Court Opinion

ID: 2997021
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:33:06.799172+00
Date Added: 2024-06-11T12:28:38.595716
License: Public Domain

In the
 United States Court of Appeals
                For the Seventh Circuit
                       ____________

No. 02-4301
HASBRO, INC.,
                                         Plaintiff-Appellant,
                             v.

CATALYST USA, INC.,
                                        Defendant-Appellee.

                       ____________
           Appeal from the United States District Court
               for the Eastern District of Wisconsin.
   Nos. 02-C-0108, 02-C-0119—Rudolph T. Randa, Chief Judge.
                       ____________
      ARGUED MAY 27, 2003—DECIDED MAY 10, 2004
                     ____________

 Before ROVNER, DIANE P. WOOD, and WILLIAMS, Circuit
Judges.
  DIANE P. WOOD, Circuit Judge. Although companies often
choose arbitration with the hope of avoiding the (presumed)
greater time and expense of litigating in court, that was not
the fate of the parties in this case. Hasbro, Inc. and Cata-
lyst USA, Inc. waited more than two years for a final award
from an arbitration panel that was adjudicating a dispute
between them about a software license. After the award was
finally issued, the losing party, Catalyst, asked the district
court to vacate the arbitral award. The court agreed that
2                                              No. 02-4301

this was appropriate on the ground that the arbitrators had
exceeded their authority by waiting too long to issue their
decision. While we appreciate the frustration caused by the
delay, a closer look at the proceedings shows that no one
objected at the crucial time to the panel’s conduct of the
proceedings. Whatever errors with respect to deadlines may
have been committed were either waived or harmless. We
therefore reverse and remand for entry of an order enforc-
ing the award.

                             I
   In 1993, Hasbro and Catalyst entered into a software
licensing contract, in which they agreed to arbitrate any
disputes that arose that could not be resolved amicably.
Any such dispute was to be submitted to arbitration pur-
suant to the Federal Arbitration Act (FAA) and the rules of
the American Arbitration Association (AAA).
   Six years later, dissatisfied with the performance of
Catalyst’s software, Hasbro filed a demand for arbitration
on October 8, 1999. A hearing was conducted in Milwaukee
between October 2000 and March 2001 before a panel of
arbitrators from the Commercial Arbitration Tribunal of the
AAA. On March 9, 2001, the panel issued an interim
scheduling order, providing for briefing to conclude on June
8, 2001, and for oral argument to be held on June 28, 2001.
After oral argument, the panel directed additional briefing
to be completed by July 10, 2001. In addition, the parties
agreed at oral argument to amend their arbitration agree-
ment to permit the panel to award attorneys’ fees to the
prevailing party. No formal declaration that the hearing
was closed was made at this time. Hasbro now claims that
it believed that the hearing had not been closed, because
evidence about attorneys’ fees had not been requested and
had not otherwise been deemed necessary.
No. 02-4301                                                   3

  The parties did not hear again from the AAA or the panel
until October 2, 2001, when the AAA sent a bill to the
parties seeking compensation for the arbitrators’ “post-
hearing time” from July to September 2001. In response,
Catalyst requested an explanation of the bill. On October
10, 2001, the AAA sent the parties an itemization of
charges—a communication that raised red flags for Cata-
lyst. Catalyst found questionable the hours and increased
rate charged by the panel chair, Alan Wernick. The itemiza-
tion of the charges also brought to light other key informa-
tion. Among the many entries were ones that stated “review
and revise damage calculations to provide interest” and
“extended conferences with panel regarding damage
calculations and award.” Because only Hasbro had re-
quested damages, Hasbro alleges that these references to
damage calculations should have signaled to Catalyst that
Hasbro was the prevailing party.
  On October 26, 2001, Catalyst wrote to the AAA challeng-
ing the propriety of Wernick’s charges. In that letter, it also
asserted for the first time that under Rule 37 of the AAA
rules, the hearing had been closed on July 10, 2001, “as of
the final date set by the arbitrator for the receipt of briefs,”
and that under Rule 43, the arbitrator had until August 11,
2001, “30 days from the date of closing the hearing,” to
make the award. The panel’s failure to issue the award by
August 11, 2001, Catalyst charged, raised “serious ques-
tions about the validity of the entire process.”
  On November 8, 2001, Catalyst received additional in-
formation concerning the Wernick bills. Again it wrote to
the AAA requesting further information that would help it
to analyze the propriety of the charges. It also, at that
point, inquired specifically about the status of the overdue
award. Not receiving word from the AAA, on November 13,
2001, Catalyst formally objected to the untimeliness of the
award. Perhaps prompted by this inquiry, or perhaps for
their own reasons, the arbitrators declared the hearing
4                                                No. 02-4301

closed on December 5, 2001, and issued their award on
January 2, 2002. The panel awarded Hasbro $799,839.93,
plus interest; denied Catalyst’s counterclaims; and divided
arbitration fees, expenses, and compensation equally be-
tween the two parties, requiring Hasbro to pay the remain-
ing $2,083.63 and Catalyst the remaining $22,083.63
outstanding. It declined to award attorneys’ fees to either
side.
  Catalyst moved in district court to vacate the arbitration
award on the ground that the arbitrators exceeded their
power by issuing an untimely award. The district court
agreed, and this appeal followed.

                             II
  Generally, a court will set aside an arbitration award only
in “very unusual circumstances,” First Options of Chicago,
Inc. v. Kaplan, 514 U.S. 938, 942 (1995). Judicial review of
arbitration awards is “tightly limited,” Baravati v.
Josephthal, Lyon & Ross, Inc., 28 F.3d 704, 706 (7th Cir.
1994), and confirmation is “usually routine or summary,”
Riccard v. Prudential Ins. Co., 307 F.3d 1277, 1288 (11th
Cir. 2002). “With few exceptions, as long as the arbitrator
does not exceed [her] delegated authority, her award will be
enforced.” Butler Mfg. Co. v. United Steelworkers of Am.,
336 F.3d 629, 632 (7th Cir. 2003). This is so even if the
arbitrator’s award contains a serious error of law or fact.
Major League Baseball Players Assoc. v. Garvey, 532 U.S.
504, 509 (2001) (per curiam); Nat’l Wrecking Co. v. Int’l
Bhd. of Teamsters, Local 731, 990 F.2d 957, 960 (7th Cir.
1993). We review the district court’s decision to vacate the
arbitration award de novo, Indep. Employees’ Union of
Hillshire Farm Co., Inc. v. Hillshire Farm Co., Inc., 826
F.2d 530, 532 (7th Cir. 1987), accepting findings of fact that
are not clearly erroneous, Slaney v. The Int’l Amateur
Athletic Fed’n, 244 F.3d 580, 592 (7th Cir. 2001).
No. 02-4301                                                5

  The FAA makes arbitration agreements enforceable “to
the same extent as other contracts, so courts must ‘enforce
privately negotiated agreements to arbitrate, like other
contracts, in accordance with their terms.’ ” Sphere Drake
Ins. Ltd. v. All American Life Ins. Co., 307 F.3d 617, 620
(7th Cir. 2002) (quoting Volt Info. Scis, Inc. v. Stanford
Univ., 489 U.S. 468, 478 (1989)). Under Wisconsin law,
which applies to this diversity action, see First Bank
Southeast, N.A. v. Predco, Inc., 951 F.2d 842, 846 (7th Cir.
1992), untimely performance of a contractual obligation
does not result in the harsh penalty of forfeiture or rescis-
sion, unless the parties agree that “time is [ ] of the es-
sence.” Appleton State Bank v. Lee, 148 N.W.2d 1, 3 (Wis.
1967); see also Employers Ins. of Wausau v. Jackson,
527 N.W.2d 681, 688-89 (Wis. 1995) (applying “time is of
the essence” standard to arbitration agreements). Thus,
even assuming that the panel’s performance was untimely,
whether the arbitration agreement was thereby rendered
unenforceable depends on whether the parties agreed that
time would be of the essence.
  Whether this was indeed the parties’ agreement is gen-
erally a question of fact that, if there was some sign of
a material dispute, we would need to remand to the district
court as fact-finder. See Employers Ins. of Wausau, 527
N.W.2d at 688. In this case, however, the evidence is
entirely documentary and the parties have thoroughly
briefed the issue. A remand, in our opinion, is therefore
unnecessary and would only prolong this already-too-long
proceeding.
  Under Wisconsin law, time is generally not of the essence,
“unless it is expressly made so by the terms of the contract,
or by the conduct of the parties.” Stork v. Felper, 270
N.W.2d 586, 589 (Wis. App. 1978). In this case, nowhere
either in the arbitration agreement or in the AAA rules
does it expressly say that time was of the essence. Wiscon-
sin law further indicates that the fact that the AAA rules
6                                                  No. 02-4301

specify a 30-day deadline is not enough to support the
inference that time is of the essence. Zuelke v. Gergo, 45
N.W.2d 690, 693 (Wis. 1951) (“The fact that a contract sets
a date for the closing of a transaction does not of itself make
time of the essence of the contract.”).
      The absorption of equitable principles by the law has
      modified the severity of the rule giving undue impor-
      tance to mere dates . . . . [U]nless the nature of the con-
      tract is such as to make performance on an exact day
      vital or the contract in terms so provides, the failure by
      a party to perform on the particular day does not
      discharge the other party.
Id.
  Nor does the conduct of the parties in this case support a
finding that time was of the essence. Stork, 270 N.W.2d at
589. Although Catalyst asserts that the hearing should
have been declared closed on July 10, 2001, and an award
should have been issued by August 11, 2001, Catalyst itself
waited until October 26, 2001, before raising the issue of
untimely performance, and until November 13, 2001, before
formally objecting to the arbitrators’ delay.
  Indeed, all indications suggest that Catalyst, the party
now complaining of untimely performance, benefitted from
the delay, given the fact that it was able to hold off payment
to Hasbro for several months at no cost (apart from the
questionable arbitrators’ fees, which we discuss in a
moment). A conclusion that time was not of the essence
under these circumstances comports with Wisconsin’s ad-
ditional consideration of equity in construing the parties’
agreement, by allowing Hasbro to avoid the harsh penalty
of forfeiture when the delay caused no prejudice to Catalyst.
      There is also a rule which is entitled to serious consid-
      eration that when the terms of a contract are, or, by any
      act of parties under the contract, become indefinite,
      uncertain and susceptible of two constructions, and by
No. 02-4301                                                  7

    giving them one construction one of the parties would
    be subject to forfeiture, and by giving them the other no
    such forfeiture would be incurred and no injustice
    would be done to the other party, the contract should be
    construed as not creating a forfeiture.
Zuelke, 45 N.W.2d at 693 (citing Jacobs v. Spalding, 36
N.W. 608, 614 (Wis. 1888)).
  For these reasons, we find that time was not of the
essence under this arbitration agreement. Therefore, the
arbitrators did not exceed their authority by issuing an
untimely award to the extent that the harsh penalty of
forfeiture or rescission was warranted. In a final effort to
avoid this outcome, Catalyst has also suggested before this
court that an alternate reason to find that the panel ex-
ceeded the scope of its powers is that its delay was for the
impermissible reason of awarding the panel chair excessive
compensation. Because Catalyst did not properly raise this
argument before the district court, however, we decline to
reach it here. (If this was indeed a problem, it is something
the AAA itself can and should investigate and address.)
  This is not to say, obviously, that arbitrators may in-
definitely delay issuance of an award, in open violation of
the AAA rules, without the parties’ consent. Under
Wisconsin law, “time may be made of the essence after
breach of the contract by reasonable notice to the person in
default to perform.” Ochiltree v. Kaiser, 121 N.W.2d 890,
893 (Wis. 1963). But the prejudiced party must make its
objection known, which Catalyst failed to do here. This
entire problem stemmed from the panel’s original failure to
declare the hearing closed in accordance with Rule 37. Such
a declaration would have triggered the 30-day deadline
under Rule 43. From the time Catalyst gave notice of its
position that the panel had breached Rule 37, however,
there was no further delay or failure to perform to which
Catalyst can point. Cf. id. (finding against a party in default
8                                             No. 02-4301

that did nothing, even after notified of untimely perfor-
mance and specifically warned that failure to perform
within 30 days would terminate the contract). Upon re-
ceiving notice from Catalyst, the panel promptly invited
Hasbro to respond. Soon after, it declared the hearing
closed and issued an award within 30 days thereafter.
  Notwithstanding our enforcement of the arbitral award,
we do not condone the panel’s substandard performance.
The AAA (and judicial tribunals) have good reasons for
rules that clarify when a proceeding is concluded. These
rules allow all parties to know whether there is still time
remaining to raise points with the original tribunal,
whether the time has come to appeal, and how much time
exists for all such steps. Just as Federal Rule of Civil
Procedure 58, which requires a specific document memor-
ializing a final judgment, avoids countless problems with
the appellate process that arise when a separate final
judgment is missing, the AAA’s rules also structure the
process so that parties will know at all times where they
stand.

                           III
  We therefore VACATE the judgment of the district court
and REMAND for enforcement of the arbitral award.
No. 02-4301                                          9

A true Copy:
      Teste:

                    ________________________________
                    Clerk of the United States Court of
                      Appeals for the Seventh Circuit

               USCA-02-C-0072—5-10-04