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Egan Jones Ratings Co. v. Pruette

United States District Court, E.D. Pennsylvania

October 30, 2017



          SCHMEHL, JUDGE

         Before the Court is the Petition to Vacate Partial Final Arbitration Award of Egan Jones Ratings Company (“Egan”). Respondents, Steven Pruette and Christopher Pruette on behalf of In Search Partners (“Pruette”) have opposed the petition, and filed a Cross-Petition to Confirm Partial Arbitration Award. Having read the parties' briefing and held oral argument on this matter, I will deny Egan's petition to vacate the final partial arbitration award and I will grant Pruette's cross-petition to confirm.

         I. BACKGROUND

         Egan filed this proceeding under the Federal Arbitration Act, 9 U.S.C. § 1 et. seq. (“FAA”) to vacate an arbitration award made in a proceeding held by the American Arbitration Association. The award in question is titled a “Partial Final Award of Arbitrator.” (See Docket No. 1, Ex. H.) The Award addresses a contractual dispute between Egan, a Nationally Recognized Securities Rating Organization (“NRSRO”) certified by the Securities and Exchange Commission, and Pruette, its exclusive distributor of ratings services.

         Egan and Pruette entered into an exclusive distribution agreement on December 20, 1998 (“1998 Agreement”), providing that Pruette, through InSearch Partners, would solicit and accept orders for the securities rating service provided by Egan. (See Docket No. 1, Ex. C.) The 1998 Agreement provided for a two-year term, and for three separate one-year extensions if certain sales goals were met. Id. The Agreement further stated that “[e]ither party may end its association with the other with 90 day written notice after the end of the two year period…” Id. Meanwhile, at some point, Egan engaged another distributor, Peter Arnold, to market and sell services covered by the exclusivity provision of the 1998 Agreement.

         Egan claims the 1998 Agreement was to expire in 2003, but was then extended until late 2004. Egan also claims that a new contract was entered into in late 2004 or 2005, and notice of cancellation of this revised agreement had been given to Pruette in 2006. Pruette contends that the 1998 Agreement was silent as to what would happen at the end of the term in 2003, Egan never terminated the Agreement, and it remained in force at least through 2014.

         Pursuant to a stipulation of the parties, the arbitration was bifurcated into liability and damages phases. Accordingly, the arbitrator's decision in this matter was on liability only and did not address damages, and a separate arbitration hearing is to be held on damages. In short, the arbitrator found that the term of the 1998 Agreement was indefinite, pending receipt of notice of termination, that no new written agreement had been executed, and that no notice of termination had been given in 2006 or thereafter.

         After the entry of the Partial Final Award, Egan petitioned this Court to vacate the arbitrator's award. (See Docket No. 1.) After a decision on Pruette's motion to dismiss, Pruette filed its opposition to the petition and its own cross-petition seeking to confirm the arbitrator's award. For the reasons that follow, I will deny Egan's petition to vacate and grant Pruette's cross-petition to confirm the arbitrator's award, as I find that the arbitrator met all standards required for confirmation of an arbitration award.


         The party moving to dismiss an arbitration award bears the burden of proof. Grosso v. Salomon Smith Barney, 2003 WL 22657305, *1 (E.D. Pa Oct. 24, 2003). An “extremely deferential standard of judicial review [is] set forth in the Federal Arbitration Act (“FAA”), 9 U.S.C.A. § 10(a)(1)-10(a)(4).” Dluhos v. Strasberg, 321 F.3d 365, 366 (3d Cir.2003). “[A] district court may vacate [an award] only under exceedingly narrow circumstances.” Id. (citing 9 U.S.C. § 10); Amalgamated Meat Cutters & Butcher Workmen of N. Am., Local 195 v. Cross Brothers Meat Packers, Inc., 518 F.2d 1113, 1121 (3d Cir.1975). Pursuant to 9 U.S.C.A. § 10, a judge may vacate an arbitration award 1) where the award was procured by corruption, fraud, or undue means; 2) where there was evident partiality or corruption in the arbitrators...; 3) where the arbitrators were guilty of misconduct and the rights of any party were thereby prejudiced; or 4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the matter before them was not made. 9 U.S.C. § 10(a)(2)-10(a)(4).

         An arbitrator's decision may be vacated where the award evidences a “manifest disregard of the law.” United Transp. Union Local 1589 v. Suburban Transit Corp., 51 F.3d 376, 379 (3d Cir.1995). My colleague, the Honorable Juan Sanchez, recently addressed the issue of manifest disregard in an arbitration proceeding and stated:

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 Fed.Appx. 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 Fed.Appx. 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.

Ross Dress for Less, Inc. v. VIWY, L.P., 2017 WL 4155087, at *3 (E.D. Pa. Sept. 19, 2017).

         It is not proper for the court to “reexamine the evidence” when reviewing an arbitration award. Mutual Fire, Marine, & Inland Ins. Co. v. Norad Reins. Co., Ltd.,868 F.2d 52, 56 (3d Cir.1989). Errors in the arbitrators' factual findings or interpretations of the law do not justify a court's review or reversal on the merits. United Paperworkers Int'lUnion v. Misco, Inc.,484 U.S. 29, 36-38 (1987); Sun Ship, Inc. v. Matson NavigationCo.,785 F.2d 59, 62 (3d Cir.1986) (citations omitted). A court may not overrule an arbitrator “simply because it disagrees” with the arbitrator's interpretation of the law. United Transp., 51 F.3d at 379 (quoting News America Publications, Inc. v. NewarkTypographical Union, Local 103, 918 F .2d 21, 24 (3d Cir.1990)). Even where the court is ...

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