On The Case

2nd Circuit squelches Milberg bid to redo arbitration over unpaid $12 million fee

(Reuters) - The 2nd U.S. Circuit Court of Appeals made clear in a summary order Tuesday that if you’re suing a foreign defendant to vacate an arbitration award, you still have to pay heed to the Federal Arbitration Act’s three-month deadline for challenging the outcome.

The appeals court affirmed U.S. District Judge Analisa Torresdismissal of a suit in which the law firm Milberg sought to vacate an arbitration panel’s 2019 determination that Milberg is not entitled to a $12 million contingency fee from European funds it represented in Argentine bond litigation.

Want more On the Case? Listen to the On the Case podcast.

Milberg and its counsel from Dunnington, Bartholow & Miller pitched the case to the 2nd Circuit as an opportunity to fill what they called a “statutory gap” in the FAA. The law firm’s appellate brief argued that the 1925 law failed to anticipate challenges to arbitration decisions involving foreign parties. (The FAA requires service of notice of a vacatur proceeding within three months, not just the filing of a suit within that time frame.) But under the Hague Convention, Milberg argued, service on a foreign party “invariably” takes more than three months. So according to the law firm, U.S. courts should be flexible about adhering to the FAA’s three-month window in cases involving foreign defendants.

Milberg’s former clients – 10 Luxembourg and German retirement funds and two German individuals – said there’s no gap in the law: The FAA’s deadlines apply to all parties, foreign and domestic. The funds’ 2nd Circuit brief argued that courts have “repeatedly rejected petitioners' attempts to get around this ‘absolute’ limitation period,” citing a 2017 ruling from U.S. District Judge Katherine Polk Failla of Manhattan in Anglim v. The Vertical Group.

Besides, according to the European funds, Milberg didn’t even attempt to serve them until the three-month window was shut. A three-arbitrator panel informed Milberg and its former clients of its final determination on Feb. 5, 2019. Broadly speaking, the panel rejected the funds’ rationales for refusing to pay Milberg a contingency fee based on the funds’ recovery from Argentina after years of complex litigation. (The funds fired Milberg when they were on the verge of settling with Argentina.) But the arbitrators went on to note that Milberg and a predecessor firm had received more than $500,000 in interim payments from their former clients – and that those fees “constitute reasonable compensation for all legal services at issue in this arbitration.” Milberg filed a suit to vacate the award on May 6, 2019, arguing that the arbitrators’ award showed “manifest disregard” for the facts of the case.

The law firm’s only effort to serve its former clients within the FAA’s three-month time limit was an email to the funds’ lawyers at Wilk Auslander on the night Milberg filed its suit challenging the arbitration outcome. Milberg asked if Wilk Auslander would accept service. The firm said it was not authorized to do so. Not until May 17, after Judge Torres had issued a series of orders identifying deficiencies in the initial Milberg filing, did Milberg propose a schedule for serving its former clients under the Hague Convention.

Milberg’s failure to meet the FAA’s deadline for filing its suit and initiating the process of serving its foreign clients was fatal to its case at the 2nd Circuit. The law firm had asked the appeals court to adopt an equitable extension to allow for service of a foreign defendants, pointing to a New York trial judge’s 1993 ruling in In re Arbitration Between InterCarbon Bermuda, Ltd and Caltex Trading. But in Tuesday’s summary order, 2nd Circuit Judges John Walker, Reena Raggi and William Nardini declined even to reach the question of equitable exceptions to the FAA’s three-month deadline.

“The facts advanced by Milberg would not support even the equitable exception that it hypothesizes,” the order said. “Milberg did not even notify opposing counsel of its petition to vacate the arbitral award until (the) three-month window closed, and only after opposing counsel stated it was not authorized to accept service did Milberg set the wheels in motion for service overseas. Such circumstances do not demonstrate diligence within the FAA’s three-month service period.”

Milberg counsel William Dahill of Dunnington did not respond to an email request for comment. The funds’ lawyer, Jay Auslander, said his clients were grateful for the 2nd Circuit order. “What the court did was simply apply well-settled law to the undisputed facts of the case,” he said.

The opinions expressed here are those of the author. Reuters News, under the Trust Principles, is committed to integrity, independence and freedom from bias.