Three Bros. Trading, LLC v. Generex Biotechnology Corp., 18 Civ. 11585 (S.D.N.Y. July 31, 2019) [click for opinion]

Plaintiff, Three Brothers Trading, LLC (doing business as Alternative Execution Group, "AEXG") brought this action to enforce an arbitration award issued by a sole arbitrator pursuant to a Memorandum of Understanding (the "Contract") with Defendant Generex Biotechnology Corporation ("Generex"). The Contract provided that AEXG would secure investors in Generex's business and in return AEXG was granted a sixty day "no shop" exclusivity provision, which prevented Generex from entering "into any financing transaction other than with existing shareholders" or with investors referred by AEXG.

The arbitrator found Generex violated this exclusivity provision and made four separate awards to AEXG: (1) $210,000 in liquidated damages; (2) "the economic value of 84,000 warrants convertible to [Generex]'s stock exercisable at $2.50 per share as of September 24, 2018"; (3) legal fees and costs; and (4) "accrued simple interest running at 9% from March 28, 2017." Focusing only on the second award, the court found it to be sufficiently ambiguous to warrant remand to the arbitrator for clarification. The second award failed to state whether AEXG's warrants were subject to a dividend issued in November 2018 and did not specify when, if ever, the arbitrator intended for AEXG's warrants to have been converted to common stock before the December 3, 2018 valuation date.

According to the district court, these ambiguities allowed for three different interpretations of the arbitrator's award. Under the first two interpretations of the award, the warrants to purchase stock in Generex at $2.50 per share would have only been executable at a time when Generex stock was trading at $1.99 per share, making the warrants worthless. Under the third interpretation, the value of AEXG's warrants would have been determined assuming they had been executed at $2.50 per share on September 24, 2018 resulting in an economic value of $3.3 million on the valuation date.

AEXG argued that the third interpretation of the arbitral panel's award is the only possible reading, making a remand unnecessary. Had the warrants not actually been converted or exercised on September 24, 2018, AEXG argued, there would have been no reason to include the phrase "exercisable ... as of September 24, 2018." The court disagreed, concluding that the wording used in the award suggested other interpretations and noting that stock warrants have no intrinsic value so it was entirely possible the arbitrator considered the warrants without economic value and did not intend to award damages in the second award. Moreover, since the different interpretations yielded very different outcomes, the district court considered it to be more prudent to remand the case to the arbitrator for clarification on only the second award. The court otherwise stayed the proceedings to enforce the arbitration award pending the arbitrator's clarification.