The opinion of the court was delivered by: Marrero, District Judge.
In October 1997, Plaintiff Westerbeke Corporation (hereinafter
"Westerbeke") initiated arbitration proceedings for breach of
contract against Daihatsu Motor Co., Ltd. (hereinafter
"Daihatsu") with the American Arbitration Association, Case No.
13 T 153 011057 97. On November 6, 2000, Ira G. Greenberg, Esq.
the "Arbitrator" or the "Tribunal"), sitting as the sole member
of the panel, issued a Final Award in favor of Westerbeke in the
amount of $4,202,255.00. Westerbeke filed an action to confirm
the arbitration award in this Court, and Daihatsu has moved to
vacate the same.
A. THE PARTIES AND THE COMPONENT SALES AGREEMENT
Westerbeke is a Delaware corporation with its principal place
of business in Taunton, MA. (Compl. ¶ 1). Westerbeke engages in
the production and marketing of generators, marine generators
and marine propulsion engines. A large part of its business
consists of purchasing "carcass" engines from other
manufacturers and "marinizing" them for resale. Marinization
consists of modifying carcass engines in order to make them
suitable for operation in marine environments. (Affidavit of
John H. Westerbeke, Jr., sworn to June 5, 1998 (hereinafter
"Westerbeke Affidavit"), at ¶ 7). Westerbeke's marine products
are sold through a distribution network and also directly to
builders of boats. (Id. at ¶ 8).
Daihatsu is a subsidiary of the Toyota Motor Company organized
under the laws of Japan, with its principal operations in Osaka,
Japan. Daihatsu manufactures engines and engine components.
(Daihatsu Motor Co. Ltd.'s Memorandum of Law in Support of its
Motion to Vacate the Arbitration Award, dated Feb. 5, 2001
(hereinafter "Daihatsu Memorandum"), at 2).
In 1983, the parties commenced negotiations on a long-term
sales agreement for the purchase by Westerbeke of Daihatsu's
gasoline-powered carcass engines for eventual marinization and
incorporation into Westerbeke's product line. (Westerbeke
Affidavit, at ¶ 10). Like many other longterm transnational
business ventures, the parties entered into complex and
protracted negotiations on the proposed form and substance of
the contractual relationship. The negotiations involved
balancing the competing interests and priorities of the parties
and memorializing their compromises in the form of a workable
Westerbeke was primarily concerned with present and future
exclusivity. According to Westerbeke, the company expends
substantial sums to marinize and then promote a line of engines.
(Westerbeke Affidavit, at ¶ 16). Its efforts could easily be
undermined if the manufacturer of carcass engines routes its
sales to another distributor piggybacking off the efforts
already made by Westerbeke. (Id. at ¶¶ 16, 30). Furthermore,
manufacturers of engines continually discontinue old models and
replace them with new ones. Naturally, continued access to the
new product lines is critical to the viability of a longterm
relationship, and Westerbeke sought to ensure a prospective
approach to its agreement with Daihatsu. (Id.).
Daihatsu, on the other hand, was naturally averse to long-term
exclusivity. As a manufacturer, Daihatsu's interests lie in
preserving its freedom to sell its engines and components in the
most efficient and advantageous distribution channels. (See
Interlocutory Award, at 6). A long-term exclusive purchaser who
fails to maintain minimum purchase quantities or neglects to
market aggressively not only ensures its own failure, but also
that of the component maker. In short, Daihatsu's concern was
being tied to a "poor choice" for a distribution partner.
Ultimately, the parties balanced their competing interests and
reached a compromise that culminated in the Component Sales
Agreement (hereinafter the "CSA")
entered into on May 1, 1985.*fn1 The CSA provided for the
present exclusivity than Westerbeke sought. For a period of six
years, Daihatsu agreed to supply Westerbeke with certain
contractually-defined engines on an exclusive basis in the
United States and Canada. (See CSA, Article 4.1). The CSA also
contained an automatic renewal provision for successive two-year
terms, and it appears from the record that the CSA was renewed
twice for an additional four years. (See CSA, Article 14.1).
With respect to Daihatsu's future engine models, however,
exclusivity was not automatic. Article 3.2 of the CSA required
that Daihatsu respect Westerbeke's right of first refusal during
the first six months that Daihatsu wished to sell other
"Engines," as defined by the CSA. The exclusivity provision of
the CSA would only apply to the new engine if, during the six
month term, Westerbeke and Daihatsu reached agreement on the
material terms of sale for the new engines — "specifications,
prices, minimum purchase quantities, delivery terms, etc.".
(See CSA, Article 3.2).
B. DAIHATSU'S NEW E-070 ENGINE
In the early 1990s, Daihatsu was actively developing, and
perhaps marketing, a new product line, the E-070 Engine. The new
model was a water-cooled, three-cylinder gasoline engine.
(Westerbeke Affidavit, at ¶ 64). After a thorough review of the
record, the Arbitrator found that the E-070 Engine was of the
type that triggered Article 3.2 of the CSA, a finding of fact
which was not clearly erroneous. (Interlocutory Award,
Westerbeke Corporation v. Daihatsu Motor Co. Ltd., AAA Case
No. 13 T 153 01057 97, at 18 (Mar. 8, 1999) (hereinafter
"Interlocutory Award")). Initially, it also appears that
Daihatsu did not bring this new model to the attention of
The parties are at odds as to why the E070 Engine never became
an "Engine" as defined by the CSA, subject to Westerbeke's right
of exclusivity. Daihatsu contends that the E-070 Engine was
never intended to be a marine product, a point which was
contradicted to some extent by documents produced in the
proceedings below. (See Daihatsu Memorandum, at 4-5;
Interlocutory Award, at 4-7). Daihatsu also explains that its
decision not to pursue sales of the E-070 to Westerbeke was
motivated by its growing dissatisfaction with Westerbeke's sales
volume. (See Daihatsu Memorandum, at 2; Westerbeke Affidavit,
at ¶ 66). Daihatsu's dissatisfaction was manifested in threats
to terminate the exclusivity provisions of the CSA at least as
early as 1990. (See id.).
Around June 1993, Briggs issued a press release announcing a
joint venture between it and Daihatsu for the purpose of
marketing, selling, and servicing a new line of water-cooled
engines in North America. (Westerbeke Affidavit, at ¶ 77). Later
that Summer, trade publications ran advertisements of the E-070
Engine which came to the attention of Westerbeke's President and
Chief Executive Officer. (Id. at ¶ 78). This was the first
time that Westerbeke had learned of Daihatsu's new engine.
In the ensuing months, representatives of Westerbeke contacted
Daihatsu to communicate its belief that Daihatsu had breached
the CSA. (Id. at ¶¶ 79-83). It appears from the record that the
parties attempted to salvage some sort of working relationship,
but those efforts never came to fruition. In October 1994,
Daihatsu terminated the CSA by providing Westerbeke six months
notice. (Daihatsu Memorandum, at 2).
C. THE ENSUING ARBITRATION AND THE PRESENT PROCEEDINGS
The demise of the parties' working relationship resulted in
several legal proceedings. In February 1997, Westerbeke filed an
action in Norfolk Superior Court and a subsequent action in the
United States District Court for the District of Massachusetts
in March 1997. Westerbeke filed a separate action against Briggs
for its role in the dispute between the parties. All of these
actions were voluntarily dismissed or stayed when Westerbeke
invoked Article 23 of the CSA, which requires all disputes to be
resolved by arbitration pursuant to the Japan-American Trade
Arbitration Agreement of September 16, 1952. Article 23 also
stipulates New York as the situs of arbitration.
Accordingly, Westerbeke filed a claim with the American
Arbitration Association in October 1997. The Arbitrator
bifurcated proceedings into separate phases for liability and
damages. (See Interlocutory Award, at 1). At the close of the
liability phase, the Arbitrator issued an Interlocutory Award
which stated: "[t]he primary issue for decision is whether
respondent Daihatsu Motor Company, Limited violated the
contractual rights of claimant Westerbeke Corporation in
refusing to negotiate for the inclusion of the E-070 engines
as Engines within the meaning of the 1985 Component Sales
Agreement between the two parties. The Tribunal holds that it
did." (Id. (emphasis supplied)).
Notwithstanding this clear and unambiguous basis for liability
enunciated in the Interlocutory Award, the Tribunal effectively
replaced its liability analysis in the Final Award of damages:
"[t]he appropriate analytical framework is that of a contract
with condition precedent to the addition of a new Engine."
(Final Award, Westerbeke Corporation v. Daihatsu Motor Co.
Ltd., AAA Case No. 13 T 153 01057 97, at 6 (Nov. 6, 2000)
(hereinafter "Final Award")). The Arbitrator awarded Westerbeke
over $4 million in damages, which included damages for lost
Westerbeke expected from hypothetica sales of the E-070 Engines.
Westerbeke now moves to confirm the award as Daihatsu has
refused to recognize it. Westerbeke contends that the Tri
bunal's decision was proper in all respects and that Daihatsu
has not advanced sufficient grounds to interfere with the
Arbitrator's award. In any event, Westerbeke avers that Daihatsu
should be precluded from judgment because it has not met its
burden of production, which ...