Osco Motors Company, LLC et al v. Quality Mark, Inc.

Filing 38

MEMORANDUM OF LAW & ORDER. IT IS HEREBY ORDERED that: 1. Petitioner Engine Distributors, Inc. and Osco Motors Company, LLC d/b/a Osco Motors Corporation's Motion to Vacate Arbitration Award 2 is DENIED; 2. Respondent Quality Mark, Inc.&# 039;s Motion to Confirm Arbitration Award and for Interests and Costs 26 is GRANTED in part and DENIED in part, as follows: a. Respondent Quality Mark's motion to confirm arbitration award is GRANTED; b. The March 11, 2014 award of the to oling and $302,052 entered by the American Arbitration Association's Commercial Arbitration Tribunal 28 , Ex. A] is CONFIRMED; c. The Court DENIES Respondent Quality Mark, Inc.'s request for attorney's fees; and d. Judgment s hall be entered by separate document providing that judgment in the amount of $302,052 is hereby entered in favor of Respondent Quality Mark, Inc., plus post-award, pre-judgment interest at a rate of 8% from March 11, 2014 to the date of this judgment.LET JUDGMENT BE ENTERED ACCORDINGLY.(Written Opinion). Signed by Chief Judge Michael J. Davis on 8/21/14. (GRR)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA

OSCO MOTORS COMPANY, LLC,
d/b/a OSCO MOTORS CORPORATION,
and ENGINE DISTRIBUTORS, INC.,
Petitioners,
v.

MEMORANDUM OF LAW & ORDER
Civil File No. 14-887 (MJD/JJK)

QUALITY MARK, INC.,
Respondent.
Alan L. Frank, Alan L. Frank Law Associates PC, and Amanda K. Schlitz
and Elizabeth C. Kramer, Stinson Leonard Street LLP, Counsel for
Petitioner.
Stephen W. Hance, Hance Law Firm, Ltd., Counsel for Respondent.
I.

INTRODUCTION
This matter is before the Court on Petitioner Engine Distributors,

Inc. and Osco Motors Company, LLC d/b/a Osco Motors Corporation’s
Motion to Vacate Arbitration Award [Docket No. 2]; and Respondent
Quality Mark, Inc.’s (“Quality Mark”) Motion to Confirm Arbitration
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Award and for Interest and Costs [Docket No. 26]. After a thorough
review of the record and consideration of the parties’ arguments, the Court
concludes that there is no valid reason to vacate the arbitration award
under the Federal Arbitration Act. Therefore, the Court confirms the
arbitration award.
II.

BACKGROUND
A. Factual Background
i. The Relationship of the Parties
Quality Mark entered into a contract with Engine Distributors, Inc.

and “Osco Motors Corporation, a Pennsylvania Corporation,”
(collectively, “EDI”), effective January 1, 2011, entitled “Manufacturing
Agreement.” (Hance Aff., Docket No. 19, Ex. A, “Manufacturing
Agreement.”) Osco Motors Corporation was not actually a registered
corporation; the correct name of the company is “Osco Motors Company,”
and it is a Limited Liability Company. (Hance Aff., Exs. C, H.)
In the Manufacturing Agreement, Quality Mark agreed to fabricate
“tooling” and to manufacture marine engine manifolds, exclusively for

2

EDI. (Manufacturing Agreement, at 1, ¶ 3.2.) “Tooling” is a machine used
to bend metal. An “engine manifold” is the part of an engine that connects
different pipes for moving fuel and air into the engine or for carrying gas
away from the engine.
The Manufacturing Agreement contained an arbitration clause,
which required dispute resolution through the American Arbitration
Association’s Commercial Arbitration Tribunal. (Manufacturing
Agreement § 10.11 (“[A]ny unresolved controversy or claim arising out of
or relating to this Agreement . . . shall be resolved by arbitration
administered by the American Arbitration Association in accordance with
its Commercial Arbitration Rules . . . .”).) This clause also stated that
“[a]ny judgement rendered by the arbitrator shall be final and nonappealable . . . .” (Id.)
ii. Relevant Manufacturing Agreement Terms Regarding
Customer Lists and Tooling
Two relevant provisions in the Manufacturing Agreement concern
(1) confidential information and (2) ownership of the tooling. With respect
to confidential information, the parties agreed that:
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at all times during the term of this Agreement and thereafter,
to hold in strict confidence and not to use, except for the
benefit of the other party or to disclose to any person, firm, or
corporation without written authorization of the other party
any confidential information of the other party. The term
“confidential information” means any party’s proprietary
information, technical data, trade secrets, or know-how,
including, but not limited to . . . customer lists and customers
(including, but not limited to, customers of the party) . . . .
(Id. ¶ 9.2.)
Regarding ownership of the tooling, the Manufacturing Agreement
stated the following:
Osco will pay fifty percent (50%) of cost of the tooling
including installation costs needed to produce The Product
and Quality Mark shall pay the other fifty percent (50%) of the
tooling through its manufacturer. After the first five (5) year
term of this Agreement as defined in Article 5, Osco will have
full ownership of the tooling. If Osco desires to move the
tooling before the first five (5) year term ends. [sic] Osco will
pay Quality Mark fifty percent (50%) of the tooling costs.
During the term of this Agreement, the tooling may not be
used to manufacture The Product for others.
(Id. ¶ 3.2.)
iii. Termination of Manufacturing Agreement and
Initiation of Arbitration
On February 28, 2013, the parties agreed to terminate the
Manufacturing Agreement. (Hance Aff., Ex. B, “Award” ¶ 2; Ex. D (“Amy
4

yes by the end of February our contract will be canceled if late payments
are not in line.”).) After a failed mediation, EDI filed Demands for
Arbitration with the American Arbitration Association on May 21, 2013
and, as amended, May 30, 2013. (Hance Aff., Ex. E.) In the Demands, the
sole claimant was identified as “Osco Motors Corporation.” (Id.) The
Demands stated the following allegations:
Quality Mark materially breached key provisions of an
agreement entered into between the parties and has continued
to breach the agreement by openly and directly selling Osco
product to Osco’s customers. In addition to these breaches
QMI [Quality Mark] tortiously interfered with the prospective
sale of Osco to a third party [Sierra]. This act caused [Sierra]
to cease negotiations and terminate its inquiry into the
potential purchase of Osco.
(Id.)
Because “Osco’s” filings did not include EDI as a claimant, Quality
Mark sought consent to include EDI as a party for Quality Mark’s
counterclaim; however, “Osco’s” lawyer refused consent. (Hance Aff., Ex.
G.) Quality Mark therefore brought a separate arbitration case on June 12,
2013, against EDI, which was then consolidated by agreement. (See Frank

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Aff., Ex. C.) Quality Mark’s Demand for Arbitration sought recovery of
over $1,000,000 in unpaid product and tooling invoices. (Id.)
iv. Discovery Leading Up to Arbitration Hearing
The parties prepared for their arbitration, which was to be decided
by a single arbitrator from the American Arbitration Association. Before
the arbitration, there was substantial discovery whereby depositions were
taken and the parties exchanged over 75,000 pages of documents. (See,
e.g., Hance Aff. ¶ 9; Ex. K.) On October 9, 2013, the parties briefed and
argued cross motions to compel discovery. (Hance Aff., Exs. I, J; Frank
Aff., Exs. F, G.) In EDI’s motion, it requested to inspect tooling and
products at a facility in Taiwan owned by Quality Mark’s Taiwan affiliate.
(Frank Aff., Ex. F, at 1.) Their request explained that “[a] physical
inspection of [Quality Mark]’s manufacturer is necessary to understand
what tooling has been fabricated, what product has actually been
manufactured, and what product has been altered. Only an inspection of
[Quality Mark]’s manufacturer’s foundry can reveal these facts.” (Id.) EDI
also stated that “[a] physical inspection of [Quality Mark]’s inventory is

6

essential to discover the efforts [Quality Mark] has made to mitigate its
alleged damages based on the unpaid invoices of product directed to
Osco.” (Id. at 7.)
On October 16, 2013, the Arbitrator denied EDI’s discovery motion
to inspect the manufacturing facility in Taiwan. (Frank Aff., Ex. G, at 2.)
Additionally, EDI scheduled a deposition for Quality Mark’s President and
the President of Quality Mark’s Taiwanese affiliates; however, EDI later
decided not to take these depositions. (See Hance Aff., Ex. L.) Neither
party sought an extension or postponement of the arbitration hearing.
(Hance Aff. ¶ 19.)
v. The Arbitration and the Arbitrator’s Findings
On January 13, 2014, a four-day arbitration began. (Award, at 1.)
During the hearing, no witnesses were prevented from testifying; no
material evidence was refused to be entered into evidence; and no direct or
cross examinations were materially limited. (Hance Aff. ¶ 19.) The
Arbitrator published the arbitration award on March 11, 2014. (Award, at
7.)

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With respect to Quality Mark’s invoices to EDI, the Arbitrator
determined that, “[v]ery soon after signing the contract EDI started to
breach the Agreement,” and these breaches were “blatant and material.”
(Id. ¶ 2.) At the time of the arbitration, there were substantial unpaid
invoices owed by EDI to Quality Mark. (Id.) The Arbitrator noted EDI’s
argument “that [Quality Mark] impeded EDI’s ability to take care of the
invoices by not answering some inquiries”; however, the Arbitrator found
the argument unpersuasive. (Id.) The Arbitrator also determined that
“EDI did not contest the invoices, it simply did not pay, and there [were]
many explicit admissions that EDI owed the money [Quality Mark] said it
owed.” (Id. ¶ 6.)
Because of this, the Arbitrator found that all of Quality Mark’s
invoices “were correctly billed to EDI.” (Id.) He concluded that EDI’s
President “saw schemes and problems where none existed.” (Id. ¶ 3.)
“[EDI’s President] chose what to pay and what not to pay according to his
then current financial situation and his belief, starting quite early in the

8

relationship, that [Quality Mark] and/or a company called Sierra were
plotting to steal his customers.” (Id.)
The Arbitrator then addressed EDI’s challenge of Quality Mark’s
right to sell products to EDI’s former customers, which alleged that
Quality Mark could not use customer lists because they were “confidential
information” under the Manufacturing Agreement. (See id. ¶ 4.) The
Arbitrator rejected this challenge and denied EDI’s claim for misuse of
confidential information regarding the customer lists because “EDI itself
repudiated the contract by its action. Whether it is called being barred by
one’s own breach of contract or estoppel, EDI’s claim is barred.” (Id.) The
Arbitrator noted that “[t]here are serious questions as to whether customer
names were trade secrets under the circumstances.” (Id.)
Regarding EDI’s claim that Quality Mark tortiously interfered with
the sale of Osco assets to Sierra, the Arbitrator concluded that the claim
failed, noting that “[EDI’s President] did not like the discussions in which
he was not involved, and tended to see schemes and problems where none
existed.” (Id. ¶ 3.)

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Finally, with respect to damages, the Arbitrator decided that
“[Quality Mark’s] action to sell inventory was an appropriate mitigation
action, saving both companies money by selling product rather than
continuing to build up claims against each other while inventory sat in
Taiwan and customers didn’t get product.” (Id. ¶ 4.) The Arbitrator then
determined that “[Quality Mark] gets the tooling created under the
[Manufacturing] Agreement, free of claims of any kind from EDI.” (Id. ¶
6.) Furthermore, the Arbitrator stated that “[t]his award will subtract from
what [EDI] owes [Quality Mark] any tooling invoices actually paid by
[EDI] for tooling so [EDI] will have no investment in any of it,
notwithstanding it did realize profits from the new tooling during the
[Manufacturing Agreement].” (Id. ¶ 4(e).)
The Arbitrator decided the disputes in Quality Mark’s favor and
awarded $302,052.00 as well as interest against the outstanding invoices at
a rate of 8%. (Award ¶¶ 5, 7.)

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B. Procedural Background
On approximately March 31, 2014, Quality Mark filed a Motion to
Confirm Arbitration Award in the Fourth Judicial District in and for
Hennepin County, Minnesota. (See Ex. List, Docket No. 35, Ex. A.)
Around the same date, EDI filed a Motion to Vacate Arbitration Award in
this Court. [Docket No. 2] On April 10, 2014, EDI removed the state court
action to this Court. [Docket No. 10] The two matters were consolidated
on April 25, 2014. [Docket No. 21] On May 14, 2014, Quality Mark filed a
Second Motion to Confirm Arbitration Award. [Docket Nos. 26, 31] On
June 27, 2014, the Court heard oral argument on both motions.
III.

DISCUSSION
EDI argues that the Court should vacate the arbitration award on

two grounds: (1) the arbitrator refused to hear material evidence, and (2)
the arbitrator exceeded his powers by fashioning an award that is contrary
to the express terms of the Manufacturing Agreement. On the other hand,
Quality Mark argues that the Court should confirm the arbitration award
because (1) the arbitration award is unreviewable, and (2) EDI’s arguments

11

are meritless. Quality Mark also requests attorney’s fees and prejudgment
interest.
For reasons explained below, the Court denies EDI’s motion to
vacate the arbitration award, and the Court grants Quality Mark’s motion
to confirm the arbitration award. The Court will not award attorney’s fees,
but the Court awards prejudgment interest.
A. Standard of Review
“A court’s review of an arbitrator’s final decision is extremely
narrow.” Wakeman v. Aqua2 Acquisition, Inc., Civil No. 10-4538, 2011 WL
666028, at *3 (D. Minn. Feb. 14, 2011). When reviewing arbitration awards,
courts give the underlying award “an extraordinary level of deference.”
Boise Cascade Corp. v. Paper Allied-Indus., Chem. & Energy Workers
(Pace), Local 7-0159, 309 F.3d 1075, 1080 (8th Cir. 2003).
The Federal Arbitration Act (“FAA”), at 9 U.S.C. §§ 1-16, created “a
liberal federal policy favoring arbitration agreements.” Moses H. Cone
Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983), superseded by
statute on other grounds. Both EDI and Quality Mark’s motions are

12

brought pursuant to the § 10(a) of the FAA. This section provides the
grounds upon which “the United States court in and for the district
wherein the [arbitration] award was made may make an order vacating
the award.” 9 U.S.C. § 10. Those grounds are the exclusive grounds upon
which a court may vacate an arbitration award. Hall Street Assocs., LLC v.
Mattel, Inc., 552 U.S. 576, 586 (2008).
The two grounds that potentially apply to the present case are:
“Where the arbitrators were guilty of . . . refusing to hear evidence
pertinent and material to the controversy . . . [or] Where the arbitrators
exceeded their powers . . . .” 9 U.S.C. § 10(a)(3), (4).
B. Whether this Action Is Reviewable
As an initial matter, Quality Mark argues that the Court should not
hear EDI’s motion to vacate because, pursuant to the parties’
Manufacturing Agreement, the arbitration award was final and not
appealable. (Manufacturing Agreement § 10.11 (“Any judgement
rendered by the arbitrator shall be final and non-appealable and may be

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entered in any court having jurisdiction thereof pursuant to applicable
law.”).) The Court finds Quality Mark’s argument to be unpersuasive.
Several courts have determined that, despite similar language in
arbitration agreements, arbitration awards are reviewable for allegations
consistent with the grounds from § 10 of the FAA. See, e.g., Rollins, Inc. v.
Black, 167 Fed. App’x 798, 799 n.1 (11th Cir. 2006) (explaining that
“binding, final, and non-appealable” awards can be appealed for abuse of
authority, bias, and disregard of the law); Commc’ns Consultant, Inc. v.
Nextel Commc’ns of the Mid-Atlantic, Inc., 146 Fed. App’x 550, 552 (3d
Cir. 2005) (holding that an arbitration award that was “unappealable” was
still reviewable for allegations of corruption, fraud, or partiality).
Furthermore, some courts, like the Ninth Circuit, have held that “9 U.S.C. §
10(a), the statutory grounds for vacatur in the FAA, may not be waived or
eliminated by contract.” In re Wal-Mart Wage & Hour Empl. Practices
Litig. v. Class Counsel & Party to Arbitration, 737 F.3d 1262, 1268 (9th Cir.
2013). This case further provides that, if parties were able to waive this
section of the FAA, “the balance Congress intended would be disrupted,

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and parties would be left without any safeguards against arbitral abuse.”
Id.
Quality Mark raises the case of MACTEC, Inc. v. Gorelick as an
example where a motion to vacate was dismissed because the contractual
language in the parties’ agreement provided that the arbitration award
was final and non-appealable. MACTEC, Inc. v. Gorelick, 427 F.3d 821,
830 (10th Cir. 2005). However, MACTEC actually held that arbitration
clauses that prohibit appellate review of a district court’s order confirming
an arbitration award are valid. Id. at 830 (“[W]e hold that contractual
provisions limiting the right to appeal from a district court’s judgment
confirming or vacating an arbitration award are permissible, so long as the
intent to do so is clear and unequivocal.”). MACTEC is therefore not
analogous and only lends support for the Court’s review of the arbitration
award. Id. (“[W]e do not have a situation in which there is no judicial
review at all, nor a situation where a court is asked to enforce an
arbitration award without being given the authority to review compliance
of that award with the FAA.”).

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The Eighth Circuit has not directly assessed clauses that employ the
same language as the clause in the parties’ Manufacturing Agreement
prohibiting appeal and ensuring finality of the arbitration award.
Considering the approaches reviewed above, the Court interprets the
clause as the parties’ waiver of an appeal on the merits. Rollins, 167 Fed.
App’x at 799 n.1 (“A ‘binding, final, and non-appealable’ arbitral award
does not mean the award cannot be reviewed. It simply means the parties
have agreed to relinquish their right to appeal the merits of their dispute; it
does not mean the parties relinquish their right to appeal an award
resulting from an arbitrator’s abuse of authority, bias, or manifest
disregard of the law.”) Accordingly, the Court will review the arbitration
award, but only on the grounds outlined in § 10 of the FAA. Osco’s
motion raises issues within those grounds.
C. Refusal to Hear Evidence
EDI argues that the Arbitrator was guilty of misconduct by refusing
to hear evidence when he denied EDI’s request for an inspection of Quality
Mark’s Taiwan facility. The Court concludes that the arbitrator’s decision
did not amount to misconduct under the FAA.
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The FAA provides that a district court may vacate an arbitration
award “where the arbitrators were guilty of misconduct . . . in refusing to
hear evidence pertinent and material to the controversy.” 9 U.S.C. §
10(a)(3). “[I]n making evidentiary determinations, an arbitrator need not
follow all the niceties observed by federal courts.” Hasel v. Kerr Corp.,
Civ. No. 99-1376, 2010 WL 148437, at *3 (D. Minn. Jan. 12, 2010) (citation
omitted). “Every failure of an arbitrator to receive relevant evidence does
not constitute misconduct requiring vacatur of an arbitrator’s award”;
however, an arbitrator should still provide each of the parties with “an
adequate opportunity to present its evidence and argument.” See id. at *4
(citation omitted).
During the arbitration, Quality Mark produced invoices for
manifolds and tooling that it allegedly produced. EDI argued that Quality
Mark’s invoices billed EDI for product and tooling that did not exist. EDI
asserts that an inspection was the only way to prove that Quality Mark’s
invoices were illegitimate, and an inspection would have allowed EDI to
verify what Quality Mark had actually manufactured. Furthermore, EDI

17

asserts that the Arbitrator did not have any evidence to doubt that the
invoices were illegitimate.
EDI also argues that inspection would have been necessary to
proving its own claim that Quality Mark had improperly taken the Osco
line of business, and the arbitrator’s denial of the inspection prevented EDI
from challenging Quality Mark’s mitigation efforts. EDI submits that there
was no valid reason to deny the inspection, as the costs for EDI’s trips to
Taiwan were contemplated in the Manufacturing Agreement, and
therefore expected and not unduly burdensome. EDI argues that while the
Arbitrator concluded that EDI’s President “saw schemes and problems
where none existed,” the Arbitrator could not know whether those
schemes and problems existed without considering what EDI could have
found in an inspection. (See Award ¶ 3.) EDI concludes that, by denying
the inspection request, the Arbitrator refused to hear evidence on a
material issue; this prejudiced EDI and deprived EDI of a fair hearing. The
Court disagrees.

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The Court concludes that the Arbitrator did not impermissibly
refuse to hear material evidence under the FAA. His ruling is more
appropriately characterized as a discovery decision, and the Court must
afford the arbitrator great deference on matters not contemplated by § 10
of the FAA. See, e.g., Bain Cotton Co. v. Chestnutt Cotton Co., 531 Fed.
App’x 500, 501 (5th Cir. 2013) (discovery issues in arbitration are not
grounds for vacatur under the FAA). Even if the Arbitrator’s decision was
a refusal to hear evidence, it was a well-reasoned decision that did not
violate the FAA because the record indicates that the sought-after evidence
was not pertinent and material to the controversy.
First, the inspection sought by EDI was not the sole source of
material evidence for EDI, as EDI was able to obtain other material
evidence that could address its dispute regarding the invoices. For
example, EDI had the opportunity to depose Quality Mark’s President and
the President of its Taiwanese affiliates; these depositions could have been
used to discover information EDI thought it could obtain through an
inspection of the manufacturing facility. Because of this, the present case

19

is distinct from other cases where no “other evidence was available to
substantiate or to refute” a material issue. See, e.g., Hoteles Condado
Beach, La Concha & Convention Ctr. v. Union de Tronquistas Local 901,
763 F.2d 34, 40 (1st Cir. 1985) (granting vacatur where discovery was
denied where no other material evidence was available). Considering the
availability of other evidence and the absence of limitations at the
arbitration hearing, the Arbitrator’s denial of the inspection was not a
deprivation of EDI’s opportunity to present evidence and argument.
Additionally, the record supports that the evidence sought by EDI
was not material to the controversy. The Arbitrator found that the record
did not support EDI’s theory Quality Mark was trying to steal EDI’s
customers, which was one of the reason EDI requested an inspection.
(Award ¶ 3.) Because EDI’s theory was unsupported, the proposed
inspection in Taiwan did not have an adequate basis, and it was
reasonable for the Arbitrator to deny the discovery motion. Furthermore,
without exceptional circumstances, the Court “may not overturn an
arbitration award based on the arbitrator’s determination of the relevancy

20

or persuasiveness of the evidence submitted by the parties.” Swink & Co.,
Inc. v. Norris & Hirshberg, Inc., 845 F.2d 789, 789 (8th Cir. 1988) (citing
Hoteles, 763 F.2d at 39-40). The Court finds no exceptional circumstances
here.
EDI’s alternative reason for the inspection—that the invoices were
incorrect and it had been overbilled—is found nowhere in its Demands for
Arbitration, Statement of Claim, or Summation Brief. (See Hance Aff., Exs.
E, R; Frank Aff., Ex. A.) In fact, the record indicates that the invoices were
a materially uncontested issue during the arbitration. (See Hance Aff., Ex.
S (showing an excerpt illustrating EDI’s President’s evasive answers
regarding tooling invoices); Ex. T (providing the testimony of Quality
Mark’s President that EDI never contested the invoices).) Therefore, the
evidence sought was not pertinent to the controversy, and the Arbitrator’s
denial is not adequate grounds for vacatur under § 10 of the FAA. This
Arbitrator’s denial of the inspection was not only valid under the FAA, but
it was consistent with the character of arbitrations, which are typically
speedier and more cost-efficient than traditional litigation.

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D. Whether the Arbitrator Exceeded His Powers
Broadly, EDI argues that the Arbitrator’s award is contrary to the
Manufacturing Agreement with respect to two provisions: (1) ownership
of the tooling and (2) ownership of confidential information. The Court
concludes that the Arbitrator properly interpreted and enforced the
Manufacturing Agreement within his powers under the FAA and there is
no reason to disturb the arbitration award.
The FAA provides that a district court may vacate an arbitration
award “where the arbitrators exceeded their powers . . . .” 9 U.S.C. §
10(a)(4). “[W]hen the arbitrator strays from interpretation and application
of the agreement and effectively ‘dispense[s] his own brand of industrial
justice’ . . . his decision may be unenforceable.” Major League Baseball
Players Ass’n v. Garvey, 532 U.S. 504, 509 (2001). “In that situation, an
arbitration decision may be vacated under § 10(a)(4) of the FAA on the
ground that the arbitrator ‘exceeded [his] powers,’ for the task of an
arbitrator is to interpret and enforce a contract, not to make public policy.”
Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 672 (2010).

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However, courts “will confirm the arbitrator’s award even if [they]
are convinced that the arbitrator committed serious error, so long as the
arbitrator is even arguably construing or applying the contract and acting
within the scope of his authority.” McGrann v. First Albany Corp., 424
F.3d 743, 748 (8th Cir. 2005). “We may not set an award aside simply
because we might have interpreted the agreement differently or because
the arbitrators erred in interpreting the law or in determining the facts.”
Stroh Container Co. v. Delphi Indus., Inc., 783 F.2d 743, 751 (8th Cir. 1986).
First, EDI argues that the Arbitrator exceeded his powers by
awarding the tooling to Quality Mark because the Arbitrator was going
directly against the parties’ contractual intent that EDI would gain
ownership of the tooling. EDI points out that the Arbitrator recognized
that EDI paid $190,000 for the tooling and the Arbitrator heard evidence
that Quality Mark made no payments toward the tooling. Therefore the
Arbitrator’s award of the tooling to Quality Mark does not make sense
under the Manufacturing Agreement. (See Award ¶ 6; Frank Aff., Ex. J, at
269.)

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Second, EDI argues that the Arbitrator’s decision with regard to
confidential information is in direct conflict with the parties’ intent in the
Manufacturing Agreement because the parties expressly agreed that
customer lists were confidential information that could not be used “at all
times during the term of this Agreement and thereafter.” (Manufacturing
Agreement ¶ 9.2) (emphasis added). Even if the Manufacturing
Agreement were cancelled, EDI argues that this provision remained in
effect even after the Manufacturing Agreement ended.
EDI’s arguments do not prevail because it is at least arguable that
the Arbitrator, in shaping the award, interpreted the Manufacturing
Agreement within his authority. The Arbitrator’s award of the tooling to
Quality Mark as damages for unpaid invoices was arguably within his
authority under the contract, especially when none of the conditions from
the Manufacturing Agreement had occurred to warrant granting
ownership of the tooling to EDI. First, EDI was not entitled to the tooling
because it never paid the 50% it owed on the tooling, pursuant to the
Manufacturing Agreement. (Award ¶ 2.) Second, the Manufacturing

24

Agreement was terminated after just two years; tooling ownership was
contemplated under the assumption that the Manufacturing Agreement
would be in place for at least five years. (See id.) Third, EDI did not pay
the other 50% for the tooling or ask for the tooling to be moved. Therefore,
it is at least arguable that the Arbitrator properly construed the
Manufacturing Agreement as providing no reason why the tooling should
be owned by EDI. Accordingly, there is no basis for the Court to disturb
the Arbitrator’s decision with respect to tooling ownership.
Regarding confidential information (customer lists), the Arbitrator
did not find sufficient evidence to support EDI’s contention that Quality
Mark was using the customer lists improperly. Furthermore, it is arguable
that selling the product to customers (of whom Quality Mark already
knew) was a reasonable and valid mitigation effort, as the Arbitrator
concluded. (Award ¶ 4.) It is also arguably valid to conclude that EDI
repudiated the Manufacturing Agreement by not paying Quality Mark’s
invoices, and therefore EDI is no longer entitled to the “confidential
information” clause. For these reasons, it is arguable that the Arbitrator

25

properly interpreted the Manufacturing Agreement within his authority,
and there is no reason for the Court to vacate his decision. For these
reasons, the Court will not disturb the arbitration decision.
E. Attorney’s Fees
Quality Mark argues that it is entitled to attorney’s fees because
EDI’s motion is frivolous and made in bad faith, in light of EDI’s
demonstrated a pattern of conduct showing it is merely avoiding the
arbitration award. A court is able to “assess attorney fees against a party
who has acted in bad faith, vexatiously, wantonly, or for oppressive
reasons.” Jaquette v. Black Hawk County, Iowa, 710 F.2d 455, 462 (8th Cir.
1983). “An unjustified refusal to abide by an arbitrator’s award may
constitute bad faith for the purpose of awarding attorneys’ fees.” Int’l
Union Auto., Aerospace & Agric. Implement Workers of Am. v. United
Farm Tools, Inc., 762 F.2d 76, 77 (8th Cir. 1985) (citations omitted).
Quality Mark points to EDI’s use of a fictional name as an arbitration
claimant, efforts to obstruct discovery, pattern of repeatedly amending
pleadings to avoid dismissal, filing of the another litigation against the

26

company known as Sierra, and filing of the present motion as measures
that demonstrate EDI’s intent to delay and avoid its obligations under the
arbitration award. For these reasons, Quality Mark requests that the Court
award Quality Mark attorney’s fees in this matter.
The Court declines to find bad faith in this matter. Many of the
events cited by Quality Mark occurred at arbitration or in another lawsuit.
Aside from Quality Mark’s own theories regarding EDI’s alleged ulterior
motives, the Court finds nothing in the record to adequately support a
finding of bad faith. Specifically regarding the motion before the Court,
while EDI’s assertions were ultimately incorrect, they were not “[a]n
unjustified refusal to abide by the arbitrator’s award.” See id. Therefore,
the Court will not award attorney’s fees in this matter.
F. Prejudgment Interest
Quality Mark also requests prejudgment interest from the date of
the arbitration award until the date of the Court’s judgment. Prejudgment
interest is appropriate “when the amount of the underlying liability is
reasonably capable of ascertainment and the relief granted would

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otherwise fall short of making the claimant whole because [it] has been
denied the use of the money which [it] was legally due.” Marquis Yachts
v. Allied Marine Grp. Inc. (North), Civil No. 09-1770, 2010 WL 1380137, at
*10 (D. Minn. 2010).
Here, the amount of damages is certain because it was ascertained
by the Arbitrator. Quality Mark requests that the Court award postaward, pre-judgment interest at a rate of 8%. See Stroh Container Co., 783
F.2d at 751-52 (upholding a district court award of post-award,
prejudgment interest on a confirmed arbitration award).
By not paying on the arbitration award, EDI had use of money that
was legally due to Quality Mark. While Quality Mark has not shown that
EDI’s suit for vacatur was pursued in bad faith, the litigation nevertheless
caused a delay that justifies an award of prejudgment interest.
Additionally, the Court has been presented with no exceptional
circumstances that would make an award of pre-judgment interest
inequitable here. See id. at 752 (“[P]rejudgment interest should ordinarily

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be granted unless exceptional or unusual circumstances exist making the
award of interest inequitable.”).
Accordingly, the Court grants Quality Mark’s request for postaward, pre-judgment interest in this matter from the date of the arbitration
award to the date of this Court’s judgment confirming the award. The
Court awards post-award, pre-judgment interest at a rate of 8%, which is
the rate of pre-award interest in the arbitration award. (Award, at 5.)
While EDI opposes pre-judgment interest on other grounds, it does not
dispute this rate.
IV.

CONCLUSION
The Court concludes that there is no reason to vacate the arbitration award

under the FAA. Accordingly, based on all the files, records, and proceedings
herein, IT IS HEREBY ORDERED that:
1. Petitioner Engine Distributors, Inc. and Osco Motors Company, LLC
d/b/a Osco Motors Corporation’s Motion to Vacate Arbitration
Award [Docket No. 2] is DENIED;
2. Respondent Quality Mark, Inc.’s Motion to Confirm Arbitration

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Award and for Interests and Costs [Docket No. 26] is GRANTED in
part and DENIED in part, as follows:
a. Respondent Quality Mark’s motion to confirm arbitration
award is GRANTED;
b. The March 11, 2014 award of the tooling and $302,052 entered
by the American Arbitration Association’s Commercial
Arbitration Tribunal [Docket No. 28, Ex. A] is CONFIRMED;
c. The Court DENIES Respondent Quality Mark, Inc.’s request
for attorney’s fees; and
d. Judgment shall be entered by separate document providing
that judgment in the amount of $302,052 is hereby entered in
favor of Respondent Quality Mark, Inc., plus post-award, prejudgment interest at a rate of 8% from March 11, 2014 to the
date of this judgment.
LET JUDGMENT BE ENTERED ACCORDINGLY.

Dated: August 21, 2014

s/ Michael J. Davis
Michael J. Davis
Chief Judge
United States District Court

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