Nortek Home Control Holdings, LLC v. Baalbergen

• Court: District Court, N.D. California
• Decided: February 23, 2021
• Docket: 3:20-cv-09319
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6

8 NORTEK HOME CONTROL HOLDINGS, LLC, a Delaware Limited Liability 9 Company, No. 3:20-cv-09319-WHA

10 Petitioner/Cross-Respondent,

11 v. ORDER CONFIRMING ARBITRATION AWARD, 12 AARON PAUL BAALBERGEN, an GRANTING JUDGMENT THEREON, individual, DENYING VACATUR OR 13 MODIFICATION OF AWARD, AND Respondent/Cross-Petitioner. VACATING THE HEARING 14

15 16 This contract dispute arises out of a Share Purchase Agreement entered into between 17 petitioner Nortek Home Control Holdings, LLC, and respondent Aaron Baalbergen, in August 18 2017. Nortek is a global company specializing in home automation, wireless security, and 19 personal safety systems. Baalbergen is a software engineer, tech entrepreneur, and founder and 20 former Chief Technology Officer of MiOS Ltd., a company which sold a “home automation 21 solution.” Under the SPA, Nortek agreed to purchase a 20% stake in MiOS from Baalbergen for 22 $1.5 million, to be made in three equal installments of $500,000. The dispute centers on 23 Baalbergen’s entitlement to the final installment, which the agreement conditioned on 24 Baalbergen remaining “fully engaged” in the work to upgrade MiOS’s core software platform. 25 After Nortek denied its obligation to make the final installment payment in response to 26 Baalbergen’s request for further assurances, Baalbergen made a demand for arbitration, pursuant 27 to the contract. The parties agreed on JAMS in San Francisco, California, as the arbitration 1 arbitration was held over four days in July 2020, via Zoom, due to the pandemic. The transcript 2 of the arbitration runs some 350 pages. The Arbitrator heard from eight witnesses, including 3 Baalbergen twice, once in his case-in-chief, and again in rebuttal; Baalbergen’s counsel cross- 4 examined Nortek’s witnesses; the parties submitted hundreds of exhibits, submitted trial briefs, 5 presented opening statements, closing arguments, and closing briefs. 6 The Arbitrator issued an interim award finding that Baalbergen neither delivered the 7 upgraded software platform, nor remained “fully engaged” towards upgrading the platform, as he 8 was required to do to earn the third installment payment. As provided by the agreement, the 9 interim award invited Nortek, as the prevailing party, to submit a claim for costs and fees. 10 Nortek did so. Baalbergen opposed. The Arbitrator’s final award affirmed her interim findings 11 and conclusions and awarded Nortek the costs and fees it requested. 12 Nortek petitioned to confirm the arbitration award in San Francisco Superior Court. 13 Baalbergen removed the petition here, filed opposition to the petition to confirm, and cross- 14 petitioned for vacatur or modification of the award. Jurisdiction is proper under 28 U.S.C. § 15 1332(a). 16 Sections 10 and 11 of the Federal Arbitration Act provide the exclusive grounds upon 17 which a federal court may vacate, modify, or correct an arbitration decision. Kyocera Corp. v. 18 Prudential-Bache Trade Services, Inc., 341 F.3d 987, 997 (9th Cir. 2003) (en banc). Section 10 19 permits vacatur only: 20 (1) where the award was procured by corruption, fraud, or undue means;

21 (2) where there was evident partiality or corruption in the arbitrators, or either of them;

22 (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to 23 the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or 24 (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a 25 mutual, final, and definite award upon the subject matter submitted was not made.

26 9 U.S.C. § 10(a). 27 If vacatur is unwarranted, Section 11 provides the grounds for modification or correction (a) Where there was an evident material miscalculation of figures or an evident material 1 mistake in the description of any person, thing, or property referred to in the award.

2 (b) Where the arbitrators have awarded upon a matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter submitted. 3 (c) Where the award is imperfect in matter of form not affecting the merits of the 4 controversy.

5 9 U.S.C. § 11. 6 These grounds provide “an extremely limited review authority.” Kyocera Corp., 341 7 F.3d at 998. 8 The agreement here did not modify the usual scope of judicial review. 9 Baalbergen assigns three errors to the arbitration: (1) the Arbitrator cut off his counsel’s 10 cross-examination of Witness O’Neal in reliance on Nortek’s representation that it intended to 11 call Witness Schatz who it then did not call, thereby refusing to hear material and pertinent 12 evidence; (2) the Arbitrator misinterpreted the contract to mean that Baalbergen was required to 13 deliver the upgraded software to Nortek; (3) the Arbitrator erred in awarding certain fees and 14 costs to Nortek. The contentions are meritless; the proceeding was fair. 15 First, regardless of her subjective reasoning, the Arbitrator was well within her discretion 16 to disallow cross-examination of Witness O’Neal as to the significance of the changes from the 17 draft agreement to the final agreement on the ground of lack of foundation. O’Neal was not 18 involved in the drafting of the agreement; he could not recall ever seeing any drafts of the 19 agreement; he could not recall important details of the drafts of the agreement or the negotiation 20 process. The Arbitrator was well within her discretion to disallow cross-examination of O’Neal 21 on a draft of the agreement he was unfamiliar with. 22 Second, the Arbitrator considered whether Baalbergen had performed under either of the 23 asserted meanings of the agreement. Baalbergen’s counsel argued that the agreement only 24 required Baalbergen to remain “fully engaged” in the effort to complete the software platform 25 upgrade, as opposed to actually delivering the completed upgrade. The Arbitrator found that 26 Baalbergen did not remain fully engaged in the project and therefore, even under the agreement 27 meaning argued by Baalbergen, he did not perform. A review of the record reveals ample 1 Third, Baalbergen complains in several regards about the fees and costs awarded: 2 attorney’s fees were awarded for work unrelated to the arbitration; Nortek’s counsel’s rental of a 3 conference room for use during the arbitration was unreasonable; costs for preparing deposition 4 transcripts were impermissibly awarded; fact witness costs were impermissibly awarded; and 5 costs for document hosting were impermissibly awarded. Whether certain fees were incurred for 6 work related or unrelated to the arbitration, and the reasonableness of the use of the conference 7 room, are issues the Arbitrator was far better situated to address because she was intimately 8 aware of all of the circumstances of the case. As for the latter contentions, the authorities 9 Baalbergen cites are inapposite because they construed the Delaware rules of court or Delaware 10 statutory law. As Nortek points out, however, Delaware law provides that where there is a 11 contractual provision providing for the shifting of costs, the recoverability of costs is a question 12 of the meaning of the contract, not the rules of court or statutory law (Dkt. No. 9-1 at 33, citing 13 Comrie v. Enterasys Networks, Inc., 2004 WL 5366650 (Del. Ch. 2004)). Baalbergen shows no 14 error warranting modification of the award under the standards established by the Federal 15 Arbitration Act. 16 17 18 19 20 21 22 23 24 25 26 27 1 Therefore, Nortek’s application to confirm the arbitration award is GRANTED. 2 || Baalbergen’s application to vacate or modify the arbitration award is DENIED. 3 JUDGMENT shall be entered for petitioner Nortek Home Control Holdings, LLC, for 4 fees and costs in the amount of $ 290,490.82. 5 The hearing on March 4, 2021, is VACATED. 6 7 IT IS SO ORDERED. 8 9 Dated: February 23, 2021 Les 11 = WILLIAM ALSUP 1 UNITED STATES 3 DISTRICT JUDGE

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