Opinion
No. M 82 (HB) (Part 1).
June 29, 2005
OPINION ORDER
On April 15, 2005, Scientific Components Corporation d/b/a Mini-Circuits Laboratory ("Mini-Circuits" or "Petitioner") filed a motion to confirm an arbitration award against Raytheon Company d/b/a Raytheon Raytheon Company Microelectronics, d/b/a Raytheon Microelectronics ("Raytheon" or "Respondent"), and Raytheon cross-moved to vacate the award. The matter was assigned to Part I and was sub judice on May 25, 2005 following oral argument. For the reasons set forth below, the motion to confirm the arbitration award is GRANTED, and the motion to vacate is DENIED.
I. BACKGROUND
Mini-Circuits and Raytheon entered into a sales contract on December 31, 1997, whereby Raytheon agreed to manufacture certain electronic components and sell them to Mini-Circuits (the "Supply Agreement"). Paragraph 15 of the Supply Agreement included a broad arbitration clause and stated:
Any dispute, controversy or claim between the Parties, and not involving a Third Party, arising out of or related to this agreement, or the breach, termination, or invalidity thereof shall be settled by arbitration in the City of New York, New York, in the United States of America before a Panel of three Arbitrators under the prevailing commercial rules of the American Arbitration Association. Judgment upon the Arbitration Award or decision may be entered in any court having jurisdiction thereof. Any award rendered by the Arbitrators may include compensatory damages and costs against either party but under no circumstances are the Arbitrators authorized or empowered to award punitive or multiple monetary damages against either party. (The "Arbitration Clause.")
Paragraph 11 of the Supply Agreement also contained a limitation on liability provision:
Notwithstanding any other provisions of this order [sic] and except for willful acts, omissions or, negligence under no circumstances shall either party be liable to the other for any consequential, special, incidental, indirect, multiple, or punitive damages. (The "Consequential Damage Exclusion.")
Paragraph 28 of the Supply Agreement specifically listed the sections of the Agreement which would survive if the Agreement was terminated (the "Survival Clause"). Neither the Arbitration Clause nor the Consequential Damage Exclusion provision were listed in the Survival Clause.
A dispute arose under the Supply Agreement where Mini-Circuits asserted that Raytheon failed to deliver marketable product and commenced an arbitration proceeding on September 15, 2000, pursuant to the Arbitration Clause of the Supply Agreement. Thereafter, there was an attempt at mediation, which failed to come to closure, and some four years after initiating arbitration and during the week of October 25, 2004, hearings were held and a decision rendered on March 2, 2005. The arbitration panel (the "Panel") found that Raytheon breached the Supply Agreement in a number of significant respects including wrongful termination of the Agreement and material breaches that relate to Raytheon's post-termination obligations. The Panel also found that the Consequential Damage Exclusion did not survive termination of the Supply Agreement as the language in paragraph 28 states, and concluded it was within its power to grant consequential damages for both wrongful termination and subsequent events without finding willful misconduct.
In sum, the Panel found:
1. Mini-Circuits is awarded four million, one hundred fifty thousand dollars ($4,150,000.00 USD) on its claims. Simple annual 9% interest is to run on any unpaid portion of that amount from January 1, 2000 forward.
2. Raytheon is awarded two hundred forty one thousand, five hundred twenty three dollars and seventy-seven cents ($241,523.77 USD). Simple annual 9% interest is to run on any unpaid portion of that amount from January 1, 1999 forward.
3. All claims for costs are denied.
4. The fees of the Arbitrators totaling $58,123.75 and the administrative fees of the American Arbitration Association totaling $15,750.00 shall be borne equally by each side. Therefore, Respondent shall pay to Claimant the sum of $2,638.87.
5. This Award is in full and final settlement of all claims and counterclaims submitted to this Arbitration. To the extent any such claim or counterclaim is not specifically mentioned herein, it is denied.
6. This Award may be executed in counterparts, each of which shall be deemed an original and all of which shall be deemed the same instrument.
Thereafter, Mini-Circuits petitioned this Court to confirm the arbitration award.
II. DISCUSSION
A. Legal Standard
The Federal Arbitration Act, ("the Act"), 9 U.S.C. §§ 1- 14, as interpreted by the United States Supreme Court, embodies a strong policy favoring arbitration, see Mastrobuno v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995), and permits vacatur of an arbitral award rarely, e.g., where the arbitrators "exceeded their powers." 9 U.S.C. § 10(a)(4). Courts have "consistently accorded the narrowest of readings" to the FAA's authorization to vacate awards pursuant to § 10(a)(4). Westerbeke Corp. v. Daihatsu Motor Co., Ltd., 304 F.3d 200, 220 (2d Cir. 2002). Accordingly, an arbitration award is subject to very limited review by district courts. See Folkways Music Publishers, Inc. v. Weiss, 989 F.2d 108, 111 (2d Cir. 1993). If arbitrators have jurisdiction over a matter, "any subsequent construction of the contract and of the parties' rights and obligations under it" is for the arbitrators to decide. McDonnell Douglas Fin. Corp. v. Pennsylvania Power Light Co., 858 F.2d 825, 832 (2d Cir. 1988). The Court's inquiry, prescribed by the case law, must focus on whether the arbitrators had the power based on the parties' submissions to reach a certain issue, not whether the arbitrators correctly decided that issue. Westerbeke Corp., 304 F.3d at 220 (quoting DiRussa v. Dean Witter Reynolds Inc., 121 F.3d 818, 824 (2d Cir. 1997)). "As long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, that a court is convinced he committed serious error does not suffice to overturn his decision." United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 36 (1987). Rather, "the court is forbidden to substitute its own interpretation even if convinced that the arbitrator's interpretation was not only wrong, but plainly wrong." Local 1199, Hosp. Health Care Emples. Union v. Brooks Drug Co., 956 F.2d 22, 25 (2d Cir. 1992).
B. The Arbitration Panel's Scope of Power
Raytheon argues that the arbitrators exceeded their power in awarding consequential damages in violation of the terms of the Supply Agreement because the Panel made a specific finding that Raytheon had not committed any willful acts, omissions, or negligence. (Arbitration Decision at 15.) The Court must determine first whether the Panel acted within the scope of its authority, and second, whether the award draws its essence from the agreement or is merely an example of the arbitrators' own brand of justice. Local 119, 956 F.2d at 25.
Mini-Circuits argues that it was within the province of the arbitrators to award consequential damages regardless of the fact that the Panel found no willful misconduct. The Arbitration Clause in the Supply Agreement was broad and provided authority to the arbitration Panel to resolve the whole dispute. Since the Panel found that the Consequential Damage Exclusion did not survive termination it was free to award consequential damages for post-termination conduct.
Raytheon argues that this determination exceeds the Panel's authority because neither the Consequential Damage Exclusion nor the Arbitration Clause was spelled out in the Survival Clause. Put another way, Raytheon contends both the Arbitration Clause and the Consequential Damage Exclusion survived termination of the Supply Agreement, or neither did. If the Arbitration Clause and Consequential Damage Exclusion survived, the Panel had authority over the dispute but could not award consequential damages absent a finding of willful misconduct. If neither clause survived, the Panel lacked authority to formulate any award whatsoever. But this argument is unavailing. In its decision, the Panel explained that because the broad Arbitration Clause already encompassed termination and termination related issues, it would have been redundant to expressly list it in the Survival Clause. (Arbitration Decision at 18 n. 5.)
The Panel interpreted the Supply Agreement to mean that the Consequential Damage Exclusion did not preclude consequential damages for wrongful termination of the Supply Agreement or for Raytheon's post-termination breaches. The Panel also determined that to conclude otherwise would require the Panel to engage in a distorted interpretation which would result in there being no remedy for wrongful termination or for a number of important post-termination breaches.
In short, it is not up to this Court to second-guess the Panel's interpretation of the Supply Agreement, but only to determine if it had the authority to do so. Because of the broad Arbitration Clause, the Panel had the authority. What it determined was not an arbitrary award but a reasoned conclusion based on its interpretation of the contract between the parties. The arbitration award must be confirmed if there is any basis for upholding the decision and "if there is even a barely colorable justification for the outcome reached." Willemign Houdstermaatschappij, BV v. Standard Microsys. Corp., 103 F.3d 9, 13 (2d Cir. 1997). As such, the Panel did not exceed the scope of its authority.
C. Manifest Disregard of the Law
Raytheon also argues that the Panel acted with manifest disregard of the law. See Duferco Int'l Steel Trading v. T. Klaveness Shipping A/S, 333 F.3d 383 (2d Cir. 2003). To vacate an arbitration award under this rationale, the Court must find (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. Bear, Stearns Co., Inc., v. 1109580 Ont., Inc., 2005 U.S. App. LEXIS 9538 (2d Cir. May 25, 2005) (citing DiRussa v. Dean Witter Reynolds Inc., 121 F.3d 818, 821 (2d Cir. 1997) (internal quotations omitted)). While Raytheon contends that the arbitrators acted with manifest disregard of the law, it cites to no law that was disregarded. Rather Raytheon's underlying argument is that the Panel wrongly interpreted the Supply Agreement or perhaps more to their way of thinking, came out the wrong way.
III. CONCLUSION
For the foregoing reasons, Mini-Circuits' motion to confirm the arbitration award is GRANTED. The award is hereby confirmed in its entirety. Raytheon's motion to vacate the award is DENIED. The Clerk is instructed to close this motion and any open motions and remove this case from my docket.
IT IS SO ORDERED.