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SPECTOR v. TORENBERG

May 5, 1994

DAVID SPECTOR and SPECURITY INDUSTRIAL LTD., Petitioners,
v.
DOV TORENBERG, XIMENA FLOREZ, NICOLAS FUCCI, TRS COMPUTERS, LTD., and MICROGUARD, INC., Respondents.


Leisure


The opinion of the court was delivered by: PETER K. LEISURE

LEISURE, District Judge:

 David Spector and Specurity Industrial Ltd. petition this Court pursuant to 9 U.S.C. §§ 10-11 to vacate or modify an award rendered by a three-member commercial arbitration tribunal appointed by the American Arbitration Association. *fn1" Respondents cross-petition pursuant to 9 U.S.C. § 207 to enforce the award. For the following reasons, the Court denies the petition to vacate or modify the award, and grants the cross-petition to confirm the award in its entirety. The Court denies respondents' request for attorney's fees in bringing their petition. *fn2"

 BACKGROUND

 On January 19, 1989, David Spector, the president of Specurity Industrial Ltd. ("Specurity"), an Israeli corporation, entered into a shareholders agreement (the "Shareholders Agreement") with respondents Dov Torenberg, an American citizen, Ximena Florez, a resident American alien, Nicolas Fucci, an American citizen, and TRS Computers, Ltd., a New York corporation. The Shareholders Agreement provided for the distribution of one-third of the shares of stock of Microguard, Inc. ("Microguard"), a New York corporation, to each of the following: (1) Spector and his wife; (2) Torenberg and Florez, and (3) Fucci and TRS.

 Microguard was created for the purpose of importing and marketing PC-Guard, a device manufactured by Specurity which is designed to protect the security of personal computers. Accordingly, on January 30, 1989, Specurity entered into an exclusive distribution agreement (the "Distribution Agreement") with Microguard, which established minimum annual purchases of PC-Guard over a four year period. Both the Shareholders Agreement and the Distribution Agreement contain arbitration clauses and choice of law clauses specifying New York law.

 Specurity made its first shipment of PC-Guard on July 27, 1989. Microguard made a 25% downpayment but failed to pay the balance. On January 9, 1990, Torenberg wrote Spector a letter indicating that Microguard would not fulfill the remaining terms of the contract. Then, on March 19, 1990, Microguard, Torenberg and Florez made a demand for arbitration proceedings claiming that Spector had "made false statements . . . about the performance and success" of PC-Guard, which was in fact "defective and unmerchantable." Affidavit of Christopher Brady, sworn to on December 7, 1993 ("Brady Affidavit"), Exhibit A at 1-2. They further asserted that in reliance upon these representations, they had contributed money, time, and energy to founding and running Microguard, and had entered into both the Distribution and Shareholders Agreements. Id. Respondents sought the following relief: (1) recision of both agreements; (2) restitution of monies paid to Spector and Specurity; (3) compensatory damages; and (4) a declaratory judgment that termination of the Distribution Agreement was Specurity's sole remedy for Microguard's alleged failure to purchase further units of PC-Guard as set forth in the Distribution Agreement. On May 11, 1990, Spector and Specurity filed a counter-demand for Arbitration, alleging breach of contract, and seeking damages, declaratory relief, specific relief and reasonable attorney's fees.

 Arbitration took place in the Southern District of New York over a period of three years. By a partial final award signed on May 20, 21, and 28, 1993 (the "May Award"), the arbitrators (1) found Spector and Specurity jointly and severally liable in the amount of $ 25,772.00 plus interest to Microguard, (2) found Spector and Specurity jointly and severally liable in the amount of $ 34,205.00 plus interest and $ 21,650 in arbitral costs to Microguard, Torenberg and Florez, and (3) dismissed petitioners' claim with prejudice. By an award signed August 9 and 16, 1993 (the "August Award"), the arbitrators found Spector and Specurity jointly and severally liable for the attorney's fees of Microguard, Torenberg, and Florez in the amount of $ 5,000.00, and of Fucci and TRS in the amount of $ 33,092.50.

 Four days later, on August 20, 1993, Spector and Specurity brought the instant petition to vacate or modify the August Award, contending that the arbitrators had no authority to award attorney's fees and that the award was the result of evident partiality and misconduct by the arbitrators. Petitioners also claimed the award was irrational and contradictory because it awarded damages to Microguard, which either no longer existed or, if it did exist, was now wholly owned by Spector because Florez and Torenberg had ceded their interest in Microguard to him in a letter dated January 9, 1990.

 On September 2, 1993, respondents Torenberg and Florez wrote to the arbitration panel requesting a modification of the August Award to address petitioners' claim that the award was irrational because damages were awarded in part to Microguard. The arbitrators responded by issuing a modification, dated October 14, 19, and 20, 1993 (the "October Award"). In it, Spector and Specurity were directed to pay Torenberg and Florez the amounts previously awarded Microguard.

 DISCUSSION

 I. STANDARD OF REVIEW

 An arbitral award may be enforced under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Convention") if it was "pronounced in accordance with foreign law or involves parties domiciled or having their principal place of business outside the enforcing jurisdiction." Bergesen v. Joseph Muller Corp., 710 F.2d 928, 932 (2d Cir. 1983). *fn3" An award fitting this description is enforceable under the Convention even if it is also enforceable under the Federal Arbitration Act (the "FAA"). See Id.. This "overlapping coverage" provides a party with a choice of methods by which to enforce an award in its favor, a choice that in Bergesen permitted the party seeking enforcement to benefit from the longer statute of limitations applicable to enforcement actions under the Convention. Id.

 In the instant case, respondents have exercised their right to seek confirmation of their award under the Convention pursuant to 9 U.S.C. § 207 since the award involves foreign parties. Respondents mistakenly contend, however, that petitioners are therefore foreclosed from seeking to vacate the award under the FAA. Section 10 of the FAA provides that "the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration." 9 U.S.C. § 10. This provision clearly vests the Court with the authority to vacate the award at issue herein. The question, then, is whether the Convention negates this authority, which it does not.

 The Convention provides that the enforcement of an award may be refused when "the award . . . has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made." See Convention, Art. V(1)(e). Since the award at issue in this case was made in the United States, this Court is plainly a competent authority within the meaning of Article V(1)(e). See generally International Standard Elec. Corp. v. Bridas Sociedad Anonima, 745 F. Supp. 172, 178 (S.D.N.Y. 1990) (holding that only a court of the country in which the award was made may vacate the award). Accordingly, rather than foreclosing this Court from vacating the award, the Convention explicitly acknowledges the authority of this Court to do so. *fn4"

 The bases upon which an award may be vacated under the FAA are set forth in Section ...


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