IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

INTERDIGITAL COMMUNICATIONS :

CORP. ET AL., :

: CIVIL ACTION

Plaintiffs, : NO. 03-6082

:

v. :

:

FEDERAL INSURANCE COMPANY, :

:

Defendant. :

M E M O R A N D U M

EDUARDO C. ROBRENO, J. March 24, 2008

The issue presented to the Court is whether an

arbitrator exceeded her powers under the Pennsylvania Uniform

Arbitration Act (“PUAA”) by fashioning an award pursuant to a

term of the agreement between the parties that the plaintiffs now

claim was not properly subject to arbitration. The Court holds

that the arbitrator did not exceed her powers under the PUAA in

this case; the arbitration award will be confirmed.

I. BACKGROUND

Plaintiffs InterDigital Communications Corporation and

InterDigital Technology Corporation (collectively,

“InterDigital”) were insured by Defendant Federal Insurance

Company (“Federal”). The insured, InterDigital, agreed to

reimburse the insurer, Federal, for litigation expenses paid by

Federal to defend InterDigital in its litigation with Ericsson 

Case 2:03-cv-06082-ER Document 54 Filed 03/25/08 Page 1 of 24
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Radio Systems and Ericsson GE Mobile Communications, Inc.

(“Reimbursement Agreement”). Section 6 provided the method for

determining the amount of Federal’s reimbursement. Section 6(c)

provides, in part, that “[i]f the Insureds [InterDigital] and

Federal cannot agree on a resolution, the matter will be

submitted to arbitration, pursuant to Pennsylvania’s Uniform

Arbitration Act, before a single arbitrator approved by Federal

and the Insureds.”

InterDigital brought this action seeking a declaratory

judgment that the Reimbursement Agreement was unenforceable for

lack of consideration. InterDigital contended that the

Reimbursement Agreement lacked consideration because, at the time

the Agreement was entered into, Federal had a preexisting legal

duty to provide such a defense under the insurance contract

between the parties.

In a memorandum dated October 3, 2005, this Court held 

that, even assuming the Reimbursement Agreement was not supported

by consideration, it was enforceable under Pennsylvania’s Uniform

Written Obligations Act (“UWOA”), 33 Pa. Stat. Ann. § 6 (2008),

because section 13 of the agreement constituted an “additional

express statement” of the intent of the parties to be bound. See

InterDigital Commc’ns Corp. v. Federal Ins. Co., 392 F. Supp. 2d

707, 713 (E.D. Pa. 2005) (Robreno, J.). The Court then compelled

arbitration and stayed the case pending the outcome of the

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Diane M. Welsh is a retired magistrate judge who served 1

in the Eastern District of Pennsylvania. She was appointed by

the court from a list of potential arbitrators submitted by the

parties.

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arbitration.

The case proceeded to arbitration and on May 22, 2007,

Judge Welsh, acting as arbitrator in the case, issued a Final 1

Arbitration Award that decided Federal’s claims in favor of

Federal and against InterDigital. Federal was awarded

$19,675,656.00. In addition to this amount, Federal is to

receive 10% of any additional payments that InterDigital receives

as a result of an ongoing audit of Sony Ericsson’s payment

obligations to InterDigital.

Federal has now returned to this Court, moving that the

stay be lifted and the arbitration award confirmed. InterDigital

has filed a cross-motion to vacate a portion of the arbitration

award and to stay the confirmation of the remaining portion of

the award pending adjudication of InterDigital’s recoupment

defense. InterDigital contends that a portion of the award

should be vacated because Judge Welsh, the arbitrator, exceeded

her powers when fashioning an award pursuant to section 6(a) of

the Reimbursement Agreement, which, according to InterDigital,

was not subject to arbitration and therefore was not properly

before Judge Welsh.

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II. DISCUSSION

A. Choice of Law

A federal court sitting in diversity, as in this case, 

applies state substantive law. Erie R.R. v. Tompkins, 304 U.S.

64, 78-80 (1938). However, “when construing or enforcing an

arbitration clause, even a federal court sitting in diversity

might be obliged to apply federal law if the matter falls within

the ambit of the Federal Arbitration Act [(“FAA”)], 9 U.S.C. §§

1-16.” State Farm Mut. Auto. Ins. Co. v. Coviello, 233 F.3d 710,

713 n.1 (3d Cir. 2000). Generally, the FAA governs the

construction and enforcement of an arbitration agreement if the

agreement is connected to a transaction involving interstate

commerce. Id. (citing PaineWebber Inc. v. Hartmann, 921 F.2d

507, 510 (3d Cir. 1990)). Parties may avoid the application of

the FAA by specifying that an agreement is governed by a

particular state’s law. Roadway Package Sys., Inc. v. Kayser,

257 F.3d 287, 288 (3d Cir. 2001). 

InterDigital and Federal agreed that the construction

of the Reimbursement Agreement would be governed by Pennsylvania

substantive law. Reimbursement Agreement § 18. Moreover, the

parties specified that the arbitration called for in Section 6

would be pursuant to the Pennsylvania Uniform Arbitration Act

(“PUAA”). Id. § 6(c)(ii). Therefore, the Court applies

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The Court draws on cases applying the PUAA and the FAA 2

because the statutes are virtually identical with respect to

their provisions regarding vacating arbitration awards. See

Roadway, 257 F.3d at 292 n.2 (noting that standards for vacatur

under the PUAA “parallel almost perfectly those of the FAA”);

compare 42 Pa. Cons. Stat. Ann. § 7314(a) (governing vacatur in

cases of statutory arbitration) with 9 U.S.C. § 10(a) (providing

the FAA’s vacatur standard).

The PUAA provides for the confirmation of arbitration 3

awards. 

On application of a party, the court shall confirm

an award, unless within the time limits imposed by

this subchapter, grounds are urged for vacating or

modifying or correcting the award, in which case

the court shall proceed as provided in section 7314

(relating to vacating award by court) or section

7315 (relating to modification or correction of

award by court).

42 Pa. Cons. Stat. Ann. § 7313.

Section 6(a) of the Reimbursement Agreement provides: 4

In the event there is a court award, or a settlement with

Ericsson, and there is not a separate amount reimbursing

litigation expenses that results in complete

reimbursement to Federal for all of the litigation

expenses it paid to or on behalf of [InterDigital],

[InterDigital] will pay to Federal, upon receipt of sums

paid by Ericsson, the following:

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Pennsylvania law and the PUAA to the instant dispute. 

2

B. Confirmation of Arbitration Award

Federal moves for the confirmation of the arbitration

award. In opposition, InterDigital moves the Court to vacate a 3

portion of the award. InterDigital argues that Judge Welsh

exceeded the scope of her authority by fashioning an award

pursuant to Sections 6(a) and 6(c) of the Reimbursement 4 5

Case 2:03-cv-06082-ER Document 54 Filed 03/25/08 Page 5 of 24
(1). 9% of the first $50 million of the agreedupon settlement; and

(2). 10% of everything above $50 million of the

agreed-upon settlement for the Patents and

Claims in Suit.

Reimbursement Agreement at 3, InterDigital’s Opposition and Mot.

to Vacate (doc. no. 43), ex. G (“R. Agmt.”).

Section 6(c)(ii) of the Reimbursement Agreement 5

provides:

The 70% minimum set forth in c(i), above, and the 9%

and 10% rates of reimbursement set forth in a(1) and

a(2), above, will apply to all up-front payments and

all recurring revenue payments by Ericsson (including,

but not limited to, royalties and/or licensing fees),

but will not apply to payments for engineering or other

services, except as follows. If it is reasonably

projected that Federal will not be fully reimbursed

within four (4) years from the date of the settlement

based on the foregoing payments, Federal will also

receive 1.5% of all payments made by Ericsson for

engineering services. If the combination of all of the

foregoing is not reasonably projected to fully

reimburse Federal within those four (4) years, Federal

may, at its option, seek additional reimbursement from

the Insureds during which time a representative of the

Insureds and Federal, each of which having the

authority to bind their respective entities, shall

meet. If the Insureds and Federal cannot agree on a

resolution, the matter will be submitted to

arbitration, pursuant to Pennsylvania’s Uniform

Arbitration Act, before a single arbitrator approved by

Federal and the Insureds [InterDigital], for a

determination of the additional value to the Insureds

[InterDigital] and its affiliates of the settlement

(beyond the cash payments related to the Patents and

Claims in Suit and for engineering services) and a

determination of the payments to be made to Federal

based on such additional value of the settlement

agreement, consistent with the reimbursement provisions

set forth above. The arbitrator shall be free to set

the overall percentage of such agreement value to

whatever value is deemed appropriate. However, in no

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Case 2:03-cv-06082-ER Document 54 Filed 03/25/08 Page 6 of 24
event will the Insureds [InterDigital] be required to

reimburse Federal in an amount greater than the total

amount realized by the Insureds [InterDigital] from

Ericsson and in no event will the reimbursement to

Federal be less than the reimbursement set forth in

sub-paragraphs 6(a) and c(i) above.

R. Agmt. (emphasis added).

Pennsylvania provides for two different types of 6

arbitration, statutory or common law, with accompanying

frameworks for the review of challenges to arbitration awards. 

42 Pa. C.S.A. § 7314, governing statutory arbitration, applies in

this case because the arbitration clause specifically states that

arbitration will be pursuant to the PUAA. See 42 P.A. C.S.A. §

7302 (providing that arbitration conducted pursuant to a written

agreement that explicitly references the PUAA will be classified

as a statutory arbitration); cf. Runewicz v. Keystone Ins. Co.,

383 A.2d 189, 191 (“The Arbitration Act does not apply unless it

is expressly or impliedly provided for by the parties and its

procedures are followed.”).

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Agreement, rather than pursuant only to Section 6(c). 

InterDigital attacks Judge Welsh’s decision that both 6(a) and

6(c) had been submitted to arbitration and that 6(c) required an

interpretation of 6(a). Thus, InterDigital moves that the

portion of the award that is based on Section 6(a)

($14,675,656.00) be vacated.

The sole grounds for denying confirmation of an

arbitration award under the PUAA are: (1) there was fraud,

misconduct, corruption, or partiality by an arbitrator; (2) the

arbitrator exceeded her powers; (3) the arbitrator refused to

hear material evidence; or (4) there was no agreement to

arbitrate. 42 Pa. Cons. Stat. Ann. § 7314(a)(1) ; Hartford Ins. 6

Co. v. O’Mara, 907 A.2d 589, 593-94 (Pa. Super. 2006) (holding

Case 2:03-cv-06082-ER Document 54 Filed 03/25/08 Page 7 of 24
“Limited judicial review is necessary to encourage the 7

use of arbitration as an alternative to formal litigation . . . .

A policy favoring arbitration would mean little, of course, if

arbitration were merely the prologue to prolonged litigation.” 

357 F.3d 272, 289 (3d Cir. 2004). Thus, numerous courts have

recognized the extreme deference accorded to arbitration

decisions by reviewing courts. E.g., Mut. Fire, Marine & Inland

Ins. Co. v. Norad Reinsurance Co., 868 F.2d 52, 56 (3d Cir. 1989)

(reviewing arbitrator’s decision to see if it “can be rationally

derived either from the agreement between the parties or from the

parties’ submissions to the arbitrators”); Prostyakov v. Masco

Corp., 513 F.3d 716, 723 (7th Cir. 2008) (describing judicial

review for arbitrator’s exceeding powers as “extremely limited”:

court “will not set aside an arbitral award so long as the

arbitrator interpreted the parties’ agreement at all”); Rich v.

Spartis, -- F.3d --, 2008 WL 343330, at *6 (2d Cir. Feb. 8, 2008)

(“an arbitration award should be enforced, despite a court’s

disagreement with it on the merits, if there is a barely

colorable justification for the outcome reached”).

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that section 7314 provides the only grounds for vacating an

arbitration award under PUAA). Because the only ground

implicated in InterDigital’s motion is the second, the Court

considers only whether Judge Welsh exceeded her power as

arbitrator when she fashioned the award. 

“The determination of whether an arbitrator ‘exceeded

[her] proper powers’ depends upon whether the arbitrator decided

a dispute over which [s]he had no jurisdiction, or granted an

award which is prohibited by law.” Leechburg Area Sch. Dist. v.

Leechburg Educ. Assn., 380 A.2d 1203, 1205 (Pa. 1977). In

general, judicial review of arbitration awards is “extremely

deferential.” Metromedia Energy, Inc. v. Enserch Energy Servs., 7

Inc., 409 F.3d 574, 578 (3d Cir. 2005). Moreover, “[a]rbitrators

have the authority in the first instance to interpret the scope

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of the parties’ submissions in order to identify the issues that

the parties intended to arbitrate.” Id. at 579. Courts

reviewing an arbitrator’s determination of the scope of the

parties’ submissions look to the record “as a whole” to determine

whether the arbitrator “could conclude [she] was empowered to

address” a particular issue. Id. at 581-82.

The Court will confirm Judge Welsh’s opinion for three

reasons: first, the record as a whole supports Judge Welsh’s

conclusion that the parties had submitted to her the issue of the

interpretation of section 6(a); second, the Court’s independent

review of the language of the Reimbursement Agreement supports

Judge Welsh’s determination of the scope of the arbitration;

third, even if Judge Welsh had lacked the authority to base the

award on section 6(a), Judge Welsh stated in an alternative

holding that the full amount of the arbitration award can be

supported by her interpretation of 6(c).

1. The record as a whole

“[A]rbitration is a creature of contract . . . . [and]

‘an arbitrator has the authority to decide only the issues

actually submitted’ by the parties.” Metromedia, 409 F.3d at

578-79 (quoting Matteson v. Ryder Sys., Inc., 99 F.3d 108, 112-13

(3d Cir. 1996)). “[I]t is the responsibility of the arbitrator

in the first instance to interpret the scope of the parties’

submission, but it is within the courts’ province to review an

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The Metromedia analysis is a post-arbitration review of 8

the arbitrator’s determination of the scope of the parties’

submissions. This analysis differs from the analysis described

in AT&T Technologies, Inc. v. Commc’ns Workers of America, which

is a pre-arbitration determination of whether a dispute falls

within the scope of an arbitration agreement. See 475 U.S. 643

(1986). In AT&T, the Court considered whether to order

arbitration of a dispute pursuant to a collective-bargaining

agreement. Both AT&T and Metromedia apply the fundamental

principle that “a party cannot be required to submit to

arbitration any dispute which he has not agreed so to submit.”

Id. at 648 (internal quotation omitted). However, AT&T looks to

whether an arbitration agreement “creates a duty for the parties

to arbitrate the particular grievance,” a question that “is

undeniably an issue for judicial determination.” Id. at 649. In

this case, it is undisputed that the parties entered into a valid

agreement to arbitrate. The Court has already ruled that the

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arbitrator’s interpretation.” Id. (internal quotation omitted);

Commonwealth, Office of Admin. v. Commonwealth, Pa. Labor

Relations Bd., 598 A.2d 1274, 1277 (Pa. 1991) (“existing

Pennsylvania law and policy . . . requires that procedural

questions and factual questions regarding the scope of matters to

be resolved by arbitration . . . be determined by the

arbitrator”). “[R]eview of the arbitrator’s interpretation of

the scope of a submission is highly deferential,” however, “the

courts are neither entitled nor encouraged simply to ‘rubber

stamp’ the interpretations and decisions of arbitrators.” 

Metromedia, 409 F.3d at 578-79.

In Metromedia, the Third Circuit was asked to review an

arbitration award because of a party’s claim that the arbitration

panel had exceeded the scope of its authority by deciding a

particular issue. Id. at 575. The Third Circuit considered 8

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dispute over reimbursement is arbitrable under the Reimbursement

Agreement and neither party now contests that section 6(c) was

properly before Judge Welsh during the arbitration. Because it

has already been determined that the agreement created a duty to

arbitrate, the question is only whether Judge Welsh correctly

decided the scope of the issue submitted for arbitration by the

parties. Although the initial question of arbitrability is for

the court to determine, the subsequent question of the scope of

the parties’ submissions for arbitration is for the arbitrator to

decide in the first instance. Metromedia, 409 F.3d at 579. The

arbitrator’s decision as to scope receives great deference from

the reviewing court. Id. 

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whether “the record as a whole . . . [suggested that] the

arbitration panel reasonably believed the parties had submitted

to it [the issue].” Id. at 581. The court asked, first, whether

the parties had submitted to the arbitrators “a single

comprehensive document listing the precise issues that the

arbitrators were being asked to resolve.” Id. Because they had

not submitted such a document, the court continued to consider

additional factors such as whether the issue was listed in the

Statement of Claims submitted to the arbitrators, whether

testimony concerning the issue was introduced during the

arbitration hearing, and whether the issue was addressed in the

pre- and post-arbitration briefs of the parties. Id. at 581-83. 

“[A]t the time the arbitration panel crafted its written opinion

in support of its award, it was faced with a record in which one

party had repeatedly presented evidence and arguments concerning

the [issue] . . . and the other party had never objected to these

arguments on the ground that this issue was beyond the scope of

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Given the absence of any objection by InterDigital, the 9

Court noted in its opinion that the parties “agreed to arbitrate

disputes concerning the amount to be reimbursed to Federal by

InterDigital,” InterDigital Commc’ns Corp., 392 F. Supp. 2d at

710, and did not draw any distinction between disputes under 6(a)

and disputes under 6(c).

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the panel’s authority.” Id. at 583. Therefore, the Third

Circuit held that the arbitration panel had reasonably concluded

that it had the power to decide the issue.

The situation presented in this case is similar to that

in Metromedia in at least three ways. First, InterDigital did

not object to the arbitrability of section 6(a) in its initial

opposition to the motion to compel arbitration filed by Federal.

In fact, in its brief opposing the motion to compel, InterDigital

objected to arbitration on the ground of timeliness, but never

argued that arbitration of section 6(a) was inappropriate under

the arbitration agreement.9

Second, InterDigital did not object to the

arbitrability of 6(a) in its initial submissions to Judge Welsh,

even though it was on notice that Federal sought the arbitration

of section 6(a). In its Demand for Arbitration, Federal stated

that it sought “arbitration of all disputes and all of

[Federal’s] lawful claims and demands under and pursuant to

Paragraphs 6(a)(1) and (2), 6(c)(i) and (ii), and any other

applicable terms of the Agreement.” Ex. A, Boehning Aff. II

(doc. no. 44). It reiterated this demand in its Notice of Claims

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and Remedies Sought. Notice of Claims ¶ II.A.9, Ex. C, Boehning

Aff. II. 

Instead of objecting to the arbitrability of 6(a),

InterDigital’s response to Federal’s notice addressed the merits

of Federal’s arguments regarding sections 6(a) and 6(c). 

Response to Notice of Claims and Remedies Sought, Ex. D, Boehning

Aff. II. The response quoted section 6(a) extensively. E.g.,

id. ¶¶ III.A.1, III.C.1. InterDigital did raise some objections

to arbitration: the response objected to arbitration on the

grounds that a contractual condition precedent to arbitration was

a meeting between the parties’ representatives that had not yet

taken place. Id. ¶ IV. However, the response never once

suggested that arbitration was inappropriate because section 6(a)

was not subject to arbitration under the terms of the

Reimbursement Agreement.

Third and finally, when InterDigital did object to the

arbitrability of 6(a), it still clearly manifested its intention

to submit the issue of arbitrability to Judge Welsh. On the

first day of the arbitration hearing, counsel for both parties

addressed the question of whether 6(a) was arbitrable under the

terms of the Reimbursement Agreement. Mr. Mathes, counsel for

InterDigital, argued that Judge Welsh ought not to address the

question of arbitrability until “after [she] ha[d] heard the

evidence and heard the witnesses and [was] prepared to determine

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InterDigital now objects to the arbitration award 10

because it believes that Judge Welsh misinterpreted the evidence

and reached the wrong conclusion about the arbitrability of 6(a). 

InterDigital “attempt[s] . . . to characterize this as a

situation where arbitrators exceeded their powers.” Houston v.

Nat’l Mut. Ins. Co., 518 A.2d 311, 313 (Pa. Super. 1986). 

However, “the essence of [its] claim is that the arbitrator[] did

not interpret the [Reimbursement Agreement] correctly. The

distinction is critical.” Id.

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[the question of arbitrability].” Arb. Hr’g Tr. 13:15-17, March

14, 2007, Ex. E, Boehning Aff. Later, Mathes repeated “that the

issue about what was arbitrable under 6(a) and 6(c) . . . is an

issue that is best addressed after you, [Judge Welsh], have heard

the testimony.” Id. 15:23-16:8. 

Mr. Mathes’s statements demonstrate that, although

InterDigital argued at the arbitration that 6(a) was not

arbitrable, InterDigital’s position was that the question of

whether 6(a) was arbitrable was a question that itself was

subject to arbitration. In other words, the question of whether

or not 6(a) could be arbitrated was to be answered by Judge Welsh

based on the evidence presented at the arbitration hearing.10

InterDigital certainly did not argue that the arbitration should

be stayed so that the court could determine whether or not 6(a)

was arbitrable. Based on the written and oral submissions of

InterDigital, Judge Welsh reasonably concluded that the

arbitrability of 6(a) was a question within the scope of the

issues submitted by the parties for arbitration. This conclusion

is entitled to significant deference, Metromedia, 409 F.3d at

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579; nothing in the record suggests that it should be overturned.

2. Scope of the Arbitration

Putting aside InterDigital’s conduct during the

arbitration, the Court examines the language of the Reimbursement

Agreement and concludes that the Agreement supports Judge Welsh’s

conclusion that 6(a) is arbitrable.

The language of the Reimbursement Agreement shows that,

at the time of drafting, the parties intended to submit 6(a) to

arbitration. Although it is true that section 6(a) itself does

not mention arbitration, the provisions of 6(a) are explicitly

incorporated into 6(c)(ii) by its reference to “the 9% and 10%

rates of reimbursement set forth in a(1) and a(2), above.” 6(c)

further references 6(a) by providing that 

“the matter will be submitted to

arbitration . . . for a determination of

the additional value to the Insured . . .

of the settlement . . . and a

determination of the payments to be made

to Federal based on such additional value

of the settlement agreement, consistent

with the reimbursement provisions set

forth above. . . . [I]n no event will the

reimbursement to Federal be less than the

reimbursement set forth in sub-paragraphs

6(a) and c(i) above.”

By including such a reference, the parties must have

contemplated that any interpretation of section 6(c) would

necessarily lead to an interpretation of section 6(a). Without

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interpreting 6(a), 6(c) would be left without substance. Thus,

to fashion an award “consistent with the reimbursement provisions

set forth above” and to ensure that the reimbursement was not

less than “the reimbursement set forth in sub-paragraph[] 6(a),”

Judge Welsh could not avoid interpreting section 6(a). See

McAlister v. Sentry Ins. Co., 958 F.2d 550, 553 (3d Cir. 1992)

(“arbitrators normally have authority to decide all matters

necessary to dispose of a claim”) (citing Brennan v. General

Accident Fire and Life Assurance Corp., 524 Pa. 542, 548-49

(1990)).

3. Judge Welsh’s alternative holding

Even if the Court disagreed with Judge Welsh’s

conclusion that she had the authority to base the arbitration

award on 6(a), the award would still be upheld based on Judge

Welsh’s alternative holding that the whole award could be based

on 6(c). In her decision, Judge Welsh concluded that the amount

to be awarded to Federal pursuant to section 6(a) was arbitrable

and she awarded $14,958,298 to Federal pursuant to 6(a). 

However, she stated that her “alternative finding” was that the

same sum could be awarded “under 6(c).” Arb. Hr’g Tr. 984:21. 

Because 6(c) incorporates the formula set forth in 6(a), Judge

Welsh stated that, if she had not based part of the award on

section 6(a), she would have “appl[ied] the percentages from

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6(a)” in calculating the award under 6(c) and would have awarded

Federal the same sum of money. Id. 984:22-23.

The parties do not dispute that the amount to be

awarded Federal under section 6(c) was subject to arbitration. 

Under Judge Welsh’s alternative holding, the entire award can be

justified by Judge Welsh’s interpretation of section 6(c). Any

challenge to the alternative holding would simply be an argument

that Judge Welsh erred in interpreting 6(c). “[M]erely

misinterpreting a clause in an agreement does not . . . rise to

the level of exceeding arbitrators’ powers.” Aetna Cas. & Sur.

Co. v. Deitrich, 803 F. Supp. 1032, 1038 (M.D. Pa. 1992); id.

(“the arbitrator is the final judge of both law and fact, and so

mistake of either does not require vacating the judgment”)

(citing Elkins & Co. v. Suplee, 538 A.2d 883, 806 (Pa. Super. Ct.

1988); Hassler v. Columbia Gas Transmission Corp., 464 A.2d 1354,

1356 (Pa. Super. Ct. 1983)). 

“The question for . . . [a] court asked to set aside an

arbitration award . . . is not whether the arbitrator . . . erred

in interpreting the contract; it is not whether [she] clearly

erred in interpreting the contract; it is not whether [she]

grossly erred in interpreting the contract; it is whether [she]

interpreted the contract.” Prostyakov v. Masco Corp., 513 F.3d

716, 726 (7th Cir. 2008). Any challenge to Judge Welsh’s

interpretation of 6(c) in the alternative holding must fail

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because the challenge would claim only that Judge Welsh

misinterpreted the agreement, which does not rise to the level of

exceeding an arbitrator’s power. Aetna, 803 F. Supp. at 1038. 

Even if the decision were incorrect, as claimed by InterDigital,

the arbitration award would be confirmed on the basis of Judge

Welsh’s alternative holding.

* * * * * *

InterDigital’s motion to vacate the arbitration award

on the grounds that Judge Welsh exceeded the scope of her

authority will be denied. The record as a whole reveals that the

parties submitted the interpretation of 6(a) to Judge Welsh

during the arbitration. Moreover, the language of the

arbitration agreement supports the conclusion that 6(a) was

within the scope of the arbitration. Finally, even if 6(a) were

not within the scope of the arbitration, Judge Welsh’s

alternative holding–that the entire award could be based on

Section 6(c)–would be confirmed.

C. InterDigital’s Recoupment Defense

InterDigital also argues that it is entitled to

withhold at least some portion of the award under the doctrine of

equitable recoupment. It requests that the Court stay the

confirmation of the award pending the adjudication of its

recoupment defense.

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Equitable recoupment is the common law right of a

defendant to have the plaintiff’s monetary claim reduced by

reason of some claim the defendant has against plaintiff arising

out of the very contract giving rise to plaintiff’s claim. See 6

Wright & Miller, Federal Practice and Procedure Civil 2d § 1401

(1990). Pennsylvania has adopted the common law doctrine of

equitable recoupment, which allows “a defendant to reduce the

award obtained by a plaintiff if the defendant has a counterclaim

that relates to the particular transaction that is the subject of

the litigation commenced by plaintiff, notwithstanding the fact

that the defendant failed to assert his counterclaim before the

statute of limitations had run.” Stulz v. Boswell, 453 A.2d

1006, 1009 (Pa. Super. 1982).

InterDigital argues that it is entitled to recoupment

because Federal acted in bad faith and breached its contractual

duty to InterDigital by withholding payment of attorneys’ fees in

the litigation between InterDigital and Ericsson. InterDigital

contends that Federal, unhappy with the large amount of

attorney’s fees it was expending in the defense of the Ericsson

litigation and knowing that it would be extremely difficult for

InterDigital to defend itself without Federal paying its

attorney’s fees, coerced InterDigital into the Reimbursement

Agreement. InterDigital argues that, to carry out this coercion,

Federal stopped payments to InterDigital for six months until

Case 2:03-cv-06082-ER Document 54 Filed 03/25/08 Page 19 of 24
-20-

InterDigital agreed to enter into the Reimbursement Agreement.

InterDigital further argues that Federal breached its

fiduciary obligation to its insured by permitting the claims

adjuster working on InterDigital’s claim to negotiate the

Reimbursement Agreement while also working on the claim. This,

they contend, put the claims adjuster in the conflicting

positions of fiduciary and adversary of InterDigital. 

InterDigital asserts that this breach of fiduciary duty, plus the

breach of contractual duty described above, provides InterDigital

with a defense to Federal’s claim for reimbursement.

A new defense, interjected at this late stage, is not a

ground for relief from the arbitration award under the PUAA. See

42 Pa. Cons. Stat. Ann. § 7314 (giving the only grounds for

modifying or vacating the award in a statutory arbitration). 

Moreover, while recoupment as a defense is not subject to the

statute of limitations, see Kline v. Blue Shield of Pa., 556 A.2d

1365, 1368-69 (Pa. Super. 1989), it is nevertheless an

affirmative defense that, if not timely raised, may be waived. 

See In re Trans World Airlines, Inc., 322 F.3d 283, 289 (3d Cir.

2003) (holding equitable recoupment is affirmative defense);

Williams v. Runyon, 130 F.3d 568, 573-74 (3d Cir. 1997) (holding

affirmative defense is waived if party waits until after trial to

raise it); Int’l Molders & Allied Workers Union, Local No. 1 v.

Eastern Non-Ferrous Foundry, Inc., Civ. A. No. 85-1054, 1985 WL

Case 2:03-cv-06082-ER Document 54 Filed 03/25/08 Page 20 of 24
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4966, at *1 (E.D. Pa. Dec. 17, 1985) (“In an action to enforce or

vacate an arbitration award, a party may not assert a defense on

the merits that was not submitted to the arbitrator.”) (citing

United Steelworkers of Am. v. American Smelting and Ref. Co., 648

F.2d 863 (3rd Cir. 1981)). 

The question of whether the defense has been waived

implicates the question of the scope of the arbitrable dispute

and, like earlier questions of scope, is governed by the PUAA. 

If Interdigital’s recoupment defense formed part of the

arbitrable controversy, it should have been submitted to the

arbitrator. 

Defenses relating to the merits of the claim are part

of the arbitrable controversy and must be decided by the

arbitrator. See Messa v. State Farm Ins. Co., 641 A.2d 1167,

1170 (Pa. Super. 1994) (holding that, once the court determines

that valid arbitration agreement exists, “it is for the

arbitrators to rule on the merits of the parties’ claims and

defenses.”); Nat’l Union Fire Ins. Co. v. Belco Petroleum Corp.,

88 F.3d 129, 135-36 (2d Cir. 1996) (holding that a legal defense

to a claim “is itself a component of the dispute on the merits”

and should be resolved by the arbitrator when the arbitrator

resolves the claim); Chiron Corp. v. Ortho Diagnostic Sys., Inc.,

207 F.3d 1126, 1132 (9th Cir. 2000); Port Erie Plastics, Inc. v.

Uptown Nails, LLC, 350 F. Supp. 2d 659, 665 (W.D. Pa. 2004). 

Case 2:03-cv-06082-ER Document 54 Filed 03/25/08 Page 21 of 24
Finally, even if InterDigital’s defense had not been 11

waived, it would be rejected because the Court has already

dismissed InterDigital’s claims of bad faith and breach of

contract. InterDigital Commc’ns, 392 F. Supp. 2d at 709 n.1. 

Under the “law of the case” doctrine, courts refrain from

revisiting issues that were decided earlier in the case in the

absence of extraordinary circumstances, none of which are present

here. See Public Interest Research Group of N.J. v. Magnesium

Elektron, Inc., 123 F.3d 111, 166 (3d Cir. 1997). The Court’s

prior opinion does not specifically address InterDigital’s

argument regarding the role of the claims adjuster, however, in

any event, InterDigital waived this argument by failing to raise

it before Judge Welsh. See supra. 

Because InterDigital’s defense of equitable recoupment is tied

directly to the merits of Federal’s claim and to the validity of

the Reimbursement Agreement, even assuming InterDigital has a

valid defense in the doctrine of equitable recoupment, it has

waived it by failing to timely raise it before the arbitrator.11

V. CONCLUSION

For the aforementioned reasons, Federal’s motion to

confirm the arbitration award will be granted and InterDigital’s

motion to stay confirmation of the award will be denied.

An appropriate order follows.

Case 2:03-cv-06082-ER Document 54 Filed 03/25/08 Page 22 of 24
In a letter dated June 6, 2007, Federal’s counsel 12

advised the Court that the parties disagreed as to the propriety

of maintaining the confidentiality of the arbitration

proceedings. The letter stated that the parties intended to

resolve the dispute “by seeking a ruling on the issue from Judge

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

INTERDIGITAL COMMUNICATIONS : CIVIL ACTION

CORP. ET AL., : NO. 03-6082

:

Plaintiff, :

:

v. :

:

FEDERAL INSURANCE COMPANY, :

:

Defendant. :

O R D E R

AND NOW, this 20th day of March 2008, in accordance

with the Memorandum issued on this date, it is hereby ORDERED

that Federal’s Motion to Lift the Stay and to Confirm the

Arbitration Award (doc. no. 39) is GRANTED.

It is further ORDERED that InterDigital’s Cross-Motion

to Vacate the Arbitration Award and to Stay Confirmation of the

Award Pending Adjudication of InterDigital’s Recoupment Defense

(doc. no. 43) is DENIED.

It is further ORDERED that InterDigital’s

unopposed motion to maintain the confidentiality of the

arbitration proceedings (doc. no. 49) is GRANTED.

12

Case 2:03-cv-06082-ER Document 54 Filed 03/25/08 Page 23 of 24
Welsh,” the court-appointed arbitrator in this case. Judge Welsh

ruled that the proceedings should remain confidential. Ex. B,

Boehning Aff. (doc. no. 44). No challenge to Judge Welsh’s

decision has been filed; therefore, the Court will grant

InterDigital’s motion to maintain confidentiality.

AND IT IS SO ORDERED.

 S/Eduardo C. Robreno 

 EDUARDO C. ROBRENO, J.

Case 2:03-cv-06082-ER Document 54 Filed 03/25/08 Page 24 of 24