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Osco Motors Company, LLC v. Quality Mark, Inc.

United States District Court, D. Minnesota

August 21, 2014

OSCO MOTORS COMPANY, LLC, d/b/a OSCO MOTORS CORPORATION, and ENGINE DISTRIBUTORS, INC., Petitioners,
v.
QUALITY MARK, INC., Respondent.

Alan L. Frank, Alan L. Frank Law Associates PC, and Amanda K. Schlitz and Elizabeth C. Kramer, Stinson Leonard Street LLP, Counsel for Petitioner.

Stephen W. Hance, Hance Law Firm, Ltd., Counsel for Respondent.

MEMORANDUM OF LAW & ORDER

MICHAEL J. DAVIS, Chief District Judge.

I. INTRODUCTION

This matter is before the Court on Petitioner Engine Distributors, Inc. and Osco Motors Company, LLC d/b/a Osco Motors Corporation's Motion to Vacate Arbitration Award [Docket No. 2]; and Respondent Quality Mark, Inc.'s ("Quality Mark") Motion to Confirm Arbitration Award and for Interest and Costs [Docket No. 26]. After a thorough review of the record and consideration of the parties' arguments, the Court concludes that there is no valid reason to vacate the arbitration award under the Federal Arbitration Act. Therefore, the Court confirms the arbitration award.

II. BACKGROUND

A. Factual Background

i. The Relationship of the Parties

Quality Mark entered into a contract with Engine Distributors, Inc. and "Osco Motors Corporation, a Pennsylvania Corporation, " (collectively, "EDI"), effective January 1, 2011, entitled "Manufacturing Agreement." (Hance Aff., Docket No. 19, Ex. A, "Manufacturing Agreement.") Osco Motors Corporation was not actually a registered corporation; the correct name of the company is "Osco Motors Company, " and it is a Limited Liability Company. (Hance Aff., Exs. C, H.)

In the Manufacturing Agreement, Quality Mark agreed to fabricate "tooling" and to manufacture marine engine manifolds, exclusively for EDI. (Manufacturing Agreement, at 1, ¶ 3.2.) "Tooling" is a machine used to bend metal. An "engine manifold" is the part of an engine that connects different pipes for moving fuel and air into the engine or for carrying gas away from the engine.

The Manufacturing Agreement contained an arbitration clause, which required dispute resolution through the American Arbitration Association's Commercial Arbitration Tribunal. (Manufacturing Agreement § 10.11 ("[A]ny unresolved controversy or claim arising out of or relating to this Agreement... shall be resolved by arbitration administered by the American Arbitration Association in accordance with its Commercial Arbitration Rules....").) This clause also stated that "[a]ny judgement rendered by the arbitrator shall be final and non-appealable...." (Id.)

ii. Relevant Manufacturing Agreement Terms Regarding Customer Lists and Tooling

Two relevant provisions in the Manufacturing Agreement concern (1) confidential information and (2) ownership of the tooling. With respect to confidential information, the parties agreed that:

at all times during the term of this Agreement and thereafter, to hold in strict confidence and not to use, except for the benefit of the other party or to disclose to any person, firm, or corporation without written authorization of the other party any confidential information of the other party. The term "confidential information" means any party's proprietary information, technical data, trade secrets, or know-how, including, but not limited to... customer lists and customers (including, but not limited to, customers of the party)....

(Id. ¶ 9.2.)

Regarding ownership of the tooling, the Manufacturing Agreement stated the following:

Osco will pay fifty percent (50%) of cost of the tooling including installation costs needed to produce The Product and Quality Mark shall pay the other fifty percent (50%) of the tooling through its manufacturer. After the first five (5) year term of this Agreement as defined in Article 5, Osco will have full ownership of the tooling. If Osco desires to move the tooling before the first five (5) year term ends. [sic] Osco will pay Quality Mark fifty percent (50%) of the tooling costs. During the term of this Agreement, the tooling may not be used to manufacture The Product for others.

(Id. ¶ 3.2.)

iii. Termination of Manufacturing Agreement and Initiation of Arbitration

On February 28, 2013, the parties agreed to terminate the Manufacturing Agreement. (Hance Aff., Ex. B, "Award" ¶ 2; Ex. D ("Amy yes by the end of February our contract will be canceled if late payments are not in line.").) After a failed mediation, EDI filed Demands for Arbitration with the American Arbitration Association on May 21, 2013 and, as amended, May 30, 2013. (Hance Aff., Ex. E.) In the Demands, the sole claimant was identified as "Osco Motors Corporation." (Id.) The Demands stated the following allegations:

Quality Mark materially breached key provisions of an agreement entered into between the parties and has continued to breach the agreement by openly and directly selling Osco product to Osco's customers. In addition to these breaches QMI [Quality Mark] tortiously interfered with the prospective sale of Osco to a third party [Sierra]. This act caused [Sierra] to cease negotiations and terminate its inquiry into the potential purchase of Osco.

(Id.)

Because "Osco's" filings did not include EDI as a claimant, Quality Mark sought consent to include EDI as a party for Quality Mark's counterclaim; however, "Osco's" lawyer refused consent. (Hance Aff., Ex. G.) Quality Mark therefore brought a separate arbitration case on June 12, 2013, against EDI, which was then consolidated by agreement. (See Frank Aff., Ex. C.) Quality Mark's Demand for Arbitration sought recovery of over $1, 000, 000 in unpaid product and tooling invoices. (Id.)

iv. Discovery Leading Up to Arbitration Hearing

The parties prepared for their arbitration, which was to be decided by a single arbitrator from the American Arbitration Association. Before the arbitration, there was substantial discovery whereby depositions were taken and the parties exchanged over 75, 000 pages of documents. (See, e.g., Hance Aff. ¶ 9; Ex. K.) On October 9, 2013, the parties briefed and argued cross motions to compel discovery. (Hance Aff., Exs. I, J; Frank Aff., Exs. F, G.) In EDI's motion, it requested to inspect tooling and products at a facility in Taiwan owned by Quality Mark's Taiwan affiliate. (Frank Aff., Ex. F, at 1.) Their request explained that "[a] physical inspection of [Quality Mark]'s manufacturer is necessary to understand what tooling has been fabricated, what product has actually been manufactured, and what product has been altered. Only an inspection of [Quality Mark]'s manufacturer's foundry can reveal these facts." (Id.) EDI ...


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