Lawyers, other representatives, expert(s), tribunal’s secretary

Final Award

[1].
I THE UNDERSIGNED ARBITRATOR, having been designated in accordance with the arbitration agreement entered into by the parties and dated August 1, 2000, and having been duly sworn, and having duly heard the proofs, arguments and evidence of the parties, do hereby FIND and AWARD as follows:

Introduction

[2].
In this arbitration claimant, BioCare Corporation ("BioCare") asserts four primary claims against Criticare Systems Inc. ("Criticare"). All of these claims arise out of or relate to the parties' Supply Partnership Agreement ("Agreement"). Three are breach of contract claims that Criticare (1) failed to reimburse BioCare for costs ($1,892,650.43) related to raw materials after it cancelled two purchase orders; (2) failed to pay interest ($700,917.26) on invoices that it did not timely pay; and (3) failed to honor an exclusivity provision in the Agreement, thus causing damages in excess of $5 million. In its fourth claim, one for equitable relief, BioCare asserts that Criticare should be ordered to reimburse BioCare for its attorneys’ fees in this arbitration amounting to $2,380,725.98 and be enjoined from purchasing product from its affiliate for at least 18 months.
[3].
At the hearing, Criticare advanced two primary claims against BioCare. It contends that (1) BioCare’s poor performance under the Agreement caused Criticare to lose enterprise value amounting to about $20 million; and (2) BioCare owes $560,844 for product it shipped without the required batteries.
[4].
For the reasons explained below, all claims are denied.

Background

[5].
In August 2000 BioCare and Criticare entered into the Agreement which authorized BioCare to become Criticare’s exclusive contract manufacturer for the Gemini and nGenuity products in Asia. This Agreement required that any dispute, controversy or claim arising out of or relating to this Agreement be resolved by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA"). It is undisputed that the Agreement terminated on August 1, 2011. The parties also had other agreements including one related to the distribution of Criticare products.

BioCare’s Claim that Criticare Cancelled Two Purchase Orders

[6].
The parties agree that paragraph 3(4)(c) of the Agreement requires Criticare to be financially responsible to BioCare for any raw materials it purchased for a purchase order that Criticare later cancels. The parties also agree that financially responsible means reimbursing BioCare for the cost of raw materials it purchased to fill a cancelled purchase order.
[7].
BioCare claims that Criticare cancelled two purchase orders and then refused to reimburse it for costs related to raw materials totaling $1,892,650.43. Criticare contends that it did not cancel the two purchase orders in question and therefore there is no breach of paragraph 3(4)(c) of the Agreement. It also argues that BioCare never established by competent proof its damages resulting from the purported breach.
[8].
In 2008, Criticare was purchased by Opto Circuits (India), Limited ("Opto"). After that transaction, representatives for Criticare informed BioCare that it planned to move the manufacturing of the Gemini and nGenuity products to an Opto facility in India. However, in 2011 BioCare was still manufacturing these products pursuant to the Agreement and two Criticare purchase orders which the parties refer to as PO 062 and PO 064.
[9].
On March 7, 2011 while these two purchase orders were still being filled, Criticare notified BioCare that it was not going to renew the Agreement, thus allowing it to expire on August 1, 2011. Following this notice there were extensive negotiations by the parties related to the two pending Criticare purchase orders, PO 062 and PO 064 and their respective obligations. These negotiations resulted in Criticare issuing a new purchase order (PO 922) that BioCare accepted. The record clearly reflects that PO 922 replaced PO 062 and PO 064 and that Criticare paid for the products shipped pursuant to PO 922. The history of these negotiations and resulting agreement is reflected in numerous e-mails. Clearly Ken Chen, acting on behalf of BioCare, wanted Criticare "to revise" PO 062 and PO 064. He also made clear that BioCare needed the revisions, ironically, because of a shortage of raw materials. The e-mail exchanges between the parties confirm that PO 922 replaced PO #536062 and 536064. So contrary to the allegation made by BioCare, I find that Criticare did not cancel PO 062 and PO 064 and therefore, Criticare did not breach 3(4)(c) of the Agreement.

BioCare’s Interest Claim

[10].
BioCare claims that Criticare owes it $700,917.26 representing interest charges arising out of Criticare’s failure to pay its invoices in a timely manner. The Agreement imposes a time requirement on Criticare paying BioCare for delivered product. Paragraph 9(1) and 9(3) stipulate that:

(1) All amounts due and payable with respect to Products delivered by BioCare to the recipient in accordance with Article 8.(2) shall be paid in full amount within forty five (45) days after the recipient’s receipt of an invoice covering such Products. Invoices may not be sent prior to the delivery date of the Products covered by such invoice....

(3) All payment and other amounts due and owing from the recipient hereunder but not paid by the recipient on the due date thereof shall bear interest (in U.S. Dollars) at the rate of the lesser of:

a. twelve percent (12%) per annum; and

b. the maximum lawful interest rate permitted under applicable law.

Such interest shall accrue on the unpaid balance from time to time outstanding from the date on such payment and other amount become due and owing until payment thereof in full.

[11].
Criticare denies the claim. First, Criticare argues that BioCare by a course of performance modified the Agreement, citing a Wisconsin Supreme Court case that holds that a written contract, like the Agreement, may in the course of performance be modified. See, Royster-Clark Inc. v. Olsen’s Mill, Inc., 714 N.W.2d 530, 537-538 (Wis. 2006). Second, Criticare contends that the alleged interest calculations are not reliable and therefore should be rejected.
[12].
Addressing Criticare’s first point, the evidence demonstrates that the Agreement’s implementation was fluid and involved give and take on both sides. Both parties had performance issues. Criticare was a slow payer. BioCare’s performance in terms of timely delivery and quality was often wanting. Also with timely notice, both parties had the option of terminating the Agreement.
[13].
The proof shows that BioCare with its performance often an issue, decided to refrain from charging interest in order to maintain a profitable relationship and keep the purchase orders coming. In fact, in its factual summary, BioCare explains its conduct, noting that until the Agreement expired it "was attempting to maintain a productive relationship" with Criticare. BioCare’s witness Kalex Lin also admitted that BioCare did not charge interest in the course of performance in order to maintain the relationship with Criticare. While he did not say so in this context, other evidence that he offered, showed the relationship was an overall profitable one for BioCare.
[14].
While BioCare from time to time talked about charging interest, its action speaks louder than those words. During the course of performance over ten plus years, BioCare sent Criticare hundreds of written invoices. Not one of these written documents had an interest component. I find that BioCare waived its rights related to charging interest, the so-called no waiver provision of paragraph 16 of the Agreement notwithstanding. I find by clear and convincing evidence that BioCare manifested an intent to waive interest and that it did so with the intent of having Criticare rely on that waiver and to continue the manufacturing relationship with BioCare. The record reflects without question that BioCare acted for reasonable commercial purposes in the natural flow of a business relationship and that Criticare continued to place orders which satisfied the BioCare business goal of maintaining a profitable relationship.
[15].
In addition, the BioCare damage calculation lacks reliability for a number of reasons. BioCare did not offer invoices and evidence showing when shipments related to those invoices were actually made and delivery of specified product achieved. Kalex Lin, BioCare’s witness on the interest calculation admitted he had not reviewed the invoices issued by BioCare nor documents related to shipment and delivery. The record is clear that the 45-day for payment term set out in the Agreement was modified depending on whether product was shipped by air (60 days) or ocean (90 days). Lin, the BioCare witness on damages, did not have command of when this happened and had not reviewed invoices or shipping records to tie out any of this information. Lin’s calculation of interest also failed to take into account the many problems related to implementation of the Agreement. Obviously, had interest been charged in real time while BioCare was performing under the Agreement, an interest charge would have been sorted out in context of performance. BioCare is requesting that I assess interest, assuming it complied with all terms of the Agreement. The record does not justify such inference.

BioCare’s Claim Based on the Exclusivity Provision

[16].
BioCare claims that Criticare breached paragraph 2(2) of the Agreement. It stipulates:

During the Term of this Agreement, Criticare shall appoint BioCare as the exclusive contracted supplier in the Territory to manufacture Criticare’s designated Products, BioCare shall not manufacture any other products that are in competing with the Criticare’s Products without the prior written consent of Criticare.

BioCare asserts that Criticare breached this provision in 2011 by transferring technology to, and beginning a manufacturing relationship with, Opto in India before the Agreement expired. BioCare also contends that this conduct breached Criticare’s duty of good faith and fair dealing. For this alleged transgression, BioCare is seeking $5,489,580.81 in lost profits or alternatively $6,449,581.50 in "unjust enrichment" allegedly earned by Criticare.

[17].
Criticare has many responses to these claims. It does not dispute providing Opto the technology and purchasing 475 units of the nGenuity product for $600,000, and 50 units of the Gemini product for $40,700.50. It argues that it had the right to provide technology and an approved vender list to Opto. It also argues that BioCare was aware of the shift in production to Opto and once notified of the plans never objected. Criticare also contends that the Agreement in paragraphs 13 and 15 limit liability and exclude lost profit damages, and that these provisions in the Agreement should be enforced to bar this damage claim. Finally, it argues that the alleged breach did not proximately cause the damage BioCare contends.
[18].
I find that BioCare failed to prove it was damaged by the conduct in question. I do so for several reasons.
[19].
First, its supposed lost profits of $5,489,580.81 has no logical relation to the alleged breaches. BioCare took its average gross profits for the years 2005 and 2006 resulting in a figure of $1.7 million. It then multiplied this number by 4.6 which represents the time period between 2007 and August 1, 2011 when the Agreement expired, arriving at a figure of $7,820,000.00. BioCare then subtracted its actual profit of $2,330,419 for the period 2007 to August 1, 2011 from this amount to arrive at the total of $5,489,580.81. This sum has no proximate connection to the conduct of Criticare in allowing Opto to manufacture and sell it a relatively small number of products before the Agreement expired.
[20].
Second, the damage calculation also fails to reasonably assess the fact that the total number of products produced and delivered by Opto before the expiration of the Agreement was limited to 525 units for a gross sales price of about $640,700. BioCare has no credible basis for claiming that the loss of these relatively modest sales resulted in BioCare losing the enormous sum of $5,489,580.81 it claims.
[21].
Third, the products produced and sold by Opto were primarily the nGenuity line which BioCare stated on more than one occasion it could only produce at negative profit margin. BioCare made no attempt to show the profits it would have made, had the sales made by Opto for the products it manufactured prior to the expiration of the Agreement been made by BioCare.
[22].
Fourth, illustrating the absurdity of this damage claim, BioCare negotiated a revision to PO 062 and PO 064 because it did not have the capability of delivering the product required by these purchase orders. In its damage claim for lost profits of $5,489,580.81 it offered no explanation for how it could have even been damaged by losing sales to Opto when it was having difficulty already delivering what Criticare ordered.
[23].
BioCare makes an alternative argument that it is entitled to profits wrongfully made by Criticare as a result of its alleged breaches. This theory was not the focus of any proof in the testimony elicited in BioCare’s case. BioCare also did not describe or explain this damage claim in its damage declaration filed before the hearing in November 2013 or the supplemental one filed in February 2014. In support of it now, BioCare extrapolates from exhibits that show that Criticare issued purchase orders to Opto for over 5,000 nGenuity products and 50 Gemini products before the Agreement expired and that Criticare could have made over $6,000,000 in profits on the purchase and subsequent sale of these products.
[24].
I reject this speculative claim. As already noted, Criticare received only 475 nGenuity and 50 Gemini products from Opto before the Agreement expired and no attempt was made to show what BioCare’s profit on these might have been and no testimony was offered establishing what Criticare’s profit was. Also, there is no evidence that Opto manufactured any more than 475 nGenuity and 50 Gemini products before the Agreement expired on August 1, 2011. What Opto manufactured after the Agreement expired on August 1, 2011 was not part of the proofs in this case. In any event, it would not even be relevant because after August 1, 2011 BioCare has no claim that pursuant to paragraph 2(2) of the Agreement it was "the exclusive contracted supplier in the Territory to manufacture Criticare’s designated Products." If Opto manufactured after August 1, 2011, it would not violate the Agreement and hence there would be damages.

BioCare’s Equitable Claim

[25].
In its closing briefs, BioCare argues that it is entitled to injunctive relief and all of its claimed damages as a matter of equity because of Criticare’s "bad faith conduct" citing a Wisconsin case, Anderson v. Cont’l Ins. Co., 271 N.W.2d 368, 371 (Wis. 1978). It claims that Criticare should be held liable for "tortious breach of contract," contending that Criticare acted in bad faith and with wanton, willful and reckless disregard for BioCare’s contract rights, and attempted to force BioCare out of the Agreement when Criticare determined its obligations to BioCare were inconvenient. These allegations have no credible support in the record. First, the Agreement expired after proper notice. Criticare did not act in bad faith. It notified BioCare of its intentions to manufacture at the Opto facility. After it provided notice to BioCare that it was not going to renew the Agreement, Criticare worked with BioCare to resolve issues related to the two pending purchase orders, PO 062 and PO 064. This resolution resulted in PO 922, as noted above, replacing these two purchase orders.
[26].
In support of its "equitable argument" BioCare also claims that Criticare abused this arbitration process, citing Stern v. Thompson & Coates, Ltd. 517 N.W.2d 658, 666 (Wis. 1994). No credible evidence supports this claim. BioCare failed to cite a single act on the part of Criticare that would constitute an abuse of process. In conducting this arbitration I was not presented with any credible evidence that Criticare or its lawyers abused the process of this arbitration proceeding.
[27].
Finally, as part of its equitable claim, BioCare seeks an injunction barring Criticare from purchasing nGenuity and Gemini product lines from Opto in Asia for at least 18 months. BioCare contends Rule 47(a) of the AAA’s commercial rules authorizes the arbitrator to grant any remedy or relief that the arbitrator deems just and equitable. I find no basis for granting this requested injunctive relief having determined that BioCare’s claims as explained above lack merit.

BioCare’s Claim for $2,380,725.98 in Attorneys’ Fees

[28].
BioCare claims it is entitled to be reimbursed for the attorneys’ fees it paid in connection with this arbitration. In its argument BioCare acknowledges that the Agreement has no fee shifting provision and relies on Rule 47(d) of the AAA’s commercial rules. It allows an arbitrator to grant such an award if all parties have requested such an award. It seeks attorneys’ fees of $2,380,725.98. This amount has grown. BioCare’s opening brief claimed $2,019,946.05. Criticare replies that this claim should be rejected because there is no fee shifting provision in the Agreement and that there is no basis for a claim so large in a case involving three days of evidence preceded by two depositions.
[29].
Given the undisputed fact that there is no pertinent provision in the Agreement related to attorneys’ fees and my evaluation of the merits of BioCare’s claims, which I have rejected, I deny this claim for attorneys’ fees.

Criticare’s Claim for Loss of Goodwill

[30].
Criticare claims BioCare was responsible for Criticare’s loss of enterprise value amounting to about $20,000,000. This claim is based on a letter issued by Welch Allen on May 13, 2013. This letter expressed an interest in purchasing most of the assets of Criticare for $23 to $26 million. According to Thomas Dietiker, who is a member of Opto’s Board of Directors, this expression of interest reflects about a $20 million dollar reduction in value in Criticare when compared to the Opto purchase price in 2008.
[31].
Like Criticare’s view of BioCare’s claim, BioCare argues that this damage claim lacks rigor and credibility and should also be barred by paragraph 13 of the Agreement limiting liability. It argues that the Welch Allyn letter relied on by Criticare does not constitute a credible valuation.
[32].
No witness from Welch Allyn testified about how it made the evaluation and what its motives were. Further, Thomas Dietiker’s opinion testimony about linkage to BioCare’s performance was highly speculative and in this regard lacked credibility. It amounted to no more than a self-serving opinion based on vague second-hand information. Finally, it may be the case that Opto overpaid for Criticare. So the starting point in the evaluation lacks the rigorous analysis a damage claim of this nature and magnitude should have. In any event, Criticare agrees that paragraph 13 which it argued barred BioCare’s lost profits and unjust enrichment claims, would also bar this claim.

Criticare’s Claim for Shipments of Units Without Batteries

[33].
Criticare claims that BioCare owes it $560,844 for 2,308 units shipped without batteries. BioCare contends that Criticare’s proof on damages was not reliable and that I should deny the claim based on paragraphs 13(1) and (2) of the Agreement. Again, the Criticare proof was sketchy. Only the testimony of Anshul Vaswaney is cited. I did not find it compelling on this issue. While Criticare directed me to summary exhibits created for this litigation, it did not offer any underlying documents demonstrating a complaint during the term of the Agreement. I found only one document on this issue in evidence created before the Agreement expired, and it authorized BioCare to remove batteries and ship. Finally, Criticare advocated for the enforcement of paragraphs 13(1) and (2) of the Agreement. It acknowledges that if I enforce these terms, this claim should be denied.

Conclusion

[34].
The administrative fees and expenses of the International Centre for Dispute Resolution ("ICDR") totaling $35,556.08 and the compensation and expenses of the Arbitrator totaling $45,476.18 shall be borne as incurred.
[35].
This Award is in full settlement of all claims and counterclaims submitted to this Arbitration. All claims not expressly granted herein are hereby denied.
[36].
I hereby certify that, for the purposes of Article I of the New York Convention of 1958, on the Recognition and Enforcement of Foreign Arbitral Awards, this Final Award was made in Chicago, Illinois, U.S.A.
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