United States: The Third Circuit Affirms District Court's Confirmation Of Arbitration Award, Finding That The Panel Did Not Exceed Its Powers Or Manifestly Disregard The Law

Last Updated: November 28 2018
Article by Jeanne Kohler

The complete procedural background of this "not precedential" case can be found here. In sum, this case stems from a 2007 lease agreement between Ross Dress for Less, Inc. ("Ross") and VIWY, L.P. ("VIWY") for Ross to be a tenant in VIWY's shopping center. The lease included a provision which required VIWY to maintain a minimum amount of tenants in the shopping center, and allowed Ross to pay a reduced rent if the provision was not satisfied. In March 2011, Ross wrote to VIWY, claiming that the provision had not been met, it had overpaid its rent for two years and that VIWY must refund the excess rent payments, to which VIWY refused. In response, Ross paid a reduced rent from March 2011 until September 2011, at which time VIWY terminated the lease. In January 2012, Ross filed a lawsuit in Pennsylvania federal court against VIWY, alleging that VIWY breached the lease causing Ross to overpay rent (the "overpayment claim"). VIWY counter-claimed that Ross had improperly offset its rent from March 2011 to September 2011 (the "offset claim"), and moved to compel arbitration and dismiss the complaint. The Pennsylvania district court denied VIWY's motion and stayed the offset claim, pending resolution of the overpayment claim. VIWY appealed to the Third Circuit, which vacated the order and remanded the matter to the Pennsylvania district court. The Third Circuit found that the terms of the lease required arbitration of the offset claim, but did not require arbitration of the overpayment claim. However, because the claims were "inextricably linked," the Third Circuit held that arbitration of both claims was appropriate. On remand, the Pennsylvania district court stayed the litigation pending the completion of the arbitration. Thereafter, in March 2015, Ross demanded arbitration. VIWY raised a statute of limitations defense, arguing that because Ross had filed its demand more than four years after the alleged breach, his overpayment claim was untimely under Pennsylvania's four-year statute of limitations. The Arbitration Panel rejected this argument, finding that Ross's filing of its complaint had suspended the running of the limitations period, assuming the statute of limitations applied to arbitration proceedings (which the Panel noted was unsettled under Pennsylvania law). The Panel also concluded that VIWY breached the lease agreement, awarding Ross over $1.8 million. Ross then moved in the Pennsylvania district court to confirm the arbitration award, and VIWY cross-moved to vacate, arguing that the Panel exceeded its powers under the Federal Arbitration Act, or alternatively acted in manifest disregard of Pennsylvania law. The district court denied VIWY's motion to vacate, and granted Ross's motion to confirm. VIWY appealed to the Third Circuit.

First, in reviewing VIWY's contention that the Panel exceeded its powers when it allegedly misapplied Pennsylvania's statute of limitations, the Third Circuit noted that the Arbitration Panel assumed the statute of limitations applied to arbitration proceedings and analyzed whether tolling was warranted. Thus, the Third Circuit noted that Ross's complaint asserting the overpayment claim — which was filed well within the four-year statute of limitations — tolled the limitations period. The Third Circuit also noted that, in any event, an erroneous ruling that Ross's lawsuit tolled the statute of limitations does not amount to an excessive abuse of the Panel's power. In its analysis, the Third Circuit also noted that VIWY previously took the position that an arbitrator should resolve Ross's overpayment claim. Thus, according to the Third Circuit, resolution of Ross's overpayment claim necessarily included determining how Pennsylvania law, and in particular Pennsylvania's statute of limitations, affected the parties' rights under the lease. Thus, the Court found that because the Panel's interpretation "went against" VIWY does not now give VIWY the right "to rerun the matter in a court." As to VIWY's alternative argument that the arbitration award should be vacated because the Panel acted in manifest disregard of the law when it allegedly misapplied Pennsylvania's statute of limitations, the Third Circuit noted that the Panel did not "willfully flout" Pennsylvania's statute of limitations and its tolling jurisprudence. The Third Circuit held that because the answer to the tolling question was not obvious, it could not say that the Panel manifestly disregarded Pennsylvania's law concerning the statute of limitations. Thus, the Third Circuit affirmed the Pennsylvania district court's decision.

Ross Dress for Less Inc. v. VIWP, L.P., et al, No. 17-3145 (3rd Cir. Oct. 24, 2018).

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