Carl Zeiss Vision, Inc. v. REFAC Holdings, Inc. and U.S. Vision, Inc.
CA 11513-VCS
| Del. Ch. | Aug 24, 2017Background
- Zeiss (supplier) and USV (retailer) entered a 2011 ten-year Amended and Restated Supply Agreement: USV agreed to buy at least 95% of its lenses from Zeiss, and Zeiss provided $20 million in below-market financing; the Agreement required arbitration and was governed by Delaware law.
- Paragraph 3.2(a)(ii) required Zeiss to offer "competitive pricing with respect to the CZV Lenses;" Paragraph 3.5 contained an MFN-like pricing clause stating Zeiss’s prices for USV shall be no higher than prices charged to similarly situated customers.
- USV sought a declaration in arbitration that "competitive pricing" allowed market checks against other manufacturers (not just Zeiss’s MFN comparisons) and the right to buy from lower-priced suppliers (not seeking rescission or damages initially).
- The three-member arbitration Panel found the competitive-pricing language ambiguous, relied on contract text and extrinsic evidence, rejected USV’s market-check construction, and denied all declaratory relief; the Panel declined to rewrite the Agreement or formulate an implementation mechanism for a market check.
- After the Panel denied relief, USV moved in Delaware Chancery Court to vacate the arbitral award, arguing the Panel exceeded its authority, ignored UCC law, and should have rescinded the Agreement if the competitive-pricing term was unenforceable.
- The Court applied the FAA’s highly deferential standard, found the Panel’s interpretation was reasonably supported by the record and Delaware contract law, and denied USV’s motion to vacate.
Issues
| Issue | Plaintiff's Argument (Zeiss) | Defendant's Argument (USV) | Held |
|---|---|---|---|
| Whether the Panel disregarded controlling law by finding the competitive-pricing provision unenforceable but leaving the Agreement intact | The Panel correctly applied contract construction principles and Delaware law; it need not rescind an agreement when an invalid term is severable or nonessential | The Panel flouted UCC and Delaware law by invalidating an essential pricing term and thereby rendering the Agreement void; rescission was required | Court held Panel did not disregard law: its construction was reasonable, USV failed to meet burden for rescission, and the quantity/95% term remained definite |
| Whether the Panel exceeded its authority or issued an irrational award by deciding issues not submitted or dispensing "industrial justice" | Panel acted within its remit to construe the agreement and deny declaratory relief submitted by USV | Panel allegedly decided sua sponte that the clause was unenforceable and then improperly refused to void the whole contract | Court held award was rationally derived from the parties’ submissions and record; Panel did not exceed authority |
| Whether the Panel failed to resolve issues submitted (e.g., whether competitive-pricing could be enforced via damages or whether it referred to MFN clause) | The Panel resolved the declaratory claims submitted; breach/damages claims were not submitted and thus not required | Panel omitted deciding enforceability via damages and relationship to Section 3.5, leaving an incomplete award | Court held Panel decided all issues submitted; it was not required to address unpled breach claims or issues not litigated |
| Standard of review for vacatur | Arbitration awards deserve extreme deference under the FAA/Delaware law; vacatur only if award has absolutely no record support or manifest disregard of law | USV urged the court to reassess Panel’s contract interpretation and legal conclusions | Court applied deferential FAA standard and denied vacatur because Panel’s conclusions were supported and within its authority |
Key Cases Cited
- SPX Corp. v. Garda USA, Inc., 94 A.3d 745 (Del. 2014) (arbitral-award review is among the narrowest standards of judicial review)
- TD Ameritrade, Inc. v. McLaughlin, Piven, Vogel Sec., Inc., 953 A.2d 726 (Del. Ch. 2008) (resolve doubts in favor of arbitrator; awards upheld if grounds can be inferred from record)
- GMG Capital Invs., LLC v. Athenian Venture P’rs I, L.P., 36 A.3d 776 (Del. 2012) (where reasonable minds may differ, extrinsic evidence and a fact-finder must resolve meaning)
- Sutter v. Oxford Health Plans LLC, 675 F.3d 215 (3d Cir. 2012) (award vacatur warranted if arbitrator dispenses own brand of industrial justice and strays from contract interpretation)
- IDS Life Ins. Co. v. Royal Alliance Assoc., Inc., 266 F.3d 645 (7th Cir. 2001) (award is mutual and final if it resolves the arbitrable dispute submitted)
- Hildreth v. Castle Dental Ctrs., Inc., 939 A.2d 1281 (Del. 2007) (an invalid contract term, if severable, will not defeat the contract)