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International Petroleum Products and Additives Company, Inc. v. Black Gold, S.A.R.L.

United States District Court, N.D. California

November 8, 2019

International Petroleum Products and Additives Company, Inc., Petitioner,
Black Gold, S.A.R.L., Respondent.



         Petitioner International Petroleum Products and Additives Company, Inc. (“IPAC”) filed this motion to confirm the arbitral award against respondent Black Gold, S.A.R.L. (“Black Gold”) issued by Mark C. Dosker of the American Arbitration Association (“AAA”). Thereafter, Black Gold filed an opposition and counter-motion requesting that the Court vacate, or in the alternative, modify and/or correct the arbitration award.[1]

         Having carefully considered the papers submitted, and for the reasons set forth more fully below, the Court Grants IPAC's motion and Denies Black Gold's counter-motion.[2]

         I. Background

         The following background is taken from the Petition and the Final Award of the Arbitrator unless otherwise noted.[3]

         IPAC is a petroleum additives developer and manufacturer based in Dublin, California. Black Gold is a Monegasque company that sells and distributes petroleum products and additives. Its sole employees and shareholders are husband and wife, Lorenzo and Sophia Napoleoni.

         A. The Contracts

         The current dispute arises out of three contracts which were intended to govern Black Gold's role as sales representative and distributor for IPAC. The first contract, the “Sales Representative Agreement, ” became effective on January 1, 2016. Pursuant to Section 1 of this agreement, Black Gold became the sales representative for a number of IPAC's existing and prospective customers. Section 5(a) provided a term of three years and an automatic renewal for an additional three years, unless properly terminated earlier. The second contract, the “Exclusive Distributor Agreement, ” also became effective January 1, 2016, and Section XV provided for a one-year term (expiring January 1, 2017) unless properly terminated earlier. Thereunder, Black Gold was designated the exclusive distributor of certain IPAC products for several preexisting IPAC customers. Section VII and Schedule B contemplated that Black Gold would develop additional opportunities to sell IPAC products in the petroleum additives resale market. Both agreements required Black Gold to maintain the confidentiality of IPAC's confidential information[4] and contained arbitration agreements. (Sales Representative Agreement, § 19; Exclusive Distributor Agreement, § XVI(E).)

         On March 1, 2018, the parties terminated the Sales Representative Agreement with a Termination Agreement and Mutual Release. (Dkt. No. 16, Ex. A (“Termination Agreement”).) The Termination Agreement purported to release both parties “from and against any and all actions, claims, suits, payment obligations (except as otherwise expressly set forth in Section 4 []) or other obligations or liabilities of any nature whatsoever, whether known or unknown . . . directly or indirectly arising out of (or in connection with) the [Sales Representative] Agreement[.]” (Id. § 3.) Notably, Section 4 of the Termination Agreement, to which the release provision cited, provided that sections 8, 12, and 13 of the Sales Representative Agreement would “continue in accordance with their original terms beyond termination of the Agreement.” (Id. § 4.)[5] Further, it did not contain a general release under California Civil Code section 1542.

         B. The Arbitration Proceedings

         On May 7, 2018, approximately two months after the parties terminated their relationship, IPAC filed an arbitration demand before AAA, claiming that Black Gold and the Napoleonis breached the Sales Representative and Exclusive Distributor Agreements, their duty of good faith and fair dealing, and their duty of loyalty. IPAC also pursued claims for tortious interference with contractual relations and misappropriation of trade secrets. Specifically, IPAC alleged that during the term of the agreements, Black Gold's CEO, Mr. Napoleoni, formed a competitor company (PXL) with the help of an ex-IPAC employee, using “sensitive and confidential IPAC information.” IPAC alleged that revenues from IPAC customer accounts assigned to Black Gold suffered as a result of Mr. Napoleoni's work for PXL. IPAC further alleged that after termination, Black Gold retained IPAC confidential information and failed to make any effort to transfer to IPAC viable business with respect to Black Gold's distribution customers, all in violation of their agreements. IPAC sought damages, attorneys' fees and costs, and injunctive relief.

         On September 17, 2018, Arbitrator Dosker issued Preliminary Order No. 3, wherein he determined that he had arbitral jurisdiction over IPAC's claims brought under the Sales Representative and Exclusive Distributor Agreements. (Dkt. No. 16, Ex. B (“Prelim. Order”), at 3-6.) Specifically, Arbitrator Dosker determined that “[t]he Termination Agreement did not end the continuing obligations of the Sales Representative Agreement associated with its Sections 8, 12, and 13, ” and thus, he had arbitral jurisdiction over claims arising out of the Sales Representative Agreement. (Id. at 3, 8.) Likewise, Arbitrator Dosker found that certain “pertinent obligations under the Exclusive Distributor Agreement continue[d] after the duration of that agreement.” (Id. at 6.) Arbitrator Dosker found, however, that he lacked arbitral jurisdiction over the claims brought against the Napoleonis and the claim arising under the Termination Agreement. (Id. at 6-7.)

         Thereafter, IPAC and Black Gold participated in a three-day arbitration hearing. On May 29, 2019, following the hearing and briefing by the parties, Arbitrator Dosker issued an arbitration award in favor of IPAC. In his order, Arbitrator Dosker found that Black Gold, through Mr. Napoleoni, breached sections 8 and 12 of the Sales Representative Agreement and sections VIII.B. and XV.C. of the Exclusive Distributor Agreement. Specifically, Arbitrator Dosker made the following factual findings:

         During the term of the parties' agreements, Mr. Napoleoni discussed with then-IPAC employees Steven Plitt and Dr. Jeffrey Crow the formation of a new business to compete with IPAC. Despite Dr. Crow raising concerns that it would be difficult to form such a business without misusing IPAC's confidential information, Messrs. Napoleoni and Plitt proceeded to form PXL, a company that formulated, made, marketed, and sold products that directly competed with IPAC's products. Further, IPAC's expert, whom the arbitrator found to be experienced, independent, and accurate, testified that PXL's products were “so strikingly similar to IPAC's products that they [could] be called knock-off products.” (Final Award at 21.) Messrs. Napoleoni and Plitt formed PXL while in possession of hundreds of documents containing IPAC's confidential information. For example, during the relevant period, Mr. Plitt e-mailed himself a confidential, password-protected Microsoft Excel file detailing the identity, vendor, price, and relative composition for each component in each of IPAC's products.

         In light of the evidence, the arbitrator concluded that Black Gold, through Mr. Napoleoni, caused IPAC's confidential information to be misappropriated and misused to formulate, make, market, and sell PXL products, which in turn, caused a decline in IPAC's sales. (Id.) Black Gold failed to “cooperate with IPAC, to surrender all records to IPAC, and to do whatever [was] reasonably required by IPAC in order to continue a viable business with IPAC customers served by the distributor.” (Id. at 20-21.)

         Accordingly, Arbitrator Dosker ordered Black Gold to pay IPAC $1, 094, 193.58, comprised of $687, 702.56 in damages, $305, 138.65 in fees and costs, and $101, 352.37 in AAA fees and costs. In addition, he enjoined Black Gold from, among other things, using or disclosing IPAC's confidential information.

         II. Legal Standard

         Section 9 of the Federal Arbitration Act (“FAA”) provides that when presented with an application to confirm an arbitration award, the district court “must grant an order unless the award is vacated, modified, or corrected.” 9 U.S.C. § 9. “‘Neither erroneous legal conclusions nor unsubstantiated factual findings justify a federal court review of an arbitral award[.]'” Bosack v. Soward, 586 F.3d 1096, 1102 (9th Cir. 2009) (quoting Kyocera v. Prudential-Bache T Servs., 341 F.3d 987, 994 (9th Cir. 2003) (en banc)). Rather, grounds for vacating an award are limited to those specified by statute. Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 584 (2008) (holding Section 10 provides the FAA's exclusive grounds for vacatur of an arbitration award). Thus, the role of the courts in reviewing arbitration awards is extremely circumscribed. Southern California Gas Co. v. Utl. Workers Union of Am., Local 132, AFL-CIO, 265 F.3d 787, 792 (9th Cir. 2001) (citing Stead Motors v. Auto. Machinists Lodge, 886 F.2d 1200, 1208 n.8 (9th Cir. 1989) (en banc)). The confirmation of an arbitration award is meant to be a summary proceeding. G.C. & K.B. Invs., Inc. v. Wilson, 326 F.3d 1096, 1105 (9th Cir. 2003).

         The FAA authorizes courts to vacate an award when (1) the award was procured by corruption, fraud, or undue means; (2) there was evident partiality or corruption in the arbitrators, or either of them; (3) 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 any other misbehavior by which the rights of any party have been prejudiced; or (4) the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter was not made. 9 U.S.C. § 10(a).

         III. Analysis

         IPAC requests that the Court confirm the arbitration award on the grounds that its motion to confirm was timely filed and none of the exceptions to confirmation are applicable. In addition, IPAC contends that it is entitled to attorneys' fees and costs post-dating the arbitral award. Black Gold counters that the Court should vacate, modify, or amend the arbitration award on the grounds that (a) the award was procured by corruption, fraud, or undue influence, and (b) the arbitrator exceeded his powers.[6] The Court considers each in turn.[7]

         A. Corruption, Fraud, Or Undue Means

         Black Gold argues for vacatur on the grounds the award was procured by corruption, fraud, or undue means.[8] For a claim of fraud, the objecting party must show by clear and convincing evidence that the fraud was not discoverable by due diligence before or during the proceeding, and materially related to the submitted issue. A.G. Edwards & Sons, Inc. v. McCollough, 967 F.2d 1401, 1404 (9th Cir. 1992), cert. denied, 506 U.S. 1050 (1993) (citing Lafarge Conseils Et Etudes, S.A. v. Kaiser Cement & Gypsum Corp., 791 F.2d 1334, 1339 (9th Cir. 1986)). An appearance of impropriety is not sufficient to establish fraud or bias under the FAA. Arizona Elec. Power Co-op. v. Berkeley, 59 F.3d 988, 993 (9th Cir. 1995). Further, to vacate an award on the grounds of “undue means, ” the proponent must show that the ground of “undue means” was not discoverable before the award was made and that it caused the award to be given. Id. at 1404. Courts will vacate an award only where the objecting party has demonstrated that the misconduct actually prejudiced the party's rights. Weiner v. Original Talk Radio Network Inc., No. 10-CV-05785 YGR, 2013 WL 1856568, at *7 (N.D. Cal. May 2, 2013), aff'd, 620 Fed.Appx. 568 (9th Cir. 2015).

         Black Gold asserts three specific objections. While ostensibly proffered under the corruption, fraud, and undue means exception, each is more aptly described as disagreements with evidentiary rulings not sufficient to support vacatur. Thus:

         1. Plitt Email and Attachment

         First, Black Gold contends that the arbitrator improperly admitted and considered as evidence an email and attachment that Mr. Plitt sent to himself, which purportedly was never authenticated or subject to cross-examination by a knowledgeable witness.

         As to authentication, Preliminary Order No. 4, issued by Arbitrator Dosker prior to the merits hearing, provided that “[f]ormal rules of evidence shall not apply in the merits hearing of this arbitration” and “[t]he authenticity of documents shall be presumed unless a specific objection is raised.” (Dkt. No. 31-7, ¶ 20.) When the referenced email was introduced during the hearing, Black Gold's counsel objected, then agreed with the arbitrator that it would address the objection in post-hearing briefing. (Dkt. No. 31-3 at 9.)[9] It is not clear whether Black Gold raised this objection during post-briefing but, in either event, such an evidentiary objection does not support a finding of fraud or undue means.

         With respect to cross-examination, IPAC presents evidence demonstrating that the referenced email and its attachment were introduced during the direct examination of Dr. Crow, one of IPAC's witnesses, who Black Gold's counsel cross-examined. Black Gold's counsel also cross-examined IPAC's CEO, Brian Cereghino, about the document's attachment.[10] Thus, Black ...

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