What could be a better subject for a Black Friday weekend post than the Cabbage Patch Kids??! Especially if you are old enough to remember the 1980s… Whether you loved or hated the smushed-face dolls, the point of this post is that the 11th Circuit confirmed an arbitration award in their favor, showing significant deference to the arbitrator. Original Appalachian Artworks, Inc. v. Jakks Pacific, Inc., 2017 WL 5508498 (11th Cir. Nov. 17, 2017).
The dispute was between the company that owns the Cabbage Patch Kids (CPK) brand and a company to which it licensed the intellectual property during 2012-2014 (the licensee). As the end of the license agreement was approaching, CPK selected a new company to receive the license in 2015, and let them get started creating the new line of toys, so that the new line could launch right away in 2015. The licensee claimed that was a breach of the agreement and started an arbitration.
The arbitrator concluded that CPK had not breached the agreement and ordered that the licensee had to repay CPK over a million dollars in unpaid royalties. The licensee moved to vacate the award. Curiously, it made arguments under both the Georgia Arbitration Code and the FAA, and the 11th Circuit considered them all. [Maybe showing that New Hampshire was onto something in declaring the FAA does not preempt state law on vacatur?]
Under the Georgia Code, the licensee argued the arbitrator had manifestly disregarded the law by ignoring the parol evidence rule (and accepting extrinsic evidence regarding the agreement). [Manifest disregard is a statutory basis for vacatur under the Georgia act, unlike the federal act.] The court found there was no concrete evidence that the arbitrator purposely disregarded the law, which is the standard. Instead, the transcript and award showed the arbitrator had understood Georgia law as instructing that the purpose of contract interpretation is to effectuate the parties’ intent, and that’s what he tried to do in reviewing the extrinsic evidence. So, even “assuming the arbitrator incorrectly applied the parol evidence rule,” the court found he “simply made a mistake.” That does not rise to the level of manifest disregard.
Under the FAA, the licensee separately argued that the arbitrator had exceeded his powers. After quoting the standard from Sutter, the court quickly concluded that because the arbitrator did interpret the parties’ contract, it does not matter “whether he got its meaning right or wrong,” the award must be confirmed.