Precision Press, Inc v. MLP USA, Inc -- SEE #33 JUDGMENT WHEN CASE RETERMED
Filing
32
MEMORANDUM OPINION AND ORDER denying 26 Motion To Vacate Arbitration Award by Plaintiff Precision Press, Inc; granting 23 Amended Motion To Vacate Arbitration Award by Defendant MLP USA, Inc. Judgment shall enter in favor of MLP and against Anderson Brothers in accordance with the terms of the arbitration award. Signed by Judge Mark W Bennett on 5/11/2011. (des)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF IOWA
WESTERN DIVISION
PRECISION PRESS, INC., d/b/a
ANDERSON BROTHERS PRINTING
COMPANY,
Plaintiff,
vs.
MLP U.S.A., INC.,
Defendant.
No. C09-4005-MWB
MEMORANDUM OPINION AND
ORDER REGARDING
DEFENDANT’S AMENDED MOTION
TO CONFIRM ARBITRATION
AWARD AND PLAINTIFF’S
MOTION TO VACATE
ARBITRATION AWARD
____________________
TABLE OF CONTENTS
1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A. Procedural Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. The Arbitration Decision and Award . . . . . . . . . . . . . . . . . . . . . . . .
1.
Findings of fact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.
Legal conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C. Post-Arbitration Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
2
3
3
6
8
II. LEGAL ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
A. Motion to Vacate Arbitration Award . . . . . . . . . . . . . . . . . . . . . . . . 9
1.
Does state or federal law apply? . . . . . . . . . . . . . . . . . . . . . 9
2.
Review under the FAA . . . . . . . . . . . . . . . . . . . . . . . . . . 14
B. Motion to Confirm Arbitration Award . . . . . . . . . . . . . . . . . . . . . . 18
III. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
1. INTRODUCTION
Plaintiff Precision Press, Inc., d/b/a Anderson Brothers Printing Company
(“Anderson Brothers”), is an Iowa corporation with its principle place of business in Sioux
City, Iowa. Anderson Brothers is in the printing business. Defendant MLP U.S.A., Inc.
(“MLP”) is a Delaware corporation with its principle place of business in Lincolnshire,
Illinois. MLP sells and services commercial sheetfed, newspaper, and web offset presses
manufactured by Mitsubishi Heavy Industries, Ltd. (“Mitsubishi”). Anderson Brothers
purchased a Mitsubishi 3000R-8CC-XXX Press from MLP in 2008. After the press’s
installation, a dispute arose between Anderson Brothers and MLP over the press’s
operation. Anderson Brothers contends it had difficulties with the press immediately,
reported the problems it was experiencing, but MLP was unable to remedy them.
Anderson Brothers alleges that it gave timely notice to MLP that it was rejecting the press.
MLP contends Anderson Brothers failed to give it a reasonable amount of time to repair
or replace the press, and the problems Anderson Brothers was experiencing did not breach
the press’s express warranty.
A. Procedural Background
Anderson Brothers filed the present action on January 20, 2009, asserting diversity
jurisdiction pursuant to 28 U.S.C. § 1332(a). Count I of Anderson Brothers’s Complaint
seeks a declaratory judgment, pursuant to 28 U.S.C. § 2201, that the sales agreement is
null and void for failure of its essential purpose. In Count II, Anderson Brothers asserts
a claim for breach of contract, alleging that the press did not perform as represented and
MLP failed to remedy the press’s performance and mechanical problems.
Before answering Anderson Brothers’s Complaint, MLP filed a Motion To Dismiss,
or Alternatively, To Stay Pending Arbitration. MLP asserted a lack of subject matter
2
jurisdiction due to an arbitration clause in the parties’ sales agreement, and requested
dismissal pursuant to Federal Rule of Civil Procedure 12(b)(1). Alternatively, MLP
requested arbitration be ordered and this case stayed pending completion of the arbitration
proceedings. Anderson Brothers filed a timely resistance to MLP’s motion in which it
asserted, inter alia, that the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., does
not govern this dispute and this case falls outside the scope of the Sales Agreement’s
arbitration clause. MLP, in turn, filed a timely reply brief.
On June 1, 2009, I entered
a memorandum opinion and order granting in part and denying in part MLP’s motion. I
concluded the sales agreement’s arbitration clause is governed by the FAA and the parties
agreed to arbitrate the issues involved in this litigation. I ordered the parties to arbitrate
their dispute. The case was stayed and the parties submitted their dispute to a panel of the
American Arbitration Association for resolution.
B. The Arbitration Decision and Award
On July 26, 2010, the arbitration panel issued its written opinion and award, in
favor of MLP. I will briefly summarize the arbitration panel’s findings of fact and legal
conclusions.
1.
Findings of fact
MLP salesperson Mike Stock solicited Anderson Brothers’s business. Stock’s oral
representations concerning the press’s capabilities were general and in the nature of
“puffing.” He did not intentionally make any statements which he knew were false.
On March 26, 2008, Anderson Brothers and MLP executed a sales agreement for
Anderson Brothers’ purchase of a Mitsubishi 3000R-8CC-XXX Press (Serial No. 4582)
from MLP. The sales agreement was amended on April 23, 2008. The press was to be
installed at Anderson Brothers’s facility in Sioux City, Iowa. The sales agreement stated
3
a total purchase price of $3,898,000, less a $225,000 trade-in allowance for a net purchase
price of $3,673,000.
The sales agreement contains, in relevant part, the following warranty language:
6.
Warranty and Warranty Disclaimer
(a)
Seller warrants that the Equipment manufactured
by Mitsubishi Heavy Industries, Ltd. (MHI) and
sold hereunder will be designed and
manufactured to conform within the
specifications attached hereto, and will be free
from defects in material and workmanship for a
period of three (3) years from the date of “StartUp” of the Equipment (See Schedule D).
Seller’s sole and exclusive liability under Seller’s
warranty for Equipment manufactured by
Mitsubishi Heavy Industries, Ltd. (MHI) and
sold hereunder and Purchaser’s sole and
exclusive remedy shall be for Seller to replace or
repair, at its discretion, any defective equipment
or part thereof.
(b)
SELLER’S WARRANTY HEREIN IS IN LIEU
OF AND EXCLUDES ALL OTHER
WARRANTIES, EXPRESS, IMPLIED, OR
STATUTORY, OR OTHERWISE CREATED
UNDER APPLICABLE LAW INCLUDING,
BUT NOT LIMITED TO, THE WARRANTY
OF MERCHANTABILITY AND THE
WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE. IN NO EVENT
SHALL SELLER BE LIABLE FOR SPECIAL,
INCIDENTAL OR COLLATERAL
DAMAGES, INCLUDING LOSS OF PROFITS,
WHETHER OR NOT CAUSED BY OR
RESULTING FROM THE SHIPMENT,
4
DELIVERY, ERECTION, ASSEMBLY,
INSTALLATION, NEGLIGENCE, OR ANY
ACTION OF SELLER ARISING FROM OR
RELATED TO THIS AGREEMENT.
Exhibit 1006, Sales Agreement ¶ 6(a)-(b) (docket no. 26-3). The press’s performance
specifications are set out in Schedule “B “ and include the press’s capability to use paper
with a minimum thickness of .0016" at a pile height of 43" at a speed of 11,000 sheets per
hour in perfecting mode.
The Sales Agreement also contains the following arbitration clause:
Except for Seller’s right to seek collection of payments due or
replevin of the Equipment referenced herein in accordance
with its security interest in the event of Purchaser’s failure to
provide for return of the same in violation of this Agreement,
all disputes and claims arising out of or in any way related to
this Agreement, or arising in connection with this Agreement
and all disputes and claims regarding any alleged defects in the
Equipment shall be resolved exclusively by final and binding
arbitration conducted in Chicago, Illinois, pursuant to the
American Arbitration Association’s Model Commercial
Arbitration Rules. The arbitration shall be before a panel of
three (3) arbitrators. The arbitration opinion and award shall
be final and binding upon the parties and enforceable by any
court of competent jurisdiction. Seller and Purchaser shall
share equally all costs of arbitration (except their own
attorneys’ fees).
Exhibit 1006, Sales Agreement ¶ 12 (docket no. 26-3). Among the sales agreement’s
miscellaneous provisions is a choice of law clause, which provides: “This Contract Shall
be construed in accordance with the laws of the state of Illinois.” Exhibit 1006, Sales
Agreement ¶ 13(g) (docket 26-3).
MLP shipped the press to Anderson Brothers on July 31, 2008. Anderson Brothers
experienced problems with the press, including unacceptable color, roller problems, and
5
excessive curl. Anderson Brothers told MLP about the problems and demanded that they
be remedied. MLP sent its top technicians to Anderson Brothers’s facility and directly
consulted Mitsubishi about the press. MLP’s technicians made several modifications to
the press but the results were inconsistent and the curl was still apparent. The quality of
the press’s printing still did not meet Anderson Brothers’s expectations. MLP was willing
to continue its attempts to correct the problems with the press when Anderson Brothers
decided to permanently shut the press down on January 19, 2009. MLP asked for, but was
denied, the opportunity to perform a Graphic Arts Technical Foundation (“GATF”) test
on the press after January 19, 2009.
2.
Legal conclusions
The panel determined Anderson Brothers accepted the press, but attempted to
revoke its acceptance. The panel further concluded Anderson Brothers’s attempted
revocation was invalid because Anderson Brothers failed to give MLP an adequate and
reasonable amount of time to replace or repair the equipment. The panel found the parties’
sales agreement was a valid, binding contract. The panel further found the press’s
performance in January 2009 did not breach any express warranty, and Anderson Brothers
did not have a right to assert implied warranties of merchantability and fitness for a
particular purpose under the sales agreement. The panel also rejected Anderson Brothers’s
claims of fraudulent misrepresentation and violations of the Illinois Consumer Fraud Act,
explaining:
In carefully reviewing the testimony, we find Mike Stock’s
representations concerning the capabilities of the Press were
general and in the nature of “puffing.” For the most part, he
merely agreed with the buyer’s own expectations of what a
perfecting press using UV printing could accomplish.
6
Anderson Brothers’ own witnesses concede that Mike Stock
did not intentionally make any statements he knew to be false.
Furthermore, there were no material representations
concerning “curl,” “no use of spray powder,” “pallet to
pallet” or full loads. We believe that Anderson Brothers were
swayed by its own investigation and due diligence, even in
light of its initial skepticism.
Having found no support for any fraudulent or material
misrepresentations, both counts VI and VII of the Third
Amended Counterclaim fail.
Arbitration Final Award at 5 (docket no. 23-4).
The panel awarded the following:
1.
The Panel finds all issues in favor of Claimant MLP,
Inc. and against Respondent Precision Press, doing
business as Anderson Brothers;
2.
The Panel declares that Anderson Brothers is in default
of the Sales Agreement dated March 26, 2008 for
failure to pay sums due and owing thereunder;
2.
Anderson Brothers is hereby directed to permit MLP to
repossess the Press, at MLP’s expense, and to do
nothing to interfere with such repossession. MLP shall
conduct a sale of the Press in accordance with the
Uniform Commercial Code, free and clear of liens,
with the proceeds of sale to be credited against the
contract price owed by Anderson Brothers;
3.
MLP is not liable for Fraudulent Misrepresentation or
violation of the Illinois Consumer Fraud Act.
4.
Pursuant to Section 12 of the Sales Agreement, and
Rule 43 of the Commercial Arbitration Rules of the
American Arbitration Association (the “Association”),
7
the parties shall share equally in the administrative fees
and expenses of the Association totaling $13,500.00 and
the compensation and expenses of the arbitrators
totaling $106,960.24. In addition, each party shall bear
its own attorney fees. Accordingly, MLP shall
reimburse Anderson Brothers the sum of $250.00,
representing that portion of said fees and expenses in
excess of the apportioned costs previously incurred by
Anderson Brothers.
5.
Any claim not expressly granted herein is denied. This
Award is submitted in satisfaction of all claims
submitted to arbitration.
Arbitration Final Award at 6 (docket no. 23-4) (misnumbering in original).
C. Post-Arbitration Proceedings
Following the arbitration panel’s award, on November 15, 2010, MLP filed its
Amended Motion to Confirm Arbitration Award requesting, pursuant to 9 U.S.C. § 9, that
I confirm the arbitration award, enter judgment against Anderson Brothers in conformity
with the arbitration award and dismiss Anderson Brothers’s claims against it. Anderson
Brothers resisted MLP’s motion and filed its Motion to Vacate Arbitration Award. In its
motion, Anderson Brothers contend Illinois law should govern my review of the arbitration
award, and argues the arbitration decision must be vacated because it is completely
irrational and shows a manifest disregard for the law. Specifically, Anderson Brothers
argues the arbitration panel knowingly ignored clearly established precedent on what
constitutes a reasonable time to repair the press and this resulted in an erroneous decision.
MLP, in turn, resisted Anderson Brothers’s motion and filed a reply brief in support of its
motion. MLP argues federal law, and not Illinois law, should govern. MLP contends
review of an arbitration award under federal law is limited to the four circumstances listed
8
in 9 U.S.C. § 10, and manifest disregard for the law is not one of those circumstances.
Thus, MLP argues Anderson Brothers’s manifest disregard of the law claim is not a
ground for vacating the arbitration award under the FAA. MLP, alternatively, argues
Anderson Brothers has not established, under either Illinois or federal law, that the
arbitration panel showed manifest disregard for the law. Finally, MLP contends the
arbitration award was not completely irrational. Anderson Brothers responded by filing
a timely reply brief, arguing the arbitration panel manifestly disregarded the law in its
award.
II. LEGAL ANALYSIS
A. Motion to Vacate Arbitration Award
1.
Does state or federal law apply?
Initially, I must determine whether federal or Illinois law applies to Anderson
Brothers’s Motion to Vacate Arbitration Award. The arbitration panel award was based
on Illinois law, which the parties do not dispute. Anderson Brothers, however, argues
Illinois law should also govern my review of the arbitration panel’s award, while MLP
argues federal law, the FAA, should govern. This is a pivotal determination because,
under Illinois law, courts are permitted to vacate arbitration awards that show a “manifest
disregard for the law.” See First Health Group Corp. v. Ruddick, 911 N.E.2d 1201, 1214
(Ill. App. Ct. 2009); Anderson v. Golf Mill Ford, Inc., 890 N.E.2d 1023, 1029 (Ill. App.
1
Ct. 2008); Quick & Reilly, Inc. v. Zielinski, 713 N.E.2d 739, 743 (1999).
The United
1
The Illinois Court of Appeals offered this explanation of the “manifest disregard
of the law” standard:
(continued...)
9
States Supreme Court has held, under federal law, the FAA contains the exclusive grounds
for vacating or modifying arbitration awards. Hall St. Assocs., L.L.C. v. Mattel, Inc., 552
U.S. 576, 584 (2008). Following Hall Street, federal courts of appeals have held manifest
disregard of the law claims “are not included among those specifically enumerated in § 10
and are therefore not cognizable.” Medicine Shoppe Int’l, Inc. v. Turner Invs., Inc., 614
F.3d 485, 489 (8th Cir. 2010); see Air Line Pilots Ass’n Int’l v. Trans States Airlines,
L.L.C., ---F.3d---, 2011 WL 1642627, at *4 (May 3, 2011) (explained Hall Street
“eliminated judicially created vacatur standards under the FAA, including manifest
disregard for the law.”); see also Frazier v. CitiFinancial Corp., L.L.C., 604 F.3d 1313,
1322–24 (11th Cir. 2010) (noting prior circuit case law recognized “manifest disregard”
as a “non-statutory ground[ ] for vacatur,” but holding “our judicially-created bases for
vacatur are no longer valid in light of Hall Street “); Citigroup Global Mkts. Inc. v. Bacon,
562 F.3d 349, 350 & 355–58 (5th Cir. 2009) (“[M]anifest disregard of the law is no longer
an independent ground for vacating arbitration awards under the FAA.”); Ramos–Santiago
v. United Parcel Serv., 524 F.3d 120, 124 n.3 (1st Cir. 2008) (stating, in a non-FAA case,
that under Hall Street “manifest disregard of the law is not a valid ground for vacating or
modifying an arbitral award in cases brought under the . . . FAA”). But see Stolt–Nielsen
1
(...continued)
“[T]o vacate an arbitration award for manifest disregard of the
law, there must be something beyond and different from mere
error in law or failure on the part of the arbitrators to
understand or apply the law; it must be demonstrated that the
majority of arbitrators deliberately disregarded what they knew
to be the law in order to reach the result they did.”
Quick & Reilly, Inc., 713 N.E.2d at 743 (quoting Health Servs. Mgmt. Corp. v. Hughes,
975 F.2d 1253, 1267 (7th Cir. 1992)).
10
SA v. AnimalFeeds Int’l Corp., 548 F.3d 85, 93–95 (2d Cir. 2008) (holding manifest
disregard of the law is “a judicial gloss on the specific grounds for vacatur enumerated in
section 10 of the FAA, remains a valid ground for vacating arbitration awards.” ), rev’d
on other grounds, 130 S. Ct. 1758 (2010); Comedy Club, Inc. v. Improv West Assocs., 553
F.3d 1277, 1281, 1289–90 (9th Cir.) (concluding “Hall Street Associates did not
undermine the manifest disregard of law ground for vacatur, as understood in this circuit
to be a violation of § 10(a)(4) of the Federal Arbitration Act, and that the arbitrator
manifestly disregarded the law.”), cert. denied, 130 S. Ct. 145 (2009).
The sales agreement contains both arbitration and choice of law clauses. The
arbitration clause states:
Except for Seller’s right to seek collection of payments due or
replevin of the Equipment referenced herein in accordance
with its security interest in the event of Purchaser’s failure to
provide for return of the same in violation of this Agreement,
all disputes and claims arising out of or in any way related to
this Agreement, or arising in connection with this Agreement
and all disputes and claims regarding any alleged defects in the
Equipment shall be resolved exclusively by final and binding
arbitration conducted in Chicago, Illinois, pursuant to the
American Arbitration Association’s Model Commercial
Arbitration Rules. The arbitration shall be before a panel of
three (3) arbitrators. The arbitration opinion and award shall
be final and binding upon the parties and enforceable by any
court of competent jurisdiction. Seller and Purchaser shall
share equally all costs of arbitration (except their own
attorneys’ fees).
Exhibit 1006, Sales Agreement ¶ 12 (docket no. 26-3). The choice of law clause provides:
“This Contract Shall be construed in accordance with the laws of the state of Illinois.”
Exhibit 1006, Sales Agreement ¶ 13(g) (docket no. 26-3).
11
Anderson Brothers contends Illinois law should govern because of the parties’
incorporation of a choice of law clause in paragraph 13(g) of the Sales Agreement. Eighth
Circuit precedent does not support that proposition. In UHC Mgmt. Co. v. Computer
Sciences, Corp., 148 F.3d 992, 996-97 (8th Cir. 1998), discussing case law before and
after the Supreme Court’s decision in Mastrobuono v. Shearson Lehman Hutton, 514 U.S.
52 (1995), the Eighth Circuit concluded it “will not interpret an arbitration agreement as
precluding the application of the FAA unless the parties’ intent that the agreement be so
construed is abundantly clear.” UHC Mgmt., 148 F.3d at 996-97; see Dominium Austin
Partners, L.L.C. v. Emerson, 248 F.3d 720, 729 n. 9 (8th Cir. 2001) (“The construction
of an agreement to arbitrate is governed by the FAA unless the agreement expressly
provides that state law should govern.”); see also Puerto Rico Tel. Co. v. U.S. Phone Mfg.
Corp., 427 F.3d 21, 29 (1st Cir. 2005) (holding “every circuit that has considered the
question . . . [has] held that the mere inclusion of a choice-of-law clause within the
arbitration agreement is insufficient to indicate the parties’ intent to contract for the
application of state law concerning judicial review of awards”), rev’d on other grounds by
Hall St. Assocs., 128 S. Ct. at 1396 (2008); Jacada, Ltd. v. Int’l Mktg. Strategies, Inc.,
401 F.3d 701, 711-12 (6th Cir. 2005) (holding general choice of law provision did “not
unequivocally suggest an intent to displace the default federal standard”), rev’d on other
grounds by Hall St. Assocs., 128 S. Ct. 1396 (2008); Roadway Package Sys. v. Kayser,
257 F.3d 287, 288-89 (3d Cir. 2001) (“We hold that a generic choice-of-law clause,
standing alone, is insufficient to support a finding that contracting parties intended to opt
out of the FAA’s default regime.”), rev’d on other grounds by Hall St. Assocs., 128 S. Ct.
at 1396 (2008); Porter Hayden Co. v. Century Indemn. Co., 136 F.3d 380, 382 (4th Cir.
1998) (“[A]bsent a clearer expression of the parties’ intent to invoke state arbitration law,
12
we will presume that the parties intended federal arbitration law to govern the construction
of the Agreement’s arbitration clause.”).
Like the sales agreement here, the contract in UHC Management contained an
arbitration clause that was silent as to whether state or federal arbitration law applied.
UHC Mgmt., 148 F.3d at 994. The contract in UHC Management contained a choice-oflaw clause stating, “[t]o the extent not preempted by ERISA or other federal law, this
Agreement shall [be] governed by and construed under the laws of the State of
Minnesota.” Id. The Eighth Circuit Court of Appeals held, from the language in the
agreement, it could not divine an intent on the parties to preclude application of the FAA,
noting:
The agreement makes no reference to the Minnesota Uniform
Arbitration Act or to Minnesota case law interpreting the
allocation of powers between arbitrators and courts. Moreover,
the choice-of-law clause itself specifically provides that
Minnesota law must yield whenever preempted by federal law,
which cuts against the argument that the parties intended that
the FAA not apply.
Id. at 997.
The choice of law clause here is even more generic than the choice of law clause
addressed in UHC Management, providing only: “This Contract Shall be construed in
accordance with the laws of the state of Illinois.” Exhibit 1006, Sales Agreement ¶ 13(g)
(docket no. 26-3). The choice of law clause here does not even state that the sales
agreement is governed by Illinois law, only that it is “construed in accordance” with
Illinois law. The Sales Agreement makes absolutely no reference to the Illinois Uniform
Arbitration Act. The opposite is true. Instead of referring to state law or state rules, the
clause states arbitration will be conducted “pursuant to the American Arbitration
Association’s Model Commercial Arbitration Rules.” Such a generic choice-of-law clause,
13
utterly silent on whether state arbitration rules govern the agreement, as a matter of law,
fails to make the parties’ intent to apply state arbitration law “abundantly clear.” UHC
Mgmt., 148 F.3d at 997; see Emerson, 248 F.3d at 729 n. 9; Puerto Rico Tel. Co., 427
F.3d at 29; Jacada, Ltd., 401 F.3d at 711-12; Sovak, 280 F.3d at 1270; Roadway Package
Sys., 257 F.3d at 288-89; Porter Hayden Co., 136 F.3d at 382. As the Sixth Circuit Court
of Appeals has noted:
Most contracts include a choice-of-law clause, and, thus, if
each of these clauses were read to foreclose the application of
the substantive law enacted by Congress in the FAA, the FAA
would be applicable in very few cases. Such an interpretation
of the FAA is simply not viable, as it would effectively
emaciate the Act itself.
Ferro Corp. v. Garrison Indus., Inc., 142 F.3d 926, 938 (6th Cir. 1998). Thus, I find the
sales agreement’s general choice of law clause did not displace the FAA because the clause
does not make the parties’ intent to use Illinois arbitration law “abundantly clear.”
2.
Review under the FAA
In 1925, Congress enacted the FAA “in response to widespread judicial hostility to
arbitration agreements.” At&T Mobility L.L.C. v. Conception, ---S. Ct.---, 2011 WL
1561956, at *4 (Apr. 27. 2011); see Hall St. Assocs., L.L.C., 552 U.S. at 584 (“Congress
enacted the FAA to replace judicial indisposition to arbitration with a “national policy
favoring [it] and plac[ing] arbitration agreements on equal footing with all other
contracts.’”) (quoting Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443
(2006)); Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991) (noting
Congress enacted the FAA to abolish “the longstanding judicial hostility to arbitration
agreements that had existed at English common law and had been adopted by American
courts. . . .”); Scherk v. Alberto-Culver Co., 417 U.S. 506, 510-11 (1974) (noting FAA
14
enactment “revers[ed] centuries of judicial hostility to arbitration agreements”). The
United States Supreme Court has recognized that the FAA “establishes a national policy
favoring arbitration when the parties contract for that mode of dispute resolution.” Preston
v. Ferrer, 128 S. Ct. 978, 981 (2008); see Buckeye Check Cashing, Inc., 546 U.S. at 444;
Gilmer, 500 U.S. at 25; Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth Inc. 473
U.S. 614, 625 (1985); Southland Corp. v. Keating, 465 U.S. 1, 16 (1984).
“[R]eview of an arbitration award under the Federal Arbitration Act is exceedingly
limited and deferential.” St. John’s Mercy Med. Ctr. v. Delfino, 414 F.3d 882, 884 (8th
Cir. 2005); Williams v. National Football League, 582 F.3d 863, 883 (8th Cir. 2009)
(noting a court’s “‘review is restricted by the great deference accorded arbitration
awards.’”) (quoting Winfrey v. Simmons Foods, Inc., 495 F.3d 549, 551 (8th Cir. 2007));
Bureau of Engraving, Inc. v. Graphic Commc’n. Int’l Union, Local 1B, 284 F.3d 821, 824
(8th Cir. 2002) (“Judicial review of a final arbitration award is extremely narrow.”);
Keebler Co. v. Milk Drivers & Dairy Employees Union, Local No. 471, 80 F.3d 284, 287
(8th Cir. 1996) (noting reviewing courts must accord “an extraordinary level of deference”
to the underlying arbitration award). Under this deferential review, courts may not
“‘reconsider the merits of an award even though the parties may allege that the award rests
on errors of fact or on misinterpretation of the contract.’” Bureau of Engraving, Inc., 284
F.3d at 824 (quoting United Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29, 36
(1987)). “‘[A]s long as the arbitrator is even arguably construing or applying the contract
and acting within the scope of his authority, that a court is convinced he committed serious
error does not suffice to overturn his decision.’” Bureau of Engraving, Inc., 284 F.3d at
824 (quoting Misco, Inc., 484 U.S. at 38); see Medicine Shoppe Int’l, Inc., 614 F.3d at
489 (“Courts have no authority to reconsider the merits of an arbitration award, even when
15
the parties allege that the award rests on factual errors or on a misinterpretation of the
underlying contract.”).
The FAA “supplies mechanisms for enforcing arbitration awards: a judicial decree
confirming an award, an order vacating it, or an order modifying or correcting it.” Hall
St. Assocs., L.L.C., 552 U.S. at 582. As the Court explained in Hall Street:
Under the terms of § 9, a court “must” confirm an arbitration
award “unless” it is vacated, modified, or corrected “as
prescribed” in §§ 10 and 11. Section 10 lists grounds for
vacating an award, while § 11 names those for modifying or
correcting one.
Hall St. Assocs., L.L.C., 552 U.S. at 582. In Hall Street, the Court held 9 U.S.C. § 10
provides the FAA’s “exclusive ground[]” for vacating an arbitration award. Section 10(a)
provides:
(a) In any of the following cases the United States court in and
for the district wherein the award was made may make an
order vacating the award upon the application of any party to
the arbitration-(1) where the award was procured by corruption, fraud,
or undue means;
(2) where there was evident partiality or corruption in
the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in
refusing to postpone the hearing, upon sufficient cause
shown, or in refusing to hear evidence pertinent and
material to the controversy; or of any other misbehavior
by which the rights of any party have been prejudiced;
or
(4) where the arbitrators exceeded their powers, or so
imperfectly executed them that a mutual, final, and
16
definite award upon the subject matter submitted was
not made.
9 U.S.C. § 10(a). Thus, a court’s review of a motion to vacate an arbitration award is
limited to the exclusive grounds listed in § 10 of the FAA.
2
Prior to Hall Street, the Eighth Circuit Court of Appeals recognized
“two extremely narrow judicially created standards for
vacating an arbitration award. First, an arbitrator’s award can
be vacated if it is completely irrational, meaning it fails to
draw its essence from the agreement. . . . The second
2
Section 11 of the FAA provides further grounds for “modification or correction”
of an arbitration award by a reviewing court, but neither party is seeking such relief
pertinent here. Section 11 provides:
In either of the following cases the United States court in and
for the district wherein the award was made may make an
order modifying or correcting the award upon the application
of any party to the arbitration-(a) Where there was an evident material miscalculation
of figures or an evident material mistake in the
description of any person, thing, or property referred to
in the award.
(b) Where the arbitrators have awarded upon a matter
not submitted to them, unless it is a matter not affecting
the merits of the decision upon the matter submitted.
(c) Where the award is imperfect in matter of form not
affecting the merits of the controversy.
The order may modify and correct the award, so as to effect
the intent thereof and promote justice between the parties.
9 U.S.C. § 11.
17
judicially created standard for vacating an arbitration award is
when the award evidence[s] a manifest disregard for the law.”
Williams, 582 F.3d at 883 (quoting Schoch v. InfoUSA, Inc., 341 F.3d 785, 788 (8th Cir.
2003)); see MX, Inc. v. Zotec Solutions, Inc., 163 Fed. App’x 446, 446-47 (8th Cir.
2006). Hall Street, as previously noted, “eliminated judicially created vacatur standards
under the FAA, including manifest disregard for the law.” Air Line Pilots Ass’n Int’l, --F.3d---, 2011 WL 1642627, at *4; Medicine Shoppe Int’l, Inc., 614 F.3d at 489 (holding
“an arbitral award may be vacated only for the reasons enumerated in the FAA.”);
Crawford Group, Inc. v. Holekamp, 543 F.3d 971, 976 (8th Cir. 2008) (same).
Neither Anderson Brothers’s ground, that the arbitration panel’s decision was in
manifest disregard of the law nor it ground that the arbitration panel’s decision was
completely irrational, are among those listed in § 10, and are thus not cognizable. See
Hall Street, 552 U.S. at 586; Air Line Pilots Ass’n Int’l, ---F.3d---, 2011 WL 1642627,
at *4; Medicine Shoppe Int’l, Inc., 614 F.3d at 489.
Anderson Brothers has not
established grounds under the FAA for vacation of the arbitration award, and its Motion
to Vacate Arbitration Award is denied.
B. Motion to Confirm Arbitration Award
In its Amended Motion to Confirm Arbitration Award, MLP argues the arbitration
award should be confirmed pursuant to 9 U.S.C. § 9. Anderson Brothers resists the
motion on the same grounds raised in its Motion to Vacate Arbitration Award. Section 9
provides:
If the parties in their agreement have agreed that a judgment
of the court shall be entered upon the award made pursuant to
the arbitration, and shall specify the court, then at any time
within one year after the award is made any party to the
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arbitration may apply to the court so specified for an order
confirming the award, and thereupon the court must grant such
an order unless the award is vacated, modified, or corrected as
prescribed in sections 10 and 11 of this title. If no court is
specified in the agreement of the parties, then such application
may be made to the United States court in and for the district
within which such award was made. Notice of the application
shall be served upon the adverse party, and thereupon the
court shall have jurisdiction of such party as though he had
appeared generally in the proceeding. If the adverse party is a
resident of the district within which the award was made, such
service shall be made upon the adverse party or his attorney as
prescribed by law for service of notice of motion in an action
in the same court. If the adverse party shall be a nonresident,
then the notice of the application shall be served by the
marshal of any district within which the adverse party may be
found in like manner as other process of the court.
9 U.S.C. § 9.
A district court with diversity jurisdiction over a case, which stays the action
pending arbitration pursuant to 9 U.S.C. § 3, has both the power and jurisdiction to
confirm any resulting arbitration award. Smart v. Sunshine Potato Flakes, L.L.C., 307
F.3d 684, 685 (8th Cir. 2002); see also Cortez Byrd Chips, Inc. v. Bill Harbert Const.
Co., 529 U.S. 193, 203 (2000) (“the court with the power to stay the action under [9
U.S.C.] § 3 has the further power to confirm any ensuing arbitration award.”).
“Under the terms of § 9, a court ‘must’ confirm an arbitration award ‘unless’ it is
vacated, modified, or corrected ‘as prescribed’ in §§ 10 and 11.” Hall Street, 552 U.S.
at 582; see UHC Mgmt., 148 F.3d at 999 (“On a motion for confirmation, [federal courts]
have no power to selectively modify the award to delete such an order from the
[arbitrator’s] decision unless one of the circumstances detailed in section[s 10 or] 11 of the
FAA applies.”); see also Bosack v. Soward, 586 F.3d 1096, 1102 (9th Cir. 2009) (noting
19
that confirmation is required unless award vacated or modified as prescribed under 9
U.S.C. §§ 10 or 11), cert. denied, 130 S. Ct. 1522 (2010).
As I have already determined that Anderson Brothers has failed to demonstrate any
ground for vacation of the arbitration award under the FAA, confirmation of the arbitration
award is required. See Hall Street, 552 U.S. at 582; UHC Mgmt., 148 F.3d at 999.
MLP’s Amended Motion to Confirm Arbitration Award is granted and Anderson
Brothers’s Motion to Vacate Arbitration Award is denied.
III. CONCLUSION
Plaintiff Anderson Brothers has not established any grounds under the FAA to
vacate the arbitration award and its Motion to Vacate Arbitration Award is denied. Under
the deferential standard of review, because there is no ground to vacate the arbitration
award in favor of defendant MLP and against plaintiff Anderson Brothers, defendant
MLP’s Amended Motion to Confirm Arbitration Award is granted and Anderson
Brothers’s Motion to Vacate Arbitration Award is denied. Therefore, I order judgment
be entered in favor of MLP and against Anderson Brothers in accordance with the terms
of the arbitration award.
IT IS SO ORDERED.
DATED this 11th day of May, 2011.
__________________________________
MARK W. BENNETT
U. S. DISTRICT COURT JUDGE
NORTHERN DISTRICT OF IOWA
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