Kyocera Corp. v. Prudential-Bache
| Decision Date | 29 August 2003 |
| Docket Number | No. 01-15630.,No. 01-15653.,No. 01-16394.,No. 01-16182.,No. 01-16392.,No. 01-16528.,01-15630.,01-16528.,01-16394.,01-15653.,01-16392.,01-16182. |
| Citation | 341 F.3d 987 |
| Parties | KYOCERA CORPORATION, Plaintiff-Counter-Defendant-Appellant, v. PRUDENTIAL-BACHE TRADE SERVICES, INC., dba Prudential-Bache Trade Corporation; Prudential Capital & Investment Services, Inc.; Lapine Technology Corporation; Lapine Holding Co., Defendants-Counter-Claimants-Appellees. LaPine Technology Corporation, Plaintiff-Appellee, v. Kyocera Corporation, Defendant-Appellant. LaPine Technology Corporation, Plaintiff-Counter-Claim-defendant-Appellee. v. Kyocera Corporation, Defendant-Counter-Claimant-Plaintiff-Appellant, v. Prudential-Bache Trade Services, Inc., dba Prudential-Bache Trade Corporation; Prudential Capital & Investment Services, Inc., Defendants-Counter-Claimants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Shirley M. Hufstedler, Morrison & Foerster LLP, Los Angeles, California; James F. McCabe and Angela L. Padilla, Morrison & Foerster LLP, San Francisco, California, for the plaintiff-counter-defendant-appellant.
Charles S. Treat and Timothy P. Crudo, Latham & Watkins, San Francisco, California, Paul H. Dawes, Latham & Watkins, Menlo Park, CA, for the defendants-counter-claimants-appellees.
Appeals from the United States District Court for the Northern District of California; William A. Ingram, Senior Judge, Presiding. D.C. Nos. CV-87-20316-WAI, CV-91-20159-WAI.
Before: Mary M. Schroeder, Chief Judge, Stephen Reinhardt, Stephen S. Trott, Pamela Ann Rymer, Thomas G. Nelson, Michael Daly Hawkins, Sidney R. Thomas, Susan P. Graber, William A. Fletcher, Richard A. Paez, and Johnnie B. Rawlinson, Circuit Judges.
Opinion by Judge Reinhardt; Separate Statement by Judge Rymer.
I. BACKGROUND
In 1984, Kyocera Corporation ("Kyocera"), Prudential-Bache Trade Corporation ("Prudential"), and the newly formed LaPine Technology Corporation ("LaPine") began a venture to produce and market computer disk drives. LaPine licensed its proprietary drive design to Kyocera, which manufactured the drives. Prudential's role was generally to stabilize the cash flow of the enterprise: in addition to financing LaPine's inventory and accounts receivable, Prudential purchased, through a subsidiary, the LaPine drives from Kyocera and resold the drives on credit to LaPine, which in turn marketed the drives to its customers.
By the summer of 1986, LaPine — which had never earned a profit — had fallen into serious managerial and financial difficulties. On August 13 and 21, 1986, Kyocera gave written notice that it considered LaPine and Prudential in default due to the failure to pay for delivered drives. Shortly thereafter, Kyocera, Prudential, and LaPine began discussions regarding LaPine's reorganization and a restructuring of the relationship among the three companies.
The parties differ on the terms of the final agreement that resulted from the ensuing exchanges. In October and November of 1986, both a general "Definitive Agreement" and a subsidiary, more detailed "Amended Trading Agreement" were prepared. The primary dispute arises out of one term of the "Amended Trading Agreement": LaPine and Prudential claim that all parties agreed that Prudential would no longer purchase drives from Kyocera and resell them to LaPine, and that LaPine would instead purchase drives directly from Kyocera; Kyocera maintains that it never approved any such limitation of Prudential's role. When Kyocera refused to execute the "Amended Trading Agreement" as presented by LaPine and Prudential, LaPine notified Kyocera that it considered Kyocera in breach of contract. On May 7, 1987, LaPine instituted proceedings in federal district court, seeking damages and an injunction compelling Kyocera to continue supplying drives under the alleged terms of the contract.
On September 2, 1987, the district court granted Kyocera's motion to compel arbitration, and a panel of three arbitrators was convened.1 Arbitration proceeded in two phases. The arbitration panel first determined in "Phase I" that, under California law,2 Kyocera had entered into a contract by accepting LaPine and Prudential's version of the "Amended Trading Agreement," which required Kyocera to sell drives directly to LaPine. Again applying California law, the arbitrators then determined in "Phase II" that Kyocera breached this contract and that the breach was the proximate cause of damage to LaPine. On August 25, 1994, the arbitrators issued their final decision, unanimously awarding LaPine and Prudential $243,133,881 in damages and prejudgment interest against Kyocera.3
Kyocera filed a motion in the district court to "Vacate, Modify and Correct the Arbitral Award." The motion relied on the arbitration clause of the parties' "Definitive Agreement,"4 which stated that:
The arbitrators shall issue a written award which shall state the bases of the award and include detailed findings of fact and conclusions of law. The United States District Court for the Northern District of California may enter judgment upon any award, either by confirming the award or by vacating, modifying or correcting the award. The Court shall vacate, modify or correct any award: (i) based upon any of the grounds referred to in the Federal Arbitration Act, (ii) where the arbitrators' findings of fact are not supported by substantial evidence, or (iii) where the arbitrators' conclusions of law are erroneous.
Accordingly, Kyocera asserted that (i) there existed grounds for vacatur pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-16 (1994), (ii) the arbitration panel's factual findings were unsupported by substantial evidence, and (iii) the panel made various errors of law. LaPine and Prudential, in turn, moved to confirm the panel's award.
The district court denied Kyocera's motion and granted the motion of LaPine and Prudential. Lapine Tech. Corp. v. Kyocera Corp., 909 F.Supp. 697 (N.D.Cal.1995). The court concluded that the Federal Arbitration Act granted federal courts the jurisdiction to review arbitration decisions only on certain enumerated grounds, and that private parties could not by contract enlarge this statutory standard of review. See id. at 705. The district court therefore evaluated Kyocera's claim only under the standard set forth in 9 U.S.C. §§ 10-11. Because the court found no basis for vacatur, modification, or correction under this standard, it denied Kyocera's motion to vacate, granted LaPine and Prudential's motion to confirm, and entered judgment.5 See id. at 706-09.
Kyocera timely appealed. It argued, almost exclusively, that the district court erred in applying only the Federal Arbitration Act standard, and not the broader contractual provisions for review. In just two short pages and two footnotes of its 77-page opening brief on appeal, Kyocera contended that it qualified for relief under the statutory standard of review. The only such claim argued at any length was Kyocera's claim under 9 U.S.C. § 10(a)(4), which permits vacatur "where the arbitrators exceeded their powers"; Kyocera argued that the arbitration panel "exceeded its powers" by granting an award based on legal errors when the parties had only empowered the panel to apply California law correctly. Kyocera also summarily asserted that the arbitration award was procured by "fraud or undue means" under 9 U.S.C. § 10(a)(1), because LaPine improperly induced it to agree to arbitration by asserting that an expanded judicial review provision would be enforceable.
A divided panel of this court reversed the district court's determination that it was bound to apply only the statutory grounds for review, holding that federal court review of an arbitration agreement is not necessarily limited to the standards set forth in the Federal Arbitration Act. See LaPine Tech. Corp. v. Kyocera Corp., 130 F.3d 884, 888 (9th Cir.1997) [hereinafter LaPine I]. Rather, the majority recognized that Supreme Court precedent required that private agreements to arbitrate be implemented on their own terms and according to their own procedural rules, and then extended that principle to provisions regarding the grounds on which federal courts may review arbitration proceedings. See id. The majority held that when parties
resort to the use of an arbitral tribunal[,]... they may leave in place the limited court review provided by §§ 10 and 11 of the FAA, or they may agree to remove that insulation and subject the result to a more searching court review of the arbitral tribunal's decision, for example a review for substantial evidence and errors of law.
Id. at 890. The majority then declined to review the district court's decision rejecting Kyocera's arguments under the statutory standard.6 Therefore, although we affirmed the district court's determination that Kyocera presented no basis for modifying the arbitral award on statutory grounds, id. at 887 n. 2, we remanded to allow the district court to apply the parties' contractually expanded standard of review of unsupported factual findings or errors of law,7 id. at 891. No party requested en banc rehearing of our decision.
Judge Kozinski provided the deciding vote in LaPine I, although he noted in his tie-breaking concurrence that the question presented was "closer than most." Id. at 891 (Kozinski, J., concurring). He recognized that although the Supreme Court cases "say that parties may set the time, place and manner of arbitration[,] none says that private parties may tell the federal courts how to conduct their business." Id. He further acknowledged that "[n]owhere has Congress authorized courts to review arbitral awards under the standard the parties here adopted." Id. Nevertheless, despite the fact that the private parties' agreed-upon standard of review was neither authorized by Congress nor compelled by the Supreme Court, Judge Kozinski...
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