Opinion
No. 92-2250.
Decided January 15, 1993.
Squire, Sanders Dempsey and Walter J. Rekstis, for plaintiff.
Nathan Roberts and W. David Arnold, for defendants.
This case is before the court on plaintiff Sukomal Roychowdhury's application for an order confirming an arbitration award and on defendants' motion to vacate it.
I
Roychowdhury entered into a license agreement with defendants Clean Scent, Inc. ("CSI") and Milton F. Knight ("Knight") in June 1989. The agreement involved the licensing of a product developed by Roychowdhury known as "CleanSense." CSI was an Ohio corporation established with the intent to commercially develop CleanSense. The license agreement entered into between CSI and Roychowdhury included certain licensing and royalty payments. Knight was the chief executive officer of CSI, and under terms of the license agreement guaranteed certain obligations of CSI to Roychowdhury.
The license agreement also contained an arbitration clause. When Roychowdhury claimed breach of contract, the dispute was arbitrated at a hearing in December 1991. In April 1992, arbitrators awarded plaintiff the following: $150,000 against CSI and Knight for breach of Paragraph 2.1(c)(i) of the license agreement with prejudgment interest against both CSI and Knight and contract interest against CSI; and $50,000 and prejudgment interest against CSI for breach of Paragraph 8.2(b) of the license agreement. The arbitrators awarded defendants CSI and Knight $30,000 prejudgment interest against plaintiff for his own breach of Section 4 of the license agreement.
The defendants now seek to vacate the award because the arbitrators granted damages against Knight for breach of a contract provision not applicable to him and assessed prejudgment interest. Defendants also claim the arbitrators imperfectly executed their powers because they did not address defendants' counterclaim concerning failure of consideration.
R.C. 2711.10 provides for mandatory vacation of an award upon application of any party if:
"(D) 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."
While statutory authority exists for this court to vacate an arbitration award, the court is also cognizant that in Ohio:
"* * * `"[I]t is the policy of the law to favor and encourage arbitration and every reasonable intendment will be indulged to give effect to such proceedings and to favor the regularity and integrity of the arbitrator's acts." * * *' (Citation omitted.)" Findlay City School Dist. Bd. of Edn. v. Findlay Edn. Assn. (1990), 49 Ohio St.3d 129, 131, 551 N.E.2d 186, 189.
Arbitration is favored because it provides the parties with a relatively speedy and inexpensive method of conflict resolution and has the traditional advantage of unburdening crowded court dockets. See Schaefer v. Allstate Ins. Co. (1992), 63 Ohio St.3d 708, 712, 590 N.E.2d 1242, 1245.
For the reasons which follow, the court finds that under R.C. 2711.10(D), the award for prejudgment interest should be vacated but that otherwise the award should be confirmed. Each party's motion is granted in part and denied in part.
II
The first issue before the court is whether the award should be vacated because the arbitrators exceeded their authority by awarding damages against Knight for breach of Paragraph 2.1(c)(i) of the license agreement. This court's scope of authority in reviewing an arbitrator's award is discussed in Findlay, supra, at paragraphs one and two of the syllabus:
"1. Given the presumed validity of an arbitrator's award, a reviewing court's inquiry into whether the arbitrator exceeded his authority, within the meaning of R.C. 2711.10(D), is limited.
"2. Once it is determined that the arbitrator's award draws its essence from the collective bargaining agreement and is not unlawful, arbitrary or capricious, a reviewing court's inquiry for the purposes of vacating an arbitrator's award pursuant to R.C. 2711.10(D) is at an end. (R.C. 2711.10[D], construed and applied.)"
In Ohio Office of Collective Bargaining v. Ohio Civ. Serv. Emp. Assn., Local 11, AFSCME, AFL-CIO (1991), 59 Ohio St.3d 177, 572 N.E.2d 71, at the syllabus, the Ohio Supreme Court specifically determined that:
"An arbitrator's award departs from the essence of a collective bargaining agreement when: (1) the award conflicts with the express terms of the agreement, and/or (2) the award is without rational support or cannot be rationally derived from the terms of the agreement."
Defendants argue that the arbitrators exceeded their authority by awarding damages against Knight because Knight was under no contractual obligation to the plaintiff under Paragraph 2.1(c)(i), which deals with licensing fees. Knight argues that he could not breach the provision of the agreement concerning licensing fees because he owned no duty that could be breached. Amendment 8 of the "Amendment to License Agreement," however, reads as follows:
"8. `Section Twenty-Four — Milton F. Knight Guarantee's shall be amended to read as follows:
"Milton F. Knight of Perrysburg, Ohio unconditionally guarantees to Licensor the prompt payment of the two payments equaling $250,000 as such shall become due Licensor under paragraph 2.1[c.](i) and (ii) hereof. The liability of Milton F. Knight shall not be affected by the bankruptcy or insolvency of Licensee or by any circumstance which might institute a legal or equitable discharge of a surety or guarantor, unless Licensor in writing releases Milton F. Knight from liability. This guarant[y] shall automatically be released should Licensee open a domestic, irrevocable letter of credit in the amount of any sum then due Licensor under the two above referenced paragraphs."
This unconditional guaranty is sufficient to give rational support to the decision of the arbitrators. This language also shows that the arbitration award conforms with the express terms of the license agreement, since the first paragraph of the award finds CSI and Milton Knight jointly and separately liable for breach of Paragraph 2.1(c)(i) of the agreement.
III
On the issue that the arbitrators exceeded their authority in assessing prejudgment interest, defendants argue because the arbitrators made no specific findings concerning prejudgment interest they exceeded their powers, which requires the award to be vacated. Defendants cite Kalain v. Smith (1986), 25 Ohio St.3d 157, 25 OBR 201, 495 N.E.2d 572, and Villella v. Waikem Motors, Inc. (1989), 45 Ohio St.3d 36, 543 N.E.2d 464, which deal with the "good faith effort to settle" standard in R.C. 1343.03(C) relating to tort actions. The statute, however, does not relate to contract disputes. Nevertheless, R.C. 1343.03(A) does provide:
"In cases other than those provided for in sections 1343.01 and 1343.02 of the Revised Code, when money becomes due and payable upon any bond, bill, note, or other instrument of writing, upon any book account, upon any settlement between parties, upon all verbal contracts entered into, and upon all judgments, decrees, and orders of any judicial tribunal for the payment of money arising out of tortious conduct or a contract or other transaction, the creditor is entitled to interest at the rate of ten per cent per annum, and no more, unless a written contract provides a different rate of interest in relation to the money that becomes due and payable, in which case the creditor is entitled to interest at the rate provided in that contract."
Interest thus may be awarded on the arbitration award in accordance with the contract. An award, however, does not become a judgment until it is confirmed by the court of common pleas. See R.C. 2711.09. Any prejudgment interest is an issue for the court of common pleas to determine.
Because the court concludes that the arbitrators' award of "prejudgment" interest, which is beyond interest provided for in the contract, exceeds the scope of their authority, those portions of Paragraphs 1, 2 and 3 of the award dealing with prejudgment interest will be vacated pursuant to R.C. 2711.10(D).
IV
Finally, defendants claim the arbitrators imperfectly executed their powers so that they did not make a final, definite, and mutual award on the subject matter submitted because they failed to consider defendants' theory of failure of consideration on their counterclaim. See Ohio Council 8, AFSCME v. Cent. State Univ. (1984), 16 Ohio App.3d 84, 16 OBR 89, 474 N.E.2d 647.
Nevertheless, defendants were awarded $30,000 on their counterclaim, although they did not receive full rescission of their contract. Merely because full relief was not given does not mean the arbitrators ignored a critical issue. See Huffman v. Valletto (1984), 15 Ohio App.3d 61, 15 OBR 90, 472 N.E.2d 740 (where arbitrators expressly decline to consider a critical issue, court can properly vacate the award under R.C. 2711.10[D]). Furthermore, Paragraph 7 of the award states the following: "This award is in full settlement of all claims and counterclaims submitted to this arbitration." As noted in an appellate decision:
"Where an arbitration award includes the language `[t]his Award is in full settlement of all claims submitted to this Arbitration,' this statement is sufficient indication that all matters submitted to the panel have been ruled on by it." Napoleon Steel Contrs., Inc. v. Monarch Constr. Co. (1982), 3 Ohio App.3d 410, 3 OBR 476, 445 N.E.2d 743, paragraph one of the syllabus.
The court does not find the award should be vacated under R.C. 2711.10(D) for imperfect execution of the arbitrators' powers.
JUDGMENT ENTRY
Plaintiff's motion to confirm the arbitration agreement is granted in part and denied in part.
Defendants' motion to vacate the award is granted in part and denied in part.
It is ORDERED that the arbitrators' award is vacated as to prejudgment interest. It is further ORDERED that the arbitrators' award is confirmed in all other aspects.
This is a final appealable order.
Judgment accordingly.