HAYDAY FARMS, INC. V. FEEDX HOLDINGS, INC. ( 2022 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
HAYDAY FARMS, INC., FKA Nos. 21-55650
Hayday Farms Holdings, Ltd., a 21-55698
former California corporation;
NIPPON KOKUSAI D.C. No.
AGRICULTURAL HOLDINGS, 2:21-cv-00346-
INC., a Samoa corporation, JGB-SP
Petitioners-Appellees/
Cross-Appellants, OPINION
v.
FEEDX HOLDINGS, INC., a
Cayman Islands corporation,
Respondent-Appellant/
Cross-Appellee.
Appeal from the United States District Court
for the Central District of California
Jesus G. Bernal, District Judge, Presiding
Argued and Submitted September 1, 2022
Pasadena, California
Filed December 19, 2022
2 HAYDAY FARMS V. FEEDX HOLDINGS, INC.
Before: Milan D. Smith, Jr. and Ryan D. Nelson, Circuit
Judges, and Gershwin A. Drain, * District Judge.
Opinion by Judge R. Nelson
SUMMARY **
Arbitration
The panel affirmed in part, and reversed in part, the
district court’s order confirming in part an arbitration award
of more than $21 million entered against FeeDx Holdings,
Inc. for breach of contract.
FeeDx and HayDay Farms, Inc. entered into an
Exclusive Distribution and Processing Agreement
(EDPA). HayDay’s President also entered into a Consulting
Agreement with FeeDx through Nippon Agricultural
Holgins, Inc. The agreements provided for arbitration. The
EDPA also made HayDay and Nippon jointly and severally
liable. Neither HayDay nor FeeDx performed its side of the
agreement. The parties entered a Settlement Agreement,
which modified, but did not replace, the EDPA. After the
Settlement Agreement did not see fruition, the parties went
to arbitration. An arbitration tribunal made awards against
FeeDx, and HayDay and Nippon petitioned to confirm the
*
The Honorable Gershwin A. Drain, United States District Judge for the
Eastern District of Michigan, sitting by designation.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
HAYDAY FARMS V. FEEDX HOLDINGS, INC. 3
award. FeeDx sought to vacate the award, arguing that it
exceeded the tribunal’s powers under the Federal Arbitration
Act (“FAA”). The district court vacated $7 million from the
award that reflected HayDay’s unpaid installments under the
Settlement Agreement, but confirmed the rest of the award.
The panel first considered the issue of jurisdiction. The
parties asserted diversity jurisdiction below and on
appeal. The panel held that there was no complete diversity
of citizenship because there were foreign plaintiffs suing
foreign defendants. The panel examined whether another
basis for jurisdiction existed.
The panel held that arbitration awards that, as here,
involve at least one foreign party are governed by the
Convention on the Recognition and Enforcement of Foreign
Arbitral Awards (“Convention”), which Congress
incorporated into federal law under the FAA. 9 U.S.C. § 203provides federal district courts subject matter jurisdiction
over actions or proceedings falling under the
Convention. No party asserted Section 203 as a basis for
jurisdiction until the panel requested supplemental briefing
on the issue. The panel held that the parties’ failure to assert
federal question jurisdiction did not deprive the district court
of subject matter jurisdiction where HayDay and Nippon’s
state court petition established § 203 jurisdiction. The
district court had subject matter jurisdiction, and this court
had appellate jurisdiction under 9 U.S.C. § 16 and 28 U.S.C.
§ 1291.
FeeDx asked the panel to vacate the arbitration award
pursuant to 9 U.S.C. § 10(a)(4). Whether the FAA grounds
for vacatur are available for awards governed by the
Convention is an issue of first impression before the
court. The panel agreed with the Second, Third, Fifth, Sixth,
4 HAYDAY FARMS V. FEEDX HOLDINGS, INC.
Tenth, and D.C. Circuits that FAA grounds for vacatur were
available for awards governed by the Convention.
The panel held that Section 10(a)(4) was a high standard
for vacatur, and was only warranted when an arbitration
award exhibited a manifest disregard of law or was
completely irrational. FeeDx argued the tribunal’s award of
$19.2 million in damages to HayDay and Nippon was
completely irrational and manifestly disregarded the
law. Specifically, FeeDx claimed that if the tribunal had
properly interpreted the Settlement Agreement, FeeDx
would have received an award worth $4.4 million, rather
than being liable for a much larger amount. FeeDx claimed
this outcome manifestly disregarded Cal. Civ. Code §
3358. The panel held that whether an arbitration award
deviates from the best interpretation of the parties’
agreement was not the standard for vacatur. The correct
standard was whether the award exhibited a manifest
disregard of law or reflected a completely irrational
interpretation of the parties’ agreements.
Under the appropriate standard of review, the panel
agreed with the district court that the arbitrators’ award
should be confirmed on this issue. First, the award was not
irrational because it drew its essence from the parties’
agreement and did not ignore its controlling terms. Second,
this portion of the award reflected a plausible interpretation
of the parties’ contracts. The tribunal determined the value
of FeeDx’s obligations under the Settlement Agreement to
be $16.6 million for purchases predating the Agreement and
$2.6 million following it. The panel held that because under
this interpretation the award of pre-settlement damages did
not put HayDay in a better position than it would have been
in with full performance, the award also did not exhibit a
manifest disregard of § 3358.
HAYDAY FARMS V. FEEDX HOLDINGS, INC. 5
The tribunal also held that HayDay’s obligation to pay
FeeDx $8 million had been excused by FeeDx’s breach, so
it did not subtract that amount (less the $1 million that
HayDay had actually paid under the Settlement Agreement)
from the award. The district court found that this put
HayDay and Nippon in a better position than it would have
been in had both agreements been fully performed. The
panel held that the tribunal did not manifestly disregard §
3358. In addition, the tribunal’s decision was not
completely irrational. Accordingly, the district court erred
in vacating $7 million of the award. The panel reversed the
district court’s vacatur of this portion of the award.
FeeDx argued that under the plain terms of the
Settlement Agreement’s fee provision, Nippon cannot
recover its expenses in connection with the dispute, only
FeeDx or HayDay may recover. The panel held that the
tribunal’s interpretation that Nippon was a prevailing party
was not completely irrational. The Settlement Agreement
did not explicitly say that only HayDay or Nippon could
recover fees and costs. Rather, it suggested that fees and
costs could be recovered only by the prevailing party when
FeeDx or HayDay brought a legal action to enforce its rights
under the Settlement Agreement. The panel held that
because both FeeDx and HayDay brought legal actions and
because Nippon could have been liable for HayDay’s alleged
breach, it can plausibly be viewed as a prevailing party who
can recover fees and costs.
Finally, FeeDx challenged the tribunal’s award of
attorneys’ fees and costs incurred litigating claims arising
under the EDPA to HayDay and Nippon. Under the
tribunal’s interpretation of the parties’ agreement, the EDPA
contained an attorneys’ fees provision that was added later
by the Settlement Agreement. Presumably, that modification
6 HAYDAY FARMS V. FEEDX HOLDINGS, INC.
had retroactive effect. The panel held that this interpretation
was not completely irrational, so it was a valid basis for the
tribunal’s award of pre-settlement attorneys’ fees.
The panel affirmed the part of the district court’s order
confirming the award, reversed the part of the district court’s
order vacating the award, and remanded with instructions to
confirm the whole award. Pursuant to the Settlement
Agreement, FeeDx shall be liable for litigation costs
associated with this action.
COUNSEL
Andrew M. Jacobs (argued), Snell & Wilmer LLP, Phoenix,
Arizona; Glenn Trost, Trost Legal PC, Glendale, California;
Jason T. Yu and Patricia Brum, Snell & Wilmer LLP, Los
Angeles, California; Anna M. Adams, Snell & Wilmer LLP,
Denver, Colorado; for Respondent-Appellant.
Charles D. Ferrari (argued), Ferrari Law PC, Rancho
Cucamonga, California; Joshua H. Eichenstein (argued),
Eichenstein Law Firm PC, Los Angeles, California; for
Petitioners-Appellees.
HAYDAY FARMS V. FEEDX HOLDINGS, INC. 7
OPINION
R. NELSON, Circuit Judge:
We review an arbitration award of more than $21 million
entered against FeeDx Holdings, Inc. for breach of contract.
Both sides appealed the district court’s order confirming the
award in part and vacating it in part. On appeal, we
questioned whether subject matter jurisdiction existed
because the parties were not diverse under 28 U.S.C. §
1332(a). We conclude that federal jurisdiction exists under
8 U.S.C. § 203 because the dispute arises under the
Convention on the Recognition and Enforcement of Foreign
Arbitral Awards. On the merits, we have serious concerns
about whether the arbitration award was correct. That said,
under the stringent deference we owe to arbitration awards,
we confirm the award, reversing the district court as to the
portion of the award that it vacated.
I
HayDay Farms, Inc. (HayDay) was a California
corporation that bought and grew forage crops. 1 To
1
HayDay was the original contracting party and the party that initiated
the underlying arbitration in 2017. It was merged out of existence in
2018, and HayDay Farms Holdings Ltd., a Delaware corporation, is the
surviving entity. Although Hayday ceased its existence at the time of
2018 merger, HayDay brought the underlying petition in that name
instead of its current legal name. HayDay Farms Holdings Ltd. holds
the rights HayDay asserts. FeeDx Holdings, Inc. named the existing
entity as a counterclaim defendant. No party challenged or otherwise
raised HayDay’s decision to bring this suit under the name of HayDay,
and the parties do not address the effect on HayDay’s ability to recover
on its claims. See, e.g., Fed. R. Civ. Pro. 25. The parties similarly made
8 HAYDAY FARMS V. FEEDX HOLDINGS, INC.
accelerate the company’s growth in the Asian market, in
2014, HayDay entered into a series of contracts with FeeDx
Holdings, Inc. (FeeDx), 2 a newly formed Cayman Islands
corporation. Under their Exclusive Distribution and
Processing Agreement (EDPA), FeeDx became HayDay’s
exclusive contractor and distributor for forage crops globally
and agreed to purchase a minimum quantity of crops from
HayDay annually. FeeDx agreed to pay HayDay $8 million
to expand HayDay’s operations. The parties entered into a
Supplemental Agreement where FeeDx agreed to purchase
from HayDay 170,000 metric tons of crops at $360 per
metric ton annually. Additionally, HayDay’s president
entered into a Consulting Agreement with FeeDx through
Nippon Kokusai Agricultural Holdings, Inc. (Nippon), a
later-formed Samoan corporation. The agreements provided
for dispute resolution through arbitration, to be administered
by the American Arbitration Association consistent with its
Commercial Arbitration Rules. The EDPA also made
HayDay and Nippon jointly and severally liable and
contained a California choice-of-law provision.
Neither HayDay nor FeeDx performed its side of the
agreement. FeeDx alleged HayDay could not supply
170,000 metric tons of crops per year and HayDay did not
no effort to alter the caption of this case. The HayDay entities will be
referred to collectively as “HayDay” in this opinion.
2
The parties’ names in their briefs are not consistent with their names in
the record. For example, FeeDx appears to be referred to as FeeDx
Cayman and FeeDx Holding, Inc. in the EDPA. Nippon Kokusai
Agricultural Holdings, Inc. appears in the EDPA as Nippon Kokusai
Investment Holdings, Inc. and in the Settlement Agreement as Nippon
Kokusai Agriculture Holdings, Inc. But the parties have not made any
distinction between these entities in this litigation.
HAYDAY FARMS V. FEEDX HOLDINGS, INC. 9
always charge $360 per ton, but sometimes more and
sometimes less. FeeDx also claimed that HayDay violated
the exclusivity agreement by selling to other customers.
For its part, HayDay alleged that FeeDx failed timely to
purchase hay, paid invoices late, failed to pay contracted
prices, failed to purchase all of HayDay’s production and
generally underfunded HayDay’s operations so it could not
fulfill its obligations under the EDPA.
To resolve their dispute, the parties entered into the
Settlement Agreement (SA) to wind down and terminate
their relationship. The SA modified, but did not replace, the
EDPA. Its key modifications were that:
• HayDay would pay FeeDx $8 million in monthly
installments.
• Once HayDay paid $8 million, the parties would
mutually release all claims arising under the EDPA, and
terminate the EDPA.
• As of December 2016, HayDay’s obligation to sell to
FeeDx and FeeDx’s obligation to purchase crops from
HayDay would terminate.
• If FeeDx or Hayday brought legal action to enforce
their rights under the SA, the prevailing party would be
entitled to recover expenses, including reasonable attorneys’
fees.
Like the prior arrangement, the SA never saw fruition.
After signing the SA, FeeDx did not purchase any forage
crops, though it was obligated to do so through the end of
2016. HayDay made its first $1 million installment payment
but did not pay the remaining $7 million.
10 HAYDAY FARMS V. FEEDX HOLDINGS, INC.
The parties went to arbitration. HayDay brought claims
against FeeDx for, among other things, (i) breach of the
EDPA, (ii) a declaration that the SA was void, and (iii)
rescission of the SA. Nippon brought claims against FeeDx
for declaratory relief and rescission of the SA. FeeDx
brought a counterclaim against HayDay for breach of the
SA, but no claims against Nippon.
Three arbitrators (“tribunal”) conducted the proceedings,
which spanned four years in two phases. In the liability
phase, the tribunal held that the SA was neither void nor
rescinded, and that it modified, but did not supplant, the
EDPA. It held that pre-settlement claims were never
released because FeeDx had materially breached the SA by
failing to continue purchasing crops, which excused
HayDay’s payment of the remaining $7 million. The
tribunal also held that FeeDx had breached the EDPA by
failing either to timely pay invoices or purchase required
quantities. The tribunal rejected both of Nippon’s claims.
In the damages phase, the tribunal made awards against
FeeDx and in favor of HayDay and Nippon. It awarded
HayDay and Nippon jointly $19,249,596 for lost profits
under the EDPA (including $2,639,622 for profits lost
between the SA’s signing and the end of 2016). It also
awarded them $1,648,620.17 in attorneys’ fees and
expenses. Finally, the tribunal declined to reduce the award
by the additional $7 million that HayDay would have had to
pay FeeDx had the SA been fully performed because it was
“not unreasonable” for HayDay to expect to use profits from
FeeDx’s ongoing crop purchases to pay the required $8
million under the SA.
HayDay and Nippon petitioned in state court to confirm
the award. FeeDx removed the case to federal court,
HAYDAY FARMS V. FEEDX HOLDINGS, INC. 11
asserting diversity jurisdiction under 28 U.S.C. § 1332(a).
FeeDx asserted no other ground for subject matter
jurisdiction.
FeeDx then sought to vacate the award, arguing that it
exceeded the tribunal’s powers under the Federal Arbitration
Act (FAA). In relevant part, FeeDx disputed (1) the award
of pre-settlement damages of about $16.6 million to HayDay
and Nippon, (2) the award of damages, attorneys’ fees, and
costs generally to Nippon, and (3) award of attorneys’ fees
and costs to HayDay and Nippon for breach of the EDPA.
The district court did not consider its jurisdiction; it
proceeded to the merits. The district court vacated $7
million from the award that reflected HayDay’s unpaid
installments under the SA. The district court reasoned that
the tribunal’s inclusion of that amount put HayDay in a
better position than it would have been in had the SA been
fully performed. The tribunal thus manifestly disregarded
California law, which bars any person from receiving a
windfall from the breach of a contract. The district court
confirmed the rest of the award. The parties timely appealed.
II
We review our jurisdiction de novo. Hunt v. Imperial
Merch. Servs., Inc., 560 F.3d 1137, 1140 (9th Cir. 2009).
We review a district court’s decision to confirm or vacate an
arbitration award de novo. United States v. Park Place
Assocs., Ltd., 563 F.3d 907, 918 (9th Cir. 2009) (citation
omitted).
III
We must first determine our jurisdiction. “It is the duty
of federal courts to assure themselves that their jurisdiction
is not being exceeded.” In re Ryther, 799 F.2d 1412, 1414
12 HAYDAY FARMS V. FEEDX HOLDINGS, INC.
(9th Cir. 1986) (quoting Csibi v. Fustos, 670 F.2d 134, 136
n.3 (9th Cir. 1982)). “Lack of subject matter jurisdiction can
be asserted by any party at any time or raised by a court sua
sponte.” Id. (citation omitted).
The parties asserted diversity jurisdiction below and on
appeal. 3 Section 1332(a)(2) grants district courts original
jurisdiction over civil actions with an amount in controversy
exceeding $75,000 between “citizens of a State and citizens
or subjects of a foreign state.” It has long been established
that “[d]iversity jurisdiction does not encompass foreign
plaintiffs suing foreign defendants.” Faysound Ltd. v.
United Coconut Chems., Inc., 878 F.2d 290, 294 (9th Cir.
1989) (citing Cheng v. Boeing Co., 708 F.2d 1406, 1412 (9th
Cir. 1983)). This is the “complete diversity” requirement.
Here, we have a Samoan corporation (Nippon) and a
Cayman Islands corporation (FeeDx) on opposite sides of
the litigation. At face value, this would render diversity of
citizenship incomplete. See Ruhrgas AG v. Marathon Oil
Co., 526 U.S. 574, 580 n.2 (1999). Even so, because we
must determine our own jurisdiction, we may examine
whether another basis for jurisdiction exists. See, e.g.,
Fidelity & Cas. Co. v. Reserve Ins. Co., 596 F.2d 914, 918
(9th Cir. 1979) (“[D]ismissing a case for want of jurisdiction
is not favored when an alternative basis for jurisdiction
exists even if the alternative basis was not asserted in the trial
court.”).
Arbitration awards that, as here, involve at least one
foreign party are governed by the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards
3
HayDay and Nippon reversed their position after we requested
supplemental briefing on jurisdiction.
HAYDAY FARMS V. FEEDX HOLDINGS, INC. 13
(“Convention”), June 7, 1959, 21 U.S.T. 2517, which
Congress incorporated into federal law in the FAA. See 9
U.S.C. § 202. Section 203 provides federal district courts
subject matter jurisdiction over actions or proceedings
falling under the Convention. See Day v. Orrick, Herrington
& Sutcliffe, LLP, 42 F.4th 1131, 1133 (9th Cir. 2022).
Section 203 would appear to be a straightforward grant
of subject matter jurisdiction here. But neither party asserted
it as a basis for jurisdiction until we requested supplemental
briefing on the issue. We therefore must consider whether
the parties’ failure to assert federal question jurisdiction
deprived the district court of subject matter jurisdiction.
HayDay and Nippon first petitioned to confirm the award
in state court, and FeeDx removed it to federal district court,
asserting only diversity jurisdiction. The case was not
remanded, and district court entered final judgment. “Once
judgment has been entered in a case that was removed to
federal court . . . . [t]he issue becomes not whether the
removal was proper, but whether the district court had
jurisdiction at the time it issued its judgment.” Rains v.
Criterion Sys., Inc., 80 F.3d 339, 342 (9th Cir. 1996)
(citation omitted).
Here, HayDay and Nippon’s state court petition
established § 203 jurisdiction. A cause of action “arises
under” federal law for jurisdictional purposes when the
plaintiff’s well-pleaded complaint raises federal law issues,
even if the federal claim is not explicitly invoked. See, e.g.,
Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 67 (1987).
HayDay and Nippon’s state court petition stated that it was
an action to confirm an arbitration award, and stated that the
award was between at least one foreign party. Those facts
trigger § 203. And under § 203, any petition to confirm,
14 HAYDAY FARMS V. FEEDX HOLDINGS, INC.
vacate, or modify an international arbitration award is
federal in character.
Thus, the district court had subject matter jurisdiction
over the action. And we have appellate jurisdiction under 9
U.S.C. § 16 and 28 U.S.C. § 1291. We now proceed to the
merits.
IV
FeeDx asks us to vacate the arbitration award pursuant
to 9 U.S.C. § 10(a)(4), which grants us extremely limited
authority to review arbitration awards.
A
Section 10(a)(4) is not expressly made available by the
Convention, which governs the instant award. Whether the
FAA grounds for vacatur are available for awards governed
by the Convention is an issue of first impression for us. That
said, we do not decide this question on a blank slate. The
Second, Third, Fifth, Sixth, Tenth, and D.C. Circuits have all
concluded that FAA defenses are available for awards
governed by the Convention. See Goldgroup Res., Inc. v.
DynaResource de Mexico, S.A. de C.V., 994 F.3d 1181,
1189–90 (10th Cir. 2021) (collecting cases). To our
knowledge, no circuit has concluded that they are not. 4
4
The Eleventh Circuit has held that “no defense against enforcement of
an international arbitral award under Chapter 2 of the FAA is available
on the ground that the award is ‘arbitrary and capricious,’ or on any other
grounds not specified by the Convention.” Indus. Risk Insurers v.
M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434, 1443 (11th Cir.
1998). Because we hold that Article V(1)(e) of the Convention
incorporates FAA defenses, see infra, our holding does not conflict with
Industrial Risk Insurers.
HAYDAY FARMS V. FEEDX HOLDINGS, INC. 15
We agree that FAA grounds for vacatur are available for
awards governed by the Convention. We have already held
that “[w]hen interpreting the defenses to confirmation of an
arbitration award under the Convention, we may look to
authority under the FAA.” Polimaster Ltd. v. RAE Sys., Inc.,
623 F.3d 832, 836 (9th Cir. 2010) (citation omitted). And
Article V(1)(e) of the Convention provides a defense to
confirmation if the award “has been set aside or suspended
by a competent authority of the country in which, or under
the law of which, that award was made.” Courts have
generally adopted the Second Circuit’s view that Article
V(1)(e) “contemplates that the [country] in which, or under
the law of which, the award is made, will be free to set aside
or modify an award in accordance with its domestic arbitral
law and its full panoply of express and implied grounds for
relief.” Yusuf Ahmed Alghanim & Sons v. Toys “R” Us, Inc.,
126 F.3d 15, 23 (2d Cir. 1997); see also Ario v. Underwriting
Members of Syndicate 53 at Lloyds for 1998 Year of Acct.,
618 F.3d 277, 291–92 (3d Cir. 2010); Gulf Petro Trading
Co., v. Nigerian Nat’l Petroleum Corp., 512 F.3d 742, 746
(5th Cir. 2008); Jacada (Eur.), Ltd. v. Int’l Mktg. Strategies,
Inc., 401 F.3d 701, 709 (6th Cir. 2005), abrogated on other
grounds by Hall St. Assocs., LLC v. Mattel, Inc., 552 U.S.
576 (2008); TermoRio S.A. E.S.P. v. Electranta S.P., 487
F.3d 928, 935 (D.C. Cir. 2007). We find that reasoning
persuasive.
B
Even with FAA grounds for vacatur available to FeeDx,
§ 10(a)(4) “is a high standard for vacatur.” Lagstein v.
Certain Underwriters at Lloyd’s, London, 607 F.3d 634, 641
(9th Cir. 2010). We may vacate an arbitration award only
“where the arbitrators exceeded their powers, or so
imperfectly executed them that a mutual, final, and definite
16 HAYDAY FARMS V. FEEDX HOLDINGS, INC.
award upon the subject matter submitted was not made.”
§ 10(a)(4). “[I]t is not enough [] to show that the [arbitrator]
committed an error–or even a serious error.” Lagstein, 607
F.3d at 641. This “extremely limited” review authority “is
designed to preserve due process but not to permit
unnecessary public intrusion into private arbitration
procedures.” Kyocera Corp. v. Prudential-Bache Trade
Servs., Inc., 341 F.3d 987, 998 (9th Cir. 2003).
Vacatur under § 10(a)(4) is warranted when an
arbitration award exhibits a manifest disregard of law or is
completely irrational. “[M]anifest disregard . . . requires
something beyond and different from a mere error in the law
or failure on the part of the arbitrators to understand and
apply the law.” Bosack v. Soward, 586 F.3d 1096, 1104 (9th
Cir. 2009) (citations and internal quotations omitted). “To
demonstrate manifest disregard, the moving party must
show that the arbitrator understood and correctly stated the
law, but proceeded to disregard the same.” Id. (citations
omitted and cleaned up). “There must be some evidence in
the record, other than the result, that the arbitrators were
aware of the law and intentionally disregarded it.” Id.(citations omitted and cleaned up). We also must accept the
arbitrator’s findings of fact. See Carter v. Health Net of Cal.,
Inc., 374 F.3d 830, 838 (9th Cir. 2004) (“Errors of fact do
not generally constitute manifest disregard” of law).
An award may also be vacated if it is “completely
irrational.” Bosack, 586 F.3d at 1106 (quoting Comedy
Club, Inc. v. Improv W. Assocs., 553 F.3d 1277, 1288 (9th
Cir. 2009)). “Under this standard of review, we decide only
whether the arbitrator’s decision draws its essence from the
contract, not the rightness or wrongness of the arbitrator’s
contract interpretation.” Aspic Eng’g & Constr. Co. v. ECC
Centcom Constructors LLC, 913 F.3d 1162, 1166 (9th Cir.
HAYDAY FARMS V. FEEDX HOLDINGS, INC. 17
2019) (cleaned up). An award is completely irrational if it
ignores controlling terms of the parties’ contract. See
Bosack, 586 F.3d at 1107; Aspic, 913 F.3d at 1167.
Further, “[a]n arbitrator does not exceed its authority if
the decision is a plausible interpretation of the arbitration
contract.” U.S. Life Ins. Co. v. Superior Nat. Ins. Co., 591
F.3d 1167, 1177 (9th Cir. 2010) (citations and internal
quotations omitted). “Accordingly, the court must defer to
the arbitrator’s decision as long as the arbitrator even
arguably construed or applied the contract.” Id. (cleaned
up).
1
FeeDx argues that the tribunal’s award of $19.2 million
in damages to HayDay and Nippon is completely irrational
and manifestly disregards the law. FeeDx claims that if the
tribunal had properly interpreted the SA, FeeDx would have
received an award worth $4.4 million, rather being liable for
a much larger amount. 5 Thus, HayDay and Nippon’s total
damages award of $19.2 million, FeeDx claims, put it in a
far better position than if both parties performed under the
SA. FeeDx claims that outcome manifestly disregards Cal.
Civ. Code § 3358, which prohibits a person from recovering
“a greater amount in damages for the breach of an obligation,
than he could have gained by the full performance thereof on
both sides.” FeeDx briefed the tribunal on § 3358, but the
tribunal never acknowledged it.
5
According to this view of the SA, FeeDx would have owed HayDay
$2.6 million in damages representing HayDay’s profit from FeeDx’s
crop purchases from September to December 2016; HayDay would have
paid FeeDx the remaining $7 million unpaid settlement balance; and pre-
settlement claims of both parties would have been released.
18 HAYDAY FARMS V. FEEDX HOLDINGS, INC.
FeeDx probably offers the best interpretation of the
parties’ agreements, because it fully resolves the parties’
pre-settlement claims, as we think they intended. But
whether an arbitration award deviates from the best
interpretation of the parties’ agreement is not the standard
for vacatur; we ask whether the award exhibits a manifest
disregard of law or reflects a completely irrational
interpretation of the parties’ agreements. Imposing a stricter
standard of review would interfere with the parties’
bargained-for contract to resolve their dispute through
binding arbitration. Under the appropriate standard of
review, we agree with the district court that the arbitrators’
award should be confirmed on this issue.
First, the award was not irrational because it drew its
essence from the parties’ agreement and did not ignore its
controlling terms. See Comedy Club, 553 F.3d at 1288. The
tribunal considered the parties’ various contracts. It
correctly acknowledged that the condition precedent for the
release of EDPA claims—HayDay’s final installation
payment—never occurred. And it correctly noted that the
SA modified the EDPA without supplanting it. The award
was not some form of vigilante justice; it was tribunal’s best
effort to construe the parties’ agreement.
Second, this portion of the award reflects a plausible
interpretation of the parties’ contracts. See Bosack, 586 F.3d
at 1107. There is a rational alternative interpretation of the
SA that does not bring the award of pre-settlement damages
in conflict with § 3358, which goes like this: The SA
modified FeeDx’s purchase obligations under the EDPA,
terminating them on December 31, 2016. But since the SA
did not supplant the EDPA, FeeDx’s full performance of its
duties under the modified EDPA—performance required
under the SA through 2016—required it to not only satisfy
HAYDAY FARMS V. FEEDX HOLDINGS, INC. 19
its purchase obligations from the start of the SA, but to
satisfy all its purchase obligations under the EDPA,
including, retroactively, those that preceded the SA.
Although the tribunal did not expressly indicate that this was
the interpretation of the SA it adopted, the award itself
suggests this is the view it took.
According to this interpretation, then, for FeeDx to fully
perform its obligations under the SA, it would have needed
to continue its crop purchases through 2016 and retroactively
meet its EDPA obligations that predated the SA. The
tribunal determined the value of these obligations to be $16.6
million for purchases predating the SA and $2.6 million
following it. Had FeeDx satisfied those purchase
obligations, HayDay would not have been excused from its
obligation to pay FeeDx $8 million. HayDay would have
paid the $8 million, satisfying the release-of-claims
condition, and all pre-settlement claims would be released.
But the $16.6 million in pre-settlement damages would not
be released, because it had been paid to HayDay as part of
FeeDx’s full performance under the EDPA-cum-SA.
Again, this is probably a misreading of the SA: What
incentive would FeeDx have to agree to such a settlement?
But that interpretation is plausible. Because the complete
irrationality standard “is extremely narrow and is satisfied
only where the arbitration decision fails to draw its essence
from the agreement,” Comedy Club, 553 F.3d at 1288(cleaned up), FeeDx’s effort to vacate the award on that
ground, though sympathetic, fails. To hold otherwise would
impermissibly interfere with the parties’ contractual choice
to arbitrate their dispute, and grant FeeDx an unwarranted
do-over.
20 HAYDAY FARMS V. FEEDX HOLDINGS, INC.
Because under this interpretation the award of pre-
settlement damages did not put HayDay in a better position
than it would have been in with full performance, the award
also did not exhibit a manifest disregard of § 3358.
2
But the tribunal did not just hold that HayDay and
Nippon could recover both pre- and post-settlement
damages. It also held that HayDay’s obligation to pay
FeeDx $8 million had been excused by FeeDx’s breach, so
it did not subtract that amount (less the $1 million that
HayDay had actually paid under the SA) from the award.
The district court found that this put HayDay and Nippon
in a better position than they would have been in had both
agreements been fully performed. According to the
tribunal’s interpretation of the SA, discussed above, FeeDx
had to make purchases worth $19.2 million, HayDay would
make installment payments of $8 million, and all pre-
settlement claims would be released. This would net
HayDay $11.2 million. The tribunal, however, awarded
HayDay and Nippon $18.2 million ($19.2 million minus
HayDay’s $1 million installment payment). According to
the logic of the award, HayDay and Nippon seemingly
received a windfall of $7 million.
That windfall arguably violates California law, which
governs the parties’ contracts. Once more, Cal. Civ. Code §
3358 states: “Except as expressly provided by statute, no
person can recover a greater amount in damages for the
breach of an obligation, than he could have gained by the full
performance thereof on both sides.”
Even so, the tribunal did not manifestly disregard
§ 3358. True, FeeDx briefed the tribunal on the statute, so
HAYDAY FARMS V. FEEDX HOLDINGS, INC. 21
the tribunal was “aware” of this general principle. Bosack,
586 F.3d at 1104. But as the district court found, there is no
sign that the tribunal recognized that § 3358 applied to the
set of facts before it—such that it “intentionally disregarded”
§ 3358. Id. If the tribunal did not recognize that its award
provided HayDay and Nippon a windfall, it could not have
manifestly disregarded a law prohibiting that outcome.
For that reason, the district court erred in vacating $7
million of the award. The district court reasoned that “the
impact of this omission is too significant to be countenanced
in light of Section 3358,” and that HayDay and Nippon’s
windfall in violation of § 3358 alone was sufficient grounds
to vacate that portion of the award. We share the district
court’s concern about a seemingly unfair damages award
that likely violates § 3358. But Congress has carefully
limited our authority to review arbitration awards under the
FAA, which does not permit “unnecessary public intrusion
into private arbitration procedures.” U.S. Life, 591 F.3d at
1173. And Congress did so for valid reasons—to protect the
contractual choice by the parties to “forgo the procedural
rigor and appellate review of the courts in order to realize the
benefits of private dispute resolution: lower costs, greater
efficiency and speed, and the ability to choose expert
adjudicators to resolve specialized disputes.” Lamps Plus,
Inc. v. Varela, 139 S. Ct. 1407, 1416 (2019). Because the
tribunal did not manifestly disregard § 3358, we lack the
power to vacate this portion of the award.
FeeDx correctly notes that our precedent supports the
proposition that “[i]n some circumstances . . . legally
dispositive facts are so firmly established that an arbitrator
cannot fail to recognize them without manifestly
disregarding the law.” Coutee v. Barington Cap. Grp., 336
F.3d 1128, 1133 (9th Cir. 2003) (citation omitted). It argues
22 HAYDAY FARMS V. FEEDX HOLDINGS, INC.
that HayDay and Nippon’s windfall is a “legally dispositive
fact,” so the award exhibited manifest disregard of the law
whether or not the tribunal recognized that § 3358 applied.
Not so. The quintessential example of a “legally
dispositive fact” we considered in Coutee came from an
earlier case, American Postal Workers Union v. U.S. Postal
Service, 682 F.2d 1280 (9th Cir. 1982). Coutee, 336 F.3d at
1133. In American Postal, we reviewed an arbitration
decision requiring the Postal Service to reinstate a former
employee who had conceded that he had participated in a
federal strike, despite federal law prohibiting persons who
had participated in a strike against the federal government
from holding federal government positions. 682 F.2d at1284–86. We said that even if the arbitrator had not
recognized that the employee had participated in a strike,
because that fact was not in dispute in the record, the
arbitrator could not have disregarded it without manifestly
disregarding the law. Id. at 1284. In Coutee, we explained
that American Postal “recognizes that because facts and law
are often intertwined, an arbitrator’s failure to recognize
undisputed, legally dispositive facts may properly be
deemed a manifest disregard for the law.” 336 F.3d at 1133.
HayDay and Nippon’s $7 million windfall is not the
same sort of undisputed, legally dispositive fact we had in
mind when we considered that picketing postal employee.
Rather, the windfall is an inference about HayDay and
Nippon’s relative position compared to a counterfactual
world in which all parties had fully performed. Section
§ 3358 does not set forth a specific standard with which the
award would be objectively at odds. Instead, § 3358 says no
person can recover a greater amount from a contract’s breach
than from its performance. Purely on its face, that standard
imposes a legal conclusion based on factual findings of the
HAYDAY FARMS V. FEEDX HOLDINGS, INC. 23
import of the parties’ relative performance. The award does
not conflict with that admonishment. So, even under
Coutee’s more permissive standard, the award is not legally
irreconcilable in the way that standard requires. To hold
otherwise requires a merits review that the FAA does not
authorize. Biller v. Toyota Motor Corp., 668 F.3d 655, 664
(9th Cir. 2012).
Finally, because the tribunal’s decision not to reduce the
award by the $7 million was not based on its interpretation
of the parties’ contracts, but on its application of legal
principles to fashion a remedy for the contracts’ breach, it
was not completely irrational.
We therefore reverse the district court’s vacatur of this
portion of the award. We do not do so gladly. This award
shows in stark terms the real risks that parties assume when
they trade away their right to adjudicate their claims in court
for the potential efficiencies of arbitration. When, as here,
things go wrong, our power to fix them is uncomfortably,
but plainly, limited under the FAA.
B
FeeDx argues that under the plain terms of the SA’s fee
provision, Nippon cannot recover its expenses (“fees and
costs”) in connection with the dispute. The SA states: “If
FeeDx or Hayday brings legal action to enforce its rights
under this Settlement Agreement, the prevailing party will
be entitled to recover its expenses (including reasonable
attorneys’ fees) incurred in connection with action and any
appeal.” FeeDx claims that based on the express language
of this provision, only FeeDx or HayDay, but not Nippon, is
allowed to recover fees and costs arising under the SA.
24 HAYDAY FARMS V. FEEDX HOLDINGS, INC.
The tribunal’s interpretation that Nippon is a prevailing
party is not completely irrational. The tribunal credited
HayDay and Nippon’s position on the definition of a
prevailing party in the award based on DisputeSuite.com,
LLC v. Scoreinc.com, 2 Cal. 5th 968 (2017). That case, at
least within the context of a California fee-recovery statute,
defined the prevailing party as including “a defendant who
defeats recovery by the plaintiff on the plaintiff’s entire
contract claim.” Id. at 973. Under the EDPA, HayDay and
Nippon were jointly and severally liable, and the SA did not
modify that provision. If FeeDx had prevailed in its claim
against HayDay for breach, Nippon may have been liable
under the joint and several liability clause, which the tribunal
viewed as still in effect. It is plausible then that Nippon was
a “defendant who defeats recovery” as “prevailing party”
was defined in DisputeSuite.com.
The SA also does not explicitly say that only HayDay or
Nippon could recover fees and costs. Rather, it suggests that
fees and costs can be recovered only by the prevailing party
when FeeDx or HayDay brings a legal action to enforce its
rights under the SA. It does not limit the parties against
whom FeeDx or HayDay can bring claims to enforce their
SA rights. Both FeeDx and HayDay brought legal actions
and because Nippon could have been liable for HayDay’s
alleged breach, it can plausibly be viewed as a prevailing
party who can recover fees and costs. Thus, it was within
the tribunal’s powers to award Nippon fees and costs.
C
Finally, FeeDx challenges the tribunal’s award of
attorneys’ fees and costs incurred litigating claims arising
under EDPA to HayDay and Nippon. FeeDx notes that only
the SA had an attorneys’ fees provision. It relies on
HAYDAY FARMS V. FEEDX HOLDINGS, INC. 25
California law requiring that “[w]here a cause of action
based on a contract providing for attorneys’ fees is joined
with other causes of action beyond that contract, the
prevailing party may recover attorneys’ fees . . . only as they
relate to the contract action.” Reynolds Metals Co. v.
Alperson, 25 Cal. 3d 124, 129 (1979). But this misconstrues
the tribunal’s view of the parties’ contracts. The tribunal
viewed the SA as modifying the terms of the EDPA. One of
those modifications was the introduction of an attorneys’
fees provision in the SA. Under the tribunal’s interpretation
of the parties’ agreement, the EDPA did contain an
attorneys’ fees provision—just one that was added later by
the SA. Presumably, that modification had retroactive
effect. That interpretation is not completely irrational, so it
is a valid basis for the tribunal’s award of pre-settlement
attorneys’ fees.
V
Subject matter jurisdiction exists under 9 U.S.C. § 203.
The tribunal did not exceed its powers in issuing the award.
We therefore affirm the part of the district court’s order
confirming the award and reverse the part of the district
court’s order vacating the award, and remand with
instructions to confirm the whole award. Pursuant to the SA,
FeeDx shall be liable for litigation costs associated with this
action.
AFFIRMED IN PART, REVERSED IN PART, AND
REMANDED.