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December 1, 2004.

CHARLES S. JOHNSON, JR., Petitioner,

The opinion of the court was delivered by: SHIRA SCHEINDLIN, District Judge



  Charles S. Johnson, Jr. ("Johnson") moves, pursuant to section 9 of the Federal Arbitration Act ("FAA"),*fn1 to confirm an arbitration award (the "Award") dated July 9, 2004. Lajat International Investments, Inc. ("Lajat") opposes the motion and cross moves to vacate or modify the Award.*fn2 For the reasons set forth below, Johnson's motion to confirm the Award is granted. II. FACTS

  On March 26, 2001, Johnson and Lajat executed an Investment and Cooperation Agreement ("ICA") and a Put and Call Agreement ("PCA").*fn3 The ICA provided that on March 26, 2001, the parties would enter into a stock purchase agreement, pursuant to which Lajat would receive fifteen percent of the issued and outstanding shares of C.S. Brooks, Inc. ("CSB") (the "CSB Stock").*fn4 Prior to that date, Johnson owned one hundred percent of the CSB Stock.*fn5 In exchange, Lajat agreed to pay $3 million cash to Johnson at the closing and give Johnson two promissory notes, each in the amount of $1.75 million.*fn6 The first note, payable on March 26, 2002, was subject to the condition that no Event of Default, as defined in the following paragraph, had occurred.*fn7 The second note, payable on March 26, 2003, was subject to the same condition, plus another condition that Johnson had effected a forty-percent spin-off of CSB's wholly-owned owned subsidiary, CSB Home Fashions, Inc. ("Home Fashions").*fn8

  Section 3.4 of the ICA and section 1 of the PCA defined an "Event of Default" as the occurrence of one of two events: (A) "the Bank's refusal to grant extension of the maturity date under CSB's Credit Agreements, `under the same or better terms to CSB,'" or (B) "notification by DKNY of its intent to terminate the DKNY License Agreement."*fn9 If either Event of Default occurred, Lajat had the right to exercise a "Put Option," requiring Johnson to repurchase the CSB Stock for $3,000,000, plus interest, and to cancel the promissory notes.*fn10 Section 8.1 of the ICA provided:
Dispute Resolution and Governing Law. Any controversy arising out of or relating to this Agreement, including any claim for damages, shall be settled by arbitration in New York City, United States of America, in accordance with the rules then obtaining of the American Arbitration Association before a panel of three arbitrators. The parties consent to the jurisdiction of the Supreme Court of the State of New York or the United States District Court for the Southern District of New York, for all purposes in connection with arbitration, including the entry of judgment on any award. The prevailing party shall be entitled to recovery of its reasonable legal fees and expenses.*fn11
  On March 26, 2002, the date the first promissory note became due, Lajat's attorney, Hector Delgado, sent a letter to Johnson and his attorney, James Gidden, stating that CSB had failed, in violation of an ICA covenant, to provide Lajat with financial information concerning the Existing Credit Agreement or the DKNY License Agreement, and as a result, Lajat had been unable to "adequately evaluate its investment in [CSB], and to determine whether or not to exercise its various options under the [ICA] and [PCA]."*fn12 Because of this "material breach," Lajat announced its intent to exercise the Put Option and demanded that Johnson repurchase its $3 million in stock.*fn13

  In response to the March 26, 2002 letter, CSB provided Lajat with copies of amendments that had been made to the Existing Credit Agreement. However, on May 30, 2002, Delgado sent a letter to Gidden, stating that because the terms and conditions of the amended credit agreement did not constitute "same or better" terms than those contained in the original agreement, "an Event of Default existed," and Lajat had "rightfully exercised its Put."*fn14

  On December 19, 2002, Lajat filed a demand for arbitration claiming breach of contract and seeking a declaration that Johnson be required to honor its Put Option.*fn15 Lajat alleged that an Event of Default had occurred when the bank refused to grant an extension of the maturity date under the Existing Credit Agreement, "`under the same or better terms to CSB.'"*fn16 In response to the demand, Johnson denied Lajat's claims and filed counterclaims and third-party claims (on behalf of CSB) for breach of contract, seeking $3.5 million in actual damages and $11 million in consequential damages.*fn17 Lajat subsequently filed an amended demand, claiming that documents supplied by CSB during arbitration discovery revealed that DKNY had terminated its license agreement with CSB, allegedly constituting yet another Event of Default.*fn18 In response, Johnson again denied that any Event of Default had occurred, and restated his counterclaims.*fn19

  The arbitration occurred in New York from March 8 to 11, 2004.*fn20 On May 19, 2004, the panel entered an interim award, which denied Lajat's claim with prejudice and awarded Johnson $3.5 million plus interest.*fn21 The panel entered a final award on July 9, 2004, which incorporated the interim award, and further ordered Lajat to pay Johnson's legal fees and expenses, compensation and expenses of the arbitrators and the administrative fees and expenses of the American Arbitration Association.*fn22 In total, the Award against Lajat exceeded $5.1 million.*fn23 The panel never set forth any findings of fact or conclusions of law.*fn24

  On July 29, 2004, Johnson filed this Motion pursuant to sections 9 and 13 of Title 9 of the United States Code, for an order confirming the Award.*fn25 Lajaf opposed the motion and cross-moved to vacate or modify the Award, arguing that the decision of the arbitrators exhibits a "`manifest disregard of the law.'"*fn26


  The confirmation of an arbitration award is a summary proceeding that converts a final arbitration award into a judgment of the court.*fn27 "Arbitration awards are subject to very limited review in order to avoid undermining the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation."*fn28 "A court is required to confirm the award unless a basis for modification or vacatur exists."*fn29 The FAA lists specific instances where an award may be vacated.*fn30 In addition, the Second Circuit has recognized that a court may vacate an arbitration award that was rendered in "`manifest disregard of the law.'"*fn31 However, "review for manifest error is severely limited."*fn32 To find manifest disregard, a court must find that: "(1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case."*fn33

  "A federal court cannot vacate an arbitral award merely because it is convinced that the arbitration panel made the wrong call on the law. On the contrary, the award `should be enforced, despite a court's disagreement with it on the merits, if there is a barely colorable justification for the outcome reached.'"*fn34 In deciding whether to confirm an arbitration award, the court "should not conduct an independent review of the factual record" to check if facts support the panel's conclusion. Rather, "[t]o the extent that a federal court may look upon the evidentiary record of an arbitration proceeding at all, it may do so only for the purpose of discerning whether a colorable basis exists for the panel's award so as to assure that the award cannot be said to be the result of the panel's manifest disregard of the law."*fn35


  The basis for Lajat's assertion that the panel manifestly disregarded the law apparently arises out of two questions posed by one of the arbitrators after each side had given its closing argument.*fn36 Arbitrator Lamm asked the parties to address in post-trial briefs the following issues:
Under New York law, what is the obligation, if there is one, and your position may be that there isn't, in terms of good faith performance of an agreement? Is there an obligation to perform in good faith and what does it mean? Secondly, the best efforts provision that is in the contract, what is the scope of that under New York law? What does one have to do to comply with that, if it means anything?*fn37
Lajat argues that Lamm's questions show that the panel had "[i]mplicitly recogniz[ed] that an Event of Default had occurred," but had determined, in ...

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