Bob Schultz Motors v. Kawasaki Motors Corp.

• Decision Date: 01 July 2003
• Docket Number: No. 02-2323.,02-2323.
• Citation: 334 F.3d 721
• Parties: BOB SCHULTZ MOTORS, INC., a Missouri corporation, Appellee, v. KAWASAKI MOTORS CORPORATION, U.S.A., a Delaware corporation, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

334 F.3d 721

BOB SCHULTZ MOTORS, INC., a Missouri corporation, Appellee, v. KAWASAKI MOTORS CORPORATION, U.S.A., a Delaware corporation, Appellant.

No. 02-2323.

United States Court of Appeals, Eighth Circuit.

Submitted: December 11, 2002.

Filed: July 1, 2003.

Rehearing and Rehearing En Banc Denied: August 13, 2003.

Dudley Von Holt, argued, St. Louis, MO (Richard A. Mueller and Steven E. Garlock, on the brief), for appellant.

Jeffrey T. McPherson, argued, St. Louis, MO (David G. Ott, on the brief), for appellee.

Before BOWMAN, MORRIS SHEPPARD ARNOLD, and RILEY, Circuit Judges.

BOWMAN, Circuit Judge.

This dispute between a motorcycle dealer, Bob Schultz Motors (Schultz), and its distributor, Kawasaki, was submitted to arbitration pursuant to the "Dealer Sales and Service Agreement" that governed the parties' relationship. The arbitrator ruled in favor of Kawasaki on all counts. However, following a hearing on costs and attorney fees allowed under the arbitration provision, the arbitrator ruled that the last sentence in the arbitration provision, which awarded costs and fees to the prevailing party, was unconscionable, was a contract of adhesion, and was therefore unenforceable. The District Court¹ confirmed the arbitrator's ruling in its entirety and Kawasaki appealed. We have jurisdiction pursuant to 9 U.S.C. § 16(a)(1)(d) (2000) and affirm.

I.

This decade-long dispute involves an attempt by Bob Schultz Motors and its owner, William Wefel, to acquire a third Kawasaki motorcycle dealership in the St. Louis region. Schultz brought suit in Missouri state court and alleged, inter alia, that Kawasaki wrongfully refused to consent to its purchase of West County Kawasaki from John and Betty Catanzaro in 1992. Kawasaki removed the action to federal court based on diversity jurisdiction and moved to have the suit dismissed or, in the alternative, to have the matter referred to arbitration pursuant to 9 U.S.C. § 4. Kawasaki based this motion on the parties' "Dealer Sales and Service Agreement," ¶ 32 of which provided:

32. DISPUTE RESOLUTION.

All controversies, claims and disputes arising in connection with this Agreement, except any controversies, claims and disputes relating to amounts due and unpaid to DISTRIBUTOR [Kawasaki], relating to DISTRIBUTOR'S rights to retake possession of any Product or relating to third party personal injury, shall be settled by mutual consultation between the parties in good faith as promptly as possible, but failing an amicable settlement shall be settled finally by arbitration in accordance with the provisions of this Section 32. Such arbitration shall be conducted in Los Angeles, California, in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and the parties hereto agree that such arbitration shall be the sole and exclusive method of resolving any and all such controversies, claims or disputes, except those expressly excluded above. Judgement upon such award may be entered in the Superior Court of the State of California for the County of Orange, if the award is rendered against DISTRIBUTOR, or in any court which has jurisdiction over DEALER [Schultz], if the award is rendered against DEALER. The prevailing party shall be entitled to recover from the nonprevailing party all costs and expenses of the arbitration, including without limitation, attorneys' fees.

The District Court dismissed two counts of Schultz's complaint and issued an order compelling arbitration on the remaining counts. Importantly, the District Court also rejected Schultz's claim that the distribution agreement was a contract of adhesion, violated public policy, and was unconscionable. The District Court concluded that "no legal constraints exist which foreclose arbitration of the disputes" and "Schultz Motors has failed to show that Kawasaki's arbitration clause is unconscionable or inherently unfair." Memorandum and Order at 13, 8 (March 30, 1994). The District Court did not make a finding as to Schultz's claim of economic duress, which was later dropped, but did note that "[i]f this issue were a matter for the Court's determination, the Court would conclude Schultz Motors has failed to show it entered into the franchise agreements under economic duress of the kind which requires a court to intervene." Id. at 8.

Thereafter, in 1995, as arbitration was about to commence, Schultz added counts to its arbitration complaint that alleged Kawasaki wrongfully refused to allow Schultz to relocate one or both of its existing dealerships to within a few blocks of a another recently-established Kawasaki dealership. In 2000, the arbitrator issued a "Ruling on Liability Issues" that found in favor of Kawasaki on all counts and ruled that, pursuant to the parties' arbitration agreement, Kawasaki was a prevailing party and was entitled to costs and attorney fees. However, in 2001, following a hearing on the amount of arbitration costs and attorney fees to be assessed against Schultz (some $1.7 million according to Kawasaki), the arbitrator issued a "Final Award" in which he found that the franchise agreement was a contract of adhesion and "that the arbitration agreements were unconscionable at the time they were made and [the arbitrator] refuses to enforce the provision in ¶ 32 which gives the prevailing party the right to recover all costs and expenses of the arbitration, including without limitation, attorneys' fees." Final Award of Arbitrator at 8 (January 31, 2001).

Neither party was satisfied with the outcome of the arbitration proceedings and both parties returned to the District Court where Kawasaki filed a Motion to Confirm the Arbitration Award as to Liability and Vacate and/or Modify the Arbitration Award as it Pertains to Attorney's Fees. For its part, Schultz Motors sought to vacate the entire award. In its March 2002 ruling, the District Court confirmed the arbitrator's award in its entirety and concluded that the arbitrator was correct when it determined that the District Court's 1994 ruling, which held that ¶ 32 was a valid arbitration provision under 9 U.S.C. § 4, had not addressed the validity of the last sentence of ¶ 32. We agree.

II.

We are to apply "ordinary, not special, standards when reviewing district court decisions upholding arbitration awards." First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 948, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). Thus, we review a district court's findings of fact for clear error and conclusions of law de novo. Id. at 947-48, 115 S.Ct. 1920.

The purpose of the Federal Arbitration Act was to establish "a liberal federal policy favoring arbitration agreements." Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). A court asked to confirm, modify, or vacate an arbitrator's award owes the arbitrator's decision great deference. See, e.g., Osceola County Rural Water Sys. v. Subsurfco, Inc., 914 F.2d 1072, 1075 (8th Cir.1990). Thus, the Federal Arbitration Act provides that a district court can vacate an arbitration award only in limited circumstances:

(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 which the rights of any party have been prejudiced.

(4) Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

9 U.S.C. § 10(a).² In addition to § 10's grounds for vacating an arbitrator's award § 11 provides for three grounds upon which a reviewing court may modify the arbitrator's award:

(a) Where 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.

(b) Where the arbitrators have awarded upon a matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter submitted.

(c) Where the award is imperfect in matter of form not affecting the merits of the controversy.

9 U.S.C. § 11. In sum, Congressionally-mandated deference to arbitration proceedings means that a "district court must take the award as it finds it and either vacate the entire award using section 10 or modify the award using section 11." Legion Ins. Co. v. VCW, Inc., 198 F.3d 718, 721 (8th Cir.1999). Still, the deference owed to arbitrators "is not the equivalent of a grant of limitless power." Leed Architectural Prods., Inc. v. United Steelworkers of Am., Local 6674, 916 F.2d 63, 65 (2d Cir.1990). And "the courts are neither entitled nor encouraged simply to `rubber stamp' the interpretations and decisions of arbitrators." Matteson v. Ryder Sys. Inc., 99 F.3d 108, 113 (3d Cir.1996). With this in mind, we turn to the merits of Kawasaki's appeal.

Faced with these statutory limitations on a court's ability to review arbitration awards, Kawasaki urges that the District Court erred in one of two ways. First, it claims that the arbitrator's decision should be modified under § 11(b) because the District Court addressed the validity of ¶ 32 (the arbitration provision) in its 1994 Order. Therefore, Kawasaki argues, the arbitrator "awarded upon a matter not submitted to [it]" when it determined that the fee provision was unconscionable. Second, Kawasaki argues that, in the event that § 11(b) is inapplicable, the arbitrator essentially issued two separate rulings. Thus, as the logic goes, the arbitrator's second, independent, award on fees should be vacated under § 10(a)(4) because the District Court addressed the validity of ¶ 32 (the arbitration provision) in its March 1994 Order. Hence, Kawasaki urges that the...