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ENGIS CORP. v. ENGIS LTD.

September 28, 1992

ENGIS CORPORATION, Petitioner,
v.
ENGIS LTD., Respondent, ENGIS LTD., Counter-Petitioner, v. ENGIS CORPORATION, Counter-Respondent


DUFF


The opinion of the court was delivered by: BRIAN BARNETT DUFF

In 1972, Engis Corporation ("Corp") and Engis Ltd. ("Ltd.") entered into a licensing agreement (the "1972 Agreement"). Pursuant to the 1972 Agreement, Corp. licensed to Ltd. its intellectual property, including its trademarks and trade secrets pertaining to precision surface finishing products (i.e., diamond abrasive compounds) and certain related accessories.

 As a result of Ltd.'s alleged repudiations and breaches of the 1972 Agreement, Corp. gave notice in December 1990 that it was rescinding the 1972 Agreement. Ltd. denied Corp.'s attempted rescission. Accordingly, pursuant to the 1972 Agreement's binding arbitration clause, Corp. filed a demand for arbitration. The parties jointly selected an experienced Chicago intellectual property attorney, Irwin C. Alter, as the arbitrator (the "Arbitrator").

 After an arbitration proceeding that entailed two pre-hearing conferences, six days of testimonial hearings, closing arguments and a post-hearing conference, the Arbitrator issued a final award on September 5, 1991 (the "Award"). Ltd. has not complied with the Award. Accordingly, Corp. petitions the court, pursuant to Section 9 of the Federal Arbitration Act, for an Order upholding the Award and entering judgment thereon.

 Ltd. counter-petitions the court for an Order vacating or modifying the Award. Ltd. asserts that the Award exceeded the Arbitrator's powers in several respects. First, Ltd. argues that the 1972 Agreement prohibited the Arbitrator from mandating that Ltd. change its corporate name. Second, Ltd. argues that the Arbitrator lacked the authority to order Ltd. to assign certain patents (hereinafter, the "Hyplicator Patents") to Corp. Third, Ltd. argues that portions of the Award are barred under English law. Finally, Ltd. argues that the Arbitrator has no power to retain jurisdiction over future disputes concerning the Award.

 DISCUSSION

 It is a well-established principle that judicial review of arbitration awards is extremely limited. United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 36-37 (1987); Chameleon Dental Products, Inc. v. Jackson, 925 F.2d 223, 225 (7th Cir. 1991). When a court is asked to review an arbitration award, its "review is restricted to determining whether the arbitrator actually interpreted the contract." Id. If so, then the arbitrator's interpretation governs, even if the arbitrator's award is based upon a misreading of the contract. Polk Brothers, Inc. v. Chicago Truck Drivers, No. 90-3812, slip op. at 6 (7th Cir. Aug. 28, 1992). Any "reasonable doubt" about whether an arbitration award is based upon a contract interpretation (i.e., does the award "draws its essence" from the contract?) is resolved in favor of enforcing the award. Id.1

 Furthermore, because contracts have both implied and express terms, the authority of an arbitrator to interpret a contract includes the power to "discover" implied terms:

 "'as long as a plausible solution is available within the general framework of the agreement, the arbitrator has the authority to decide what the parties would have agreed on had they foreseen the particular item in dispute . . . . In such cases, judicial review is limited to whether the arbitrator's solution can be rationally derived from some plausible theory of the general framework or intent of the agreement.'"

 Ethyl Corp. v. United Steelworkers of America, etc., 768 F.2d 180, 186 (7th Cir. 1985), quoting Desert Palace, Inc. v. Local Joint Executive Bd., 679 F.2d 789, 793 (9th Cir. 1982). See also, Dreis & Krump Mfg. Co. v. Intern. Asso. of Machinists & Aerospace Workers, Dist. No. 8, 802 F.2d 247, 253 (7th Cir. 1986) ("An arbitrator is not obliged to read a contract literally").

 Despite the extraordinary judicial deference toward arbitral awards described above, Ltd. contends that the Award exceeded the Arbitrator's powers in several respects. Each of Ltd.'s arguments will be addressed in turn.

 1. Usage of the Name "Engis"

 As part of the Award, the Arbitrator ordered Ltd. to delete the word "Engis" from its corporate name after a twelve month phase out period. *fn2" Ltd. contends that this order to change its name (hereinafter, the "Name Change Order") violates the following provision of the 1972 Agreement:

 "Licensor [Corp.] hereby reaffirms the grant to the Licensee [Ltd.] of the right, license and privilege notwithstanding termination or revocation of this Agreement (with the exception of termination due to non-payment of royalties as is hereinafter set forth in Paragraph 9) to use the name "Engis" in its corporate name."

 1972 Agreement at § 1(b)(2).

 Ltd. points out that under a literal interpretation of § 1(b)(2), the only situation by which Ltd. could possibly lose the right to use the name "Engis" is if it failed to pay royalties. Since Ltd. has continued to pay royalties, Ltd. argues that the Name Change Order directly contradicts the 1972 Agreement and, hence, exceeds the Arbitrator's authority.

 While Ltd.'s argument is appealing, it ultimately fails since, wrongly or rightly, the Name Change Order was premised on the Arbitrator's interpretation of the 1972 Agreement. This is reflected in the following dialogue between the ...


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