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Medicine Shoppe International, Inc. v. Turner Investments

July 21, 2010


Appeal from the United States District Court for the Eastern District of Missouri.

The opinion of the court was delivered by: Smith, Circuit Judge.

Submitted: January 11, 2010

Before SMITH and COLLOTON, Circuit Judges, and KORNMANN,*fn1 District Judge.

Medicine Shoppe International, Inc. ("MSI") filed a claim with the American Arbitration Association against Donnie Turner, president of Turner Investments, Inc., and Turner Investments, Inc. (collectively, "Appellants"), for an alleged violation of a franchise agreement between MSI and Appellants. MSI sought, inter alia, lost future profits and future license fees. The arbitrator granted MSI all its requested damages, and the district court*fn2 confirmed the award. Appellants argue that the district court erred because the arbitrator showed a manifest disregard for the law. We affirm.

I. Background

Appellants entered into a license agreement with MSI on December 27, 1994, which stated that Appellants would operate a MSI franchise for 20 years. The terms of the agreement called for Donnie Turner to be personally liable for all of Appellants' debts and obligations. As part of the consideration for MSI's agreement to provide Appellants access to the MSI marks and goodwill and franchise system support, Appellants agreed to pay MSI license fees for 20 years. The parties also agreed that they would submit any dispute arising from the agreement to binding arbitration.

Appellants closed their franchise in August 2007, which MSI alleges was a breach of the franchise agreement. Appellants claim that prior to closing they sought to sell the franchise to another entity, but MSI delayed approval of the sale. MSI then sought past due license fees, future continuing license fees for the remainder of the 20-year term, and attorneys' fees and costs from Appellants. Pursuant to the terms of the license agreement, MSI filed a claim with the American Arbitration Association. MSI alleged that Appellants violated the franchise agreement by failing to pay franchise license fees when due and unilaterally closing their MSI franchise prior to the completion of the 20-year term of the agreement. Appellants did not dispute their obligation to pay past due license fees, royalties, and other associated fees before the arbitrator; instead Appellants challenged only MSI's claim for future license fee payments.

During the arbitration hearing John Fiacco, MSI's Vice President of Field Services, detailed MSI's attempts to mitigate damages. Steve Schoch, MSI's Vice President of Finance, testified regarding MSI's calculation of lost profits. In response to the arbitrator's specific requests relating to the issue of lost profits, including reference to specific Missouri case law, both MSI and Appellants submitted post-hearing briefs.

On January 30, 2009, the arbitrator entered an award in favor of MSI in the amount of $472,164.42, awarding MSI all requested damages and attorneys' fees and costs. After Appellants failed to satisfy the award, MSI sought a judgment in the district court confirming the award. Appellants opposed the confirmation, alleging that MSI delayed the approval of the franchise's transfer, failed to present sufficient evidence of lost future profits, failed to mitigate its damages, and, for the first time, alleged that arbitration is generally unfair to franchisees.

The district court confirmed the arbitrator's award in its entirety, finding that none of Appellants' arguments presented appropriate grounds for vacatur under 9 U.S.C. § 10.

II. Discussion

Appellants argue that the district court erred in confirming the award because the arbitrator showed a manifest disregard for the law. Specifically, Appellants assert that MSI failed to demonstrate future profits with reasonable certainty as Missouri law requires. Additionally, Appellants raise MSI's failure to mitigate damages as an affirmative defense. Finally, Appellants also contend that an award of future fees to a franchisor hampers the growth of important franchise markets, contrary to public-policy.

In response, MSI points out the great deference we must give to the arbitrator's decision and asserts that Appellants have stated no grounds for vacating the award. MSI argues that after a full and fair hearing on the merits, the arbitrator issued an award that was amply supported by the evidence. In regard to the public policy argument, MSI argues that Appellants may not raise the argument on appeal because they did not make it before the district court.

"When reviewing a district court's order confirming an arbitration award, we review de novo questions of law, but we accept the district court's factual findings unless clearly erroneous." McGrann v. First Albany Corp., 424 F.3d 743, 748 (8th Cir. 2005). Although we review de novo the district court's legal conclusions, we provide "an extraordinary level of deference" to the underlying arbitration award. Schoch v. InfoUSA, Inc., 341 F.3d 785, 788 (8th Cir. 2003) (internal quotations and citation omitted). Courts have no authority to reconsider the merits of an arbitration award, even when the parties allege that the award rests on factual errors or on a misinterpretation of the underlying contract. Id.; see also Inter-City Gas Corp. v. Boise Cascade Corp., 845 F.2d 184, 187 (8th Cir. 1988) (acknowledging that "contract interpretation is left to the arbitrator"). "The bottom line is we will confirm the arbitrator's award even if we are convinced that ...

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