Volk v. X-Rite, Inc.
| Decision Date | 02 March 2009 |
| Docket Number | No. 4:08-CV-00054-JEG.,4:08-CV-00054-JEG. |
| Citation | 599 F.Supp.2d 1118 |
| Parties | Lisa VOLK and Color Concepts, Inc., Petitioners/Counterclaim-Respondents, v. X-RITE, INC., Respondent/Counterclaim-Petitioner. |
| Court | U.S. District Court — Southern District of Iowa |
Bradley M. Beaman, Todd A. Strother, Bradshaw Fowler Proctor & Fairgrave, Des Moines, IA, for Petitioners/Counterclaim-Respondents.
Gregory M. Kilby, Warner Norcross & Judd LLP, Grand Rapids, MI, Linda M. Doyle, McDermott Will & Emery, Chicago, IL, Steven J. Havercamp, Stanley, Lande & Hunter, Davenport, IA, for Respondent/Counterclaim-Petitioner.
In this action, Petitioners/Counterclaim-Respondents Lisa Volk and Color Concepts, Inc. (collectively "Volk"), pursuant to the Federal Arbitration Act (FAA), 9 U.S.C. §§ 9 and 11, filed a petition seeking to correct and confirm an arbitration award entered in Volk's favor and against Respondent/Counterclaim-Petitioner X-Rite, Inc. (X-Rite). Counterclaim-Petitioner X-Rite, pursuant to the FAA, 9 U.S.C. § 10, seeks to vacate the arbitration award entered in favor of Counterclaim-Respondent Volk. The Court held a hearing on the motions on January 23, 2009. Todd Strother and Bradley Beaman represented Volk. Linda Doyle represented X-Rite. The matter is fully submitted and ready for disposition.
X-Rite manufactures and sells color-measurement products. X-Rite's North American sales force consists of both direct-employee sales representatives, whom X-Rite considers to be employees, and manufacturer sales representatives, whom X-Rite considers to be independent contractors. From 1998 through 2002, X-Rite employed Volk as a direct-employee sales representative. In 2003, X-Rite told Volk that it was eliminating her direct-employee sales representative position and her only option for staying with X-Rite was to become a manufacturer sales representative. Volk chose to stay with X-Rite, entered into a written sales representative agreement in February 2003, and entered into subsequent written agreements in 2004 and 2005. In January 2006, X-Rite representatives traveled to Iowa and informed Volk that she was being terminated for unspecified business reasons.
Pursuant to the arbitration clause contained in the May 25, 2005, manufacturer sales representative agreement (the Agreement), Volk initiated an arbitration proceeding against X-Rite on January 12, 2007, before the American Arbitration Association (AAA). An arbitrator was duly appointed under the rules of the AAA, and the parties then proceeded to engage in discovery over the course of nearly a year.
In compliance with the Agreement's arbitration clause that the arbitration hearing take place "in a major metropolitan area located approximately halfway between the home office of [X-Rite] and [Volk]," a hearing was held in Minneapolis, Minnesota, on November 26-27, 2007. Agreement ¶ 17. Following the hearing, both parties submitted post-hearing briefs to the arbitrator.
On January 30, 2008, the arbitrator issued an award for $619,906.54 in favor of Volk. The arbitrator found X-Rite liable to Volk for gender discrimination, breaching its written contract, and intentionally failing to pay Volk commissions she had earned. The arbitrator also issued a memorandum to partially explain the basis for the award but did not provide an exhaustive explanation of all aspects of the decision. The arbitrator awarded the following types of damages to Volk: (1) $539,697.50 for gender discrimination under the Michigan Elliott-Larsen Civil Rights Act (MELCRA); (2) $33,802.26, plus interest, for breach of contract for failure to pay commissions under the Michigan Sales Representative Act (MSRA); and (3) $46,406.78 in attorney fees and costs.
The arbitrator concluded Volk performed essentially the same services to X-Rite in her manufacturer sales representative capacity as she did as an employee, even though the Agreement characterized her as an independent contractor. Although Volk set up a company, Color Concepts, Inc., through which she performed her services as an X-Rite sales representative, the arbitrator concluded Volk received virtually all of her income from, and devoted virtually all of her time to, X-Rite. Volk made only two sales for other companies while working for X-Rite as a manufacturer sales representative.
The arbitrator concluded Volk was one of the top-producing sales representatives for X-Rite, and Volk was X-Rite's only female sales representative in the United States. After Volk's termination, X-Rite divided her territory among three male employees. The Illinois territory was given to a male employee with far less experience than Volk. Stephen Hosford, X-Rite's North American Sales Director, testified that he did not ask Volk if she was willing to relocate to Chicago to service the Illinois territory because she had a husband who was employed in Iowa and had children in school there. However, X-Rite asked Dan Uress and Dave Borden to relocate in order to assume portions of Volk's territory after Volk's termination.
The arbitrator concluded Volk's termination did not make X-Rite more profitable or save any money. Volk, who was compensated at a twelve-percent commission rate on the date of her discharge, had the sales territories of Iowa and Missouri. If X-Rite granted Volk's request to expand her sales territory to include Illinois, then X-Rite would have paid its sales representatives twelve-percent commissions in all three states. However, after Volk's termination, X-Rite gave those states to a male employee, Dan Uress, and compensated him at a fifteen-percent commission rate. The arbitrator concluded X-Rite's reorganization could not save X-Rite money and was merely pretext for gender discrimination.
The arbitration clause in the Agreement provides that "the award of the arbitrators shall be final and judgment upon the award rendered may be entered in any court having jurisdiction." Agreement ¶ 17. On February 8, 2008, Volk filed in this Court a petition to confirm and correct the arbitration award. X-Rite subsequently filed a separate action to vacate the award in Michigan state court. After successfully removing X-Rite's lawsuit to the U.S. District Court for the Western District of Michigan, Volk filed a motion to transfer X-Rite's lawsuit to the U.S. District Court for the Southern District of Iowa. Volk's motion was granted on April 28, 2008, 2008 WL 1913926, and X-Rite's action to vacate was transferred to the Southern District of Iowa. On that same date, X-Rite filed a separate motion to vacate the award in the Southern District of Iowa.
As an initial matter, the Court must determine whether federal or Michigan law applies to X-Rite's motion to vacate. The arbitrator's award was based on Michigan law, which the parties do not dispute. However, X-Rite argues that Michigan law should govern the Court's review of the arbitrator's award, while Volk argues federal law should govern.
The choice-of-law and arbitration clauses in the Agreement state as follows:
16. Choice of Law. To the extent not otherwise displaced by applicable law, this Agreement shall be governed by and interpreted and construed in accordance with the laws of the State of Michigan.
Arbitration. To the extent not displaced by applicable law, the Company and the Representative agree that any controversies or disputes arising under this Agreement shall be determined exclusively by arbitration conducted in accordance with the rules of the [AAA]. The arbitration shall take place in a major metropolitan area located approximately halfway between the home office of the Company and the Representative. The award of the arbitrators shall be final and judgment upon the award rendered may be entered in any court having jurisdiction.
Agreement ¶¶ 16-17. As more fully discussed below, this is a pivotal determination because under Michigan law, an arbitrator's decision is vacated when "an error in law . . . led [the arbitrator] to a [material] wrong conclusion," see Detroit Auto. Inter-Ins. Exch. v. Gavin, 416 Mich. 407, 331 N.W.2d 418, 434 (1982), whereas under the FAA, an arbitrator's award will only be vacated when the arbitrator "clearly identif[ied] the applicable, governing law and then proceed[ed] to ignore it," Stark v. Sandberg, Phoenix & von Gontard, P.C., 381 F.3d 793, 799 (8th Cir.2004). The Supreme Court has expressly held that the FAA contains the exclusive grounds for vacating or modifying arbitration awards, and parties cannot contractually agree to expand the grounds for judicial review. Hall St. Assocs., L.L.C. v. Mattel, Inc., ___ U.S. ___, 128 S.Ct. 1396, 1406, 170 L.Ed.2d 254 (2008). However, the Court implied that parties could contractually adopt state law arbitration rules because the "FAA is not the only way into court for parties wanting review of arbitration awards: they may contemplate enforcement under state statutory or common law, for example, where judicial review of different scope is arguable." Id.
When faced with a choice-of-law problem as to whether federal or state arbitration rules apply to reviewing an arbitration award, the Eighth Circuit in UHC Management Co. v. Computer Sciences, Corp., 148 F.3d 992, 996-97 (8th Cir.1998), held that federal courts cannot read general choice-of-law provisions to opt parties out of the FAA default regime and that federal courts cannot apply state arbitration laws unless the parties' intent is "abundantly clear." See also Dominium Austin Partners, LLC v. Emerson, 248 F.3d 720, 729 n. 9 (8th Cir.2001) (). Discussing case law before and after the Supreme Court's decision in Mastrobuono v. Shearson Lehman...
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