Bartlit Beck LLP v. Okada, No. 19-cv-08508 (N.D. Ill. Mar. 12, 2021) [click for opinion]
Kazuo Okada ("Okada"), a Japanese gambling magnate, was the founder of Universal Entertainment Company ("UEC"), and owned a significant percentage of UEC's stock. UEC, in turn, held a significant stake in Wynn Resorts Ltd. ("WRL"), a developer and operator of high-end casinos, and Okada sat on WRL's board of directors.
Following a year-long investigation of Okada, headed by former FBI Director Louis Freeh, WRL concluded that Okada had likely violated the Foreign Corrupt Practices Act and committed other illegal acts. As a result, WRL forcibly redeemed UEC's shares in WRL, for an amount at least $700 million lower than their market value, and evicted Okada from WRL's board. WRL then sued UEC and Okada for damages for breach of fiduciary duty and a declaration that the redemption of UEC's shares was proper. UEC counterclaimed and sought the difference in value between the redemption price and the market price of its shares.
When UEC and Okada's counterclaims floundered, Okada attempted to change his fortunes by retaining litigation boutique Bartlit Beck LLP ("Bartlit Beck"). Bartlit Beck and Okada executed an engagement letter that included a flat monthly fee of $600,000, and a contingency fee of one-third of any recovery of the share redemption price differential, with a $50 million cap. The engagement letter included an arbitration clause covering any dispute arising out of or relating to the agreement.
Bartlit Beck eventually obtained a settlement for Okada substantial enough to earn the maximum $50 million contingency fee. When Okada did not pay, Bartlit Beck initiated an arbitration under the International Institute for Conflict Prevention and Resolution ("CPR") Rules for Administered Arbitration.
While Okada's participation in the arbitration was obstructive and dilatory at times, he actively defended himself for over eight months by submitting extensive briefing, engaging in discovery, and appearing at hearings, including the final pre-hearing conference. Less than three days before the final hearing, however, he announced through counsel that he would not appear.
The tribunal warned Okada that if refused to appear, it would find Okada in default and proceed to hear Bartlit Beck's case alone pursuant to CPR Rule 16. This Rule provides that if a party fails to comply with the CPR Rules in a material manner, the tribunal may set a deadline for compliance; if the party does not then comply, the tribunal may enter an award in default if the non-defaulting party produces appropriate evidence and legal arguments. CPR Rule 16 explicitly states that the defaulting party's presence or participation is not required.
Okada replied that he disputed that any agreement existed with Bartlit Beck, and that he was ill and could not travel to the United States. When the tribunal requested arguments on how to address Okada's nonappearance, he instructed his counsel to reply that they would not attend the hearing on the basis that he rejected the validity of the engagement agreement.
In accordance with CPR Rule 16, the panel allowed Bartlit Beck to submit a Final Brief in place of the hearing and refused to accept any such briefing from Okada, whom it determined had waived his right to present a defense. Days later, Okada's counsel requested that the hearing be rescheduled if they could convince Okada to attend, but the tribunal declined, finding "no good cause to do so." Shortly thereafter, the tribunal issued an award in Bartlit Beck's favor.
Bartlit Beck sought to confirm the award in the Northern District of Illinois, where Okada argued the award should be vacated under Article V(1)(b) of the New York Convention because the tribunal had denied him a fair hearing. Okada alleged that the tribunal had refused to postpone the hearing despite his disclosure of a medical condition, and had refused to hear his defenses in the final written submissions.
The court, citing strong precedent deferring to the arbitrator's decisions on evidentiary and procedural matters as long as they have a reasonable basis, rejected Okada's argument. The court first found that the tribunal did not deny Okada a fair hearing by proceeding with the arbitration despite his alleged illness. The tribunal's decision was deemed reasonable in light of Okada not raising the illness until after default was threatened, Okada's failure to attempt to appear remotely or to reschedule the hearing, and his instructions to counsel to not appear because he considered the agreement invalid. Further, Okada did not present any evidence of his illness, although Bartlit Beck did produce photos of Okada lifting weights at the gym during the period at issue.
The court also found that the tribunal's refusal to consider Okada's defenses similarly did not deny him a fundamentally fair hearing. Because Okada refused to appear numerous times, the tribunal's decision to move forward without him was reasonable, as it comported with CPR Rule 16's provision that, after a party's material noncompliance, a default award may be entered "without the defaulting party's presence or participation."
The court held that Okada's voluntary decision not to participate in the arbitration did not constitute deprivation of a fundamentally fair hearing. Accordingly, it confirmed Bartlit Beck's award and denied any relief to Okada.
Taylor LeMay of the Houston office contributed to this summary.