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Bosworth v. Cubicon Corp.

United States District Court, N.D. California

August 2, 2016





         On a petition to confirm an arbitration award, respondent moves to vacate the award. For the reasons stated herein, respondent’s motion to vacate is Denied. The petition to confirm arbitration award is Granted.


         Petitioner James Bosworth, an attorney from New Jersey, loaned a total of $500, 000 to respondent Cubicon Corporation between December 2013 and August 2014. In return, Cubicon issued four convertible promissory notes to Bosworth. Each note had a five-year term, with an interest rate of 12 percent per annum, with 7 percent accumulating and 5 percent to be paid out monthly. Cubicon did not make monthly interest payments on any of the notes.

         Initially, Bosworth did not pressure Cubicon to make payments. That changed in 2015 when Cubicon’s president removed Bosworth from the board (Bosworth had been appointed to the Board only five months earlier). Bosworth demanded that the monthly interest payments on the notes be paid pursuant to an “event of default” provision, which allowed Bosworth to demand payment of the entire amount due in the event of non-payment of interest.

         In July 2015, Bosworth submitted a demand for arbitration to Judicial Arbitration and Mediation Services, Inc., based on Cubicon’s alleged failure to make monthly interest payments as required by the notes. The parties agreed to the appointment of the Retired Judge Robert Baines as the sole arbitrator. Cubicon, however, refused to pay its share of the arbitrator’s costs.

         At an arbitration hearing in February 2016, both sides presented testimony and evidence. Two months later, the arbitrator issued a fifteen-page written decision, awarding Bosworth $500, 000 plus interest as well as costs and $94, 155.11 in attorneys’ fees. Now, Bosworth petitions the Court to confirm the arbitration award and Cubicon moves to vacate it. Cubicon argues that the arbitration award must be vacated because the arbitrator’s decision exhibited a manifest disregard of the law. Bosworth also requests post-award attorney’s fees.


         1. The Arbitration Award.

         An arbitration award is immune from interference from the district court unless it falls within the narrowly prescribed grounds defined under federal law. Section 10(a) of the Federal Arbitration Act permits a district court to vacate an arbitration award only if: (1) the award was procured by corruption, fraud, or undue means; (2) there was evident partiality or corruption in the arbitrator; (3) the arbitrator was guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy, or any other misbehavior by which the rights of any party have been prejudiced, or (4) where the arbitrator exceeded his powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

         A district court must confirm an arbitration award unless it is vacated pursuant to Section 10 or modified pursuant to Section 11 (not applicable here). Hall Street Associates, LLC v. Mattel, Inc., 552 U.S. 576, 582 (2008) (internal quotations omitted) (emphasis added). To obtain a vacatur of an arbitrator’s decision, it is not enough to show that the arbitrator committed an error, or even a serious error. Stolt-Nielsen S.A. v. AminalFeeds International Corp., 559 U.S. 662, 671-72 (2010). “Neither erroneous legal conclusions nor unsubstantiated factual findings justify federal court review of an arbitral award under the statute, which is unambiguous in this regard.” Kyocera Corp. v. Prudential-Bache Trade Servs., Inc., 341 F.3d 987, 994 (9th Cir. 2003) (en banc).

         Cubicon first argues, in passing, that the arbitrator demonstrated partiality. Specifically, Cubicon alleges that the arbitrator was biased against it because of its unwillingness to pay its fair share of the arbitration costs. Cubicon’s assertion is unfounded. Where a party fails to pay required fees, JAMS Rule 26(b) permits the arbitrator to preclude that party from offering evidence of any affirmative claim at the hearing. Despite that rule, the arbitrator allowed Cubicon to assert affirmative defenses and present evidence - over Bosworth’s objections. Cubicon does not offer any evidence or allege any facts even hinting at partiality or corruption in the arbitrator. Rather, Cubicon bases its allegation of bias solely on its disagreement with the unfavorable decision of the arbitrator.

         Cubicon next argues that the arbitrator exceeded his powers. An arbitrator can be said to have exceeded his powers only when the award is “completely irrational” or exhibits a “manifest disregard of the law.” Kyocera, 341 F.3d at 997. “Manifest disregard of the law means something more than just an error in the law or a failure on the part of the arbitrators to understand or apply the law. To vacate an arbitration award on this ground, it must be clear from the record that the arbitrators recognized the applicable law and ...

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