Friday, November 02, 2007

Fourth Circuit vacates arbitration confirmation on due process grounds

In RZS HOLDINGS AVV v. PDVSA PETROLEO S.A., RZS sought relief from a judgment entered against it confirming an arbitration award in favor of PDVSA. During a hearing to confirm the award, the district court permitted RZS's counsel to withdraw, denied RZS's owner permission to proceed pro se, and struck RZS's pro se pleadings. Although RZS had also sought a continuance to obtain replacement counsel, the court proceeded instead to address and rule in favor of PDVSA on its motion to confirm the arbitration award--effectively denying RZS's continuance request and conducting an ex parte proceeding in which it ruled on the merits of the controversy. The Fourth Circuit vacated the award confirmation on due process grounds.

In these circumstances, RZS was denied its due process right to meet and oppose the claims of PDVSA, and to otherwise participate in the resolution of the merits of this case. If RZS had been present during the Nonadversarial Part of the hearing, or if the court had accorded RZS some reasonable opportunity to seek replacement counsel, RZS is likely to have exercised its right to oppose confirmation of the arbitration award. It was unable to do so, however, and the Nonadversarial Part of the hearing resulted in a final judgment against RZS. In such circumstances, the district court committed prejudicial error, abusing its discretion in failing to grant RZS a reasonable continuance to secure replacement counsel and in conducting an ex parte proceeding on the merits of the case.

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