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Dealer Computer Services, Inc. v. Dayton Ford Inc.

April 8, 2009

DEALER COMPUTER SERVICES, INC., PLAINTIFF,
v.
DAYTON FORD INC., DEFENDANT.



The opinion of the court was delivered by: Wolfson, United States District Judge

OPINION

This matter comes before the Court on an application to confirm an arbitration award rendered in a dispute between Plaintiff Dealer Computer Services, Inc. ("Plaintiff") and Defendant Dayton Ford, Inc. ("Defendant"). In its opposition, Defendant contends that the arbitration panel exhibited a manifest disregard of the law, in violation of the Federal Arbitration Act ("FAA"). For the reasons that follow, Plaintiff's Motion to Confirm the Arbitration Award is granted but its request for attorney's fees and costs is denied.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

Plaintiff, a successor in interest to Universal Computer Consulting, Limited, Universal Computer Network, Inc., and Universal Computer Services, Inc., develops and designs computer software used by automobile dealerships. Affidavit of William Foster, Exh. 1, Arbitration Award p. 2. Defendant owned and operated several dealerships, including Dayton Ford and Dodge, Dayton Toyota, Dayton Chevrolet, Chrysler and Jeep. Id. Sometime in August 1993, Defendant contracted with Plaintiff for the right to use Plaintiff's software at all of its dealerships. Id. The terms of the four contracts executed in 1993 were renegotiated in October 2002, extending the length of the parties' contractual relationship through October 10, 2010. Id. Over the course of 2006, however, Defendant divested itself of all its dealerships. Id. Plaintiff claimed, that as a result of the sale, the amounts due under the contract were accelerated, and that Defendant was responsible for over $1,460,040.04 in contractual fees. Id. Believing that it did not breach the contracts, Defendant refused to pay the alleged amount due and in addition, claimed Plaintiff was in material breach of the parties' agreements. Alternatively, Defendant asserted that even if it owed Plaintiff under the contract, it was for an amount considerably less than the one proffered by Plaintiff.

Unable to resolve the dispute amicably, the parties turned to an alternative dispute resolution. The contracts in dispute, governed by the laws of New Jersey, called for the resolution of disputes by arbitration before an American Arbitration Association ("AAA") panel. On January 29, 2007, Plaintiff filed its demand for arbitration, seeking $1,460,040.04 in damages. Defendant responded with a counterclaim of over $10,000. The parties agreed to a panel and selected New Brunswick, New Jersey as the site for the arbitration.

The hearing was conducted between November 27-29, 2007. Both parties presented evidence and witnesses, including experts to speak to the issue of damages. On February 19, 2008, the arbitration panel, consisting of the Honorable William G. Bassler, U.S.D.J. (ret.), Robert E. Bartkus, and the Honorable Mark Epstein, issued a ruling, in which it determined that Defendant was in material breach of the contracts, and liable for damages to Plaintiff. In so doing, the panel decided that in order to calculate damages due under New Jersey law, Plaintiff was entitled to recover the benefit of the bargain under the agreements less Plaintiff's avoided costs for not having to perform under the contract. While Defendant conceded that the amount remaining to be paid under the agreements was over 1,400,000, the parties widely disagreed over the amount of avoided costs. Plaintiff's expert, Chris Owen, Manager of its Financial Analysis Department, testified at the hearing that by his estimates, avoidable costs totaled 7.8% of the amount left due. By contrast, Defendant's expert, Gregory Schmelke, testified that avoidable costs for Plaintiff ranged from 36 to 70% of the total amount. The panel, skeptical of both estimates, determined that a more reasonable approximation of avoidable costs under the contract, given the evidence on record, was 25%, leaving $1,067,806.81 to be paid. The panel finally concluded, after applying other discounts and deductions, that Defendant owed over $953,593.77.

On July 14, 2008, Plaintiff initiated this action in United States District Court for the District of New Jersey. Defendant filed its Answer to Plaintiff's Complaint on August 12, 2008. Subsequently, Plaintiff filed this Motion for Summary Judgment to Confirm the Arbitration Award on September 11, 2008. On October 6, 2008, Defendant filed its opposition thereto, arguing that the arbitration panel wholly disregarded the clear legal precedent cited and the arbitration award should be vacated accordingly. In addition, Defendant challenges Plaintiff's request for attorney's fees and expenses incurred as a result of this litigation. For the reasons that follow, Plaintiff's Motion to Confirm the Arbitration Award is granted.

II. DISCUSSION

A. Standard of Review

It is an axiomatic of this Court's review of an arbitration award that "[a]s long as the arbitrator's award 'draws its essence from the collective bargaining agreement,' and is not merely ' his own brand of industrial justice,' the award is legitimate." United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 36 (1987) (quoting Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 597 (1960); Exxon Shipping Company v. Exxon Seamen's Union, 801 F. Supp. 1379, 1384 (3d Cir. 1992). Recently, the Second Circuit expounded on the rationale behind the deference to an arbitration award:

Vacatur of an arbitral award is unusual for good reason: The parties agreed to submit their dispute to arbitration, more likely than not to enhance efficiency, to reduce costs, or to maintain control over who would settle their disputes and how-or some combination thereof.

Stolt-Nielsen SA v. AnimalFeeds International Corp., 548 F.3d 85, 92 (2d Cir. 2008). Although Congress intended that courts be chary to overturn an arbitrator's decision, the FAA makes clear that an arbitration award is not immune from attack. A court may vacate an arbitration award if the arbitrator's decision is wholly unsupported by the agreement's plain language or the arbitrator fails to adhere to basic principles of contract construction. News Am. Publications, Inc., Daily Racing Form Div. v. Newark Typographical Union, Local 103, 921 F.2d 40, 41 (3d Cir. 1990); Exxon Shipping, 801 F. Supp. at 1384.

However, in its review of an arbitration award, this Court may not "sit as the panel did and re-examine the evidence." Mutual Fire, Marine, & Inland Ins. Co. v. Norad Reins. Co., Ltd., 868 F.2d 52, 56 (3d Cir.1989). Thus, if an "arbitrator is even arguably construing or applying the contract and acting within the scope of his authority,' the fact that 'a court is convinced he committed serious error does not suffice to overturn his decision.'" Eastern Associated Coal Corp. v. United Mine Workers of America, District 17, 531 U.S. 57, 62 (2000) (quoting Misco, 484 U.S. at 38). In other words, it is not within the province of this Court to substitute its judgment for that of an arbitrator's, however injudicious it may be. Rather, Congress' intent in passing the FAA and concurrent policy considerations guide this Court's obligation to uphold an arbitrator's judgment if the decision, on its face, was drawn from the parties' agreement or is remotely based on reasonable contractual interpretation. See United Trans. Union Local 1589 v. Suburban Transit Corp., 51 F.3d 376, 379 (3d Cir.1995).

Alternatively, and as relied on by Defendant, courts have vacated arbitration awards in instances where the arbitrator demonstrates a manifest disregard for the applicable law. Although not explicitly enumerated as a grounds for vacataur under the FAA,*fn1 the Third Circuit has recognized the "manifest disregard of the law doctrine [as] a judicially-created one that is to be used 'only [in] those exceedingly rare circumstances where some egregious impropriety on the party of the arbitrators is apparent, but where none of the provisions of the [FAA] apply." Black Box Corp. v. Markham, 123 Fed. Appx. 22, 25 (3d Cir. 2005). To prevail under this doctrine, the moving party must demonstrate that the arbitrator ignored law that was "well defined, explicit, and clearly applicable to the case." Koken v. Cologne Reinsurance (Barb.) Ltd., No. 98-0678, 2006 U.S. Dist. LEXIS 59540, at *6, 2006 WL 2460902 (M.D.Pa. Aug. 23, 2006); O'Leary v. Salomon Smith Barney, Inc., No. 05-6016, 2008 WL 5136950, at *4 (D.N.J. Dec. 5, 2008). An improper, or disputed, application of a legal rule does not give rise to vacataur; a party seeking relief from an ...


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