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Buhannic v. Tradingscreen, Inc.

United States District Court, S.D. New York

July 27, 2018

PHILIPPE BUHANNIC and PATRICK BUHANNIC, Petitioners,
v.
TRADINGSCREEN, INC. and JOSEPH AHEARN, Respondents.

          OPINION AND ORDER

          Edgardo Ramos, U.S.D.J.

         Philippe Buhannic and Patrick Buhannic (“Petitioners”), proceeding pro se, petition this Court, pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. § 10, to vacate an arbitration award (the “Award”). Petitioners allege that the Award was procured by corruption and that the arbitrators refused to hear pertinent evidence and exceeded their powers. In response, Tradingscreen, Inc. and Joseph Ahearn (“Respondents”) present a cross-motion seeking confirmation of the award on the grounds that Petitioners have not produced any evidence sufficient to satisfy the high standard required to overturn an arbitration award.

         For the reasons that follow, Petitioners' motion to vacate the Award is DENIED, and Respondents' cross-motion seeking confirmation of the Award is GRANTED.

         I. BACKGROUND

         On June 17, 1999, Petitioners, together with Joseph Ahearn, founded TradingScreen, Inc., and entered into a Founders' Agreement (the “Agreement”) that would govern their business relationship.[1] Pet'rs' Pet. ¶¶ 17-18, Doc. 1. At all relevant times, Petitioners acted as directors of TradingScreen, Inc. and held the majority of the founders' stock. Id. ¶¶ 13, 22. Furthermore, Phillippe Buhannic also acted as CEO at all relevant times. Id. ¶¶ 16, 18.

         The Agreement set forth conditions governing how the three founders could vote shares and how TradingScreen, Inc. could repurchase a founder's shares in the event of his termination. Id. ¶¶ 18, 20. In particular, Section 13 provided that each of the founders agreed to vote their shares to elect and, thereafter, retain Phillippe Buhannic as a director of TradingScreen, Inc., and as the chairman of TradingScreen, Inc.'s board of directors until November 1, 2001. Id. ¶ 21. Section 22 provided that no amendment could be made to the Agreement absent “Required Consent.” Id. ¶ 22. Section 4.1 went on to define “Required Consent” as the “written consent of the company (TradingScreen, Inc.) and holders of the majority of shares held by the Founders.” Id. For all practical purposes, the “holders of the majority of shares held by the Founders” were Phillippe and Patrick Buhannic. Id.

         In early 2011, Philippe Buhannic proposed to amend Section 13 and 22 of the Agreement by requiring founders to vote their shares “as directed by the holders of a majority of the shares held by the Founders” in connection with the election of directors, and by allowing future amendments to be effected solely by a majority of the founders except “to the extent any such amendment directly affects [TradingScreen, Inc.'s] rights” regarding the buy-back of a founder's shares. Award at 7-8, Doc. 1. In other words, the two amendments eliminated the requirement for Ahearn's consent because Petitioners held the majority of the founders' shares. Bruce Rosenthal, corporate counsel to TradingScreen, Inc., informed Petitioners that they could sign the 2011 Amendment dated March 13, 2011 and it could subsequently “be proposed for ratification by the Board effective as of that date.” Id. at 8. Petitioners signed the 2011 Amendment and executed it on behalf of TradingScreen, Inc., but never presented the 2011 Amendment to the Board for consideration and Joseph Ahearn did not sign the amendment. Id. Nonetheless, Petitioners allege that the 2011 Amendment and all amendments that followed were never challenged by Ahearn or questioned in any way because he was “totally comfortable with them.” Pet'rs' Pet. ¶ 24.

         In late 2015, Petitioners executed the 2015 Amendment acting alone as majority owners of the founders' shares. Award at 8. The 2015 Amendment went even further than its predecessor, totally eliminating Section 22's requirement that TradingScreen, Inc. consent to future amendments that affected its buy-back rights. Id. at 9. Once again, Phillippe Buhanic signed the resolution on behalf of TradingScreen, Inc. and the board was not informed. Id.

         On July 1, 2016, Petitioners executed the 2016 Amendment. Id. at 10. In relevant part, the 2016 Amendment repealed the provision allowing TradingScreen, Inc. to buy-back the shares of a terminated founder, required the founders to vote to elect and continue in office Phillippe Buhannic as a director and chairman of the board without any stated end date, and stipulated that only a simple majority of the founders-and not the company-may amend the Agreement. Id. at 10-11. The 2016 Amendment was not presented to the board of directors, was not signed by Joseph Ahearn, and did not even contain a signature line for TradingScreen, Inc. Id. at 10.

         Sometime thereafter, Petitioners instituted an arbitration seeking a determination on the validity of the Amendments pursuant to an arbitration provision in the Agreement. Pet'rs' Pet. ¶ 14. The events leading to the arbitration are poorly recited by the parties and are thus unclear to the Court. However, it is clear that Petitioners brought a separate action against TradingScreen, Inc. on October 6, 2016 claiming wrongful termination following Phillippe Buhannic's removal as CEO on June 28, 2016. Exhibit F, Doc. 8-6.

         On May 3, 2017, evidentiary hearings commenced and continued over 3 days until May 5, 2017. Award at 1. The arbitration was conducted pursuant to the rules of the International Centre for Dispute Resolution (the “ICDR”) of the American Arbitration Association, and was presided by George Gluck, Richard Ziegler, and Chairman Eugene I. Farber (the “Arbitrators”). Award at 19; Resp'ts' Mem. Opp'n at 1, Doc. 7. Petitioners were represented by David Goldstein and Alon Harnoy of Shiboleth LLP.[2] Award at 1. Respondents were represented by John Vassos and Laurie Foster of Morgan Lewis & Bockius LLP. Id. The Arbitrators heard testimony from five witnesses, and received over 150 exhibits, and extensive pre- and post-hearing briefing.[3] Id. The central question in the arbitration was whether the Amendments were valid and enforceable. Award at 2.

         At the evidentiary hearing on May 3, 2017, Ms. Foster stated that she knew Chairman Farber from an unrelated arbitration over fifteen years earlier. Foster Decl. ¶¶ 2-3, Doc. 8. In response, Chairman Farber confirmed the prior arbitration appearance off the record to the parties also on May 3, 2017. Resp'ts' Mem. Opp'n at 4. That same day, Chairman Farber sent a letter to the ICDR case manager formally making the disclosure. Id. at 5. The ICDR case manager, in turn, provided the disclosure to all counsel and directed, “if any party has any objection to Arbitrator Farber's service based on the supplemental disclosure, please file them with the ICDR on or before May 4, 2017.” Id. On May 4, 2017, the ICDR case manager emailed all counsel confirming that “we received no objections to Arbitrator Farber's supplemental disclosure.” Id.

         On July 26, 2017, the three-member panel issued its unanimous Award in which it invalidated the Amendments. Award at 1-2, 19. In deciding the issue, the Arbitrators determined that Petitioners' unilateral execution of the Amendments was not made with the consent required by Section 22 of the Agreement. Id. at 11. Guided by the U.S. Supreme Court decision in Curtiss-Wright Corp v. Schoonejongen, 514 U.S. 73 (1995), the Arbitrators decided that the Petitioners did not have the actual or implied authority to unilaterally execute the Amendments. Id. at 12.

         On October 17, 2017, Petitioners brought this action to vacate the Award. Pet'rs' Pet. at 1. This Court has jurisdiction under 28 U.S.C. § 1332 based on diversity of citizenship.[4] Id. On November 9, 2017, Respondents filed a cross-petition to confirm the Award. Resp'ts' Mot., Doc. 6.

         II. LEGAL STANDARD

         The FAA provides a “streamlined” process for a party seeking “a judicial decree confirming an award, an order vacating it, or an order modifying or correcting it.” Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 582 (2008). District courts “treat a petitioner's application to confirm or vacate an arbitral award as akin to a motion for summary judgment.” City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 136 (2d Cir. 2011) (quotation marks omitted). The arbitrator's rationale for an award need not be explained. Leeward Constr. Co., Ltd. v. Am. Univ. of Antigua-Coll. of Med., 826 F.3d 634, 638 (2d Cir. 2016). Rather, a court is required to enforce an arbitration award as long as there is a “barely colorable justification” for the outcome reached. Id. Confirmation of an arbitration award is thus “a summary proceeding that merely makes what is already a final arbitration award a judgment of the court.” Citigroup, Inc. v. Abu Dhabi Inv. Auth., 776 F.3d 126, 132 (2d Cir. 2015) (quoting D.H. Blair & Co., Inc. v. Gottdiener, 462 F.3d 95, 110 (2d ...


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