Heierli v. Contech Construction Products, Inc.

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
CONTECH CONSTRUCTION )
PRODUCTS, INC., et al., )
)
Petitioners, )
)
v. )
) Civil Actions Nos: 09-01483 (RBW)
WERNER HEIERLI, ) 09-02204 (RBW)
)
Respondent. )
)
MEMORANDUM OPINION
These two cases arise from identical underlying facts. In Civil Action 09-cv-1483
(RBW), the petitioners, Contech Construction Products, Inc. and Patrick Harlow (collectively
“Contech”), petition the Court “to vacate a portion of [a] [p]artial [Arbitration] Award” (“Partial
Award”) rendered in favor of the respondent, Werner Heierli (“Heierli”), on May 7, 2009.
Petition to Vacate a Portion of the Arbitration Award (“Contech’s Pet. to Vacate”) at 1-5. In
response, Heierli opposes Contech’s petition and has filed a cross-petition seeking confirmation
of the Partial Award. Subsequently, on November 12, 2009, a final arbitration award was
rendered in favor of Heierli, along with interest, attorneys’ fees, and costs (“Final Award”).
Then, on November 20, 2009, Heierli instituted the second case, Civil Action 09-cv-2204,
petitioning the Court to confirm the Final Award. Petition and Motion of Werner Heierli to
Confirm Arbitration Award (“Heierli’s Pet. to Confirm”) at 1. Contech opposes the petition to
confirm the Final Award and has cross-petitioned to vacate the Final Award. Memorandum In
Opposition to the Petition of Werner Heierli to Confirm Arbitration Award and Cross-Petition of
Contech Construction Products Inc. to Vacate the Arbitration Award (“Contech’s Cross-Pet. to
Vacate”) at 1. Accordingly, both cases involve the same parties and their resolution turns on the
question of whether the two awards entered by the arbitrator are enforceable.
For the reasons that follow, the Court must grant both Heierli’s Cross-Petition to enforce
the Partial Award and his Petition to Confirm the Final Award. Thus, the Court must deny both
Contech’s Petition to Vacate the Partial Award and its Cross-Petition to Vacate the Final Award.
I. Background1
A. Civil Action 09-cv-1483
Contech Construction Products, Inc. is the sole majority shareholder of BEBOTech
Corporation (“BEBOTech”) and Patrick Harlow is the President of BEBOTech’s Board of
Directors. Contech’s Pet. to Vacate ¶ 8. Werner Heierli is the sole minority shareholder of
BEBOTech. Id.
Contech and Heierli entered into a Stockholders’ Agreement and several other related
agreements on May 2, 2003. Id. ¶ 9. The agreements contain identical dispute resolution
provisions requiring the parties to “attempt in good faith to resolve any dispute arising out of or
relating to this Agreement promptly by negotiation . . . failing which the parties shall endeavor to
resolve any dispute . . . by mediation under the CPR Mediation procedure.” Id., Ex. A at 12. If
negotiations and mediation are unsuccessful, the dispute resolution clauses require the parties to
arbitrate “[a]ny controversy or claim arising out of or relating to [the agreements in the
International Institute for Conflict Prevention and Resolution (“CPR”)] . . . in accordance with
the CPR Rules for Non-Administered Arbitration.” Id. The agreements also provide that any
arbitration proceedings will be held in Washington, D.C. Id.
1
The following facts are undisputed, except where noted otherwise.
2
On March 23, 2007, after unsuccessful attempts to negotiate and mediate a dispute
between the parties, Heierli filed an arbitration demand against Contech “asserting individual
and derivative claims for breach of contract and breach of fiduciary duty”. Id. ¶ 13. On May 7,
2009, Arbitrator Nancy Lesser (the “Arbitrator”) issued a Partial Award finding that: (1) Contech
had breached its contractual duties to Heierli; (2) Contech had breached its fiduciary duties to
Heierli; (3) Heierli was entitled to at least the minimum amount of the value of his interest (his
shares) in BEBOTech pursuant to the formula adopted in the Stockholders’ Agreement, upon
exercise of his “Put Option” in that agreement; (4) Contech could not include certain charges and
fees in determining Heierli’s share value under the Stockholders’ Agreement formula; and (5)
Heierli was permitted to petition for an interim award of “reasonable attorney’s fees and costs in
proceedings to be scheduled following the issuance of [the] Partial Award.” Id., Ex. E (Partial
Award) at 34-35. However, the Arbitrator also found that Heierli had failed to prove that he
suffered any compensatory damages or that he was entitled to punitive damages as a result of the
breach. Id., Ex. E (Partial Award) at 33.
Contech filed a Motion for Reconsideration of the Partial Award with the Arbitrator on
May 22, 2009, requesting that she reconsider and withdraw her award of attorneys’ fees and
costs, arguing that the Arbitrator did not have the authority to make such awards under either the
CPR rules or Delaware law.2 Contech’s Pet. to Vacate ¶ 18; Heierli’s Memorandum in
Opposition to Petition to Vacate a Portion of the Arbitration Award (“Heierli’s Opp’n”), Ex. 2
(Respondent Contech Construction Products Inc.’s Motion for Reconsideration of (1) Interim
Award of Attorneys’ Fees and Costs and (2) Termination of the Management Services
2
The Court notes that neither party disputes that Delaware law governs the administration and interpretation of the
agreements between the parties, as each agreement contained a choice of law provision invoking Delaware law.
Contech’s Pet. to Vacate, Ex. A (Stockholders’ Agreement) ¶ 7.6, Ex. B (Management Services Agreement) ¶ 10(a),
Ex. C (Sales Representative Agreement) ¶ 14(a).
3
Agreement) at 3. On July 15, 2009, the Arbitrator denied Contech’s Motion for Reconsideration,
finding that “[i]t is uncontroverted that Delaware law permits such an award where
circumstances warrant [making the award].” Heierli’s Opp’n, Ex. 5 (July 15 Order).
Furthermore, the Arbitrator concluded that “[i]n light of [her findings], it [was] unnecessary for
[her] to reach the second prong of [Contech’s] [m]otion regarding the [applicability of] the CPR
[r]ules, although [she] remain[ed] of the view that the [CPR r]ules permit such an award
independent of its availability under Delaware law.” Id. Contech responded to the denial of its
Motion for Reconsideration by filing the first of the two cases, Civil Action 09-cv-1483, now
before this Court. After that filing, on September 11, 2009, the Arbitrator set the amount of
attorneys’ fees and costs to be awarded to Heierli under the Partial Award at $556,749.99.
Petitioners’ Memorandum in Opposition to Respondent’s Cross-Petition to Confirm Arbitrator’s
Award of Heierli’s Attorneys’ Fees and Expenses, Ex. B (Fee Award) at 1.
B. Civil Action 09-cv-2204
In addition to the dispute resolution clause, the parties’ Stockholders’ Agreement
contained “put” and “call” options which accorded Heierli the option of selling his BEBOTech
shares to Contech at a price calculated pursuant to a formula specified in the Stockholders’
Agreement, and Contech had the option to purchase Heierli’s shares at a price determined by a
different formula specified in the Agreement. Contech’s Cross-Pet. to Vacate, Ex. A
(Stockholders’ Agreement) § 4.3 On May 18, 2009, shortly after the Arbitrator issued her Partial
3
The Stockholders’ Agreement describes the “put” option in Section 4.1(a):
At any time hereafter, Heierli, in his discretion, shall have the option, but no
obligation, to sell all . . . of his Shares in the Company to Contech (the “Heierli
Put Option”), and Contech shall be obligated to purchase such Shares.
The Stockholders’ Agreement also describes the “call” option in Section 4.2(a):
(continued . . .)
4
Award finding that Contech had breached its fiduciary duties to Heierli, Heierli exercised his put
option. Statement of Points and Authorities In Support of Heierli’s Petition and Motion to
Confirm Arbitration Award (Heierli’s Mem. to Confirm”) at 3. The parties, however, disagreed
on the “calculated purchase price” offered by Contech, id., and Heierli then filed a request with
the Arbitrator for an emergency hearing on the “put price,” Contech’s Cross-Pet. to Vacate at 5.
“Consequently, the Arbitrator set additional hearing dates [of] October 7 and 8, 2009, for the
purpose of determining whether Contech had violated the Partial Award and the Stockholders
Agreement; the parties appeared before the Arbitrator on those dates and presented witness
testimony, documentary evidence and argument.” Heierli’s Mem. to Confirm at 3. Contech had
objected to the Arbitrator conducting any additional hearings, however, claiming that the issue of
the appropriate price for the exercise of the put option was outside the scope of the issues
originally submitted to arbitration. Contech’s Cross-Pet. To Vacate at 5-6. The Arbitrator
rejected Contech’s challenge, id. at 6, and in her Final Award issued on November 12, 2009, the
Arbitrator disallowed certain expenses included in the calculation of the put price claimed by
Contech, arriving at a purchase price of $10,354,011.15, Heierli’s Mem. to Confirm at 3. She
also set the process by which payment would be made by Contech to Heierli. Contech’s Cross-
Pet. To Vacate, Ex. J (Final Award) at 14-16. However, Contech failed to comply with the terms
of the Arbitrator’s Final Award, Heierli’s Mem. to Confirm at 4, and on November 20, 2009,
Heierli commenced the second of the two cases before this court, Civil Action 09-cv-2204,
seeking enforcement of the Final Award.
(. . . continued)
Subject to the terms of Section 4.9(c), at any time after June 30, 2006, Contech
shall have an annual right, exercisable only in the month of July, to purchase,
and Heierli shall be obligated to sell, all, but not less than all, of Heieli’s Shares
(the “Contech Call”).
Contech’s Cross-Pet. to Vacate, Ex. A at 5, 7.
5
II. Analysis
A. The Partial Award
Contech argues that under the 2005 version of the CPR Rules the Arbitrator’s power to
award attorneys’ fees and costs under CPR Rules 16.2 and 16.3 is limited by CPR Rule 10.3,
which states:4 “[t]he Tribunal may grant any remedy or relief, including but not limited to
specific performance of a contract, which is within the scope of the agreement of the parties and
permissible under the law(s) or rules of law applicable to the dispute.” Contech’s Pet. to Vacate
¶¶ 22-23. Thus, according to Contech, the Arbitrator only had the authority to award attorneys’
fees and costs under CPR Rule 16.3 that were independently permissible under Delaware law.
Id. ¶¶ 24-25. Contech consequently maintains that the award of attorneys’ fees and costs to
Heierli in this case was impermissible under Delaware law because Heierli was not a prevailing
party due to his failure to prove recoverable damages. Id. ¶ 33-34. This, according to Contech,
4
Because the arbitration proceeding was filed prior to the 2007 amendment to the CPR Rules, the 2005 version of
the CPR Rules governed the arbitration. Contech’s Pet. To Vacate, Ex. D (2005 Arbitration Rules) & Ex. F
(Clerical Amendment to Partial Award). The 2005 version of Rule 16.2 states:
The Tribunal shall fix the costs of arbitration in its award. The costs of
arbitration include:
a. The fees and expenses of members of the Tribunal;
b. The costs of expert advice and other assistance engaged by the Tribunal;
c. The travel and other expenses of witnesses to such extent as the Tribunal
may deem appropriate;
d. The costs for legal representation and assistance and experts incurred by
a party to such extent as the Tribunal may deem appropriate;
e. The charges and expenses of CPR with respect to the arbitration;
f. The costs of a transcript; and
g. The costs of meeting and hearing facilities.
Heierli’s Opp’n, Ex. 12 (CPR Rules). The 2005 version of Rule 16.3 states:
Subject to any agreement between the parties to the contrary, the Tribunal may
apportion the costs of arbitration between or among the parties in such manner
as it deems reasonable, taking into account the circumstances of the case, the
conduct of the parties during the proceeding, and the result of the arbitration.
Id.
6
precluded the Arbitrator from having “jurisdiction, authority, or power” to make the awards
because the American Rule only allows prevailing parties to recover attorneys’ fees and costs
and Heierli was not a prevailing party. Id. ¶ 26; see Alaska Elec. Pension, Fund v. Brown, 988
A.2d 412, 417 (Del. 2010) (“Delaware generally follows the American Rule, under which
litigants are responsible for their own attorneys’ fees, regardless of the outcome of the lawsuit”).
Contech further asserts that Delaware’s “common corporate benefit” exception to this general
rule does not support the award of attorneys’ fees and costs for Heierli’s breach of fiduciary duty
claim because there was no benefit conferred to BEBOTech or its shareholders as a result of
Heierli’s action.5 Contech’s Pet. to Vacate ¶¶ 27-29. Moreover, Contech argues that its conduct
does not fall within the bad faith exception to the American Rule, which allows a non-prevailing
party to recover attorneys’ fees and costs where there is a sufficiently egregious breach of a
fiduciary duty. Id. ¶ 35-37. And, Contech notes that the Arbitrator did not find that Contech had
acted in bad faith as the basis for awarding attorneys’ fees and costs to Heierli. Id. ¶ 36.
Specifically, Contech points to the Arbitrator’s finding that its conduct was not sufficiently
“reprehensible” to give rise to punitive damages. Id.
Contech also contends that under the District of Columbia Uniform Arbitration Act (the
“D.C. UAA”), which it maintains governs the arbitration of the parties’ dispute, an arbitrator can
only award attorneys’ fees and costs if the parties expressly agree that the arbitrator has the
5
“Delaware courts have long-recognized the ‘common corporate benefit’ doctrine as an exception to the American
Rule to provide for reimbursement of attorney’s fees and expenses in corporate litigation.” Alaska Elec. Pension,
988 A.2d at 417. In order to avail himself of common corporate benefit doctrine, the applicant must show:
(i) the suit was meritorious when filed; (ii) the action producing benefit to the
corporation was taken by the defendants before a judicial resolution was
achieved; and (iii) the resulting corporate benefit was causally related to the
lawsuit.
Id.7
authority to do so. Id. ¶¶ 30-31. And Contech argues that since its agreements with Heierli did
not contain an express provision allowing the Arbitrator to award attorneys’ fees and costs, she
lacked “jurisdiction, authority, or powers” to make such an award. Id. ¶ 32.
Furthermore, Contech claims that the Arbitrator should have dismissed Heierli’s breach
of fiduciary duty claim as it was preempted by his identical breach of contract claim and
Delaware law prohibits parties from pursuing a breach of fiduciary duty tort claim for conduct
that allegedly breached an agreement between the parties “because contract claims preempt tort
claims.” Id. ¶¶ 38-40. Therefore, according to Contech, “[t]he Arbitrator exceeded her
jurisdiction by awarding attorneys’ fees and costs” because Heierli’s breach of fiduciary duty
claims “were barred as a matter of Delaware law.” Id. ¶ 41.
Heierli argues that Contech’s petition to vacate the arbitration award is procedurally
defective and should be dismissed. Heierli’s Opp’n at 5. Heierli maintains that Contech, instead
of filing a “Petition,” id., should have sought to vacate the arbitration award by filing a motion to
vacate the award, id. at 6-7. Heierli further argues that Contech is barred by the doctrine of
judicial estoppel from challenging the Arbitrator’s attorneys’ fees and costs awards because its
argument that the Arbitrator lacked authority to make the awards is inconsistent with the
arguments it advanced during the arbitration hearing. Id. at 9-10. Heierli also contends that
Contech waived its challenge to the Arbitrator’s jurisdiction to award attorneys’ fees and costs
when it failed to raise the challenge during the arbitration proceedings. Id. at 10-12. Heierli
further argues that the Court must defer to the Arbitrator’s determination regarding her
jurisdiction because the parties in this case intended for the Arbitrator to determine the scope of
her jurisdiction. Id. at 12-14. Heierli posits that the Federal Arbitration Act (“FAA”), not the
D.C. UAA, governs the parties’ dispute and that Contech is judicially estopped from arguing
8
otherwise.6 Id. at 28-30. But even assuming that the D.C. UAA applies, Heierli argues that the
Arbitrator did not exceed her powers in awarding him attorneys’ fees and costs under the D.C.
UAA.7 Id. at 30-32. Heierli also contends that the plaintiffs’ arguments based on Delaware law
must fail because the Arbitrator did not exceed her powers in applying Delaware law to the
parties’ dispute. Id. at 14-16. Heierli further argues that the Arbitrator did not act in manifest
disregard of the law in awarding attorneys’ fees and costs, and thus, Contech cannot satisfy the
prerequisites necessary to successfully challenge the awards under the “manifest disregard of the
law” standard.8 Id. at 16-28. Therefore, he contends that the Court is not permitted to set aside
the awards. Id.
Heierli also requests that the Court award him costs and attorneys’ fees for responding to
Contech’s petition. Id. at 32-34. Heierli maintains that Contech’s challenge is a “presumptively
unjustified” challenge to the merits of the awards. Id. at 32. Heierli opines that the Court should
use its equitable powers to award him attorneys’ fees and costs against Contech because it
unjustifiably refused to abide by the arbitration award. Id.9
1. The Procedural Challenge to the Petitioner’s Petition
6
Contech did not respond to Heierli’s argument regarding the applicability of the FAA in its Reply Memorandum.
7
Like the FAA, the D.C. UAA allows a court to vacate an arbitral award when an arbitrator exceeds her powers.
See D.C. Code § 16-4423(a)(4) (2009) (“[T]he court shall vacate an award made in the arbitration proceeding if . . .
[a]n arbitrator exceeded the arbitrator’s powers.”).
8
Contech expressly denies that it challenges the Partial Award under the “manifest disregard of the law” standard.
See Petitioners’ Reply Memorandum In Support of the Petition to Vacate A Portion of the Arbitration Award
(“Contech’s Pet. to Vacate Reply”) at 7-8 (“Respondent’s attempt to mischaracterize Petitioners’ challenge as one
under the ‘manifest disregard’ standard must fail.”). However, the Court will nevertheless address this issue after
Heierli raised the argument in his Memorandum in Opposition to the Petition to Vacate.
9
At this time the Court declines to address the issue of whether the plaintiff is entitled to attorneys’ fees and costs
in regards to Contech’s Petition to Vacate a Portion of the Arbitration Award and Heierli’s Petition to Confirm
Arbitration Award, as the issue has not been sufficiently briefed by the parties. Therefore, Heierli may file a separate
motion with the Court requesting such attorneys’ fees and costs. An order to this effect will be issued
contemporaneously with the issuance of this memorandum opinion.
9
Under the FAA,10 an application to vacate an arbitration award “shall be made and heard
in the manner provided by law for the making and hearing of motions.” 9 U.S.C. § 6 (2006).11
The statute provides no other process for vacating an arbitration award and therefore the motions
process is the exclusive means of pursuing such relief. Id. Thus, the FAA does not allow a party
to initiate a challenge to an arbitration award by filing a complaint or a petition to vacate the
award. O.R. Sec., Inc. v. Prof’l Planning Assocs., 857 F.2d 742, 745-46 (11th Cir. 1988)
(citation omitted). A motion must be written—unless made during a hearing or trial—and state
both the grounds for seeking an order with particularity as well as the relief sought. Fed. R. Civ.
P. 7(b). In addition, this Court’s Local Rule addressing the filing of motions requires that a
motion be accompanied by a memorandum of points of law and authorities that support the
motion. LCvR 7(a). Federal courts, however, have discretion to treat a petition to vacate as a
motion if the parties have fully developed the issue or issues for the court. See O.R. Sec., Inc.,
857 F.2d at 746 (“[A]n erroneous nomenclature does not prevent the court from recognizing the
true nature of a motion.”) (quoting Sacks v. Reynolds Secs., Inc., 593 F.2d 1234, 1239
(D.C.Cir.1978). The Court also has discretion to allow a party to submit a “motion” that does
not include a memorandum of law and authorities if the other party is not prejudiced. See
Mazloum v. D.C. Metro. Police Dep’t, 576 F. Supp. 2d 25, 41 n.11 (D.D.C. 2008).
Here, Contech has improperly challenged the arbitration award by filing a petition to
vacate the award rather than a motion accompanied by a memorandum of points and authorities.
See O.R. Sec., Inc., 857 F.2d at 745. The Court, however, will exercise its discretion and decline
10
The Court notes that because the parties’ contracts impact interstate commerce, the FAA controls absent a clear
indication by the parties to the contrary. Jung v. Ass’n of Am. Med. Colls., 300 F. Supp. 2d 119, 144, 152 (D.D.C.
2004) (citations omitted). The Court will address this subject hereafter, infra pp. 12-14.
11
The D.C. UAA also requires that a petition to vacate an arbitration award be filed as a motion in accordance with
the rules of the court in which the motion is brought. D.C. Code § 16-4405(a).
10
to dismiss Contech’s petition for these transgressions because the parties have fully developed
their arguments in their submissions to the Court. And in regard to Contech’s failure to submit a
memorandum of points of law and authorities as required by Local Civil Rule 7, the Court finds
that the respondent has not been prejudiced by this failing because the petition contains the
grounds on which Contech challenges the arbitration award and offers legal arguments in support
of its petition. The Court also notes that Heierli’s petition to enforce the Final Award suffers
from the same procedural defect he complains about. However, as with Contech’s petition, the
Court, in its discretion, likewise construes his petition as a motion.
2. The Respondent’s Judicial Estoppel Challenge
The doctrine of judicial estoppel bars “a party from asserting a position [in court]
proceeding[s] that is [clearly inconsistent with] a position previously taken in the same or earlier
proceedings.” Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara,
364 F.3d 274, 293-94 (5th Cir. 2004) (finding that the district court did not abuse its discretion in
applying the doctrine in proceedings challenging an arbitration award); accord Donovan v. U.S.
Postal Serv., 530 F. Supp. 894, 902 (D.D.C. 1981). The doctrine “preclude[s] litigants from
‘playing fast and loose’ with the courts, and prohibit[s] parties from deliberately changing
positions according to the exigencies of the moment.” Karaha Bodas Co., 364 F.3d at 294(quoting United States v. McCaskey, 9 F.3d 368, 378 (5th Cir. 1993)). In determining whether
to apply the doctrine of judicial estoppel, “several factors typically inform the decision . . . to
apply the doctrine in a particular case:” (1) whether the party’s later position is “clearly
inconsistent” with an earlier position; (2) whether the party was able to convince a court to
accept the earlier position; and (3) whether the party seeking to advance an inconsistent position
11
“would derive an unfair advantage or impose an unfair detriment on the opposing party if not
estopped.” New Hampshire v. Maine, 532 U.S. 742, 750-51 (2001) (citations omitted).
Here, Contech is not attempting to advance arguments inconsistent with arguments it
made during the arbitration proceedings. In fact, Contech has consistently maintained that
although the Arbitrator had the power to award attorneys’ fees and costs, she only had authority
to make such awards if done so in compliance with Delaware law. Heierli’s Opp’n, Ex. 2 at 5-13
(Contech’s Motion for Reconsideration of (1) Interim Award of Attorneys’ Fees and Costs and
(2) Termination of the Management Services Agreement). Furthermore, Contech has
consistently maintained that the CPR Rules do not provide an independent basis for the
Arbitrator’s award of attorneys’ fees and costs. Id. at 4. Therefore, the Court finds that the
doctrine of judicial estoppel does not bar Contech from pursuing the arguments it advances
before this Court.
3. The FAA’s Applicability to Judicial Review of the Parties’ Dispute
The FAA governs contracts to arbitrate disputes involving interstate commerce. 9 U.S.C.
§§ 1-2. “[T]he intent of the contracting parties to apply state arbitration rules or law to
arbitration proceedings [and opt out of the applicability of the FAA] must be explicitly stated in
the contract and . . . a general choice of law provision does not evidence such intent.” Jung v.
Ass'n of Am. Med. Colls., 300 F. Supp. 2d 119, 152 (D.D.C. 2004) (citing Sovak v. Chugai
Pharm. Co., 280 F.3d 1266, 1270 (9th Cir. 2002) (“[A] general choice-of-law clause within an
arbitration provision does not trump the presumption that the FAA supplies the rules for
arbitration.”); Roadway Package Sys., Inc. v. Kayser, 257 F.3d 287, 288-89 (3d Cir.2001) (“[A]
generic choice-of-law clause, standing alone, is insufficient to support a finding that contracting
parties intended to opt out of the FAA's default standards.”). The FAA “declare[s] a national
12
policy favoring arbitration” and supersedes conflicting state laws. Preston v. Ferrer, 552 U.S.
346, 353 (2008). Here, the parties contracted to sell construction materials nationwide. Heierli’s
Opp’n, Ex. 1 (Partial Award) at 5. Thus, their contract implicates interstate commerce and their
agreement to arbitrate their disputes is controlled by the FAA by “default” absent a clear
indication to the contrary. See Jung, 300 F. Supp. 2d at 152 (quoting Roadway Package Sys., 257
F.3d at 288-89).
Contech has not adequately explained why the D.C. UAA rather than the FAA governs
judicial review of the parties’ arbitration of their dispute. The Court assumes that Contech is
asserting that the provision of the dispute resolution clause which states: “[a]ny mediation or
arbitration proceedings shall occur in Washington, D.C.,” Contech’s Pet. to Vacate, Ex. A
(Stockholders’ Agreement) ¶ 7.11, Ex. B (Management Services Agreement) ¶ 10(b), Ex. C
(Sales Representative Agreement) ¶ 14(b), expresses an agreement between the parties to opt out
of the FAA. In analogous situations, however, courts have found that even a choice of law
provision indicating that a particular jurisdiction’s substantive law will govern the agreement
does not amount to an express statement to opt out of the FAA. See, e.g., Mastrobuono v.
Shearson Lehman Hutton, Inc., 514 U.S. 52, 59 (1995) (finding that the FAA preempted the New
York rule prohibiting punitive damage awards by arbitrators because the parties demonstrated no
contractual intent to opt out of the FAA even with the adoption of a choice of law clause); Jung,
300 F. Supp. 2d at 152-53 (indicating that “[n]umerous courts of appeals have concluded that
Mastrobuono requires that the intent of the contracting parties to apply state arbitration rules or
law to arbitration proceedings must be explicitly stated in the contract and . . . a general choice of
law provision does not evidence such intent,” in concluding that federal arbitration law governed
despite a “general choice of law provision”). While Contech’s argument is factually somewhat
13
stronger than analogous cases because the reference to Washington, D.C. appears in the
arbitration clause itself and not a separate choice of law clause,12 Mastrobuono makes clear that
an opt out clause must be explicit to be effective. Jung, 300 F. Supp. 2d at 152-53. As a result,
there is no clear intent expressed by the parties for the FAA not to govern the arbitration of
disputes between them; rather, the reference to Washington, D.C. is merely an agreement
between parties from different countries as to the location where the arbitration proceedings
would occur. Therefore, the Court must conclude that the FAA governs this matter, and
accordingly, provides the grounds on which the Partial Award may be vacated and the scope of
the Arbitrator’s authority.
4. The Applicability of Delaware Substantive Law to the Arbitral Resolution of the
Parties’ Dispute
Neither party disputes that Delaware law governs the administration and interpretation of
the agreements between the parties because both the Stockholders’ Agreement and the
Management Services Agreement contain a choice of law provision invoking Delaware
substantive law.13 Contech’s Pet. to Vacate, Ex. A (Stockholders’ Agreement) ¶ 7.6, Ex. B
(Management Services Agreement) ¶ 10(a), Ex. C (Sales Representative Agreement) ¶ 14(a). In
its Petition to Vacate the Partial Award, Contech stated, “[i]n this case, the law of Delaware is
the applicable rule of law because it was expressly selected by the parties in the [Stockholders’,
Management Services, and Sales Representative] Agreements.” Contech’s Pet. to Vacate at 5.
And Heierli agreed in his Memorandum in Opposition to the Petition to Vacate that Delaware
law governed the parties’ dispute. See Heierli’s Opp’n at 13 & n.10. Moreover, in the second
12
Section 7.11 of the Stockholders’ Agreement reads: “Any mediation or arbitration proceedings shall occur in
Washington, D.C., USA, unless otherwise agreed.” Contech’s Pet. to Vacate, Ex. A at 12.
13
Delaware substantive law was applied by the Arbitrator in the two decisions at issue in these cases. See generally
Heierli’s Opp’n, Ex. 1 (Partial Award); Contech’s Cross-Pet. to Vacate, Ex. J (Final Award).
14
action, Heierli requested pre-judgment interest based on the argument that it is mandatory under
Delaware law, Heierli’s Mem. to Confirm at 7, and Contech did not contest the applicability of
Delaware law on this issue. The Court therefore concludes that Delaware substantive law
governs the arbitral resolution of the parties’ dispute.
5. Whether the Partial Arbitration Award Should be Vacated
Under the FAA, “judicial review of arbitral awards is extremely limited.” Kanuth v.
Prescott, Ball & Turben, Inc., 949 F.2d 1175, 1178 (D.C. Cir. 1991). “Courts thus do not sit to
hear claims of factual or legal error by an arbitrator as an appellate court does in reviewing
decisions of lower courts.” United Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29, 38
(1987). Accordingly, the grounds for vacating an arbitration award are limited to “extreme
arbitral conduct” as defined in Sections 10 and 11 of the FAA. Hall St. Assocs. v. Mattel, Inc.,
552 U.S. 576, 586 (2008). The Court will first discuss the Arbitrator’s jurisdiction to award
attorneys’ fees and costs, and then discuss whether she “exceeded her powers” in making these
awards.
a. Whether the Parties Intended for the Arbitrator to Determine the Scope of
Their Agreement to Arbitrate
When a dispute involving parties to an agreement with an arbitration clause is brought to
a court for resolution, it is the court’s obligation to determine whether the parties agreed to
submit a particular issue to arbitration unless the parties have made unmistakably clear that they
intended for the arbitrator, rather than the court, to determine the arbitrator’s jurisdiction. First
Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995). In determining whether there is clear
unmistakable evidence that the parties agreed to have an arbitrator determine the scope of their
agreement, “courts generally . . . should apply ordinary state-law principles that govern the
15
formation of contracts.” Id.; see also, e.g., Grynberg v. BP P.L.C., 585 F. Supp. 2d 50, 54
(D.D.C. 2008).
The parties here clearly intended to have the Arbitrator determine the scope of her own
jurisdiction. Under Delaware law, the incorporation of arbitral rules in the agreement giving the
arbitrator the ability to determine the scope of the arbitrator’s own jurisdiction, combined with an
arbitral clause providing for arbitration of all disputes, demonstrate clear unmistakable proof that
the parties intended the arbitrator to determine the scope of their agreement. See James &
Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76, 80 (Del. 2006). And here, the parties’
agreements provide that “[a]ny controversy or claim arising out of or relating to this Agreement
or the breach, termination or validity thereof, . . . shall be finally settled by arbitration . . . in
accordance with the CPR Rules for Non-Administered Arbitration.” Heierli’s Opp’n, Ex. 9
(Stockholders’ Agreement) ¶ 7.11; Ex. 10 (Management Services Agreement) ¶ 10(b); Ex. 11
(Sales Representative Agreement) ¶ 14(b). The CPR rules state that “[t]he [arbitration] Tribunal
shall have the power to hear and determine challenges to its jurisdiction, including any
objections with respect to the existence, scope or validity of the arbitration agreement.” CPR
Rule 8.1; Heierli’s Opp’n, Ex. 12. Because the parties clearly indicated their intent to have the
Arbitrator determine the scope of the arbitration agreement, they granted her the power to
determine her own jurisdiction, thus allowing her to decide whether she had the authority to
award attorneys’ fees and costs. Moreover, the CPR Rules themselves provide a basis for
awarding attorneys’ fees and costs, which state: “[t]he Tribunal shall fix the costs of arbitration
in its award . . . [and such] costs of arbitration includes . . . [t]he costs for legal representation
and assistance and experts incurred by a party to such extent as the Tribunal may deem
appropriate . . . .” CPR Rule 16.2; Heierli’s Opp’n, Ex. 12. Finally, the Arbitrator unequivocally
16
stated in her Order regarding Contech’s motion for reconsideration that her finding was based
primarily on the fact that “[i]t is uncontroverted that Delaware law permits such an award where
circumstances warrant [the award].” Heierli’s Opp’n, Ex. 5 (July 15 Order). And the Arbitrator
made a legal finding that the circumstances in this case warranted attorney’s fees and such fees
were clearly permissible under Delaware law.
The Court can find no reason to reject the Arbitrator’s conclusion that she had
jurisdiction to award attorneys’ fees and costs. Thus, Contech position that the Arbitrator acted
beyond the parameters of the agreement, the arbitration rules, and Delaware law in awarding
attorney’s fees, Petitioners’ Reply Memorandum In Support of the Petition to Vacate a Portion of
the Arbitration Award (“Contech’s Pet. to Vacate Reply”) at 7-10, must be rejected.
b. Whether the Arbitrator Exceeded Her Powers
A court may set aside an arbitration award “where the arbitrator[] exceeded [her]
power[], or so imperfectly executed [it] that a mutual, final, and definite award upon the subject
matter submitted was not made.” 9 U.S.C. § 10(a)(4). However, “[a]s long as the arbitrator is
even arguably construing or applying the contract and acting within the scope of [her] authority,
that a court is convinced [she] committed serious error does not suffice to overturn [her]
decision.” Kanuth, 949 F.2d at 1180 (quoting United Paperworkers Int’l Union, 484 U.S. at 38).
And when examining an arbitration award “it is particularly necessary to accord the ‘narrowest
of readings’ to the excess-of-authority provision of [9 U.S.C. § 10].” Kanuth, 949 F.2d at 1180.
Having found that the Arbitrator had the power to determine her jurisdiction, the essence
of Contech’s remaining arguments, despite its contentions to the contrary, Contech’s Pet. to
Vacate Reply at 7-8, can only be construed as a challenge based on the Arbitrator’s
misinterpretation of Delaware law and the CPR rules in awarding attorneys’ fees and costs.
17
Contech’s Pet. to Vacate ¶¶ 22-29. The Arbitrator found that Delaware law imposes strict
penalties, including the award of attorneys’ fees and costs, in order to discourage breaches of
fiduciary duties. Id., Ex. D (Partial Award) at 34. She therefore imposed attorneys’ fees and
costs against Contech in regards to the breach of its fiduciary duty. Id. Alternatively, the
Arbitrator found that the CPR rules “provide an independent basis to award both attorneys[’] fees
and the costs of the proceeding.” Id. Contech’s argument that the Arbitrator lacked the power to
award attorneys’ fees and costs under CPR Rule 16.2 because an arbitrator’s authority to make
awards under that rule is limited by CPR Rule 10.3,14 Contech’s Pet. to Vacate ¶¶ 22-26, in
addition to its argument that the arbitrator misapplied Thorpe by Castleman v. CERBO, 676
A.2d 436 (Del. 1996), because “the Arbitrator did not award a common corporate benefit to
BEBOTech or its shareholders, and because there was no possible benefit flowing to BEBOTech
or its shareholders as a result of Heierli’s action,” Contech’s Pet. to Vacate ¶¶ 27-29,
consequently amount to attacks on the Arbitrator’s legal findings,15 see Contech’s Pet. to Vacate
14
CPR Rule 10.3 states: “The Tribunal may grant any remedy or relief, including but not limited to specific
performance of a contract, which is within the scope of the agreement of the parties and permissible under the law(s)
or rules of law applicable to the dispute.” Contech’s Pet. To Vacate, Ex. D (CPR Rules).
15
Heierli contends that Contech is “trying to argue that the Arbitrator’s decision was in ‘manifest disregard of the
law . . . .’” Heierli’s Opp’n at 17. After the Supreme Court’s decision in Hall Street Associates, LLC v. Mattel, Inc.,
552 U.S. 576 (2008), holding that the grounds enumerated in Sections 10(a) and 11 of the FAA are the exclusive
means for vacating an arbitral award, it is questionable whether “manifest disregard of the law” remains as a basis
for vacating an arbitration award. See Republic of Argentina v. BG Group PLC, 715 F. Supp. 2d 108, 115 n.7
(D.D.C. 2010) (Walton, J.). The text of this Court’s footnote in Republic of Argentina reads:
[The petitioner] relies on the non-statutory ground that an arbitral award may be
vacated where the award was issued in “manifest disregard of the law.” Lessin
v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 481 F.3d 813, 816 (D.C. Cir.
2007). A question remains, however, as to whether this basis for vacating an
arbitral award survived the Supreme Court's recent decision in Hall Street
Associates, 552 U.S. 576 (2008). There, the Supreme Court concluded that
Sections 10(a) and 11 of the FAA “provide the . . . exclusive grounds for
expedited vacatur and modification,” 552 U.S. at 584 (emphasis added), but
acknowledged that its “vague phrasing” of the “manifest disregard of the law”
standard in prior precedents has caused confusion amongst the various circuit
courts of appeals, with some circuits viewing that standard as being
(continued . . .)
18
¶¶ 25-26 (“[The] CPR Rules . . . give the Arbitrator [the power] to award attorneys’ fees and
costs to Heierli only if that award is supported by Delaware law . . . [but] [t]he Arbitrator’s
award of attorneys’ fees and costs to Heierli in this proceeding is prohibited by Delaware law).
Irrespective of whether Contech is challenging the Partial Award under the “manifest
disregard of the law” standard, the fact that the Arbitrator may have misapplied Delaware law or
the CPR Rules is not a basis for vacating the award under the FAA. See LaPrade v. Kidder,
Peabody & Co., 246 F.3d 702, 706 (D.C. Cir. 2001) (quoting Kanuth, 949 F.2d at 1178) (stating
that to prevail under the “manifest disregard of the law” standard, the party seeking to vacate
must demonstrate “more than error or misunderstanding with respect to the law”); Teamsters
Local Union No. 61 v. United Parcel Serv., Inc., 272 F.3d 600, 604 (D.C. Cir. 2001) (quoting
Kanuth, 949 F.2d at 1178) (stating “judicial review of arbitral awards is extremely limited,” and
that this Court “do[es] not sit to hear claims of factual or legal error by an arbitrator” in the same
manner that an appeals court would review the decision of a lower court); LaPrade v. Kidder,
Peabody & Co., 94 F. Supp. 2d 2, 4 (D.D.C. 2000), aff'd, 246 F.3d at 705 (stating that “a court
must confirm an arbitration award where some colorable support for the award can be gleaned
(. . . continued)
encompassed within the grounds explicitly listed under the FAA (specifically
Sections 10(a)(3) and (4)), id. at 585, while others, including the District of
Columbia Circuit, have viewed the standard as independent of the grounds
explicitly enumerated under Section 10(a), see Lessin, 481 F.3d at 816 (“In
addition to the grounds under the [FAA] . . . on which an arbitration award may
be vacated, an award may be vacated only if it is ‘in manifest disregard of the
law.’ ”). The Supreme Court remained silent, however, as to which approach is
correct, and neither the Supreme Court nor the District of Columbia Circuit have
yet to weigh in on whether Hall Street Associates affects any of their respective
precedents. See Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., __ U.S. ___,
___, 130 S. Ct. 1758, 1768, n.3 (2010) (declining to decide whether the
“manifest disregard of the law” standard survived Hall Street Associates);
Regnery Pub., Inc. v. Miniter, 368 Fed. Appx. 148, 149 (D.C. Cir. 2010)
(assuming, without deciding, that the “manifest disregard of the law” standard
survived Hall Street Associates ).
715 F. Supp. 2d at 115 n.7.
19
from the record”). Consequently, because it has determined that the arbitrator had jurisdiction to
award attorneys’ fees and costs, the Court must affirm the award even if it believes that the
arbitrator has committed error. See Kanuth, 949 F.2d at 1180 (quoting United Paperworkers
Int’l Union, 484 U.S. at 38) (“[A]s long as the arbitrator is even arguably construing or applying
the contract and acting within the scope of [her] authority, that a court is convinced [she]
committed serious error does not suffice to overturn [her] decision.”). Thus, the Court cannot
find that the Arbitrator exceeded her power in awarding attorneys’ fees and costs.
B. The Final Award
In his Petition to Confirm the Final Award, Heierli asserts that this Court must confirm
the arbitration award because “[t]he parties agreed to arbitrate their dispute and agreed that
judgment could be entered on the arbitration award, the Final Award was made in the District of
Columbia, the Petition was filed within one year of the Final Award being made, and there are
no grounds upon which the Final Award could be vacated.” Heierli’s Mem. to Confirm at 6.
Heierli also asserts that the court should award him pre-judgment interest on the Arbitrator’s
award from the date of the award to the date of the entry of judgment by this Court as is
mandated by Delaware law, which constitutes the law the parties agreed would govern
application of the Stockholders’ Agreement. Id. at 7.
In response, Contech offers three bases upon which this Court should vacate the Final
Award: (1) the Arbitrator “exceeded her jurisdiction” by deciding a new dispute that had not
been processed through the dispute resolution procedure the parties agreed to before a dispute
would be submitted to arbitration, Contech’s Cross-Pet. to Vacate at 6-10; (2) the Arbitrator
“exceeded her jurisdiction” by deciding the value of Heierli’s shares as of May 2009 rather than
assessing their value period between March 2006 and February 2007, id. at 11-12; and (3) the
20
Arbitrator acted in manifest disregard of the express terms of the Stockholders’ Agreement by
wrongfully rejecting Contech’s use of Generally Accepted Accounting Principles (“GAAP”) to
determine the purchase price Heierli was entitled to receive for his BEBOTech shares, id. at 12-
14.16
Heierli responds with a series of alternate grounds upon which the Court should reject
Contech’s two arguments that the Arbitrator “exceeded her jurisdiction.” First, Heierli asserts
that Contech’s argument that Heierli failed to satisfy a condition precedent to the arbitration of
the parties’ dispute, i.e., participation in negotiations and mediation, is an argument challenging a
decision of “procedural arbitrability,” which is an issue subject to the Arbitrator’s discretion that
is not reviewable by this court. Plaintiff’s Opposition to Defendant’s Cross-Petition to Vacate
Arbitration Award, and Reply to Defendant’s Opposition to Petition to Confirm Arbitration
Award (“Opp’n to Cross-Pet. & Reply”) at 14-15. Failing the success of that position, Heierli
argues that even if the challenge “raises question of ‘substantive’ rather than ‘procedural’
arbitrability,” the question of arbitrability is one the parties agreed would be decided by the
Arbitrator. Id. at 15. As support for this position, Heierli notes that the CPR Rules provide that
“[t]he Tribunal [,i.e., the Arbitrator] shall have the power to hear and determine challenges to its
jurisdiction, including any objections with respect to the existence, scope or validity of the
arbitration agreement,” id. at 16 (citing CPR Rule 8.1), and posits that the parties through their
Stockholders’ Agreement demonstrated their unmistakable intention “to have the Arbitrator
16
Contech originally offered an additional basis for vacating the Final Award—that “the Arbitrator acted in
manifest disregard of the law by ordering that Contech could not withhold federal taxes from the interest she ordered
Contech to pay . . . Heierli . . ., even if federal tax law required Contech to do so.” Defendant Contech Construction
Products Inc.’s Notice of Withdrawal of One Ground for Its Cross-Petition to Vacate (“Contech’s Withdrawal
Notice”) at 1-2; see also Contech’s Cross-Pet. to Vacate at 14. Contech withdrew this argument as “moot” after
Heierli provided proof that he had executed the required form “attesting that he is a resident of Switzerland” and
therefore the withholding of United States federal income tax by Contech was not required by federal law.
Contech’s Withdrawal Notice at 1-2.
21
determine her own jurisdiction by providing that, ‘[a]ny controversy or claim arising out of or
relating to this Agreement or the breach, termination or viability thereof’ should be decided by
the arbitrator ‘in accordance with the CPR Rules for Non-Administered Arbitration,’” id. (citing
Stockholders Agreement ¶ 7.11). Alternatively, Heierli opines that Contech abandoned its
jurisdictional challenge by conceding during the October 2009 arbitration hearings that it was not
raising completely new positions at that time but rather was requesting that the Arbitrator
reconsider the same rulings she had rendered in her earlier Partial Award. Id. at 17. Heierli next
argues that if the Court permits Contech to challenge the Arbitrator’s jurisdiction, the challenge
should nonetheless fail because (1) “[t]he determination of the purchase price for Heierli’s
[s]hares” did not concern a new dispute but involved application of the Arbitrator’s Partial
Award rulings; (2) “Heierli was not required to restart the dispute resolution process”; (3)
“[n]egotiation and mediation were not conditions precedent to arbitration”; (4) “[e]ven if the
parties’ arbitration clause technically required Heierli to go through yet another round of
negotiation and mediation—and it did not—[Heierli] was relieved of that obligation because
Contech breached [that] very requirement”; (5) “Heierli did, in fact, comply with the negotiation
and mediation provisions of the arbitration clause” and; (6) “[v]acating the Final Award would
work an inequitable forfeiture.” Id. at 18-23. Finally, Heierli responds to Contech’s argument
“that the Arbitrator ‘manifestly disregarded the law’ by supposedly failing to apply a provision in
the Stockholders’ Agreement regarding Generally Accepted Accounting Principles [GAAP],” id.
at 26, by drawing the Court’s attention to Contech’s failure to identify any governing legal
principle the Arbitrator knew about yet refused to apply, id. at 27. Heierli essentially
characterizes the challenge by Contech as merely a disagreement with the Arbitrator’s final
22
decision rather than one that identifies a governing principle of law, which was presented to,
known, and ignored by the Arbitrator. Id. at 27-28.
1. Standard of Review in Determining Whether the Final Award Should be
Confirmed
The Court’s authority to confirm the final arbitral award in this case is governed by
section 9 of the FAA, which provides the following:
If the parties in their agreement have agreed that a judgment of the
court shall be entered upon the award made pursuant to the
arbitration, and shall specify the court, then at any time within one
year after the award is made any party to the arbitration may apply
to the court so specified for an order confirming the award, and
thereupon the court must grant such an order unless the award is
vacated, modified, or corrected as prescribed in sections 10 and 11
of this title.
9 U.S.C. § 9.
The Supreme Court has held that the grounds enumerated in Sections 10(a) and 11 of the
FAA are the exclusive means for vacating, modifying, or correcting an arbitral award. Hall Street
Assocs., LLC v. Mattel, Inc., 552 U.S. 576 (2008). Under 9 U.S.C. § 10(a), a court may vacate
an arbitration award upon application of any party to the arbitration if the award was procured by
“corruption, fraud, or undue means;” if there was “evident partiality or corruption in the
arbitrator[];” if the “arbitrator[] [was] guilty of misconduct in refusing to postpone the hearing . .
. or in refusing to hear evidence pertinent and material to the controversy;” or if the “arbitrator[]
exceeded [her] powers.” Under 9 U.S.C. § 11, a court may modify or correct an arbitral award if
(1) the movant can demonstrate that “there was an evident material miscalculation of figures[,]
or an evident material mistake in the description of any person, thing, or property referred to in
the award,” (2) the arbitrator has rendered a decision “upon a matter not submitted to [her],
23
unless it is a matter not affecting the merits of the decision upon the matter submitted,” or (3)
“the award is imperfect in matter of form not affecting the merits of the controversy.” Id.In applying these standards to determine whether vacatur or modification of the Final
Award is warranted, the Court reiterates that it must remain mindful of the principle that
“judicial review of arbitral awards is extremely limited,” and that this Court “do[es] not sit to
hear claims of factual or legal error by an arbitrator” in the same manner that an appeals court
would review the decision of a lower court. Teamsters Local Union No. 61, 272 F.3d at 604(quoting Kanuth, 949 F.2d at 1178). In fact, a broader review of an arbitrator's decision would
frustrate the FAA’s “emphatic federal policy in favor of arbitral dispute resolution,” Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (1985) (noting that the policy
“applies with special force in the field of international commerce”), because such scrutiny would
“undermin[e] the goals of arbitration, namely, settling disputes efficiently and avoiding lengthy
and expensive litigation,” LaPrade, 94 F. Supp. 2d at 4-5. Instead, “a court must confirm an
arbitration award where some colorable support for the award can be gleaned from the record.”
Id. at 4. Thus, “[t]he showing required to avoid summary confirmation of an arbitration award is
high, and a party moving to vacate the award has the burden of proof.” Willemijn
Houdstermaatschappij, BV v. Standard Microsystems Corp., 103 F.3d 9, 12 (2d Cir. 1997)
(citations omitted). Unless the Court has grounds to vacate, modify, or correct the Final Award,
it must grant the petition to confirm the award. See Adkins v. Teseo, 180 F. Supp. 2d 15, 18
(D.D.C. 2001) (quoting Taylor v. Nelson, 788 F.2d 220, 225 (4th Cir. 1986) (“A confirmation
proceeding under 9 U.S.C. § 9 is intended to be summary: confirmation can only be denied if an
award has been corrected, vacated or modified in accordance with the Federal Arbitration Act.”).
24
a. Challenge to the Arbitrator’s Jurisdiction to Make the Final Award
The Arbitrator “determined that [she] had jurisdiction to resolve [the issues presented in
reaching the Final Award, finding that] they represented a continuation of the parties’ existing
dispute regarding the appropriateness of various expense categories Contech sought to deduct
from the [earnings before interest, taxes, depreciation and amortization], matters which were
previously addressed in the first hearing,” Contech’s Cross-Pet. to Vacate, Ex. J (Final Award) at
6, which was held in conjunction with the issuance of the Partial Award. The Court is precluded
from holding that the “arbitrator[] exceeded [her] power” under 9 U.S.C. § 10 “[a]s long as the
arbitrator is even arguably construing or applying the contract and acting within the scope of
[her] authority . . . .” Kanuth, 949 F.2d at 1180 (quoting United Paperworkers Int’l Union, 484
U.S. at 38). Moreover, courts are required to “accord the ‘narrowest of readings’ to the excess-
of-authority provision of [9 U.S.C. § 10].” Id. When “the parties agree to submit the
arbitrability question itself to arbitration[,]” the court reviews an arbitrator’s decisions regarding
arbitrability under the same standard of review that applies to any other decision made by the
arbitrator. First Options, 514 U.S. at 943. While the court owes deference to any decision of the
arbitrator, deference to jurisdictional and procedural decisions is no greater than the deference
that must be accorded to any other decision. Id. Here, the Court has found nothing in record to
suggest that the Arbitrator’s view—that the issues addressed in the Final Award were related to
issues that were addressed in her partial award and thus her exercise of jurisdiction to address the
same issues was proper—falls outside the confines of the parties’ contract or resulted in the
Arbitrator acting beyond the scope of her authority. See Kanuth, 949 F.2d at 1180. Accordingly,
the Court can find no compelling reason to reach a different conclusion.
25
b. Contech’s Challenge that the Arbitrator Acted in Manifest Disregard of
the Law
Notwithstanding the Court’s previous notation regarding the status of the “manifest
disregard of the law” standard following Hall Street Associates, Contech has nevertheless failed
to satisfy the standard.
To prevail under the “manifest disregard of the law”
standard, [the movant] must demonstrate “more than error or
misunderstanding with respect to the law.” Rather, it must show
that “(1) the arbitrators knew of a governing legal principle[,] yet
refused to apply it or ignored it altogether[,] and (2) the law
ignored by the arbitrators was well[-]defined, explicit, and clearly
applicable to the case.”
Republic of Argentina, 715 F. Supp. 2d at 123 (quoting LaPrade, 246 F.3d at 706) (internal
citations omitted). Contech argues here that the Arbitrator acted in manifest disregard of the law
by rejecting its use of Generally Accepted Accounting Principles (GAAP) in calculating earnings
before interest, taxes, depreciation and amortization, quoting the sentences in the Stockholders’
Agreement that reads: earnings before interest, taxes, depreciation and amortization “of the
Company shall be determined in accordance with United States accrual basis Generally Accepted
Accounting Principles, consistently applied.” Contech’s Cross-Pet. to Vacate at 13.
The Arbitrator framed her decision regarding the propriety of various expenses Contech
claimed were mandated by GAAP as follows:
First, as I noted in the Partial Award, the contract, not GAAP,
controls the calculation of the value of the [s]hares. The
calculation is based on [earnings before interest, taxes,
depreciation and amortization]. [Earnings before interest, taxes,
depreciation and amortization are] not defined at all in GAAP. It
is defined in the [Stockholders’ Agreement]. The central focus of
this inquiry is not, therefore, what GAAP requires but first and
foremost, what the [Stockholders’ Agreement] requires.
26
Contech’s Cross-Pet. to Vacate, Ex. J (Final Award) at 6. The Arbitrator therefore did not state
that applying GAAP was proper and then rejected its application. Instead, she considered the
other language of the Stockholders’ Agreement, including the sample calculation of earnings
before interest, taxes, depreciation and amortization, to be controlling. Id.In addition, the Arbitrator based her refusal to apply GAAP to the purchase price on
“extensive testimony and argument by both parties, including the testimony of competing
experts.” Opp’n to Cross-Pet. & Reply at 28. Thus, the Court cannot conclude that she
“stray[ed] from interpretation and application of the agreement and effectively dispense[d] [her]
own brand of industrial justice.” Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., ___ U.S. ___,
___, 130 S.Ct. 1758, 1767 (2010) (internal quotation marks omitted) (citations omitted). In fact,
just the opposite is the case.
To show manifest disregard of the law, “there must be no colorable support for the
[Arbitrator’s] award in the record; if it seems that the [Arbitrator] rejected [the movant’s]
argument after fair consideration, then [the movant’s] showing falls short, and the Court must
enter the [Arbitrator’s] judgment.” LaPrade, 94 F. Supp. 2d at 6. Here, the Arbitrator relied on
extensive testimony, expert analysis, and the parties’ arguments in arriving at her decisions
regarding the application of GAAP to earnings before interest, taxes, depreciation and
amortization. See, e.g., Contech’s Cross-Pet. to Vacate, Ex. K (transcript of the proceedings
before the Arbitrator where an expert was examined regarding principles of GAAP and earnings
before interest, taxes, depreciation and amortization).17 Thus, even if manifest disregard remains
a viable basis for vacating an arbitration award, Contech has failed to meet this standard.18
17
Heierli also attacks Contech’s challenge to the Final Award, arguing that “Contech abandoned” its challenge to
the jurisdictional authority of the Arbitrator “at the October 2009 hearing and, in fact” submitted issues to the
(continued . . .)
27
4. The Award of Pre-Judgment Interest on the Judgment
“Interest is awarded in Delaware as a matter of right and not of judicial discretion.”
Moskowitz v. Mayor of Wilmington, 391 A.2d 209, 210 (Del. 1978). Furthermore, “[a]s a
general rule, interest accumulates from the date payment was due the plaintiff, because full
compensation requires an allowance for the detention of the compensation awarded and interest
is used as a basis for measuring that allowance.” Id. Here, the Stockholders’ Agreement
provides that it is governed by Delaware law. Heierli is therefore entitled to an award of pre-
judgment interest on the Final Award, at the rate determined by the arbitrator in the Final Award,
from the date that award was made up to and including the date of the issuance of the Order that
accompanies this Memorandum Opinion.
III. Conclusion
For the foregoing reasons, the Court grants Heierli’s Cross-Petition to enforce the Partial
Award and his Petition to Confirm the Final Award, and denies Contech’s Petition to Vacate the
Partial Award and its Cross-Petition to Vacate the Final Award.19
________/s/_______________
REGGIE B. WALTON
United States District Judge
(. . . continued)
Arbitrator, which resulted in “the now-challenged rulings.” Id. at 17. The Court need not address this argument,
having decided the issue on other grounds.
18
As noted earlier, Contech’s manifest disregard of the law challenge originally included a second theory—that the
Arbitrator acted in manifest disregard of the law by deciding that Contech could not withhold federal taxes on
interest payments made to Heierli in spite of federal tax law. However, Contech has withdrawn this challenge. See
supra p. 19, note 11.
19
This Memorandum Opinion accompanies the Order that was issued on September 30, 2010 and the Final Order
issued contemporaneously with this Memorandum Opinion.
28