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Ross Dress for Less, Inc. v. VIWY, L.P.

United States District Court, E.D. Pennsylvania

September 19, 2017

ROSS DRESS FOR LESS, INC.
v.
VIWY, L.P., et al.

          MEMORANDUM

          JUAN R. SÁNCHEZ, J.

         Plaintiff Ross Dress for Less moves for confirmation of an arbitration panel's June 26, 2017, decision awarding Ross $1, 800, 018.69 on its breach of contract claim against Defendant VIWY, L.P. VIWY moves to vacate the arbitration award, arguing the arbitration panel (Panel) failed to properly apply the statute of limitations to Ross's claim. For the reasons discussed below, the Court will grant Ross's motion to confirm the arbitration award, and deny VIWY's motion to vacate.

         In 2007, Ross and VIWP entered into a written lease agreement (the Lease), which contained a co-tenancy clause providing that Ross, a tenant in the retail shopping center owned by VIWP, would be entitled to pay a reduced “Substitute Rent” during any “Secondary Reduced Occupancy Period, ” i.e., a period, at any point after the commencement of the Lease, when specific nationally recognized retailers, or a specified number of retailers, are not open and operating at the shopping center.[1] Compl. Ex. A at § 6.1.3(a)-(c). On March 14, 2011, Ross, having determined that a Secondary Reduced Occupancy Period had occurred two years earlier without a corresponding rent reduction, made a written demand to VIWY for reimbursement of its two-year overpayment, but VIWY denied Ross's request. Ross nevertheless began offsetting its overpayment by paying Substitute Rent, and continued to do so through September 2011, when VIWY terminated the Lease.

         Ross commenced this action in federal court on January 11, 2012, alleging VIWY breached the terms of the Lease by failing to notify Ross that a Secondary Reduced Occupancy Period had occurred beginning in March 2009, causing Ross to overpay its rent from March 2009 through September 2011. VIWY filed a motion to dismiss and compel arbitration, contesting the occurrence of a Secondary Reduced Occupancy and arguing Ross had improperly offset its rent from March 2011 through September 2011. The latter issue regarding the propriety of Ross's offset was an arbitrable issue pursuant to the arbitration clause in the Lease. See Compl. Ex. A at § 20.1.1(e).

         On November 5, 2012, this Court issued an Order denying VIWY's motion as to Ross's breach of contract claim, and staying VIWY's arbitrable offset claim pending disposition of the overpayment issue. VIWY filed a notice of appeal, and on January 10, 2013, this Court stayed further proceedings pending resolution of the appeal. On July 1, 2014, the Third Circuit held the entire case was arbitrable, and this Court ordered the parties to proceed to arbitration on all claims, staying the case pending completion of the arbitration proceedings.

         On March 20, 2015, Ross filed an arbitration demand with the American Arbitration Association. The parties conducted discovery and filed cross-motions for summary judgment. In its cross-motion, VIWY raised a statute of limitations defense, arguing Ross's claim was time barred because Ross filed its demand more than four years after becoming aware of the alleged breach of contract. On January 10, 2017, the Panel denied VIWY's statute of limitations defense. Following a two-day arbitration hearing on March 13-14, 2017, the Panel rendered its decision finding that VIWY “breached its contractual obligation to give Ross notice of a Secondary Reduced Occupancy Period . . . during which Ross was continually entitled to a substantially reduced monthly rent, ” Pl.'s Mot. to Confirm Ex. A at 2, and awarding Ross $1, 800, 018.69 in damages, interest, fees, and costs, id. at 7. Ross seeks confirmation of that award pursuant to § 9 of the Federal Arbitration Act (FAA), 9 U.S.C. § 9.[2] VIWY argues the award must be vacated, as the Panel failed to properly apply Pennsylvania's four-year statute of limitations to Ross's breach of contract claim.

         Under the FAA, “there is a strong presumption in favor of enforcing arbitration awards.” Bapu Corp. v. Choice Hotels Int'l, Inc., 371 F. App'x 306, 308 (3d Cir. 2010). A court does “not review [an] arbitrator's decision for factual or legal error, ” and will not vacate an award based on “‘serious errors of law or fact'” so long as the arbitrator “‘makes a good faith attempt to [interpret and enforce the contract].'” CD & L Realty LLC v. Owens Illinois, Inc., 535 F. App'x 201, 203 (3d Cir. 2013) (alterations in original) (quoting Sutter v. Oxford Health Plans LLC, 675 F.3d 215, 220 (3d Cir. 2012), aff'd, 133 S.Ct. 2064 (2013)). In effect, the arbitrator must have “dispense[d] his own brand of industrial justice” to warrant vacatur. Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 671 (2010). Indeed, a court “must grant” an order confirming an arbitration award “unless the award is vacated, modified or corrected as prescribed in sections 10 and 11 of [the FAA].” 9 U.S.C. § 9; see Tenet HealthSystem Phila., Inc. v. Rooney, No. 12-58, 2012 WL 3550496, at *1 (E.D. Pa. Aug. 17, 2012) (“‘[M]indful of the strong federal policy in favor of commercial arbitration, [Courts must] begin with the presumption that the award is enforceable, ' and must confirm the award unless grounds exist for vacating the award pursuant to Section 10 of the FAA” (alterations in original) (quoting Sutter, 675 F.3d at 219)).

         A court may vacate an arbitrator's decision “only under exceedingly narrow circumstances.” Dluhos v. Strasberg, 321 F.3d 365, 370 (3d Cir. 2003). The FAA permits a district court to vacate an arbitration award in four circumstances:

(1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

9 U.S.C. § 10. Courts have also set aside arbitration awards when an arbitrator's actions constitute a “manifest disregard of the law, ” a judicially-created standard, see Dluhos, 321 F.3d at 369, though the viability of this basis for setting aside an arbitration award is unclear following the United States Supreme Court's 2008 decision in Hall Street Assoc., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008).[3]

         VIWY argues the Panel's award must be vacated because the Panel's decision regarding the statute of limitations constituted manifest disregard of state law and the Third Circuit's July 1, 2014, Opinion directing this Court to enforce the arbitration clause in the Lease. Even assuming manifest disregard of the law remains a valid ground for vacating an arbitration award, the Panel here did not manifestly disregard Pennsylvania's statute of limitations or the Third Circuit's decision.

         A party seeking vacatur of an arbitration panel's award on the ground of manifest disregard of the law must demonstrate that the arbitrators “(1) knew of the relevant legal principle, (2) appreciated that this principle controlled the outcome of the disputed issue, and (3) nonetheless willfully flouted the governing law by refusing to apply it.” Paul Green Sch. of Rock Music Franchising, LLC v. Smith, 389 F. App'x 172, 176 (3d Cir. 2010). A court “may not reevaluate supposed inconsistencies in the arbitrator's logic or review the merits of the arbitrator's decision.” Local 863 Int'l Bhd. of Teamsters v. Jersey Coast Egg Producers, Inc., 773 F.2d 530, 533 (3d Cir. 1985). The “manifest disregard” doctrine “is to be used only [in] those exceedingly rare circumstances where some egregious impropriety on the part of the arbitrators is apparent, but where none of the [vacatur] provisions of the [FAA] apply.” Black Box Corp. v. Markham, 127 F. App'x 22, 25 (3d Cir. 2005) (alterations in original) (internal quotation marks and citation omitted). VIWY “bears the burden of proving that the arbitrators were fully aware of the existence of a clearly defined governing legal principle, but refused to apply it, in effect, ignoring it.” Id.

         In considering VIWY's statute of limitations defense, the Panel concluded:

Pennsylvania law is unsettled as to whether its Statute of Limitations must be applied in private binding arbitration proceedings or whether applying the Statute is left to the discretion of the arbitration tribunal. We need not decide that issue. If the Statute were applied, we find that it was ...

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