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SWIFT INDUS. v. BOTANY INDUS.

January 21, 1971

SWIFT INDUSTRIES, INC., Petitioner,
v.
BOTANY INDUSTRIES, INC., Respondent


Weber, District Judge.


The opinion of the court was delivered by: WEBER

In this case which was referred to binding arbitration by prior Order of this Court, the Arbitrator has made his award, and we face cross-motions to confirm the award and to vacate or modify the award.

 The plaintiff argues that the award must be confirmed because it is the only award that will afford complete relief between the parties, that the scope of review of this Court is limited.

 The defendant argues that the Arbitrator exceeded his authority under the Submission and under the Contract in question, and thus the award must be entirely vacated; or, in the alternative, it must be modified to vacate the separate and unauthorized provisions thereof.

 Our review of the entire matter, the briefs and evidentiary materials filed, and the arguments of counsel lead us to the conclusion that what was submitted to the Arbitrator was essentially a request for a finding of declaratory relief on the question of liability between the two parties for payment of a disputed tax liability when and if that liability would be finally determined in a tax proceeding which is still pending.

 The Court finds that the Arbitrator exceeded the authority granted him in the submission in respect to all provisions of Par. B of the award.

 Par. B(1) would require Botany to make an immediate cash payment to Swift of $6,000,000 which the Arbitrator found to be the total maximum amount which might ultimately be assessed in the tax controversy in question. This is beyond the Arbitrator's powers. No provision in the Reorganization Agreement or the Submission authorized the Arbitrator to determine the amount of the losses or liabilities incurred or suffered.

 The amount of such liability is still an open question to be determined by pending proceedings before the United States Tax Court and any appeal therefrom. No loss would be suffered until Plaintiff were required to pay such liability.

 The Arbitrator apparently drew the conclusion that the amount of liability was determined from the Statutory Notice of Deficiency (commonly called a "90 day letter"). Such notice is not a deficiency, it is the government's claim. It is not an assessment of liability; in fact no assessment of such liability can be made during the pendency of the 90 day period, and none can be made thereafter if an appeal is taken to the appropriate court until that appeal is finally determined. The 90 day letter is not a deficiency, it is the proposed deficiency which the government intends to assess after 90 days if no objection is taken.

 In this case the appeal has been taken and no amount of deficiency has been finally determined. Nowhere in the Reorganization Agreement or the Submission is the Arbitrator authorized to determine the amount of Botany's liability.

 Par. B(2) of the Arbitrator's Award appears to recognize this absence of a final determination of the amount of liability by a competent authority. The Arbitrator provided in the alternative that Botany deliver a surety bond guaranteeing the payment to Swift of "all liability as finally determined", and all counsel fees and expenses incurred. Not only is this a recognition that the provisions of Par. B(1) of the Award rest upon no final determination, but furthermore it imposes a condition of security for such liability upon Botany that was not contained in the Reorganization Agreement which the Arbitrator was construing. The Reorganization Agreement called for payment by Botany to Swift in cash of the liability as determined.

 It appears that in making an award in a definite sum and then alternatively allowing Botany to guarantee payment of any sum which might ultimately be determined to be due by a surety bond, the Arbitrator was attempting to fashion some form of equitable relief to fit the factual situation. The Arbitrator in Par. B(1) imposed an award calling for an immediate cash payment to Swift for the total maximum amount of all possible liability, which we have determined that he was without authority to do, and then apparently recognizing his lack of authority to frame an award in this fashion attempted to modify this requirement of immediate cash payment by permitting the substitution of an open-end surety bond for all liability which might eventually be determined. An Arbitrator has no authority to substitute his own brand of justice. United Steelworkers of America v. Enterprise Wheel & Car Corp., 363 U.S. 593, 597, 80 S. Ct. 1358, 4 L. Ed. 2d 1424 [1960].

 Finally, we find nothing in the Reorganization Agreement or the Submission authorizing the Arbitrator to substitute a secured liability for an ultimate liability to pay cash when the amount of that liability is determined.

 We, therefore, conclude that the provisions of Par. B of the Arbitrator's award are invalid.

 We find that the determinations of Par. B of the award are separate from the provisions of Paragraphs A and C and do not affect their validity. Therefore, we may reject the invalid part and sustain the valid part. Moyer v. Van-Dye-Way Corp., 126 F.2d 339 [3rd Cir., 1942].

 We determine that the finding of Par. A of the Arbitrator's Award was within the scope of the Reorganization Agreement and the Submission and that the Arbitrator's determination of ...


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