176 A.D.3d 589
N.Y. App. Div.2019Background:
- Petitioner Nexia Health Technologies (Canadian software company) and respondent Miratech (IT company) executed a June 23, 2015 letter of intent for an upgrade project divided into Phases 0–3; Phase 0 was a $45,000 flat fee and Phases 1–3 were Time & Material.
- Parties executed a Master Services Agreement (MSA) effective January 1, 2016.
- Nexia paid for Phase 0 and Phase 1; Miratech performed Phase 2 (and some Phase 3 work) but Nexia refused to pay for Phase 2 invoices.
- Miratech obtained an arbitration award awarding payment for work on Phases 2 and 3; arbitrator found MSA governed Phase 2 scope and awarded for Phase 3 on an unjust enrichment theory despite no agreed pricing.
- Nexia petitioned to vacate the award, arguing the arbitrator manifestly disregarded law by failing to apply the MSA’s limitation-of-liability clause to Phase 2 damages; Supreme Court denied vacatur and confirmed the award; the Appellate Division affirmed.
- The Federal Arbitration Act governed the dispute; the dispute centered on whether the arbitrator’s interpretation amounted to manifest disregard of the contract-law principle embodied in the limitation clause.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the arbitrator manifestly disregarded the MSA’s limitation-of-liability clause in awarding damages for Phase 2 | Arbitrator ignored/failed to apply limitation clause that would cap or bar recovery for Phase 2 | Arbitrator reasonably interpreted the clause to require payment of invoices before the limitation applies, and no Phase 2 invoices were paid | Court held arbitrator gave a "colorable justification" for his interpretation; no manifest disregard; award affirmed |
| Whether arbitrator exceeded authority in awarding for Phase 3 (unjust enrichment) absent agreed pricing | Award for Phase 3 contradicts MSA and exceeds arbitrator’s authority | Arbitrator had authority to interpret contract and remedy unjust enrichment | Court found no basis to reverse confirmation as to Phase 3 |
Key Cases Cited
- Wien & Malkin LLP v. Helmsley-Spear, Inc., 6 N.Y.3d 471 (2006) (defines manifest-disregard standard and vacatur only where award contradicts an express, unambiguous contract term)
- Matter of Daesang Corp. v. NutraSweet, 167 A.D.3d 1 (1st Dep’t 2018) (manifest-disregard doctrine is a narrow, last-resort remedy)
- Dufreco Int’l Steel Trading v. T. Klaveness Shipping A/S, 333 F.3d 383 (2d Cir. 2003) (error must be egregious to constitute manifest disregard)
- Oxford Health Plans LLC v. Sutter, 559 U.S. 564 (2010) (§ 10(a)(4) permits vacatur only when arbitrator exceeds delegated task, not for mere errors in contract interpretation)
- Matter of New York City Tr. Auth. v. Transport Workers’ Union, Local 100, AFL-CIO, 6 N.Y.3d 332 (2005) (courts must defer to arbitrators even if they misapply substantive law)
- Cantor Fitzgerald Sec. v. Refco Sec., LLC, 83 A.D.3d 592 (1st Dep’t 2011) (mere error does not equal manifest disregard)