Dumont and P&T
A current on-going commercial arbitration exists between Dumont Telephone Company (“Dumont”) and Power and Telephone Supply Company (“P&T”). Dumont provides voice, video, and data telecommunications services to businesses and residential customers in Dumont, Iowa. P&T, on the other hand, procures and sells telecommunications equipment to local telecommunication providers (such as Dumont).
This particular arbitration implicates a contract, or series of contracts, for the sale of telecommunications equipment to Dumont by P&T. Both parties allege breach of contract.
The underlying dispute in this arbitration began in 2009. In April 2009, in order to increase competitiveness, Dumont sought to modernize its video systems. Dumont consulted with P&T, and P&T arranged for various equipment vendors to present their video systems to Dumont.
On April 15, 2009, P&T proposed a replacement system-called the "head-end" system that would provide Dumont’s customers with new video features that Dumont did not currently provide.
On July 2, 2009, P&T e-mailed a price quote for the head-end system to Dumont.
On July 6, 2009, P&T and Dumont discussed the quote over the phone. During the phone discussion, the parties orally negotiated a set of terms for Dumont's initial equipment purchase, which added to, and modified, the terms in P&T's initial quote. The parties also agreed to move forward with the head-end deal, and Dumont agreed to deliver a check to P&T for 55% of the initial equipment purchase price.
Later that day, Dumont sent an e-mail to P&T confirming the prices of the equipment in the initial order, the total price of the initial purchase, and the amount of Dumont's down-payment check. One of the items included in Dumont’s e-mail was "I.P. Net Head End" listed at $152,471, which was the same number listed in P&T's quote. However, Dumont's e-mail listed additional equipment not included in the quote price. The additional equipment amounted to $18,478.80. Adding the cost of the additional equipment to the I.P. Net Head End price, Dumont’s e-mail confirmed a total initial equipment price of $170,949.80.
The next day, June 7, 2009, Dumont gave P&T a down-payment check, which cleared Dumont's bank account on July 21, 2009. Upon receiving the check, P&T generated an invoice reflecting the down-payment. The invoice contained P&T's standard terms and conditions, including the following arbitration clause:
Any dispute, controversy or claim shall be solely and finally settled by arbitration conducted in Memphis, Tennessee in accordance with the Commercial Arbitration rules of the American Arbitration Association then in force. The parties shall abide by all awards rendered in arbitration proceedings, and all such awards may be enforced and executed upon by any court having jurisdiction over the party against whom enforcement of such award is sought.
Dumont claims it never received the down-payment invoice. P&T cannot say that it did or did not send the down-payment invoice to Dumont.
After Dumont tendered its down-payment, P&T instructed various equipment venders to begin manufacturing the parts Dumont had ordered. The equipment was ready for shipment in October 2009. That month, P&T delivered the equipment to Dumont. P&T also sent Dumont an invoice for the equipment dated October 21, 2009. This invoice also included the above arbitration clause. Dumont acknowledges that it received this invoice.
Over the next two years, Dumont placed four additional orders with P&T for head-end equipment. P&T fulfilled each of these orders and accompanied each with an invoice containing the above arbitration clause.
In total, between October 2009 and September 2011, P&T sent Dumont five separate invoices covering Dumont's head-end equipment orders. All five invoices contained the above arbitration clause. Dumont acknowledges receiving these invoices.
While Dumont continued to order head-end equipment between 2009 and 2011, the head-end system never worked as Dumont had hoped. Dumont received hundreds of customer complaints reporting problems with the head-end system's functionality. According to Dumont, those problems were never resolved. Finally, on November 13, 2012, Dumont sent P&T a letter expressing Dumont's dissatisfaction with the head-end system. In the letter, Dumont listed the five invoices associated with the head-end system, stated that Dumont had "already paid $94,022.39 for a product that does not work," and announced that Dumont would not pay the outstanding invoices.
This week’s reading
This week’s reading states “lawyers are most often involved with arbitration pursuant to a private agreement between two or more parties. The agreement usually provides that the arbitration award will be mutually binding and enforceable in a court of law.” This week’s reading further states: “it is common for contracting parties to provide that their agreement will be interpreted in accordance with the law of a particular jurisdiction.” The arbitration clause in this case (see above) does not deviate from these norms, but rather provides for such an arbitration procedure.
It is interesting to note that this week’s reading states “business lawyers choose arbitration over litigation in a public forum for a variety of reasons: to achieve a speedy resolution; to avoid the costs and delays of litigation; to forego expensive discovery; to escape the glare of a public proceeding; to avoid the publication of legal precedent; to choose a decision maker with pertinent business or legal expertise; or to achieve a more satisfactory or more durable resolution.” It does not appear that the majority of the foregoing reasons are implicated in this case.
In this case, before the commencement of arbitration, there was an in-court dispute concerning the appropriateness of arbitration. The dispute concerned whether an arbitration clause existed. While the court ultimately ruled, on P&T’s motion to compel arbitration, that an enforceable arbitration clause existed, this dispute suggests that the risk of litigation, discovery, and public notice cannot simply be eliminated.
Additionally, in this case, it does not appear necessary to choose a decision maker with pertinent business or legal expertise. This case appears to invoke non-complex, well-settled principles of contract law.
For the reason announced in the preceding paragraph, it also appears that there is no reason to avoid the publication of legal precedent.
Sources: Dumont Tel. Co. v. Power & Tel. Supply Co., 2013 U.S. Dist. LEXIS 120809 (August 26, 2013) and the text.
Alex,
ReplyDeleteAwesome post. There was a ton there to talk about.
I think at the end, what you're suggesting is that P&T, because of the facts in this case, did not absorb the full benefits that arbitration can potentially provide.
While I would likely agree, from what you've posted, that arbitration didn't entirely help P&T in this instance, I think there are a number of other considerations.
1 - Keeping the case out of court and in the hands of an arbitrator might help P&T in avoiding the necessary contract-analysis legal expertise that a judge would bring into the decision. If the arbitrator is an industry expert, P&T intends to rely on certain "industry norm" arguments in regards to the systems themselves, then maybe that could help them. Or perhaps P&T is worried about a jury that knows and would have biases against their company or would come to wild factual conclusions about their systems.
2 - P&T likely wants to keep its bad press in the closet. Any time contentious litigation can be made private, that has to be better for business on their end.
3 - If certain conclusions were made by the judge regarding the effectiveness of the systems, the outcomes of those decisions could certainly affect P&T's contracts with a number of outfits similar to Dumont.
4 - While it might not have helped them in terms of time/expense in this instance, a situation where the arbitration provision was not challenged could easily save those resources in the future, as it surely has in the past.
Just some quick thoughts as I came to the end of your post!
I think the previous comment brings up some good points, but understates the importance of the second bullet; a desire to keep proceedings private and avoid bad press. The total number of P&T's potential customers is likely limited given the nature and location of the businesses. The post and the previous comment point out that the proceeding to determine the appropriateness of arbitration ensured that this matter would not remain private. P&T's primary concern was likely avoiding any damage to it's reputation with current and potential customers rather than concerns of judicial expediency and cost savings. I think this is a good example of how all manner of business concerns can impact the arbitration process and points to the fact that the motivations to engage in arbitration cannot simply be characterized as a broad set of concerns about costs and efficiencies.
ReplyDeleteThanks for the interesting case and facts. I can see that the parties were interested in an arbitration agreement for these kinds of cases because they seem to involve complicated facts that are not ideal for a jury trial. It's easy to forget that there are advantages to arbitration beyond just efficiency and time savings. This is a good example and analysis of a case where the parties' seem to have chosen arbitration for the right reasons.
ReplyDelete