United States District Court, N.D. Illinois, Eastern Division
BENESCRIPT SERVICES, INC., a Florida corporation, BENESCRIPT CORPORATION, a Florida Corporation, and DIRECTSCRIPT CARE SERVICES, INC., a Florida corporation, Plaintiffs.
HEALTHTRAN LLC, a Delaware limited liability company, and HT THREE, LLC, a Colorado limited liability company, Defendants.
MEMORANDUM OPINION AND ORDER
SHARON JOHNSON COLEMAN, District Judge.
The parties in this case are two sets of companies engaged in pharmacy-related businesses. In October 2008, the defendant companies, HealthTran LLC and HT Three LLC (collectively, "HealthTran") acquired most of the assets of the plaintiff companies, BeneScript Corporation, BeneScript Services, Inc., and DirectScript Care Services, Inc. (collectively, "BeneScript"). After the acquisition, BeneScript sued HealthTran in federal court, alleging that HealthTran breached the parties' purchase agreement in various ways. The court ordered the parties to arbitrate certain issues and stayed proceedings in the interim. The arbitrator issued an opinion favorable to HealthTran, and BeneScript now moves to vacate the arbitration award, arguing that the arbitrator decided issues outside the scope of his authority. Because the arbitrator decided only those issues that BeneScript itself asked the arbitrator to address, the court denies BeneScript's motion.
The parties executed a purchase agreement under which HealthTran acquired most of BeneScript's assets. Dkt. # 1-1. Section 1.8 of the agreement called for HealthTran to make three installment payments to BeneScript. Id. at 10-15. Under the contract, the amount of these payments depends on certain revenue figures following acquisition.
The contract also contains a provision governing disputes about the amount of the installment payments. This provision directs BeneScript to identify in writing any "alleged errors or inaccuracies and the basis therefor" in HealthTran's calculation of an installment payment. Id. at 12. The contract refers to these issues as "Disputed Matters" and uses that phrase as a term of art. The parties agreed to submit any unresolved disagreements about these issues to a mutually agreed-upon accounting firm. The contract limits the scope of the accounting firm's responsibility "to resolving only the Disputed Matters." Id. at 13. The contract also provides that the accounting firm's determinations are "final and non-appealable." Id.
On December 21, 2011, several years after the acquisition, BeneScript sued HealthTran, alleging that HealthTran breached the parties' purchase agreement in various ways. Dkt. # 1 at 4-6. HealthTran alleged, in part, that BeneScript improperly calculated the revenue figure used to determine the installment payments. On June 4, 2012, the court ordered the parties to arbitrate those issues concerning revenue calculation. The court also stayed the lawsuit pending completion of arbitration.
In June 2013, the parties selected an arbitrator and agreed to the terms of arbitration. Dkt. # 52-2 at 1-6. The parties agreed that the scope of the arbitration would "be defined by [their] submissions" to the arbitrator. Id. at 1. In a section of the agreement titled "final and binding determination, " the parties also agreed "to be bound' by the arbitrator's determination. Id. at 3.
Over the coming months, the parties presented their positions to the arbitrator in several filings. The parties disagreed about the scope of the arbitration. BeneScript, responding to HealthTran's position paper, maintained that "many of the matters argued in HealthTran's submission" fell outside the scope of the arbitrator's authority. Dkt. # 52-5 at 1. BeneScript argued that the arbitrator could not calculate the revenue figure at issue until the court first addressed "certain external factors and legal decisions." Id. at 2. HealthTran, in turn, argued that it addressed only those issued that BeneScript raised in its initial submission. Dkt. # 52-6 at 2-6. It argued that BeneScript's position "would require the arbitrator to perform the impossible task of determining the amount of gross revenue lost as a result of a particular practice or conduct without actually determining whether that practice or conduct actually occurred." Id. at 2.
On May 9, 2014, the arbitrator issued a thorough opinion in favor of HealthTran. Dkt. # 51-3. The arbitrator identified and addressed five separate disputed issues that he believed fell within the scope of the parties' submissions. Id. at 6. The arbitrator ultimately agreed with HealthTran's installment-payment calculation and determined that HealthTran did not need to adjust its calculations. Id. at 22.
1. Legal Standard
The Federal Arbitration Act authorizes federal courts to vacate an arbitration award "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.
The Supreme Court has emphasized, time and time again, that federal courts must apply this provision against the backdrop of a federal policy supporting a presumption in favor of arbitration. Just last year, the Court, in an opinion construing § 10, was unambiguous that "courts may vacate an arbitrator's decision only in very unusual circumstances." Oxford Health Plans LLC v. Sutter, 133 S.Ct. 2064, 2068 (2013) (internal quotation marks omitted). Otherwise, the court explained, "arbitration would become merely a prelude to a more cumbersome and time-consuming judicial review process." Id. (internal quotation marks omitted).
A party seeking to set aside an arbitration award "bears a heavy burden." Id. A court may not set aside an arbitration award for "even a serious error, " so long as the arbitrator was "even arguably construing or applying the contract." Id. In the closely related context of arbitration clauses in labor agreements, the Supreme Court has said that errors that are "improvident, even silly" do "not provide a basis for a reviewing court to refuse to enforce the award." Major League Baseball Players Ass'n v. Garvey, 532 U.S. 504, 509 (2001). An arbitrator acts outside the scope of his authority only when he issues a decision "that simply reflects his own notions of economic justice rather than drawing its essence from the contract." Oxford Health, 133 S.Ct. at ...