From Casetext: Smarter Legal Research

Consolidated Biscuit Co. v. Karpen

United States District Court, N.D. Ohio, Western Division
Aug 28, 2001
Case No. 3:00CV7703 (N.D. Ohio Aug. 28, 2001)

Opinion

Case No. 3:00CV7703.

August 28, 2001

Erica G Silk, Eastman Smith, Henry N. Heuerman, Eastman Smith, Toledo, OH, counsel for Plaintiff.

Catherine H. Killam, Nathan Roberts, H. Buswell Roberts, Jr., Shumaker, Loop Kendrick, Toledo, OH, counsel for Defendant.


ORDER


Pursuant to 9 U.S.C. § 11(a) and (b), plaintiff Consolidated Biscuit Co. ("Consolidated") seeks to modify an award rendered by an arbitration panel concerning a contract dispute with the defendant William Karpen. Jurisdiction arises pursuant to 28 U.S.C. § 1332. Pending is Consolidated's motion to modify the arbitration award. (Doc. 46). For the following reasons, Consolidated's motion is denied.

BACKGROUND

Consolidated produces cookies, crackers, and other baked goods. Consolidated is owned primarily by James Appold, who is also the President of the company.

In 1992, Consolidated formed a new division to produce the jams, jellies, and fillings previously purchased from outside contractors. Appold contacted defendant to see if he would be in charge of this new division at the company's McComb, Ohio facility.

In 1993, defendant and Consolidated began negotiations for a consulting agreement. Section 3A of the agreement, effective December 1, 1993, provides that defendant's compensation would consist of:

A. a commission of $.04 per pound of sold or used product, up to a total commission of ten million dollars ($10,000,000) (hereinafter referred to as "CAP") for all products in the Product Line, or all products developed jointly by the parties while this Agreement is in effect. This commission will remain in effect so long as the Company chooses to market, use and/or produce any product(s) in the "Product Line." Consultant, or his agent shall, at least twice a year, have the right to audit those records of the Company which may pertain to the sales or use of the "Product Line", and may be determinative of the commission that has been or is to be paid, to determine the accuracy of the records used by the Company in coming to such determination.

Section 12(A) provides that the agreement could be amended "only by written instrument signed by the parties."

In December 1993, defendant began performing his duties under the contract. Defendant was responsible for the development and manufacture of many jams, jellies, fillings, and toppings for Consolidated.

After March 18, 1997, Consolidated stopped paying defendant commissions. Consolidated admits that it breached the original agreement and entered into negotiations with defendant for new employment terms. (Doc. 46 at 5).

Defendant never agreed to Consolidated's decision to cease paying commissions and continued to bill Consolidated. Through 1997 and 1998, Consolidated accrued the commissions owed to defendant in its financial statements. (Doc. 46 at Ex. F).

From mid-1997 through late February 1999, defendant and Consolidated negotiated a revised contract. (Doc. 31, Ex. A; Doc 49, Ex. G and H). Defendant provided two revisions of the new employment arrangement which he was willing to accept. On February 25, 1999, defendant was advised that he must either accept one of two proposals for the new agreement provided by Consolidated or be terminated. Defendant did not accept either revision and was terminated.

Section 12(G) of the agreement contains an arbitration clause:

Any controversy or claim arising out of, or relating to this Agreement or breach thereof, shall be settled by arbitration in accordance with the rules then obtaining of the American Arbitration Association, and judgment on the award rendered may be entered in any court having jurisdiction thereof.

Defendant filed a demand for arbitration submitted to a panel of arbitrators on July 31, 2000, claiming that Consolidated breached the agreement. Consolidated denied the breach, claiming defendant himself breached the agreement and asserting it was entitled to a set-off for the amount of overpayment of commissions paid prior to December 31, 1996 against any amount owed by Consolidated.

On August 4, 2000, the panel issued an award stating that defendant: (1) was owed $280,810 as compensation for commissions, attorneys' fees, interest, and expenses; (2) was not entitled to commissions for Hostess products; and (3) was entitled to a salary of $5000 a month from January 1997 to February 1999.

The award stated:

Nor may Respondent reduce the amount of the commission by amounts it paid to Claimant after January 1, 1997. As a result of disappointing results in the first years of the Consulting Agreement, the parties orally agreed to modify the Agreement effective January, 1997. Claimant agreed to continue performing his services under the agreement in exchange for reasonable compensation. The parties entered into this arrangement without agreeing to a precise compensation for Claimant's services, each party trusting that they would eventually reach an acceptable arrangement. No agreement has ever been reached, however. From January, 1997 until February, 1999, the Claimant acted as general manager of the Sandusky facility. We find the reasonable and fair value of these services to be the amount paid ($5,000 per month).

(Doc. 46 at Ex. A).

On October 28, 2000, Consolidated filed an application to modify the award by the panel with the Hancock County, Ohio Court of Common Pleas. Consolidated argues that the award should be modified because the panel: (1) relied upon an undisputed mistake of fact; (2) rendered its decision upon a matter not submitted to it; and (3) committed a material miscalculation by granting defendant damages previously paid by Consolidated. Defendant removed the matter to this Court on the basis of diversity of citizenship.

ANALYSIS A. Standard of Review

Based on the Congressional policy promoting arbitration, courts do not "intrude unnecessarily" into an arbitration panel's decision, "lest the efficiency of the arbitration process be lost." Anderman/Smith Operating Co. v. Tennessee Gas Pipeline Co., 918 F.2d 1215, 1218 (5th Cir. 1990). Therefore, the standard of review of an arbitration decision is "extremely narrow." NCR Corp. v. SCA-Co., Inc., 43 F.3d 1076, 1079 (6th Cir. 1995). "[A]n arbitrator's decision is entitled to great deference and generally should be upheld absent irrationality or disregard of plain and unambiguous language in the agreement." National Post Office Mailhandlers v. United States Postal Serv., 751 F.2d 834, 840 (6th Cir. 1985).

A court must defer to the panel even if it does not agree with the arbitrators' interpretation of the contract. Anderman/Smith, 918 F.2d at 1218. As long as the award "draws its essence" from the agreement, the award must be sustained. United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 36 (1987).

B. The Panel's Reliance on an Alleged Mistake of Fact Does Not Require Modification

Pursuant to 9 U.S.C. § 11(a), a federal court may modify an arbitration award "[w]here there was an evident material miscalculation of figures or an evident material mistake in the description of any person, thing or property referred to in the award." National Post, 751 F.2d at 843 (common law allows arbitration awards to be modified if based on "clear misstatements of undisputed historical fact"); Gloria Jean's Coffee Bean Corp. v. J A Coffee, Inc., 1992 U.S. Dist. LEXIS 17563, *17-8 (N.D. Ill. 1992) (unpublished) (arbitrators' reliance on uncontested mistake of fact may be modified by federal court under 9 U.S.C. § 11(a)).

Consolidated argues the panel relied on an undisputed mistake of fact — that defendant and Consolidated formed an oral agreement to modify the agreement to compensate defendant $5,000 a month in addition to the commissions due — in its determination of defendant's award.

According to Consolidated, § 3(A) of the agreement requires Consolidated to pay defendant commissions but not salary payments. Furthermore, Consolidated argues that § 12(A) of the agreement specifically requires all modifications to be in writing. Therefore, an oral modification is prohibited by the express terms of the agreement. In addition, defendant's invoice sheets demonstrate that the $5,000 salary appeared as a credit against commissions due defendant for 1997, 1998 and 1999. (Doc. 46 at Ex. F).

Although Consolidated highlights several valid points supporting its argument, I need not decide whether the panel relied on an undisputed mistake of fact, because, in any event, the mistake was not material.

To warrant modification of the award, Consolidated must demonstrate that the panel relied on a mistake of fact "but for which, according to the arbitrator's rationale, a different result would have been reached." National Post, 751 F.2d at 843 (citing Electronics Corp. of America v. Int'l Union of Elec., Radio, and Mach. Workers, 492 F.2d 1255, 1257 (1st Cir. 1974)). If the defendant can provide "any rational explanation for the award", independent of the alleged reliance on the mistake of fact, that is "rationally inferable from the facts before the arbitrator," I must affirm the award. Valentine Sugars, Inc. v. Donau Corp., 981 F.2d 210, 214 (5th Cir. 1993) (analyzing claim to vacate award under 9 U.S.C. § 11(a)).

In National Post, 751 F.2d at 843, the Sixth Circuit considered a claim that an arbitration panel relied on a mistake of fact in its award. The panel determined that the Postal Service discharged an employee on just cause, relying on the fact that the employee plead guilty prior to the discharge. Instead, the employee had plead guilty after the discharge by the Postal Service, who thus could not have relied upon this plea in its determination. The Sixth Circuit held, "It is therefore clear that, if not for [its] mistaken belief that the plea preceded the discharge, [the panel] might well have reached a different conclusion. . . ." Id.

In this case, it is not clear that the panel based its decision to award defendant a salary in addition to commissions on its finding that an oral agreement was reached. Instead, I find that the alleged mistake of fact concerning the oral agreement is not necessary to the theory upon which relief was granted.

Defendant contends that the panel based its award on the doctrine of quantum meruit, and thus the award can properly stand independent of the alleged existence of an oral agreement between the parties.

The panel heard evidence that: (1) Consolidated stopped paying defendant commissions in accordance with the agreement; (2) the parties were in the process of negotiating a new deal, but no agreement was reached; and (3) meanwhile, defendant continued to perform for Consolidated from 1997 to 1999 with the expectation that he would be reasonably compensated.

Evidence in the record supports the panel's decision to award salary payments as reasonable compensation. On August 14, 1998, during the parties' negotiations concerning defendant's new employment agreement, Appold made an offer that consisted of an annual salary of $60,000 in addition to commission payments. (Doc. 49 at Ex. G). Defendant also submitted other documents to the panel demonstrating that, from 1997 to 1999, the parties negotiated a salary for defendant. See Doc. 31 at Ex. A (monthly flat fee of $10,000); Doc. 49 at Ex. H (salary of $95,000 a year).

Based on the language of the award and the evidence before the panel, I find that defendant has presented a plausible theory of quantum meriut supporting the panel's decision. See Community Hosp. of Springfield and Clark County, Inc. v. Kidder, 81 F. Supp.2d 863, 866 (S.D.Ohio 1999) ("[o]nly where no judge or group of judges could conceivably come to the same determination as the arbitrators must the award be set aside").

The panel found that defendant continued to perform "services under the agreement in exchange for reasonable compensation" and trusted that the parties "would eventually reach an acceptable arrangement." (Doc. 46 at Ex. A). This language supports defendant's contention that the panel relied on a theory of quantum meriut, which prevents unjust enrichment in the absence of a contract. See Gloria Jean's, 1992 U.S. Dist. LEXIS at *13 ("[i]f a rationale is provided, the arbitrator's decision must merely rest upon any plausible explanation for his conclusion, and the fact that a court believes the award rests on serious errors of fact or on a misinterpretation of the contract is immaterial").

Although the panel did not specifically state that the award was based on the doctrine of quantum meriut, it was not required to do so. Community Hosp., 81 F. Supp.2d at 866 (arbitration panel not required to set forth reasons for award or explain how questions of law were resolved).

Consolidated argues that the panel was not permitted to award the quasi-contract remedy of quantum meriut, as a matter of law, because, under Ohio law, a party is entitled to compensation only in accordance with the terms of the agreement unless there has been a finding of fraud, illegality or bad faith. Because the award does not contain an explicit finding of illegality, fraud or bad faith, Consolidated argues that the panel had to limit defendant's recovery to the commissions due under the agreement. The panel, however, did not have to explicitly state its finding justifying the award or its analysis of the legal issues present. See Community Hosp., 81 F. Supp.2d at 866.

Because I find that defendant presented a plausible theory supporting the panel's award, independent of its allegedly mistaken finding that the parties had reached an oral agreement, the award will be upheld. See Valentine, 981 F.2d at 214 ("we must affirm the arbitrators' award if [the party] can provide any rational explanation for the award" inconsistent to the contention that it was based upon an undisputed mistake of fact).

Defendant argued that, if I determined the award was improper, the award should be vacated and not modified. Because I find that the panel's award was proper, defendant's motion to vacate is also denied.

C. The Panel Did Not Exceed Its Authority

Pursuant to 9 U.S.C. § 11(b), Consolidated argues that the award should be modified, because the panel exceeded its authority by addressing issues not placed before it by the parties, thus failing to draw the essence of the award from the agreement.

In Champion Int'l Corp. v. United Paperworkers Int'l Union, 779 F.2d 328, 335 (6th Cir. 1985), the Sixth Circuit held that great deference must be given to an arbitrator's initial decision that an issue has been submitted to arbitration:

Considering the strong presumption in favor of a party's right to arbitration and the extent of an arbitrator's authority, it would be a strange . . . to demand that arbitrators stay narrowly within the technical limits of the submission. We do not mean to imply that an award that clearly goes beyond the grievance submitted to the arbitrator is enforceable . . . But we do hold that the presumption of authority that attaches to an arbitrator's award applies with equal force to his decision that his award is within the submission.

A panel will be found to have exceeded its authority when the award: (1) conflicts with express terms of the collective bargaining agreement; (2) imposes additional requirements that are not expressly provided in the agreement; (3) is without rational support or cannot be rationally derived from the terms of the agreement; and (4) is based on general considerations of fairness and equity instead of the precise terms of the agreement. Cement Div., Nat'l Gypsum Co. v. United Steelworkers of Am., 793 F.2d 759, 766 (6th Cir. 1986).

Consolidated argues that the panel exceeded its authority because the award: (1) conflicts with the express terms of the agreement, which provides only for commission payments to defendant and prohibits oral modification; (2) imposes additional requirements not expressly provided in the agreement by forcing Consolidated to make salary-like compensation payments to defendant in addition to commission payments; (3) is without rational support because defendant admitted the agreement was never modified; and (4) fails to draw its essence from the agreement because, by finding that $5000 a month payments were "reasonable", the panel disregarded its task of construing the agreement. I disagree.

The central question before the panel was the amount of compensation due to defendant from Consolidated. The panel determined that, after January 1997, Consolidated breached the original agreement. After that time, the panel found that defendant continued to work for Consolidated, while negotiating a new compensation package.

The panel did not exceed its authority, therefore, by making an award different from the original agreement, because the agreement no longer governed the parties as evidenced by their negotiations. Consolidated's argument that the panel exceeded its authority by awarding additional compensation different from the original agreement is, accordingly, without merit. Similarly, Consolidated's contention that the award does not "draw its essence" from the agreement fails, because, as mentioned above, the panel had authority to look beyond the terms of the parties' original agreement to determine defendant's compensation.

In addition, the panel's decision to grant defendant's award based on the doctrine of quantum meruit is supported by the broad reach of the arbitration clause.

The agreement contained a broad arbitration clause at § 12(G):

Any controversy or claim arising out of, or relating to this Agreement or breach thereof, shall be settled by arbitration in accordance with the rules then obtaining of the American Arbitration Association, and judgment on the award rendered may be entered in any court having jurisdiction thereof.

Federal courts have approved arbitration awards based on a theory of quantum meriut, outside the terms of the parties' agreement, where the agreement contains a broad arbitration clause. In Am. Recovery Corp. v. Computerized Thermal Imaging, 96 F.3d 88 (4th Cir. 1996), the Fourth Circuit reviewed an award based on an arbitration clause giving the panel authority to arbitrate "any dispute that `arose out of or related to' the consulting agreement." Id. at 93. The court determined that the quantum meriut award was sufficiently related to the consulting agreement and fell within the scope of the arbitration clause. See also Fluor Daniel Intercontinental, Inc. v. General Elec., 1999 U.S. Dist. LEXIS 12983, *22, Case No. 98 Civ. 7181 (S.D.N.Y. August 20, 1999) (unpublished) (arbitration clause broad enough to support panel's award based on doctrine of quantum meriut).

The panel did not, therefore, exceed its authority by awarding defendant's compensation based on a theory of quantum meriut.

D. The Panel Did Not Miscalculate Defendant's Award

If a panel awards damages that have already been paid, a court has authority to modify the award. Eljer Mfr., Inc. v. Kowin Dev. Corp., 14 F.3d 1250, 1253 (7th Cir. 1994).

Consolidated argues that the panel miscalculated the award, because it failed to credit a 1997 commission payment, and the salary payments made in 1997-1999, against the commission payments awarded to defendant. As discussed above, however, the panel determined that the defendant was entitled to salary payments in addition to commissions due. Consolidated's contention that the panel awarded double damages is, therefore, without merit.

Finally, Consolidated argues that the panel failed to credit a commission payment of $18,234.60 made by Consolidated to Karpen on March 18, 1997, against the amount that the panel found due for 1997 commissions. Although Consolidated has demonstrated that this payment was made to defendant (see Doc. 46 at Ex. D), it failed to prove that this commission was not credited against the commissions awarded.

Consolidated submitted an invoice sheet of unpaid commissions. (Doc. 46 at Ex. F). This sheet shows that the $18,234.60 payment was credited against the unpaid balance.

Therefore, I find that Consolidated has failed to demonstrate that the panel unjustly awarded defendant double payments for commissions, because the $18,235.60 commission payment is credited on the invoice sheet submitted by Consolidated.

CONCLUSION

For the foregoing reasons, it is

ORDERED THAT Consolidated's motion to modify the award be, and the same hereby is, denied. Defendant's motion to vacate the award, if the award be found improper, is also, accordingly, denied.

So ordered.


Summaries of

Consolidated Biscuit Co. v. Karpen

United States District Court, N.D. Ohio, Western Division
Aug 28, 2001
Case No. 3:00CV7703 (N.D. Ohio Aug. 28, 2001)
Case details for

Consolidated Biscuit Co. v. Karpen

Case Details

Full title:Consolidated Biscuit Co., Plaintiff, v. William Karpen, Defendant

Court:United States District Court, N.D. Ohio, Western Division

Date published: Aug 28, 2001

Citations

Case No. 3:00CV7703 (N.D. Ohio Aug. 28, 2001)

Citing Cases

Turquoise Properties Gulf v. Overmyer

This is not surprising, given that there was no allegation in AIG Baker of a double recovery. 5. See,…

Priority One Services, Inc. v. W T Travel Services

“When an arbitration award orders a party to pay damages that have already been paid or which are included…