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A federal judge has refused to vacate an arbitrator’s award of more than $9.8 million to a Pennsylvania company that said it was illegally denied the right to be the exclusive distributor of Mrs. Smith’s pies in Switzerland and the 16 countries that make up the European Union. The ruling by U.S. District Judge Herbert J. Hutton of the Eastern District of Pennsylvania in Trans American Brokerage Inc. v. Mrs. Smith’s Bakeries Inc. is a victory for attorneys Wayne A. Mack, John J. Soroko and J. Manly Parks of Duane Morris in Philadelphia. Mack said the judgment is now worth more than $10.8 million because it includes an award of more than $787,000 in attorney fees and costs, as well as 6 percent interest that amounts to more than $1,600 per day beginning in January 2002. In the suit, Trans American of Maple Glen, Pa., claimed that it entered into a distribution agreement with Georgia-based Mrs. Smith’s in January 1999 in which it was promised exclusive rights for three years to distribute Mrs. Smith’s pies in Europe. But the suit said Mrs. Smith’s terminated the contract prematurely and refused to supply pies to Trans American. Under the contract, any dispute was subject to binding arbitration. In May 2000, Trans American invoked the arbitration clause and filed a complaint with the American Arbitration Association. Attorney B. Christopher Lee of Jacoby Donner in Philadelphia was selected as arbitrator and held 11 days of hearings beginning in September 2001. In a 27-page decision, Lee found that the two companies never consulted lawyers before entering into the contract. “It is possible that counsel could have been of assistance in clarifying what was from the outset a murky relationship,” Lee wrote. Lee found that the contract was intended to provide for a launch of sales of Mrs. Smith’s products in Europe in 1999, but that the launch was delayed because Mrs. Smith’s could not agree on a marketing budget or a launch date. “None of these delays were the fault of [Trans American] which assiduously sought to move this project forward throughout,” Lee wrote. Lawyers for Mrs. Smith’s argued that the contract was not a distribution contract, but rather an agreement to perform a “feasibility study” on the European market. Lee disagreed, saying testimony from witnesses on both sides proved otherwise. “There is little doubt that at the outset of the relationship and at the time the agreement was executed, [Mrs. Smith's] representatives expected to sell a great volume of pies in the European market,” Lee wrote. Lee found that testimony from witnesses for both companies showed that the contract included agreements on prices, credit terms and the flavor mix for the launch. Mrs. Smith’s, he found, had approved an invitation to a food show in the fall of 2000 that said its pies were “now available in Europe.” In federal court, Mrs. Smith’s lawyers, John E. Iole and R. Matthew Martin of Jones Day Reavis & Pogue, argued that the arbitrator was guilty of “manifest disregard of the law” because he refused to apply only Georgia law to the contract. Instead, they said, the arbitrator improperly applied both Pennsylvania and Georgia law. Iole and Martin also argued that the arbitrator erred in his interpretation of Georgia law regarding the formation of the contract and the award of lost profit damages to Trans American. But Trans American’s lawyers argued that Mrs. Smith’s had failed far short of proving the elements necessary to overturn an arbitrator’s award. “In order to prove a ‘manifest disregard of the law,’ … [Mrs. Smith's] must prove far more than that the arbitrator misinterpreted the law,” they wrote. Instead, they said, Mrs. Smith’s needed proof that “the law was well defined and explicit,” that it was “clearly applicable,” and that the arbitrator “nonetheless simply chose to ignore the law.” The federal courts, they argued, have “consistently refused to invalidate arbitration awards under the ‘manifest disregard’ standard where the basis of the claim of ‘manifest disregard’ is merely a claim that the arbitrator made some legal error.” Mrs. Smith’s failed the test, they said, because it “concedes that, in the award, the arbitrator attempted to apply the law of both Pennsylvania and Georgia to the critical issues in the case, such as whether a contract was formed or whether an award of lost profit damages was appropriate.” Likewise, they said, Mrs. Smith’s “concedes that the award reflects the fact that the arbitrator concluded that an award … was appropriate and supported by the law of both states.”

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