Stroh Container Co. v. Delphi Industries, Inc.
| Decision Date | 12 February 1986 |
| Docket Number | No. 85-5118,85-5118 |
| Citation | 783 F.2d 743 |
| Parties | STROH CONTAINER COMPANY formerly known as Jos. Schlitz Brewing Company, Appellant, v. DELPHI INDUSTRIES, INC., Appellee. DELPHI INDUSTRIES, INC., Appellee, v. STROH CONTAINER COMPANY formerly known as Jos. Schlitz Brewing Company, Appellant. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Paul H. LaRue, Chicago, Ill., for appellant.
Lowell E. Sachnoff, Chicago, Ill., for appellee.
Before LAY, Chief Judge, and ARNOLD and FAGG, Circuit Judges.
Stroh Container Company (Schlitz) appeals from an amended judgment denying its application to vacate or modify a commercial arbitration award, confirming the award in favor of Delphi Industries, Inc. and Geocaris and Company (Geocaris), and granting Geocaris post-award, prejudgment interest. 1
In March 1973, Geocaris, a Chicago based beer distributing company, entered into a wholesaler franchise agreement with Schlitz to sell Schlitz brands of beer. The agreement contained a supplemental "schedule" setting forth Schlitz's performance requirements. The schedule imposed an obligation on Schlitz to "[c]onduct all Buyer-Seller relationships in a fair and equitable manner," but the agreement also disclaimed any warranty of any kind on any beer sold to Geocaris. In the event that a product proved unsaleable due to Schlitz's fault, the agreement provided that Geocaris could be reimbursed for its net costs. The agreement stipulated that Illinois law would apply in construing its terms and set forth a three step grievance procedure for resolution of all disputes, culminating in binding arbitration. The agreement also provided that "judgment on the award rendered by the * * * arbitrators may be entered in any Court having jurisdiction thereof."
In late 1974, Geocaris, along with a beer wholesaler's association, began complaining to Schlitz personnel at all levels that Schlitz was supplying poor quality, inconsistent, and unmarketable beer. Schlitz failed to reasonably respond to these complaints until late in 1977. It is undisputed that Geocaris suffered a substantial decline in profits between 1976 and the first half of 1978.
Geocaris terminated the franchise agreement in September 1981 and filed an arbitration demand in February 1982 with the American Arbitration Association. Following lengthy disputes regarding the arbitrability of the matter and the appropriate arbitration locale, arbitration proceedings commenced in Minneapolis before a three person panel in May 1984 and was concluded in Chicago on June 30, 1984. On October 11, 1984, a majority of the panel issued an award in favor of Geocaris. The majority first concluded that the matter was procedurally arbitrable, finding that the demand was timely, that Geocaris had not lost its right to arbitrate due to any failure to comply with conditions precedent to arbitration, and that laches did not bar the arbitration. The award further found that the parties' agreement imposed on Schlitz a duty of good faith and fair dealing, and a duty to conduct all relations with Geocaris in a fair and equitable manner. Schlitz was found to have breached both of those duties "by failing to make any adequate response to the disastrous product problems repeatedly brought to its attention by [Geocaris] and other Chicago area wholesalers of Schlitz products--in effect 'stonewalling' the issue for over two and one-half years." The panel majority also found that Geocaris was entitled to damages caused by Schlitz' breach for the years 1976, 1977, and half of 1978 in the amount of $2,094,665.91, and explicitly stated that no award of damages was made "for deficient product per se" because the warranty disclaimer contained in the agreement did not permit such recovery. The dissenting arbitrator strongly disagreed with the majority's result. In the dissenter's view, "to find Schlitz liable here is tantamount to making it the fiduciary, or the insurer, of the distributor's profits."
After the entry of the award, both parties sought judicial review pursuant to the Federal Arbitration Act (hereinafter "the Act"). 9 U.S.C. Secs. 1-14. Schlitz commenced an action in Minnesota district court seeking vacation of the award under section 10 2 of the Act or a modification of the award under section 11. 3 In the meantime, Geocaris had filed an action to confirm the award pursuant to section 9 4 in the northern district of Illinois. That court 5 transferred Geocaris' action to the federal district court for the district of Minnesota under 28 U.S.C. Sec. 1404(a), permitting a district court to transfer an action for the convenience of parties and witnesses and in the interests of justice to any other district where the action might have been brought.
Schlitz thereafter moved the Minnesota district court to stay Geocaris' confirmation action pending the outcome of Schlitz' action. The district court 6 denied Schlitz' request, and instead consolidated the actions for argument and decision. The district court subsequently confirmed the award and held Schlitz additionally liable for post-award, prejudgment interest. Schlitz then appealed to this court, challenging the judgment below on jurisdictional, procedural, and substantive grounds.
Procedural challenges.
Schlitz claims that the award should be vacated on the ground that the underlying dispute was not procedurally arbitrable. 7 In support of this contention, Schlitz first argues that the dispute was not "ripe" for arbitration since Geocaris had failed to comply with the pre-arbitration steps set forth in the grievance procedure prior to making its arbitration demand. Schlitz also argues that Geocaris lost its right to arbitrate this dispute because Geocaris terminated its relationship with Schlitz before making the arbitration demand, and, finally, that arbitration should have been denied under equitable principles of laches.
Schlitz first raised these arguments before a federal district court 8 prior to the commencement of arbitration. That court in turn referred all issues of procedural arbitrability to the arbitration panel. Schlitz again raised the identical contentions to the arbitration panel. The panel majority made the following findings resolving Schlitz's procedural challenges:
1. This matter came on before the arbitration panel pursuant to a timely demand as amended by claimant which demand as amended was made pursuant to the Wholesaler/Franchise Agreement.
2. Claimant's right to arbitrate survived the termination of the Wholesaler/Franchise Agreement.
3. Claimant did not lose its right to arbitrate due to any failure to comply with conditions precedent to arbitration.
4. Arbitration was not barred by laches.
The dissenting arbitrator, while disagreeing with the majority on the merits, did not contest the majority's findings on arbitrability. The Minnesota district court also rejected Schlitz's procedural challenge, noting first that "Schlitz raised these issues in the proceedings below and the arbitrators found them to be without merit," and finding "that these issues continue to be without merit."
Our review of the challenged procedural arbitrability determinations must be conducted in light of the established principle that such issues should be left to the arbitrator to decide. See John Wiley & Sons v. Livingston, 376 U.S. 543, 557, 84 S.Ct. 909, 918, 11 L.Ed.2d 898 (1964); Automotive, Petroleum and Allied Industries Employees Union v. Town and Country Ford, Inc., 709 F.2d 509, 511 (8th Cir.1983). This rule of deference is founded on the recognition that (1) procedural questions are often intertwined with the merits of the dispute and (2) the reservation of procedural issues for the courts provides an opportunity for serious delay and duplication of effort. See Wiley, 376 U.S. at 556-58, 84 S.Ct. at 917-18. 9 In translating this rule of deference into a standard of review, we must therefore accord even greater deference to the arbitrator's decisions on procedural matters than those bearing on substantive grounds. United Steelworkers of America v. Ideal Cement Co., 762 F.2d 837, 841 (10th Cir.1985). As we discuss infra, an arbitrator's conclusions on substantive matters may be vacated only when the award demonstrates a manifest disregard of the law where the arbitrators correctly state the law and then proceed to disregard it, if the award is otherwise irrational, or if any of the explicit grounds for vacation or modification set forth in sections 10 and 11 of the Act are present.
Given the narrow sweep of that standard it is difficult to articulate a standard of an even lesser scope to apply for procedural challenges. In this case, however, we need not reach for the appropriate articulation of the lesser standard, since even under the "manifest disregard" standard, the arbitrator's determinations must be upheld. There is simply no suggestion in the findings made by the arbitrators on the procedural arbitrability question that they expressly flouted the law in reaching their decision or otherwise acted irrationally. Nor are any of the bases for judicial action enumerated in sections 10 and 11 met here. See 9 U.S.C. Secs. 10, 11. We hold, therefore, that the procedural issues were properly decided by the arbitrators based on their own conclusion that the matter was properly before them.
Substantive challenges.
Schlitz's principal challenge to the award on appeal concerns the substantive propriety of the award. Schlitz argues that the award must be vacated or modified on the grounds that the arbitrators manifestly disregarded the law in awarding damages and in applying the applicable state statute of limitations, that the award failed to "draw its essence" from the contract, and that the award was irrational as to liability and the size of the damage award.
In considering the merits of Schlitz's argument on these points, we must first determine whether the grounds set...
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