United States District Court, E.D. Pennsylvania
INTELLISYSTEM, LLC ET AL.
WILLIAM B. MCHENRY, JR.
Intellisystem, LLC, John W. Lee, and Andrew B. Sacks filed a
Petition to Confirm the Arbitration Award from an American
Arbitration Association ("AAA") proceeding
involving the parties. (ECF No. 1.) Respondent has not filed
a response to the Petition. Presently before the Court is
Petitioners' Motion for Default Judgment. (ECF No. 3.)
For the following reasons, Petitioners' Motion will be
treated as an unopposed Motion for Summary Judgment and will
William McHenry, Jr. is the principal of Ascension Medical
Supply, LLC. (Pet. ¶ 11, ECF No. 1.) On April 26, 2016,
Respondent, on behalf of Ascension, signed an Exclusive
Distributorship Agreement ("EDA") with Petitioner
Intellisystem, LLC. (Id. ¶¶ 10-12; EDA,
Mot. for Dflt. App. 6, ECF No. 3.) Pursuant to the EDA,
Ascension agreed to pay $100, 000 to Intellisystem in return
for the exclusive right to distribute an Intellisystem
product called the OsteoFX (HM Cast). (EDA preamble, art.
1.1.) In addition, the EDA required Ascension to make minimum
purchases of the Osteo FX (HM Cast) "in a number agreed
upon by the parties consistent with the initial demand of
product." (EDA art. 5.1.) Ascension did not make these
minimum purchases. (Pet. ¶ 13.) The EDA also included an
integration clause, stating that the EDA "constitutes
the entire understanding of [the parties] with respect to the
subject matter hereof," (EDA art. 17.2) and an
arbitration clause compelling the parties to submit to
arbitration for any disputes arising out of the EDA
(Id. art. 16).
September 15, 2016, Respondent filed a complaint against
Petitioners in the United States District Court for the
Southern District of Mississippi. McHenry Compl., McHenry
v. IS, LLC, No. 16-728 (S.D.Miss., filed on Sep. 15,
2016). Respondent claimed that Petitioners had fraudulently
induced McHenry and Ascension into entering into the EDA by
"represent[ing]... that the OsteoFX casting system was
the only product of its kind worldwide," when in fact
there are "no less than three Orthopedic supply houses
in the United States [that] acquire this very type of cast
from a Chinese manufacturer." McHenry Compl.
¶¶ 7, 10. Due to the presence of the arbitration
provision in the EDA, the judge entered an order compelling
arbitration in that case. (Order Compelling Arb., Mot. for
Dflt. App. 30.) The court also found that Ascension is not an
existing limited liability company and that Respondent is an
alter ego of Ascension. (Id. at 5.)
4, 2018, Respondent filed a Notice of Claim against
Petitioners with the American Arbitration Association
("AAA") alleging the same harm as it alleged in its
Mississippi federal case. (Notice of Claim, Mot. for Dflt.
App. 39.) Arbitration proceeded in Philadelphia,
Pennsylvania, and Petitioners eventually filed a motion for
dispositive relief pursuant to AAA's Commercial
Arbitration Rule 33. (Mot. for Dflt. App. 63.) Respondent
filed a brief in opposition to the motion for dispositive
relief and the parties appeared for oral argument on the
matter. (Pet. ¶ 24.) On September 20, 2018, the
arbitrator granted Petitioners' motion for dispositive
relief. (J. Klein Order re: Rule 33 Mot., Mot. for Dflt. App.
93.) The arbitrator found that, when an agreement contains an
integration clause, the parol evidence rule applies, and
prohibits parties from asserting that they were fraudulently
induced into signing the agreement. (Id. at 2
(citing Yocca v. Pittsburgh Steelers Sports, Inc.,
854 A.2d 425 (Pa. 2004); Toy v. Metropolitan Life Ins.
Co., 928 A.2d 186 (Pa. 2007)).)
January 11, 2019, Petitioners moved for a final arbitration
award of attorneys' fees and costs pursuant to AAA Rule
47, which allows such an award if both parties request it.
AAA Comm. R. 47(c), 47(d)(ii). Respondent did not file a
response to this motion, nor did he appear at the subsequent
hearing on the motion. (Pet. ¶ 28.) On February 5, 2019,
the arbitrator awarded Petitioners $77, 713.13 in
attorneys' fees and costs. (Award, Mot. for Dflt. App.
97; see also Reasoned Op., Mot. for Dflt. App. 100
(supporting amount awarded).) Respondent did not respond to
the award, did not file an appeal, and has not made any
payment. (Pet. ¶¶ 32-33.)
April 1, 2019, Petitioners filed this Petition to Confirm the
Arbitration Award and Enter Judgment Against Respondent. On
May 1, 2019, the United States Marshals Service personally
served Respondent with the Petition. (ECF No. 2.) Respondent
did not file a Response. On May 23, 2019, Petitioners filed
the instant Motion for Default Judgment. After reviewing the
Motion, an Order was entered requiring Petitioners to submit
evidence supporting the amount of the arbitrator's award,
which consisted of attorneys' fees and costs. (ECF No.
4.) On June 5, 2019, Petitioners provided the Court with
documentation supporting the amount of the award, including
affidavits from the attorneys, time logs, and receipts.
(Decl., ECF No. 5.) On June 10, 2019, Petitioners submitted a
letter to the Court correcting the amount requested. (Supp.
Decl., ECF No. 6.)
initial matter, "[d]efault judgments are generally
inappropriate in proceedings to confirm an arbitration
award." Doctor's Assocs., Inc. v.
Singh-Loodu, No. 13-3030, 2014 U.S. Dist. LEXIS 52542,
at *1 (D.N.J. Apr. 16, 2014) (quoting Trs. of New York
City Dist. Council of Carpenters Pension Fund v.
Premium Sys., Inc., No. 12-1749, 2012 U.S. Dist. LEXIS
117506, at *7 (S.D.N.Y. Aug. 20, 2012)). Since a petition
to confirm contains a record from the underlying arbitration
proceeding, courts should treat an unanswered petition to
confirm as an unopposed motion for summary judgment. D.H.
Blair & Co. v. Gottdiener, 462 F.3d 95, 109-10 (2d
Cir. 2006); see also N.J. Bldg. Laborers Statewide
Benefit Funds v. Innovative Masonry, No. 14-3112, 2015
U.S. Dist. LEXIS 105291, at *2-4 (D.N.J. Aug. 3, 2015)
(assessing merits of unopposed petition to confirm
arbitration award); Int'l Union of Operating
Eng'rs Local 825 Emple. Benefit Funds & Trs. v.
Altura Concrete Inc., No. 14-5743, 2015 U.S. Dist. LEXIS
100013, at *2-4 (D.N.J. July 30, 2015) (same).
the standard of review is fairly strict. "[W]here the
party has agreed to arbitrate, ... the court will set [the
arbitrator's] decision aside only in very unusual
circumstances." First Options of Chi., Inc. v.
Kaplan, 514 U.S. 938, 942 (1995) (citations omitted).
Sections 10 and 11 of the Federal Arbitration Act
("FAA") list the few situations in which a district
court may vacate or modify an arbitrator's award. The
court may vacate an award:
1. where the award was procured by corruption, fraud, or
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 ...