(Reuters) – The well-chronicled Israeli billionaire Lev Leviev, sometimes called the “King of Diamonds,” won confirmation this week of an arbitration award against another international diamond dealer, Julius Klein, in federal court in Manhattan. All told, Leviev’s judgment against the Klein entities, which had been his partners in three joint ventures, totals about $209 million.
That number, as well as Leviev’s outsized persona, made U.S. District Judge Jesse Furman’s just-unsealed opinion fodder for the New York tabloids – especially because one of the arbitrators who originally awarded Leviev all of that money was convicted of tax fraud in Belgium in the middle of the Klein arbitration. Litigation over the validity of arbitration awards is usually pretty dry stuff. The facts of the Leviev case are about as sexy as these things get.
But there’s also a pretty interesting legal question at the heart of Judge Furman’s opinion. This case mostly hinged on the appropriate jurisdiction for the Kleins’ challenge to the arbitration award, since New York State Supreme Court and federal district courts are guided by different precedent on the significance of an arbitrator’s criminal record. The Kleins, as you’ll see, tried to use Leviev’s own previous resort to state court against him. Leviev, meanwhile, had to convince Judge Furman that he was a defendant, even though he was the one who initiated the arbitration. In the end, Judge Furman said, the Kleins lost their “far from frivolous” attack on the arbitration award because federal law requires deep deference to the arbitrators’ decisions. Had the challenge been heard in state court, the outcome – and the tabloid headlines – might have been quite different.
Leviev brought the arbitration in February 2013, after he and the Kleins couldn’t reach an agreement on a fair buyout price from their 10-year joint venture. (This account is drawn from Judge Furman’s opinion.) Leviev and the Kleins each chose one arbitrator; the arbitrators selected the third member of their panel, Jacob Bronner. Bronner, like the other two arbitrators (and, for that matter, Leviev and the Kleins) is in the diamond business. He disclosed that he had professional relationships with the other arbitrators and a social acquaintance with Leviev but said those engagements should not create justifiable doubt about his impartiality.
At around the same time as Bronner’s appointment, Leviev filed a petition in New York State Supreme Court, seeking a preliminary injunction against the Kleins for the duration of the arbitration. The state court judge denied the petition, holding that Leviev should address his request for an injunction to the arbitrators. In December 2013, the arbitration panel awarded Leviev an interim judgment of $102 million. In 2014, after the Kleins paid him about $67 million, Leviev went back to state court to have the $102 million interim award confirmed.
The Kleins opposed confirmation, arguing both that it was premature because the award was not final and that Bronner had engaged in misconduct by failing to disclose the extent of his relationship with Leviev. The state court judge agreed Leviev had jumped the gun by seeking confirmation of an interim award but also ruled that the Kleins had waived the right to object to Bronner’s participation on the panel because they allowed the arbitration to proceed after they learned of his connections to Leviev.
In early 2016, after more unpleasantries involving alleged conflicts amongst the arbitrators, the panel held a seven-day hearing in Israel. Before the arbitrators ruled, however, the panel’s own counsel disclosed to Leviev and the Kleins that Bronner had been convicted in Belgium, along with about 100 other defendants, “of tax fraud and other offenses relating to a scheme involving the use of sham transactions to nominally export diamonds from Belgium while, in fact, reselling them on the black market,” as Judge Furman described the offense.