Huntsman Int'l, LLC v. Albemarle Corp.

2021 NY Slip Op 31073(U)

HUNTSMAN INTERNATIONAL, LLC, Plaintiff, v. ALBEMARLE CORPORATION, ROCKWOOD SPECIALTIES GROUP, INC.,ROCKWOOD HOLDINGS, INC., SEIFOLLAH GHASEMI, ANDREW ROSS,THOMAS RIORDAN, and MICHAEL VALENTE, Defendants.

INDEX NO. 650672/2017

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: COMMERCIAL DIVISION PART IAS MOTION 48EFM

April 5, 2021

NYSCEF DOC. NO. 107

MOTION DATE N/A

MOTION SEQ. NO. 005

DECISION + ORDER ON MOTION

HON. ANDREA MASLEY:

The following e-filed documents, listed by NYSCEF document number (Motion 005) 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93, 97, 98, 99, 101 were read on this motion to/for STAY.

Defendants Albemarle Corporation, Rockwood Specialties Group, Inc., and Rockwood Holdings, Inc. (collectively, Albemarle) move, pursuant to CPLR Article 63, to stay the ongoing American Arbitration Association (AAA) arbitration and disqualify the remaining two of three arbitrators, and pending a decision on this motion, to stay the present arbitration and all related processes, including, arbitrator selection, discovery deadlines, time to submit or exchange papers, and trial date, currently scheduled for May 3, 2021. After expedited briefing and argument on April 2, 2021, the motion is denied.

Hon. Dennis M. Cavanaugh is the former Chair of the arbitration panel. The remaining "wing" arbitrators are Hon. Wayne R. Andersen and Hon. Stanwood R. Duval, Jr.; all three are former federal district court judges (Panel).

The arbitration began after a lengthy and complex process to select arbitrators. (NYSCEF 73 Doc. No. [NYSCEF], March 14, 2019 email explaining selection process.) Over the course of 19 months, the arbitration progressed with more than 10 hearings resulting in 28 orders by the Panel. (NYSCEF 82, Williams Aff. ¶3; NYSCEF 72, March 25, 2021 Huntsman letter to AAA at 15, 16.) On March 10, 2021, Cavanaugh wrote to AAA:

"[i]t has come to my attention that, through inadvertence, I did not advise that my daughter-in-law is an associate with Kirkland & Ellis' Houston office ... . Because my daughter-in-law was on maternity leave at the time I was appointed Chair, it didn't even occur to me to advise the parties of her relationship with Kirkland ... I've advised Judges Duval and Andersen of this relationship. Neither of them believes that this affects my neutrality or my ability to serve as Chair."¹

(NYCEF 71, Cavanaugh letter.) Cavanaugh copied Duval and Anderson on the letter. (Id.) On March 11, 2021, AAA forwarded the letter to the parties. (NYSCEF 76, AAA letter.) On March 18, 2021, Albemarle objected to all three arbitrators' continued service; that objection was not provided to the court.

On March 26, 2021, the AAA Advisory Review Committee (ARC) sustained Albemarle's objection and removed Cavanaugh due to his previously undisclosed conflict of interest but denied its application to disqualify the other two arbitrators. (NYSCEF 76, AAA email letter at 3.) AAA also noted that its decision was final and thatany future challenge to the wing arbitrators must be on other grounds. (Id.) On March 29, 2021, Albemarle filed this motion for a preliminary injunction.

Albemarle argues that

"the neutrality of the remaining two 'wing' arbitrators has been unacceptably compromised by their improper participation in the disclosure of the former Chair's conflict to the parties, in a manner that could reasonably be seen as an attempt to improperly discourage Albemarle from asserting its meritorious challenge to the former Chair or to influence the ARC's decision on a challenge. Having successfully raised its proper objection, Albemarle is now faced with the prospect of proceeding before the wing arbitrators who improperly (and incorrectly) opined that the former Chair should not be disqualified, preemptively taking sides against Albemarle. The wing arbitrators' decision to opine on the disqualification issue was not just procedurally improper; it has created an untenable appearance of partiality.... Albemarle should never have been put in the position of having to choose between on the one hand enforcing its right to an impartial panel, and on the other hand incurring the potential prejudice of proceeding before wing arbitrators who reasonably could be seen to have discouraged it not to make the challenge and to have attempted to influence the outcome if the challenge were made. By improperly—and, as the ARC has now confirmed, incorrectly—supporting the continued service of a conflicted Chair, the wing arbitrators have irremediably compromised their own neutrality and appearance of impartiality."

(NYSCEF 69, Albemarle MOL at 2-3.)

Under AAA rules, ARC decides conflict issues. (AAA Construction Industry Arbitration Rule 19[b].) Here, Albemarle fails to identify any AAA rule that barred Cavanaugh from speaking to the wing arbitrators about the conflict. (NYSCEF 89, Rutherglen Decl. ¶9.) In fact, AAA Rule 19(b), gives AAA discretion whether to share such information.² Also, relevant here is AAA Construction industry Arbitration Rule22(c), which provides that, where one arbitrator has been replaced, the decision whether to rehear any prior rulings lies within the discretion of the new panel.

"A preliminary injunction maybe granted under CPLR article 63 when the party seeking such relief demonstrates: (1) a likelihood of ultimate success on the merits; (2) the prospect of irreparable injury if the provisional relief is withheld; and (3) a balance of equities tipping in the moving party's favor." (Doe v Axelrod, 73 NY2d 748, 750 [1988] [citation omitted].)

Albemarle has not established likelihood of success. While this court has jurisdiction to hear Albemarle's request for the extraordinary relief to intervene in an ongoing arbitration prior to a final award, Albemarle has not satisfied its burden under CPLR 6301. New York "courts have inherent power to disqualify an arbitrator before an award has been rendered." (Astoria Med. Group v Health Ins. Plan, 11 NY2d 128, 132 [1962] [reversing pre-award order disqualifying arbitrator].) Indeed, "[w]here a party to an arbitration proceeding becomes aware of the . . . probable partiality of an arbitrator, there would appear to be no reason why the court should not exercise its equitable jurisdiction on the application of the party at any time during the proceeding, rather than require the party to wait for the award, and then move to vacate . . . ." (Grendi v LNL Constr. Mgt. Corp., 175 AD2d 775, 776 [1st Dept 1991] [internal quotation marks omitted].) The grounds for disqualification pursuant to the court's inherent power include the "appearance of bias." (Bronx-Lebanon Hosp. Ctr. v. Signature Med. Mgt. Group, 6 AD3d 261, 261 [1st Dept 2004] [denying motion to disqualify arbitrator].) "[T]hat bias must be clearly apparent based upon established facts, not merely supported by unproved and disputed assertions." (Id.) However, this court can findneither the appearance of bias nor "probable partiality" on this record. (See Belanger v State Farm Mut. Auto Ins. Co., 74 AD2d 938, 939 [3d Dept 1980].)

New York courts disfavor col lateral attacks on ongoing arbitrations "[w]here, as here, the parties have agreed to arbitrate their disputes and to be bound by [ ] [AAA] rules." (Nespola v Mgt. Network Grp., 101 AD3d 437, 438 [1st Dept 2012] [citations omitted].) "[J]udicial review of interim determinations ... is generally unavailable." (Id.) Here, the parties chose arbitration, including application of AAA rules regarding conflicts. AAA's disqualification decisions are binding because the "AAA [r]ules clearly outline" that the AAA's determination of any partiality challenge "shall be conclusive." (York Hannover Holding A.G. v Am. Arbitration Assn., 1993 WL 159961, *5 [SDNY 1993]; NGC Network Asia, LLC v Pac Pac. Group Intl., Inc., 2012 WL 377995 [SDNY 2012], cert denied 134 S Ct 265 [2013].)

The fundamental premise of the parties' agreement to arbitrate here is that the parties are bound by the AAA's rules and procedures and cannot use the courts as some sort of interlocutory appellate court to challenge adverse rulings. (See York Hannover Holding A.G., 1993 WL 159961 at *5 [concluding that a party to arbitration "is not free to disregard the Rules it agreed to operate under and expect this court to relieve it of the consequences of doing so"].) Such a challenge undermines the inherent benefits of arbitration, speed and lower cost, and invites interference with the arbitration process. (See Matter of 797 Broadway Group LLC v BCI Constr. Inc., 57 Misc 3d 391, 399 n. 6 [Sup Ct, Albany County 2017] [there are "powerful incentive[s] for disaffected parties to seize on even the most attenuated of connections to support an evident-partiality challenge"].)

Albemarle's reliance on Grendi for the proposition that the arbitrators placed Albemarle in an untenable situation by not following these rules, compelling pre-award disqualification, is misplaced. In Grendi, the petitioner refused to pay the respondents' share of required arbitrator fees, after respondents disclosed that they could no longer afford to do so. (Grendi v LNL Constr. Mgt. Corp., 175 AD2d at 776.) AAA informed the arbitrators of the petitioner's refusal, which the court believed created a potential for bias given that the petitioner's decision directly affected how much money went into the arbitrators' pockets. (Id. at 777.) This court rejects Albemarle's conjecture that, via Cavanaugh's letter, Anderson and Duval were sending Albemarle a secret message to stand down—do not challenge Cavanaugh. The court will not speculate as to why Cavanaugh sought in put from his co-panelists and will not assign the malevolent motive that Albemarle invites without any factual basis. Nevertheless, there is a clear difference between the cases relied upon by Albemarle involving arbitrator compensation and this case where Albemarle disagrees with the wing arbitrators'...