Case of the Day: Verve Communications v. Software International
Posted on November 18, 2011
The case of the day is Verve Communications Pvt. Ltd. v. Software International, Inc. (D.N.J. 2011). Verve was an Indian company that had a contract to perform services for Software International. The agreement had an arbitration clause calling for arbitration “on the papers, with no live witnesses or appearances by any party”, under the AAA Commercial Arbitration Rules.
The parties had a dispute about unpaid invoices, and Verve demanded arbitration, alleging breach of contract, fraud, breach of the covenant of good faith and fair dealing, and unjust enrichment. Software International counterclaimed on theories of breach of contract, fraud, negligent misrepresentation, breach of the covenant of good faith and fair dealing, unjust enrichment, and unfair and deceptive trade practices.
The arbitrator directed the parties to engage in discovery for a limited time, with any discovery disputes that could affect the scheduling of the hearing to be reported to him “immediately.” The arbitrator granted one extension and stated that no further extensions would be granted absent good cause. After the parties submitted their initial briefs, Software International requested sixty additional days for discovery, in order to allow it to access a computer server owned by a firm known as Devix. Software International claimed that the information on the server would show that Verve had performed defective work. Software International asserted that without the evidence from the server, it would be “unable to adequately respond to Verve’s Initial Submission …, present an adequate defense or prosecute its counterclaim.” But the arbitrator refused to permit the additional discovery, noting that Software International could have raised the issue earlier and that it had not provided enough detail regarding its claim of defective services or what it hoped to find on the server. The arbitrator ruled in favor of Verve, awarding it more than $300,000 in damages, and he denied the counterclaim outright.
Verve brought an action to confirm the award in state court. Software International removed the action to the federal court and moved to vacate the award. It asserted that the arbitrator had exceeded his powers, or alternatively, that by refusing to permit the discovery he had refused to postpone the hearing for good cause shown or had refused to hear material evidence. Each of these is a basis for vacatur under Section 10 of the FAA.
The judge rejected the notion that the arbitrator had exceeded his powers, because the award was not completely irrational. Nor did the refusal to hear evidence deprive Software International of a fair hearing, which is the touchstone of the analysis where the defendant claims the arbitrator refused to hear material evidence.
Because the award was not set aside, the court confirmed it. This was the correct answer to a fairly easy and straightforward case.