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A Jenner & Block team led by Partner Susan C. Levy secured a significant victory for client General Dynamics Land Systems (GDLS), a designer and manufacturer of land and amphibious combat systems for the U.S. Army and Marine Corps, in a multimillion dollar contract dispute with an Israeli armor manufacturer involving the “best efforts” provision of the parties’ contract.
In an order denying the plaintiff’s petition to vacate a 2007 arbitration award obtained by the Firm for GDLS and granting GDLS' motion to confirm the award, the U.S. District Court for the Southern District of New York found that the arbitrator committed no legal error in concluding that GDLS had “in all respects complied with the ‘best efforts’ requirement” of the parties’ agreement."
“The award as a whole shows that the arbitrator found that Defendant’s conduct satisfied a “best efforts” standard of diligence and that the underwhelming demand for Plaintiff’s product was a result of market conditions, not the efforts of the Defendant,” the order said.
The companies had entered into an agreement that granted GDLS the exclusive right to market and sell the armor company’s unique technology, Light Improved Ballistic Armor (LIBA), in the U.S. in exchange for a royalty on the amount of LIBA used or sold. The contract terms provided that “GDLS will use its best effort to expand and maximize the U.S. market for the LIBA product.”
In 2005, the armor company filed an arbitration demand against GDLS claiming more than $250 million in damages due to GDLS’ alleged failure to maximize the sales of LIBA in the United States.
During the 12-day arbitration hearing, the Firm’s team established that GDLS made significant efforts to market the LIBA product including introducing evidence that GDLS had sold more LIBA in the U.S. than the claimants’ had sold in any other country. In addition, the Firm demonstrated that GDLS had sold LIBA for use on its combat vehicles, and that there were good and valid technical reasons why LIBA was not “competitive” on other products. The arbitrator ruled in favor of GDLS on all claims in the case, finding that GDLS did not breach the best efforts clause. The arbitrator found that GDLS complied with the "best effort" requirement of the agreement, "regardless of what reasonable legal definition of best efforts' might be applied." In denying plaintiff's motion to vacate and granting GDLS' motion to confirm the award, the U.S. District Court held that ”the arbitrator’s determination was predicated on facts that are not reviewable by this Court under the language of the contract,” and the arbitrator did not commit any legal error.
“This was a clear and unequivocal victory for GDLS,” said Ms. Levy. “While courts across the country have offered a variety of approaches to evaluating ‘best efforts’ language in contracts,” this case holds that our client satisfied its ‘best efforts’ obligation under any reasonable standard.
In addition to Ms. Levy, the Jenner & Block team on this matter included Of Counsel Richard T. Franch, Partners Susan Kohlmann, Debbie L. Berman, Matthew J. Thomas, R. Clay Stiffler, Associate Joelle K. Blomquist and Senior Paralegal Jessica Merkouris.