167 A.D.3d 1
N.Y. App. Div.2018Background
- Daesang (Korean seller) sold its aspartame business to NutraSweet under an APA and related Processing Agreement governed by New York law; both agreements required ICC arbitration in New York and made arbitral awards final and non‑appealable.
- NutraSweet failed to make all installment payments; Daesang accelerated the balance and resumed manufacturing; NutraSweet rescinded under a separate JDA based on a pending antitrust class action and arbitration followed.
- NutraSweet asserted four defenses/counterclaims in arbitration: (1) rescission under the JDA, (2) equitable rescission for fraudulent inducement based on the compliance‑with‑law warranty, (3) equitable rescission for other contractual misrepresentations, and (4) breach of contract damages.
- After pleadings, a nine‑day evidentiary hearing, post‑hearing submissions (including a damages exhibit, NS 230), and oral closings, a three‑member ICC tribunal issued a partial award dismissing all NutraSweet counterclaims and later a final award affirming dismissal and awarding Daesang approximately $100.8 million.
- NutraSweet moved in New York Supreme Court to vacate the partial and final awards (arguing manifest disregard, excess of power, public policy); Supreme Court vacated dismissal of counterclaims 2–4 and remanded them to arbitrators. Daesang appealed.
Issues
| Issue | Plaintiff's Argument (Daesang) | Defendant's Argument (NutraSweet) | Held |
|---|---|---|---|
| Standard of review for confirming/vacating arbitral awards under FAA/Convention | Awards should be confirmed; courts must defer absent narrow FAA grounds or manifest disregard | Awards may be vacated where arbitrators manifestly disregarded law or exceeded powers | Court reversed vacatur; applied high deference: only narrow FAA/manifest‑disregard grounds permit vacatur |
| Viability of fraud‑based equitable rescission claims premised on alleged false contractual warranties | Arbitrators reasonably applied law; their disposition (even if debatable) is not manifest disregard | Fraud claims were viable because misrepresentations of present fact can support fraud independent of contract | Court held arbitrators did not manifestly disregard law; their interpretation of Merrill Lynch and other precedents was a non‑reviewable legal/interpretive judgment |
| Dismissal of breach‑of‑contract counterclaim: waiver vs. merits | NutraSweet contends it preserved an independent breach claim and arbitrators exceeded powers by dismissing it procedurally | Arbitrators found waiver/withdrawal from transcript and NS 230; dismissal was procedural and within arbitrators' authority | Court held the panel at least arguably construed the procedural record; waiver finding entitled to extreme deference and cannot be vacated under FAA |
| Public‑policy defense to enforcement of award | N/A (Daesang opposed) | Enforcement would offend U.S. public policy because NutraSweet was allegedly fraudulently induced and enforcing would reward wrongdoer | Court rejected public‑policy challenge: no award finding of fraud and Convention public‑policy defense is narrow |
Key Cases Cited
- Mitsubishi Motors Corp. v. Soler Chrysler‑Plymouth, 473 U.S. 614 (1985) (strong federal policy favoring arbitration, especially in international commerce)
- Wien & Malkin LLP v. Helmsley‑Spear, Inc., 6 N.Y.3d 471 (2006) (extremely limited judicial review; manifest disregard requires more than simple error)
- Oxford Health Plans LLC v. Sutter, 569 U.S. 564 (2013) (arbitral decisions deserve high deference even if arguably wrong)
- Merrill Lynch & Co. Inc. v. Allegheny Energy, Inc., 500 F.3d 171 (2d Cir.) (fraud and contract claims may both proceed when duties or misrepresentations are collateral/extraneous to contract)
- United Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29 (1987) (courts should not substitute their factual review for arbitrator factfinding)