Simons v. Brown

444 F.Supp.3d 642

Alan SIMONS, Petitioner,

v.John BROWN and Lorraine Brown, Respondents.

CIVIL ACTION No. 19-5074

United States District Court, E.D. Pennsylvania.

Filed March 16, 2020

George Bochetto, John A. O'Connell, Bochetto & Lentz PC, Philadelphia, PA, for Petitioner.

Craig Douglas Mills, Buchanan Ingersoll & Rooney PC, Philadelphia, PA, for Respondents.

MEMORANDUM

McHUGH, District Judge

This action follows an arbitration award ("Award") resolving a business dispute between two partners after they had a falling-out. The losing party, Alan Simons, asks this Court to vacate the Award under Section 10(a) of the Federal Arbitration Act ("FAA"), while the prevailing parties, John and Lorraine Brown,¹ cross-move to confirm it. The dispute turns on the construction of a series of contracts. After extensive discovery during the arbitration process, the Browns moved for summary judgment. The arbitrator, without any procedural objection from Simons, addressed the merits of the motion and decided the case as a matter of law based on the language of the agreements. Simons, undoubtedly recognizing the substantial deference owed to an arbitrator's decision, now seeks to vacate the award through a series of interrelated arguments—some procedural and some substantive—that focus on the arbitrator's use of summary judgment as the vehicle to decide the case. None of those arguments provide a basis for setting aside the Award, which will be confirmed.

I. Background

A. The Underlying Dispute²

Before 2007, Alan Simons was the sole owner of a business called RDS Vending LLC ("RDS"). Then, in January 2007, Simons entered into various agreements with John Brown and others through which Simons, among other things, sold 50% of his interest in the business to Brown. The agreements made Simons and Brown the sole shareholders of RDS. Two of those agreements are relevant to this dispute: the Buy-Sell Agreement and the Put-Call Agreement (collectively referred to as the "Simons-Brown Agreements"). Each agreement contains provisions restricting Simons's and Brown's ability to part with any portion of their interest in RDS except under certain conditions. For example, the Buy-Sell Agreement contains the following provision:

3. Lifetime Restrictions. Neither of the Stockholders shall, at any time during the term of this Agreement, give, sell, assign, transfer, encumber, or otherwise dispose of all or any part of his Stock unless and until he shall (i) dispose of all of his Stock under the Put and Call, (ii) obtain the written consent of the other Stockholder or (iii) comply in full with the requirements of this Agreement.

Similarly, the Put-Call Agreement provides that "Both Simons and the Buyer [Brown] agree not to pledge, mortgage, or in any manner encumber or allow liens to be attached against the Option Interests (in the case of Simons) or Buyer's 50% Membership Interests."

Tom Hutchison, Brown's brother-in-law, was also a party to the Simons-Brown Agreements. Simons hired Hutchison as an employee of RDS, ostensibly grooming him to manage the business after Simons either was bought out by Brown or after Simons's death. Under the agreements, Hutchison could purchase either Brown's or Simons's half of the company in the event one of them died. He could also purchase Simons's half if Simons became disabled. The agreements required Brown and Hutchison to maintain a life insurance policy on Simons, and they required Hutchison and Lorraine Brown to maintain a policy on Brown that would fund Hutchison's purchases of Brown's interest.

Over a period lasting more than a decade, Brown and Hutchison entered into a series of side contracts with each other (the "Brown-Hutchison Agreements"), unbeknownst to Simons. In December 2006, Brown and Hutchison entered the first of these agreements—General Agreement No. 1—which was drafted without the assistance of an attorney. Under that agreement, Brown sold 4% of his interest in RDS to Hutchison at a price of $100,000. Shortly thereafter, the parties entered General Agreement No. 2, which superseded General Agreement No. 1 and gave Hutchison the right to obtain 4% of Brown's interest in the company at a cost of $100,000, but this time only upon the earlier of Brown's buyout of Simons under their agreements, or Simons's consent to the sale. This second agreement was drafted by an attorney. The specific date Brown and Hutchison entered into General Agreement No. 2 is unknown. However, the arbitrator concluded that the evidence appeared to show that General Agreement No. 2 was signed sometime after February 1, 2007.

Almost two years later, Brown and Hutchison altered the arrangement they created in General Agreement No. 2 by entering the General Agreement Modification (the "Modification"). It left in place the provisions ensuring that Hutchison could only consummate the purchase if a triggering event occurred. But it also introduced new terms. For example, it gave Hutchison the right to purchase up to 10% more of Brown's interest in RDS than he could previously. And it required Brown to pay Hutchison a portion of each profit distribution that he received from RDS. In total, General Agreement No. 2 and the Modification remained in force for more than ten years.

At some point in 2017, Simons received an overture from a company called Cross Keys Capital offering to find a party to buy RDS. Cross Keys assured Simons it could facilitate sale of RDS at a price that would fetch Simons more money than he was due if Brown bought him out under the formulas in the Simons-Brown Agreements. As promised, Cross Keys found a buyer willing to pay $26 million. But the Simons-Brown Agreements required both parties to agree to any sale of the company. Although Brown authorized Simons to seek a sale of RDS through Cross Keys, he ultimately rejected the $26 million offer because he wanted any potential deal to include an extra $4 million for him to pay Hutchison.

Approximately two years after the Cross Keys deal fell through, Brown and Hutchison signed the Agreement and Mutual Release, terminating Hutchison's rights under the Modification in exchange for consideration from Brown that included a lucrative mix of benefits and distributions. Simons first learned about the side agreements between Brown and Hutchison in February 2019, and he learned about their execution of the Agreement and Mutual Release sometime thereafter.

B. Procedural History

Brown remained a member of RDS after terminating his contractual relationships with Hutchison. See Pet. to Vacate Arbitration Order Ex. B ¶ 2, ECF 1-2. After discovering the Brown-Hutchison Agreements, Simons filed a Demand for Arbitration ("Demand") against the Browns with the American Arbitration Association ("AAA") in early-March 2019, seeking relief under Pennsylvania's Declaratory Judgments Act.³ See ECF 1-2 ¶¶ 44, 50. Specifically, Simons sought a declaration that Brown materially breached the Simons-Brown Agreements by entering into side agreements with Hutchison, and a further declaration that Brown's purported breach relieved Simons of his own contractual obligations. ECF 1-2 ¶¶ 43-54.

The AAA initially appointed a highly respected and experienced lawyer as the arbitrator, but Simons's counsel objected because of purported bias and conflict of interest. Respt's Opp. Br. Ex. 5, at 27, ECF 5-2. The AAA obliged Simons by appointing a new arbitrator: Judy Weintraub, Esq., a Distinguished Neutral with the International Institute for Conflict Prevention and Resolution. ECF 5-2, Exs. 6, 7. Her appointment was accepted without objection. ECF 5-2, Ex. 8.

During the arbitration process, the parties engaged in robust discovery that generated an extensive record, which included written submissions, third-party subpoena practice, expert reports, and the depositions of Brown, Simons, Hutchison, and two others. Respt's. Opp. Br., at 8, ECF 5. Once the record was fully developed, the Browns moved for summary judgment, which Simons opposed. ECF 5-2, Exs. 9, 10. Weintraub held oral argument on the summary judgment motion on October 3, 2019. ECF 5-2, Ex. 11. Five days later, Weintraub issued a draft of a proposed Order granting Respondent's motion for summary judgment and gave the parties until October 14, 2019 to lodge objections to her tentative ruling. ECF 5-2, Ex. 12. Simons seized the opportunity in a 12-page "Memorandum of Errors in the Draft Order," raising multiple substantive, rather than procedural, objections to the Arbitrator's proposed findings. ECF 5-2, Ex. 13.

Weintraub issued her final Order three days later, granting summary judgment in favor of the Browns on the basis that Brown did not materially breach his agreements with Simons. See ECF 1-3. Weintraub specifically addressed the effect that each of the Brown-Hutchison side agreements had on the contractual relationship between Simons and Brown. She found that although General Agreement No. 1 constituted a breach, the subsequent Brown-Hutchison Agreements remedied that breach by making Hutchison's receipt of Brown's shares contingent on triggering events—none of which occurred—and that Hutchison's inchoate rights were ultimately extinguished by the Release. According to Weintraub, Simons was never denied the benefit of his bargain with Brown because none of Brown's interest ever transferred to Hutchison. Therefore, any breach created by their first side agreement was, in the end, not material. In reaching her conclusion, Weintraub rejected Simons's proffered extrinsic evidence as unnecessary to interpret what she concluded to be unambiguous agreements. She also considered and disposed of the objections Simons raised in his Memorandum of Errors.

After losing the arbitration, Simons instituted this action by filing a Petition to Vacate Arbitration Order, ECF 1, and Motion to Vacate Arbitration Award. ECF 2. The Browns opposed Simons's request to vacate and cross-moved for confirmation of the Award, ECF 5, and Simons replied to Brown's Opposition...