Vital Pharmaceuticals, d/b/a VPX Sports v. Pepsico, Inc., No. 20-CIV-62415-RAR (S.D. Fla. Dec. 21, 2020) [click for opinion]

In March 2020, Plaintiff Vital Pharmaceuticals d/b/a VPX Sport (“VPX”) entered into a distribution agreement with Pepsi, Inc. (“Pepsi”), under which Pepsi agreed to distribute VPX’s Bang-branded energy products throughout the United States (the “Agreement”). Less than a year later, VPX terminated the Agreement without cause, claiming that Pepsi was failing to use “commercially reasonable efforts” to distribute VPX products.

Pepsi filed a demand for arbitration with the American Arbitration Association (the “AAA”). Pepsi claimed that VPX was making demands from Pepsi that were not required by the Agreement. Pepsi also maintained that VPX could not terminate without cause without first giving three years’ advance notice, during which time both parties were required to comply with their contractual obligations.

Pepsi requested that the AAA appoint an Emergency Arbitrator to award emergency relief prior to the constitution of the arbitration panel. The Emergency Arbitrator ruled in favor of Pepsi and issued an Emergency Interim Order (the “Order”), requiring VPX to abide by the Agreement for an additional three years, thereby prohibiting VPX from selling its products to customers with whom Pepsi had exclusive distribution rights.

Pepsi subsequently filed a motion in the U.S. District Court for the Southern District of Florida seeking confirmation of the Order. In considering the motion, the court explained that, under the Federal Arbitration Act (the “FAA”), 9 U.S. Code § 1, et seq., a court must confirm an arbitration award unless the award is vacated, modified, or corrected in accordance with Sections 10 or 11 of the statute.

VPX argued that the Order was not sufficiently final to be confirmed under the FAA. The court rejected this argument. The court explained that, despite its interim nature, the Emergency Arbitrator’s award was “a preliminary injunction, and confirmation of the injunction is necessary to make final relief meaningful”. The court noted that many courts have held that confirmation of interim arbitral orders granting injunctive relief were appropriate under the FAA.

VPX contended that its attempt to appeal the interim arbitration award with the AAA meant that it could not be confirmed, and any requests to confirm must be dismissed or stayed. VPX cited the Agreement in support of this argument, claiming that a provision therein effectively incorporated the AAA’s Optional Appellate Arbitration Rules, which posit that any judicial enforcement proceedings must be stayed pending resolution of an AAA appeal. The court ultimately rejected this argument, ruling that the AAA’s appellate arbitration procedures only apply when specifically agreed to by the parties. Here, the Agreement stated that the parties may appeal the decision of an arbitration panel, but failed to address appeals of interim injunctive relief granted by an Emergency Arbitrator. As such, the Optional Appellate Arbitration Rule that judicial enforcement proceedings must be stayed pending resolution of an AAA appeal did not apply.

Next, VPX argued that the Emergency Arbitrator’s Order should not be confirmed because VPX intended to seek a superseding award from the arbitration panel. The court held VPX’s intent did not preclude confirmation of the Emergency Arbitrator’s Order, which was designed to preserve the status quo pending adjudication of the parties’ dispute by an arbitration panel.

Finally, VPX argued that the Emergency Order must be vacated under Section 10(a)(4), on the grounds that the Emergency Arbitrator lacked authority to grant injunctive relief. While VPX admitted that the AAA rules permit arbitrators to grant injunctive relief, it argued that the Agreement required that the parties seek interim relief from the court, effectively divesting arbitrators of their power to grant injunctive relief. The court dismissed this argument on jurisdictional grounds, holding that VPX waived this argument by failing to object to the Emergency Arbitrator’s jurisdiction.

The court further explained that, even if VPX’s argument was not waived, it would still fail. The court noted that the Agreement affirmatively adopted the AAA rules, including Rule 38, which permits parties to seek relief from an emergency arbitrator unless the agreement expressly stated otherwise. The fact that the Agreement permitted the parties to seek injunctive relief in a court did not preclude them from seeking injunctive relief in arbitration. As such, the court held that the Emergency Arbitrator had authority to grant a final order, and granted Pepsi’s motion to confirm the Order.

 

A version of this post originally appeared in the March 2021 edition of Baker McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky and Jacob Kaplan.