or §11 vacatur grounds; deferential review applies |
| Whether arbitrator exceeded authority in awarding attorneys’ fees (including fees for federal litigation) given NY’s American Rule/CPLR 7513 | Fees are recoverable as damages in legal malpractice; arbitration clause is broad; FAA/PaineWebber allow arbitrators to award fees | CPLR 7513 forbids arbitrator-awarded fees absent express agreement; JSB wasn’t party to federal litigation | Held for Petitioners: arbitrator acted within authority; fees were proper damages and sanctions; PaineWebber and FAA preemption principles control |
| Whether the court should augment the award for fees incurred after Jan 31, 2022 | Court should add post-award fees (appeal, confirmation, state vacatur petition) | Such additional claims fall within the arbitration agreement and should have been submitted to arbitrator | Denied: additional post-cutoff fees must be pursued in arbitration; court will not augment award here |
| Whether Petitioners are entitled to fees for litigating confirmation | Petitioners seek fees under court’s inherent powers for bad-faith opposition | JSB’s opposition was not filed in bad faith | Denied: court declines to exercise discretion to award confirmation-stage fees; no bad faith shown |
Key Cases Cited
- PaineWebber Inc. v. Bybyk, 81 F.3d 1193 (2d Cir. 1996) (arbitrators may address claims for attorneys’ fees despite New York law when arbitration clause is broad)
- Florasynth, Inc. v. Pickholz, 750 F.2d 171 (2d Cir. 1984) (confirmation is a summary proceeding converting an arbitral award into a court judgment)
- Jock v. Sterling Jewelers Inc., 942 F.3d 617 (2d Cir. 2019) (extremely deferential review of arbitrator’s power under §10(a)(4))
- Zurich Am. Ins. Co. v. Team Tankers A.S., 811 F.3d 584 (2d Cir. 2016) (standards for vacatur and manifest disregard of law)
- ReliaStar Life Ins. Co. of N.Y. v. EMC Nat. Life Co., 564 F.3d 81 (2d Cir. 2009) (broad arbitration clauses confer inherent remedial authority, including fee awards for bad faith)
- T.Co Metals, LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329 (2d Cir. 2010) (manifest-disregard standard explained)