I, THE UNDERSIGNED ARBITRATOR, having been designated in accordance with the arbitration agreement entered into between the above-named parties and dated September 6, 2017, and having been duly sworn, and having duly heard the proofs and allegations of the parties, does hereby, AWARD, as follows:
¶1. Disputes have arisen between Claimants Hyegate, LLC and its wholly owned subsidiaries DAP, LLC and Aragats Perlite, OJSC, and Respondent Ashot Boghossian concerning the performance of the September 6, 2017 contract entitled "RE: ARAGATS PERLITE MINE AGREEMENT TO PROCEED BETWEEN HYEGATE, LLC AND ASHOT BOGHOSSIAN" (the "Agreement").
¶2. Pursuant to the Agreement, Claimants engaged Respondent to act as representative and general director of certain of Claimant's subsidiaries and affiliates in the Republic of Armenia, which own and operate the Aragats Perlite Mine in Aragatsavan, Armenia (the "Mine"). Claimants initiated arbitration pursuant to an arbitration agreement in the Agreement.
¶3. The Claimants are (1) Hyegate, LLC, a New York limited liability company ("Hyegate, LLC"), (2) Hyegate, LLC's subsidiary DAP, LLC, a Delaware Company, and (3) DAP, LLC's subsidiary Aragats Perlite OJSC ("APO"), an Armenian company whose primary business is the Mine (collectively, the "Claimants").
¶4. Counsel for Claimants is Mr. Van Krikorian, Esq., who is also a Member and Manager of Hyegate, LLC. The contact details for Claimants and Mr. Krikorian are: 5 Fredrick Court, Harrison, NY 10528 USA. [email protected].
¶5. Respondent is Mr. Ashot Boghossian (a.k.a. Ashot Poghosyan) ("Respondent"). Respondent is an Armenian lawyer and businessman. The contact details for Respondent are: 7 Nalbandian Street, Etchmiadzin 0051 Armenia. [email protected]. +374 (93) 409 852.
¶6. The counsel for Respondent in these proceedings is Mr. Tigran Ghazaryan, Esq., an advocate with the Armenian Chamber of Advocates, license #2148, ID # 008911356 issued on December 28, 2016. Mr. Ghazaryan is located in Yerevan, Armenia. His contact details are: Ghazaryan and Partners. [email protected]. +347(43)681 718.
¶7. The Mine was established in 1961 near Aragatsavan, Armenia. Aragatsavan is a village close to Armenia's border with Turkey that is located in the foothills of Mount Aragats, a 13,420-foot peak and Armenia's tallest mountain. The Mine produces perlite, which is an amorphous volcanic glass that expands when heated. It is a mineral which, once processed and expanded, is useful for its low density in construction and, often as a filter, in manufacturing. Perlite has other industrial applications as well.
¶8. In 2017, Hyegate, LLC acquired DAP, LLC, APO and, along with it, the license and property of the Mine.
¶9. On September 6, 2017, the parties entered into the Agreement. The purpose of the Agreement is to establish the terms by which Respondent would lead Hyegate's subsidiaries in Armenia and manage the Mine's operations and sales. The Agreement's preamble explains that it:
¶10. The Agreement envisages that Respondent "will be both the Hyegate/DA [DAP, LLC] representative and the general director of APO ["Aragats Perlite, OJSC"] and APM [Aragats Perlite Mining, LLC] as well as of other relevant subsidiaries or affiliates as designated by Hyegate on an at will basis…" Id. The Agreement provides contact information for "the Hyegate related parties" on page 3. The Agreement is signed by Respondent personally and by Saro Hartounian "For Hyegate, LLC." Id. at 4.
¶11. As described more fully below (see Paragraphs 59–64), the Agreement establishes, among other things, Respondent's relationship with Claimants, including the basis on which Respondent may make significant decisions regarding Hyegate's Armenian subsidiaries' businesses and how he is entitled to a percentage of their profits as compensation for his work.
¶12. The Governing Law of the Agreement is the law of the State of New York. Agreement at 4.
¶13. It is common ground between the parties to this arbitration that the Agreement is valid and enforceable.
¶14. The Agreement contains an arbitration provision, which provides:
¶15. As addressed further below, Respondent contends that the Arbitration Agreement does not apply to this dispute because it is an employment dispute, and that such disputes may not be arbitrated pursuant to Armenia's reservations to the United Nations Convention on the Enforcement and Recognition of Arbitral Awards (1958) ("NY Convention").
¶16. After Respondent began his duties at Hyegate LLC's Armenian subsidiaries, disputes arose between him and Claimants. Claimants allege that Respondent failed to provide access to all information concerning the Armenian operations that they needed or that he was required to provide pursuant to the Agreement. In addition, Respondent proposed, and Claimants' approved, the purchase of dryers in order to expand the mine's production. Ultimately, two dryers were purchased for USD $120,000. However, the dryers that were delivered were of the wrong specification for perlite drying and the one that was installed did not work properly. The parties dispute who is at fault for this. In addition, Claimants claim that Respondent has taken money and made decisions without their authorization, which Claimants state was required under the Agreement.
¶17. At a meeting at a hotel in Yerevan on November 9, 2018, Claimants fired Respondent.
¶18. Respondent subsequently initiated a litigation in the Court of First Instance of General Jurisdiction of Aragatsotn Region, Armenia, against APO in the case: Ashot Poghosyan v. "ARAGATS-PERLITE" OJSC, Civil Case Number ARAD2/0150/02/19. In his complaint, Respondent claimed that he was entitled to, but had not been paid, USD $287,000 in additional compensation from APO for his work under the Agreement.
¶19. Later, Respondent brought a second case against APO, captioned: Ashot Poghosyan v. "ARAGATS-PERLITE" OJSC, Case Number 2/0023/02/20, for a claim for USD $19,500. Hovhannisyan Affidavit ¶ 4.
¶20. Claimants filed a case in the Court of First Instance of General Jurisdiction of the Armavir Region, captioned ARAGATS PERLITE OJSC v. Ashot Poghosyan, seeking return of monies it claims it was entitled under the Agreement. But Claimants withdrew its Complaint (Second Hovhannisyan Affidavit ¶ 8) and subsequently initiated this Arbitration.
¶21. Claimants initiated arbitration on January 3, 2020 by submitting a demand for arbitration to the American Arbitration Association ("AAA") / International Centre for Dispute Resolution ("ICDR") seeking compensatory damages, attorneys' fees, interest, arbitration costs, punitive damages, and injunctive relief. Respondent was duly notified and communicated to the ICDR that it objected to arbitral jurisdiction.
¶22. On May 6, 2020, the ICDR appointed Matthew E. Draper to serve as arbitrator (the "Arbitrator" or "Tribunal").
¶23. The Arbitrator conducted the Preliminary Hearing on May 28, 2020. The hearing was attended by Van Krikorian, Esq., on behalf of Claimants, a representative of the ICDR, and the Arbitrator. No representative of Respondent participated.
¶24. On June 2, 2020, the Arbitrator issued Procedural Order No. 1, which set forth the procedure for the arbitration, including rules for document exchange, motions, written submissions, and set the deadlines for all submissions and the dates of the hearing.
¶25. Further, Order No. 1 established that: the Arbitration would be conducted in accordance with the Commercial Arbitration Rules of the AAA as amended and in effect as of October 1, 2013 ("Rules"); the legal seat of the Arbitration is New York, New York, USA; the Arbitration would be governed by the Federal Arbitration Act; the substantive laws of New York State govern the merits of the dispute; the arbitration would be conducted in the English language; and this Award would be written and reasoned.
¶26. Pursuant to the schedule set forth in Order No. 1, on June 12, 2020, Claimants submitted a "Rule 33 Motion on Arbitrability and Rule 37 Motion for Interim Relief" ("Hyegate Motion"). Claimants sought "an order enjoining Respondent from pursuing further litigation or other claims against Claimants outside of this arbitration." Hyegate Motion at 7. Claimants separately sought an order requiring Respondent to deposit at least USD $134,850 in trust with Claimants' attorney in Armenia "to secure the contractually certain damages." Id. at 3. Attached to the motion was a draft order, affidavits from Mr. Arsen Hovhannisyan, Claimants' attorney for the Armenian litigation, and Mr. Saro Hartounian, a member and manager of Claimant Hyegate, LLC, and seven exhibits.
¶27. On June 26, 2020, Respondent submitted an opposition to Hyegate's Motion and an objection to the jurisdiction of the ICDR and the Arbitrator to hear the parties' dispute. Respondent argued that the parties' disputes cannot be arbitrated because the Agreement is an employment agreement under Armenian law. Pursuant to Armenia's reservations when it acceded to the NY Convention, Respondent argued that only commercial disputes — not employment disputes — may be arbitrated in Armenia. Respondent also argued that Claimants had waived their right to arbitrate by APO participating in litigation in Armenia. In addition, the Respondent's submission included an opposition to Claimants' motion for Respondent to place USD $134,850 in trust. Respondent's Opposition was accompanied by six exhibits.
¶28. On June 30, 2020, Claimants submitted a Reply Memorandum, additional affidavits from Messrs. Hovhannisyan and Hartounian, and two exhibits. On July 7, 2020, Respondent submitted a rebuttal to Claimants' Reply, accompanied by eight exhibits.
¶29. On July 21, 2020, the Arbitrator issued an "Order And Interim Award On Jurisdiction And Interim Relief" ruling on the parties' motions ("Interim Award"). The Arbitrator reiterated that the parties' Agreement provided that New York law applied to the merits of the parties' dispute and the construction and interpretation of the Agreement, including the Arbitration Agreement. In light of the parties' choice of law and selection of New York as the place in which any disputes would be settled, the Arbitrator found that New York law applied to the construction of the arbitration agreement itself. The Arbitrator further found that the procedural law of the Arbitration is U.S. federal law, including the Federal Arbitration Act ("FAA"). Interim Award ¶ 17.
¶30. The Arbitrator found, therefore, that, contrary to Respondent's contention, arbitration law in Armenia and the scope of its reservations to the NY Convention, were not relevant to determining the scope of the disputes falling within the Arbitration Agreement. The Arbitrator further found that the arbitration agreement, pursuant to applicable law, was valid and enforceable, and that even if the parties' dispute could be characterized as an employment dispute, there was no bar to its resolution through arbitration. Id. ¶¶ 17–20.
¶31. The Arbitrator also rejected Respondent's argument that Claimants waived their right to arbitrate by participating in litigation in Armenian courts with Respondent. The Arbitrator found that APO is not a party to the arbitration agreement, and therefore it could not have waived Hyegate LLC's right to arbitrate under the Agreement. Id. ¶¶ 23–24. For this reason the Arbitrator overruled Respondent's objections to jurisdiction and found that Claimants were entitled to an injunction barring Respondent from bringing claims against Hyegate, LLC, outside of the arbitration. Id. ¶ 25.
¶32. The Arbitrator denied Claimants' request for an order requiring Respondent to deposit USD $134,850 in trust, as an amount of "contractually certain damages." The Arbitrator found that Claimants had not met their burden, at this stage in the Arbitration, of establishing irreparable harm or success on the merits.
¶33. The Interim Award concluded with a finding that the Tribunal had jurisdiction over Claimants' claims, and issued an injunction against Respondent from "initiating or maintaining any litigation against Claimant Hyegate, LLC in any forum or court, including in any court of the Republic of Armenia, without the express written authorization of this Tribunal." Id. at p. 6.
¶34. On July 22, 2020, Claimants submitted a motion for reconsideration. In their motion, Claimants argued, among other things, that APO had not waived jurisdiction by engaging in the litigation in Armenia. The same day the Arbitrator denied the motion in Pre-Hearing Order No. 3. The Arbitrator acknowledged that there was evidence that APO had not waived any rights under the Arbitration Agreement, but found that this was irrelevant because he had found that only Hyegate LLC was a party to the Agreement, and Hyegate LLC was not a named party in the Armenian litigations.
¶35. On July 10, 2020, Claimants timely sent Respondent their First Request to Produce. Respondent produced to Claimants no documents in response to Claimants' request.
¶36. On July 28, 2020, Claimants submitted to the Arbitrator a Motion to Compel Respondent's production of all documents responsive to Claimants' First Request to Produce. On August 3, 2020, Respondent submitted an objection to Claimants' Motion to Compel. On August 7, 2020 the Arbitrator issued Pre-Hearing Order No. 4, rejecting Respondent's assertion that he was prohibited from producing documents under Armenian law (Order 4, at p. 3), but finding that some of Claimants' requests were overbroad, likely sought documents in Claimants' possession, not relevant, etc. The Arbitrator nevertheless ordered Respondent to produce documents in response to 28 of Claimant's document requests on or before August 14, 2020. Order No. 4 at p. 4.
¶37. Order No. 4 further stated that (1) the Arbitrator may draw negative inferences against Respondent if it failed to produce the documents ordered produced, and (2) that the parties:
¶38. Respondent produced documents pursuant to Order No. 4, and the parties brought no more disclosure disputes to the Arbitrator.
¶39. The Arbitrator scheduled a status conference in advance of the evidentiary hearing. In an email from Respondent's counsel, Mr. Tigran Ghazaryan, Esq., sent on August 19, 2020, the day before the evidentiary hearing, Respondent stated that "while Respondent remains available to provide factual and further information to the Tribunal in his defense, Respondent can not and will not participate in any oral hearings." In an email dated August 20, 2020, Respondent requested the opportunity to submit a post hearing brief.
¶40. The Arbitrator conducted the status conference on August 20, 2020. Present were Mr. Krikorian, on behalf of Claimants, a representative of the ICDR, and the Arbitrator. No representative of Respondent participated in the status conference.
¶41. During the status conference the Arbitrator and Claimants discussed the manner in which the evidentiary hearing would be conducted. Among other things, Claimants stated that they did not object to the hearing being conducted virtually on the Zoom platform and that they did not require a court reporter.
¶42. The Arbitrator issued Pre-Hearing Order No. 5 the same day. The Order provided that the hearing would be conducted by Zoom due to the health risks associated with the COVID-19 pandemic. Order No. 5 set forth six pages of the rules and procedures for conducting the hearing virtually. As with all communications in this Arbitration, the Arbitrator sent Order No. 5 to Respondent and gave him the option to indicate he wanted a court reporter present at the hearing. Respondent did not offer any response. Both parties were given until the same date to identify their participants. Claimant timely submitted its participant list and witness list. None was received from Respondent.
¶43. On August 25, 2020, the day before the evidentiary hearing, Respondent filed a written submission accompanied by numerous exhibits. This filing was not permitted by the procedural orders governing the arbitration, which required that Respondent's final substantive submission be filed no later than August 7, 2020. Claimant objected to Respondent's submission. The Arbitrator stated that Claimants need not address any of Respondent's submission at the hearing.
¶44. The Arbitrator conducted the Evidentiary Hearing on August 26, 2020. Present were Mr. Van Krikorian, Esq., on behalf of Claimants, Claimants' three witnesses — Mr. Arsen Hovhannisyan, Esq., Mr. Saro Hartounian, and Mr. Nareg Hartounian — the Arbitrator and a representative of the ICDR. Respondent did not appear at the hearing. Each of Claimant's witnesses presented short direct testimony and then were questioned by the arbitrator. A recording of the hearing was made by the ICDR and subsequently circulated to the parties.
¶45. Later the same day, the Arbitrator issued to both parties Post-Hearing Order No. 1 ("PHO 1"), which, among other things, set a post hearing briefing schedule. PHO 1 further provided:
¶46. Claimants timely submitted Objections to Consideration and Admission of Respondent's August 25, 2020 Filings, which objected to Respondent's pre-hearing brief and the documents that accompanied it as untimely and prejudicial. Claimants argued that the Arbitrator should refuse to accept Respondent's pre-hearing brief. Respondent offered no response or explanation for the procedural impropriety of his late submission, or responded to Claimants' criticisms. The Arbitrator ruled on Claimant's objections in Post-Hearing Order No. 2 ("PHO 2"), which accepted the brief, subject to some limitations:
¶47. While not excluding the documents that Respondent submitted as evidence in support of the pre-hearing brief, the Order stated that due to (1) their late submission which prevented them from being considered at the evidentiary hearing, and (2) their unclear organization and (3) provenance, the arbitrator would not review or consider them. The arbitrator concluded by stating that "I will consider this fact when I exercise my discretion as to how much weight to give Documents quoted or cited in the Brief." Claimants subsequently requested, and the arbitrator granted, the right to reference Respondent's August 25 documents in its post-hearing briefing.
¶48. The parties subsequently timely submitted consecutive post-hearing briefs. Finally, Claimant filed a reply. Each of these submissions were lengthy and attached exhibits and/or witness affidavits. The Arbitrator decided to lift all page limits and permit both parties to submit new evidence in light of the unusual situation created by Respondent's participation in writing only, the parties' disregard of page limits and prohibition of new evidence, and the need to ensure an equality of arms. Briefing was concluded on October 7, 2020. The hearing was formally closed on November 6, 2020. The original due date for the Final Award under the rules was December 7, 2020. All parties consented, however, to a 7-day extension of the due date until December 14, 2020.
¶49. In each of Respondent's communications with the ICDR and the Arbitrator, Respondent has objected consistently to the jurisdiction of the ICDR and of the Arbitrator. A representative of Respondent never appeared at any of the hearings or status conferences. The Tribunal afforded Respondent every reasonable opportunity to participate and present its case. Respondent participated fully in his written submissions such that the Arbitrator understood his case, and the legal arguments and evidence in support of it.
¶50. Respondent and his counsel were copied on all emails to and from the arbitrator. Respondent would often respond to these emails. As such, Respondent and his counsel were aware of all deadlines and procedures of the arbitration. Further, the arbitrator summarized the key points of all hearings and conferences in his orders, which were likewise provided to Respondent. Respondent received the video recording of the evidentiary hearing, which he cites at places in his post hearing submission. Respondent made multiple substantive submissions, including in support of his motion to dismiss for lack of jurisdiction, an opposition to Claimants' motion to compel disclosure, an (untimely) responsive pre-hearing brief, and a responsive post-hearing brief. Respondent's most recent communication was an email dated December 5, 2020, in which Respondent agreed, subject to his objections on jurisdiction, that the Arbitrator could take an additional seven days to complete this Award.
¶51. In light of the above, the Arbitrator considers that Respondent was a full participant in the arbitration, having a full opportunity to articulate his case and respond to the Claimants' case.
¶52. As discussed above at Paragraphs 27–34, on June 12, 2020, Claimant sought an interim award enjoining Respondent from suing Claimant's subsidiaries and affiliates in Armenian Courts. The Arbitrator denied this motion because the subsidiaries were non-signatories to the Agreement, and for the subsidiaries to invoke the Arbitration Agreement requires the application of a legal theory permitting nonsignatories to invoke an arbitration clause. Interim Award ¶ 26. The Arbitrator went on to note that "Claimants, however, have not made any such claim." Id.
¶53. Claimants now advance such a nonsignatory theory. See Claimant's PHB at 6–8. Claimants rely on a new document submitted by Respondent on August 25, 2020: a translation of Respondent's amended complaint in the case Ashot Poghosyan v. "ARAGATS-PERLITE" OJSC, Civil Case Number ARAD2/0150/02/19, in the Court of First Instance of General Jurisdiction of Aragatsotn Region, Armenia. In this amended complaint, Respondent relies on the Agreement as the exclusive basis for his claims for unpaid salary pursuant to the Agreement.
¶54. Claimants assert that under the equitable estoppel doctrine, Respondent cannot invoke the Agreement containing the arbitration clause, and at the same time avoid the application of the Agreement's arbitration provision. Claimants' Reply PHB at 4 (citing GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, 590 U.S. — (U.S. S.Ct. 2020)). I agree.
¶55. The U.S. Supreme Court has long stated that, pursuant to the FAA, which governs this question:
That is precisely the situation in the newly adduced amended complaint in Ashot Poghosyan v. "ARAGATS-PERLITE" OJSC, Civil Case Number ARAD2/0150/02/19. Respondent has offered no opposition to Claimants' argument in its Post-Hearing Brief. Further, Claimants have offered credible testimony that APO has not waived its right to arbitrate. APO consistently objected to the jurisdiction of Armenian courts to determine disputes between it and Respondent concerning his rights under the Agreement, and dropped its complaint against Respondent before Respondent had made any submissions. See, e.g., Arsen Hovhannisyan's Second Affidavit ¶¶ 7–8, dated June 30, 2020.
¶56. I find, therefore, that Respondent is in breach of the arbitration agreement by bringing or maintaining claims against APO in Armenian courts, including in the case captioned Ashot Poghosyan v. "ARAGATS-PERLITE" OJSC, Civil Case Number ARAD2/0150/02/19. Respondent is enjoined from doing so. All such claims, by prior consent of the parties in their Arbitration Agreement, are committed exclusively to arbitration.
¶57. Claimant also seeks an injunction against "all" members of the ill-defined Hyegate Group. The Arbitration Agreement is broad, encompassing all conceivable claims "relating to" the Agreement brought by either party. However, I decline to grant such a broad injunction since the only Hyegate, LLC subsidiary that is a party to the litigations is APO. To be sure, any future claims brought by Respondent in Armenian court against Claimants that arise out of or relate to the Agreement would almost certainly be estopped for the reasons articulated in GE Energy Power Conversion Fr. SAS Corp. But the only breaches of the arbitration agreement proffered by Claimant here relate to APO, and to enjoin all future claims against all other entities would be speculative.
¶58. The Agreement contains a section entitled "AB Terms, 25% Profit Interest, and Equity Option." Agreement at pp. 1–2. This section sets forth the basis on which Respondent (i.e., "AB") can make decisions, to whom he reports, and the manner in which he is compensated. It provides that Respondent will act as the representative and general director of Hyegate, APO, APM "as well as other relevant subsidiaries or affiliates as designated by Hyegate" for a minimum term of two years. Id. at 1.
¶59. The Agreement also sets out the following limitations on Respondent's decision-making authority: Any decision by Respondent that "has or could have an impact of more than $10,000" must be approved in writing by either Van Krikorian or Saro Hartounian. Id. at 2. Budgets must be approved in advance by Van Krikorian or Saro Hartounian. Id. These authorizations cannot be unreasonably withheld: "Hyegate shall authorize any and all reasonable decisions and moves taken by AB to advance the business of AP." Id.
¶60. Claimants argue that Respondent failed to seek or obtain Claimants' approval for certain key actions, which then led to the damages Claimants seek in this Arbitration.
¶61. The Agreement provides the following in relation to the information that Respondent must share with Hyegate: "Hyegate will have real time access to the books and records as well as to the substantiation for expenses, personnel, and approval of any debt or drawdown of debt." Id.
¶62. Claimants argue that Respondent lied to them, hid or failed to share material information with them concerning APO's business affairs.
¶63. As for compensation, the Agreement provides that Respondent "will receive a 25% profit interest against the after tax net profit to Hyegate" so long as he works for Hyegate and its affiliates. Id. Before the enterprise is profitable, Respondent is entitled to take advances on future profits "provided there is sufficient cash to make such payments." Id. These payments are not salary, "but advances which will be paid back from profits or otherwise." Id. Respondent's "advances shall start at $12,500 per month (assuming free cash is available)" for the first three months. Id. Thereafter, if APO did not hit certain production levels, advances to Respondent will be reduced to the lesser of $7,500, or the amount of the "Hyegate Priority Payments." Id. The priority payments were payments that Hyegate needed to make to DA, the company from which Hyegate purchased APO and the Mine.
¶64. As set forth above, Respondent's compensation was in the form of an entitlement to 25% of all profits flowing from APO to Hyegate. While Respondent could take certain advances on those profits, those advances had to be paid back. Both parties agree that there were no profits. Claimants assert that because there were no profits, Respondent is entitled to no compensation. Claimants set forth payments that Respondent caused APO to make to himself between October 2017 and November 2018 in Exhibit C-6, Table 4. These payments total $118,811.05. Claimant asserts that these payments were improper because (1) they were made without authorization, and (2) there was no "free cash" when the payments were made, and so they were barred by the Agreement. Finally, Claimant argues that, in any case, the amount must be paid back because no profit has been made.
¶65. Respondent makes two responses to this allegation. First, Respondent argues that some of the payments were made by the previous owners. But the dates of the payments do not support Respondent's argument. Respondent himself states that he served as the Director of APO from October 16, 2017 until he was fired on November 12, 2018. All of the transactions alleged by Claimants as being improper in Exhibit C-6, Table 4, fall within these dates, with the exception of a payment on November 13, 2018. With regard to that final payment, Claimants assert that it reflects the fraudulent diversion of a payment of the purchase price of a locomotive from APO to Respondent (Claimant's PHB at 19), and Respondent offers no evidence to the contrary.
¶66. Respondent's second response is that the parties assumed the term of the Agreement would be at least two years, and that it is unfair that he was fired after a little more than one year because the parties did not assume that a profit could be made in such a short time. The implication of this argument is that Respondent is entitled to some payment for the work he performed. But that is not the Agreement that Respondent signed. First, the term of the Agreement is, in fact, not two years. The Agreement states that Respondent's work for Hyegate entities is on an "at will basis". Agreement p. 1. "At will" means that Claimants can end the relationship with Respondent at any time, and vice versa. The Agreement goes on to say "but [Respondent] will be committed to work for these companies for at least two years…". Id. It is unclear whether this last statement is meant to be a binding requirement, or merely hortatory. If it is binding, it would seem to bind Respondent. But even assuming it were binding on Claimants, Respondent committed a prior breach of the Agreement by, among other things, making significant business decisions without prior written approval from Claimant's principals. See C-6, Table 1. As such, even if the Agreement were not "at will", Claimants were entitled to fire Respondent due to his prior breaches.
¶67. The Agreement — because it says that Respondent gets paid only once the venture makes a profit and in no other scenario — allocates the risk of a termination of the Agreement before profits are made on Respondent. This is not an unreasonable allocation of risk in an Agreement between two sophisticated parties. Such Agreements are strictly enforced under New York law. Respondent must repay the full amount of $118,811.05.
¶68. Respondent proposed (and Claimants authorized) the purchase of new dryers used in the processing of the perlite. Two dryers were delivered. One does not work, and for that reason the other was not installed. The dryers cannot be resold. These are the few facts relating to the dryers that are not contested between the parties.
¶69. Respondent claims that the plant manager, Andranik Khachatryan, was responsible for the specifications, and that it was Mr. Khachatryan's fault that the dryers that were delivered were not appropriate for the job. Respondent asserts that Claimants knew exactly which dryers were being purchased, and authorized them. Further, Respondent speculates that the one new dryer that Claimants' attempted to operate burned out because Claimants' set the furnace at too high a temperature.
¶70. For their part, Claimants allege that Respondent proposed that dryers of an appropriate specification be purchased, but then after receiving Claimants' authorization, ordered dryers of a different and cheaper specification, and then pocketed the roughly USD $70,000 difference.
¶71. There is no clear evidence as to who at APO — whether it was Respondent, as Claimants allege, or it was Mr. Khachatryan, as Respondent alleges — changed the specifications from the approved version to what was ultimately delivered. Correspondence from the manufacturer states that APO's "representative" agreed to the changed specifications. Exhibit CX-16. But it is unclear to whom the manufacturer is referring as "representative." The evidence shows that Mr. Khachatryan was involved in accepting delivery of the dryers, and he did so. But Mr. Khachatryan denies any involvement in changing the specifications.
¶72. Claimants allege that Respondent must have engaged in secret negotiations with the manufacturer. Claimants offer no evidence supporting this allegation, however. While Claimants state that Respondent has failed to turn over the documents related to these alleged negotiations, Claimants asked for and received from the Tribunal an order compelling Respondent to produce, among others, "[a]ll documents you may have regarding the change in dryer purchases." Order No. 4, dated August 7, 2020. Respondent subsequently produced documents in response to Order No. 4, and Claimants did not complain to the Tribunal about any failure of Respondent to comply with that order. Consequently, at the end of the day the record is unclear as to who, between Respondent and Mr. Khachatryan, made these decisions concerning the dryer specifications.
¶73. Ultimately, it does not matter, however. The parties agreed that any decision by Respondent that "has or could have an impact of more than $10,000" must be approved in writing by Hyegate's principals. Agreement at 2. Respondent does not deny that the amount saved for ordering the lesser spec dryers exceeds USD $10,000. Thus, this decision — even if, as Respondent alleges, resulted in an equivalent and adequate dryer — required approval by Hyegate. He admits that he never sought such approval. If Mr. Khachatryan had a role to play in this decision it still remains Respondent's responsibility. As General Director of APO, Respondent was Mr. Khachatryan's direct superior. If Respondent permitted Mr. Khachatryan to make decisions in excess of USD $10,000, then Respondent is likewise responsible for that indirect breach of the Agreement.
¶74. The fact that Respondent cannot provide any accounting for how cost savings were spent (see below) raises the concern that Respondent intentionally hid this change from Claimants. Whether he did or not, however, is irrelevant to his obligation under the Agreement to have obtained approval for the change in the specifications for the dryers. As it happened, the damages directly flowing from this breach amount to the USD $120,000 purchase price of the dryers. Claimants are entitled to that $120,000 in damages.
¶75. Claimants allege that Respondent borrowed USD $110,000 more from Ardshinbank than Claimants had authorized. The full extent of Respondent's borrowing activity was only discovered by Claimants after Respondent left and Claimants obtained access to the banking records. Exhibit CX-11. For the reasons set forth below, Respondent must repay Claimant the full $110,000.
¶76. On July 31, 2018, Respondent withdrew USD $73,547 from Ardshinbank without prior written approval by Claimant's principals. Respondent claims that he did seek approval in the July 24, 2018 email to Claimants for spending the money on "installation of the dryers, and the admin building." To the contrary, this email does not seek approval, nor does it provide adequate details as to how the money would be spent. Further, nowhere in the July 24 email does Respondent ask Claimants for permission to borrow an additional USD $73,547 from Ardshinbank. Rather, one would more likely assume that since money was saved, nothing would need to be borrowed from the bank.
¶77. Respondent has provided no evidence as to how this money was spent. If it was in fact spent on installation and the admin building, I would presume that would create a paper trail that Respondent could offer to support his version of events.
¶78. Respondent's suggestion that the withdrawal was legitimate because Ardshinbank did not object to it, misses the mark. The Agreement does not require that bank approval be received by Respondent — it requires that the approval of Claimants' principals be received by Respondent.
¶79. An additional USD $36,453 of the USD $110,000 in borrowings was also not approved by Claimants and is likewise unaccounted for by Respondent. This, too, Respondent must repay to Claimants.
¶80. Claimants assert that Respondent borrowed money from an employee named Aram Mirzoyan at an annual rate of 24%. These loans were repaid. Exhibit CX-6 Tables 2 and 3. Claimants paid $2,771 in interest on these loans. Since Respondent took these loans without prior approval by Claimants' principals, they were unauthorized. Respondent is liable for the $2,771 in interest.
¶81. Claimants assert that they have incurred legal fees in Armenia of $3,020 from their attorneys Grigor Bekmezyan and Arsen Hovhannisyan. 3d Aff. of S. Hartounian ¶ 14(e). Respondent does not challenge this amount or suggest that it is unreasonable for the services performed.
¶82. Respondent's breach of the arbitration agreement proximately caused Claimants to incur these legal fees. Respondent is therefore liable for them.
¶83. Claimants seek an accounting of all APO records that Respondent has retained or controls. Claimants argue that these records are the property of APO. I agree that these documents and information are the property of APO and Hyegate. Respondent has offered no adequate explanation as to why he has not turned all such documents and information over to Claimants. Respondent must do so now.
¶84. Claimants seek exemplary damages for what they claim is the deceitful behavior of Respondent. Punitive or exemplary damages are rarely awarded in contract-related disputes. Claimants have offered no convincing basis or legal standard by which this Tribunal should depart from this practice. I find, therefore, that Claimants are not entitled to any such damages.
¶85. Claimants' Demand for Arbitration indicated that they were seeking their legal costs and attorney's fees of this arbitration. However, the Claimants have not sought their legal fees since. Unlike their legal fees for the Armenian litigation, the Claimants do not mention their legal fees and costs in this Arbitration in their post-hearing briefs, or quantify them. The Tribunal, therefore, considers that Claimants have dropped any claim for such legal costs.
¶86. However, as the prevailing party, I award Claimants the administrative fees and expenses of the ICDR and the Arbitrator's fees.
For the foregoing reasons, I AWARD as follows:
| Categor>D. Unauthorized borrowing — additional (¶79) | $36,453.00 |
|---|---|
| E. Interest on unauthorized employee loans (¶80) | $2,771.00 |
| F. Armenian litigation fees (¶81–82) | $3,020.00 |
| Subtotal: Compensatory Damages | $354,602.05 |
| ICDR administrative fees & expenses | $2,950.00 |
| Arbitrator compensation & expenses | $58,362.50 |
| TOTAL AWARD | $415,914.55 |
I hereby certify that, for the purposes of Article I of the New York Convention of 1958, on the Recognition and Enforcement of Foreign Arbitral Awards, this Final Award was made in New York, New York, United States of America.