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Nilssen v. Magnetek

April 16, 2008

OLE K. NILSSEN AND GEO FOUNDATION LTD., PLAINTIFFS,
v.
MAGNETEK, INC., DEFENDANT.



The opinion of the court was delivered by: Samuel Der-yeghiayan, District Judge

MEMORANDUM OPINION

This matter is before the court on Petitioner Ole K. Nilssen's ("Nilssen") and Petitioner GEO Foundation, LTD.'s ("GEO") (collectively referred to as "Petitioners") petition for confirmation of an arbitration award. This matter is also before the court on Respondent MagneTek, Inc.'s ("MagneTek") petition to vacate an arbitration award. For the reasons stated below, we grant the petition to confirm the arbitration award and deny the petition to vacate the arbitration award.

BACKGROUND

On April 13, 1998, Nilssen allegedly filed a patent infringement action against MagneTek ("Infringement Action") in which Nilssen accused MagneTek of infringing Nilssen's patents including patent number 5,432,409 ("'409 Patent"). The Infringement Action was allegedly dismissed pursuant to settlement by Nilssen and as part of the settlement agreement ("Settlement Agreement") the parties agreed to arbitrate the dispute. After the dismissal of the Infringement Action, the parties engaged in arbitration proceedings ("Arbitration Proceedings") and the arbitrator ("Arbitrator") awarded Nilssen $23,352,439.63 ("Arbitration Award"). Prior to the entry of the Arbitration Award, MagneTek had allegedly already paid GEO $1,375,000. Petitioners contend that MagneTek refuses to pay the remaining amount owed under the Arbitration Award. Petitioners brought the instant action and filed a petition pursuant to 9 U.S.C. § 9 for "an order confirming the award. . . ." 9 U.S.C. § 9. MagneTek subsequently filed a petition to vacate the Arbitration Award. This case was reassigned to the undersigned judge on March 6, 2008.

LEGAL STANDARD

Pursuant to 9 U.S.C. § 9, "[i]f the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration, and shall specify the court, then at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified, or corrected. . . ." 9 U.S.C. § 9. The bases for "overturning an arbitration award are extremely limited." Halim v. Great Gatsby's Auction Gallery, Inc., 516 F.3d 557, 563 (7th Cir. 2008). A court may vacate an arbitrator's award based upon an arbitrator's "'manifest disregard of the law,'" which has been held to cover "only two scenarios: (1) an order requiring the parties to violate the law; or (2) an order that does not adhere to the legal principles specified by the contract." Id. (quoting in part George Watts & Son, Inc. v. Tiffany and Co., 248 F.3d 577, 581 (7th Cir. 2001)). Factual errors or legal errors by the arbitrator "no matter how gross, [are] insufficient to support overturning an arbitration award." Id.

DISCUSSION

I. Jurisdiction to Confirm Arbitration Award

MagneTek argues that this court does not have subject matter jurisdiction to confirm the Arbitration Award. MagneTek points to certain non-controlling precedent, contending that certain federal district courts in other circuits have refused to confirm an arbitration award if the arbitration agreement in question did not have an explicit provision providing for court confirmation. (Mem. Pet. Vac. 13). The Seventh Circuit, however, has held that a court has jurisdiction to confirm an arbitration award if it can be inferred from the agreement in question that the parties contemplated court confirmation. See Milwaukee Typographical Union No. 23 v. Newspapers, Inc., 639 F.2d 386, 390 (7th Cir. 1981)(indicating that parties can "implicitly agree[] that federal court intervention may be sought to compel compliance"). In the instant action, the agreed submission by the parties to the American Arbitration Association ("Submission Agreement") stated the following: "We agree that, if arbitration is selected, we will abide by and perform any award rendered hereunder and that a judgment may be entered on the award." (Ans. Pet. Vac. Ex. C). The reference in the Submission Agreement to a judgment that can be entered on the award, clearly indicates that the parties contemplated a court confirmation of an arbitration award. In addition, Petitioners point out that the parties agreed to have the arbitration conducted under the Commercial Arbitration Rules of the American Arbitration Association ("AAA"), which contemplates court confirmation. (Ans. Pet. Vac. Ex. C). The Seventh Circuit has held that such an agreement to proceed under the AAA rules is sufficient to confer jurisdiction on the federal courts to confirm an arbitration award. Commonwealth Edison Co. v. Gulf Oil Corp., 541 F.2d 1263, 1273 (7th Cir. 1976).

Although the Settlement Agreement did not specifically indicate that the parties contemplate a court confirmation of an arbitration award, the Submission Agreement is a clear indication by the parties that they contemplated such an arrangement. See Daihatsu Motor Co., Ltd. v. Terrain Vehicles, Inc., 13 F.3d 196, 201-03 (7th Cir. 1993)(considering extrinsic evidence of parties intent to consent to court confirmation). MagneTek also agues that the absence of consent to confirmation language in the Settlement Agreement is important since it never agreed that the arbitration award would be final. (Ans. Pet. Conf. 3). However, as Petitioners correctly point out, after the Arbitration Proceedings, MagneTek issued a press release ("Press Release"), which MagneTek also filed with the Securities and Exchange Commission. The Press Release specifically stated that "both parties agreed to submit limited issues in dispute to final and binding arbitration." (Reply Pet. Conf. Ex. K, L). MagneTek also stated in the Press Release in regard to the Arbitration Award that, "[w]hile it was unexpected, the decision is final, binding and not subject to appeal or explanation by the arbitrator." (Mem. Pet. Conf. Ex. K, L). Therefore, we conclude that we have jurisdiction in this action to confirm the Arbitration Award.

II. Newly Discovered Evidence

MagneTek argues that this court cannot confirm the Arbitration Award because the award was obtained by fraud Nilssen allegedly perpetrated in the arbitration proceedings and MagneTek has recently uncovered evidence of the fraud. MagneTek claims that it entered into the Settlement Agreement that provided for arbitration, but that it did so without realizing that Nilssen had allegedly concealed facts from the United States Patent and Trademark Office concerning "prior electronic ballast art." (Mem. Pet. Vac. 2). MagneTek claims that had it known of these concealed facts, it would not have entered into the Settlement Agreement. According to MagneTek, it has now learned that "Nilssen has engaged in a consistent pattern of fraudulent non-disclosure in dealing with the Patent and Trademark Office and has been repeatedly admonished for his conduct." (Mem. Pet. Vac. 5). MagneTek argues that this court should not enforce the Arbitration Award and should vacate the award since it was procured by fraud. A court can vacate an arbitration award if the award was "'procured by corruption, fraud, or undue means,'" if it is shown that "the corruption, fraud, or undue means was (1) not discoverable upon the exercise of due diligence prior to the arbitration; (2) materially related to an issue in the arbitration; and (3) established by clear and convincing evidence." Gingiss Intern., Inc. v. Bormet, 58 F.3d 328, 333 (7th Cir. 1995)(quoting in part 9 U.S.C. § 10(a)(1)).

MagneTek contends that "at the time of the arbitration MagneTek was not aware of other significant non-disclosed prior art, which was known to Nilssen and which was material to the claims of the [']409 Patent." (Mem. Pet. Vac. 4). MagneTek further contends that "[t]he newly discovered prior art includes three Japanese patents for materially similar electronic ballast devices." (Mem. Pet. Vac. 4). MagneTek also contends that the alleged newly discovered evidence of fraud related to "two actions by the P[atent and Trademark Office] rejecting numerous claims by Nilssen on patent applications 07281,275 and 107,795." (Mem. Pet. Vac. 5). In support of its contentions, MagneTek presented the court with the declaration of Mark J. Patterson ("Patterson"). Patterson indicates in his ...


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