It’s Sweet to be NutraSweet: Commercial Division Overturns Arbitration Award Entered in Favor of Would-be Seller of Aspartame Business to Iconic Artificial Sweetener Brand
July 27, 2017
As any seasoned commercial litigator knows, courts are generally loathe to overturn the independent decisions of arbitrators.
New York County Commercial Division Justice Charles E. Ramos recently examined the standard for doing so in Daesang Corp. v NutraSweet Co., a dispute arising from Daesang Corporation’s attempted $79,250,000 sale of its aspartame business to iconic sweetener brand NutraSweet.
Daesang commenced the breach of contract action when NutraSweet attempted to exercise its right to rescind the purchase transaction based upon the filing of a suit against the parties by a class of aspartame purchasers for alleged violations of federal antitrust laws. The parties stipulated to the jurisdiction of the International Chamber of Commerce (“ICC”), which ultimately issued a written award dismissing all of NutraSweet’s counterclaims and defenses and awarded Daesang damages of over $100 million. Daesang then commenced the instant proceeding to confirm the ICC’s award, which NutraSweet moved to vacate.
Acknowledging the “presumption in favor of upholding arbitration awards,” Justice Ramos further observed that such deference is not limitless. The Court explained that an arbitration award may be vacated only if it a) violates a ground set forth in Section 10 of the Federal Arbitration Act; or b) was rendered in “manifest disregard” of the law.
Justice Ramos determined this to be the rare case, finding two exceptional aspects of the ICC’s award to Daesang warranting vacatur. First, the Court held that with respect to NutraSweet’s defense and counterclaim for equitable rescission based on fraud in the inducement, the ICC disregarded, and in fact ignored the “well-established principle that a fraud claim can be based on a breach of contractual warranties where the misrepresentations are of present facts.”
Second, the Court found that the ICC’s outright refusal to consider NutraSweet’s breach of contract counterclaim, which the ICC concluded NutraSweet waived during its closing argument, went “beyond a mere error in law or facts, and amount[ed] to an egregious dereliction of duty.” The Court explained that, beyond the fact that NutraSweet submitted witness statements, live and expert testimony, and took cross-examination on the counterclaim, the portion of the transcript that the ICC based its decision on failed entirely to address the breach of contract counterclaim.
While the Commercial Division’s decision was a sweet success for NutraSweet, this case should serve as a stark reminder to commercial litigators that a successful motion to vacate an arbitration award requires a finding of truly egregious errors and/or “manifest disregard” for well-established law.