PVI v. ratiopharm GmbH ( 1998 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 97-2192
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PVI, Inc., and William G. Skelly, *
*
Appellees, *
*
v. * Appeal from the United States
* District Court for the Western
ratiopharm GmbH, * District of Missouri.
A German Corporation, *
*
Appellant. *
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Submitted: December 10, 1997
Filed: February 10, 1998
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Before FAGG, BEAM, and MORRIS SHEPPARD ARNOLD, Circuit Judges.
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MORRIS SHEPPARD ARNOLD, Circuit Judge.
In 1995, ratiopharm GmbH bought 51 percent of the stock of a pharmaceutical
company called Martec. PVI, Inc., and William G. Skelly owned all of Martec's stock
prior to the sale, and thus retained a 49 percent interest thereafter. In connection with
the purchase, ratiopharm, PVI, and Mr. Skelly entered into a stockholders' agreement
containing several options provisions, exercisable at various future times and under
various conditions.
The clause at issue in this case provides that at any time after five years from the
date of the agreement, PVI, Mr. Skelly, and another entity not a party to this suit each
"ha[d] a separate option to require ratiopharm to purchase all, but not less than all, of
their stock ... for the purchase price and upon the terms set forth in Sections 6 and 7."
Under these last provisions, the purchase price was to be determined by the agreement
of the parties, unless they were unable to agree, in which case they were simultaneously
to submit to each other proposed prices "based on an appropriate multiple of Martec's
earnings or sales and other factors deem[ed] appropriate." If the proposed prices were
within 10 percent of each other, the purchase price would be the average of the two.
If the proposed prices were not within 10 percent of each other, the parties were to
select a neutral expert who would decide "which submitted purchase price best
approximates the fair market value of the Stock." The determination of the expert
would be "final, binding, and conclusive."
Later in 1995, PVI exercised its option. The parties were unable to agree on a
price for PVI's and Mr. Skelly's interests, and the offers were not within 10 percent of
each other. (Ratiopharm valued the stock that it was to purchase at $545,860; PVI and
Mr. Skelly valued the stock that they were to sell at $36,750,000.) In accordance with
the terms of the stockholders' agreement, the parties submitted their respective
valuations to a neutral expert to resolve the dispute, and the dispute was seemingly
resolved when the expert chose ratiopharm's valuation as the closer approximation of
the fair market value of the stock. PVI, however, then brought an action for breach of
contract asking for monetary and equitable relief. Nearly a year after the action was
filed, ratiopharm moved in the district court1 for a confirmation of the expert's valuation
as an arbitration award. The district court denied the motion; ratiopharm appeals. We
affirm.
1
The Honorable Fernando J. Gaitan, Jr., United States District Judge for the
Western District of Missouri.
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Ratiopharm's motion for enforcement of the independent valuation as an
arbitration award was based on the Federal Arbitration Act ("FAA"), see 9 U.S.C. § 9,
but we believe that confirmation under the FAA is unavailable in these circumstances.
That is because the FAA provides that a party to an arbitration may apply to the court
for confirmation of an arbitration award only "[i]f the parties in their agreement have
agreed that a judgment of the court shall be entered upon the award made pursuant to
the arbitration." Id. Nowhere in the relevant agreement did the parties to this case
provide that a judgment of the court should be entered upon the award. While the
parties may argue about whether the expert's valuation was truly an arbitration and
whether the prices that the parties submitted to the expert were submitted in accordance
with the terms of the contract, they may not do so in the course of seeking a
confirmation of the award under the FAA.
We recognize that several cases in other circuits have found the requisite
agreement to have judgment entered in boilerplate similar to that contained in this
agreement, namely, a recitation that "[t]he determination of such expert [or arbitrator]
shall be final, binding and conclusive." The Seventh Circuit in Milwaukee
Typographical Union No. 23 v. Newspapers, Inc., 639 F.2d 386, 389-90 (7th Cir.
1981), cert. denied, 454 U.S. 838 (1981), for instance, found that the agreement
required by the FAA need not be explicit, and that language such as "final and binding"
satisfies the statutory requirement. The Second Circuit in In re I/S Stavborg v.
National Metal Converters, Inc., 500 F.2d 424, 426-27 (2d Cir. 1974), noted that the
FAA's agreement requirement reflects a desire to "ensure that the parties have
affirmatively agreed to the application of the federal substantive law contemplated by
the Act," but the court nevertheless went on to hold that the parties in that case had
expressed their consent to an entry of judgment by, among other things, using language
like that quoted above.
Other courts, however, have refused to find the requisite agreement in this
ambiguous environment. The Tenth Circuit, commenting on the thought process that
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equates the phrase "final and binding" with the seemingly express terms required by the
FAA, noted that the "logic is questionable" because § 9 requires that the parties agree
"in the agreement," implying that an explicit enforcement agreement must be present
in the relevant written document. Oklahoma City Associates v. Wal-Mart Stores, Inc.,
923 F.2d 791, 794 (10th Cir. 1991). The court also observed that "without more, it is
equally plausible that a finality clause could be interpreted to mean [that] the parties
intended to have the award enforced in state rather than federal court." Id. (emphasis
in original).
If an award is "binding," the argument runs, it must necessarily be enforceable
in a court of law. We agree. But we do not agree that the mere inclusion of the phrase
"final and binding" in an agreement to arbitrate makes the award enforceable under the
FAA. Perhaps there is an action to enforce this award, if it is one, under the relevant
state law. At common law, for instance, the existence of an arbitration award created
for one of the parties an obligation to pay money, enforceable by the other party in an
action of debt.
Ratiopharm, however, has not asked for a remedy under state law, even though
there is diversity between the parties, and the fact that it might have some other remedy
is not relevant to the question of whether it has one under the FAA. Enforcement under
the FAA brings all of the substantive provisions of the act to bear on the arbitration and
award in dispute. An action under state law, on the other hand, might involve the
application of different kinds of substantive rules and defenses. It is clear to us that
Congress intended for the substantive provisions of the FAA to apply only when the
parties affirmatively agreed that they should.
We therefore affirm the district court's denial of confirmation under the FAA.
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A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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