S&L Enterprises Inc v. Ecolab Inc.

                                                             FILED
                                                  United States Court of Appeals
                                                          Tenth Circuit
                     UNITED STATES CO URT O F APPEALS
                                                                September 11, 2007
                            FO R TH E TENTH CIRCUIT
                                                                Elisabeth A. Shumaker
                                                                    Clerk of Court


    S& L ENTERPRISES, INC., an
    Oklahoma corporation,

             Plaintiff-Appellant,
                                                  Nos. 05-6360 & 05-6369
    v.                                           (D.C. Nos. 05-CV-573-W &
                                                       05-CV-987-W )
    ECOLAB IN C.,                                       (W .D. Okla.)

             Defendant-Appellee.




                            OR D ER AND JUDGM ENT *


Before TA CH A, Chief Judge, O’BRIEN, and M cCO NNELL, Circuit Judges.


         These consolidated appeals arise from a dispute between S& L Enterprises,

Inc., and Ecolab Inc., over payments to be made by Ecolab to S& L under an asset

purchase agreement governed by Delaware law. S& L filed an arbitration demand

and, before arbitration proceedings were completed, also filed an action for



*
       After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and
collateral estoppel. It may be cited, however, for its persuasive value consistent
with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
breach of contract in the W estern District of Oklahoma. After a three-day

hearing, the arbitrator issued his award rejecting S& L’s arguments and ordering

S& L to pay certain administrative and arbitration fees and expenses, as well as

Ecolab’s legal fees and costs. S& L then filed a motion in the district court

seeking to partially vacate or modify the arbitration award. Ecolab filed an action

(in the District of M innesota— later transferred to the W estern District of

Oklahoma) seeking to confirm the arbitration aw ard. The district court

consolidated the two cases and, on October 6, 2005, issued an order granting

Ecolab’s m otion to confirm the award and denying S& L’s motion to partially

vacate or modify the award. Aplt. A pp., Vol. II at 481-93 (D istrict Court Order).

The district court held that “S& L has at most attempted to show that in its opinion

the arbitrator misinterpreted Delaware law [and] has not . . . shown that the

arbitrator expressly disregarded such law[.]” Id. at 492. S& L filed two notices of

appeal (apparently because of the two district court case numbers), resulting in

two appeals being docketed with this court. On November 23, 2005, this court

consolidated the two appeals.

      S& L makes two two-part arguments on appeal that the district court erred

in confirming the arbitration award. First, S& L argues that the arbitrator ruled in

manifest disregard of Delaware law by (1)(a) construing the contract in a way that

ignored the placement of a comma in the clause covering further payments from

Ecolab to S& L, and (b) failing to construe the ambiguity resulting from the

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placement of the comma in the disputed clause against Ecolab, the drafter.

Second, S& L argues that the arbitrator ruled in manifest disregard of D elaw are

law by (2)(a) failing to find that there was no valid contract because Ecolab’s

promise of further payments was contingent on sales and thus was illusory, and

(b) failing to find that there was no valid contract because there was no meeting

of the minds as to the interpretation of the further payments clause. Ecolab has

moved for a determination that the appeals are frivolous so that it can move for

sanctions. “A n appeal is frivolous when the result is obvious, or the appellant’s

arguments of error are wholly without merit.” Braley v. Campbell, 832 F.2d

1504, 1510 (10th Cir. 1987) (quotation omitted).

      W hen a district court confirms an arbitration award, we review its legal

conclusions de novo and its factual findings for clear error. Dominion Video

Satellite, Inc. v. EchoStar Satellite L.L.C., 430 F.3d 1269, 1275 (10th Cir. 2005).

But “[j]udicial review of arbitration panel decisions is extremely limited; indeed,

it has been described as among the narrowest know to law.” Id. (quotation

omitted). “Once an arbitration award is entered, the finality of arbitration weighs

heavily in its favor and cannot be upset except under exceptional circumstances.”

Hollern v. W achovia Sec., Inc., 458 F.3d 1169, 1172 (10th Cir. 2006) (quotation

omitted). “A district court may vacate an arbitral award only for reasons

enumerated in the Federal Arbitration Act . . ., 9 U.S.C. § 10, or for a handful of

judicially-created reasons.” Id. (quotation omitted).

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      “[W ]e have acknowledged a judicially-created basis for vacating an aw ard

when the arbitrators acted in ‘manifest disregard’ of the law.” Dominion Video

Satellite, Inc., 430 F.3d at 1275 (quoting ARW Exploration Corp. v. Aguirre,

45 F.3d 1455, 1463 (10th Cir. 1995)). “This standard requires a finding that the

panel’s decision exhibits ‘willful inattentiveness to the governing law.’” Id.

(quoting ARW Exploration Corp., 45 F.3d at 1463). In other words, “a finding of

manifest disregard means the record will show the arbitrators knew the law and

explicitly disregarded it.” Bowen v. Amoco Pipeline Co., 254 F.3d 925, 932

(10th Cir. 2001). “Errors in an arbitration panel’s factual findings, or its

interpretation and application of the law, do not justify vacating an award.”

Hollern, 458 F.3d at 1172 (quotation omitted). “[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.’” United Paperworkers Int’l Union, AFL-CIO v.

M isco, Inc., 484 U.S. 29, 38 (1987) (emphasis added). Having reviewed the

parties’ materials, we agree with the district court that S& L has, at most,

attempted to show that the arbitrator misinterpreted Delaware law and has not

show n that the arbitrator expressly disregarded Delaware law.

      S& L first argues that the arbitrator ignored the placement of a comma in

the further payments clause and then, incongruously, that the arbitrator failed to

construe the resulting ambiguity against Ecolab, the drafter. This argument is

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frivolous. Rather than ignoring the comma, the arbitrator began his analysis by

noting that the placement of the comma created an ambiguity that could not be

resolved in favor of Ecolab on its motion for summary judgment because Ecolab

drafted the clause. See Aplt. App., Vol. I at 51 (Award of A rbitrator). Delaw are

law requires that “a contract be construed as a whole, giving effect to the parties’

intentions.” DCV Holdings, Inc. v. ConAgra, Inc., 889 A.2d 954, 961 (Del.

2005). “W hen the provisions in controversy are fairly susceptible of different

interpretations or may have two or more different meanings, there is ambiguity

[and] the interpreting court must look beyond the language of the contract to

ascertain the parties’ intentions.” Eagle Indus., Inc. v. DeVilbiss Health Care,

Inc., 702 A.2d 1228, 1232 (Del. 1997). To do this, “a court may consider

evidence of prior agreements and communications of the parties as well as trade

usage or course of dealing.” Id. at 1233. That is exactly the approach the

arbitrator took in this case— he denied Ecolab’s motion for summary judgment

and held a hearing to gather extrinsic evidence. See Aplt. A pp., Vol. I at 51.

And contrary to S& L’s assertion, under Delaware law, the rule that ambiguities

are construed against the drafter is only determinative w hen one party “has very

little say about [the] terms except to take them or leave them or to select from

limited options offered by the [other party].” SI M gmt., L.P. v. W ininger,

707 A.2d 37, 43 (Del. 1998). W hen the contract has been negotiated, as in this

case, the rule “is one of last resort, such that a court will not apply it if a problem

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in construction can be resolved by applying more favored rules of construction.”

E.I. du Pont de Nemours & Co. v. Shell Oil Co., 498 A.2d 1108, 1114 (Del.

1985). W e conclude that even if the arbitrator’s resolution of the ambiguity

created by the comma was w rong under Delaw are law , that is not a ground to

vacate the arbitration award. The arbitrator clearly was acting within the scope of

his authority.

      S& L also argues that the arbitrator ruled in manifest disregard of D elaw are

law by failing to find that there was no valid contract because Ecolab’s promise

of further payments was contingent on sales and thus was illusory, and by failing

to find that there was no valid contract because there was no meeting of the minds

as to the interpretation of the further payments clause.

      S& L’s “illusory promise” argument is frivolous. S& L maintains that the

contractual provision for further payments is illusory because Ecolab had

complete control over the future sales upon which further payments are

contingent. The arbitrator implicitly rejected this argument, although the

arbitrator stated no reasons. “[A]rbitrators are generally not required to delineate

the reasons for their decision,” Hollern, 458 F.3d at 1177, and S& L does not

argue that the case should be remanded to the arbitrator for clarification. Rather,

S& L maintains that because the arbitrator noted that further payments were

contingent on sales, that he necessarily should have concluded that the promise of

further payments was illusory. W e are unpersuaded. The only way the arbitrator

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could have found the further payments clause to be illusory was if he assumed

that Ecolab would breach the “implied covenant of good faith and fair dealing

that inheres in every contract.” M ontgomery Cellular Holding Co. v. Dobler,

880 A.2d 206, 223 (Del. 2005). Under Delaware law, “[c]ontracts are to be

interpreted in a way that does not render any provisions illusory or meaningless.”

O’Brien v. Progressive N. Ins. Co., 785 A.2d 281, 287 (Del. 2001) (quotation

omitted). W e cannot agree that a contingent clause must result in a conclusion

that the promise contained therein is illusory.

      As for S& L’s final argument that there is no valid contract because there

was no “meeting of the minds,” Ecolab argues that S& L waived this argument

because S& L did not raise it to the arbitrator. S& L asserts that the issue is not

waived because the record put it before the arbitrator even though S& L did not

raise it expressly.

      S& L’s authorities are clearly distinguishable from this case. In one cited

case, the question of remedy was before the arbitrator, and there was no dispute in

the record that the contract at issue had expired. Hosp. Employees, Local 1273,

Laborers’ Int’l Union of N. Am., AFL-CIO v. Deaton Hosp. & M ed. Ctr. of Christ

Lutheran Church, 671 F. Supp. 1049, 1050 (D. M d. 1986). On appeal, the court

considered the question of the arbitrator’s power to award remedies after the

expiration of the contract was implicitly before the arbitrator and therefore was

not waived on appeal despite the plaintiff’s failure to argue it explicitly. Id. In

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the other cited case, the arbitrator’s award on a subrogation claim was determined

by the court— and was conceded by the party that had received the award— to be

contrary to clear state law on the very subject matter of the arbitration and

therefore was not waived on appeal. Travelers Ins. Co. v. Nationwide M ut. Ins.

Co., 886 A.2d 46, 50 (Del. Ch. 2005). Such undisputable clarity does not exist in

this case, which began when S& L filed its demand for arbitration to enforce its

interpretation of the asset purchase agreement. Aplt. Opening Br. at 11. W e

conclude that S& L’s argument that the contract is invalid because there was no

“meeting of the minds” is waived because S& L did not present it to the arbitrator.

See, e.g., Zingg v. Dep’t of the Treasury, 388 F.3d 839, 843 (Fed. Cir. 2004);

Int’l Bhd. of Elec. W orkers, Local Union No. 545 v. Hope Elec. Corp., 380 F.3d

1084, 1100 (8th Cir. 2004); Ganton Techs., Inc. v. Int’l Union, United Auto.,

Aerospace & Agric. Implement W orkers of Am., U.A.W ., Local 627, 358 F.3d

459, 462 (7th Cir. 2004); Teamsters Union Local No. 42 v. Supervalu, Inc.,

212 F.3d 59, 68 (1st Cir. 2000); United Steelworkers of Am., AFL-CIO.CLC v.

Smoke-C raft, Inc., 652 F.2d 1356, 1360 (9th Cir. 1981).

      Based on our review of S& L’s arguments, it was frivolous for S& L to

suggest that the arbitrator was not “even arguably construing or applying the

contract and acting within the scope of his authority[.]” United Paperw orkers

Int’l Union, AFL-CIO, 484 U.S. at 38 (emphasis added). Ecolab’s motion for a

determination that these consolidated appeals are frivolous is therefore granted,

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and we invite Ecolab, within fifteen days of the date of this order, to file a motion

for sanctions in w hich it apprizes this court of the reasonable and necessary

attorney’s fees and costs it incurred in opposing S& L’s appeal from the district

court. S& L will then have fifteen days from the filing of Ecolab’s motion to

show cause why it should not be sanctioned.

      The district court’s order confirming the arbitration award is AFFIRMED.



                                                     Entered for the Court



                                                     Terrence L. O’Brien
                                                     Circuit Judge




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