WILLIAM H. STEELE, Chief District Judge.
This matter comes before the Court on Plaintiffs' Motion to Alter, Amend or Vacate (doc. 17). The Motion has been briefed and is now ripe for disposition.
This is an action to vacate an arbitrator's award, ostensibly brought pursuant to 9 U.S.C. § 10 and Alabama law.
As prescribed by the applicable arbitration agreement, the parties submitted their dispute to the American Arbitration Association ("AAA"), which appointed a Birmingham attorney named Ben F. Beckham (the "Arbitrator") as arbitrator.
On November 30, 2012, the Arbitrator issued a 13-page written Award in which he found for Woodmen and against the Thameses on all claims. (Doc. 18, Exh. A.) In summary, the Award included the following determinations: (i) Dees was an independent contractor whose misappropriation of funds was for wholly personal reasons, such that Woodmen could not be vicariously liable; (ii) the Thameses' negligence claim failed because of contributory negligence (they admitted to exercising poor business judgment in their dealings with Dees and to receiving annual reports that enabled them to determine that Dees was misappropriating their premium funds) and timeliness (claim was governed by two-year statute of limitations yet the Thameses filed an arbitration demand more than three years after incurring the complained-of losses); (iii) the Thameses' fraud claims failed for lack of reasonable reliance, inasmuch as they admitted to using poor judgment (i.e., they knew better than to make premium payment checks payable to Dees and acknowledged not adequately protecting their own interests) and they received annual reports that showed their premium payments to Dees were not reaching Woodmen; (iv) the Thameses failed to present sufficient evidence that Woodmen breached any contract with them, inasmuch as Local Lodge 1057 is independent and autonomous, Woodmen did not control Lodge 1057's checking account, Woodmen received no complaints that Dees was misappropriating premium funds until 2011, Woodmen would not have known from Lodge 1057's reports and audits that Dees was misappropriating policyholder funds, the primary responsibility rested with the Thameses to verify that Woodmen was receiving their premium payments, and there was not sufficient and creditable evidence that Woodmen knew or should have known prior to 2011 that Dees was misappropriating their premium payments and Lodge 1057's checking account funds; and (v) Woodmen could not have converted premium funds that it never received, and such conversion claim was untimely, in any event. (Doc. 18, Exh. A at 3-11.)
In light of these and other written findings, the Arbitrator concluded the Award as follows: "The evidence presented was insufficient as a matter of law for Claimants to be entitled to any recovery in this matter. Based on the evidence submitted and the applicable law, Claimants are not entitled to any recovery in this matter, and Respondent has no liability to Claimants in this matter." (Id. at 12.)
On December 28, 2012, less than 30 days after entry of the Award, the Thameses (by and through counsel) filed a Notice of Appeal in the Circuit Court of Monroe County, Alabama. On February 8, 2013, Woodmen removed this action to this District Court.
On May 16, 2013, plaintiffs filed their amended Motion to Alter, Amend or Vacate (doc. 17). That Motion identifies three grounds for setting aside the Award. First, plaintiffs assert that the Arbitrator violated 9 U.S.C. § 10(a)(3) by "refus[ing] to order the production of an audit conducted by Woodmen of the World showing the extent of Mr. Dees' theft after being provided with proof of said audit" and by "refusing to allow material evidence and testimony showing that Woodmen of the World has an extensive history of negligent hiring and supervision of its agents in Alabama." (Doc. 17, at 2, 4.) Second, plaintiffs maintain that the Arbitrator violated 9 U.S.C. § 10(a)(2) by "fail[ing] to disclose a relationship with defendant's counsel." (Id. at 5.) Third, plaintiffs contend that the Arbitrator violated 9 U.S.C. § 10(a)(2) by "refus[ing] to give credence to the evidence presented against Woodmen" showing breach of contract by non-compliance with company procedures and guidelines, "thus further demonstrating his level of partiality." (Id. at 7.)
"After arbitration is complete, judicial review of the arbitration process and of the amount of the award is narrowly limited." Booth v. Hume Pub., Inc., 902 F.2d 925, 932 (11
By its terms, the FAA provides that a federal court "may make an order vacating the award upon the application of any party to the arbitration (1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators ...; (3) where the arbitrators were guilty of misconduct ... in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made." 9 U.S.C. § 10(a). Although vacatur may be had under these four statutory scenarios, such review "is circumscribed, as arbitrators do not act as junior varsity trial courts where subsequent appellate review is readily available to the losing party." Cat Charter, 646 F.3d at 842-43 (citation and internal quotation marks omitted).
"The burden is on the party requesting vacatur of the award to prove one of these four bases." Riccard v. Prudential Ins. Co., 307 F.3d 1277, 1289 (11
Plaintiffs' first asserted basis for requesting vacatur of the Award is that the Arbitrator committed misconduct by "refus[ing] to order the production of an audit conducted by Woodmen of the World showing the extent of Mr. Dees' theft." (Doc. 17, at 2.) Plaintiffs explain that this evidence was relevant because it "would show the total amount of loss by Wayne and Robert Thames and the date of these losses," and because the audit "could definitively show the true amount of loss of the plaintiffs." (Id.) Plaintiffs also ascribe misconduct to the Arbitrator "in refusing to allow material evidence and testimony showing that Woodmen of the World has an extensive history of negligent hiring and supervision of its agents in Alabama." (Id. at 3.) According to plaintiffs, this evidence "show[s] a pattern of negligent hiring and supervision" and would have bolstered their negligence claims. (Id. at 5.)
The FAA authorizes vacatur of arbitration awards "where the arbitrators were guilty of misconduct ... in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced." 9 U.S.C. § 10(a)(3). Judicial review under § 10(a)(3) is narrow, inasmuch as "[a]rbitrators enjoy wide latitude in conducting an arbitration hearing, and they are not constrained by formal rules of procedure or evidence." Rosensweig v. Morgan Stanley & Co., 494 F.3d 1328, 1333 (11
Furthermore, even a showing of misconduct (without more) does not suffice, because § 10(a)(3) also includes a prejudice element that the party petitioning for vacatur must satisfy. See Rosensweig, 494 F.3d at 1333 ("[A] federal court may vacate an arbitrator's award only if the arbitrator's refusal to hear pertinent and material evidence prejudices the rights of the parties to the arbitration proceedings.") (citation omitted); Aviles v. Charles Schwab & Co., 2011 WL 2938020, *3 (11
The Thameses maintain that the Arbitrator violated § 10(a)(3) by refusing to order Woodmen to produce an "audit" showing "the total amount of loss by Wayne and Robert Thames and the date of those losses." (Doc. 17, at 2.) The threshold problem with this § 10(a)(3) argument is that the Thameses have offered no evidence that such an audit exists. From day one, Woodmen consistently, steadfastly denied that it had conducted such an audit. Both sides agree that the Arbitrator heard from the parties at length on this issue on multiple occasions, both before and during the hearing, including the Thameses' explanation for why they believed there must be such an audit and Woodmen's denial of the existence of same. (Hearing Transcript (doc. 1, Exh. A), at 356-59.) The Arbitrator ultimately accepted Woodmen's representation that no such audit exists. (Doc. 18, Exh. E, ¶ 5 ("The Respondent represents there are/were no pre-arbitration audits on the Claimants[`] insurance accounts."). Plaintiffs have come forward with no evidence that the Arbitrator's finding that the subject audit did not exist was erroneous, much less that said determination was made in bad faith or was so gross that it amounted to affirmative misconduct. All the Thameses have shown is that they disagree with the Arbitrator's decision. Under applicable law, such a contention falls well short of the high threshold necessary to support § 10(a)(3) relief on an arbitrator misconduct theory.
Even if the Court could conclude on this record that the Arbitrator erred in crediting Woodmen's representation that the requested audit is nonexistent, and even if the Court could conclude on this record that such an error was so egregious as to constitute affirmative misconduct, the Thameses still would not prevail under § 10(a)(3). As noted supra, that subsection allows for vacatur on misconduct grounds "only if the arbitrator's refusal to hear pertinent and material evidence prejudices the rights of the parties to the arbitration proceedings." Rosensweig, 494 F.3d at 1333 (citation omitted). Plaintiffs state that the evidentiary value of the supposed audit was that it "could show the true amount of Mr. Dees' theft and Wayne and Robert Thames [sic] loss as well as the mechanics of Mr. Dees' scheme to defraud." (Doc. 17, at 3.) However, plaintiffs fail to show how this information might have made any material difference in the arbitration proceedings. To the extent plaintiffs would have used the audit to show the amount of loss, that kind of damages evidence would only come into play if the Arbitrator found for the Thameses on liability. He did not, so the "true amount" of the Thameses' loss (and, hence, the damages to which they would have been entitled had they prevailed on liability) was of no consequence. Nor does plaintiffs' cryptic reference to "the mechanics of Mr. Dees' scheme to defraud" suggest that production of the audit would have mattered one whit in the Arbitrator's liability findings. At issue in the case was not the mechanics of Dees' scheme, but whether Woodmen should be liable for it.
In short, the Court readily concludes that plaintiffs' § 10(a)(3) claim for vacatur of the Award because the Arbitrator failed to require Woodmen to produce "an audit ... showing the extent of Mr. Dees' theft" (doc. 17, at 2) is meritless. Plaintiffs have not shown that the Arbitrator's determination that no such audit existed was erroneous, much less that such a determination could possibly amount to affirmative misconduct by the Arbitrator, or that the Thameses were prejudiced in their rights to the arbitration proceedings as a result. All we have here is a simple disagreement by a litigant with an arbitrator's reasonable (albeit not unassailable) discovery ruling. That is not the stuff of a § 10(a)(3) violation.
Alternatively, the Thameses seek vacatur of the Award under § 10(a)(3) on the ground that the Arbitrator "demonstrated misconduct in refusing to allow material evidence and testimony showing that Woodmen of the World has an extensive history of negligent hiring and supervision of its agents in Alabama." (Doc. 17, at 4.) Plaintiffs' Motion does not specify what evidence was excluded, but merely cites to four pages of the hearing transcript (pages 13, 45, 414, 415), with no amplification. These pages reveal the following: (i) the Arbitrator overruled a defense objection to plaintiffs' questioning about a Woodmen agent named Glenn Morris and events dating back a quarter century (Hearing Transcript, at 13-14); (ii) when the defense objected to a question concerning Scott Dees' duties when Woodmen hired him, plaintiffs' counsel withdrew the question before the Arbitrator ruled on it (id. at 45-46); and (iii) the Arbitrator overruled a defense objection to plaintiffs' questioning Woodman's national field manager about whether "this same activity isn't going on all over the country" and allowed follow-up questions about Morris over defense objections (id. at 414-16). The point is this: Nowhere in the cited pages did the Arbitrator exclude evidence or testimony showing Woodmen's purported history of negligent hiring and supervision of agents. Without identification by plaintiffs of exactly what evidence was purportedly excluded by the Arbitrator, this challenge to the Award fails on its face.
Nor do plaintiffs improve their § 10(a)(3) argument by describing testimony that
Besides, even if plaintiffs had shown error by the Arbitrator in excluding evidence that Woodmen had a history of negligent hiring and supervision of its agents, vacatur of the Award under § 10(a)(3) would remain inappropriate because the Thameses still have not shown prejudice. According to plaintiffs, the purportedly wrongfully excluded evidence related to their claims of negligence, negligent supervision and fraud. The Award reflects that plaintiffs' negligence claims were denied on grounds of contributory negligence and untimeliness, and that plaintiffs' fraud claims were denied for want of reasonable reliance. Those fatal defects would have remained — and the resulting Award would have been unchanged — even if the evidence cited by the Thameses had been allowed.
For all of these reasons, the Court concludes that plaintiffs' 9 U.S.C. § 10(a)(3) challenge to the Award is both factually and legally unfounded.
The other two grounds for relief presented in plaintiffs' Motion to Vacate allege that the Arbitrator was biased or corrupt in some way. In that regard, the Thameses maintain that the Arbitrator's evident partiality was manifested in his failure to disclose a relationship with Woodmen's attorneys, and in "disregarding and falsely labeling the evidence" at the hearing. (Doc. 17, at 7.) As set forth in the Motion to Vacate, plaintiffs' latter point turns on the Arbitrator's purported refusal to lend credence to evidence that Woodmen had breached a contractual duty owed to the Thameses.
Under § 10(a)(2) of the FAA, vacatur of an arbitration award is permissible "where there was evident partiality or corruption in the arbitrators." 9 U.S.C. § 10(a)(2). "[T]he `evident partiality' exception is to be strictly construed, as it must be if the federal policy favoring arbitration ... is to be given full effect." Gianelli Money Purchase Plan & Trust v. ADM Investor Services, Inc., 146 F.3d 1309, 1312 (11
The centerpiece of the Thameses' § 10(a)(2) objection is that "[t]he arbitrator failed to disclose a relationship with defendant's counsel." (Doc. 17, at 5.)
Furthermore, even if the Court were blindly to accept plaintiffs' position that the Arbitrator had a prior relationship with Woodmen's lawyers (despite the lack of evidence to support that position, plaintiffs' failure to take reasonably available steps to develop an appropriate record during arbitration proceedings, and defendant's attorneys' declarations flatly denying such a relationship), plaintiffs would still not be entitled to relief. At most, plaintiffs have shown that the Arbitrator was sufficiently acquainted with Woodmen's lawyers that he believed them to be "good, honest attorneys." That does not come close to satisfying the "evident partiality or corruption" standard for vacatur under § 10(a)(2). Indeed, "standing alone, the fact that an arbitrator ... had previous contacts with counsel for one of the parties does not suggest evident partiality." University Commons-Urbana, Ltd. v. Universal Constructors Inc., 304 F.3d 1331, 1340 (11
Finally, the Thameses seek vacatur of the Award under § 10(a)(2) on the ground that the Arbitrator displayed evident partiality and corruption in "disregarding and falsely labeling the evidence." (Doc. 17, at 7.) As explanation for this allegation, plaintiffs submit a cursory paragraph citing an eight-page excerpt from the hearing transcript, disagreeing with the Arbitrator's treatment of their breach of contract claims, and stating that the Arbitrator "refused to give credence to the evidence presented against Woodmen on these findings." (Id.)
Upon review of the cited pages, the Court cannot discern how the testimony therein establishes that Woodmen breached a contractual duty owed to the Thameses.
Careful review of the cited pages of the hearing transcript, alongside the Award's treatment of the breach of contract claims, does not reveal any reason to believe that such award was infected by "evident partiality or corruption." The Arbitrator's ruling on the breach of contract claim evinces neither the existence of an actual conflict nor information which would lead a reasonable person to believe that a potential conflict exists, as required to constitute "evident partiality" under the Gianelli line of cases. Therefore, no § 10(a)(2) vacatur is warranted on this claim.
For all of the foregoing reasons, the plaintiffs' Motion to Alter, Amend or Vacate (doc. 17) is