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Rakower v. Aker

Issue Discussed: Security

Submitted by Michael T. Carolan, Thomas J. Kinney*

Date Promulgated: May 27, 1998

 

Rakower v. Aker, No. CV-98-2652 CPS, 1998 WL 432092 (May 27, 1998)

Court: U.S. District Court for the Eastern District of New York

Issue Decided: Whether an arbitration panel’s interim order directing the seizure and sale of a party’s assets as security in satisfaction of an interim award was a final award subject to review and confirmation.

 

In Rakower v. Aker, the U.S. District Court for the Eastern District of New York confirmed an arbitration panel’s interim award requiring a respondent to pay an amount to petitioner and directing the seizure and sale of certain assets of the respondent in satisfaction thereof, holding that it was a final order subject to review and confirmation.

The Arbitration

Israel Rakower, a New York resident, loaned $200,000 to Leba Aker, a resident of Belgium with business in the United States, as part of a business relationship.  Aker later told Rakower that he would not be able to repay the loan.  Eventually, the parties agreed to submit their dispute to binding arbitration at the Rabbinical Court of Kolel Avreichim and Yeshiva in Brooklyn, New York.  In doing so, both parties authorized the Rabbinical Court to issue interim awards.

During the arbitration proceeding, the Rabbinical Court learned that the U.S. Customs Service (“Customs”) had caught Aker with 16 expensive wristwatches concealed on his person and in his luggage.  Because the watches were undeclared, Customs indicated it would begin a civil forfeiture action against the watches.  Aker negotiated a settlement with Customs, agreeing to pay $21,117.60 for the return of the watches, which he export and sell out of the country.  Aker’s payment was made with funds lent by Rakower.

The Rabbinical Court issued a stay order directing Aker not to take possession of the watches.  Shortly thereafter, the Rabbinical Court issued an interim award in favor of Rakower. The award further declared the watches held by Customs to belong to Rakower, and ordered Rakower to take possession and sell the watches at fair market value in satisfaction of the interim award.  If the sale proceeds exceeded $102,000, the Rabbinical Court directed Rakower to place the excess funds in an escrow account with the Rabbinical Court.  The Rabbinical Court also ordered that the arbitration would continue.

Rakower moved the U.S. District Court for the Eastern District of New York to confirm the award.  At the hearing before the court, Aker’s attorney asserted that the arbitration award could not be confirmed under the Federal Arbitration Act because it was not final.

The District Court Opinion

The District Court disagreed with Aker.  First, it noted that “[o]ther circuits have held that an arbitrator’s award of temporary equitable relief necessary to prevent a potential final award from being meaningless can be confirmed and enforced because the award is a final one on an issue distinct from the controversy on the merits.”

Second, the court noted that although the Rabbinical Court’s interim award did not finally dispose of “a separate and independent claim,” because the interim award did provide “necessary temporary equitable relief,” the portion of the award directing Aker to refrain from taking possession of the watches pending the implementation of the remaining provisions of the interim award would be confirmed.

 

* Michael T. Carolan and Thomas J. Kinney are partner and associate, respectively, in the Insurance & Reinsurance group of Crowell & Moring LLP.  They each represent cedents and reinsurers in disputes involving a broad spectrum of issues.