G&K Services LUG, LLC v. Talent Creation, Ltd., No. 3:16-cv-180 (S.D. Ohio Feb. 23, 2017) [click for opinion]
G&K Services LUG, LLC ("LUG") brought this action in the U.S. District Court for the Southern District of Ohio to vacate or modify an arbitration award that had been issued in favor of its former business partner, Chinese company Talent Creation, Ltd. ("TC"). TC moved to have the arbitration award confirmed.
The arbitration award at issue arose from a contract dispute regarding alleged breaches of a contract entered into by the parties whereby LUG would resell apparel in the United States that TC had manufactured in China (the "Agreement"). LUG sought to vacate the award under the provision of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., that allows for an award to be challenged "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." 9 U.S.C. § 10(a)(4). In particular, LUG argued that, because TC's notice of arbitration did not allege a violation of Article 14(a) of the Agreement or seek to recover liquidated damages relating to the same, the arbitrator exceeded the scope of her powers by awarding damages on that claim.
The court concluded that, because the parties had agreed in their arbitration agreement that any dispute arising out of the Agreement would be subject to arbitration, the Article 14(a) dispute fell squarely within that subject matter, and, accordingly, the arbitrator acted within her powers by considering the claim even though it was not included in the notice of arbitration. The court further stated that deference to an arbitrator's decision is particularly appropriate where the decision relates to procedural matters and suggested that the arbitrator's determination of how and when the parties could raise particular claims was such a procedural matter.
LUG further argued that the arbitrator had exceeded her authority by failing to provide an explanation for why she ignored LUG's laches defense and that her refusal to apply the doctrine to dismiss TC's claims amounted to manifest disregard of Ohio law. The court declined to resolve the question as to whether an arbitrator refusing to heed a clearly defined legal principle amounted to manifest disregard because, as a preliminary matter, the court concluded that by issuing an award in favor of TC, the arbitrator had implicitly rejected the laches defense. The court added that an arbitrator need not explain her resolution of every question of law and that failure to do so was not ground for vacatur or modification. The court went on to hold that LUG had failed to meet its threshold burden under Ohio law of showing that the arbitrator's decision regarding laches was "unreasonable, arbitrary or unconscionable," given that there was at least some evidence that TC's delay in filing was excusable.
Finally, LUG argued that the arbitrator had manifestly disregarded Ohio law by rejecting LUG's statute of limitations defense. The court reasoned that, because Ohio law regarding statute of limitations in the arbitration context was largely unsettled, the arbitrator's decision to reject that defense could not possibly have violated clearly established precedent, and for this reason alone, the court could hold that LUG's argument failed. However, the court added that, even if the statute of limitations were to apply, it was far from clear that the arbitrator had failed to apply the statute properly under the facts. Rather, given the strong pro-enforcement biases of the FAA, the arbitrator had plausibly interpreted the facts and LUG failed to meet its burden.
Accordingly, the court sustained TC's motion to confirm the award and overruled LUG's petition to vacate.