$ 1,710,542. This adjusted award reflects the principal amount of Note A ($ 1,250,000) plus the interest on that note ($ 460,542).
The second award of $ 8,384,316 represents Kowin's share of future lost profits of the Chinese joint venture over twenty years ($ 8,384,066), plus Kowin's capital contribution to Kowin-Simonds ($ 250). (Household appdx. at 53). Household argues that the lost profits portion of the second damage award "should be vacated or modified because the arbitrator exceeded his authority and manifestly disregarded long established, fundamental legal principles regarding the award of future lost profits." (Household brf. at 19-20). We disagree.
First, Kostner did not exceed his powers or fail to make a "mutual, final and definite award upon the subject matter submitted." 9 U.S.C. § 10(d). To the best of our knowledge the arbitration agreement does not preclude the awarding of lost profits, and the subject matter of the case, the failed joint venture, clearly gave rise to the issue of lost profits.
Second, Household maintains that the arbitrator manifestly disregarded fundamental legal principles regarding future lost profits. While Household makes several arguments as to why Kowin should not recover lost profit damages, Kowin puts forth arguments as to why it should be entitled to lost profits. The issue, however, is not whether Kowin was or was not entitled to lost profits, but whether the arbitrator, in granting the award, deliberately disregarded the law.
We do not believe he did.
Deliberate disregard of the law means the arbitrator willfully ignored existing law when reaching his decision. Perhaps a court could infer deliberate disregard for the law when the law could not support the arbitrator's decision. The arbitrator in this case did not set forth his reasons for awarding lost profits to Kowin, and it is not our job to speculate as to his reasoning or as to what law he relied upon. What we must consider is whether the facts, as we know them, are such that Kostner could have concluded that an award of lost profits was supported by law -- whether or not we agree with his interpretation or application of the law. Health Services, 975 F.2d at 1267 (stating that to vacate the award there must be more than mere error in law or failure of the arbitrator to understand or apply the law); Moseley, 849 F.2d at 272 (noting that an award can be set aside only if injustice results and not because of an error on the part of the arbitrator in his interpretation of the law). And some courts have awarded lost profits to plaintiffs in what could be considered similar types of circumstances. For instance, although lost profits generally are not awarded in cases involving startup companies, some courts have awarded lost profits after finding that companies that appeared to be new businesses in fact were existing businesses that merely had taken new forms.
See e.g., Hallmark Insurance Administrators, Inc. v. Colonial Penn Life Insurance Co., 697 F. Supp. 319, 327 (N.D.Ill. 1988); S. Jon Kreedman & Co. v. Meyers Brothers Parking - Western Corp., 58 Cal. App. 3d 173, 130 Cal.Rptr. 41, 49 (Cal.App. 1976); Maggio, Inc. v. United Farm Workers of America, AFL-CIO, 278 Cal.Rptr. 250, 264 (Cal.App. 1991). We note that the profits figure is related to Household's own projections. Therefore, we cannot conclude that Kostner acted with deliberate disregard of fundamental legal principles when he awarded future lost profits.
The second award stands.
The third award of $ 3,500,000 represents restitution from Household on a theory of unjust enrichment. (Kowin post-hearing brf. at 62). The $ 3,500,000 which Household received for the equipment consisted of the $ 2,500,000 Kowin-Simonds loan and the $ 1,000,000 payment from the Bank of China.
The Kowin-Simonds loan was considered in the first award, and it was a miscalculation for the arbitrator to award Kowin the same damage award twice.
The third damage award therefore must be modified by deducting the $ 2,500,000 loan amount.
Our review of the arbitrator's award can go no further. Although Household makes several arguments for other reductions,
those items are not within the scope of our review. It is not our place to reevaluate every item Household thought should or should not have been included in the damages awarded. That was job of the arbitrator. Our task is to examine the award on its face to determine whether or not grounds exist to vacate or modify it.
We conclude that the first award should be modified and reduced to $ 1,710,542 and the third award to $ 1,000,000.
JAMES B. MORAN,
Chief Judge, U.S. District Court
March 1, 1993.