Dealer Computer Services, Inc. v. Johnson Ford Lincoln Mercury, Inc., No. 4:2010cv00719 - Document 15 (S.D. Tex. 2010)
Court Description: MEMORANDUM AND ORDER denying 5 MOTION to Vacate Arbitration Award; the Final Award in American Arbitration Association Case No. 701170033608 is in all things CONFIRMED and ADOPTED as the Judgment of this Court.(Signed by Judge Ewing Werlein, Jr) Parties notified.(kcarr, )
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Dealer Computer Services, Inc. v. Johnson Ford Lincoln Mercury, Inc. Doc. 15 IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION DEALER COMPUTER SERVICES, INC., § § Plaintiff, § § v. § § JOHNSON FORD LINCOLN MERCURY § NISSAN, INC., § § Defendant. § CIVIL ACTION NO. H-10-719 MEMORANDUM AND ORDER Pending are Plaintiff Dealer Computer Services, Inc.’s Motion to Confirm Arbitration Award (Document No. 1) and Defendant Johnson Ford Lincoln Mercury Nissan, Inc.’s Motion to Vacate Arbitration Award (Document No. 5). After carefully considering the motions, responses, the arbitration award, and the applicable law, the Court concludes for the reasons that follow that the Arbitration Decision and Award should be confirmed. I. Plaintiff Dealer Background Computer Services, Inc. seeks judicial confirmation of a $284,087 award against Defendant Johnson Ford Lincoln Mercury Nissan, Inc. (“Johnson Ford”) delivered by a panel of three arbitrators in Houston on March 3, 2010. Johnson Ford moves to vacate the award because “it was in excess of the Dockets.Justia.com arbitration panel’s authority, in contravention to established law and in manifest disregard of the law.”1 The underlying facts are that in 1993, Plaintiff sold to Johnson Ford, an owner of Ford dealerships, a 7000MP CPU pursuant to a contract. Under the contract, Johnson Ford agreed to purchase certain peripherals and software applications, and to purchase hardware and software maintenance services.2 The parties performed under this contract for 13 years, during which time Johnson Ford made “numerous enhancements and modifications to the 7000MP computer system.”3 In 2006, Plaintiff informed Johnson Ford that a new version of its software, Version 23.X, would require an upgrade from the 7000MP CPU to a 9000MPX model.4 Johnson Ford, however, believed the agreement did not require it to replace its 7000MP CPU for any software or hardware support provided by Plaintiff for the duration of the contract.5 Believing Plaintiff’s requirement of an upgrade, and attendant statements that older versions of the software and hardware would not be supported after April 2007 to constitute a 1 Document No. 5 at 1 (citing 9 U.S.C. § 10(a)(1) and (4)). 2 Id. at 4. 3 Id. 4 Id. 5 Id. at 3-4. 2 repudiation, Johnson Ford ceased paying Plaintiff’s monthly invoices.6 The Johnson Ford contract is governed by Michigan law7 and included an arbitration clause stating: Except as provided otherwise in this Agreement, all disputes, claims, controversies and other matters in question between the parties to the Agreement, arising out of, or relating to this Agreement, or to the breach thereof . . . shall be settled by arbitration . . . .8 The Johnson Ford arbitration was one of a number of arbitrations that Plaintiff has had with various dealers arising out of this form Contract and the need for an upgrade to the 9000MPX model. Plaintiff won some and lost some. Johnson Ford in this arbitration relied upon the prior Ford Hammonasset and Kemp Ford arbitration decisions to contend that the arbitration panel in this case should apply collateral estoppel against Plaintiff. Plaintiff, however, submitted to the arbitration panel evidence that Plaintiff had prevailed on the same form contract in four other arbitration decisions.9 The arbitration panel declined to apply collateral estoppel based on the two arbitration decisions in favor of the dealers, and held that Johnson Ford had breached its 6 Id. at 5-6. 7 Document No. 6, ex. 1 at DCS 0014. 8 Id., ex. 1 at DCS 0013-0014. 9 See Document No. 6 at 31-32; id., exs. 11-14. 3 contract with Plaintiff, for which it awarded Plaintiff $284,087 in damages. II. Discussion As the party seeking to vacate the award, Johnson Ford bears the burden of proof. See Matter of Arbitration Between Trans Chem. Ltd. and China Nat’l Machinery Import & Export Corp., 978 F. Supp. 266, 303 (S.D. Tex. 1997) (Lake, J.), adopted by 161 F.3d 314, 319 (5th Cir. 1998). A court’s review of an arbitration award is “exceedingly deferential,” and any doubt or uncertainty is resolved in favor of upholding the award. Brabham v. A.G. Edwards & Sons Inc., 376 F.3d 377, 380, 385 n.9 (5th Cir. 2004).10 Johnson Ford asserts that the panel exceeded its authority and manifestly disregarded the law. “Manifest disregard of the law” is not a ground for vacatur. Hall Street restricts the grounds for vacatur to those set forth in § 10 of the Federal Arbitration Act (FAA or Act), 9 U.S.C. § 1 et seq., and consequently, manifest disregard of the law is no longer an independent ground for vacating arbitration awards under the FAA. Hall Street effectively overrules our previous authority to the contrary . . . . 10 Johnson Ford mistakenly relies upon Michigan law in enunciating the standard of review based on the contract’s choiceof-law clause. The “FAA rules apply absent clear and unambiguous contractual language to the contrary.” Action Indus., Inc. v. U.S. Fid. & Guar. Co., 358 F.3d 337, 341 (5th Cir. 2004). This contract contains no provision expressly and unambiguously adopting any different arbitration review rules or expressly modifying or replacing FAA rules. 4 Citigroup Global Mkts., Inc. v. Bacon, 562 F.3d 349, 350 (5th Cir. 2009) (discussing Hall Street Assocs., L.L.C. v. Mattel, Inc., 128 S. Ct. 1396, 1403 (2008)). In arguing that the panel exceeded its authority Johnson Ford is essentially seeking re-litigation of the issues that were before the arbitration panel. Thus, it claims that the panel: (1) improperly interpreted the contract; (2) wrongfully refused to apply the doctrine of collateral estoppel in not following the decisions made by previous arbitration panels that ruled against Plaintiff; and (3) had insufficient evidence to support the amount of damages awarded. A. Improper Contract Interpretation When an arbitration agreement vests arbitrators with the authority to interpret a contract, their construction must be enforced so long as it is “rationally inferable from the letter or purpose of the underlying agreement.” Glover v. IBP, Inc., 334 F.3d 471, 474 (5th Cir. 2003) (quoting Executone Info. Sys., Inc. v. Davis, 26 F.3d 1314, 1320 (5th Cir. 1994)). An award is rationally inferable from the underlying contract if it “in some logical way, [is] derived from the wording or purpose of the contract.” Anderman/Smith Operating Co. v. Tenn. Gas Pipeline Co., 918 F.2d 1215, 1218 (5th Cir. 1990) (internal quotations omitted). 5 Johnson Ford claims the arbitration panel erred in finding the contract unambiguous, because the term “dealer’s computer system” in section 7(A)(3) was undefined, and nowhere is made synonymous with the term “In-Dealership Computer System.”11 Johnson Ford has not shown that the arbitration panel’s interpretation cannot be rationally inferred from the wording or purpose of the contract. Section 7(A)(3) provides: FDCS [Plaintiff] will, from time-to-time, in its sole discretion, make Modifications and Enhancements to the Operating System and Application Programs. During the term of this Agreement, [Johnson Ford] shall receive all generally released Enhancements/Modifications and Documentation applicable thereto. [Johnson Ford] acknowledges and agrees that these Enhancements/ Modifications may at times require changes or expansion to [Johnson Ford’s] computer system such as computer power, memory, disk storage, ports, or peripherals. [Johnson Ford] agrees to make such changes or expansion at its expense as a necessary cost of obtaining the added Software functionality provided by the Enhancements/Modifications.12 Section 1 defines “FDCS In-Dealership Computer System” as “The FDCS computer system for automobile dealerships including but not limited to all Equipment, Software, and communications devices.”13 Equipment is defined as “All of the computer equipment listed in Schedule A and/or Schedule C, which is sold and/or maintained by 11 Document No. 5 at 15. 12 Document No. 6, ex. 1 at 8. 13 Id., ex. 1 at DCS 0001. 6 FDCS.”14 The Equipment schedule listed the 7000MP CPU as just one among many components.15 Given this definition of a very similar term, and the fact that section 7(A)(3) itself includes “peripherals” as part of a “computer system,” it was rational for the arbitration panel to conclude that the 7000MP CPU was merely a part of the “computer system,” and thus that Plaintiff requiring its replacement was not equivalent to Plaintiff requiring Johnson Ford to replace its entire “computer system,” and therefore not a breach of the contract. B. Failure to Apply Collateral Estoppel The arbitration panel did not give a rationale for denying Johnson Ford’s required to. collateral estoppel argument, and it was not See United Steelworkers of Am. v. Enter. Wheel & Car Corp., 80 S. Ct. 1358, 1361 (1960). Thus, unless the award was “without foundation in reason or fact,” it must be affirmed. E. Air Lines, Inc. v. Transp. Workers Union, AFL-CIO, Local 553, 580 F.2d 169, 173 (5th Cir. 1978) (citation omitted). prior arbitration Plaintiff and at panel decisions other times had against The fact that sometimes Plaintiff sided was with ample “foundation in reason or fact” for the arbitration panel not to 14 Id. 15 Id., ex. 1 at DCS 0029. 7 apply collateral estoppel to the contract interpretation. RESTATEMENT (SECOND ) OF JUDGMENTS § 29 cmt. f (1982) See (“Where a determination relied on as preclusive is itself inconsistent with some other adjudication of the same issue, that confidence [that the result is correct] is generally unwarranted.”). C. Evidentiary Support for Damage Award Finally, Johnson Ford argues that the amount of damages for breach of contract that the panel awarded lacked a sufficient evidentiary basis. Upon inquiry from the Court at the Rule 16 scheduling conference, Johnson Ford’s counsel stated that this was Defendant’s best argument for vacatur. Plaintiff correctly responded, however, that in weighing the conflicting evidence of both parties’ damages experts, the panel adopted as “the more accurate calculations” Johnson Ford’s expert’s opinion $137,897.82, not the larger sum sought by Plaintiff. of In other words, Johnson Ford’s self-identified best argument for vacatur is that the panel erred by relying on Johnson Ford’s own evidence in determining the amount of Plaintiff’s damages. Johnson Ford by its own words has demonstrated that its asserted grounds for vacatur are legally frivolous. Because Johnson Ford’s arguments for vacatur under 9 U.S.C. § 10 entirely lack merit, the award will be confirmed. 8 D. Prejudgment Interest and Attorneys’ Fees Plaintiff seeks an award of both (1) prejudgment interest on the arbitration award since filing the arbitration action and (2) attorney’s fees incurred during this confirmation proceeding. 1. Prejudgment Interest Under Michigan law prejudgment interest may not be awarded by a court where the arbitration panel does not award interest, unless the contract in question is not susceptible to an interpretation that would permit the arbitrators the authority to determine whether prejudgment interest should be awarded. Holloway Constr. Co. v. Oakland Cnty. Bd. of Cnty. Road Comm’rs, 543 N.W.2d 923, 926-27 (Mich. 1996). Here the arbitration clause provides that “all disputes, claims, controversies and other matters in question” shall be submitted to arbitration.16 This clause does not preclude the arbitrators from resolving any claim for prejudgment interest; thus, “[t]he question whether interest should be awarded pursuant to § 6013 is one for the arbitrators, and not this Court, to decide.” Holloway Constr. Co., 543 N.W.2d at 927. The arbitration panel did not award prejudgment interest to Plaintiff and Michigan law therefore does not support this Court doing so.17 16 Document No. 6, ex. 1 at DCS 0013 - 0014. 17 v. The same result would obtain under Texas law. See Glover IBP, Inc., 334 F.3d 471, 477 (5th Cir. 2003) (although 9 Plaintiff is entitled, however, to post-judgment interest on this Court’s Final Judgment, which award is governed by federal law. See Wash. Mut. Bank v. Crest Mortg. Co., 418 F. Supp. 2d 860, 863 (N.D. Tex. 2006) (citing Boston Old Colony Ins. Co. v. Tiner Assocs. Inc., 288 F.3d 222, 234 (5th Cir. 2002)); see also Mantle v. Upper Deck Co., 956 F. Supp. 719, 739 (N.D. Tex. 1997) (“The district court’s judgment confirming an arbitration award is to have the same effect, in every respect, as is any other judgment entered by the court, and post-judgment interest is thus governed by statutory rates.” (citing 9 U.S.C. § 13; Parsons & Whittemore Ala. Mach. & Servs. Corp. v. Yeargin Constr. Co., 744 F.2d 1482, 1484 (11th Cir. 1984))). Post-judgment interest will be awarded pursuant to 28 U.S.C. § 1961(a). 2. Attorneys’ Fees The ordinary rule is that the FAA “does not provide for attorney’s fees to a party who is successful in confirming an arbitration award in federal court.” Trans Chem. Ltd. and China Nat’l Mach. Import & Export Corp., 978 F. Supp. 266, 311 (S.D. Tex. 1997) (Lake, J.). An exception to the rule applies, however, when prevailing parties receive prejudgment interest as a matter of course under Texas law, when an arbitration agreement is “all encompassing” and the arbitration panel awarded no interest, “intervention by the court to award additional relief would be inconsistent with the language and policy of the Federal Arbitration Act” (quoting Schlobohm v. Pepperidge Farm, Inc., 806 F.2d 578, 580-81 (5th Cir. 1986))). 10 “the opponent’s reasons for challenging the award are ‘without merit’ or ‘without justification,’ or are legally frivolous, that is, brought in bad faith to harass rather than to win.” Id. (citing, inter alia, Executone Info. Sys. v. Davis, 26 F.3d 1314, 1331 (5th Cir. 1994)); see also Amalgamated Meat Cutters & Butchers Workmen of N. Am. AFL-CIO, Local Union 540 v. Great W. Food Co., 712 F.2d 122, 125 (5th Cir. 1983) (“A party to an arbitral award is not entitled to the attorneys’ fees it incurs in enforcing that award unless the noncomplying party’s refusal to abide by the award was ‘without justification.’” (quoting Bell Prod. Eng’rs v. Bell Helicopter Textron, 688 F.2d 997, 999 (5th Cir. 1982))). The standard for such a finding is high, see Lummus Global Amazonas S.A. v. Aguaytia Energy Del Peru S.R. Ltda., 256 F. Supp. 2d 594, 648 (S.D. Tex. 2002) (Rosenthal, J.), but the finding is warranted here.18 18 Plaintiff relies “on the parties’ agreement,” in which Johnson Ford agreed to reimburse Plaintiff for “any and all expenses [Plaintiff] may incur, including reasonable attorneys’ fees, in collection of amounts due under this Agreement.” Document No. 1; Document No. 6, ex. 1 at DCS 0013. The panel, however, had authority to award attorney’s fees, and in fact did so in its Award. To award “additional relief” in the nature of attorney’s fees based on the contract “would be inconsistent with the language and policy of the Federal Arbitration Act.” Schlobohm, 806 F.2d at 581. Plaintiff’s prayer for fees and expenses is granted not because of the contractual proviso, which was within the purview of the arbitration panel, but rather because Johnson Ford, after issuance of the arbitral award, had no legally non-frivolous reason not to comply with the award or to move for its vacatur. 11 Johnson Ford has proffered no legally non-frivolous reason to vacate the arbitration award and its failure to comply with the award was wholly unjustified. In sum, Johnson Ford relied upon: (1) manifest disregard for the law, a grounds expressly repudiated by the Fifth Circuit’s interpretation of Hall Street more than a year ago; (2) a claim that the arbitration panel’s award was not “rationally inferable” from the contract based only upon Johnson Ford’s preferred interpretation of the contract; (3) a claim that collateral estoppel should have been applied in Defendant’s favor, even though four of the six prior arbitration awards cited to the panel held in favor of Plaintiff; and (4) --its “best argument” for vacatur--the contention that the panel had insufficient evidence for its award of damages when in fact it adopted the damages calculation of Johnson Ford’s own expert. In no way was Johnson Ford “selective in its challenges to the award.” F. Supp. 2d at 648. Cf. Lummus, 256 Instead, it relies on grounds that either are totally lacking in merit or “are not even legally cognizable bases for not enforcing an arbitration award.” Union of Transp. Emps. v. Oil Transp. Co., 591 F. Supp. 439, 448 (N.D. Tex. 1984). The Court therefore concludes that Plaintiff is entitled to recover its reasonable attorneys’ fees and expenses incurred in pursuing this confirmation action. to calculate warranted. reasonable The “lodestar” method is used attorneys’ fees, with adjustments as See Heidtman v. County of El Paso, 171 F.3d 1038, 1043 12 (5th Cir. 1999); accord Skidmore Energy, Inc. v. KPMG, 455 F.3d 564, 568-69 (5th Cir. 2006); see also Shipes v. Trinity Indus., 987 F.2d 311, 319 (5th Cir. 1993); Johnson v. Georgia Highway Express, 488 F.2d 714, 717-19 (5th Cir. 1974). Plaintiff’s proof is that two attorneys worked on Plaintiff’s case, one who spent two hours preparing the motion to confirm arbitration award and proposed judgment, at a billed hourly rate of $25019; and the second who spent 18 hours responding to Johnson Ford’s motion to vacate the arbitration award, at a billed hourly rate of $210.20 The total attorneys’ fees based on these rates and times alone is thus $4,280. Plaintiff’s attorneys additionally incurred expenses, for a total of $4,630 in fees and expenses. $350 in The Court finds that the hourly rates and time spent were reasonable and necessary, that they are in accordance with local practice and are fully justified by the case at hand. The Court has reviewed the Johnson factors and finds no need to adjust the lodestar amount based on those factors. III. Order For the foregoing reasons, it is ORDERED that Plaintiff Dealer Computer Services, Inc.’s Motion to Confirm Arbitration Award (Document No. 1) is GRANTED, Defendant 19 Document No. 1, ex. 5. 20 Document No. 12. 13 Johnson Ford Lincoln Mercury Nissan, Inc.’s Motion to Vacate Arbitration Award (Document No. 5) is DENIED, and it is therefore ORDERED and ADJUDGED that the Final Award in American Arbitration Association Case No. 701170033608, Dealer Computer Services, Inc. f/k/a Ford Dealer Computer Services, Inc. v. Johnson Ford-Lincoln-Mercury-Nissan, Inc., a copy of which is attached hereto, is in all things CONFIRMED and ADOPTED as the Judgment of this Court. It is further ORDERED that Plaintiff Dealer Computer Services, Inc. shall additionally have and recover from Defendant Johnson Ford Lincoln Mercury Nissan, Inc. reasonable attorneys’ fees and other court and direct costs incurred by them in connection with this confirmation action in the amount of FOUR THOUSAND SIX HUNDRED THIRTY AND NO/100 DOLLARS ($4,630.00), together with interest at the rate of .28% per annum, compounded annually, on all unpaid portions hereof from the date of this Judgment until paid. The Clerk will enter this Order, providing a correct copy to all counsel of record. SIGNED in Houston, Texas, on this 26th day of July, 2010. ____________________________________ EWING WERLEIN, JR. UNITED STATES DISTRICT JUDGE 14
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