• Delaware Supreme Court
  • D66360
  • Jun 16 2014 (Date Decided)

DELAWARE SUPREME COURT

SPX Corp. v. Garda USA Inc., DeFAX Case No. D66360 (Del. June 16, 2014) Berger, J. (en banc) (11 pages).

The record did not show that the arbitrator consciously chose to ignore a legal principle, or contract term, that was so clear that it was not subject to reasonable debate in the parties' dispute arising from a corporate acquisition. Court of Chancery's judgment vacating the arbitrator's award was improper.

SPX Corp. entered into an agreement to sell all of the capital stock of its subsidiary, Vance International, to Garda USA Inc. and its parent company, Garda World Security Corp. A dispute arose regarding Vance International's balance sheet on the effective date of the transaction and the parties agreed to arbitration to decide whether a workers' compensation reserve had been calculated correctly.

The arbitrator decided, without any analysis, that there would be no adjustment to the balance sheet. The Court of Chancery vacated that decision, finding that the arbitrator did not follow the relevant provision of the parties' share purchase agreement. The Supreme Court reversed the Court of Chancery's decision and remanded the case for further consideration, finding that the Court of Chancery incorrectly applied the "manifest disregard" standard by failing to consider whether the arbitrator's decision rationally could have been derived from either the contract or the parties' submissions to the arbitrator.

The "manifest disregard" standard for considering whether an arbitration award may be vacated requires the party seeking to vacate the award to prove that the arbitrator was ' "fully aware of the existence of a clearly defined governing legal principle but refused to apply it, in effect, ignoring it." The party seeking vacatur must provide evidence establishing "that the arbitrator (1) knew of the relevant legal principle, (2) appreciated that this principle controlled the outcome of the disputed issue, and (3) nonetheless willfully flouted the governing law by refusing to apply it."

The parties' submissions to the arbitrator showed that they presented two colorable interpretations of the relevant agreement provision. The arbitrator asked the parties pointed questions, indicating that the arbitrator did not consciously chose to ignore the provision in question. A reasonable inference to draw from the award was that the arbitrator considered the contractual terms and adopted SPX's interpretation of the contract provision. Although that interpretation may have been wrong, it had a basis in the contract and the parties' submissions.

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