Court Opinion

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Date Created: 2015-10-13 23:14:37.482766+00
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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Precedential or Non-Precedential: Non-Precedential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                                                    NOT PRECEDENTIAL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