M & C Corp. v. Erwin Behr GmbH & Co., KG, 95-1390

Decision Date03 July 1996
Docket NumberNo. 95-1390,95-1390
Citation87 F.3d 844
PartiesM & C CORPORATION, a Michigan corporation, d/b/a Connelly Company, Plaintiff-Appellee, v. ERWIN BEHR GMBH & CO., KG, a foreign corporation, Defendant-Appellant.
CourtU.S. Court of Appeals — Sixth Circuit

Russ E. Boltz (argued), John C. Louisell (briefed), Cross & Wrock, Detroit, MI, for Plaintiff-Appellee.

Richard D. Bisio (argued and briefed), Honigman, Miller, Schwartz & Cohn, Detroit, MI, for Defendant-Appellant.

Before: NORRIS and DAUGHTREY, Circuit Judges; HILLMAN, District Judge. *

DAUGHTREY, Circuit Judge.

This appeal involves a challenge by Erwin Behr GmbH & Co., KG, to a district court order confirming an international arbitration award. Behr contends that the arbitrator exceeded his authority by assessing damages that were outside the scope of the arbitration proceeding's terms of reference. Behr also insists that because the contested damage award is in manifest disregard of the law and is based upon a miscalculation of fact, it must be set side under the Federal Arbitration Act. For the reasons set out below, we disagree and we therefore affirm.

I. PROCEDURAL AND FACTUAL BACKGROUND

Behr, a German limited liability entity, entered into a contract on March 18, 1985, with M & C Corporation, a Michigan corporation doing business as the Connelly Company. Pursuant to the agreement, Connelly was to serve as the exclusive sales agent for Behr in the United States and Canada for a period of at least five years for the sale of wood interior panels for luxury automobiles. In addition, the contract specified that the "agreement shall be interpreted with and governed by the laws of the State of Michigan," and that "[a]ll disputes arising in connection with the present contract shall be finally settled under the Rules of the Court of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules."

In 1991, Behr announced, in accordance with the provisions of the contract, that the agreement would be terminated. When Behr failed to forward to Connelly the commissions earned by the Michigan company for some of the sales and client development work performed, however, Connelly filed suit in federal district court seeking damages for breach of contract, improper termination of contract, and tortious interference with contractual relations. Connelly named as defendants Behr, Heinz Etzel, the managing director of the corporation, and two Behr principals, Michel Karkour and Sami Sarkis. Only Behr and Etzel were served with process, however. The district court stayed any judicial proceedings and ordered the parties to submit the dispute to arbitration as required by the contract.

Pursuant to the Rules of the Court of Arbitration of the International Chamber of Commerce, a British arbitrator was then assigned to the case and London, England, was designated as the neutral site of the proceedings. On March 1, 1994, after more than one year of submissions of documentation, arguments, and hearings, the arbitrator issued 11 awards, only two of which are still contested by the parties. One of those contested matters involves the arbitrator's award granting Connelly $683,761 in damages pursuant to a Michigan statute assessing against a defendant an amount equal to two times the value of commissions due but intentionally not paid to a sales representative. MCL § 600.2961(5)(b). Behr also contests the arbitrator's decision requiring it to submit to Connelly $335,793.47 in legal fees, costs, and expenses. Not contested by any party, however, were the findings that the arbitrator had no jurisdiction over the claim against Etzel and that Connelly should be awarded $956,768 in damages and interest payments for commissions wrongfully withheld by Behr.

Following release of the arbitrator's decision, Connelly petitioned the federal district court pursuant to 9 U.S.C. § 207 for confirmation of the entire arbitration award in accordance with the provisions of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, known simply as the New York Convention. See 9 U.S.C. § 201. Behr then filed a motion to vacate the award in part, contending that the statutory damages granted pursuant to M.C.L. § 600.2961 were improper and that the award of costs, fees, and expenses should be reduced to reflect the resulting lesser damage amount. The magistrate judge to whom the motions were assigned first recommended that those portions of the award to which there was no objection be confirmed. The district court adopted that recommendation and entered partial judgment on August 15, 1994. Four months later, the magistrate judge also recommended that Behr's motion to vacate the award in part be denied and that Connelly's motion to confirm the entire award be granted. The district court also concurred in that recommendation and entered a second partial judgment confirming the disputed portions of the arbitrator's awards. From that judgment, Behr now appeals.

II. FEDERAL COURT JURISDICTION

As a preliminary matter, Connelly argues that the federal courts have no jurisdiction to review the arbitrator's awards because the parties agreed that all disputes regarding their contract would be "finally settled" by arbitration. Furthermore, Connelly contends that the arbitration rules of the International Chamber of Commerce by which the parties agreed to be governed also provide that "[t]he arbitral award shall be final" and that the parties are deemed "to have waived their right to any form of appeal insofar as such waiver can validly be made." ICC Rules of Conciliation and Arbitration, Art. 24.

As noted by Behr, however, strict adherence to the principle of finality of arbitral awards would insulate such judgments from judicial review even in cases involving fraud, procedural irregularities, or exertion of improper influences upon arbitrators. In order to ensure that necessary safeguards are not foreclosed, the Second Circuit has recognized that "[t]he terms 'final' and 'binding' [in arbitration agreements] merely reflect a contractual intent that the issues joined and resolved in the arbitration may not be tried de novo in any court." Iran Aircraft Industries v. Avco Corp., 980 F.2d 141, 145 (2d Cir.1992). By so holding, the Second Circuit also provided that the defenses to enforcement of awards described in the New York Convention itself would remain available to parties who are unsuccessful in arbitration proceedings. Id. We concur in this interpretation of the arbitration rules.

Simply because all judicial review of arbitral awards is not foreclosed does not mean, however, that Behr may petition the federal courts of this country for an order vacating an award made in a foreign nation. On December 29, 1970, the New York Convention was "entered into force" for the United States and thus became the applicable law for the "recognition and enforcement of arbitral awards in the territory of a [national] State other than the [national] State where the recognition and enforcement of such awards are sought." New York Convention, Art. I(1). Pursuant to the Convention, an application for setting aside or suspending an arbitral award may be made only to a "competent authority of the country in which, or under the law of which, that award was made." New York Convention, Art. VI (referencing Art. V(1)(e)).

Although the arbitral award at issue in this appeal was clearly not made within the United States, Behr contends that it may seek to vacate that award here because the parties agreed to dissolve their dispute pursuant to Michigan law, thus ensuring that the award was made "under the law of [the United States]." In International Standard Electric Corp. v. Bridas Sociedad Anonima Petrolera, Industrial Y Comercial, 745 F.Supp. 172, 178 (S.D.N.Y.1990), however, the court held:

[T]he contested language in Article V(1)(e) of the Convention, "... the competent authority of the country under the law of which, [the] award was made" refers exclusively to procedural and not substantive law, and more precisely, to the regimen or scheme of arbitral procedural law under which the arbitration was conducted, and not the substantive law of contract which was applied in the case.

We conclude that the result reached by the district court in International Standard Electric Corp. is the correct one. Resorting to the courts of the nation supplying the substantive law for the dispute does nothing to enhance the underlying principles of international arbitration because, under the terms of the New York Convention itself, judicial review of such an award is extremely limited and extends only to procedural aspects of the determination. Moreover, as recognized by the Supreme Court in M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 9, 92 S.Ct. 1907, 1913, 32 L.Ed.2d 513 (1972), "[w]e cannot have trade and commerce in world markets and international waters exclusively on our terms, governed by our laws, and resolved in our courts."

From a conclusion that Behr may not seek to vacate the arbitral award in the district court, Connelly engages in an extrapolation exercise to argue that Behr may not raise any objections to the arbitrator's decision in the courts of the United States. Such a restriction on access to judicial oversight is, however, as unwarranted as is a policy of allowing the courts to re-examine the very issues that the parties to the contract agreed to remove from the judicial arena and commit to the discretion of the arbitrator. Article V of the New York Convention, in fact, provides that enforcement and recognition of a foreign arbitral award may be refused upon proof of certain deficiencies proven by a party to an arbitration proceeding. Pursuant to Article V(1)(a)-(e), enforcement may be denied upon a showing that:

(a) The parties to the agreement ... were, under the law applicable to them, under some...

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