Smarter Tools Inc. v. Chongqing Senci Import & Export Trade Co., Ltd.

Background

Smarter Tools Inc. (STI) purchased thousands of gas-powered AP20001 generators from Chongqing Senci Import & Export Trade Co., Ltd. (SENCI) between 2011 and 2013 for resale in California and elsewhere in the United States. STI later stopped selling the generators in California because they did not comply with standards set by the California Air Resources Board. SENCI began arbitration to recover the unpaid balance for the generators. The parties stipulated that the balance, after adjustments, was $2,402,680.43. STI asserted counterclaims alleging that SENCI had promised to deliver generators complying with standards of the Environmental Protection Agency and the California Air Resources Board.

The arbitrator initially awarded SENCI $2,402,680.43. In a prior related proceeding, the court found that the parties’ arbitration agreement required a reasoned award, meaning an award explaining the arbitrator’s basic reasoning on the central issues. The court therefore remanded the matter to the arbitrator for a reasoned award, while finding no basis at that time to conclude that the arbitrator had exceeded his authority or manifestly disregarded the law.

The arbitrator then issued a final amended award granting substantially the same relief. SENCI petitioned to confirm the amended award, and STI cross-petitioned to vacate it.

Reasoned Award

The court held that the amended award satisfied the requirement for a reasoned award. It explained that the purchase orders, which STI had prepared, did not state that the generators had to meet Environmental Protection Agency or California Air Resources Board standards. The arbitrator also found that STI had not presented sufficient evidence showing that California compliance was part of the agreement and that evidence of additional contract terms was not credible.

The court stated that a reasoned award need not address every argument or provide a detailed explanation of every part of the decision. The amended award set out the arbitrator’s basic reasoning about STI’s counterclaims, which was enough under the applicable standard.

Manifest Disregard of the Law

STI argued that the arbitrator had manifestly disregarded the law by failing to properly apply provisions of the United Nations Convention on Contracts for the International Sale of Goods concerning oral contracts and specifications based on a model or exemplar. The court rejected that argument. It explained that manifest disregard is an exceptionally high standard requiring proof that the arbitrator knew of a clearly applicable, well-defined legal rule and deliberately refused to apply it.

The court concluded that STI’s argument sought to relitigate how the arbitrator applied the law to disputed facts. The arbitrator was permitted to find that STI’s evidence of an oral agreement was not credible or did not establish that SENCI had agreed to product specifications absent from the purchase orders. The Federal Arbitration Act did not permit the court to reweigh the evidence from the seven-day arbitration hearing. Because the award had at least a barely colorable justification, the court held that it had to be enforced.

Authority to Issue the Amended Award

STI also argued that the arbitrator exceeded his authority by issuing an amended award after the court’s remand and by communicating with the American Arbitration Association–International Center for Dispute Resolution about the award’s form.

The court rejected both arguments. It read the cited precedent as recognizing that an arbitrator may clarify an award after a district-court remand. The court also found that STI had not produced evidence that anyone other than the arbitrator contributed to the substance of the amended award. Based on STI’s limited evidence, the court found no improper exercise of authority.

Disposition

The court granted SENCI’s petition to confirm the arbitration award and denied STI’s cross-petition to vacate the award. It denied all other motions as moot, directed the clerk to enter judgment, and closed the case.