Hoolahan v. IBC Advanced Alloys Corp.

• Citation: 947 F.3d 101
• Decision Date: 17 January 2020
• Docket Number: No. 19-1444,19-1444
• Parties: Gerald R. HOOLAHAN, Petitioner, Appellee, v. IBC ADVANCED ALLOYS CORP., Respondent, Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

947 F.3d 101

Gerald R. HOOLAHAN, Petitioner, Appellee,

v.IBC ADVANCED ALLOYS CORP., Respondent, Appellant.

No. 19-1444

United States Court of Appeals, First Circuit.

January 17, 2020

Ryan S. Lean, Long Beach, CA, with whom Keesal, Young & Logan, Douglas B. Rosner, Matthew P. Horvitz, Boston, MA, and Goulston & Storrs, PC were on brief, for appellant.

Stephen F. Gordon, New York, NY, with whom Todd B. Gordon, Wellesley, MA, and The Gordon Law Firm LLP, were on brief, for appellee.

Before Howard, Chief Judge, Torruella and Thompson, Circuit Judges.

Thompson, Circuit Judge.

In 2010, Appellant IBC Advanced Alloys Corp. ("IBC") purchased Beralcast Corporation ("Beralcast") from Appellee Gerald R. Hoolahan and Gary Mattheson in exchange for cash and shares in IBC. Over a year later, Hoolahan went to sell his IBC Shares, but he was blocked. He did not know why at the time. A few years later in 2015, Hoolahan discovered that Mattheson hadn't been similarly blocked when he placed his shares on the market in 2011. Upset by this disparate treatment and believing that he had been conned out of large sums of money, Hoolahan initiated an arbitration against IBC. During a one-day hearing it came to light that IBC had harbored "ill-will" against Hoolahan due to a claim tangentially related to the IBC-Beralcast deal, causing it to block Hoolahan's 2011 attempt to sell. In the end the arbitrator awarded Hoolahan damages in the amount he would have received if he could have sold his shares at the same rate Mattheson got in 2011; Hoolahan also received attorneys' fees and costs.

Finding this all woefully unfair, IBC embarked on its Mt. Everest climb: it decried the arbitrator's calculations and first requested that the arbitrator modify the award. Denied there, it kept trekking, and asked the district court to vacate the award. Denied again, but still seeking the mountaintop, IBC appealed to this court. And here we are.

IBC asks us now to vacate, or at the very least remand for reconsideration, the arbitrator's award. IBC's slog continues to be nothing but uphill. That is because our review of arbitral awards is extremely narrow, and we afford great deference to the arbitrator's decision-making process. To be sure, there are certain exceptions where we will vacate an award, but IBC has failed to convince us that any of them apply here. And so we affirm.

I. BACKGROUND

A. The Parties

Appellant IBC is a "beryllium and copper

advanced alloys company ... [that] serves a variety of industries such as defense, aerospace, automotive, [and] telecommunications ...."¹ Appellee Hoolahan owned two companies, Advanced Specialty Metals and Composite Material Solutions ("CMS"); certain assets from both those companies were combined to form a new company: Beralcast, that uses beryllium in its manufacturing operations. Hoolahan and Mattheson were the only two shareholders of Beralcast.

The United States has classified beryllium as a strategic material, as "[i]t has extensive use in the Defense Industry, and users are required to keep strict control of the usage and location of their beryllium inventory." For companies like Beralcast, there are only two commercial sources of beryllium: (1) the Materion Corporation and (2) ULBA, a Kazakhstan Government-owned corporation. Because Materion is a direct competitor of Beralcast, Beralcast relies on ULBA for its beryllium. Hoolahan also owned a separate company, Applied Materials Science, Inc. ("AMS"), a sister company to CMS, who would also purchase beryllium from ULBA (we'll get to why that's important in a bit).

B. The Agreement

On February 17, 2010, IBC (and its subsidiary) purchased Beralcast for its beryllium manufacturing operations from Hoolahan and Mattheson. In exchange, Hoolahan and Mattheson received $2.25 million in cash consideration (the full amount deposited into the bank account for AMS), and shares of capital stock in IBC ("IBC Shares") equivalent in value to $2 million. Hoolahan received 7,303,271 IBC Shares; Mattheson, 5,957,905. The purchase and its terms are set forth in a Share Purchase and Sale Agreement (the "Agreement").

The Agreement's articles most relevant to this appeal are:

• Two sub-articles of article 2.3 , "Payment of Purchase Consideration":

• Article 2.3(e)(i)(A) (prohibiting the sale, transfer, or trade of IBC Shares on the TSX Venture Exchange, a stock exchange in Canada, for four months and one day after the closing of the Agreement).

• Article 2.3(e)(ii) (relieving IBC of any obligation "to register the IBC Shares or to take any other actions to facilitate or permit any resale or transfer thereof in the United States or otherwise by or to a US Person ....").

• Article 3.2(p) , "Judgments and Claims" (Hoolahan and Mattheson representing and warranting that there were no unsatisfied judgments, claims, or potential claims against Beralcast at the time of the Agreement).

• Article 13.3 , "Further Assurances" (obligating the Parties to "execute, acknowledge and deliver such other instruments and take such other action as may be reasonably necessary to carry out their obligations under this Agreement").

• Article 13.6 , "Governing Law" (agreeing that the Agreement be "interpreted and construed in accordance with the laws of the State of Delaware").

• Article 13.6.2 , "Arbitration" (obligating the parties to arbitrate any disputes arising out of the Agreement in accordance with the Commercial Rules of the American Arbitration Association ("AAA Commercial Rules")).

• Article 13.9 , "Time of the Essence" ("Time shall be of the essence in this Agreement and of all matters contemplated in this Agreement.").

C. Hoolahan's Attempts to Sell his IBC Shares

Over a year after the Agreement's execution, and well past the "four months and one day" time constraint from article 2.3(e)(i)(A), in late April or early May of 2011, Hoolahan attempted to sell his IBC Shares through his brokerage firm, Edward Jones.² At that time, IBC Shares were valued at $0.27 per share, so Hoolahan's total shares would have been worth approximately $1,971,883.10. On July 25, 2011, IBC's Toronto (Canada) transfer agent informed Hoolahan's brokerage firm that Hoolahan's request for sale had been denied because the agent had been "unsuccessful in obtaining approval [for the sale] from the issuer" — IBC. That same letter advised Hoolahan's brokerage firm to "contact the issuer" about the denial. Hoolahan then handed the issue over to his legal counsel, Bruce Schoenberger, to investigate.

Schoenberger started by contacting Hoolahan's brokerage firm. On May 16, 2012, an administrator from the firm emailed Schoenberger's colleague that Schoenberger needed to contact IBC's Chief Financial Officer, Simon Anderson, regarding Hoolahan's inability to sell his shares. That same day, Schoenberger spoke with Anderson over the phone for about five to ten minutes (the "Phone Call"). Anderson told Schoenberger during the call that IBC had blocked the sale of Hoolahan's IBC Shares because Hoolahan had failed to disclose an outstanding $208,000 claim by ULBA (the Kazakhstan corporation) against AMS³ (sister company to CMS, which was the forerunner to Beralcast) existing at the time of the Agreement's execution ("the ULBA/AMS claim").⁴ In response, Schoenberger told Anderson that he believed the sale restriction on Hoolahan's IBC Shares violated the terms of the Agreement, and that the damages for this breach would be based upon the change in value of Hoolahan's shares from the day Hoolahan had tried to sell them to their value at the time of the Phone Call. At the end of the call, Anderson told Schoenberger that he would send a follow-up email introducing Schoenberger to IBC's corporate counsel. Anderson did so; Schoenberger responded to the email with a CC to IBC's counsel, memorializing the Phone Call ("the Email").

In May 2013, Hoolahan (whose IBC Shares had undergone a series of "reverse stock splits"⁵ ) was able to sell 250,000 of his IBC Shares for $25,000, at $0.10 per share. Had Hoolahan sold all of his shares at that time (1,217,212 due to the first reverse split), he would have received a total of $121,721.

D. Discovery of the IBC-Mattheson Pooling Agreement

In 2015, Hoolahan and Mattheson were engaged in litigation unrelated to the issues in this case. Discovery during that litigation, however, uncovered a Voluntary Pooling Agreement (to be explained in a moment) between IBC and Mattheson entered into on May 5, 2011 (the "IBC-Mattheson Pooling Agreement") — around the same time that Hoolahan had made his first unsuccessful attempt to sell his IBC Shares. The IBC-Mattheson Pooling Agreement permitted Mattheson to sell his IBC Shares at certain increments on an agreed-upon schedule, including between 2011 and 2012, when Mattheson made six sales for some of his IBC Shares for a total of $421,176.14.

E. The Arbitration

Upset by Mattheson's special treatment and profit, Hoolahan filed a Demand for Arbitration with the American Arbitration Association ("AAA") asserting claims against IBC for willful and knowing breach of the Agreement and breach of the implied covenant of good faith and fair dealing for deliberately blocking Hoolahan's sale of IBC Shares.⁶ Hoolahan's initial claim for damages, $1,850,162 (plus attorneys' fees, costs, and expenses), was based on the drop in market value in Hoolahan's total IBC Shares from approximately $1,971,883.10 in 2011 to $121,721 in 2013 when he was able to make his first sale.

On April 28, 2017, a one-day arbitration was held in Boston, Massachusetts, before AAA arbitrator Robert T. Ferguson. At the hearing, Hoolahan claimed IBC deliberately blocked his sale of IBC Shares in breach of the Agreement because of the ill-will IBC harbored against Hoolahan in connection with the outstanding ULBA/AMS claim. Citing to article 2.3 of the Agreement, IBC responded that it could not breach the Agreement for failing to assist in the sale of IBC Shares because the Agreement explicitly released IBC from any such...