Three S Delaware v. Dataquick Information Systems

• Decision Date: 12 July 2007
• Docket Number: No. 06-1227.,No. 06-2056.,06-1227.,06-2056.
• Citation: 492 F.3d 520
• Parties: THREE S DELAWARE, INCORPORATED, Successor in interest to Steele Software Systems Corporation, Plaintiff-Appellant, v. DATAQUICK INFORMATION SYSTEMS, INCORPORATED, a Delaware Corporation, Defendant-Appellee. Three S Delaware, Incorporated, Successor in interest to Steele Software Systems Corporation, Plaintiff-Appellant, v. DataQuick Information Systems, Incorporated, a Delaware Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

492 F.3d 520

THREE S DELAWARE, INCORPORATED, Successor in interest to Steele Software Systems Corporation, Plaintiff-Appellant, v. DATAQUICK INFORMATION SYSTEMS, INCORPORATED, a Delaware Corporation, Defendant-Appellee.

Three S Delaware, Incorporated, Successor in interest to Steele Software Systems Corporation, Plaintiff-Appellant, v. DataQuick Information Systems, Incorporated, a Delaware Corporation, Defendant-Appellee.

No. 06-1227.

No. 06-2056.

United States Court of Appeals, Fourth Circuit.

Argued: May 22, 2007.

Decided: July 12, 2007.

ARGUED: Brian Alexander Glasser, Bailey & Glasser, L.L.P., Charleston, West Virginia, for Appellant. Beverly Johnson, Dorsey & Whitney, L.L.P., Irvine, California, for Appellee. ON BRIEF: William F. Ryan, Jr., John F. Carlton, Kenneth Oestreicher, Paul M. Nussbaum, Whiteford, Taylor, Preston, L.L.P., Baltimore, Maryland, for Appellant. James E. Gray, Stephen E. Marshall, Jason C. Rose, Venable, L.L.P., Baltimore, Maryland, for Appellee.

Before WIDENER, WILKINSON, and KING, Circuit Judges.

Affirmed by published opinion. Judge KING wrote the opinion, in which Judge WIDENER and Judge WILKINSON joined.

OPINION

KING, Circuit Judge:

Steele Software Systems Corporation, now known as Three S Delaware, Incorporated ("3S"), appeals from the district court's denial of its motion to vacate a 2005 arbitration award of more than $6.1 million (the "Award") rendered in Maryland in favor of DataQuick Information Systems, Incorporated ("DataQuick").¹ On appeal, 3S contends that the court should have vacated the Award on several statutory and common law grounds. More specifically, 3S asserts that (1) a portion of the Award was not drawn from the essence of the underlying agreement, (2) the arbitrator manifestly disregarded relevant law, (3) the Award was procured by undue means, (4) the arbitrator was partial, (5) the Award was procured by arbitrator misconduct, and (6) the arbitrator exceeded his power in making the Award. As explained below, we affirm the district court.

I.

A.

3S is a Baltimore-based company that provides title reports and appraisals to financial institutions in the real estate lending business. As part of its business, 3S developed software that allowed financial institutions to more quickly receive appraisals and title reports (the "3S system"). DataQuick, on the other hand, is a nationwide provider of data cataloguing real property features and transactions from several major cities. On January 23, 1996, 3S and DataQuick entered into a License Agreement (the "Agreement"), under which DataQuick agreed to provide 3S with the DataQuick database, which was to be used as part of the 3S system. In exchange for the database, 3S was required to pay DataQuick a licensing fee each month. Pursuant to the Agreement, DataQuick was entitled to either a minimum monthly fee of $7,500 or royalty fees of $5.00 to $7.50 per transaction, depending on the number of transactions that 3S "accessed and billed" in connection with DataQuick's data. Agreement ¶ 4.1.² To determine the number of transactions accessed and billed, 3S was to prepare monthly reports detailing 3S's use of the database. Id. ¶ 4.4. The Agreement further provides that "3S will not reproduce, sell, publish or in any manner commercially exploit any information obtained through the DATAQUICK Database except as provided by the terms and conditions of this Agreement." Id. ¶ 7.3.

The Agreement also contains provisions limiting each party's liability in the event of a breach and directing the parties to arbitrate any dispute arising thereunder. In this regard, the Agreement first provides that neither party will "be liable for any indirect, incidental or consequential damages, including, but not limited to, lost income or lost revenue." Agreement ¶ 6.6. It then provides that any dispute arising under the Agreement is subject to California law, and either party, upon failing to resolve such a dispute, may make a written demand for arbitration to the American Arbitration Association (the "AAA"). Id. ¶ 8.4.

During the course of their dealings under the Agreement, 3S never prepared the mandated monthly reports detailing the number of transactions in which it used DataQuick's database. In order to justify this inaction, 3S contends that it did not access the database enough to trigger any payment of more than the minimum monthly fee. Even so, 3S did not always promptly pay the minimum monthly fees, and on April 27, 2000, the parties entered into another agreement requiring 3S to pay DataQuick $60,000 in installments for unpaid fees. Thereafter, in March 2003, DataQuick terminated the Agreement.

B.

On December 12, 2003, DataQuick filed a seven-count complaint against 3S in California state court. The complaint sought, inter alia, damages in excess of $170,000 for 3S's failure to pay the agreed upon minimum monthly fees, plus restitution in excess of $170,000 for 3S's alleged unjust enrichment. On April 23, 2004, the California court granted 3S's request to compel arbitration and ordered 3S to initiate an action to resolve the dispute before the AAA. When 3S failed to initiate any action before the AAA, the California court issued another order on September 27, 2004, requiring 3S to initiate an arbitration proceeding by September 30, 2004. On September 30, 2004, 3S submitted a one-page online arbitration demand to the AAA. This demand stated that the claim amount was $170,000 and described the claim as follows: "[DataQuick] sued [3S] for breach of contract for allegedly failing to pay for services rendered in a contract to provide real property value data nationally." J.A. 262. 3S then added its own claim for arbitration, alleging that DataQuick "breached first by providing data/information unuseable, outdated or in an insufficient manner. [3S] claims that [DataQuick] anticipatorily breached the contract and frustrated the purpose of the contract by providing useless data or no data at all." Id. On October 8, 2004, a representative of the AAA acknowledged receipt of 3S's online arbitration demand and asked DataQuick to file a response thereto on or before October 22, 2004. On October 12, 2004, DataQuick wrote to the AAA explaining that the arbitration claim stemmed from its complaint in the California court and attached the complaint and related court orders. These items were placed in the AAA file.

The parties eventually agreed to the appointment of James W. Constable, a lawyer in Baltimore, Maryland, as arbitrator. The discovery process was contentious and, throughout the prehearing process, DataQuick had difficulty determining its damages because 3S refused to turn over relevant documents detailing the underlying transactions. The arbitrator eventually issued an April 19, 2005 order requiring 3S to disclose documents that would be "sufficient for the Arbitrator and DataQuick . . . to determine, with a substantial degree of certainty, the number of transactions involving [3S's] resale and/or distribution of DataQuick's data." J.A. 562. The arbitrator also informed 3S that a negative inference might be drawn if 3S withheld documents that should have been disclosed.

On April 20, 2005, 3S wrote to DataQuick stating that it was "withdrawing its claim from the arbitration effective immediately." J.A. 222. Notwithstanding this representation, no formal withdrawal request was sent to the arbitrator. During a conference call with the arbitrator on April 26, 2005, however, 3S orally requested permission to withdraw its claim. The arbitrator explained to 3S that "it could withdraw its claim but that its withdrawal would not end the arbitration of [DataQuick's] counterclaim." Id. at 223. The arbitrator then suggested that 3S "remain in the case so as not to jeopardize its position." Id. After this conference call, 3S made repeated attempts to delay the proceedings, including requesting a California state court to enjoin the arbitration proceedings, failing to timely disclose witness lists and exhibits, and moving to disqualify the arbitrator. During a prehearing conference call on May 17, 2005, 3S's counsel again asserted that 3S was withdrawing from the proceedings. The arbitrator explained that 3S had a right to withdraw, but that the arbitration proceedings would continue as to DataQuick's claims. 3S's counsel then summarily withdrew from the conference call.

C.

On May 23, 2005, the arbitration hearing commenced in Baltimore. After DataQuick gave its opening statement, in which it stated its intention to use the testimony of Scott Steele (the owner of 3S) from a prior trial in Maryland to prove DataQuick's damages, Steele, who was present, ordered his counsel to immediately leave the hearing. During the exchange that followed, the arbitrator strongly encouraged 3S to stay and participate in the arbitration proceedings. He also explained that the proceedings would continue without 3S and, absent its participation, he might not be able to fully understand any defenses 3S may have against DataQuick's claims. Steele and his counsel then left the arbitration hearing with their exhibits and witnesses.

The arbitration hearing proceeded, and DataQuick submitted over 200 exhibits and five witnesses during the course of the proceeding. All of the exhibits used by DataQuick were documents 3S had disclosed during discovery. DataQuick also used Steele's testimony and 3S's expert testimony from a prior case litigated in a Maryland state court, styled Steele Software Systems Corp. v. First Union National Bank ("First Union"). In that matter, 3S had sued First Union National Bank ("First Union") on a breach of contract claim. 3S alleged therein that First Union had failed to use the 3S system as frequently as required in their contract. During trial of that dispute, 3S relied on evidence regarding the total transactions that it had the capability of performing for First Union from January 1998 through December 2001. Based on the...