Softkey, Inc. v. Useful Software, Inc.

• Decision Date: 16 October 2001
• Docket Number: No. 98-P-738.,98-P-738.
• Parties: SOFTKEY, INC. v. USEFUL SOFTWARE, INC.
• Court: Appeals Court of Massachusetts

52 Mass. App. Ct. 837

756 NE 2d 631

SOFTKEY, INC. v. USEFUL SOFTWARE, INC.

No. 98-P-738.

Court of Appeals of Massachusetts, Suffolk.

January 12, 2000.

October 16, 2001.

Present: JACOBS, GILLERMAN, & BECK, JJ.

Bernard J. Bonn, III, for the plaintiff.

Ann Pauly for the defendant.

BECK, J.

The parties' arbitration agreement included a provision for attorneys' fees. See G. L. c. 251, § 10; Baxter Health Care Corp. v. Harvard Apparatus, Inc., 35 Mass. App. Ct. 204, 208 (1993) (award of attorney's fees precluded in arbitration proceedings unless provided in arbitration agreement). In their cross appeals, they challenge the arbitrator's method of calculating the attorney's fees and the modifications imposed by two Superior Court judges. (There is no challenge to the damage award.)

The underlying contract was a "Software License and Marketing Agreement" (agreement) between the plaintiff, Softkey, Inc., formerly known as Spinnaker Software Corporation (Softkey), and the defendant, Useful Software, Inc. (Useful), in which Softkey agreed to "publish and distribute computer software programs" created by Useful. The relationship between the parties was rancorous from the beginning. Probably as a result, these proceedings have been protracted. After hearing, an arbitrator issued a twenty-three page award, followed by the parties' cross appeals to the Superior Court, which remanded the case to the arbitrator with instructions. The arbitrator then issued a supplemental award, which the parties again crossappealed. A second Superior Court judge then issued an order and entered judgment on September 23, 1997, modifying the supplemental award. The same judge later denied Softkey's subsequent motion for attorney's fees incurred in Superior Court and entered a second judgment on January 14, 1998, ordering Softkey to make payment to Useful as provided in the modified supplement award.

The arbitration provision and prior proceedings. The provisions regarding attorney's fees are found in par. 10(a) of the agreement, captioned "Dispute Resolution." After establishing that "any dispute, controversy or claim arising out of or in connection with the agreement shall be determined and settled by arbitration," par. 10(a) provides:

"All costs and expenses, including attorney's fees, of all parties incurred in any dispute which is determined and/or settled by arbitration pursuant to this paragraph 10 shall be borne by the party determined to be liable in respect of such dispute; provided, however, that if complete liability is not assessed against any one party, the parties shall share the total costs in proportion to their respective amounts of liability so determined."

As set out in his initial award, the arbitrator found that "although the findings/conclusions ... are mixed, Useful is substantially the prevailing party as to a key portion of its breach of contract claim and Softkey avoids damages under Useful's tort misrepresentation/fraud and chapter 93A claims." He also observed that "Softkey's stonewalling in discovery made ascertainment of damages difficult," but concluded that he was able to make "reasoned estimates." "The intent of the relief fashioned was to set Useful free with a return of its intangible property ... and with a cash award ... and allocation of costs and attorney`s fee shifting in accord with the... agreement (modified by some fee shifting re attorney conduct)." He awarded Useful damages for lost royalties of $170,000 with "legal interest (12%)" as well as equitable relief releasing it from most of its obligations under the contract.

In calculating attorney's fees, the arbitrator "took into account the extent to which each party prevailed (in relation to its reasonable expectations), and discovery conduct." He ordered that Softkey reimburse Useful for two-thirds of Useful's reasonable attorney's fees and costs, less one-third of Softkey's reasonable attorney's fees and costs, provided that Softkey's fees and costs as so computed did not exceed one-half of Useful's. He added that he would have awarded Softkey one-half (rather than one-third) of its attorney's fees but for Softkey's "stonewalling" in the course of the arbitration.

On appeal, Softkey claims there was error (1) in confirming the arbitrator's use of what Softkey terms a "qualitative" component in the calculation and allocation of attorneys' fees and costs; and (2) in denying Softkey's request for attorney's fees associated with its appeal(s) to the Superior Court. In its cross appeal, Useful challenges (1) the limitation of its attorney's fees award by its contingent fee agreement; and (2) the rejection of the arbitrator's consideration of Softkey's conduct in awarding attorney's fees.

Standard of review. It is well established that "the scope of judicial review of the arbitration proceedings is narrow." Grobet File Co. of America, Inc. v. RTC Sys., Inc., 26 Mass. App. Ct. 132, 135 (1988). "If the arbitrator in assessing damages commits an error of law or fact, but does not overstep the limits of the issues submitted to him, a court may not substitute its judgment on the matter." Lawrence v. Falzarano, 380 Mass. 18, 28-29 (1980). See Barletta v. French, 34 Mass. App. Ct. 87, 93-94 (1993). Among other limitations, an arbitrator may not "transcend the limits of the contract of which the agreement to arbitrate is but a part." Lawrence v. Falzarano, supra at 28. However, although "the arbitrator may not ignore the plain words of the contract ... the limiting boundaries on an arbitral award ... must be set forth with clarity, and the limiting words must be plain. If there is room for doubt or interpretation on the question, then the issue properly lies within the broad authority conferred upon arbitrators of civil disputes." Grobet File Co. of America, Inc. v. RTC Sys., Inc., 26 Mass. App. Ct. at 134-135. The question of the interpretation of an arbitration agreement is for the arbitrator. Plymouth-Carver Regional Sch. Dist. v. J. Farmer & Co., 407 Mass. 1006, 1007 (1990).

Discussion. Softkey argues that the arbitrator "lacked the authority to invent or estimate the sort of `qualitative' component he used in the calculation of attorneys' fees and costs," apparently referring to the arbitrator's decision to consider each party's "reasonable expectations" in determining...