Related actions recently commenced in connection with an offshoot of the Madoff claims bears note for those interested in international dispute resolution practice. We know of these issues because of the public nature of the filings made to confirm arbitral awards and for other relief.
An investor commenced an arbitration against J. Ezra Merkin in relation to value lost in investments in Ascot Partners, L.P. allegedly as a result of ”the massive Ponzi scheme perpetrated by Bernard L. Madoff”. See Verified Petition in Merkin v. Berman, Index No. 652415/2012 (S. Ct. N. Y. Cty. 2012). The arbitration provision in the underlying agreement was broad, covering “any dispute, controversy or claim arising out of or in connection with or relating to this Agreement or any breach or alleged breach hereof”. The Commercial Arbitration Rules of the AAA provided the rules of the dispute resolution.
The arbitral panel gave the claimant no award. This prompted the respondent to file a petition to confirm but also to add to that petition a claim for indemnification of the fees and costs incurred in defending the arbitration. The indemnification claim arises out of a provision of the same underlying limited partnership agreement providing the respondent with the right to be indemnified and held harmless of loss arising out of or based on “any action for securities law violations instituted by the Investor which is finally resolved by judgment against the Investor”.
The petition in court therefore seek s a confirmation of the arbitral award and the entry of judgment thereon, but also seeks indemnification of the fees and expenses incurred in defending the arbitration. The questions for international dispute resolution practitioners include: Is the indemnification claim arbitrable? Must it be arbitrated? Could it have been brought as part of the initial arbitration proceeding? Could the petitioner have forestalled a judicial proceeding by including a claim for declaration that no indemnification was available?