Court Opinion

ID: 4376542
Source: CourtListenerOpinion
Date Created: 2019-03-13 20:00:23.592792+00
Date Added: 2024-06-11T14:49:34.537203
License: Public Domain

NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                                 _____________

                                       No. 17-3415
                                      _____________

                         EGAN JONES RATINGS COMPANY,
                                               Appellant

                                             v.

                   STEVEN PRUETTE; CHRISTOPHER PRUETTE,
                           on behalf of Insearch Partners
                                  ____________

                     Appeal from the United States District Court for
                           the Eastern District of Pennsylvania
                                   No. 2-16-mc-00105
                      District Judge: Honorable Jeffrey L. Schmehl
                                    ______________

                      Submitted Under Third Circuit L.A.R. 34.1(a)
                                 September 25, 2018
                                  ______________

              Before: McKEE, RESTREPO, and FUENTES, Circuit Judges

                                  (Filed: March 13, 2019)

                                           _____

                                        OPINION*
                                         _____

       *
         This disposition is not an Opinion of the full Court and, pursuant to I.O.P. 5.7,
does not constitute binding precedent.
RESTREPO, Circuit Judge.

       Appellant (“Egan”) appeals the decision of the District Court denying its petition

to vacate the final partial arbitration award and granting the plaintiffs’ (“Pruettes”) cross-

petition to confirm. We will affirm the ruling of the District Court.

                                              I.

       On December 20, 1998, Egan, a Nationally Recognized Securities Rating

Organization, and the Pruettes entered into an integrated contract (“1998 Agreement”)

granting the Pruettes, through their company InSearch Partners, the exclusive right to sell

Egan’s reports in exchange for the commissions on sales and the renewal of report

subscriptions. When the parties entered into arbitration in February of 2016, the principal

contractual dispute was whether the 1998 Agreement had expired or been terminated.1

The termination provision of the contract was as follows:

       The term of this Agreement is two years from the date hereof unless extended
       by mutual agreement. Either party may end its association with the other
       with 90 days written notice after the end of the two year period, provided,
       however, that if total revenues to [Egan Jones Ratings] from sales made by
       [InSearch Partners], pursuant to this Agreement, exceed $300,000 during the
       last twelve month period of the initial term of this Agreement, then IP will
       have the option to extend the term for a one-year period. IP will have two
       additional options to renew the Agreement for one additional year each if
       total revenues to EJR exceeds [sic] $450,000 during the third twelve month
       period and $600,000 during the forth [sic] twenty month period after the date
       of this Agreement. . . .

1
  The parties stipulated that the arbitration would be bifurcated into liability and damages
phases. The issue on appeal before this Court involves the arbitration decision on
liability only; a separate arbitration hearing is to be held on damages.
                                              2
Ohio App. 53. Through 2003, the Pruettes’ sales exceeded the requisite thresholds and the

contract continued intact. During 2004 and 2014, the parties exchanged numerous

contract revision proposals, but never settled upon a replacement agreement. Throughout

that time period, the Pruettes continued to perform their contractual duties until sometime

in 2014, when Egan breached the 1998 Agreement by hiring another salesman to sell the

reports in violation of the contract’s exclusivity provision, and stopped making

commission payments to the Pruettes.

       On March 21, 2016, after conducting two days of hearings in February of 2016,

the arbitrator found that the term of the 1998 Agreement was indefinite, that no new

written agreement had been executed, and that Egan gave no notice of termination before

breaching the contract in 2014. In making this finding, the arbitrator found that there was

no credible evidence the Pruettes received Egan’s putative notice of termination,

allegedly dated May 10, 2006. Egan petitioned the District Court under the Federal

Arbitration Act [“FAA”], 9 U.S.C. § 1, et seq., to vacate the final partial arbitration

award, which the District Court denied.

       On appeal, Egan argues the District Court erred in concluding that the arbitrator

acted competently and did not manifestly disregard the law (1) by not addressing the

statute of limitations defense, (2) by interpreting the 1998 Agreement to be perpetual

unless affirmatively terminated by one of the parties, and (3) by finding the Agreement

was in effect until terminated by Egan in 2014. We disagree for the following reasons.

                                             II.

                                              3
       Review of arbitration awarded under the FAA is “extremely deferential.”

Metromedia Energy, Inc. v. Enserch Energy Servs., Inc., 409 F.3d 574, 578 (3d Cir.

2005) (quoting 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 the arbitration panel manifestly disregards, rather than merely

erroneously interprets, the law.” Id. (citing Strasberg, 321 F.3d at 370). When an

arbitrator’s task is to interpret the clauses of the agreement, “a reviewing court may only

determine whether the arbitrator’s award was totally unsupported by principles of

contract construction.” Acro Polymers, Inc. v. Local 8-74, 671 F.2d 752, 755 (3d Cir.

1982) (internal citations omitted).

       Furthermore, “[t]he Supreme Court has made clear that findings of fact and

inferences to be drawn therefrom are the exclusive province of the arbitrator.” Exxon

Shipping Co. v. Exxon Seaman's Union (“Exxon III”), 73 F.3d 1287, 1297 (3d Cir.1996)

(citing United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 36 (1987)). “When

an arbitrator resolves disputes regarding the application of a contract, and no dishonesty

is alleged, the arbitrator's ‘improvident, even silly, factfinding’ does not provide a basis

for a reviewing court to refuse to enforce the award.” Major League Baseball Players

Ass'n v. Garvey, 532 U.S. 504, 509 (2001) (quoting United Paperworkers Int’l Union v.

Misco, 484 U.S. at 39). It is not proper for a reviewing court to “reexamine the evidence”

when reviewing an arbitration award, and errors in factfinding do not justify reversal.

Mutual Fire, Marine & Inland Ins. Co. v. Norad Reins Co., Ltd, 868 F.2d 52, 56 (3d Cir.

1989); accord Misco, 484 U.S. at 36-38.

                                              4
                                             III.

       With regard to Egan’s contention that the arbitrator erred by not ruling on the

statute of limitations defense, we find that the arbitrator’s predicate findings rendered

such a determination irrelevant. The arbitrator interpreted the 1998 Agreement to

continue beyond the initial period of two years and up until either party provided a “90

day written notice” of its intention to withdraw. App. 196. This interpretation of the

termination provision falls within the bounds of the principles of contract construction

and therefore must be upheld by this Court. See NF&M Corp. v. United Steelworkers of

Am., 524 F.2d 756, 759 (3d Cir.1975) (quoting Ludwig Honold Mfg. Co. v. Fletcher, 405
F.2d 1123, 1128 (3d Cir.1969)) (only where there is a “manifest disregard of the

agreement, totally unsupported by principles of contract construction and the law of the

shop, may a reviewing court disturb the award.”) The arbitrator found that, although

Egan had the right to do so earlier, it did not provide the requisite notice until 2014. The

Pruettes filed their demand for arbitration on February 6, 2015, well within the

Pennsylvania statute of limitations period of four years for commencing a proceeding for

breach of contract. Rather than manifestly disregarding governing Pennsylvania law, the

arbitrator made factual findings that deemed the statute of limitations defense

inapplicable. Egan’s argument that an arbitrator must explicitly reject every potential

defense, even if it is rendered moot by his own factual findings, is both practically and

legally untenable.

       Egan next contests the arbitrator’s factual findings. In reaching the conclusion

that Egan breached the 1998 Agreement in 2014, the arbitrator found no “credible

                                              5
evidence” that the Pruettes ever received a prior notice of termination. App. 196.

Despite being not required to do so, the arbitrator supported his factual findings by citing

testimony from both parties given at the February 2016 arbitration hearings. That it

believed the Pruettes’ testimony over Egan’s version of events does not present grounds

for relief. A reviewing court “is precluded from overturning an award for errors in

assessing the credibility of witnesses, in the weight accorded their testimony, or in the

determination of factual issues.” NF&M Corp., 524 F.2d at 759 (citing Amalgamated

Butchers, Local 641 v. Capitol Packing Co., 413 F.2d 668 (10th Cir. 1969), and Dallas

Typographical Union, No. 173 v. A.H. Belo Corp., 372 F.2d 577 (5th Cir. 1967)). After

reviewing the record, we agree with the District Court that the arbitrator’s findings were

the result of a “proper weighing of conflicting evidence” and no justifiable grounds for

vacating the partial final award exist. App. 16.

       Egan next asserts that the arbitrator’s finding that the contract was in effect until

2014 was in contravention of public policy, which discourages contracts that exist in

perpetuity. But a contract that is ongoing until it is terminated by either party is not one

of indefinite duration. The arbitrator interpreted the contract’s plain language to

encompass a means of termination, i.e., that either party can permissibly withdraw after

providing a 90-day written notice. Accordingly, we agree with the District Court that

public policy concerns regarding a contract of indefinite duration do not apply here.

Again, because the arbitrator’s interpretation of the termination provision’s plain

language, at the very least, “‘draws its essence’ from or ‘arguably construes or applies’

the parties’ contract,” it must withstand our review on appeal. Metromedia Energy, 409
6
F.3d at 584 (quoting News Am. Pub. v. Newark Typographical Union, 918 F.2d 21, 24

(3d Cir. 1990) (emphasis in original)).

       Since we have found all of Egan’s contentions to be without merit, we affirm the

District Court’s decision to deny its petition to vacate the partial final award of the

arbitration. The case is hereby returned to arbitration so that damages can be assessed.

                                              7