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Intellisystem, LLC v. McHenry

United States District Court, E.D. Pennsylvania

June 26, 2019



          SURRICK, J.

         Petitioners 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 be granted.

         I. BACKGROUND

         Respondent 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).

         On 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.)

         On May 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)).)

         On 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.)

         On 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.)


         As an 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)).[1] 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).

         However, 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 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 ...

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