Magnadrive Corporation v. Magna Force, Inc. ( 2014 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON 2 gg
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MAGNADRIVE CORPORATION, a No. 69769-2-1 —i X:-Df-
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Respondent, o<^>
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MAGNA FORCE, INC., a Washington UNPUBLISHED
corporation; and SYNERGY GREEN
TECH CORPORATION, a California FILED: January 27. 2014
corporation,
Appellants.
Cox, J. — A court may vacate an arbitrator's award "only in very limited
circumstances, such as when an arbitrator has exceeded his or her legal
authority."1 Here, Magna Force Inc. ("MFI") fails in its burden to showfrom the
face of the arbitrator's award in this case that the arbitrator exceeded his
authority. We affirm the order confirming the arbitrator's award in favor of
MagnaDrive Corporation ("MagnaDrive").
MFI, a Washington corporation, develops magnet technologies. These
technologies include adjustable speed coupling systems ("ASCS") and fixed gap
couplings ("FGC").
1 Kitsap County Deputy Sheriff's Guild v. Kitsap County, 167 Wash. 2d 428,
434, 219 P.3d 675 (2009).
No. 69769-2-1/2
In June1999, MFI and MagnaDrive entered into a license agreement that
gave MagnaDrive a "license to commercialize and exploit" MFI's patent rights
and ASCS and FGC technology (the "License Agreement"). This agreement
contained three criteria for the consent by either party to the assignment of the
agreement. One criterion was that the location of any assignee's principal place
of business be in the United States, Canada, or Europe.
This agreement also contained progressive dispute resolution procedures,
which included good faith negotiations, mediation, and arbitration.
By the "Patent Assignment Agreement" dated August 10, 2010, MFI
purported to assign its interest in the License Agreement to Synergy GreenTech
Corp. Specifically, this assignment purported to assign to Synergy "any and all
licenses held by [MFI] as licensor covering FGCs or ASCSs which license patent
rights." Thereafter, Synergy threatened to terminate the License Agreement on
the grounds that MagnaDrive had allegedly materially breached the License
Agreement.
MagnaDrive objected to the assignment after learning of it. It moved to
compel arbitration under the License Agreement in order to challenge MFI's
purported assignment to Synergy. It asserted that MFI could not assign the
License Agreement because certain assignment requirements were not met.
The superior court entered an order compelling arbitration.
The parties arbitrated their disputes before an arbitrator they selected.
The arbitrator concluded that the purported assignment of the License
Agreement did not meet the principal place of business requirement for the
No. 69769-2-1/3
assignment. Consequently, the arbitrator voided the Patent Assignment
Agreement.
Thereafter, MagnaDrive moved for an order confirming the award. MFI
moved to vacate the award. The trial court confirmed the award.
MFI appeals.
ARBITRATOR'S AUTHORITY
MFI argues that the superior court erred when it confirmed the arbitration
award. It contends the court should have vacated the award under two statutory
grounds. We disagree and hold that the court properly confirmed the award.
Washington courts give substantial finality to an arbitrator's decision
rendered in accordance with the parties' contract and the Washington Uniform
Arbitration Act, chapter 7.04A RCW.2 Courts "will review an arbitration decision
only in very limited circumstances."3 "The [superior] court's review is confined to
the question ofwhether any ofthe statutory grounds for vacation exist."4 "The
burden of showing that such grounds exist is on the party seeking to vacate the
award."5 We review de novo this question of law.6
2 Davidson v. Hensen. 135 Wash. 2d 112, 118, 954 P.2d 1327 (1998).
3 Kitsap County. 167 Wash. 2d at 434.
4 Cumminqs v. Budget Tank Removal & Envtl. Servs.. LLC. 163 Wash. App.
379, 388, 260 P.3d 220 (2011).
5]g\
6 Wash. State Dep't of Transp.. Ferries Div. v. Marine Emps. Comm'n. 167
Wash. App. 827, 835, 274 P.3d 1094 (2012).
No. 69769-2-1/4
Under RCW 7.04A.230(1)(d), one of these statutory grounds is that the
"arbitrator exceeded the arbitrator's powers." An arbitrator exceeds his or her
authority when the arbitration award exhibits an erroneous rule of law or a
mistaken application of law.7 An arbitrator also exceeds his or her powers if the
arbitrator decides a "nonarbitrable issue."8
Another statutory ground is found in RCW 7.04A.230(1)(c). "[T]he court
shall vacate an award if. .. [a]n arbitrator refused to postpone the hearing upon
showing of sufficient cause for postponement, refused to consider evidence
material to the controversy, or otherwise conducted the hearing contrary to RCW
7.04A.150, so as to prejudice substantially the rights of a party to the arbitration
proceeding."9
Vacation of an award "is available only if the alleged error appears 'on the
face of the award.'"10 In other words, the error should be "recognizable from the
language ofthe award."11 Generally, the reviewing court does not consider the
merits of the claim or the evidence before the arbitrator.12
7 Bovd v. Davis, 127 Wash. 2d 256, 263, 897 P.2d 1239 (1995).
8Aanew v. Lacev Co-Ply. 33 Wash. App. 283, 288, 654 P.2d 712 (1982).
9RCW7.04A.230(1)(c).
10 Cumminqs. 163 Wash. App. at 389; see also Bovd. 127 Wash. 2d at 262-63.
11 Cumminqs, 163 Wash. App. at 389.
12 Davidson. 135 Wash. 2d at 119.
No. 69769-2-1/5
Patent Assignment Agreement
MFI first argues that the award should be vacated under RCW
7.04A.230(1)(d). Specifically, it argues that the arbitrator exceeded his authority
when he decided a nonarbitrable issue and voided MFI's Patent Assignment
Agreement with Synergy. We disagree.
An agreement to arbitrate "'defines and limits the issues to be decided.'"13
"The authority of the arbitrator is wholly dependent upon the terms of the
agreement of submission. The arbitration award must concern only those
matters included within the agreement for submission and must not exceed the
powers established by the submission."14 "If a dispute is not arbitrable, the
arbitrators have no power to resolve it."15
"If any doubts or questions arise with respect to the scope of the
arbitration agreement, the agreement is construed in favor of arbitration, unless
the reviewing court is satisfied the agreement cannot be interpreted to cover a
particular dispute."16
Here, the scope of the agreement to arbitrate in the License Agreement
between MFI and MagnaDrive is very broad. Specifically, Paragraph 12.1 stated:
13 ACF Prop. Mqmt.. Inc. v. Chaussee. 69 Wash. App. 913, 919, 850 P.2d
1387 (1993) (quoting Sullivan v. Great Am. Ins. Co.. 23 Wash. App. 242, 246, 594
P.2d 454 (1979)).
14 Sullivan. 23 Wash. App. at 246.
15 Aqnew, 33 Wash. App. at 288.
16 Townsend v. Quadrant Corp.. 153 Wash. App. 870, 887, 224 P.3d 818
(2009).
No. 69769-2-1/6
In the event of any dispute between the Parties relating to
the interpretation, construction, application or requirements of
this Agreement, the Parties will follow the procedures set forth in
this Section 12 prior to initiating any litigation or pursuing other
available remedies, unless otherwise agreed by the Parties at the
time the dispute arises.'171
As noted previously, one of the procedures specified in Section 12 of the License
Agreement is arbitration. Thus, the first question is whether the dispute between
MFI and MagnaDrive over the purported assignment to Synergy "relates to" any
of the above-specified categories of disputes. We conclude that it does.
This court has explained that "an arbitration clause that encompasses any
controversy 'relating to' a contract is broader than language covering only claims
'arising out' ofa contract."18 This is consistent with a number ofother
jurisdictions that have broadly interpreted "relating to" language within the
arbitration context.19
The arbitrator's interpretation of the License Agreement in the final award
dated May 30, 2012 fell within this broad arbitration provision. In the final award,
the arbitrator interpreted the License Agreement's "requirements" for the potential
assignment of the agreement. Paragraph 14.5 of the License Agreement stated:
Neither Party shall assign . . . this Agreement, the
[MagnaDrive] License or any of its rights, title or interests under this
17 Clerk's Papers at 99 (emphasis added).
18 Townsend. 153 Wash. App. at 887 (quoting McClure v. Davis Wright
Tremaine. 77 Wash. App. 312, 314, 890 P.2d 466 (1995)).
19 See, e.g.. Lovev v. Reqence BlueShield of Idaho. 139 Idaho 37, 46, 72
P.3d 877 (2003); Karl Storz Endoscopy-Am.. Inc. v. Integrated Med. Svs.. Inc..
808 So. 2d 999, 1013 (2001); Fliohtwavs Corp. v. Keystone Helicopter Corp.. 459
Pa. 660, 663, 331 A.2d 184 (1975).
No. 69769-2-1/7
Agreement or the [MagnaDrive] License, without the prior written
consent of the other Party, which consent shall not be
unreasonably withheld. ... [MagnaDrive] hereby consents to
MFI's assignment of this Agreement more than two (2) years after
the date of this Agreement to a successor of MFI's ownership of the
MFI Rights . . .; provided further that the successor principal
place of business is located in the United States, Canada or
Europe or another country approved by MDC, which approval
shall not be unreasonably withheld.[20]
The arbitrator correctly interpreted this provision as establishing "three criteria for
the advance consent to the assignment of the License Agreement by either party:
[(1)] assignment of the License Agreement itself, [(2)] assumption of the
obligations of the assignor under the License Agreement, and [(3)] location of
assignee's principal place of business in the United States, Canada or Europe."
In the final award, the arbitrator concluded that the third requirement for
advance consent was not met. The face of the award shows that he did so
based on various exhibits as well as the live and deposition testimony of various
witnesses, all of which is proper under controlling law.
The second question is whether the arbitrator exceeded his powers when
he went on to "void" the purported assignment by MFI evidenced by the Patent
Assignment Agreement. The final award stated:
4. Since all three of the advance consent requirements have
not been satisfied, the purported assignment reflected in the
[Patent] Assignment Agreement is void.
5. The validity of the [Patent] Assignment Agreement, as a
whole, was before the Arbitrator and the Arbitrator declared the
[Patent] Assignment Agreement void in its entirety. Because the
20
Clerk's Papers at 103-04 (emphasis added).
No. 69769-2-1/8
[Patent] Assignment Agreement is void, it does not effect a transfer
of any rights, either to the License Agreement or the MFI Patents,
to Synergy.
While neither party expressly argues the point, the arbitrator stated in the
award that "JAMS Rules are applicable to this proceeding as provided by
Paragraph 12.4 of the License Agreement." According to the arbitrator, the
JAMS Comprehensive Arbitration Rules and Procedures that apparently govern
this arbitration provide that the arbitrator "may grant any relief that is just and
equitable." Voiding the assignment that was before the arbitrator is, in our view,
unquestionably within this scope of relief of these JAMS Rules and Procedures to
which these parties agreed. Thus, this language on the face of the arbitration
award supports the arbitrator's relief.
In sum, on the face of the award, the arbitrator acted within his authority
when he concluded that the purported assignment of the License Agreement
reflected in the Patent Assignment Agreement was ineffective because it failed
one of the assignment requirements in the License Agreement. Moreover, the
face of the award also shows that he was within his authority to grant the relief of
voiding that purported assignment.
MFI concedes that this court should examine the face of the award to
determine whether the arbitrator exceeded his authority. But it argues that the
agreement to arbitrate in the License Agreement did not extend to the Patent
Assignment Agreement. Specifically, MFI asserts that the two agreements were
different contracts, involved different parties, were entered into at different times,
and contained different legal rights. These arguments are wholly unpersuasive.
8
No. 69769-2-1/9
First, although the Patent Assignment Agreement between MFI and
Synergy is a different agreement from the License Agreement between MFI and
MagnaDrive, they clearly "relate to" each other. The issue before the arbitrator
was whether the License Agreement's "requirements" for consent to assignment
were met by the Patent Assignment Agreement. Whether these requirements
were met is expressly within the scope of the arbitration provision between MFI
and MagnaDrive.
Second, MFI contends that it did not consent to expanding the arbitrator's
jurisdiction to cover the entire Patent Assignment Agreement. But "expanding"
the arbitrator's authority is not at issue. As we already discussed, the arbitrator
had the authority to adjudicate the issues relating to the purported assignment.
Thus, this argument is not persuasive.
MFI cites Davis v. General Dynamics Land Systems.21 Weiss v.
Lonnquist.22 and Nelson v. Westport Shipyard Inc.23 to support its assertion that
the License Agreements' arbitration clause does not extend to the Patent
Assignment Agreement. Butthe question in those cases was whether the parties
agreed to arbitrate a particular issue.24 Those cases are not helpful because
they were addressing a different issue than the issue in this case. Here, MFI
21 152 Wn. App. 715,217P.3d 1191 (2009).
22 153 Wash. App. 502, 224 P.3d 787 (2009).
23 140 Wash. App. 102, 163 P.3d 807 (2007).
24 Davis. 152 Wash. App. at 718-19; Weiss. 153 Wash. App. at 510-14; Nelson.
140 Wash. App. at 116-19.
No. 69769-2-1/10
focuses on whether the arbitrator exceeded his authority when he voided the
Patent Assignment Agreement. As discussed previously in this opinion, the
arbitrator acted within his authority when he imposed this relief. Thus, the cases
MFI cites are not helpful.
MFI's Counterclaim
MFI next asserts that the arbitrator refused to consider its counterclaim.
Thus, it contends that the arbitrator exceeded his authority under RCW
7.04A.230(d) and did not consider evidence material to the controversy under
RCW 7.04A.230(c). The face of the award shows otherwise.
"Arbitration is a statutorily recognized special proceeding."25 Whether
parties will engage in arbitration depends on the parties' contract and then the
"rights of the parties are controlled by the [arbitration] statute."26
Here, MFI and Synergy raised counterclaims during arbitration. The
arbitrator's final award stated:
7. Respondents [MFI and Synergy] asserted counterclaims in
this Arbitration seeking to establish the validity of the [Patent]
Assignment Agreement. Respondent Synergy asserted additional
counterclaims alleging breach of the License Agreement by
MagnaDrive. The [Patent] Assignment Agreement was declared
void and Respondents' counterclaims are therefore dismissed with
prejudice.
25 Price v. Farmers Ins. Co. of Wash.. 133 Wash. 2d 490, 496, 946 P.2d 388
(1997).
26 Id.
10
No. 69769-2-1/11
This language plainly shows that the arbitrator considered and rejected
MFI's counterclaims. MFI's claims to the contrary under RCW 7.04A.230(c) and
(d) have no basis on the face of the final award.
MFI, relying on an order that is neither incorporated in nor otherwise part
of the final award, argues that the arbitrator admitted that he did not consider the
counterclaim. Specifically, MFI cites the following statement in the arbitrator's
Order on Respondent Magna Force Inc.'s Request for Clarification and
Consideration of New Evidence: "'issues of individualized consent and the
reasonableness of withholding consent were not presented in the arbitration and
were not part of the dispute resolution procedures.'"
As MagnaDrive correctly points out, this statement is in an order that was
not incorporated into the final award, which is the award before this court on
appeal. Given the plain language regarding the consideration of MagnaDrive's
counterclaims in the final award, we reject MFI's argument.
In sum, MFI failed to prove that the final award should be vacated under
RCW 7.04.230(1 )(c) and (d). Consequently, the trial properly confirmed the
award in favor of MagnaDrive.
ATTORNEY FEES
MagnaDrive seeks an award of attorney fees on appeal based on RCW
7.04A.250 and the License Agreement's attorney fee provision. We award such
fees, subject to MagnaDrive's compliance with RAP 18.1.
11
No. 69769-2-1/12
Under RCW 7.04A.250, "[a] court may allow reasonable costs of the
motion and subsequent judicial proceedings." Costs include reasonable attorney
fees under this provision.27
Also, the arbitrator decided that the prevailing party was entitled to
attorney fees under Paragraph 14.6 of the License Agreement:
"In the event of any action to enforce this Agreement or on
account of any breach of or default under this Agreement, the
prevailing Party in such action shall be entitled to recover. . . from
the other Party all reasonable attorneys' fees incurred by the
prevailing party in connection with such action
Here, the parties appear to agree that the prevailing the party on this
appeal is entitled to an award of attorney fees. Because MagnaDrive is the
prevailing party, we award it reasonable attorney fees.
We affirm the final judgment on arbitration award, and award attorney fees
to MagnaDrive, subject to its compliance with RAP 18.1.
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WE CONCUR:
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27 RCW 7.04A.250(3); Qptimer Int'l. Inc. v. RP Bellevue. LLC, 170 Wash. 2d
768, 774, 246 P.3d 785 (2011) ("RCW 7.04A.250(3) permits an award of attorney
fees and expenses to a prevailing party in contested judicial proceedings to
confirm, vacate, modify, or correct an arbitration award.").
12