TCMS Transparent Beauty, LLC et al v. Silvernail
Filing
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REPORT AND RECOMMENDATIONS re #4 Motion to Vacate filed by Rebecca Silvernail, #11 Motion to Vacate filed by Rebecca Silvernail, #9 Motion to Vacate filed by Rebecca Silvernail, #1 Complaint, filed by TCMS Transparent Beauty, LLC, TCMS Technologies, Inc., TCMS Tech 2, #15 Motion to Vacate, Motion for Miscellaneous Relief filed by Rebecca Silvernail, #7 Motion to Vacate filed by Rebecca Silvernail, #13 Motion to Vacate, Motion for Judgment as a Matter of Law filed by Rebecca Silvernail. Signed by Judge Andrew W. Austin. (dm)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
TCMS TRANSPARENT BEAUTY, LLC
TECH 2, LLC, and
TCMS TECHNOLOGIES, INC.
v.
REBECCA SILVERNAIL
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A-15-CV-926 LY
REPORT AND RECOMMENDATION
OF THE UNITED STATES MAGISTRATE JUDGE
TO:
THE HONORABLE LEE YEAKEL
UNITED STATES DISTRICT JUDGE
Before the Court are Movants TCMS Transparent Beauty, LLC, Tech 2, LLC, and TCMS
Technologies, Inc.’s Motion to Confirm Arbitration Award (Dkt. No. 1), Respondent Rebecca
Silvernail’s Motion to Vacate Confirmation of Arbitration Award (Dkt. No. 4), and her first,
second, third, fourth, and fifth Amended Motions (Dkt. Nos. 7, 9, 11, 13, and 15), and Movants’
Responses (Dkt. Nos. 6, 8, 10, 12, 14).
The District Court referred the motions and related filings to the undersigned Magistrate
Judge for Report and Recommendation as to the merits pursuant to 28 U.S.C. § 636(b)(1)(B),
Federal Rule of Civil Procedure 72, and Rule 1(d) of Appendix C of the Local Rules of the United
States District Court for the Western District of Texas, Local Rules for the Assignment of Duties
to United States Magistrate Judges. After reviewing the parties’ briefs, relevant case law, as well
as the entire case file, the undersigned issues the following Report and Recommendation to the
District Court.
I. BACKGROUND
Rebecca Silvernail is a member of both TCMS Transparent Beauty, LLC and Tech 2, LLC.
After a dispute arose between Movants and Silvernail regarding whether Silvernail has a claim to
be included as an “inventor” on certain patents of the Movants, the parties entered into a settlement
agreement that resolved some of the disputes between them, and created a process to resolve the
remaining disputes. That process called for a binding arbitration proceeding should the parties be
unable to negotiate an agreed resolution of their remaining disputes. Consistent with the
agreement, an arbitration proceeding was held on November 3, 2014. The arbitrator entered an
award in favor of Movants on January 6, 2015, which he then modified, issuing his Modified Final
Award on January 19, 2015. Dkt. No. 1-1.
Movants filed this action seeking to confirm the Modified Final Award. Silvernail both
opposes Movants’ request for confirmation, and moves the Court to vacate the Modified Final
Award, arguing that it is unfair for a variety of reasons. Movants respond that Silvernail’s
challenge to the Award is untimely and therefore must be denied.
II. ANALYSIS
Movants request that this Court confirm the Modified Final Award issued by the arbitrator
on January 19, 2015. Movants and Silvernail entered into an agreement to arbitrate their dispute
regarding Silvernail’s “Inventorship Issues.” Dkt. No. 1-1 at 5-6, 13. Such arbitration was
intended to produce a “final, binding, non-appealable decision regarding the Inventorship Issues.”
Id. at 6. That decision, the Modified Final Award, was issued on January 19, 2015. Id. at 28.
The Federal Arbitration Act provides for the confirmation of an arbitration award as follows:
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
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.
9 U.S.C. § 9. While the parties did not expressly consent to judicial confirmation of the award,
the contract’s provision that the award shall be “final, binding, non-appealable” serves the same
purpose. Cigna Ins. Co. v. Huddleston, 986 F.2d 1418 (5th Cir. 1993). As such, this Court has
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judicial authority to confirm the award. Id. Any motion seeking to vacate, modify, or correct an
award must be filed within three months of the entry of the award. 9 U.S.C. § 12.
Movants assert that Silvernail’s objection to the confirmation of the award is based on
arguments in support of vacating the award, which she failed to raise within 90 days of the award
being delivered. Silvernail has failed to address this issue directly in any of her many motions to
vacate. Instead, she requests that the Court issue a stay of proceedings, vacate the Modified Final
Award, and “carry out an independent investigation into fraudulent practices on behalf of
Respondents and their representative counsel.” Dkt. No. 4 at 6. The Federal Arbitration Act is
clear on the time during which a request seeking to vacate an award must be made:
the failure of a party to move to vacate an arbitral award within the three-month
limitations period prescribed by section 12 of the United States Arbitration Act bars
him from raising the alleged invalidity of the award as a defense in opposition to
a motion brought under section 9 of the [Federal Arbitration Act] to confirm the
award.
Cigna Ins. Co., supra. (quoting Cullen v. Paine, Webber, Jackson & Curtis, Inc., 863 F.2d 851,
854 (11th Cir. 1989)). The prohibition applies to affirmative defenses as well, including the
accusations of fraud Silvernail brings. Id. Moreover, “there is no ‘discovery rule’ or ‘equitable
tolling’ exception to the requirement in section 12 of the FAA that the defenses of fraud or
impartiality be asserted within three months from the time that the arbitration award is filed or
delivered.” Id. As such, Silvernail’s challenges to the award are untimely.
A theme that repeats through all five of Silvernail’s motions to vacate is her claim that she
is owed certain deferred compensation by Movants, and she repeatedly requests that the Court
decline to confirm the award until that compensation is paid. Dkt. Nos. 7 at 4, 9 at 1-2, 11 at 3,
15 at 8. Her argument is based on ¶ E.2 of the original settlement agreement, which states:
2.
TCMS Transparent Beauty LLC shall adjust the amount of Claimant’s
deferred compensation account to the total amount of $178,750.00.
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a.
For the purposes of the adjustment to Claimant’s deferred compensation
account to the total amount of $178,750.00, the following terms and
conditions shall apply:
(1)
These funds shall be characterized as settlement for alleged
damages, although Respondents do not agree that Claimant has
suffered any damages.
(2)
The amount in Claimant’s adjusted deferred compensation account
shall only be paid if and when the Respondents receive adequate
funds from selling, licensing, transferring or otherwise exploiting
the TCMS Patents or from a similar Liquidity Event. This shall be
referred to as the “Deferred Payment.”
(3)
The Deferred Payment will be made after paying the verified debts
shown on the books of Respondents, as appropriate, as being owed
as of May 23, 2013 to any third parties, and documented loans to
Respondents, by Al Edgar, David Iglehart or any other member of
Respondent as of May 23, 2013.
(4)
For clarity, the Deferred Payment will be made before making any
payment in connection with other deferred compensation accounts
on the books of Respondents and before making any distributions
to members or shareholders of Respondents based on their
percentage of ownership.
Dkt. No. 1-1 at 4-5. Silvernail states that she has yet to be paid any portion of this amount, and in
one of her pleadings she criticizes the arbitrator’s finding that appears to state she has been paid
“all the consideration due and owing under the Settlement Agreement.” Dkt. No. 11 at 2-4
(quoting from ¶ 28 of the Award, Dkt. No. 1-1 at 22).
It is unclear whether the finding included in ¶ 28 was intended to address whether Movants
remain obligated to pay Silvernail the deferred compensation called for in ¶ E.2, quoted above.
To the extent that it can be read in that fashion, the finding would be outside the scope of the issues
the parties submitted to arbitration. The agreement to arbitrate is contained in the Full and Final
Settlement Agreement and Mutual Release. Specifically, the parties agreed to first meet and
attempt to reach an agreement on what they termed the “Inventorship Issue,” which they defined
as “the issue regarding whether Claimant should be identified as a co-inventor of some or all of the
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inventions disclosed in the Respondent’s Patents and Patent Applications at issue (the “Subject
Patents”) upon which Claimant is not presently named as a co-inventor.” Dkt. No. 1-1 at 5. They
further agreed that if they were unable to reach an agreement on any part of the Inventorship Issue,
they “agree[d] to designate [a] mutually agreeable arbitrator to make a final, binding, nonappealable decision regarding the Inventorship Issues.” Nowhere do they agree to arbitrate other
disputes arising out of the settlement agreement, and, more to the point, nowhere do they agree to
arbitrate any issue related to whether or when the deferred compensation called for in ¶ E.2 was
due to Silvernail.
However, the Court need not read ¶ 28 as a finding of fact regarding whether any amounts
remain due to Silvernail from Movants. Rather, ¶¶ 27 and 28, when read together, appear to
simply constitute a finding that the conditions precedent for the invocation of the arbitration
provisions of the settlement agreement have been met. That is, they are intended to establish that
the settlement agreement is a binding contract that has been executed by the exchange of
consideration, and nothing more. As noted, a finding regarding anything other than the
Inventorship Issues would be outside the scope of the arbitration agreement. But by construing
the agreement narrowly, the Court practices a sort of “vacation avoidance”—that is, interpreting
the Award so as to avoid invalidating it. Indeed, even a broad reading of the provision still would
not warrant vacating or even modifying the award. Paragraph 28 would likely fall under 9 U.S.C.
§ 11 (b), which excepts from modification those provisions “not affecting the merits of the decision
upon the matter submitted.” Here, the matter submitted was the “Inventorship Issue,” not whether
Silvernail had been paid under the terms of the Settlement Agreement. Thus, confirmation of the
Award will not prohibit Silvernail from pursuing any claims she has—including a breach of
contract claim if one is warranted—regarding payment of the “deferred compensation” called for
in the settlement agreement.
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The undersigned therefore recommends that the Court enter judgment confirming the
award. The judgment “shall have the same force and effect, in all respects, as, and be subject to
all the provisions of law relating to, a judgment in an action; and it may be enforced as if it had
been rendered in an action in the court in which it is entered.” 9 U.S.C. § 13
Finally, the Movants have sought an order that Silvernail reimburse them their costs of
court. Neither the settlement agreement nor the Modified Final Award provide for such
reimbursement. The settlement agreement establishes that Movants agreed to reimburse Silvernail
for reasonable, documented expenses incurred in connection with the arbitration, but not for
Silvernail to reimburse Movants. Dkt. No. 1-1 at 6. The Arbitrator ordered that each side pay their
own costs and attorneys’ fees for the arbitration itself. Id. at 28. Finally, regarding any action
related to the settlement agreement itself, the agreement provides that each party will be solely
responsible for the payment of their respective costs. Id. at 9. There is also no statutory basis for
ordering one party to pay the other’s costs in a confirmation proceeding. As such, Movants’
request for reimbursement should be denied.
III. RECOMMENDATION
Based upon the foregoing, the undersigned Magistrate Judge hereby RECOMMENDS that
Movants TCMS Transparent Beauty, LLC, Tech 2, LLC, and TCMS Technologies, Inc.’s Motion
to Confirm Arbitration Award, Dkt. No. 1, be GRANTED and Respondent Rebecca Silvernail’s
Motion to Vacate Confirmation of Arbitration Award, Dkt. No. 4, and her first, second, third,
fourth, and fifth Amended Motions, Dkt. Nos. 7, 9, 11, 13, and 15 all be DENIED. The Court
RECOMMENDS that the District Judge enter a JUDGMENT confirming the Modified Final
Award, Dk. No. 1-1 at 17-28.
The undersigned FURTHER RECOMMENDS that Movants’ request for reimbursement
of their costs of court be DENIED.
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IV. WARNINGS
The parties may file objections to this Report and Recommendation. A party filing
objections must specifically identify those findings or recommendations to which objections are
being made. The District Court need not consider frivolous, conclusive, or general objections.
See Battle v. United States Parole Comm’n, 834 F.2d 419, 421 (5th Cir. 1987).
A party's failure to file written objections to the proposed findings and recommendations
contained in this Report within fourteen (14) days after the party is served with a copy of the
Report shall bar that party from de novo review by the District Court of the proposed findings
and recommendations in the Report and, except upon grounds of plain error, shall bar the party
from appellate review of unobjected-to proposed factual findings and legal conclusions accepted
by the District Court. See 28 U.S.C. § 636(b)(1)(c); Thomas v. Arn, 474 U.S. 140, 150-53, 106
S. Ct. 466, 472-74 (1985); Douglass v. United Servs. Auto. Ass’n, 79 F.3d 1415, 1428-29 (5th
Cir. 1996) (en banc).
To the extent that a party has not been served by the Clerk with this Report &
Recommendation electronically pursuant to the CM/ECF procedures of this District, the Clerk
is directed to mail such party a copy of this Report and Recommendation by certified mail, return
receipt requested.
SIGNED this 22 day of February, 2016.
_____________________________________
ANDREW W. AUSTIN
UNITED STATES MAGISTRATE JUDGE
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