Summers Laboratories, Inc. v. Shionogi Inc.

Background

Summers Laboratories, Inc. petitioned under the Federal Arbitration Act for confirmation of a unanimous arbitration award issued in a dispute with Shionogi Inc. The award arose from transaction documents under which Summers sold intellectual property and related rights for the Ulesfia head-lice treatment. Shionogi was the successor to the companies that had been the buyer and guarantor in those documents.

The asset-purchase agreement required certain minimum payments if specified conditions were met, while allowing the buyer not to make those payments in certain circumstances, including a qualifying “market change.” The arbitration panel determined that no market change had occurred and that minimum payments were owed under the asset-purchase agreement. The panel addressed attorney’s fees separately.

The asset-purchase agreement stated that each party would bear its own counsel and expert expenses. The separate guaranty required the guarantor to reimburse reasonable costs and expenses, including attorney’s fees, incurred to enforce, protect, preserve, or defend the guaranteed rights. Summers’s arbitration demand requested attorney’s fees and costs and included the transaction documents, including the guaranty.

The panel issued a second interim award determining that Summers had adequately presented its claim for fees under the guaranty. It concluded that the attorney’s-fee provision in the asset-purchase agreement did not apply to the guarantor and that Shionogi’s later corporate restructuring did not invalidate the guaranty. On March 1, 2019, the panel awarded Summers $1,659,883 in attorney’s fees and $390,103.90 in costs. Shionogi had paid the amounts due under the asset-purchase agreement but had not paid the attorney’s-fee and cost award.

Shionogi’s Arguments

Shionogi moved under Federal Arbitration Act Section 10(a)(4), which permits vacatur when arbitrators exceed their powers or fail to make a final and definite award. Shionogi argued that the guaranty claim was not included in Summers’s arbitration demand, that the asset-purchase agreement barred an award of attorney’s fees, and that New York law prevented a principal from guaranteeing its own debts after Shionogi became both the principal obligor and guarantor.

Court’s Analysis

The court emphasized that judicial review of arbitration awards is narrowly limited and that courts must give arbitrators great deference. An award must be enforced if there is at least a barely colorable justification for the arbitrators’ decision.

The court rejected Shionogi’s argument that the panel improperly considered the guaranty. Whether the guaranty had been properly submitted was a procedural question for the panel. The record also provided a colorable basis for the panel’s conclusion because Summers’s demand requested attorney’s fees and costs, attached the guaranty, and later identified the guaranty as the basis for its request. The court agreed that Shionogi had adequate notice.

The court also rejected the argument that the asset-purchase agreement limited the guaranty. The panel had interpreted the agreement’s reference to “parties” as covering Summers and the buyer under the asset-purchase agreement, not the separate guarantor. The court held that the panel was authorized to interpret the agreements and that the guaranty created additional, cumulative remedies.

The court further held that Shionogi’s corporate restructuring did not make the guaranty legally invalid. The panel had considered Shionogi’s argument and determined that the authorities Shionogi cited did not address a later acquisition or restructuring that caused the principal obligor and guarantor to become the same entity. The court also held that Shionogi had waived its argument that the guaranty’s continued existence was a gateway arbitrability question because Shionogi had not raised that argument during the arbitration.

Interest and Disposition

Because the guaranty did not specify an interest rate for the attorney’s-fee and cost award, the court applied a 9% annual rate. It awarded interest from the panel’s decision on March 1, 2019, through the date of the judgment.

The petition to confirm the arbitration award was GRANTED. Shionogi’s motion to partially vacate the award was DENIED. The Clerk was directed to enter judgment for Summers in the stated amounts, plus 9% annual prejudgment interest, and to close the case.