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Tuesday, January 22, 2008

Ind. Decisions - One Indiana decision today from 7th Circuit

In Prostyakov v. Masco Corp. (SD Ind., Judge Barker), an 18-page opinion, Judge Kanne writes:

The district court granted Peter Prostyakov’s petition to confirm his arbitral award against Masco Corporation and, in so doing, denied Masco’s application to vacate the award on the ground that the arbitrator exceeded his authority when fashioning it. See 9 U.S.C. § 10(a)(4). Masco appeals, arguing that the district court erred by confirming the award. Prostyakov, in turn, asserts that Masco’s appeal is frivolous, and asks us to sanction Masco by ordering it to pay for his attorneys’ fees and costs. We affirm the district court’s judgment, but deny Prostyakov’s motion.

I. HISTORY. The origins of this arbitration action can be traced back sixteen years to the dissolution of the Soviet Union. Shortly after the Soviet Empire fell in late 1991, the State of Indiana and the Moscow Oblast province co-founded a trade consortium that coordinated American businesses’ efforts to establish a market presence in the newly capitalistic Russian economy. Masco, a Michigan-based corporation that specializes in building, plumbing, and cabinetry products, joined the consortium in 1992 with the aspiration of developing a sales and distribution network throughout the nascent Russian Federation. One of the men that Masco hired to achieve this goal was Prostyakov, who, all parties agree, played a central role in developing the company’s Russian presence. In December 1995, Masco rewarded Prostyakov for his efforts by appointing him Managing Director and Agent of its Moscow-based office.

For a while Masco and Prostyakov’s business relationship went swimmingly, but then things quickly went south. * * *

II. ANALYSIS. Masco attacks the district court’s confirmation of Prostyakov’s arbitral award on the grounds that the court incorrectly determined that Arbitrator Hittle acted within his powers when fashioning it. * * *

We address Masco’s arguments with some frustration. We repeatedly have stated that we do not—and will not—review arbitral awards for legal or factual error. * * *

It is true, as Masco points out, that review is available under the Federal Arbitration Act when the arbitrator “exceeded [his] 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(a)(4); see also Wise, 450 F.3d at 268-69. But even then our review is extremely limited, see Baravati, 28 F.3d at 706, and we will not set aside an arbitral award so long as the arbitrator interpreted the parties’ agreement at all, see Wise, 450 F.3d at 268-69; Tice v. Am. Airlines, Inc., 373 F.3d 851, 854 (7th Cir. 2004). * * *

The pertinent issue thus becomes whether Hittle exceeded his powers by formulating an award based on an interpretation of the Agreement that was egregiously off-base, see Wise, 450 F.3d at 268-69, or through a blatant disregard of the Agreement’s choice-of-law provisions, see BEM I, 301 F.3d at 554. As we explain below, he did neither. * * *

All that remains for us to address is Prostyakov’s motion for sanctions in the form of attorneys’ fees and costs. As Prostyakov asserts, Masco took this frivolous appeal only “to delay enforcement of the District Court Judgment,” “tax [his] resources,” and “needlessly burden this Court.” See also Fed. R. App. P. 38. We are inclined to agree with those characterizations. Not only are Masco’s arguments legally meritless, but they appear to have been made disingenuously and based on misrepresentations of the record. Masco’s actions during the past ten years of this litigation—embodied by Masco’s general counsel’s petulant behavior, see supra Part I & n.1—further support the imposition of sanctions. In all, Masco has made “a mockery of arbitration’s promise to expedite and cut the costs of resolving disputes,” * * * by prolonging this matter long after it agreed with Prostyakov to settle any disputes through arbitration. We thus are tempted to grant Prostyakov’s motion for sanctions for attorneys’ fees and costs.

Nevertheless, we think it is unnecessary in this case to award attorneys’ fees and costs. Requiring the payment of attorneys’ fees and costs as a sanction serves two purposes: (1) “to protect the court from the burdens of fruitless litigation”; and (2) to prevent “the prevailing party from having to bear the cost of defending against utterly meritless contentions.” * * * Masco—as the breaching party—already has agreed to reimburse Prostyakov for attorneys’ fees and costs stemming from the litigation before both the district court and us. We need not circumvent this contractual arrangement by awarding Prostyakov a windfall of further fees and costs.

We trust that Masco will promptly contact Prostyakov and pay what it owes him. We hope our faith is not misplaced; our opinion on this matter could change drastically if Masco continues to prolong this dispute needlessly.

Posted by Marcia Oddi on January 22, 2008 12:20 PM
Posted to Ind. (7th Cir.) Decisions