Opinions of the United
2009 Decisions States Court of Appeals
for the Third Circuit
6-16-2009
Southco Inc v. Reell Precision Mfg
Precedential or Non-Precedential: Non-Precedential
Docket No. 08-2915
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 08-2915
_____________
SOUTHCO, INC.
v.
REELL PRECISION MANUFACTURING CORPORATION,
Appellant
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
District Court No. 2-08-cv-00189
District Judge: The Honorable J. Curtis Joyner
Argued April 16, 2009
Before: MCKEE, SMITH, and VAN ANTWERPEN, Circuit Judges
(Filed: June 16, 2009)
James C. McConnon (Argued)
Antranig Baronian
Alex R. Sluzas
Paul & Paul
2000 Market Street Ste 2900
Philadelphia, PA 19103
Counsel for Southco, Inc.
David R. Marshall (Argued)
Joseph John Cassioppi
Leah C. Janus
Joseph M. Sokolwski
Fredrikson & Byron
200 South Sixth Street Ste 4000
Minneapolis, MN 55402
Counsel for Reell Precision Manufacturing Corporation
Lee Applebaum
Fineman, Krekstein & Harris
1735 Market Street
Mellon Bank Center Ste 600
Philadelphia, PA 19103
Counsel for Reell Precision Manufacturing Corporation
John J. Murphy, III
Neal R. Troum
Stradley, Ronon, Stevens & Young
200 Lake Drive East
Woodland Falls Corporate Park, Ste 100
Cherry Hill, NJ 08002
Counsel for Reell Precision Manufacturing Corporation
OPINION
SMITH, Circuit Judge.
Reell Precision Manufacturing Corporation (Reell) appeals from a District Court
judgment confirming an arbitration award in favor of Southco, Inc. (Southco). According
to Reell, the arbitrators exceeded their powers so that the award in favor of Southco
should be vacated. Southco counters that we should dismiss Reell’s appeal because the
parties contractually waived appellate review of the District Court’s judgment. Southco
also argues that, in any event, the arbitrators did not exceed their powers and that the
District Court did not err in confirming their award.
Because the parties did not agree to waive the right to appeal from the District
2
Court’s judgment, we will deny Southco’s motion to dismiss. But mindful of the
deferential standard with which federal courts must review an arbitral award, we will
affirm the District Court’s confirmation of the award.
I.
In 2002, Reell and Southco entered into an agreement to jointly develop,
manufacture, and market a friction hinge. They amended their agreement in 2004 to scale
back their collaboration. The amended 2004 agreement (the Agreement) contains the
provisions at issue in this case. In 2006, Southco filed a demand for arbitration pursuant
to Article IX of the Agreement. According to Southco, Reell had breached the Agreement
by soliciting a major automotive supplier to buy hinges directly from Reell instead of
through Southco.
Three arbitrators (the Arbitrators) were appointed in accordance with rules
designated in the Agreement. They heard testimony over five days in September 2007. On
December 11, 2007, they issued a unanimous decision awarding Southco $2,000,000 in
lost profits damages (the Award).
Southco filed a petition to confirm the Award in the United States District Court
for the Eastern District of Pennsylvania in January 2008. Reell responded with a motion
to vacate. On May 29, 2008, the District Court filed an order denying Reell’s motion and
confirming the Award. Reell appealed from the District Court’s judgment in June 2008
and Southco moved to dismiss the appeal.
II.
3
The District Court exercised diversity jurisdiction under 28 U.S.C. § 1332.
Ordinarily, we exercise appellate jurisdiction over the District Court’s judgment pursuant
to 28 U.S.C. § 1291 and 9 U.S.C. § 16(a)(1)(D).1 Southco disputes appellate jurisdiction,
however.
III.
A.
Southco asks that we dismiss this appeal on the ground that we do not have
jurisdiction to review the judgment of the District Court. According to Southco, the
parties waived appellate review in a “non-appealability” clause of Agreement Section
9.1.2 To support its position that contracting parties may waive appellate review of a
judgment on an arbitration award, and that the parties did so here, Southco invokes
MACTEC, Inc. v. Gorelick, 427 F.3d 821 (10th Cir. 2005), cert. denied, 547 U.S. 1040
(2006) (holding that contracting parties may waive appellate review of a district court
judgment on an arbitration award).
1
“An appeal may be taken from . . . an order . . . confirming . . . an award or partial
award . . . .” 9 U.S.C. § 16(a)(1)(D).
2
Section 9.1 (Arbitration) of the Agreement provides in relevant part:
Any claim, controversy or dispute arising out of or relating to this
Agreement or any interpretation or breach thereof or performance under this
Agreement, including without limitation any dispute concerning the scope
of this arbitration provision, shall be settled exclusively by submission to
final, binding and non-appealable arbitration (“Arbitration”) for
determination, without any right by any Party to a trial de novo in a court of
competent jurisdiction, after a 25-calendar day waiting period (the “Waiting
Period”) subject to Section 9.4.
4
In MACTEC, the Tenth Circuit concluded that “the parties’ contract expressly
provided that the district court’s judgment would be both ‘final’ and ‘nonappealable.’” Id.
at 830 (emphasis added). The contract provision at issue there stated in relevant part:
“Judgment upon the award rendered by the arbitrator shall be final and nonappealable
and may be entered in any court having jurisdiction thereof.” Id. at 827 (emphasis added).
In contrast, the non-appealability clause of Agreement Section 9.1 which is now before us
does not reference the judgment of the district court; it references the arbitration itself,
providing that the arbitration is “final, binding and non-appealable . . . without any right
by any party to a trial de novo . . . .” And generally, a contract provision stating that
arbitration is “non-appealable” signifies that the parties to the contract may not appeal the
merits of the arbitration; not that the parties agree to waive a right to appeal the district
court’s judgment confirming or vacating the arbitration decision. See Tabas v. Tabas, 47
F.3d 1280, 1288 (3d Cir. 1995) (en banc) (observing that, where a contract provided for
“final, binding, and non-appealable” arbitration, the Court must adhere to the arbitration
decision on the merits); see also Rollins, Inc. v. Black, No. 04-15876, 2006 WL 355852,
at *1 n.1 (11th Cir. Feb. 17, 2006) (“[A ‘binding, final, and non-appealable’ arbitral
award] 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 . . . .”).
Although the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1–16, limits the scope of
judicial review of an arbitration award, it allows a district court to vacate an award if the
5
arbitrators exceed the scope of their powers, 9 U.S.C. § 10(a)(4), as alleged in this case by
Reell. The FAA also provides that an appeal may be taken from an order confirming an
award. 9 U.S.C. § 16(a)(1)(D). Moreover, the Agreement in this case, which binds two
sophisticated parties, recognizes the difference between the arbitration award, on one
hand, and the judgment of the District Court upon that award, on the other. Section 9.7
provides that “judgment upon the arbitration award may be entered in the United States
District Court for the Eastern District of Pennsylvania . . . .” The parties might have
sought to foreclose appeal from the District Court’s judgment, as was the case in
MACTEC, but they did not do so. We conclude that the Agreement does not waive
appellate review of the District Court’s judgment. See, e.g., MACTEC, 427 F.3d at 830
(holding that the parties’ intent to waive appellate review of the district court’s judgment
on the arbitration award must be “clear and unequivocal”).3 We will, therefore, deny
Southco’s motion to dismiss, and we exercise jurisdiction under 9 U.S.C. § 16(a)(1)(D).4
3
Because we conclude that there is no waiver of appellate review, we need not
reach the questions of whether parties may contractually waive such review of a district
court’s judgment on an arbitration award, and if so, how such a waiver is effected.
4
Reell also cites the New Jersey case, Van Duren v. Rzasa-Ormes, 926 A.2d 372
(N.J. Super. Ct. App. Div. 2007), to support its argument that the non-appealability clause
of Section 9.1 waives appellate review of the District Court’s judgment. In Van Duren,
the New Jersey Superior Court decided that a broad non-appealability clause waived
appellate review of the trial court’s judgment. The clause in Van Duren provided that the
“arbitrator’s determination” was “not subject to an appeal to any authority in any
forum.”Id. at 375. Van Duren is distinguishable from the instant case, however, because
the issue appealed there was not allowable under the applicable arbitration statute. Id. at
382 (“[D]efendant has appealed . . . alleging none of the ‘rare circumstances’ . . . that
might otherwise compel us to exercise limited appellate view [sic]. Accordingly, we lack
jurisdiction over defendant’s appeal . . . .”). Reell, on the other hand, proffers an
6
B.
In its appeal, Reell argues that the Arbitrators exceeded their powers by awarding
lost profits to Southco. Preliminarily, we note that the FAA creates a strong presumption
in favor of enforcing arbitration awards. Brentwood Med. Assocs. v. United Mine Workers
of Am., 396 F.3d 237, 241 (3d Cir. 2005) (“[A]n award is presumed valid unless it is
affirmatively shown to be otherwise, and the validity of an award is subject to attack only
on those grounds listed in 9 U.S.C. § 10, or if enforcement of the award is contrary to
public policy.” (footnote omitted)). In reviewing a district court decision concerning the
validity of an arbitration award, our assessment of the arbitrators’ actions is governed by
the same standard that governed the district court’s review, and we exercise plenary
review over the district court’s decision. Metromedia Energy, Inc. v. Enserch Energy
Servs., Inc., 409 F.3d 574, 578–79 (3d Cir. 2005). Review of arbitration awards under the
FAA is “extremely deferential.” Dluhos v. Strasberg, 321 F.3d 365, 370 (3d Cir. 2003).
Vacatur is appropriate only in “exceedingly narrow” circumstances, such as where
arbitrators are partial or corrupt, or where an arbitration panel manifestly disregards,
rather than merely erroneously interprets, the law. See id.; see also Local 863 Int’l Bhd. of
Teamsters v. Jersey Coast Egg Producers, Inc., 773 F.2d 530, 533 (3d Cir. 1985) (stating
that error of law is an insufficient basis for vacatur); Mobil Oil Corp. v. Indep. Oil
Workers Union, 679 F.2d 299, 302 (3d Cir. 1982) (“[I]f the arbitrator’s ‘interpretation [of
the agreement] can in any rational way be derived from the agreement,’ courts must
argument that is cognizable under the FAA: that the Arbitrators exceeded their powers.
7
enforce the award.”). If the arbitrators’ award draws its essence from the agreement, then
they did not exceed their powers. Mobil Oil, 679 F.2d at 302.
Reell does not suggest corruption or partiality, but argues that the Arbitrators
exceeded their powers so that the Award should be vacated under 9 U.S.C. § 10(a)(4).
According to Reell, Section 7.5 precludes lost profits damages, providing in pertinent part
that “IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY .
. . FOR ANY . . . LOSS OF . . . PROFITS . . . HOWEVER CAUSED . . . .” 5 Reell
contends that, under the terms of the Agreement, Southco is entitled only to non-monetary
remedies in the event of breach or non-performance of the Agreement.
But the Arbitrators decided to award Southco lost profits because they concluded
that the limitation of liability in Section 7.5 applied only to Article VII (Indemnification)
of the Agreement. They reasoned that if Section 7.5 applied to the entire Agreement, then
it would conflict with Section 9.7, which they understood to allow any relief except
punitive damages.6
5
Section 7.5 (Limitation of Liability) of the Agreement provides:
EXCEPT WITH RESPECT TO EITHER PARTY’S INDEMNIFICATION
OBLIGATIONS UNDER SECTIONS 7.1(ii) AND 7.2(ii)
RESPECTIVELY, IN NO EVENT SHALL EITHER PARTY BE LIABLE
TO THE OTHER PARTY OR ANY OTHER PERSON OR ENTITY IN
CONNECTION WITH THIS AGREEMENT FOR ANY SPECIAL,
CONSEQUENTIAL, INCIDENTAL OR RELIANCE DAMAGES (OR
ANY LOSS OF REVENUE, PROFITS OR DATA), HOWEVER CAUSED
. . . FOR BREACH OF CONTRACT . . . .
(Capitalization in original.)
6
Section 9.7 of the Agreement provides in relevant part:
Subject to the limitations imposed by Section 9.4, the arbitrators shall have
8
Reell counters that there is no conflict between Sections 7.5 and 9.7. Section 9.7 is
“[s]ubject to the limitations imposed by Section 9.4,” and Section 9.4 states that the
Arbitrators “shall base their decision on the express terms, covenants and conditions of
this Agreement.” For Reell, this latter qualification includes the express terms in Section
7.5 precluding lost profits so that the limitations in Section 7.5 qualify, rather than
conflict with, the remedies available through Section 9.7.
Reell’s argument does not prevail over the strong presumption in favor of
enforcing an arbitration award and the “extremely deferential” standard under which
courts must review arbitration decisions. Here, the Agreement is effectively the law of the
case. Even if the Arbitrators erred in their interpretation of the Agreement, a mere error is
not enough to justify vacating the Award. Because the Arbitrators’ decision is based on a
reasoned interpretation of the Agreement, we conclude that the decision was rationally
derived from the Agreement, and we will affirm the District Court’s judgment confirming
the Award.7
the power to grant any and all relief and remedies, whether at law or in
equity, that the courts in the Commonwealth of Pennsylvania may grant and
such other relief as may be available under the Commercial Rules, other
than punitive damages. Any award of the arbitrators shall include pre-award
and post-award interest at a rate or rates considered just under the
circumstances by the arbitrators.
7
Southco further argues that Reell’s appeal is frivolous. We reject Southco’s
argument on this point. An appeal is frivolous when it is wholly without merit. Quiroga v.
Hasbro, Inc., 943 F.2d 346, 347 (3d Cir. 1991). Although Reell’s argument fails to show
that the Award cannot be rationally derived from the Agreement, it plausibly suggests at
least an error in interpreting the Agreement and thus was not so devoid of substance as to
be wholly without merit.
9