Blackboard Inc. v. International Business Machines Corporation

Background

Blackboard and IBM entered a Master Professional Services Agreement under which IBM operated Blackboard’s existing data centers, migrated Blackboard’s products to a cloud environment, and managed that environment. Amazon Web Services provided the cloud platform. Later amendments changed the parties’ pricing arrangements and included a Reasonable Equivalency Clause, which addressed credits and additional charges when Blackboard’s systems were migrated to reasonably equivalent cloud configurations.

Blackboard withheld $26,650,148.37 in payments, treating the amount as reasonable-equivalency credits. The parties later ended the agreement and agreed to arbitrate their remaining disputes. Blackboard sought approximately $41 million in arbitration, including the withheld amount. IBM counterclaimed for the same $26,650,148. The three-arbitrator panel issued a unanimous award on May 27, 2021, denying Blackboard’s claims and granting IBM’s counterclaims. The panel awarded IBM $26,650,148 on Counterclaim I and $3,143,101 on Counterclaim II, plus interest, subject to a $41 million damages cap. Blackboard did not challenge the $3,143,101 awarded on Counterclaim II.

Blackboard’s Petition

Blackboard asked the court to vacate, or set aside, the award of $26,650,148 because the panel allegedly acted with disregard for the law by failing to consider evidence of the parties’ conduct after signing the agreement. Alternatively, Blackboard sought a $1,782,285 reduction based on an alleged damages-calculation mistake. Blackboard also asked the court to confirm that interest would run only from the date of the arbitration award, not from earlier dates.

IBM opposed the petition and requested attorneys’ fees and costs for defending it.

Vacatur of the Award

The court applied the Federal Arbitration Act, which permits an award to be vacated in limited circumstances, including fraud, arbitrator partiality or corruption, serious procedural misconduct, or an arbitrator’s exceeding the authority granted by the parties. The court emphasized that judicial review of an arbitration award is highly limited and that a court may not overturn an award merely because it would have decided the dispute differently.

The court rejected Blackboard’s argument that the panel disregarded New York contract law. The panel had relied on the agreement’s plain language in finding that the Reasonable Equivalency Clause did not cover the AWS fees Blackboard withheld. The panel also gave an alternative explanation: even if the clause applied to those fees, the cloud and legacy environments were not reasonably equivalent under the agreement’s technology, capacity, and performance test. The court concluded that the panel had more than a minimally plausible basis for its decision and denied the motion to vacate the award.

Modification of Damages

The court also denied Blackboard’s request to reduce the damages award by $1,782,285. Under the Federal Arbitration Act, modification for an evident material miscalculation is generally limited to an obvious mathematical or clerical mistake apparent on the face of the award. Blackboard instead argued that the evidence did not support the amount awarded. The court held that this was not the type of mistake that permits modification and also concluded that Blackboard had waived the argument by not timely raising it in the arbitration.

Interest

The court granted Blackboard’s request to confirm that prejudgment interest would be calculated from the date of the arbitration award. Although the award referred to pre- and post-judgment interest under New York law, the court found that it did not award interest for any period before May 27, 2021. The judgment therefore included prejudgment interest from May 27, 2021, through the date of judgment on the petition, followed by post-judgment interest.

Attorneys’ Fees and Final Disposition

The court denied IBM’s request for attorneys’ fees and costs. Because no applicable statute authorized such an award, fees could be awarded only under the court’s equitable power when the opposing party acted in bad faith. The court found no bad faith and characterized Blackboard’s challenge as arguable, although incorrect.

The conclusion states that the petition to vacate or modify in part the award was denied and that the request to confirm the award in part was granted. The court confirmed the award in IBM’s favor, entered judgment for $26,650,148 on Counterclaim I and $3,143,101 on Counterclaim II, awarded the specified interest, denied IBM’s motion for attorneys’ fees and costs, and directed the Clerk to close the case.