Court Imposes Rule 11 Sanctions Against Counsel for Asserting Claims Against Arbitrator and Arbitration Organization

While not a construction dispute, the United States District Court for the Southern District of New York’s Opinion and Order in Landmark Ventures, Inc. v. Stephanie Cohen, et al., No. 13-9044 (S.D.N.Y. 2014), reminds us that courts consistently uphold the strong arbitral immunity defenses available to arbitrators and the organizations that sponsor arbitrations. Moreover, the case serves as a warning that, if a party to an arbitration intends to seek relief from an adverse arbitration award, counsel for that party should think twice before asserting claims against the arbitrator and/or sponsoring organization because doing so might expose them to sanctions.

In Landmark, the plaintiff, Landmark Ventures, Inc. (“Landmark”) was unsuccessful in an arbitration it filed against InSightec, Ltd. Defendant and arbitrator, Stephanie Cohen, presided over the arbitration pursuant to the rules of the International Chamber of Commerce (“ICC”), also made a defendant to Landmark’s suit. Concurrent with its suit against Ms. Cohen and the ICC, Landmark filed a petition to vacate the award, which the Court denied.

In support of its claims against Ms. Cohen and the ICC, Landmark urged that Ms. Cohen made procedural decisions that were unfair to Landmark, including limiting Landmark’s discovery requests and failing to grant Landmark a continuance to locate an expert witness. Landmark also urged that the ICC is liable for refusing to correct Ms. Cohen’s award and for assessing additional legal fees and costs against Landmark.

The defendants provided the court and Landmark notice of their intent to seek dismissal under the long-standing principle of arbitral immunity and the parties’ agreement through adoption of the ICC rules not to sue the ICC and its arbitrators for any alleged claims arising from the arbitration.  After a pre-motion conference, in which the principle of arbitral immunity was discussed at length, Landmark and its counsel still refused to dismiss Landmark’s claims against Ms. Cohen and the ICC. After the conference, the defendants sent a letter to Landmark notifying Landmark and its counsel of their intent to seek Rule 11 sanctions.

The defendants filed their motion to dismiss and motion for sanctions. The court granted both motions. The court found Landmark’s claims to be frivolous in light of the well-established principles of arbitral immunity and because, following multiple notices from the defendants regarding Landmark’s lack of a cause of action, “[i]nstead of heeding these precedents and dismissing the case without prejudice or responding to the cases in its reply, Landmark simply ignored these precedents and proceeded with the case.”  Moreover, Landmark’s counsel acknowledged at the motion hearing that, under the clear law of the Second Circuit, Landmark had no cause of action against Ms. Cohen and the ICC, yet did not provide any non-frivolous arguments for reversing current law. The Court awarded the defendants sanctions of $20,000 against Landmark’s counsel. The decision is currently being appealed.

For your reference, a copy of the November 25, 2014, decision can be found here.