2009 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit 10-2-2009 

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Sept ember8, 2009 B e f o re : S C IR IC A , C hi ef

Judge , R E N D E L L a n d A L D IS E R T , C i r cui tJudges . ( Fi l ed: O ct ober2, 2009) OPI NI ON O F THE COURT S C IR IC A , C hi ef

Judge . R e m o te S o lu tio n C o ., L td . ap p e a ls f ro m th e D istric t C o u rt’s d e n ial o f its m o tio n to vaca t e orm odi fyan arbi tr al aw ar d. T he under l y i ng di s put e i nvol ves an agr eementP ri o r t o th is d is p u te , R e m o te S o lu tio n C o ., L td . w a s H a n g o E le c tr o n ic s C o ., L td . 1 D u ri n g th e d is p u te , C o n te c c h a n g e d its c o rp o ra te n a m e to F G H L iq u id a tin g C o rp . T hr oughoutthi s opi ni on, w e r efe rt o the part i es and thei rpr edec es s orand s ucce s s or c o rp o r a t i o n s a s R e m o t e S o l u t i o n a n d C o n t e c , r e s p e c t i v e l y. 2 b e tw e e n R e m o te S o lu tio n a n d C o n tec C o rp o ra tio n . T h e a rb itrato r d e ter m in e d R e m o te 1 Sol ut i on had agr eed t o defe nd and i ndemni fyC ont ec a gai ns tcert ai n pat enti nfr i ngement c la im s b ro u g h t b yth ir d p a rt ie s a n d a w a rd e d d a m a g e s to C o n te c , a s w e ll a s f e e s a n d c o s ts . T he D i s tr i ctC our tdeni ed R emot e Sol ut i on’ s m ot i on t o vaca t e orm odi fythe arbi tr al a wa r d a n d e n t e r e d j u d g me n tf o rCo n t e c . W e wi l l a f

f i r m. I. R e m o te S o lu tio n is a K o re a n e lec tro n ics m a n u f a c tu re r. In F e b ru a ry1 9 9 9 , it e n te re d in to a M a n u f

a c tu ri n g a n d P u rc h a s e A g re e m e n t [ “ A g re e m e n t” ] w ith C o n te c , a D e law a re c o rp o ra tio n w ith its p rin c ip a l p lac e o f b u sin e ss in N e w Y o rk . C o n tec so ld r emot e- contr ol devi ces t o cons um er s and ca bl e t el evi s i on pr ovi der s . T he agr eement g o v e rn e d th e p ro d u c tio n a n d sa le o f su c h d e v ice s a c c o rd in g to sp e c if ica tio n s p ro v id e d to R emot e Sol ut i on byC ont ec. Sect i on 3( c) of the A gr eements t at es thatR emot e Sol ut i on w ou l d d efen d cert ai n suit s agai nstC on t ec and i nd em nifyC on t ec aga i nstdam ages: Sel l ers hal l defe nd anys ui torpr ocee di ng br oughtagai ns tPur chas ert o the e x ten t th a t su c h su it o r p ro c e e d in g is b a se d o n a c laim th a t th e P ro d u c ts c o n stitu te a n in f

rin g e m e n t o f

a n yv a lid U n ited S tate s o r f o re ig n p a ten t, c o p yrig h t, tra d e se c re t o r o th e r in telle c tu a l p ro p e rtyrig h t an d S e ller s h a ll p ayall d am ag es a n d co sts aw ard ed b yfin al j u d g m en t aga inst P u rch ase r.Phi l i ps al s o named C om po M i cr o T ech, I nc. and SeobyE l ectr oni cs , tw o otherC ont ec 2 s u p p lie rs , a lo n g w ith R e m o te S o lu tio n a s d e f e n d a n ts in th e s u it. S e c tio n 1 9 o f

th e A g re e m e n t sta tes : “I n th e e v e n t o f a n yc o n tro v e rsy aris in g w ith 3 re sp e c t to th is A g re e m e n t . . . su c h c o n tro v e rsy sh a ll b e d e ter m in e d b ya rb itratio n . . . in acc or dance w i th t he C om m er ci al A rbi tr at i on R ul es of the A m er i can A rbi tr at i on A s s o c ia tio n . . . .” 3 O n e o f th e d e v ic e s C o n te c p u rc h a s e d u n d e r t h e a g re e m e n t w a s th e R T -U 4 9 C . C o n te c s e n t s p e c if

ic a tio n s f

o r t h e d e v ic e a n d p la c e d a n o rd e r i n th e s p ri n g o f 2 0 0 0 . A bouttw o y ear s l at er , U ni ver s al E l ectr oni cs , I nc. ( “U E I ”) s ued C ont ec f orpat ent i nfr i ngementi n t he U ni t ed St at es D i s tr i ctC our tforthe D i s tr i ctof D el aw ar e, cl ai m i ng t he R T - U 49C i nfr i nged i t s pat ent s . T he part i es s ett l ed i n M ay2002. T hats ame y ear , Phi l i ps E l ectr oni cs N or th A m er i ca a nd U . S. Phi l i ps C orpor at i on ( col l ect i vel y“Phi l i ps ”) s ued C ont ec, al s o i n t he U ni t ed St at es D i s tr i ctC our tforthe D i s tr i ctof D el aw ar e, cl ai m i ng t he R T -U 4 9 C in f

rin g e d its p a ten ts. In Ju n e 2 0 0 3 , C o n tec a n d a n o th e r d e f e n d a n t en ter e d in to 2 a C ons entJ udgm entand O r ders t at i ng theyi nfr i nged tw o Phi l i ps pat ent s . C ont ec incu rred fe es a n d co sts i n it s d ef en se a g ains t bo th p aten t- inf ri n g em en t cl aim s. In res olut i on of the cl ai m s, i tpaid a sett l em ent and roy al t i es t o b oth U E I and P hil i ps. R emot e Sol ut i on’ s fai l ur e t o defe nd and i ndemni fyC ont ec a gai ns tthe U E I and Phi l i ps act i ons pr om pt ed C ont ec t o w i thhol d paym entfr om R emot e Sol ut i on fordevi ces s hi pped i n J anuary2003. I n J une 2003, R emot e Sol ut i on fi l ed a c om pl ai nti n K or ean c o u rt, se e k in g p a ym e n t f o r th e d e v ice s. In re sp o n se , C o n tec d e m a n d e d a rb itratio n w ith the A m er i can A rbi tr at i on A s s oci at i on underSect i on 19 of the A gr eement , and 3C ont ec Corp. v. R emot e Sol ut i on C o. , N o. 1: 03- C V - 910, 2003 W L 25719933 4 (N .D .N .Y . D e c . 2 , 2 0 0 3 ), a ff’d , 3 9 8 F .3 d 2 0 5 (2 d C ir . 2 0 0 5 ). T h e p a r t i e s a g r e e th e c o n tr a c ti s g o v e rn e d b yNe w Yo r k l a w. 5 R e m o te S o lu tio n w a s o n lyo n e o f m u lti p le c o m p a n ies th a t su p p lied d e v ice s to 6 C ont ec. T he $295, 833 aw ar d t o C ont ec r epr es ent s R emot e Sol ut i on’ s pr o- r at a s har e of (c o n tin u e d ...) 4 s ubs equent l yfi l ed a mot i on i n t he U ni t ed St at es D i s tr i ctC our tforthe N or thern D i s tr i ctof N ew Y or k t o compel arbi tr at i on. T he arbi tr at ordet erm i ned i thad s t andi ng t o hearthe di s put e, the N ew Y or k courtent er ed j udgm entconfi r m i ng the arbi tr at or ’ s s t andi ng, and 4 the part i es pr ocee ded t o arbi tr at e thei rdi s put e. I n arbi tr at i on, R emot e Sol ut i on cl ai m ed the i ndemni fi cat i on pr ovi s i on di d not appl ybeca us e C ont ec’ s ow n s peci fi cat i ons had ca us ed the pat enti nfr i ngement . T he a rb itrato r, h o w e v e r, co n c lu d e d R e m o te S o lu tio n h a d a g re e d to in d e m n if yC o n tec in S e c t i o n 3 ( c ) o f

th e Ag r e e me n tr e g a r d l e s s o f wh e th e rCo n t e c p r o v i d e d i t s o wn s peci fi cat i ons . T hatpr ovi s i on, m or eover , di s pl ace d N . Y . U . C . C . § 2- 312( 3) , w hi ch

“ [ u ]n les s o th e rw ise a g re e d ,” w o u ld re q u ire a b u y e r w h o f u rn ish e s s p e c if

ica tio n s to h o ld th e s e lle r h a rm le s s a g a in s t c la im s “ a ri s [ in g ] o u t o f c o m p lia n c e w ith th e s p e c if ic a tio n s .” 5 T h e a rbitrator o rde red R em o te S o luti o n to p ayC o n tec $ 4 8 2 , 0 6 7 . 5 0 . T h is figu re r epr es ent s $1, 102, 105. 50, w hi ch R emot e Sol ut i on ow es C ont ec unde rs ect i on I V ( G ) of the A rbi tr at or ’ s damages aw ar d, r educe d by$620, 038, the amountC ont ec w i thhel d fr om R emot e Sol ut i on fordevi ces s hi pped i n J anuary2003. O f the t ot al amount , $295, 833 repr esent s R em ote Solut i on ’s share of t he P hil i ps and U E I s et t l em ent and roy al t i es; 6( . . . cont i nued) 6 the p at ent- i nfri ng em ent s et t l em ents and roy al t i es. T h e D istric t C o u rt a lso o rd e re d R e m o te S o lu tio n to re m it t o C o n tec 7 5 % o f its 7 admi ni s tr at i ve cos t s and fe es i ncurr ed i n arbi tr at i on, and 25% of the arbi tr at or ’ s fee under sec ti o n IV (I) o f th e A rbitrator’s d am ag es a w ard . W e a ssu m e the D istri ct C o u rt m i s t akenl yor der ed 25% of the arbi tr at or ’ s fee t o be r emi t t ed t o C ont ec, as oppos ed t o t he 75% s t at ed i n t he af

or ement i oned s ect i on of the A rbi tr at i on damages aw ar d. W e corr ect th is typ o g ra p h ica l er ro r; a c c o rd in g ly , R e m o te S o lu tio n sh a ll rem it t o C o n tec 7 5 % o f its admi ni s tr at i ve cos t s and fe es and 75% of the arbi tr at or ’ s fee . T he D i s tr i ctC our thad j ur i s di ct i on under28 U . S. C . § 1332. A l though the ca s e w as 8 in iti a llyd ism iss e d f

o r f a ilu re to m e e t th e a m o u n t-in -c o n tro v e rsy req u ire m e n t, R e m o te Sol ut i on fi l ed a r enew ed mot i on t o vaca t e orm odi fythe aw ar d. T he r enew ed mot i on a ss e rte d c laim s in v o lv in g th e a rb itral a w a rd th a t w e re n o t ce rta in lyles s th a n th e a m o u n tin -c o n tr o v e rs yth re s h o ld . See St . P aulMer cur y I ndem . C o. v. R ed C ab C o. , 303 U . S. 283, 289 ( 1938) ( “I tm us tappea rt o a l egal cert ai ntythatthe cl ai m i s r eal l yforl es s than the ju risd ictio n a l am o u n t to ju stif yd ism iss a l.”); C ol um bi a G as Trans m is s i on C or p. v. Tarbuc k , 62 F. 3d 538, 541 ( 3d C i r . 1995) . W e have j ur i s di ct i on t o r evi ew the appe al fr om a fi nal j udgm entunder28 U . S. C . § 1291. 5 $2 70 , 20 6. 32 i s for C on t ec’s at t orney s’ fees and exp enses i n the Ph i l i ps and U E I act i on s; $3 04 , 09 9. 57 repr esent s C on t ec’s fees and cost s i n the K orean an d N ew Y ork act i on s, w h ich th e a rb itrato r d e ter m in e d w e re “ c lea rlyin c u rre d in th e c o n d u c t o f th is a rb itratio n ;” and $231, 966. 62 i s forR emot e Sol ut i on’ s s har e of Cont ec’ s fee s and expe ns es as s oci at ed w ith th e a rb itr a tio n its e lf. R emot e Sol ut i on fi l ed a mot i on t o vaca t e orm odi fythe arbi tr al aw ar d i n the U ni t ed St at es D i s tr i ctC our tforthe D i s tr i ctof D el aw ar e. T he D i s tr i ctC our tdeni ed the m oti on , and enter ed judgm ent for C on t ec. R em ote Solut i on app eal s. 7 8 II.“[A ] s l ong as the arbi tr at ori s even a r guabl ycons trui ng orappl y i ng the contr actand 9 act i ng w i thi n t he s cope of hi s author i ty , thata courti s convi nced he comm i t t ed s er i ous err ordoes nots uffi ce t o overturn hi s deci s i on. ” U ni t ed Paperworks I

nt ’ lU ni on v. Mis co, I nc. , 484 U . S. 29, 38 ( 1987) . T he typi cal r es ul t , w hi ch i s “t o aff i r m eas i l ythe arbi tr at i on a w a rd ,” is c o n s is te n t w ith th e p u rp o s e b e h in d th e F A A . D l uh os v. Str asberg , 321 F. 3d 3 6 5 , 3 7 0 (3 d C ir . 2 0 0 3 ). 6 Re v i e w o f

a rb i tr a t i o n a wa r d s u n d e rth e F e d e r a l Arb i tr a t i o n Ac t( “ F AA” ) , 9 U. S . C. §§ 1–16, i s “extr emel ydefe r ent i al . ” Me tr o m e d ia E n e r g y , In c . v . E n s e r c h E n e r

g y S e r v s ., I nc. , 409 F. 3d 574, 578 ( 3d C i r . 2005) . W e maydi s turb the aw ar d onl yw hen the a rb itrato r is “ p a rtial o r c o rru p t” o r “ m a n if e stlyd isre g a rd s, ra th e r th a n m e re lye rro n e o u sly i nt erpr et s the l aw . ” Id . A ddi t i onal l y , w e mayr efus e t o enfor ce a n aw ar d thatvi ol at es 9 la w o r a “ w e ll- d e f

in e d a n d d o m in a n t” p u b lic p o lic y . E xxon Shi ppi ng C o. v. E

xxon Seam en’s U

ni on , 993 F. 2d 357, 360 ( 3d C i r . 1993) . “[A ] court ’ s r efus al t o enfor ce a n arbi tr at or ’ s i nt erpr et at i on of [a ] contr act [] i s l i m i t ed t o s i tuat i ons w her e the contr actas in terp re ted w o u ld v io late ‘so m e e x p licit p u b lic p o licy ’ th a t is ‘w e ll d e f in e d a n d d o m in a n t, and i s t o be as cert ai ned byr efe r ence t o the l aw s and l egal pr ece dent s and notfr om gener al cons i der at i ons of s uppos ed publ i c i nt er es t s . ’ ” U ni t ed Paperworke rs I

nt ’ lU ni on v. Mis co, I

nc. , 484 U . S. 29, 43 ( 1987) ( quot i ng W . R . G race & C o. v. R ub ber W orkers , 4 6 1 U . S . 7 5 7 , 7 6 6 (19 8 3 ) (i n terna l qu o tat ion m ark s o m itted)). R e m o te S o lu tio n c h a llen g e s th e a rb itrato r’s d e ter m in a tio n th a t ith a d a g re e d to d e f e n d a n d in d e m n if

yC o n te c a g a in s t p a te n t c la im s lik e th e U E I a n d P h ilip s c la im s . R em o te S o luti o n co n tend s the aw ard v iolates p u b li c p o li cyb ec au se th e a rbitrator’sT he D i stri ctC ou rtcon cl ud ed the arbi trat or’ s deci si on did not “const i tute a ‘ m anifest 10 di s r egar d forthe l aw . ’ ” R em ot e Sol ut i on C o. v. F G H Li qui dat i ng C or

p. , 568 F. Supp. 2d 534, 542–43 ( D . D el . 2008) . O n appea l , R emot e Sol ut i on onl ychal l enges the i nterpret at i on of the con tracton pu bli c po l i cygroun ds. W e d o n o t add ress w h ethe r th is co n tention is co rrect, b u t no te th at th e D istri ct C o u rt 11 det erm i ned the arbi tr at orhad notm ani fes t l ydi s r egar ded the l aw beca us e the ca s es R emot e Sol ut i on r el i es upon do notcl ear l ygovern pat ent - i nfr i ngementi ndemni fi cat i on cl aus es i n N ew Y or k. 7 i nt erpr et at i on of the contr actdi d notcomportw i th pr operpr i nci pl es of contr act i nt erpr et at i on. ( B r . of A ppel l antat16 ( ci t i ng Sw eene y v. Her t zC or p. , 704 N . Y . S. 2d 19, 10 2 1 (N .Y .A .D . 1 st D e p ’t 2 0 0 2 ) (re q u irin g a n in d e m n ityp ro v isio n in a c a r-re n tal c o n tra c t to

“ c lea rlya n d u n e q u iv o c a llye x p re ss a n in ten t to in d e m n if y[ th e re n tal c o m p a n y ] a g a in st its ow n negl i gence ”) ) . T hi s ar gum ents ugges t s the arbi tr at orm i s cons trued the contr act , not 11 thatthe contr act“as i nt erpr et ed, ” s ee Mis co, 484 U . S. at43, w oul d vi ol at e a w el l - defi ned and domi nantpubl i c pol i cy . R emot e Sol ut i on’ s ar gum enti s thatthe arbi tr at orcomm i t t ed l e g a l e rr o r , b u tth i s i s n o ta s u f f i c i e n tb a s i s t o d e t e r m i n e th e a w a r d v i o l a t e s p u b l i c p o l i c y. R emot e Sol ut i on addi t i onal l ycont ends the arbi tr at orm ani fes t l ydi s r egar ded the l aw tw i ce i n i t s aw ar d of att orney s ’ fee s . Fi r s t , i tcont ends the arbi tr at ors houl d have l i m i t ed the aw ar d of att orney s ’ fee s and cos t s t o the fe es and cos t s i texpende d. Sect i on 19 of the A gr eementent i t l es the pr evai l i ng party“i n any[arbi tr at i on] . . . t o r ecove rfr om the otherpartyal l of i t s expens es , i ncl udi ng, w i thoutl i m i t at i on . . . i t s att orney ’ s fee s in c u rre d in th e c o n d u c t o f su c h a rb itratio n b u t in n o e v e n t w ill th e re c o v e ryo f its att orney ’ s fee s be i n exce s s of the ac tual cos tof the otherparty ’ s att orney ’ s fee s . ” I n theR em o te S o luti o n also co n tend s the li m it ati o n o n fe es a p p li es to the N ew Y o rk 12 act i on. I n t hatact i on, i ti ncurr ed $54, 273. 75 of cos t s , and C ont ec s pent$288, 779. 30. C o n tec h a d c ited to m o re th a n th irtyin sta n c e s w h e re R e m o te S o lu tio n ’s c o u n se l d id 13 notbi l l fori t s t i m e. A s not ed, the arbi tr at oraw ar ded $231, 966. 62 forfee s i ncurr ed i n arbi tr at i on, even 14 though R emot e Sol ut i on cl ai m s t o have i ncurr ed onl y$13, 581. 11. A nd the arbi tr at or aw ar ded C ont ec a n addi t i onal $288, 779. 30 fori t s fee s i n the N ew Y or k act i on, al though R e m o te S o lu tio n c la im s it o n ly in c u rr e d $ 5 4 ,2 7 3 .7 5 in th a t a c tio n . 8 arbi tr at i on, C ont ec r eport ed $231, 966. 62 of fe es , compar ed t o onl y$13, 581. 11 of fe es for R emot e Sol ut i on. 12 T h e a rb itrato r a c k n o w led g e d th e c o n tra c tu a l li m itatio n o n f e e s, b u t ex p lain e d “ it i s e q u a llyp lain . . . tha t R e m o te S o lu tio n h a s b re a c h e d its o b lig a tio n o f g o o d f a ith a n d f

a ir deal i ng . . . . ” R emot e Sol ut i on’ s fee s w er e “unr eas onabl y ” and “ i nexpl i cabl y ” l ow , t he 13 arbi tr at ordet erm i ned, and the “unus ual l yl ow bi l l i ngs her e ca nnotpr ovi de a ba s i s for negat i ng the s pi r i tof s ect i on 19” bec aus e R emot e Sol ut i on had “a rr ang[e d] forthe l os i ng party ’ s att orney ’ s fee s and expe ns es t o appr oach z er o. ” T he arbi tr at orcons i der ed the 14 contr actual l i m i t at i on as w el l as the good fa i th and fa i rdeal i ng cl ai m s . B y“cons trui ng or appl y i ng the contr actand ac t i ng w i thi n the s cope of hi s author i ty , ” Mis co , 484 U . S. at38, th e a rb i tr a t o rd i d n o tma n i f e s t l yd i s r e g a r d th e l a w. R emot e Sol ut i on’ s s econd a r gum enti s l i kew i s e unava i l i ng. I tcont ends underN ew Y or k l aw thatthe pr ovi s i on i n Sect i on 19 does notal l ow forr ecove ryof pr e- arbi tr at i on att orney s ’ fee s and cos t s beca us e i tdoes not“unmi s t akabl y ” addr es s thes e cos t s . B utt he a rb itrato r c o n sid e re d th e lan g u a g e o f th e c o n tra c t an d d e ter m in e d th e se f e e s a n d c o stsC o n tec h a s a lso f iled a m o tio n f

o r d a m a g e s u n d e r F e d e ra l R u le o f A p p e llate 15 Pr ocedur e 38. W e w i l l denythi s m ot i on. “I f a c our tof appe al s det erm i nes thatan appe al i s fr i vol ous , i tm ay. . . aw ar d j us tdamages and s i ngl e ordoubl e cos t s t o the appe l l ee. ” Fed. R . A pp. P. 38. D amages underR ul e 38 ar e w i thi n the di s cr et i on of the courtand a w a rd e d a s ju s tic e re q u ir e s . B eam v. B auer , 3 8 3 F . 3 d 1 0 6 , 1 0 9 (3d C ir . 2 0 0 4 ); Hi lm on C o . ( V . I.) Inc . v. H

ya tt Int’l , 899 F. 2d 250, 253 ( 3d C i r . 1990) . “[A ] t t orney s have a n aff i r m at i ve obl i gat i on t o r es ear ch the l aw and t o det erm i ne i f a c l ai m on appea l [has m e ri t] . B eam , 3 8 3 F . 3 d at 10 9 (i n terna l ci tat ion s o m itted). T h e test i s w h ethe r a re a s o n a b le a tto rn e yw o u ld c o n c lu d e th a t th e a p p e a l is f ri v o lo u s . I

d. R e m o te S o lu tio n ’s a p p e a l to th is C o u rt, alth o u g h u n su c c e ss f u l, co n tain s c o lo ra b le cl ai m s . T he arbi tr at ordi d notm ani fes t l ydi s r egar d the l aw , buts om e i nt erpr et at i ve i s s ues i n the contr actm i ghthave be en r eas onabl ycons trued i n m or e than one w ay . W hi l e the arbi tr at or ’ s deci s i on r ece i ves gr eatdefe r ence , R emot e Sol ut i on’ s appea l i s nots o l acki ng i n m er i tas t o w arr anta damages aw ar d underR ul e 38. C ont ec ha s r enew ed i t s r eques tforpr e- j udgm enti nt er es tbegi nni ng on J anuary25, 16 2006, w hi ch i s the dat e the arbi tr at oror der ed paym entof the damages aw ar d. T he D is tr ic t C o u rt d id n o t a d d re s s th is is s u e . 9 w ere “i ncu rr ed in the co nd uct of [t he] arbitrat i on . ” It s det erm i nati on w as not i n m anifest d i s r e g a r d o f

th e l a w. 15 Forthe for egoi ng r eas ons w e w i l l aff i r m the j udgm entof the D i s tr i ctC our tand re m a n d f o r a d e ter m in a tio n o f

p re -ju d g m e n t in ter e st. 16