FSD Pharma, Inc. v. Bokhari

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FSD PHARMA, INC., Petitioner, v. RAZA BOKHARI, Respondent.

No. 2:23-mc-0150-JDW

United States District Court, E.D. Pennsylvania

May 29, 2024

MEMORANDUM

JOSHUA D. WOLSON, J.

Raza Bokhari may be thinking, “It seems that everything's gone wrong since Canada came along!”^[1] In 2019, he took a job as the CEO of FSD Pharma, Inc. In 2021, he lost a proxy fight with the company's founder and then lost his job. He filed an arbitration, and he lost that too; his adversary, FSD defeated Dr. Bokhari's claims and succeeded on several counterclaims. Dr. Bokhari was once satisfied with the composition of the arbitration, its scope, and the allocation of costs and fees but changed his mind when he saw the result. While it's easy for him to claim unfairness considering the bind he's created, Dr. Bokhari has himself to blame for this predicament-not FSD, not the arbitrator, and certainly not Canada. He has not offered reasonable grounds for why I should refuse to enforce the award against him.

I. BACKGROUND

Dr Bokhari was the CEO of FSD Pharma from February 2019 until July 2021. During that time, Dr. Bokhari entered into an Employment Agreement with FSD that provided for the terms of his position, including severance calculation and the Parties' duty to arbitrate any disputes. In 2021, he lost a proxy fight with FSD's founder, who took control of the Board. The newly elected Board terminated him. He and the company disputed whether the company had dismissed him improperly or terminated him for cause. Pursuant to the Employment Agreement, Dr. Bokhari initiated a Dispute Resolution Procedure. Attempts to resolve the dispute amicably failed, and Dr. Bokhari subsequently submitted the matter to arbitration.

In his Notice Of Arbitration, Dr. Bokhari sought declaratory relief and monetary compensation. He also requested an award of costs, including his legal fees and the arbitrator's fees. FSD asserted counterclaims against Dr. Bokhari. The Parties jointly selected the Honorable Justice Douglas Cunningham, K.C., a retired Justice of the Ontario Superior Court, to arbitrate the dispute. Prior to his appointment and with ample opportunity to inquire as to any conflicts of interest, both Parties agreed that Justice Cunningham was “eminently qualified” to preside. (ECF No. 1-2, Ex. 2 at 5, ¶ (k).)

Following an eight-day evidentiary hearing, briefing, and more than two days of oral argument, Justice Cunningham issued a reasoned Merits Award, a Final Award assigning damages, and a Final Costs Award. In December 2022, Dr. Bokhari commenced an action in the Ontario Superior Court of Justice to set aside the Merits Award, and FSD commenced its own action to enforce the Awards. While those cases were ongoing, Dr. Bokhari raised a concern regarding possible partiality of Justice Cunningham. On October 3, 2023, the Ontario Superior Court of Justice denied Dr. Bokhari's motion to set aside the award and granted FSD's enforcement action. Dr. Bokhari moved for leave to appeal the Superior Court's decision. The Court of Appeal for Ontario, whose appellate review is discretionary, denied his motion.

On December 1, 2023, FSD filed a petition in this Court seeking confirmation of the Canadian arbitral award. Dr. Bokhari answered the Petition and moved to refuse enforcement.^[2] The Petition and Motion are now ripe.

II. LEGAL STANDARD

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 3 (“New York Convention”), as incorporated into the Federal Arbitration Act (“FAA”), governs federal enforcement of an arbitral award granted by a forum in or applying the law of a non-U.S. party to the treaty (such as Canada). See 9 U.S.C. § 207. Pursuant to the FAA, a judge must confirm a foreign arbitration award “unless [he] finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention.” Id.

Confirming such an award is a two-step process. First, a judge must determine whether enforcement is appropriate by independently identifying that an agreement to arbitrate existed, and the party seeking enforcement must present the judge with an authentic copy of the arbitration award. See Jiangsu Beier Decoration Materials Co., Ltd. v. Angle World LLC, 52 F.4th 554, 559 (3d Cir. 2022). Second, upon request of the respondent to a petition for enforcement, a judge may refuse to enforce the award for any of the reasons listed in Article V of the New York Convention. Id. at 561. The five bases listed in Article V are the exclusive grounds for refusing enforcement. See Gulf Petro Trading Co., Inc. v. Nigerian Nat. Petroleum Corp., 512 F.3d 742 (5th Cir. 2008). Courts construe those grounds narrowly with the presumption of enforceability. See China Minmetals Imp. and Exp. Co., Ltd. v. Chi Mei Corp., 334 F.3d 274, 283 (3d Cir. 2003).

While the New York Convention provides limited circumstances under which a district court judge may refuse to enforce a foreign arbitration award, it also prohibits modification of the award except by “the court in the country in which, or under the law of which, the award was made.” Gulf Petro, 512 F.3d at 747 (citation omitted). Therefore, a United States court considering a foreign arbitration award lacks subject matter jurisdiction to vacate, set aside, or modify such an award. Id. (citing M & C Corp. v. Erwin Behr GmbH & Co., 87 F.3d 844, 848-49 (6th Cir. 1996); Tatneft v Ukraine, 21 F.4th 829, 836 (D.C. Cir. 2021).

III. ANALYSIS

A. Existence Of An Arbitration Agreement And An Authentic Award

A party seeking to enforce a foreign arbitral award must supply the court from which it seeks enforcement “(a) The duly authenticated original award or a duly certified copy thereof [and] (b) The original agreement referred to in article II or a duly certified copy thereof.” N.Y. Convention., art. IV. Article II provides that the courts of a contracting state “shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or why may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration” and that ”[t]he term ‘agreement in writing' shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams. Id. at art. II, §§ 1 and 2.

Along with its Petition, FSD filed the documents required for enforcement pursuant to 9 U.S.C. § 13, including the agreement to arbitrate and the arbitration award. (ECF No. 1-2.) Both Parties signed the document containing this arbitration agreement, so it is within the embrace of Article II's requirements for a valid agreement.

B. No Grounds For Refusal

Article V of the New York Convention offers five exclusive grounds on which a court may refuse to enforce a foreign arbitral award, three of which Dr. Bokhari invokes in his motion: partiality of the arbitrator; a lack of notice about the scope of the arbitration because the arbitrator decided facts outside the pleadings; and the arbitrator decided issue beyond the scope what the parties submitted because he assigned costs and fees. See id. at § V(1). None of these warrants declining to enforce the arbitration award.

1. Partiality

An arbitrator's partiality is not one of the bases for refusing confirmation enumerated in the New York Convention. See id. at art. V. On its face, that should be the end of the issue because the five grounds listed in the New York Convention are exclusive. But Dr. Bokhari tries to shoehorn his claims about Justice Cunningham's partiality into the rubric of the arbitration being contrary to the parties' arbitration agreement. To get there, Dr. Bokhari makes the following argument: (a) the arbitration agreement provides that proceedings would occur pursuant to the Ontario Arbitration Act; (b) the Ontario Arbitration Act provides that an arbitrator “shall be independent of the parties and shall act impartially;”^[3] (c) some Ontario courts have looked to the International Bar Association Guidelines On Conflicts In International Arbitration as persuasive authority on disclosure obligations to avoid the appearance of bias; and (d) Justice Cunningham did not disclose engagements that could create the appearance of bias. If that chain of logic seems tortured, it is, and it doesn't create a basis for me to refuse to enforce the Awards.

First, the IBA Guidelines are not part of the law that governed the parties' arbitration agreement. Ontario courts might treat them as highly persuasive, but there's a difference between persuasive and governing authority. Dr. Bokhari has not shown that the IBA Guidelines controlled. It's worth noting that the Ontario Superior Court of Justice didn't think the IBA Guidelines were binding when it rejected Dr. Bokhari's attempt to avoid the arbitration award in Canada. And that Court would know better than me whether the Guidelines are binding or persuasive authority. Even if there were a question about the binding effect of the IBA Guidelines-and there's none in my mind-I'd have to resolve it against Dr. Bokhari because I construe the exceptions narrowly and in favor of confirmation.

Second Dr. Bokhari has waived any argument he had that Justice Cunningham violated the IBA Guidelines or that such a violation tainted the proceedings. Dr. Bokhari knew about the IBA Guidelines when he agreed to arbitrate his dispute and when he agreed to Justice Cunningham's appointment. If Dr. Bokhari needed disclosures to avoid potential bias, he should have asked for those disclosures at the outset. But he didn't. By all accounts, Dr....