The petition numbered 001 and the related motion numbered 002 are consolidated for joint disposition.

This special proceeding under CPLR art. 75 concerns an arbitration proceeding (the "Arbitration") between petitioner Gemstar-TV Guide International, Inc. ("Gemstar") and respondent Henry C. Yuen, ("Yuen"), Gemstar's founder and former director and officer, in connection with their claims against each other under three contracts. Gemstar applies pursuant to CPLR 7510 for an order confirming the "Partial Final Award of Arbitrator (sic)" that the three-member panel of the American Arbitration Association (the "Panel") issued on or about January 20, 2007 (the "Partial Award"), and the ensuing final "Award of the Arbitrator (sic)" issued June 14, 2007, which incorporates the Partial Award in its entirety, and which henceforth will be referred to as the "Award." The Award directed Yuen to pay Gemstar an amount totaling about $ 115 million to (1) compensate Gemstar for damages it suffered as a result of Yuen's breach of two contracts, (2) reimburse Gemstar for certain salary it paid to Yuen and legal fees it advanced to Yuen's attorneys, and (3) pay Gemstar's attorney's fees, expert fees, and other expenses connected with the Arbitration. However, the Panel also found Gemstar liable to Yuen for about $ 25.7 million for breach of a third contract and offset the award to Gemstar by that amount.

Yuen opposes Gemstar's petition to confirm the Award and moves for an order (1) dismissing the petition, (2) vacating the Award insofar as it denied Yuen's claims and awarded damages to Gemstar, and (3) confirming the Award insofar as it awarded damages to Yuen. Yuen claims that the award to Gemstar should be set aside because the Panel reached its findings by manifestly disregarding the applicable law.

For the reasons set forth below, Gemstar's petition is granted, Yuen's motion is denied, and the Award is confirmed.

Background The following is not in dispute: Gemstar is a publicly-traded media and technology company located in Los Angeles, California.On November 7, 2002, Gemstar and Yuen entered into a Termination Agreement, an Employment Agreement, and a Patent Rights Agreement, pursuant to which Yuen resigned from his management positions with Gemstar [*2]while remaining an employee of the company. At that time, the Securities and Exchange Commission ("SEC") was investigating whether Yuen and other members of Gemstar's management had committed securities fraud by filing misleading public financial statements.

Under the Termination Agreement, Yuen resigned from his managerial positions, terminated his existing employment agreement with Gemstar, and entered into the new Employment Agreement. Yuen also represented and warranted to Gemstar in the Termination Agreement that, to the best of his knowledge and belief, (1) except for certain specified matters (the "Excluded Matters"), Gemstar's SEC filings since January 1, 2002 fairly presented Gemstar's financial condition, conformed to Generally Acceptable Accounting Principles ("GAAP"), and complied with all other accounting requirements and SEC rules and regulations, (2) Yuen had fully cooperated with a Gemstar internal audit committee that was investigating the Excluded Matters, and (3) Yuen had not knowingly engaged in any illegal conduct or violation of company policy "which could reasonably be expected to have a material adverse effect upon [Gemstar]." Termination Agreement § 15. Yuen's representations and warranties in the Termination Agreement will be referred to as the "Representations and Warranties."

The Termination Agreement further provided that Gemstar would pay Yuen about $ 22.5 million as a "termination fee" plus about $ 7 million as settlement for unpaid salary, bonuses and unused vacation days due under his existing employment agreement. These amounts will be referred to as the "Termination Payment." The Termination Agreement also contained a provision under which, among other things, Gemstar released Yuen from all claims arising from his conduct before the contract date (the "Release").

Pursuant to the Employment Agreement, Yuen became the non-executive Chairman of Gemstar's Board of Directors and head of Gemstar International, a division of the corporation.Under the Patent Rights Agreement, Gemstar agreed to pay Yuen certain amounts as royalties for its exploitation of certain patents in which Yuen held an interest.

On April 18, 2003, Gemstar terminated Yuen's employment "for cause" pursuant to section 4(c)(5) of the Employment Agreement, on the ground that he had breached the Representations and Warranties. Specifically, Gemstar alleged that Yuen had authorized and participated accounting misconduct that misrepresented the company's finances in its public filing, and that Yuen had failed to disclose that misconduct to Gemstar's Board or the Audit Committee. As a result, Gemstar alleged, since January 2002 the company's public financial reports had not fairly presented its financial condition in accordance with GAAP. Gemstar also claimed that Yuen had not provided true and accurate information to Gemstar's Audit Committee regarding a number of the Excluded Matters.

In May 2003, Yuen filed an arbitration demand against Gemstar with the American Arbitration Association, alleging that Gemstar had violated the Employment Agreement by wrongfully terminating him without cause, and breached the Termination Agreement by withholding the Termination Payment. Gemstar counterclaimed, alleging that Yuen had been in breach of the Representations and Warranties when he executed the Termination Agreement, and that Yuen's breach excused Gemstar's obligation to make the Termination Payment. Gemstar sought, among other things, compensation from Yuen from financial losses that the company claimed it had incurred as a result of Yuen's misconduct, and a declaration relieving it of any obligation to make the Termination Payment.

[*3]In June 2003, the SEC filed a complaint against Yuen and other former Gemstar officers and directors for (1) securities fraud, (2) violation of federal securities law requirements for periodic reporting, record-keeping, and internal control provisions. SEC v. Yuen, Case No. CV 03-4376 MRP (PLAx) (C.D. Cal. W. Div.) By November 2005, the SEC had negotiated settlements with all defendants except Yuen. In December 2005, SEC was tried before U.S. District Judge Marian Pfaelzer.

The Arbitration between Gemstar and Yuen began in February 2006, before the Court had issued its findings of fact and conclusions of law in the SEC trial. During the February proceedings, Gemstar submitted all of its direct evidence in writing, in the form of affidavits and excerpts from deposition testimony taken in connection with the SEC matter. Gemstar also submitted an Arbitration Brief compiling its evidence that Yuen had breached the representations and warranties in the Termination Agreement.

Yuen testified before the Panel in support of his claims during the February hearings. Gemstar then began cross-examining Yuen, but had not finished its cross-examination when the Panel adjourned the hearing. The Arbitration did not resume until October 2006.

On March 16, 2006, Judge Pfaelzer unsealed and issued her Findings of Fact and Conclusions of Law in the SEC case (the "Court Findings"). The Court found that Yuen had committed securities fraud by, among other things, improperly reporting in Gemstar's public financial reports for the 2001 fiscal year that (1) Gemstar had received about $ 107.6 million in licensing revenue that was the subject of litigation and which had accrued under an expired licensing agreement, and (2) Gemstar had received $ 20 million of advertising revenue that actually derived from a barter transaction. The Court also found that, after Gemstar had disclosed those accounting improprieties on April 1, 2002, the market immediately reacted negatively; the next day, Gemstar's stock price declined by approximately 37%, which devalued its worth by more than $ 3 billion.

On March 26, 2006, Gemstar filed a motion in the Arbitration asking that the Panel issue an award in its favor, on the ground that, pursuant to the doctrine of collateral estoppel, the Court Findings established that Yuen and breached the Representations and Warranties. In opposition, Yuen argued that the Panel should not give the Court Findings collateral estoppel effect, and that even if collateral estoppel applied, the Court Findings did not establish that Yuen had breached the Representations and Warranties. By letter dated June 23, 2006, the Panel granted Gemstar's "[m]otion to apply the doctrine of collateral estoppel to [the Court Findings]," but denied Gemstar's application "[i]n all other respects, including [Gemstar's] requested conclusions and remedies."

On May 8, 2006, the Court issued a final judgment in SEC that ordered Yuen to pay a total of more than $ 22 million in fines and as disgorgement. SEC, Additional Findings of Fact & Final Judm. Imposing Perm. Inj., Disgorgement, Prejudm. Interest, Civ. Penalty, & Perm. Officer & Dir. Bar Against Def. Henry C. Yuen (the "Final Court Judgment"). The Final Court Judgment did not address the Termination Payment.

Several days before the Arbitration hearing was scheduled to resume in October 2006, Yuen's counsel sent a letter to Gemstar's counsel and the Panel that Yuen would not attend the hearing and that he was "withdrawing" all of his previous testimony. Yuen's counsel also stated that

[a]lthough we believe that . . . Yuen . . . appropriately relied on [Gemstar's [*4]auditors] with respect to the accounting treatment of the transactions at issue, and neither make knowing misrepresentations nor omissions in his dealings with [the auditors] . . . [the Court Findings], now adopted in this proceeding, preclude us from making these arguments. Under these circumstances, and given Judge Pfaelzer's other findings, we have been authorized by Dr. Yuen to withdraw his defense to Gemstar's claims that he breached the Representations and Warranties.

When the Arbitration resumed, Gemstar argued that Yuen's failure to attend, along with his refusal to submit to further cross-examination, compelled an award in Gemstar's favor. The Panel denied Gemstar's application and directed Gemstar to proceed with its evidence. At the hearing, Yuen's counsel argued that Yuen's right to the Termination Payment was "unequivocal" and that Gemstar was obligated to pay it even if Yuen had breached the Representations and Warranties. Gemstar responded that, as a matter of law, Yuen's breach excused Gemstar's obligation to make the Termination Payment. The Panel heard testimony from a Gemstar officer who had negotiated the Termination Agreement with Yuen; he stated that the parties had intended that Yuen's right to receive the Termination Payment was conditioned on the truth of the Representations and Warranties.Gemstar also presented witnesses who testified that Yuen's breach had caused Gemstar substantial financial harm.

In January 2007, the Panel issued the unanimous Partial Final Award in Gemstar's favor. The Panel first found that Gemstar was not obligated to make the Termination Payment because (1) Yuen was in breach of the Termination Agreement when he signed it and (2) Yuen's right to the Termination Payment was conditioned on, among other things, the truth of the Representations and Warranties. The Panel added that it had "adopted" the Court Findings "which establish that Yuen breached a number of the [Representations and Warranties]."

Next, the Panel found that Gemstar had suffered damages of $ 80,604,000, representing the amount that Gemstar had paid to settle shareholder claims that resulted from Yuen's breach of the Representations and Warranties. However, Gemstar's damages were offset by about $ 25.7 million, representing the amount that the company owed Yuen as royalties under the Patent Rights Agreement. The Panel further found that Gemstar had terminated Yuen "for cause" under the Employment Agreement, and that as a result Yuen had to reimburse Gemstar for about $ 6 million of the salary he had been paid. Finally, Yuen was also directed to reimburse Gemstar for about $ 6.9 million of legal fees it had advanced to Yuen, plus the legal fees and other expenses Gemstar had incurred in the Arbitration.

In June 2007, the Panel issued a Final Award which incorporated the Partial Final Award and fixed the amount of prevailing party attorney fees, expert fees, arbitration costs, and interest due to Gemstar.

Petition and motion Gemstar now petitions for an order and judgment confirming the Award. In his opposing motion, Yuen contends that the Award should be vacated, except for the Panel's award to Yuen under the Patent Rights Agreement. Yuen claims that the award to Gemstar should be set aside because the Panel's holdings violated legal principles. He first argues that the Panel should not have awarded "damages" to Gemstar and relieved it of its [*5]obligation to make the Termination Payment because both rulings were "explicitly" based on the finding that Yuen had breached the Representations and Warranties, which in turn was based on the Panel's adoption of the Court Findings. However, Yuen claims, "clear California law" barred the Panel from giving "non-final findings" like the Court Findings collateral estoppel effect in another proceeding.

Yuen next contends that the question of whether he breached the Representation and Warranties had no bearing on whether Gemstar was entitled to damages or obligated to make the Termination Payment. The Panel's "linkage," Yuen claims, "was based on a clear misreading of the contracts and misapplication of governing law." Specifically, the Panel allegedly "ignored basic contract law principles of causation" by finding that Gemstar settled shareholder claims as a result of Yuen's breach of the Representations and Warranties. Moreover, the Panel allegedly ignored that, pursuant to the Release, Gemstar could not brings claims against Yuen that arose from his conduct before November 7, 2002. Finally, Yuen claims that the Panel "read into the Termination Agreement a non-existent condition," namely that Yuen would not receive the Termination Payment if he was in breach of the Representations and Warranties.

Discussion Judicial review of arbitration awards is extremely limited. Wien & Malkin LLP v. Helmsley-Spear, Inc., 6 NY3d 471, 479 (2006). It is well-settled that "[a]n arbitator's award should not be vacated for errors of law and fact committed by the arbitrator and the courts should not assume the role of overseers to mold the award to conform to their sense of justice." Id., 6 NY3d at 479-80. The Federal Arbitration Act (the "FAA,") which governs the Arbitration, permits a court to vacate an arbitration award on the narrow grounds of fraud, corruption, or misconduct by the arbitrators. 9 U.S.C. § 10(a). Yuen does not contend that any of those grounds apply here. Instead, he invokes the judicially-created doctrine of "manifest disregard of law" as a basis for setting aside the Award. That doctrine only applies when the (1) the law in question is well-settled, explicit, and clearly applicable to the case, and (2) the arbitrators knew of the law yet refused to apply it or deliberately ignored it. See Wien & Malkin LLP, 6 NY3d at 483 (citing Wallace v. Buttar, 378 F.3d 182, 189 [2d Cir. 2004.])

Yuen's claim that the Panel committed "manifest disregard of the law" lacks any merit. He first contends that California law applied to the issue of whether the Panel should have given the Court Findings collateral estoppel effect, and that under California law, collateral estoppel does not apply to a trial court judgment that "is still open to direct attack by appeal or otherwise." Natl. Union Fire Ins. Co. v. Stites Prof. Law Corp., 1 Cal.Rptr.2d 570, 574 (Cal. Ct. App. 1991). Yuen claims that the Panel should have disregarded the Court Findings because he planned to file an appeal.

However, Gemstar points to cases that contradict Yuen's statement of the law of California. In that state, Gemstar contends, a federal court judgment which is based of federal question jurisdiction has preclusive effect even when an appeal is pending. See Younger v. Jensen, 26 Cal.3d 397, 411 (1980) (an appeal of a federal court judgment "does not prevent it from operating as a collateral estoppel"); Lumpkin v. Jordan, 49 Cal. App.4th 1223, 1230 (1996) ("for collateral estoppel purposes, the federal court's ruling . . . even though appealed must be considered final.") By contrast, the judgments of California state courts lack preclusive effect pending appeal. See, e.g., Sandoval v. Sup. Ct., 140 Cal. App. 3d 932, 936 (1983). Since the Court Findings were issued by a federal court interpreting federal law, the Panel was justified in applying collateral estoppel in the Arbitration. Accordingly, the Panel's rulings does not [*6]comprise a "manifest disregard of the law."

Yuen next argues that his breach of the Representations and Warranties did not cause Gemstar's damages. However, the contrary ruling by the Panel amounts to a finding of fact, and "[m]anifest disregard of the facts is not a permissible grounds for vacatur of an award." Wien & Malkin LLP , 6 NY3d at 483.

Yuen's remaining challenges to the Panel's rulings consist of claims that the Panel misinterpreted the contracts between Gemstar and Yuen. To vacate an award for manifest disregard of a contract, a court must find that the award contradicts express and unambiguous contractual terms, or the award departs so far from the terms that it does not even arguably derive from those terms. See Wien & Malkin LLP , 6 NY3d at 485. Yuen objects to the Panel's rulings that Yuen's breach of the Representations and Warranties (1) nullified Gemstar's release in the Termination Agreement and (2) relieved Gemstar of any obligation to make the Termination Payment, but those ruling do not contradict any express terms in the parties' contracts, and are consonant with the general aim of the contracts considered as a whole.

Accordingly, it is

ORDERED that the petition to confirm is granted and the motion for partial vacatur by the respondent is denied. Settle judgment.

DATED: November 27, 2007ENTER:

___________________

Helen E. Freedman, J.S.C.

Appearances

Attorneys for Petitioner

Hogan & Hartson L.L.P.

875 Third Avenue

New York, New York 10022

By: Paul D. Sarkozi, Esq. and Stacy M. Armillei, Esq.

(212)-918-3000

Hogan & Hartson L.L.P.

1999 Avenue of the Stars, Suite 1400

Los Angeles, California 90067

Att: Richard L. Stone, Esq. and Amy M. Gallegos, Esq.

Attorneys for Respondent

Frankfurt Kurnit Klein & Selz, P.C. [*7]

488 Madison Avenue, 10th Floor

New York, New York 10022

(212) 980-0120

By: Brian E. Maas, Esq., Jessie F. Beeber, Esq., Amelia K. Seewann, Esq. and

Elizabeth H. Miller, Esq.