Carl Zeiss Vision, Inc. v. REFAC Holdings, Inc. and U.S. Vision, Inc. ( 2017 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
CARL ZEISS VISION, INC. :
:
Plaintiff, :
:
v. : C.A. No. 11513-VCS
:
REFAC HOLDINGS, INC. and :
U.S. VISION, INC., :
:
Defendants. :
:
REFAC HOLDINGS, INC. and :
U.S. VISION, INC., :
:
Counterclaim Plaintiffs, :
:
v. :
:
CARL ZEISS VISION, INC., :
:
Counterclaim Defendant. :
MEMORANDUM OPINION
Date Submitted: June 14, 2017
Date Decided: August 24, 2017
Gregory E. Stuhlman, Esquire of Greenberg Traurig, LLP, Wilmington, Delaware
and Jeff E. Scott, Esquire and Valerie W. Ho, Esquire of Greenberg Traurig, LLP,
Los Angeles, California, Attorneys for Plaintiff and Counterclaim Defendant.
William R. Denney, Esquire, Brian C. Ralston, Esquire, Andrew H. Sauder, Esquire
and Jordan A. Braunsberg, Esquire of Potter Anderson & Corroon LLP and Jon M.
Talotta, Esquire of Hogan Lovells US LLP, McLean, Virginia, Attorneys for
Defendants and Counterclaim Plaintiffs.
SLIGHTS, Vice Chancellor
Delaware courts do not take lightly applications to vacate arbitration awards.
Indeed, the standard of judicial review with respect to such applications is among
“the narrowest . . . in all of American jurisprudence.”1 Acknowledging the nearly
vertical mountain it must climb, Defendants/Counterclaim Plaintiffs, REFAC
Holdings, Inc. and U.S. Vision, Inc. (collectively “USV”), nevertheless move the
Court to vacate an arbitration award that construed a supply agreement between USV
and Plaintiff/Counterclaim Defendant, Carl Zeiss Vision, Inc. (“Zeiss”), in a manner
that supported Zeiss’ claim that USV had wrongfully terminated the agreement.
According to USV, the arbitration panel “eviscerate[d] the essential term” of the
agreement sua sponte and then “permit[ted] the agreement to remain in effect after
gutting that term.”2 This grave error, according to USV, was the product of an
arbitration panel that “abdicated its duties” and thereby “acted outside the scope of
its authority.”3
USV’s motion would have the court turn the applicable standard of review on
its head. Indeed, although it has not expressly advocated for de novo review, the
tone of its motion suggests that the Court should construe the terms of the operative
1
SPX Corp. v. Garda USA, Inc., 94 A.3d 745, 750 (Del. 2014).
2
Opening Br. in Supp. of Defs. and Countercl. Pls.’ Mot. to Vacate Arbitral Award
(“Opening Br.”) 1.
3
Id.
1
contract anew without any regard for the fact that a carefully selected, experienced
arbitration panel has already undertaken that exercise. In two words, USV seeks a
“do over.” That relief is rarely justified. It is not justified here. The motion to
vacate is DENIED.
I. BACKGROUND
The parties have submitted rather extensive exhibits from the arbitration
proceeding, including sworn testimony. I have drawn the facts from that record to
the extent necessary to determine whether the arbitration award “can be rationally
derived” from the contract the arbitrators were asked to construe and otherwise from
the evidence.4
4
Brennan v. CIGNA Corp., F. App’x 132, 136–37 (3d Cir. 2008) (If “an arbitration award
rationally can be derived from either the agreement of the parties or the parties' submission
to the arbitrator, it will be enforced.”). I note that the procedural posture of the motion sub
judice is not entirely clear. The motion is styled as a “Motion to Vacate Arbitral Award.”
It does not purport to invoke any of this Court’s rules of procedure as the means by which
USV seeks this case dispositive relief. Cf. Beebe Med. Ctr., Inc. v. InSight Health Servs.
Corp., 751 A.2d 426, 431 (Del. Ch. 1999) (observing that the filing of cross motions for
summary judgment is the “common [method] for this court to determine whether to vacate
or confirm an arbitration award.”). As noted, the parties have submitted extensive record
evidence. If I had determined that material factual disputes were revealed in that record,
the murky procedural context might confound the analysis here. Since I have found that
no such material disputes of fact exist, I am satisfied that I may finally adjudicate this
motion as styled rather than kick the can down the road in search of more procedural clarity.
2
A. The Parties
Zeiss manufacturers ophthalmic lenses used in eyeglasses. USV operates as
a retailer of ophthalmic products in the United States. Zeiss has supplied ophthalmic
lenses to USV for the past 16 years.
B. The 2011 Supply Agreement
The contract at the heart of the parties’ dispute is the Amended and Restated
Supply Agreement dated December 28, 2011 (the “Agreement”). Pursuant to the
Agreement, USV committed to purchase 95% of its lenses from Zeiss, subject to
certain identified conditions. In exchange, Zeiss committed to supply the lenses
ordered by USV and to extend $20 million of unsecured financing to USV at below-
market interest. The term of the Agreement is ten years. It is governed by Delaware
law and requires the parties to submit disputes relating to the Agreement to binding
arbitration.
The conditions to USV’s purchase obligation are set forth in Paragraph 3.2(a)
of the Agreement. Specifically, USV need only purchase 95% of its lenses from
Zeiss if: (1) Zeiss makes the products required by USV in the quantities USV
requires; (2) Zeiss’s products comply with industry quality standards; and (3) “CZV
3
[Zeiss] offers USV competitive pricing with respect to the CZV Lenses.”5
Paragraph 3.5 confirms that the purchase prices of Zeiss lenses are set forth on an
exhibit attached to the Agreement and that “the purchase price to be charged USV-
Refac for the various CZV Lenses. . . shall be no higher than the prices charged by
CZV to any other customer making an equivalent volume of purchases of CZV
Lenses.”6 The parties have referred to this as a “most favored nation” or “MFN”
provision.
The present dispute arises under the “competitive pricing” provision in
Section 3.2(a)(ii). USV maintains that it may avoid the 95% purchase requirement
in the Agreement if it is able to obtain more competitive (i.e., better) pricing from
another lens supplier. Zeiss interprets the competitive pricing provision as allowing
USV to purchase its lenses elsewhere only if Zeiss does not provide pricing to USV
that is competitive with what it offers other similarly situated customers, as further
addressed in the Agreement’s MFN provision.
5
Transmittal Aff. of Gregory E. Stuhlman in Supp. of Pl. and Countercl. Def. Carl Zeiss
Vision, Inc.’s Opp’n to Defs. and Countercl. Pls.’ Mot. to Vacate Arbitral Award Ex. 55
(“Agreement”) ¶ 3.2(a). Zeiss is referred to in the Agreement as CZV.
6
Agreement ¶ 3.5.
4
C. The Arbitration
USV filed a Demand for Arbitration with the American Arbitration
Association on August 28, 2015 (the “Demand”).7 The Demand sought a declaration
that the Agreement (specifically Paragraph 3.2(a)(ii)) authorized USV to engage in
price checks of the market to determine if Zeiss was offering competitive prices and,
if not, to purchase some or all of its lenses from the suppliers offering the best price.
USV identified in its Demand that one of Zeiss’s biggest competitors, Essilor
Laboratories of America (“Essilor”), was, in fact, able to offer more competitive
pricing than Zeiss and it alleged that it was therefore entitled to purchase lenses from
Essilor under the Agreement.8
A panel of three arbitrators (the “Panel”) was selected as called for in the
Agreement. As the parties moved closer to the arbitration hearing, the Panel asked
USV to state definitively the relief it would be seeking at the hearing. USV
responded by expanding, or refining, the relief it was seeking to include declarations
that: (1) when it compared Zeiss’s pricing with that of other manufacturers it could
do so on a “portfolio” or “product line” basis; (2) if USV buys lenses from another
7
Transmittal Aff. of Andrew H. Sauder in Supp. of Opening Br. in Supp. of Defs. and
Countercl. Pls.’ Mot. to Vacate Arbitral Award (“Sauder Transmittal Aff.”) Ex. F.
8
After filing its Demand, USV began to purchase lenses from Essilor. This prompted Zeiss
to initiate an action in this Court for, inter alia, injunctive relief. The parties ultimately
agreed to stay the litigation in this Court in favor of arbitration.
5
supplier offering lower prices, USV would have ten days to notify Zeiss when that
supplier’s prices increase; (3) if Zeiss offers to lower its pricing after USV moves to
another supplier in order to return to “competitive pricing,” then USV will have three
months to transition its purchasing back to Zeiss; (4) the pricing for Essilor’s product
portfolio is more competitive than the pricing for Zeiss’s product portfolio; (5) the
pricing of certain Essilor products is more competitive than the pricing of certain
Zeiss products; and (6) USV could purchase any amount of lenses from Essilor until
Zeiss matches Essilor’s pricing. Importantly, USV did not seek rescission of the
Agreement or damages for breach of contract.
The hearing lasted seven days. As one would expect after a seven-day
hearing, the evidentiary record was extensive. The parties offered closing arguments
at the conclusion of the hearing and, in doing so, addressed the specific questions
posed to them by the Panel. By agreement, the parties then submitted post-hearing
briefs. It was in this submission that USV argued for the first time that the
Agreement should be rescinded if the Panel concluded that the competitive pricing
provision was ambiguous.9 Zeiss objected. Among other grounds, it stressed that
the Agreement could not be rescinded because USV had already taken and spent
9
USV’s request for rescission at the close of the arbitration hearing is curious given the
extensive extrinsic evidence that both parties developed and then presented to the panel
during the hearing to assist in the construction of the Agreement should the panel find the
Agreement was ambiguous.
6
most the $20 million that it had loaned to USV as consideration for the Agreement.
USV responded to Zeiss’s objection and the issue was joined for decision by the
Panel along with USV’s other claims for relief.
The Panel issued its unanimous decision denying all of USV’s requested relief
on July 14, 2016. With respect to USV’s request for a declaration relating to its
interpretation of the competitive pricing provision, the Panel found that while “USV
intended that the provisions set forth market check language,” “the evidence is
undisputed that Labeeuw [a USV negotiator of the Agreement] never intended, or
understood, that the new language was market check language, and there is no
evidence (other than by implication from the execution of the [Agreement] by Zeiss)
that anyone employed by Zeiss, or representing Zeiss, intended or understood before
the [Agreement] was executed that the [competitive pricing] provisions set forth
market check language.”10 The Panel also determined that “even if one were to
conclude Zeiss accepted USV’s proposed language, that does not indicate any
agreement by Zeiss or, for that matter, USV, to any mechanism for implementation
of any market check right. This is only illustrative of the absence of terms supporting
the forms of relief requested by USV.”11
10
Sauder Transmittal Aff. Ex. M (“Award”) 6.
11
Id.
7
After completing its construction of the relevant language in the Agreement,
the Panel concluded that USV was not authorized by the Agreement to engage in a
market check to determine if Zeiss was offering competitive pricing. It further
concluded, under the Uniform Commercial Code (“UCC”) and Delaware case law,
that it had no reasonably certain basis to fashion an appropriate remedy if it were to
agree that USV’s construction was reasonable since the Agreement was silent as to
how a market check would work under the MFN clause.12 It expressly declined to
“rewrite” the parties’ Agreement.13
The Panel then addressed USV’s belated request for rescission. After
acknowledging USV’s argument that it “would not have entered into the
[Agreement] ‘unless it could exclude lenses that were not competitively priced,” the
Panel determined that USV had failed to cite any evidence in support of this
statement and noted that the Panel’s own assessment of the evidence found no
support for this position either.14
D. Procedural Posture
This matter first came to the Court on Zeiss’s Verified Complaint for Specific
Performance, filed on September 16, 2015, in which Zeiss sought an order declaring
12
Id. at 7.
13
Id. at 6–7.
14
Id. at 8.
8
that the Agreement precluded USV from purchasing lenses from Zeiss competitors,
including Essilor. Zeiss sought a temporary restraining order to that same effect.
On October 26, 2016, the parties stipulated that this action should be stayed in favor
of arbitration that would address the “merits of their dispute relating to the []
Agreement.”15 The arbitration hearing was held May 18–26, 2016. The Panel issued
its award on July 14, 2016. USV filed its Motion to Vacate Arbitral Award on
October 12, 2016.
USV argues that the Panel “abdicated its duties and ignored basic tenets of
UCC law by declaring the Competitive Pricing Exceptions [in the Agreement]
unenforceable and then compounded the problems it created by refusing to terminate
the contract as the UCC requires.”16 According to USV, the Panel “refused to
interpret” the Agreement as requested by the parties and, instead, resolved issues
that it raised sua sponte at the conclusion of the arbitration hearing.17 By proceeding
in this manner, the Panel “acted outside the scope of its authority, [] issued an award
that did not resolve the disputes submitted to arbitration, [] manifestly disregarded
governing law, [] gutted USV’s bargained-for contractual protections, and []
15
Stipulation (DI 36).
16
Opening Br. 2.
17
Id.
9
ultimately decided the parties’ disputes based on the Panel members’ own
idiosyncratic views of justice.”18
Zeiss, of course, emphasizes the extraordinarily narrow standard of review
within which the Court must operate––a standard that USV has not come close to
meeting here. It also challenges USV’s characterization of the Panel’s award.
According to Zeiss, USV asked the Panel to declare that the Agreement allowed
USV to seek out competitively priced lenses in the marketplace and to acquire such
lenses if Zeiss did not match the pricing. The Panel considered USV’s proffered
construction of the Agreement in this regard and rejected it. Accordingly,
dissatisfied with the Panel’s award, USV cannot now be heard to argue that the Panel
somehow acted outside of the scope of its authority when it decided precisely what
USV asked it to decide.
II. ANALYSIS
Although the parties have cited to both Delaware and federal authority with
respect to the standard of review, they appear to agree that the Federal Arbitration
Act (“FAA”) applies here.19 This consensus regarding the standard of review is well
placed given that the Agreement does not expressly reference the Delaware Uniform
18
Id. at 2–3.
19
9 U.S.C. §§ 1–16.
10
Arbitration Act (“DUAA”) or otherwise reflect the parties’ “desire to have [the
DUAA] apply to their agreement.”20 With regard to the appropriate deference to
which an arbitrator’s award is entitled, however, the decision to apply the FAA over
the DUAA (or vice versa) is of limited moment since precedential decisions applying
both statutes require reviewing courts to give practically the highest degree of
deference, short of “untouchable,”21 recognized in the law to an arbitrator’s award.22
Indeed, to overturn an award, the court must be satisfied that “there [is] absolutely
no support at all in the record justifying the arbitrator’s determinations.”23
20
10 Del. C. §§ 5702(a)(c) (unless the parties expressly agree that the DUAA shall apply
to their agreement any motions to vacate or enforce an arbitrator’s award shall be decided
“in conformity with the [FAA]”).
21
As any trial judge will attest, the “untouchable” standard of review does not exist.
22
Compare SPX Corp. v. Garda USA, Inc., 94 A.3d 745, 750 (Del. 2014) (noting the
DUAA “tracks” the FAA with regard to standard of review and further observing that the
“review of an arbitration award is one of the narrowest standards of judicial review in all
of American jurisprudence”); Brentwood Med. Assocs. v. United Mine Workers of Am.,
396 F.3d 237, 241 (3d Cir. 2005) (“There is a strong preference under the [FAA] in favor
of enforcing arbitration awards.”); Hamilton Park Health Care Ctr. Ltd. v. 1199 SEIU
United Healthcare Workers, 817 F.3d 857, 861 (3d Cir. 2016) (noting that arbitration
awards must be reviewed under an “extremely deferential standard, the application of
which is generally to affirm easily the arbitration award”).
23
United Transp. Union Local 1589 v. Suburban Transit Corp., 51 F.3d 376, 379 (3d Cir.
1995).
11
When considering “whether the arbitrator exceeded its authority,” the court
must “resolve all doubts in favor of the arbitrator.”24 “Even if the arbitrator did not
state the grounds for a grant or denial of relief, the grant or denial of relief will be
deemed to be within the scope of the arbitrator’s authority [i]f grounds for the award
can be inferred from the facts of the case.”25 This court will not “pass an independent
judgment on the evidence or applicable law,” and “[i]f any grounds for the award
can be inferred from the facts on the record, the Court must presume that the
arbitrator did not exceed his authority and the award must be upheld.”26
A. The Award does not Disregard Controlling Law
USV contends that the Panel disregarded controlling law when it determined
that the Supply Agreement was enforceable even after it struck, or at least refused
to enforce, an essential term of the contract (the competitive pricing provision). To
demonstrate that an arbitral award was rendered in disregard of the law such that the
award should be vacated, the party seeking to vacate the award must demonstrate
24
TD Ameritrade, Inc. v. McLaughlin, Piven, Vogel Sec., Inc., 953 A.2d 726, 732 (Del. Ch.
2008).
25
World-Win Mktg., Inc. v. Ganley Mgmt. Co., 2009 WL 2534874 (Del. Ch. Aug. 18, 2009)
(internal quotation marks omitted).
26
TD Ameritrade, 953 A.2d at 733 (citation omitted) (emphasis added). See also
Neuronetics, Inc. v. Fuzzi, 552 F. App’x 134, 135 (3d Cir. 2014) (“We will vacate an award
only under the exceedingly narrow circumstances listed in 9 U.S.C. § 10(a) or to correct a
manifest disregard of the law.”) (citations omitted)
12
that “the arbitrator (1) knew of the relevant legal principle, (2) appreciated that this
principle controlled the outcome of the disputed issue, and (3) nonetheless willfully
flouted the governing law by refusing to apply it.”27 This showing must be
“something beyond and different from a mere error in the law or failure on the part
of the arbitrators to understand or apply the law.”28 USV has not come close to
meeting this burden.
The Panel concluded that the competitive pricing language in the Agreement
could not reasonably be construed on its face to allow USV to stop buying lenses
from Zeiss if it found better pricing elsewhere.29 In reviewing the plain language of
the Agreement, the Panel reasonably found that the phrase “competitive pricing with
respect to the CZV Lenses” in Paragraph 3.2(a)(ii) could be a reference to the MFN
pricing structure described in Paragraph 3.5 (pricing competitive with Zeiss’s other
customers), as Zeiss argued, or the phrase could mean competitive pricing as
27
Paul Green Sch. Of Rock Music Franchising, LLC v. Smith, 389 F. App’x 172, 177 (3d
Cir. 2010).
28
TD Ameritrade, 953 A.2d at 732–33. See also RBC Capital Mkts. Corp. v. Thomas
Weisel P’rs, LLC, 2010 WL 681669, at *8 (Del. Ch. Feb. 25, 2010) (“as long as [an honest]
arbitrator is even arguably construing or applying the contract and acting within the scope
of his authority,’ the fact that ‘a court is convinced he committed serious error does not
suffice to overturn his decision.” (alteration in original)).
29
Award 5, Ex. A (“taking into consideration the MFN provisions of section 3.5, the Panel
finds the CP provisions ambiguous, and susceptible of different meanings, regarding
whether these provisions set forth market check language.”).
13
compared to other lens manufacturers, as USV argued.30 Because the parties elected
to leave the phrase “competitive pricing” undefined, the Panel did its best to construe
the term first by reference to the language within the four corners of the Agreement,
and then, when that analysis did not yield a clear construction, by reference to
extrinsic evidence.31 This hardly reveals that the Panel “flouted the governing law”;
indeed, the analysis was entirely consistent with settled Delaware law in the area of
30
Specifically, the Panel determined:
As previously set forth, the language of the CP [competitive pricing]
provisions was never negotiated between the parties. Other than its
appearance in the final draft of the SA [supply agreement], there is no
evidence the language was addressed between the parties before execution
of the SA, either in any conversation, or in any writing. The course of dealing
between the parties after execution of the SA also provides no guidance, as
the CP provisions were never acted on or invoked until years later when the
Essilor offer was presented to Zeiss. Other than the language of the CP
provisions, and that Zeiss rejected the previous language that would permit
US to continually shop Zeiss prices for any Zeiss lenses, there is no evidence
that provides guidance as to the meaning, or intent, or operation of the CP
provisions.
Award, at 6–7.
31
As the Panel observed, Paragraph 3.2(a)(ii) of the Agreement states “competitive pricing
with respect to the CZV Lenses”; it does not state “competitive pricing with respect to the
lens market” or “competitive pricing with respect to other lens manufacturers,” all
language that actually appeared in prior drafts of the Agreement that Zeiss rejected.
Agreement ¶ 3.2(a)(ii). When the parties referred to competitive pricing elsewhere in the
Agreement, they always took care to identify precisely what prices will be compared. See
id. at ¶ 5.2(a) (. . . to timely accommodate USV’s customer orders at prices competitive
with other available wholesale optical laboratories.”); ¶ 5.2(b) (“. . . to timely accommodate
USV’s customer orders at prices that are relatively competitive with (but not necessarily
the lowest price available) other available wholesale optical laboratories.”). In this regard,
the term “competitive pricing” in Paragraph 3.2(a)(ii) stands alone in its failure to provide
context and for that reason alone, as the Panel determined, the term is ambiguous.
14
contract construction.32 As the party seeking declaratory relief, USV had the burden
to prove that Section 3.2(a)(ii) meant what USV claims it meant.33 USV did not
meet its burden. Consequently, the Panel did not adopt USV’s proposed
interpretation.
Having determined that USV’s proffered construction of the Agreement was
not reasonable, the Panel was under no obligation to declare the entire agreement
unenforceable. According to USV, the Panel’s refusal to accept USV’s proffered
construction of the competitive pricing language left the Supply Agreement without
an essential “quantity” term. I note that USV raised this argument to the Panel for
the first time after the hearing had concluded. Notwithstanding that the argument is
of post-hearing vintage, and therefore arguably not properly joined in the arbitration
proceedings, USV’s attempt to assail the Panel’s treatment of this argument fails in
any event because it misconstrues the Panel’s decision and applicable Delaware
law.34
32
Paul Green Sch. Of Rock Music Franchising, 389 F. App’x at 177. See also GMG
Capital Invs., LLC v. Athenian Venture P’rs I, L.P., 36 A.3d 776, 783 (Del. 2012)
(“[W]here reasonable minds could differ as to the contract’s meaning, a factual dispute
results and the fact-finder must consider admissible extrinsic evidence.”)
33
Zimmerman v. Crothall, 62 A.3d 676, 691 (Del. Ch. 2013); Lillis v. AT&T Corp., 2008
WL 2811153, at *4 (Del. Ch. July 21, 2008).
34
USV’s demand for rescission was likely received with some surprise given that USV had
already received and likely spent the $20 million loan that Zeiss had extended to it (on
highly favorable terms) in connection with, and as partial consideration for, the Agreement.
See Stenta v. Gen. Motors Corp., 2009 WL 1509299, at *10 (Del. Super. May 29, 2009),
15
In essence, what USV asked the Panel to do after the hearing was to rescind
the Agreement.35 Yet it can hardly be said that the Panel “flouted the applicable
law” when it concluded that USV did not meet its burden of demonstrating that the
“extreme remedy” of rescission was appropriate here.36 Specifically, as the Panel
observed, USV “cite[d] no evidence” to support its claim that the competitive pricing
term was material to its decision to enter into the Agreement and “the Panel finds
the evidence does not so prove.”37 Indeed, looking beyond the competitive pricing
language, the Panel was reasonable in its perception that Paragraph 3.2(a) still
aff’d, 7 A.3d 485 (Del. 2010) (rejecting rescission claim where the circumstances present
at the time the claim was adjudicated made it “impossible for the Court to ‘unscramble the
eggs’”).
35
Opening Br. 14 (“The Panel was clearly aware of the relevant principals at issue under
the UCC, but improperly refused to apply them to invalidate the whole agreement when it
invalidated an essential element of the quantity term, the Competitive Pricing
Exceptions.”).
36
Liberto v. Bensinger, 1999 WL 1313662, at *5 (Del. Ch. Dec. 28, 1999) (noting that the
court must have a “high degree of confidence” in the propriety of imposing the “extreme
remedy” of rescission). See also Neuronetics, Inc., 552 F. App’x at 135 (“We will vacate
an award only under the exceedingly narrow circumstances listed in 9 U.S.C. § 10(a) or to
correct a manifest disregard of the law.”).
37
Award, at 8 (emphasis added). See Home Ins. Co. v. Honaker, 1983 WL 102619, at *1
(Del. Ch. Nov. 2, 1983) (holding that a party’s unilateral mistake as to the meaning of a
term of the contract will justify rescission only when the term is material); Asten, Inc. v.
Wangner Sys. Corp., 1999 WL 803965, at *4 (Del. Ch. Sept. 23, 1999) (same). See also
Hildreth v. Castle Dental Ctrs., Inc., 939 A.2d 1281, 1283–84 (Del. 2007) (stating that
under Delaware law, “[a]n invalid term of an otherwise valid contract, if severable, will
not defeat the contract”); Tracey v. Franklin, 67 A.2d 56, 61 (Del. 1949) (stating that under
Delaware law, “[w]hether or not the terms of a contract are severable is purely a question
of the intent of the parties”).
16
adequately addresses pricing in that it contains a definite quantity term that provides
a formula for determining USV’s purchase obligations: Paragraph 3.2(a) provides
that Zeiss “shall be the preferred supplier of ophthalmic lenses”; “USV-Refac shall
order from [Zeiss] substantially all of the ophthalmic lenses required by USV” to the
extent that Zeiss makes the lenses and they comply with industry quality standards;
and “substantially all of the ophthalmic lenses required by USC-Refac shall mean at
least 95% of the aggregate number of all ophthalmic lenses sold by USV-Refac in
connection with its sale of ophthalmic eyeglasses through the USV Stores during
any consecutive 3-month period of the Term.”38 Under these circumstances, there
is no basis to conclude that the Panel manifestly disregarded the applicable law when
it declined USV’s eleventh-hour invitation to rescind the Agreement.39
38
Agreement, at ¶ 3.2(a); Award at 8.
39
Contrary to USV’s position here, the UCC does not dictate a different result. As USV
points out, “UCC Section 2-204 ‘reflects the common law principle that a meeting of the
minds on all essential contract terms is critical for contractual formation.’” Opening Br.
14 (citing Hardwire, LLC v. Zero Int’l, Inc., 2014 WL 5144610, at *9 (D. Del. Oct. 14,
2014)). And, to be sure, “quantity” is an essential term. See 2 E. Farnsworth, Farnsworth
on Contracts § 6.7, at 141 (2d ed. 1990) (noting that the UCC “significantly relaxes the
requirement that the memorandum state all the essential terms by insisting only that it state
the quantity of goods”). But, as noted, the Panel did not commit manifest error in
determining that, even without the competitive pricing provision, the Agreement still more
than adequately addressed the quantity of lenses USV was to purchase. There was no
essential term missing here even after the Panel declined to construe the competitive
pricing provision according to USV’s construction of that term.
17
B. The Award was not Irrational
An arbitrator “subjects his award to judicial vacatur under [FAA] § 10(a)(4)
when he decides an issue not submitted to him, grants relief in a form that cannot be
rationally derived from the parties’ agreements and submissions, or issues an award
that is so completely irrational that it lacks support altogether. . . . [W]hen the
arbitrator ‘strays from interpretation and application of the agreement’ and
effectively ‘dispenses his own brand of industrial justice’ he exceeds his powers and
his award will be unenforceable.’”40 USV argues that the Panel abdicated its
responsibility to interpret the Agreement and instead “dispensed [its] own brand of
industrial justice” by finding that the competitive pricing provision was
unenforceable and, more importantly, by improperly refusing to find that the entire
Agreement was unenforceable based on the failure of the competitive pricing
provision. This argument is simply a recycling of the argument that the Panel
ignored controlling law. As before, I reject it as an unfounded characterization of
the Panel’s decision and an unsupported interpretation of Delaware law.
C. The Panel Addressed All Issues it was Asked to Decide
USV maintains that “[t]he Panel’s decision that ‘the [competitive pricing]
provisions lack[ed] sufficient definiteness, specificity, and mechanisms to be
40
Sutter v. Oxford Health Plans LLC, 675 F.3d 215, 219–20 (3d Cir. 2012), as amended
(Apr. 4, 2012), aff’d, 133 S. Ct. 2064 (2013).
18
enforceable by declaratory relief’ (Award, p. 7) resulted in an imperfect execution
of the Panel’s powers such that ‘a mutual, final, and definite award upon the subject
was not made.’”41 According to USV, the Panel neglected to determine whether the
competitive pricing provision could be enforceable by an action for damages (as
opposed to the claim for declaratory relief that USV actually brought) and “whether
the Competitive Pricing Exceptions related to the prices of comparable ophthalmic
lenses offered by other lens suppliers (as USV argued), or whether they were simply
a re-iteration of the MFN clause of Section 3.5 (as [Zeiss] argued).”42 A review of
the Award reveals that the Panel decided every issue that was submitted by USV and
denied USV’s requests for declaratory relief.
As an initial matter, it cannot be ignored that neither party submitted a breach
of contract claim to the Panel. The claims were plainly limited to prayers for
declaratory relief. Moreover, the fact that a breach of contract claim will not lie with
USV’s proffered construction of the Agreement is implicit in the Panel’s Award.
The Panel determined that the competitive pricing provision was not enforceable as
41
Opening Br. 25 (citing 9 U.S.C. § 10(a)(1)(4), Certain Underwriters at Lloyd’s London
et al. v. BCS Ins. Co., 239 F. Supp. 2d 812, 816 (N.D. Ill. 2003)). Title 9 of the U.S. Code,
Section 10(a)(1)(4) provides that an arbitration award may be vacated “where the
arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and
definite award upon the subject matter submitted was not made.”
42
Opening Br. 26.
19
drafted. Any breach of contract claim that USV might pursue based on an alleged
breach of the competitive pricing provision, therefore, would not be viable.
The same analysis applies to USV’s argument that the Panel did not decide
whether the competitive pricing provision referred to the MFN pricing provision in
Section 3.5 of the Agreement. USV did not seek a decision from the Panel on that
issue. Its argument that the Panel should now be faulted for not deciding the issue,
therefore, is, at best, impertinent.
The Panel’s Award was “mutual” and “final” in that it “resolved the entire dispute
(to the extent arbitrable) that had been submitted to them.”43 USV’s argument to the
contrary is unfounded.
III. CONCLUSION
USV has failed to state any grounds that justify the extraordinary relief of
vacating an arbitration award. Its Motion to Vacate Arbitral Award, therefore, must
be DENIED. The parties shall confer and submit a proposed final order addressing
the Motion to Vacate and the final disposition of this case within ten (10) days.
43
IDS Life Ins. Co. v. Royal Alliance Assoc., Inc., 266 F.3d 645, 650 (7th Cir. 2001).
20