NOT RECOMMENDED F OR F ULL-TEXT PUBLICATION F ile Nam e: 13a0300n.06 No. 12-1548 UNITED STAT ES COURT OF AP P EALS F OR THE S IXTH CIRCUIT

STONEB RI DGE EQUI TY, dba St o n e b r idg e Business Partners, Plaintiff-Appellee ,
v. CHI NA AUT OMOTI VE SYSTEMS, I NC., Def endant- Appellant. ) ) ) ) ) ) ) ) ) ) ON AP P E AL FR OM THE UNI TED STATES DI STRI CT COURT FOR THE EASTERN DI STRI CT OF MI CHI GAN

BEF ORE: DAUGHT REY, ROGERS, and McKEAG UE, Circuit J udg es. ROGERS, Circuit J udg e. This is a contra ct dispute that arr ives at this court afte r adjudication by two arbitrators. China Aut omotive Sy stems, Inc. claims that both arbitra tors manifestly disreg arde d the law by using extrinsi c evidenc e to interpre t a contra ct b ef o re d ec i d ing that it was ambig uous. China Automotive also arg ues that the arbitra tors g rante d an awa rd that did not draw its

essenc e fr om the contra ct and violated the ar bitration ag ree ment. The district cour t confirmed the

awa rd an d added a para g raph for enfor ceme nt purposes. China Automotive arg ues that this was improper a dditional relief not aw arde d in arbitration. The arbitrators’ awa

rds indicate that they found the contra ct ambig uous befor e considering extrinsi c evidenc e and that they did not ignor e the plain lang uage o f t h e contra ct. Moreove r, the

awa rds ar e not contra

ry to the contra ct or in violation of the arbitra tion ag ree ment, and the districtNo. 12-1548

Stonebridge Equity v. China Automotive Sy stems

court’s addition to the reme dy was coll at er al to and nece ssary for the execution of the awa rd. There fore , the district court prope rly confirme d the ar

bitration awa

rds. China Automotive is a supplier of auto parts and Stonebridg e provides sales repr esenta tion to new companies enter ing the auto industry

. The two companies enter ed into a contra ct “desig ned to focus on [Stonebridge ’s] providing [China Automoti ve] with business development services to help [C hina Automotive] to identify and pursue new customers and strateg ic partne rs in the automotive and commerc ial truck marke ts in North Americ a and Europe.” R.1-2, Pag eI D #6. The contra ct called for China Automotive to pay Stonebridg e a $5,000-per -month reta iner fee

. I n addition, China Automotive would pay Stonebridg e success fees und er specifie d conditions. The first of these was specifie d in section 2A: if China Automo t i v e signe d a purcha se order that Stonebridg e procur ed, solicited, or pursued, China Automotive would pay Stonebridg e five perc ent of its g ross marg in from that sale. Id. A second was specifie d in section 2B: if China Automotive, 1 throug h the procur ement, solicitation and/or eff ort of Stonebridg e, obtained a price for parts g reater

The full text of section 2A is: 1 A. I f CAS succ essfully signs a purcha se order which is procure d by SBP, solicited by SBP or is pursued by SBP during the term of this eng ag ement, CAS ag ree s to pay SBP 5% of the g ross marg in which the sale cre ates for CAS. (whe rea s g ross marg in is define d as the differ ence betwee n the targ et price for that specific product and the actua l direct manuf

actur ed cost of g oods sold; and, where as targ et price shall be as ag ree d betwee n SBP and CAS at th e t i m e at which the opportunity is identified and/or pursued by SBP) CAS has the sole discretion and rig ht t o reje ct any order s from any customers. Plus; - 2 -No. 12-1548

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than an ag ree d-upon targ et price , it would pay Stonebridg e forty perc ent of the e x tra income

. Id. 2 The crux of the parties’ dispute is whether Stonebridg e could collect succe ss fee s under section 2B in a situation where it is not owed suc cess f ees unde r sec tion 2A. After the contra ct expired acc ording to i ts terms, Stonebridg e filed suit in fede ral district court claiming that China Automotive owed it succe ss fee s for S tonebridg e’s work. Be cause the contra ct included an arbitration clause , the parties went to binding arbitra tion and the case was d i s m i s s ed. The district court reta ined jurisdiction to enfor ce, confirm, vacate, or corr ect an y arbitration awar d. The parties rea ched a separ ate ar b i t ration ag ree ment outlining how the arbitra tion would proce ed. Under the ag ree ment, the parties chose a trial arbitra tor to hear witness testimony , evaluate evidenc e, and decide on an awa rd. The parties also ag ree d that they would have the rig ht to appea l any arbitration awa

rd to a mutually chosen appea l arbitra tor. The sta n d ar d of revie w on appea l would be “the same as if the matter wer e appea led to a Michig an appellate court.” R. 20-6, Pag eI D #252.

The full text of section 2B is:

2 B. I f the actua l price awa rded throug h the procur ement, solicitation and/or eff ort of SBP is over the targ et price as ag ree d betwee n CAS and SBP, then CAS also ag ree s to pay SBP 40% of the excessive amount which is define d as the differ ence betwee n t h e actua l price and the targ et price

. For the purposes of this Section 2 A an d B, succe ss fee s shall rema in in eff ect for the life of product supply to the customer. CAS and SBP shall ag ree to a targ et price for eac h projec t at the time eac h business opportunity

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Stonebridge Equity v. China Automotive Sy stems

The trial arbitrator deter

mined that Stonebridg e was entitled to $147,239.09 in past succe ss fee s, to future succe ss fee s, to a penalty under the Michig an manufa cture rs repr esenta tive statute, and to leg al fee s. The succe ss fee s wer e for parts China Autom o t i v e s o l d t o Chry sler for the J eep Wrang ler. The trial arbitra tor deter mined that Stonebridg e did not procur e, solic i t , o r pursue Chry sler’s order of parts for the Wrang ler. Acc ording ly , Stonebridg e was not entitled to succe ss fee s under section 2A of the contra ct. Howeve r, the arbitra tor deter mined that Stonebridg e was sufficie ntly involved in developing China Automotive’s pricing strateg y for the Wrang ler parts to constitute “ef

fort” under the contra ct. The trial arbitra tor deter mined that under section 2B of the contra ct, Stonebridg e was there fore entitled to a succe ss fee equal to 40% of the differ ence betwee n the price Chry sler paid a

nd the “tar g et price .” China Automotive argued that Stonebridg e was not entitled to succe ss fee s for the Wrang ler p arts beca use the contra ct limit ed Stonebridg e’s work to identify ing and pursuing new cu s to me r s a n d the trial arbitra tor had deter mined that Chry sler was an exis ting customer. Howeve r, the trial arbitrator deter

m i n ed t h at the contra ct was ambig uous. He cited two rea sons for the ambig uity

. First, he noted th at wh i l e “t h e introductory para g raph of the contra ct limit s the activities of [S tonebridg e] to pursuing new customers.

. . . [t ]hat provision

. . . is not car ried forwa

rd.” R. 17-4, Pag eI D #79. Moreove r, t he trial arbitra tor found t hat t he differe nce in lang uage b et we en the first two succe ss fee sections, 2A and 2B, cre ated an ambig uity beca use while 2A “is limit ed to purcha se order s procur ed, sol icited or pursued by ” S to n ebridg e, section 2B “indicates [ Stonebridg e] would be entitled to a succe ss fee for procur ement, solicit at i on ‘and/or eff ort.’” Id. The trial arbitrator

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found this lang uag e to be “dra matically differ ent” in that section 2A “cle arly identifies that the purcha se ord er is to be procur ed, solicited or pursued by [S tonebridg e], while the lang uag e of [section 2B] indicates succe ss compensa tion can be awa rded for improving the final price of a contra ct that was procur ed, solicited or resulted from any eff ort of [S tonebridg e].” Id. at Pag eI D #80. The trial arbitrator next looked at prior drafts of t he contr ac t. The parties dispute whether he did so befor e or afte r deter mining that the contra ct was ambig uous. He noted that ear lier draf ts limit ed succe ss fee s to new customer sales and had all the succe ss fee s in one para g raph. Howeve r, the final contra ct did not include the limit ing lang uag e and broke the succe ss fee section into sever al para g raphs. The trial arbitra tor conclude d from this evidenc e that while succe ss fee s under section 2A are limit ed to new customers, succe ss fee s un d er section 2B are available whene ver Stonebridg e’s e ffor

ts impact the final pric e of a sale. China Automotive appea led and the parties selec ted an appea l ar b i t rator. The appea l arbitrator first deter

mined that under the parties’ arbitra tion ag ree ment, she wa s re q u i re d to apply de novo revie w to leg al questions, including whether the contra ct is ambig uous, and wh et h er extrinsi c evidenc e should be used to interpre t the contr act. Howeve r, the appea l arbitra tor would apply clea r er ror r eview to f

actua l questions, such as the mea ning of an ambig uous contrac t. Reviewing the trial arbitrator’s ruling , the appea l arbitra tor deter mined that the “conc lusion that the Ag ree ment is ambiguous is base d upon the lang uag e of the contra ct itself, not based upon the considera

tion of extrinsi c evidenc e.” R. 1 7 -6

. Pag eI D #107. Fur thermore , she noted that Michig an law allows the use of extrinsi c evidenc e to prove the exis tence of ambig uity in a contra ct

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so long as it is not used to contra dict the written contra ct. Rev iewing the previous draf ts of the contra ct as well as other extrinsi c evidenc e, the appea l arbitra tor rea ched the same conclusion as the trial arbitra

tor—that Stonebridg e was entitled to succe ss fee s for the Wrang ler parts. Howeve r, the appea l arbitra tor modified the award in one way . Whil e the trial arbitra tor deter m i n ed that future

succe ss fee s would be calc ulated based on the price China Automotive and Chry sler had ag ree d to, the appea l arbitrator deter mined that the parties’ contra ct require d the fee s to be calc ulated based on the price Chry sler actua lly pay s. Thus, under the appea l arbitra tor’s construction, the amount China Automotive must pay

Stonebridg e in future succe ss fee s depends upon pr ice f luctuations. Returning to the district court, Stonebridg e moved for a judgme nt confirming the arbitration

awa rd, while China Automotive moved to vacate the aw ar d

. China Automotive argued that both arbitrators exceede d their power s by improperly considering extrinsi c evidenc e and by not apply ing the introductory para g raph of the contra ct to the entire contra ct. Fur thermore , China Automotive arg ued that the arbitrators failed to apply the plain text of section 2B of the contra ct. Finally , China Automotive argued that the appea l arbitra tor did not actua lly con d u ct d e n o v o revie w of the trial arbitrator’s dec ision. The distr i ct co u rt confirme d the arbitra tion awa rd. The court found it “cle ar that [t he arbitrators] eng ag ed in an interpre tation of the ag ree ment, as opposed to the implementation of their

own brand of industrial justice.” Stonebridge Equity LLC v. China Auto. Sys., Inc. , 09-11541, 2012 WL 899360 at *3 (E.D. Mich. Mar. 16, 2012). Finding that the arbitra tors d i d n o t ex ce ed their authority , the district court denied China Automotive’s motion to vaca te and g rante d Stonebridg e’s

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motion to confirm. At Stonebridg e’s reque st, the district c ourt also added an additional para g raph to the awa

rd. That para g raph require d China Automotive to provide Stonebridg e with monthly documentation on the s elling price, quantit y s h i p p ed , and tot al s ales of the W rang ler parts. R.28, Pag eI D #511. The district court found that this para g raph was nece ssary beca use China Automotive claimed that the price of the parts had decr ease d since the arbitra tion awa rd, thus requiring new fee calc ulations. China Automotive now appea ls. I t arg ues that the a rbitration awa

rd wa s made in manife st disreg ard of the law and did not draw its essenc e from the contra ct. Additionally , it argues that the appea l arbitrator did not revie w the t rial arbitra tor’s leg al conclusion de novo, as require d by the arbitration ag ree ment, and that the district court err ed in adding the documentation para g raph to the

awa rd. Stonebridg e counter s in part by arguing that afte r the Supreme Court’s decision in Hall Street Associates, L.L.C

.. v. Mattel, Inc. , 552 U.S. 576 (2008) , manifest disreg ard can no longe r be a basis for vacating arb i tration awa rds. Since t here was no manifest dis reg ard of the l aw here, we do not

rea ch that issue. The trial arbitrator beg an h i s analy sis by stating that he found “as a matter of law, that the contra ct i s ambig uous.” R.17-4, Pag eI D #79. He cited two rea sons for the contra ct’s ambiguit y . First, he noted that the provision in the introductory para g raph limit ing Stonebridg e’s activity to pursuing new customers and strateg ic partne rs is not car ried forwa

rd to the succe s s fe e s ec t i on. Second, he noted that sections 2A and 2B use differ ent lang uag e. Although he used prior draf ts of

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the contra ct in the same section, he discussed them only af t er d et er m ining that this ambig uity exis ted. Rather than using the extrinsi c evidence to find an ambig uity in the contra ct, as China Automotive argu es h e d i d , the trial arbitra tor deter mined that there was an ambig uity , then used extrinsi c evidenc e to resolve it. “L ooking at rele vant extrinsi c evidenc e to aid in the interpre tation of a contra ct whose lang uag e is ambig uous does not violate th e p arol evidenc e rule.” Klapp v. United Ins. Grp. Agenc

y, Inc. , 663 N.W.2d 447, 454 (Mich. 2003). The trial arbitra tor there fore did not act in manife st disreg ard of Michig an law w hen he c onsidered pr evious draf ts of the contra ct. China Automotive argues that the trial arbitra tor found am b iguities wher e none exis ted. First, it a rg ues that the trial arbitrator could not ha ve found tha t a limitation t o new customers was not c arr ied forwa

rd from the introductory para g raph beca use Michig an law r equire s that the entire contra ct be rea d as a “har

monious whole.” China Br

. at 26. Howeve r, as the appea l arbitra tor noted, the limit ing lang uag e China Automotive relies on actua lly states that the ag ree ment is “desig ned to focus on [S tonebridg e’s] providing [C hina Automotive] with business development service s to help [C hina Automotive] t o identify and pursue new customers and st rate g ic partners.” R.1-2, Pag eI D #6 (empha sis added)

. Be cause the word focus does not n e c e s s a r il y r equire exclusivi ty , the arbitrators did not act in manifest disreg ard of the law in finding that the contra ct did not clea rly state whether the succe ss fee s apply only to new customers. As the appea l arbitra tor stated, “while the ‘foc us’ of t h e Agr eeme nt may be on the pursuit of new customers, this is not the exclusive objective of the contra ct.” R.17-6, Pag eI D #110.

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Stonebridge Equity v. China Automotive Sy stems

China Automotive also argues that the arbitra tors should not have found an ambig uity in the chang e of lang uag e from section 2A to section 2B, claiming that the sections are fac ially para llel and easily rec onciled. Section 2A states that the purcha se order must be “proc ured by , . . . solicited by ,

. . . or pursued by ” Stonebridg e. Meanwhile, section 2B states that the price incr ease must be throug h the “proc ureme nt, solicit ation and/or eff ort of” Stonebridg e. R.1-2, Pag eI D #7. China Automotive’s arg

ument appea

rs to be a disag ree ment as to the interpre tation of the contra ct. China Automotive does not explain why the arbitra tors’ interpre tation is in manifest disreg ard of the law. This c ourt’s revie w of the arbitra tors’ decisions is ve ry narr ow, “one of the narr owest standards of judicial revie w in all of Americ an jurisprudenc e.” Latti mer-Ste vens Co. v. United St eelworkers, Dist. 27, S

u b -D i s t

. 5 , 913 F.2d 1166, 1169 (6th Cir. 1990). I t does not extend to revie wing arg uments over contra ct interpre tation that the arbitra tors have decide d. So long as the arbitrators’ conclusions do not “fly

in the fac e of c lear ly established lega l prec edent,” they stand. See Merrill Lynch, Pierc e, Fe nner & Smith, Inc. v . Jaros , 70 F.3d 418, 421 ( 6th Cir. 1995). China Automotive focuse s on t h e i ntroductory para g raph and sections 2A and 2B of the contra ct t o ar gu e that the arbitrators disreg arde d the contra ct in their ruling s. Howeve r, China Automotive’s arg

uments ag ain show that the arbitra tors mere ly interpre ted the ag ree ment differ ently than China Automotive does. China Automotive must demonstrate more than a disag ree ment over contra ct interpre tation. I t must demonstrate that the arbitra t o rs “e n ter[ed] the forbidden world of ‘ef fec tively dispensing [t heir] own brand of industrial justice.’” See Mich. Family Recs., Inc. v. Serv. Emps. Int’l Union Local 517M , 475 F.3d 746, 752 (6th Cir. 2007) (quoting Major League Baseball

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Stonebridge Equity v. China Automotive Sy stems Players Ass’n v. Garve

y , 532 U.S. 504, 509 (2001))

. So long as “the arbitra tor was ‘eve n arg uably construing or apply ing the contra ct,’” the awa rd cannot be overturne d. Id. (quoting Gar vey , 532 U.S. at 509). The arbitrators construed the contra ct in this case . China Automotive a rg ues that the arbitrators ignor ed the introduct o ry p ara g raph. Howeve r, both arbitra tors considere d the ‘foc us’ lang uag e in the introductory para g raph. They deter mined that that lang uag e did not limit the succe ss fee s Stonebridg e could ear n. There fore , this case is unlike case s wher e the arbitra tor entirely ignor ed a section of a c ontrac t, such as International Union of Electronic, Electrical, Technical, Salar ied, Machine & Furniture W orkers v. Hurd Corp. , 7 F. App’x 329, 335 (6th Cir

. 2 0 0 1 ). He re , the arbitrators found ambig uity i n the contra ct’s use of the word focus and in its use of differ ent lang uag e in the differ ent succe ss-fee sections. They then used previous draf ts of the contra ct as well

as the parties’ actions t o re solve those ambig uities in favor of Stonebridg e. The arbitrators’ interpre tation give s ever

y part of the contra ct full eff ect. L ikewise, the arbitrators did not ignor e the plain lang uag e of the contra ct in deter mining that sections 2A and 2B may apply to differ ent customers. China Automotive’s ar gument is that the words ‘plus’ and ‘also’ in those sections require the conclusion that succe ss pay ments under section 2B are only require d wher e Stonebridg e is rec eiving pay ments under subsection 2A. That is not the only possible interpre tation of that lang uag e. The trial arbitra tor conclude d that the ‘plus’ signifie s that Stonebridg e can obtain succe ss f ees under either or both those sections. The a ppeal a rbitrator found that the word ‘also’ signifie d the same. Both arbitra tors rea ched these conclusions afte r examining section 2C, which uses the same word s but involves fee s that could be ear ned from

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transac tions not cover ed by secti o n s 2A and 2B. Since, “[ i] t is clea r t hat t hese transac tions are in

no way depende nt on the ear ning of a succe ss fee under” 2A, the arbitra tors deter mined that eac h fee section can stand alone. This is a possi ble alternative i nterpre tation of t he co n t ra ct an d not so far afie ld as to ignor e the c ontrac t’s plain languag e. China Automotive nex t arg ues that the a ppeal a rbitrator violate d the ar

bitration ag ree ment by not r eviewing the trial arbitrator’s awa rd de novo. The appea l a

rbitrator deter

mined that, under the arbitra tion ag ree ment, she was require d to revie w the trial arbitra tor’s leg al decisions de novo. These included the trial arbitrator’s decisions that the contra ct was am b iguous and that extrinsi c evidenc e should be used to interpre t it. Howeve r, rathe r than revie wing the contra ct h er s el f t o deter mine whether it is ambig uous, she appea rs to ha ve revie wed the trial arbitra tor’s decision and deter mined that he did not err beca use he did not consider extrinsi c evidenc e until afte r he found the contra ct to be ambig uous. China Automotive contends that this was not de novo revie w of the issue. Although the appea l arbitrator clea rly knew that she was require d to revie w the question of ambig uity de no vo, she did not state that she did so. Howeve r, “[a]rbitrators are not require d to explain their decisions.” Dawahare v. Spence r , 210 F.3d 66 6 , 6 6 9 (6th Cir. 2000). The appea l arbitrator deter

mined that she was to apply de novo revie w and then upheld the trial arbitrator’s d ec i s i o n . There is nothing in the rec ord to sug g est that she acte d contra ry to the arbitrat i o n ag ree ment in doing so. Finally , China Automotive argues that the district court should not have included a para g raph in the awa

rd order ing China Au t o m o t i v e t o provide documentation on the selling price , quantity

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Stonebridge Equity v. China Automotive Sy stems shipped, and tot al s ales of the W rang ler parts. This para g raph was not in the arbitra tors’ awards. The district cour

t included this para g raph, at Stonebridge ’s re quest, “so that the pa rties ar e able to deter mine a more acc urate amount” for the awa rd. Stonebridge , 2012 WL 899360 at *4. The arbitrators’ awa

rds wer e imperfe ct in matter of form not aff ecting the merits of the controve rsy in that they pro v i d ed n o method for Stonebridg e to deter mine whether China Automotive is in compliance with the awa rds. I n such situations, the Fe dera l Arbitration Act g ives district courts the ability to “modify and corr ect the awa rd, so as t o eff

ect the intent there of and promote j ustice between the parties.” 9 U.S.C. § 11. The trial arbi t ra t o r i n itially deter mined that China Automotive owes Stonebridg e succe ss fee s based on the orig inal price Chry sler ag ree d to pay for the parts

. Howeve r, the appea l arbitra tor modified the awa rd to require the succe ss fee s to be based on the price Chry s l er ac t u all y pay s for the parts. Soon afte r, China Automotive notified Stonebridg e that Chry sler was decr easing the par t price by two perc ent. I n light of this impending decr ease , Stonebridg e reque sted the documentation so that it would hav e t h e ability to monitor whether it was rec eiving the fee s the arbitra to rs h ad d et ermined it was owed. Be cause the arbitrators’ awards left Stonebridg e rely ing entirely on China Automotive to calcula te the succ ess fe es ac cu rate ly , the awa

rds wer e imperfe ct. Acc ording ly , the district court was acting within t h e para meters provided by the Fe dera l Arbitration Act in modify ing the awa rd to allow Stonebridg e to know whethe r China Automotive was in complianc e. The district court has the power to enfor ce the arbitra tors’ awa rd and can take some actions consistent with a

nd not a ffe cting the awa

rd to do so. Thus, in Island Creek Coal Sales Co. v. City

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Stonebridge Equity v. China Automotive Sy stems of Gainesville, Florida , this circ uit aff irmed a district court order forc ing the City of Gainesville to pay I sland Creek for past co al d el i verie s and to pay for coal s hipments on a scheduled basis. 764 F.2d 437, 440 (6th Ci r. 1 9 8 5 ). Gainesvill e had argued that the arbitrators’ order in that case only require d it to acc ept future shipments f rom I sland Creek, thus ma king the district court’s action an improper modification. This court disag ree d, finding that the di s t ri ct co urt’s order “is an eff ort

mere ly to require that Gainesv i l le perf orm as the arbitra tors had order ed it” and that the “district court’s order in dispute only serve s to confirm and enfor ce t h e arbitrator s’ awa rd in the fac e of obdurate opposition by Gainesville.” Id. at 440–41 (empha sis in orig inal). Acc ording ly , the district court had au t h o ri ty under 9 U.S.C. § 11 to act to enfor ce the clea r meaning and intent of the arbitrators’ order

. Although the district court’s order in this case appea rs to g o further than the one in Island Creek , it was based on a simil ar principle of ensuri n g the enfor ceme nt of an awa rd deter mined by arbitra tors. The arbitrators did not act in manifest disreg ard of the law and interpre ted the contra ct. The district court’s addition to the arbitrators’ award was a minor modifica tion in accor dance with the Fe dera l Arbitration Act. The ref ore, the district court’s judg ment is AF F IRMED

.

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