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Burton Corp. v. Shanghai Viquest Precision Industries Co.

August 3, 2010

THE BURTON CORPORATION, PETITIONER,
v.
SHANGHAI VIQUEST PRECISION INDUSTRIES CO., LTD., RESPONDENT.



The opinion of the court was delivered by: Denise Cote, District Judge.

OPINION & ORDER

Petitioner, The Burton Corporation ("Burton"), has filed a petition to vacate in part an arbitration award (the "Award") arising out of a manufacturing agreement with respondent Shanghai ViQuest Precision Industries Co., Ltd. ("ViQuest").

ViQuest has cross-petitioned for confirmation of the Award. For the following reasons, Burton's petition to vacate is denied and ViQuest's cross-petition to confirm the Award is granted.

BACKGROUND

1. The Agreement

Burton is a Vermont-based designer, manufacturer, and seller of snowboards and related equipment. ViQuest is a manufacturer of injection molded products based in Shanghai, China. On January 16, 2005, Burton and ViQuest entered into a manufacturing agreement (the "Agreement"), pursuant to which ViQuest would manufacture snowboard bindings for Burton using Burton's molds.*fn1 The Agreement provided for an initial one-year term, but automatically renewed for successive one-year periods unless Burton provided written notice of cancellation sixty days prior to expiration of the relevant period. The Agreement is governed by Vermont law.

The Agreement contains several provisions relevant to this dispute. Pursuant to § 4.05 of the Agreement, Burton could terminate the Agreement if it determined "that [ViQuest]'s financial position poses a risk to Burton's business." The Agreement also provides that Burton could request that ViQuest return its molds at any time. Specifically, § 2.04(d) provides, in pertinent part, that "[ViQuest] will tender and deliver all Molds to Burton upon request provided Burton has reimbursed Supplier for all outstanding mold costs." In addition, § 2.04(d) provides that, "[u]pon the termination of this Agreement for any reason, [ViQuest] will, at Burton's request, return all Molds in good working order."

The Agreement contains a mandatory arbitration clause. Section 7.09 provides, in pertinent part, that "[e]ach dispute arising out of or in connection with this Agreement . . . shall be finally settled by binding arbitration . . . and judgment upon the award rendered by the arbitrators may be entered in any court of competent jurisdiction." Section 7.09 further provides that "[t]he arbitrator shall endeavor to follow the law, principles of equity and judicial precedents of applicable Vermont law." The cost of any arbitration was to be borne "by the losing party," or, if there was no losing party, "as the arbitrators shall determine."

Section 7.10(a) limits the types of damages available under the Agreement in the event of any dispute. It provides, in pertinent part, that the parties waive "any right or claim for punitive or exemplary damages against the other and agree that in the event of a dispute between them, each party shall be limited to the recovery of actual damages sustained by it." (Emphasis added.) Finally, § 7.08 provides that, in the event of court action "to interpret or enforce" a party's rights under the Agreement, "the prevailing party shall be entitled to reasonable attorney's fees and costs."

2. Burton Terminates the Agreement

On August 1, 2005, the Agreement automatically renewed for an additional one-year period, i.e., through July 31, 2006 (the "2006 fiscal year"). At Burton's request, ViQuest produced photo-samples for products to be produced during the 2006 fiscal year and received orders from Burton for the preparation of such samples, but there was no actual purchase order for the production of bindings. On October 6, 2005, Burton provided notice to ViQuest that it was terminating the Agreement pursuant to § 4.05 due to "financial concerns." It is undisputed that at the time of termination, Burton owed ViQuest approximately $1.8 million in unpaid purchase orders. Burton requested that ViQuest return its molds, but ViQuest refused. Burton arranged with a third-party to manufacture molds to replace those retained by ViQuest.

3. The Arbitration and Award

On May 19, 2006, Burton filed a claim with the American Arbitration Association seeking, inter alia, the return of its molds and reimbursement of $355,244.00 in costs incurred to replace the molds. ViQuest counterclaimed, seeking, inter alia, lost profits of $726,135.34, which it claimed it would have earned in the 2006 fiscal year had Burton not terminated the Agreement in October 2005.

On January 15, 2010, the arbitration panel issued the Award, from which one of the three arbitrators partially dissented. The majority of the panel interpreted ยง 4.05 of the Agreement to mean that Burton could validly terminate the Agreement "only after reasonably proving that [ViQuest's] financial position posed a financial risk to Burton's business." (Emphasis added.) Applying this "reasonableness" standard, the majority determined that Burton had not "proved the existence of valid grounds to terminate the [Agreement]." Further, the majority found that, at the time the Agreement was terminated, Burton itself was "not [in] compl[iance] with its ...


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