Crédit Agricole Corporate and Investment Bank, Archimedes Funding IV (Cayman), Ltd. and others v. Black Diamond Capital Management LLC, BDC Finance L.L.C. and others

At a glance

Parties

Crédit Agricole Corporate and Investment Bank, Archimedes Funding IV (Cayman), Ltd., UBS AG, Stamford Branch and other lenders (petitioners) v. Black Diamond Capital Management, LLC, BDC Finance L.L.C., Black Diamond CLO 2006-1 (Cayman), Ltd. and Black Diamond Commercial Finance, L.L.C. (respondents)

Case no.

18-CV-7620 (KNF), U.S. District Court, Southern District of New York

Court

U.S. District Court, Southern District of New York (Magistrate Judge Kevin Nathaniel Fox)

Underlying award(s)

AAA Commercial Rules arbitration: Final Award of 19 April 2018 and Amended Final Award of 21 May 2018

Forum and rules

Petition and cross-petition under the Federal Arbitration Act (9 U.S.C. §§ 9, 10, 11, 207) and the New York Convention

Sector

Banking; syndicated credit agreement

Outcome

The Amended Final Award was vacated and the original Final Award confirmed (22 March 2019).

Amount

The Final Award totalled USD 33,761,627.08; the Amended Final Award reduced it to USD 31,584,145.83. The petitioners put the reduction at USD 2,177,482 (USD 530,104 from removing compound interest and USD 1,647,378 from applying the pre-payments to principal).

The dispute

A group of lenders led by Crédit Agricole won an AAA arbitration against Black Diamond entities for bad-faith breaches of a credit agreement over eight years. Black Diamond had made two distribution payments in 2016 (USD 7,172,382 on 18 March 2016 and USD 1,310,126 on 30 June 2016), to be treated as pre-payments of any judgment. Black Diamond then asked the panel under AAA Commercial Rule 50 to correct a "computation error". The panel issued an Amended Final Award. It removed the compounding of 9% pre-judgment interest and applied the pre-payments to principal rather than to principal plus accrued interest. The lenders asked the court to vacate the amended award and confirm the original one. They argued the panel had changed a legal ruling, which exceeded its powers and was in manifest disregard of the law. Black Diamond cross-petitioned to confirm the amended award. It argued the panel had power under AAA Rules 8 and 50 to interpret its own authority and correct a computational error.

Key holdings

1. The New York Convention applies because the arbitration agreement is not entirely between U.S. citizens. The court may still apply FAA standards to vacate a non-domestic award made in the United States, including the Second Circuit's manifest-disregard standard. pp. 8–10
2. The amended award gave a different amount of interest (USD 10,710,385.26 instead of USD 10,729,591.9244) for the same principal over the same period before any payment was applied. This change did not correct any evident material miscalculation, so the panel exceeded its powers under 9 U.S.C. § 10(a)(4). pp. 11–13
3. The question of what the distribution payments should be deducted from (principal plus interest, principal only, or interest only) is a substantive issue of law, not a computational one. By switching from principal-plus-interest to principal only, the panel exceeded its powers. pp. 13–15
4. The panel said it had no jurisdiction to correct a mistake of law, then went on to rule on the merits of the lenders' argument and reversed how the payments were applied. In doing so it acted in manifest disregard of the law. pp. 16–17
5. Whether interest is simple or compound is an issue of law that the panel decided in the Final Award. Changing the type of interest in the amended award exceeded its powers and was in manifest disregard of the law. pp. 17–18
6. The petition to vacate the Amended Final Award and confirm the Final Award is granted. The cross-petition to confirm the Amended Final Award is denied. p. 18

Procedural history

1. 18 March 2016 and 30 June 2016Black Diamond makes distribution payments to the lenders, to be treated as pre-payments of any judgment.
2. 19 April 2018The AAA panel signs the Final Award.
3. 21 May 2018After Black Diamond's Rule 50 motion, the panel issues an Order Modifying Award and signs the Amended Final Award, which reduces the total.
4. 22 March 2019The S.D.N.Y. vacates the Amended Final Award and confirms the Final Award.

Tribunal, counsel and experts

Decided by

• Kevin Nathaniel Fox Judge, U.S. District Court, Southern District of New York

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Keywords

• vacatur
• manifest disregard of the law
• exceeding powers
• 9 U.S.C. § 10(a)(4)
• evident material miscalculation
• 9 U.S.C. § 11
• AAA Commercial Rules Rule 50
• correction of award
• functus officio
• pre-judgment interest
• compound interest
• application of partial payments
• New York Convention
• Federal Arbitration Act
• credit agreement
• Black Diamond
• confirmation

Summary generated with AI from the published documents — refer to the award for the authoritative text.