## Facts

- Daesang Corporation and NutraSweet Company entered into an asset-purchase agreement (APA) under which Daesang sold its business assets to NutraSweet, supported by representations and warranties in the APA.
- The parties also entered into a separate joint-defense-and-confidentiality agreement (JPA) that, among other terms, gave NutraSweet a contractual rescission right if the purchase was challenged as violating antitrust law.
- After closing, NutraSweet began making the installment payments required by the APA, but stopped paying when the third installment came due.
- Following Daesang’s notice of default, NutraSweet notified Daesang that it was rescinding the transaction under the JPA’s rescission provision.
- Daesang commenced an International Chamber of Commerce (ICC) arbitration seated in New York seeking relief based on NutraSweet’s nonpayment and related conduct.
- NutraSweet asserted defenses and counterclaims seeking rescission, including a fraud-in-the-inducement theory tied to Daesang’s alleged misstatements in its representations and warranties, and related contract-based theories.
- During the arbitration, the parties presented competing New York authorities on whether NutraSweet’s pleaded fraud theory could proceed given the contractual warranty framework.
- The ICC tribunal ultimately ruled for Daesang, dismissing NutraSweet’s defenses and counterclaims (including equitable rescission and a breach-of-contract theory) and granting Daesang relief in a final award, after an earlier final partial award addressing certain claims.
- Daesang petitioned in New York Supreme Court to confirm the awards; NutraSweet cross-moved to vacate, asserting that the tribunal exceeded its powers or so imperfectly executed them that the awards were voidable under the Federal Arbitration Act (FAA).
- The Supreme Court (Ramos, J.) partially vacated the awards to the extent they dismissed NutraSweet’s equitable rescission and breach-of-contract defenses/counterclaims, remanded those matters to the tribunal, and held confirmation in abeyance, reasoning that the tribunal had disregarded a well-established New York principle governing when fraud claims may be maintained and that NutraSweet had not waived its contract claim.
- Daesang appealed to the Appellate Division, First Department.

## Issues

1. Did the Supreme Court have valid grounds under the FAA to vacate parts of the New York-seated ICC awards and remand certain defenses and counterclaims for redetermination?
2. Did the ICC tribunal “manifestly disregard” New York law in rejecting NutraSweet’s fraud-based rescission theory, where the parties cited competing New York cases and the tribunal addressed that dispute?
3. Was vacatur justified because the tribunal allegedly misconstrued the procedural record or incorrectly found NutraSweet had waived a breach-of-contract theory?

## Decision

- The Appellate Division, First Department reversed the Supreme Court’s order to the extent it vacated portions of the ICC awards and remanded issues to the tribunal.
- The court held that the trial court’s approach amounted to an improper merits review inconsistent with the FAA’s narrow vacatur standards and the strong federal policy favoring arbitration, especially in international commerce.
- The court concluded that the tribunal did not manifestly disregard New York law on the fraud/contract distinction; the tribunal was aware of the competing authorities and reached a reasoned resolution within its authority.
- The court rejected vacatur based on alleged procedural misreadings and the tribunal’s waiver-related conclusions, finding those determinations to be within the tribunal’s role and not a basis for vacatur.
- The court directed that Daesang’s petition to confirm the ICC awards be granted and that the awards be confirmed in full.

## Legal Principles

- Judicial review of an arbitration award under the FAA is highly limited; courts may not set aside awards because they disagree with the tribunal’s legal analysis or evaluation of the record.
- The FAA embodies a strong federal policy favoring arbitration, a policy that applies with special force in international commercial disputes.
- Vacatur is available only on the narrow statutory grounds in FAA § 10 (including, in limited circumstances, a tribunal exceeding its powers or failing to render a final and definite award).
- “Manifest disregard of the law,” to the extent recognized as a basis for relief, requires more than arguable legal error; it requires that the governing law be clear and applicable, that the arbitrators knew it, and that they intentionally refused to apply it.
- Where arbitrators are presented with competing legal authorities and address that dispute in their reasoning, a court may not recharacterize the tribunal’s choice between those authorities as manifest disregard.
- Tribunal determinations about waiver, procedural handling, and the meaning of the parties’ submissions are generally matters for the arbitrators and do not permit a court to redo the arbitration by relabeling disagreements as statutory defects.

## Conclusion

The First Department held that the Supreme Court improperly substituted its own views of New York fraud doctrine and the arbitration record for the tribunal’s determinations, and that neither alleged legal error nor disagreement over waiver and procedure met the FAA’s strict standards for vacatur; accordingly, it reversed the partial vacatur and ordered confirmation of the New York-seated ICC awards in full.


Matter of Daesang Corporation v. NutraSweet Company, 167 A.D.3d 1 (2018)