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Patrizzi & Co Auctioneers Sa and Patrizzi & Co Auctioneers Usa, Inc v. Sdg Corporation and Mgl Americas Inc

October 25, 2011

PATRIZZI & CO AUCTIONEERS SA AND PATRIZZI & CO AUCTIONEERS USA, INC., PETITIONERS,
v.
SDG CORPORATION AND MGL AMERICAS INC., RESPONDENTS.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge:

MEMORANDUM OPINION AND ORDER

SDG Corporation (SDG) demanded arbitration under a software development contract with Patrizzi & Co Auctioneers SA and Patrizzi & Co Auctioneers USA, Inc. (Patrizzi). SDG claimed breach of the contract and unjust enrichment, and it requested an injunction to protect its intellectual property. Patrizzi answered and brought breach of contract and unjust enrichment counterclaims against SDG and a third-party claim for breach of contract against MGL Americas Inc. (MGL) in the arbitration proceeding.

An arbitrator ruled against Patrizzi on its counterclaims and cross-claim, awarded SDG $563,642 in damages, and assessed $287,640.30 in costs and fees against the Patrizzi companies jointly and severally. Patrizzi now moves to vacate the arbitration award under 9 U.S.C. § 10. SDG and MGL move to confirm the award under 9 U.S.C. § 9. For the reasons stated below, the Court denies Patrizzi's motion and grants SDG and MGL's motion.

Background

In 2008, Patrizzi, an auction company specializing in watches, began to create a new business model based upon simultaneous live auctions accessible on the internet. The company needed a software platform to conduct the auctions and entered into discussions with MGL, a technology company. MGL advised Patrizzi that it designed systems similar to what Patrizzi needed. During its discussions with MGL, Patrizzi dealt with representatives of SDG, a technology firm that was in the process of merging with MGL and that had begun to use the MGL brand name in its business dealings. The parties dispute the degree to which Patrizzi was aware that SDG and MGL had not yet merged at the time that discussions of Patrizzi's software needs were ongoing. An officer of Patrizzi executed a nondisclosure agreement with SDG in February 2008, Patrizzi Arb. Ex. 2, but the Master Service Agreement (MSA) that Patrizzi S.A. signed in May 2008 stated that it was an agreement with MGL. Pet. Ex. A.

SDG developed the software Patrizzi requested, but it was not to Patrizzi's satisfaction. Patrizzi contends that the two companies never agreed to many of the specifications for the software and states that the MSA and the only completed work order listed few specifications. Pet. Ex. E. An auction testing the software in November 2008 was unsuccessful. The merger of MGL and SDG was never completed. In January 2009, because SDG was not going to be a part of MGL, it sent Patrizzi for signature a new MSA under SDG's name. Patrizzi instead chose to go elsewhere to obtain auction software.

After a seven day hearing, the arbitrator issued an award finding that the MSA was a valid contract that was not lacking in material terms. He also found that both Patrizzi companies were parties to the contract, even though only Patrizzi S.A. had signed it, and that SDG was a party to the contract even though the contract only listed MGL. The arbitrator determined that Patrizzi had breached its obligations under the contract and that it was responsible for any failures in the auction software because it had frequently changed its requirements and that it was also responsible for any problems during the November 2008 test. He also found that Patrizzi had abandoned the contract with SDG not because of dissatisfaction with the software but because of changing market conditions. The arbitrator granted contractual damages and costs to SDG but denied its request for an injunction. The arbitrator also denied Patrizzi's claims. Pet. Ex. B at 15.

Discussion

"When parties seek judicial review of an arbitrator's award, the role of the courts . . . is extremely limited." United Food & Commercial Workers, Local 1546 v. Illinois-American Water Co., 569 F.3d 750, 754 (7th Cir. 2009). "Factual or legal error, no matter how gross, is insufficient to support overturning an arbitration award." Halim v. Great Gatsby's Auction Gallery, Inc., 516 F.3d 557, 563 (7th Cir. 2008). Courts should "not set aside an arbitral award so long as the arbitrator interpreted the parties' agreement at all." Prostyakov v. Masco Corp., 513 F.3d 716, 723 (7th Cir. 2008).

The sole bases for vacating an arbitration award are contained in 9 U.S.C. § 10(a). Affymax, Inc. v. Ortho-McNeil-Janssen Pharmaceuticals, Inc., _ F.3d _, 2011 WL 4634222, at *2 (7th Cir. 2011). That subsection states:

In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration-

1) where the award was procured by corruption, fraud, or undue means;

2) where there was evident partiality or corruption in the arbitrators, or either of them;

3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior ...


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