Confirmation / Vacation of Arbitration Awards

Former franchisees filed a petition to vacate an arbitration award entered in favor of their former franchisor which enforced a 2-year non-compete provision in the parties’ franchise agreement when the agreement expired. The arbitrator had determined that the non-compete provision applied, notwithstanding that the provision contemplated applying upon the agreement’s “termination,” and did not refer to the agreement’s “expiration.” The franchisees argued that the arbitrator committed a “manifest disregard of the law,” and that the award “failed to draw its essence” from the parties’ agreement. The court determined that “both readings [were] plausible,” and therefore the award “derived from the essence of the Franchise Agreement.” The court continued, “Where the arbitrator did not act with ‘manifest disregard of the law” there was “no basis to vacate the award.” The court further upheld the arbitrator’s decision to enforce the 2-year non-compete provision from the date the franchisees started to comply with the agreement’s post-expiration terms, rather than from the (earlier) date that the agreement expired. That decision, the court explained, also “comported with the law and thus did not exhibit ‘manifest disregard of the law.’” The court therefore denied the petition to vacate the award, and granted the petition to confirm the award. Frye v. Wild Bird Centers of America, Inc., Case No. 8:16-cv-03216 (USDC D. Md. Feb. 14, 2017).

This post written by Michael Wolgin.

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Petitioner Daniel Olson brought an action in federal court seeking vacatur of an award against him in arbitration of an employment dispute. He challenged the arbitration award for lack of a “reasoned opinion” and failure of the arbitrator to rule on all of the evidentiary issues and claims submitted. The district court denied the motion to vacate and Olson appealed.

In the Ninth Circuit’s opinion, the Court reminded Plaintiff that “Arbitrators have no obligation to give their reasons for an award” and that here, “the arbitration award included two bases for the arbitrator’s determination that [Defendant] was the prevailing party, which provides enough of the arbitrator’s reasoning to facilitate the limited review available under the FAA.”

The Court further rejected Plaintiff’s claims that the arbitrator did not rule on all of the evidentiary issues, stating “arbitrators’ awards are not judicial opinions. The proceedings the arbitrator conducts are generally informal, lacking most of the fixed rules of procedure and evidence.” As to Plaintiff’s contention that the arbitrator failed to rule on all the claims submitted for arbitration, that too was rejected as “the award states that all claims not expressly granted herein are hereby, denied.”

Olson v. Harland Clarke Corp.a>, 14-35586 (9th Cir. Feb. 10, 2017)

This post written by Nora A. Valenza-Frost.

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A court has confirmed an arbitration award of more than $8 million in damages, attorneys’ fees and costs against Sirona Dental Systems, Inc. and Arges Imaging Inc. (collectively “Respondents”) in favor of Petitioners, who were shareholders of Arges before it merged with Sirona. Respondents asked that the award be vacated because the arbitrator had exceeded his powers and acted in manifest disregard for the law, but the court disagreed.

The merger occurred because of Sirona’s desire to acquire a scanner created by Arges called the Apollo. The arbitration involved Petitioners’ claim that Respondents breached the merger agreement. First, Petitioners alleged that Sirona owed them $3 million that the merger agreement said they would earn if the Apollo product met certain criteria. While those criteria were not met, the tribunal awarded Petitioners the full amount sought after finding that Sirona deprived Petitioners the chance to test the Apollo product by the contractual deadline and that the product met the requisite criteria in informal tests.

Second, Petitioners alleged that they should be paid a “Revenue Earn Out” greater than that provided by the merger agreement based on the revenue actually achieved, because Sirona breached its obligation to conduct the business in good faith and exercise commercially reasonable efforts to promote the business. The tribunal agreed that Sirona had breached this duty and awarded Petitioners more than $4 million based on its calculations of what the revenue would have been without this breach.

The court further stated that, when an arbitrator is alleged to have to exceed his powers, the question “is whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong,” and found that the arbitrator had met this standard. The court also rejected the argument that the arbitrator acted in manifest disregard for the law by awarding damages based on revenue estimates for a new product, despite significant Delaware case law rejecting such awards. The court noted that none of these cases explicitly prohibits such an award and found that Respondents had not shown that the arbitrator ignored the law. Bergheim et al. v. Sirona Dental Systems, Inc., et al., No. 16 CV 1692-LTS (S.D.N.Y. Jan. 24, 2017)

This post written by Jason Brost.

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In this matter, a California district court confirmed an arbitration award in favor of D.A.R.E. America, and denied a motion to vacate the arbitration award by D.A.R.E. New Jersey, Inc. D.A.R.E. New Jersey, Inc. appealed to the Ninth Circuit.

In the arbitration, D.A.R.E. New Jersey attempted to amend its arbitration demand to include a new claim under the New Jersey Franchise Practices Act on the eve of the arbitration hearing. The Ninth Circuit found that the arbitrator did not manifestly disregard the law by refusing to allow D.A.R.E. New Jersey to arbitrate its New Jersey Franchise Practices Act claim, noting that “[t]o vacate an arbitration award on this ground, [i]t must be clear from the record that the arbitrator[] recognized the applicable law and then ignored it.” The Ninth Circuit also noted that “[t]he scope of the arbitrator’s jurisdiction extends to issues not only explicitly raised by the parties, but all issues implicit within” the arbitration demand, and that an arbitrator’s interpretation of the scope of her powers is given great deference. The Court noted that the arbitrator found that the determination that D.A.R.E. New Jersey materially breached the charter agreement was necessary to resolve the breach of contract claim. Finally, the Ninth Circuit noted that arbitration awards may be vacated on public policy grounds where an explicit, well defined, and dominant public policy exists and that the policy specifically militates against the relief ordered by the arbitration. It then found that D.A.R.E. New Jersey had not identified an explicit public policy that militates against the relief ordered by the arbitration. Thus, the Ninth Circuit affirmed the district court’s confirmation of the arbitration award. D.A.R.E. New Jersey, Inc. v. D.A.R.E. America, No. 2:12-cv-09805 (9th Cir. Jan. 17, 2017).

This post written by Jeanne Kohler.

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