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Clos La Chance Wines, Inc. v. AV Brands, Inc.

United States District Court, N.D. California, San Jose Division

June 23, 2017

AV BRANDS, INC., Respondent.


          EDWARD J. DAVILA, United States District Judge

         This case presents only one question: whether the court should confirm or vacate a Final Arbitration Award pursuant to standards promulgated by the Federal Arbitration Act (“FAA”). Petitioner Clos La Chance Wines, Inc. (“Petitioner”) believes the court should confirm an award issued in its favor, and applies for an order and judgment consistent with that position. Dkt. No. 11. Respondent AV Brands, Inc. (“Respondent”) disagrees and puts forward several reasons for which it believes the award should be vacated.

         Federal jurisdiction arises pursuant to 28 U.S.C. § 1332. Having carefully reviewed the relevant pleadings, it is apparent that Respondent's challenges to the Final Arbitration Award are unmeritorious. Because the court will reject them all, Petitioner's application will be granted for the reasons explained below.

         I. BACKGROUND

         A. The Parties' and the Contract

         Petitioner is a “[s]upplier engaged in the production of wine for worldwide distribution, including the United States.” Respondent is a “licensed importer and wholesaler of alcoholic beverages for the United States.” Effective February 8, 2012, Petitioner and Respondent entered into a “U.S. Distribution and Brand Agency Agreement” (the “Agreement”) through which Petitioner appointed Respondent its exclusive brand agent and distributor of its wine products for the United States and Puerto Rico. The appointment was for a five-year period, “unless earlier terminated” Certain obligations were imposed on Respondent by the Agreement's terms. In relevant part, Respondent was required to use “commercially reasonable efforts to develop, promote and sell” Petitioner's products, and was required to use “commercially reasonable efforts to maintain the size of its current sales force.” In addition, Respondent was subject to yearly “goals” dictating the number of wine cases it was required to purchase. For 2012, Respondent's goal was 40, 000 cases; for 2013, the goal was 50, 000 cases; for 2014, 60, 000 cases; for 2015, 70, 000 cases; and for 2016, 75, 000 cases.

         For the first contract year of 2012, the parties agreed that Respondent need only use “best efforts” to achieve the purchase goal and that a failure to achieve the goal for that year would not amount to a breach of the Agreement. However, commencing with 2013, Petitioner could terminate the Agreement if Respondent failed to achieve at least 85% of the goals for two consecutive years.

         The Agreement specified it should be interpreted, construed and enforced according to California law. It also contained a dispute resolution provision: the parties agreed that “any and all disputes arising under this Agreement shall be first submitted to formal mediation before JAMS in San Jose, California.” Any disputes persisting past mediation “shall be submitted to binding arbitration before JAMS in San Jose, California.”

         B. The Arbitration

         Petitioner filed a demand for arbitration on June 3, 2015, alleging that Respondent breached the Agreement by failing to comply with the yearly purchase “goals, ” and by failing to use “best efforts” and “commercially reasonable efforts” in staffing Petitioner's account and selling its products. Respondent filed a response and counterclaim on June 25, 2015, denying Petitioner's allegations and seeking damages incurred as a result of Petitioner's alleged breaches of the Agreement.

         An arbitration occurred before Retired Judge William J. Cahill at the JAMS office in San Jose over three days in March, 2016. In a Final Arbitration Award dated June 22, 2016, Judge Cahill found: (1) the “goals” outlined in the Agreement were mandatory; (2) Petitioner retained all rights to recover damages for breach of the Agreement, (3) Petitioner is entitled to damages against Respondent totaling $1, 739, 681, which amount includes $200, 000 to compensate Petitioner for future time and costs associated with recapturing its market position; (4) the Agreement terminated as of January 1, 2016, thereby cutting off any further damages; (5) Petitioner is entitled to a costs award totaling $41, 285.86, and (6) Petitioner was not entitled to prejudgment interest.

         Petitioner sought confirmation of the Final Arbitration Award in Santa Clara County Superior Court, which action Respondent removed to this court. This motion followed the removal.


         Generally, the scope of a federal court's review of a final arbitration award under the FAA is “extremely limited.” G.C. & K.B. Invs., Inc. v. Wilson, 326 F.3d 1096, 1105 (9th Cir. 2003). The court must confirm and enter judgment on an award “unless the award is vacated, modified, or corrected” according to other sections of the FAA, specifically 9 U.S.C. §§ 10 or 11. 9 U.S.C. § 9.

         When considering a contested issue of confirmation, the district court must afford great deference to the arbitrator's decision. See Sheet Metal Workers' Int'l Ass'n v. Madison Indus., Inc., 84 F.3d 1186, 1190 (9th Cir.1996); see also Pack Concrete, Inc. v. Cunningham, 866 F.2d 283, 285 (9th Cir. 1989). The court must also remain mindful that “arbitration is a consensual agreement of the parties to substitute a final and binding judgment of an impartial entity for the judgment of the court.” Coast Trading Co. v. Pac. Molasses Co., 681 F.2d 1195, 1197 (9th Cir. 1982). As a consequence, the FAA provides only limited grounds on which an award can be disturbed:

(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by ...

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