COLLEEN KOLLAR-KOTELLY, United States District Judge.
Petitioner Susan Ray and Respondent Marc Chafetz are co-partners of the now-defunct Beltway Law Group LLP ("BLG"). Petitioner John Ray, Ms. Ray's ex-husband, is not formally a partner of BLG, but shares in the firm's distributions. Shortly after Respondent joined BLG, irreconcilable differences emerged between him and Ms. Ray, and the latter filed a demand for arbitration before the American Arbitration Association ("AAA") seeking dissolution of the firm. Mr. Ray, though not originally a party to the arbitration,
Pending before the Court are a variety of motions related to those arbitral awards. Petitioners have filed two petitions to vacate, one seeking to vacate the award of attorney fees and costs ("Original Petition"), and another other seeking to vacate the final award that incorporated all prior awards issued during the arbitration ("Renewed Petition"). Petitioners have also asked the Court to appoint a receiver to administer the further winding down of BLG. Respondent, for his part, has moved to confirm the final award, and in doing so, seeks post-judgment interest and attorney fees and costs associated with his counsel's efforts before this Court. Respondent also seeks sanctions pursuant to Federal Rule of Civil Procedure 11(b) against Petitioners' counsel of record, Mr. Dwight D. Murray.
Upon consideration of the pleadings,
Ms. Ray founded BLG in February 2012 with the assistance of her then husband, Mr. Ray. Orig. Pet. Mem. at 2. Ms. Ray, who is not an attorney, incorporated the firm in the District of Columbia because the D.C. Code permits lawyers to form partnerships with non-lawyers. Throughout the relevant period, a company owned by Ms. Ray and known as BDS Systems ("BDS") covered the operating expenses for and provided various marketing services to BLG. Id. The business model of BDS and BLG relied on the creation of numerous websites that were intended to attract new clients for unaffiliated trial law firms, which would pay BDS a deposit for the company's marketing expenses. In addition, once a client was sourced by BDS, and referred to the trial firm, BLG would enter into a co-counsel agreement with that firm, which entitled BLG to share in the settlement or verdict that the trial firm obtained, after the trial firm recouped the amount it had deposited with BDS. Renewed Pet. Mem. at 3. According to Petitioners, by the end of 2012, "BLG had entered into a large number of co-counsel agreements and had a substantial docket of active matters pending that had significant seven-figure value." Orig. Pet. Mem. at 3.
At the end of 2012, after BLG's initial lawyer-partner resigned, Respondent joined BLG as his replacement and entered into an amended partnership agreement with Ms. Ray ("LLP Agreement"), which is the operative agreement before the Court. Renewed Pet. Mem. at 4. The partners' revenue shares, however, were set forth in a separate distribution agreement. Id. at 4 n.6. Petitioner John Ray, who provided marketing and business development services to BLG, see Orig. Pet. Mem. at 4, was entitled to 35% of BLG's revenue under the distribution agreement, while Respondent and Ms. Ray, the two partners, were entitled to 32.5% each. Orig. Pet., Attach. 4.
By June 2013, irreconcilable differences emerged between Respondent and Ms. Ray. Orig. Pet. Mem. at 4. The specifics of those differences are not relevant to the Court's analysis of the pending motions, and they are not recounted here. Suffice it to say, in October 2013, Ms. Ray filed a demand for arbitration with the AAA seeking "dissolution ... based on failure of duty." Orig. Pet., Attach. 10. The demand was based on the arbitration provision in the LLP Agreement ("Arbitration Agreement"):
Orig. Pet., Attach. 3 at 13.
Pursuant to the terms of the Arbitration Agreement, the parties jointly appointed Judge Richard A. Levie to arbitrate their dispute. See Orig. Pet. Mem. at 7. In December 2013, Ms. Ray amended the demand to include additional counts against Respondent for breaches of contractual and fiduciary duties. Respondent filed a counterclaim in January 2014, likewise seeking dissolution of BLG. See Orig. Pet., Attach. 14 at 1-2. Then, on March 31, 2014, Judge Levie issued an Interim Award in which he concluded that "a Liquidating Event has occurred and that dissolution is appropriate at this time," noting that there had been "a complete breakdown of trust and confidence between the two parties." Orig. Pet., Attach. 12 at 2-3. Judge Levie also denied Ms. Ray's motion to appoint a receiver to administer the dissolution of BLG, holding that "any issues to be decided by any receiver insofar as they arise in the dissolution can be decided by the Arbitrator" and noting the practical reality that BLG at the time lacked any funds to pay for a receiver. Id. at 2, 5 ("Claimants failed to persuade the Arbitrator that there currently is a need to appoint a receiver to try to adjudicate matters that are more properly presented to the Arbitrator."). To facilitate the winding down of BLG, Judge Levie ordered Respondent's counsel to establish "a trust escrow account [the "Escrow Account"] in the District of Columbia... for the handling of funds." Id. at 4. Respondent's counsel was prohibited from making "disbursements from the Escrow Account without either express written consent of [Ms. Ray] to the specific disbursements (amount, payee, and time) or an order of the Arbitrator." Id. at 6.
In between the filing of the demand for arbitration and Judge Levie's Interim Order, two related actions were brought in North Carolina state court against BLG by Mr. Ray and BDS, respectively. Both lawsuits sought compensation for services allegedly rendered to BLG. Orig. Pet. Mem. at 7-8; Orig. Pet., Attach. 14 at 3. Because Ms. Ray held a proprietary interest in the outcome of these lawsuits that conflicted with the interests of BLG — because she owned BDS and was married to Mr. Ray — Judge Levie held that Ms. Ray was "not in a position to objectively represent the interests of BLG in these lawsuits," and
The Interim Award essentially resolved the primary dispute between the parties that led to the arbitration — the dissolution of BLG — and ordered that "the Partnership shall continue solely for the purpose of winding up its affairs in an orderly manner...." Orig. Pet., Attach. 12 at 6. The issues that remained, and that would eventually be resolved by another arbitrator — Robert E. Margulies — related to the award of attorney fees and costs, Respondent's counterclaims, and supervision of the winding down process, as required by the Interim Award. Id. at 5-6. Accordingly, in April 2014, Respondent filed a motion for fees, costs, and sanctions, seeking a determination that he was the prevailing party and an award of attorney fees and costs under the fee shifting provision of the Arbitration Agreement against Ms. Ray, as well as sanctions under the AAA Rules against her attorneys for alleged misconduct during the course of the arbitration. Sanctions Mot., Attach. 1 at 13 ("In addition to shifting Respondent's fees and expenses onto Claimant herself, the Arbitrator has inherent authority to order that her attorneys (and their law firms) be jointly and severally liable for such amounts as a sanction for their well-documented bad-faith behavior."). Then, in October 2014, Respondent succeeded in having the North Carolina cases referred to arbitration; amended his counterclaims shortly thereafter to add Mr. Ray to the proceedings; and moved for partial summary judgment on the counterclaims. See Orig. Pet. Opp., Attachs. 2, 4; Orig. Pet., Attach. 14 at 3.
The resolution of these issues, however, was stymied by two events. First, also in October 2014, Judge Levie resigned without explanation, and was replaced with Arbitrator Judith Ittig in December 2014 by the AAA. Orig. Pet., Attach. 14 at 5. In February 2015, however, the AAA notified the parties that Arbitrator Ittig, in response to Petitioners' objections that she lacked sufficient experience "in the area of legal partnerships and ... [knowledge of] the subject matter area of the dispute," as required by the Arbitration Agreement, had determined that "[l]aw firm dissolutions and mass tort law firm partnerships [were] not areas of [her] expertise." The AAA also relayed that Arbitrator Ittig had suspended the proceedings until the parties made a "deposit in the amount of $18,000 for her anticipated compensation." If the parties did not make the deposit, the AAA warned that "pursuant to [AAA] Rule R-57(f), [the arbitration] will be terminated." Orig. Pet., Attach. 13 at 3. That came to pass several weeks later, in the beginning of March, when the AAA informed the parties that it had terminated the proceedings "inasmuch as the requested deposit for compensation was not received within the time required...." The AAA added that it had received a credit card authorization from Respondent for his share of the arbitral fees, but that the "balance of the deposit was left outstanding." Id. at 1.
Several days after the arbitration was terminated, Respondent's counsel wrote to the AAA and requested that the proceedings be reopened. According to that letter, in the period between the suspension and termination of the arbitration, Respondent had requested "permission to pay the [outstanding amount] from the Escrow Account AAA ordered be establish[ed] to administer [BLG's] funds," but received no response from the AAA. Orig. Pet., Attach. 14 at 8. After the termination, Respondent's counsel apparently spoke with a representative of the AAA, who relayed
The following week, the AAA wrote to the parties again and reported that it had "made the administrative decision to reopen this matter for further administration." Orig. Pet., Attach. 15 at 2. The AAA explained that the "administrative decision was made in light of Respondent Chafetz's offer to pay the outstanding deposit required, or alternatively, a suggestion of a different method under which payment could be made." The AAA also determined that Arbitrator Ittig would be removed and replaced pursuant to the AAA Rules without input from the parties. Id. The AAA adopted Arbitrator Ittig's estimate as the amount due from the parties to continue the arbitration, and instructed the parties that "the AAA cannot authorize the use of funds held in the escrow account that was established in accordance with Judge Levie's Interim Order." Id. at 3. Accordingly, the AAA did not accept the monies wired from the Escrow Account by Respondent's counsel as payment for the arbitral fees, but rather, Respondent eventually paid Petitioners' share at his own expense. The AAA held the wired amount in trust and subsequently returned it to the Escrow Account. See Orig. Pet., Attach. 2 at 5 ("Respondent (Chafetz) made a deposit from the escrow account. After Susan Ray objected, Chafetz replaced the funds with other monies paid directly by Mr. Chafetz."); Renewed Pet., Attach. 2 at 2 ("The [AAA] is directed to return the sum of $12,000 to Beltway Law Group, LLP.").
When the arbitration reopened, the AAA appointed Arbitrator Robert E. Margulies to replace Arbitrator Ittig, and the arbitration progressed on the outstanding issues raised in Respondent's motion for summary judgment and motion for attorney fees, costs, and sanctions. See Renewed Pet. Mem. at 6. In the interim between Arbitrator Margulies's appointment and his rulings on those issues, Mr. Ray moved in July 2015 to stay proceedings to conduct additional discovery. In that motion, Mr. Ray alleged in summary fashion that he had been "denied any rights to discovery of any nature in this proceed[ing]...." Renewed Pet. Opp., Attach. 1 at 3. Ultimately, Arbitrator Margulies declined to stay proceedings, and on September 24, 2015, issued an "Interim Order" on the motion for partial summary judgment that awarded $124,098.48 in favor of Respondent for "Breach of Contract, Conversion and Good Faith and Fair Dealing...." Orig. Pet. Opp., Attach. 5 at 2. Subsequently, in February 2016, Arbitrator Margulies issued an "Order on Various Outstanding Motions," where he, inter alia: (i) denied Petitioners' objections to the reopening of the arbitration after it was terminated for non-payment; (ii) denied awarding sanctions against Ms. Ray and her attorneys; (iii) awarded attorney fees and costs against Petitioners, jointly and severally; and (iv) denied appointing a receiver, noting that Judge Levie previously denied the same request. Orig. Pet.,
Then, in May 2016, Arbitrator Margulies issued a "Final Award," which incorporated "prior Orders and/or Awards entered into in [the arbitration]" and determined that Respondent was entitled to $506,050.18 in attorney fees and costs, "to be paid or reimbursed, such as the case may be, against [BLG], Susan Ray and John Ray, jointly and severally...." Renewed Pet., Attach. 2 at 2-3. Following the issuance of the Final Award, Petitioners jointly filed the Renewed Petition, to which the Court now turns.
As the United States Court of Appeals for the District of Columbia Circuit ("D.C. Circuit") "has repeatedly recognized, judicial review of arbitral awards is extremely limited. Courts do not sit to hear claims of factual or legal error by an arbitrator." Owen-Williams v. BB & T Inv. Servs., Inc., 717 F.Supp.2d 1, 9 (D.D.C. 2010) (Kollar-Kotelly, J.) (internal quotation marks and citations omitted); see also FBR Capital Markets & Co v. Hans, 985 F.Supp.2d 33, 36 (D.D.C. 2013) ("[T]he burden facing petitioners who seek judicial vacatur of arbitration awards is exceedingly high.... It is not enough for petitioners to show that the panel committed an error-or even a serious error." (internal quotation marks omitted)). Pursuant to § 10(a) of the Federal Arbitration Act ("FAA"), the Court may vacate an award on only four limited statutory bases: (1) the award was "procured by corruption, fraud, or undue means"; (2) "there was evident partiality or corruption in the arbitrators, or either of them"; (3) the arbitrators were guilty of misconduct or misbehavior "by which the rights of any party have been prejudiced"; or (4) "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)(1)-(4). Conversely, "under the terms of § 9 of the FAA, a court must confirm an arbitration award unless it is vacated, modified, or corrected...." Owen-Williams, 717 F.Supp.2d at 10 (internal quotation marks and alterations omitted).
The United States Supreme Court in Hall St. Assocs., L.L.C. v. Mattel, Inc. instructed that § 10 provides "the FAA's exclusive grounds for expedited vacatur...." 552 U.S. 576, 584, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008). Before Hall Street, however, the D.C. Circuit "recognized that, in addition to the four statutory grounds listed in [§ 10(a)], an arbitration award may be vacated if it is in `manifest disregard of the law.'" Owen-Williams, 717 F.Supp.2d at 10 n.7. Absent further decisions of the Supreme Court or the D.C. Circuit, it "remains an open question in this Circuit whether the `manifest disregard' standard survives Hall Street." Id. Because the Court does not find Petitioners' contentions on this basis to be meritorious, the Court need not and does not resolve that legal question here.
Between the Original and Renewed Petitions, Petitioners seek vacatur of the Final Award on each of the four statuary bases recognized by the FAA, and for manifest disregard of the law. All of these challenges are addressed in turn.
"Federal courts consistently refuse to vacate an arbitral award under § 10(a)(1) [for undue means] unless the movant's submissions meet three cumulative conditions." ARMA, S.R.O. v. BAE Sys. Overseas, Inc., 961 F.Supp.2d 245, 254 (D.D.C. 2013) (collecting cases). The first of those conditions is dispositive of the issues raised by Petitioners. Namely, "the party seeking vacatur must demonstrate by clear and convincing evidence that its opponent actually engaged in fraudulent conduct or used undue means during the course of the arbitration." Id. Importantly, "[u]nder this first requirement, ordinary misconduct will not suffice; the alleged fraudulent acts must have been so prejudicial that they effectively denied the opposing party a `fundamentally fair hearing.'" Id. Conduct by an attorney that amounts to "mere sloppy or overzealous lawyering" does not "constitute[] `undue means.'" A.G. Edwards & Sons, Inc. v. McCollough, 967 F.2d 1401, 1403 (9th Cir. 1992). Rather, the term "clearly connotes behavior that is immoral if not illegal." Id.
Petitioners posit three ways in which the Final Award was "procured by undue means": (i) the "award was the product of bias which resulted in the improper re-opening of a terminated arbitration," which indicates a bias in favor of Respondent by the arbitrator; (ii) "bias was also demonstrated by the AAA when it received money illegally withdrawn from BLG's escrow account for the payment of arbitration fees"; and (iii) Respondent sent a letter to the AAA, which demanded that the arbitration be reopened, threatened the AAA with legal action, and disparaged Petitioners. Renewed Pet. Mem. at 7-9.
However, neither the reopening of the arbitration nor the acceptance of arbitral fees constitute "undue means" because these actions did not deny Petitioners a "fundamentally fair hearing" — if anything, they facilitated the hearing. Nor do these actions appear to constitute misconduct, let alone the type of immoral or illegal behavior that can justify vacatur. The decision to reopen the arbitration was a prerogative of the AAA, see infra at 19-20, and Respondent ultimately paid the arbitral fees at his personal expense, see supra at 9. That Respondent's counsel under exigent circumstances wired monies to pay for Petitioners' share of the arbitral fees, to arbitrate a dispute regarding the parties' interests in the partnership, out of the Escrow Account established for the benefit of the partnership, without consent from Petitioners or the AAA, does not in this Court's view constitute the type of unethical or illegal conduct that can justify vacatur.
The Court has also reviewed the letter that Petitioners claim allowed Respondent to obtain the Final Award by undue means because it threatened the AAA with litigation and disparaged Petitioners. The Court finds this contention to be without merit. The letter articulates the procedural history of the arbitration, the circumstances surrounding the suspension and termination of the proceedings, conveys Respondent's offer to pay for Petitioners' share of the arbitral fees, and informs the AAA that Respondent will seek judicial review of the AAA's determination if it does not reopen the matter. See Orig. Pet., Attach. 14. The letter is not an
In their Renewed Petition, Petitioners include a headnote that reads: "The Award Should Be Vacated Due to Evident Partiality." But the text that follows the headnote discusses vacatur on the basis of § 10(a)(3) for misconduct by the arbitrator. Renewed Pet. Mem. at 9. In their Reply, Petitioners appear to recognize this error, but indicate that they do "not waive the evident partiality argument as a basis for vacatur. At the same time, Petitioners also recognize that this is a difficult, but not impossible burden for Petitioners to meet." Renewed Pet. Reply at 10. The Court agrees with that assessment.
"A party challenging an arbitration award because of evident partiality bears a heavy burden to establish specific facts that indicate improper motives on the part of an arbitrator. The alleged partiality must be direct, definite, and capable of demonstration rather than remote, uncertain or speculative...." Thian Lok Tio v. Washington Hosp. Ctr., 753 F.Supp.2d 9, 17 (D.D.C. 2010) (internal quotation marks and citations omitted). Although an "arbitrator's legitimate efforts to control the proceedings in an expeditious manner often may be viewed as abrasive or disruptive to a disappointed party[,] [s]uch displeasure... fails to qualify as grounds for vacating an arbitration award." Alston v. UBS Fin. Servs., Inc., No. CIV.A. 04-01798(HHK), 2006 WL 20516, at *3 (D.D.C. Jan. 2, 2006) (internal quotation marks and citations omitted). Ultimately, in order to succeed on the basis of § 10(a)(2), Petitioners must demonstrate "more than an amorphous institutional predisposition toward the other side...." Andersons, Inc. v. Horton Farms, Inc., 166 F.3d 308, 329 (6th Cir. 1998).
The only specific instance of partiality described in the Reply is the AAA's decision to reopen the arbitration. Renewed Pet. Reply at 11-12. However, Petitioners do not explain what "improper motive" this incident imbued on the AAA, and after reviewing the record as a whole, the Court finds none. A desire to continue the proceedings, even if it were a motive, is not improper; and a general predisposition toward Respondent by the AAA, even if it were a reality, does not suffice for vacatur. Petitioners also cite a laundry list of other incidents as "evidence" of partiality, including "the re-writing of the LLP Agreement by Judge Levie, the re-opening of a terminated arbitration, the denial of discovery to John Ray when all other parties were entitled to discovery, the improper appointment of Arbitrator Margulies, and the award of sanctions against BLG that allowed Respondent to pilfer the assets of BLG...." Id. at 12. These contentions fail to meet the "heavy burden to establish specific facts that indicate improper motives...." Thian Lok Tio, 753 F.Supp.2d at 17 (internal quotation marks omitted). Rather, they amount to "a series of unfavorable rulings by the arbitrator," that while they "may produce an appearance of bias in the eyes of the unsuccessful party," do not justify this Court vacating the Final
Under § 10(a)(3) of the FAA, the Court may vacate the Final Award if it determines that an arbitrator was "guilty of misconduct in refusing to postpone [a] hearing...." Here, Petitioners assert that Arbitrator Margulies was guilty of such misconduct when he refused to stay proceedings at Mr. Ray's request in July 2015 in order to allow Mr. Ray to conduct additional discovery. Renewed Pet. Mem. at 10; see supra at 9. On this issue, the inquiry before the Court is "not whether this Court might have exercised its discretion to grant a postponement under the relevant circumstances, but whether the arbitrator's decision to deny the continuance was unreasonable or an abuse of discretion." Equitas Disability Advocates, LLC v. Daley, Debofsky & Bryant, P.C., 177 F.Supp.3d 197, 215 (D.D.C. 2016), aff'd sub nom. Equitas Disability Advocates, LLC v. Feigenbaum, No. 16-7060, 672 Fed. Appx. 13, 2016 WL 7335677 (D.C. Cir. Dec. 2, 2016). On the other hand, "the failure of an arbitrator to grant a postponement or adjournment [that] results in the foreclosure of the presentation of `pertinent and material evidence,' is an abuse of discretion" that may warrant vacatur. Naing Int'l Enterprises, Ltd. v. Ellsworth Assocs., Inc., 961 F.Supp. 1, 3 (D.D.C. 1997).
Petitioners claim that "after Mr. Ray was added as a party to the arbitration, he was immediately faced with a Motion for Partial Summary Judgment." Renewed Pet. Mem. at 10. That may be true in a technical sense, as Mr. Ray was joined in October 2014 shortly after he was compelled to proceed to arbitration by a North Carolina state court. In the same month, Respondent amended his counterclaims to include Mr. Ray and moved for partial summary judgment. See supra at 7. However, it is also evident that Mr. Ray was well aware of the arbitral proceedings before he was formally added as a party, see Renewed Pet. Opp., Attach. 9 (August 2014 letter from Mr. Ray informing Judge Levie that Mr. Ray was filing a sanctions motion against him in North Carolina); and that Mr. Ray did not file his motion to stay proceedings until July 2015 — nine months after he was added to the arbitration. In that motion, Mr. Ray claimed that he was denied "any rights to discovery of any nature" in the arbitration. Renewed Pet. Opp., Attach. 1 at 3. Respondent strenuously objects that Mr. Ray in fact received "thousands of pages of documents in discovery — all of the discovery exchanged between Respondent and Mrs. Ray — and he has never requested any discovery in [the arbitration]." Renewed Pet. Opp. at 7. In their Reply, Petitioners seem to concede that Mr. Ray had access to discovery, but assert that he was dissatisfied with Respondent's counsel's control over the online service, "Dropbox," that was used to store the materials. Renewed Pet. Reply at 12. Regardless of the exact nature of the discovery dispute, from the record before it, the Court does not see any basis to conclude that Arbitrator Margulies's decision to deny Mr. Ray's request for a stay to conduct additional discovery was unreasonable or an abuse of discretion, especially given the time that had elapsed since Mr. Ray was formally joined as a party to the arbitration. See Al-Haddad Commodities Corp. v. Toepfer Int'l Asia Pte., Ltd., 485 F.Supp.2d 677, 682 (E.D. Va. 2007) (finding no misconduct in tribunal's "decisions to hold a hearing `just six weeks' after the arbitration was demanded, and to reject [respondent's] request to adjourn the arbitration
As discussed earlier in this opinion, see supra at 11, the legal viability of the manifest disregard of the law doctrine is a question that has not been resolved. Nevertheless, the Court will address the factual predicates involved in these claims.
In order to establish manifest disregard of the law as a basis for vacatur, Petitioners must demonstrate that "(1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case." Affinity Fin. Corp. v. AARP Fin., Inc., 468 Fed. Appx. 4, 5 (D.C. Cir. 2012). None of Petitioners' contentions meet this difficult standard.
Petitioners assert that the AAA manifestly disregarded the law by reopening the arbitration after it had been terminated. Orig. Pet. Mem. at 13-15. The Crux of this claim is that after the AAA terminated the arbitration, there "was no AAA Rule permitting" the AAA to reopen the arbitration. Id. at 15. Petitioners also highlight that Respondent's counsel's March 2015 letter to the AAA memorialized a conversation during which a representative of the AAA purportedly said that the organization "had determined that it was legally prevented from reversing the termination since there was no express provision for it under the [AAA] rules." See Orig. Pet. Reply at 10; Orig. Pet., Attach. 14 at 9. One week later, the AAA did in fact reopen the arbitration, and Arbitrator Margulies later rejected Petitioners' objections to continued proceedings on that basis. See supra at 8, 10.
Petitioners' claim fails, as Respondent correctly asserts, because while there may be no AAA Rule that permits the reopening of a terminated arbitration, the record contains no indication that there is an AAA Rule that forbids the AAA from taking that action. See Orig. Pet. Opp. at 7. Given that there is no AAA Rule forbidding the reopening of a terminated proceeding, and no other viable legal doctrine has been presented that precludes the AAA from taking that action — let alone one that was acknowledged by the AAA or the arbitrators — the Court cannot conclude that "the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether" by reopening the arbitration, or that "the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case." That the AAA initially thought they should not reopen the
Moreover, the Supreme Court has instructed that "procedural questions which grow out of the dispute and bear on its final disposition are presumptively not for the judge, but for an arbitrator, to decide." Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002) (internal quotation marks omitted). "So, too, the presumption is that the arbitrator should decide allegations of waiver, delay, or a like defense to arbitrability." Id. (internal quotation marks and alterations omitted). Whether the arbitration could be reopened after it was terminated is a procedural arbitrability issue that was and remains properly left to the arbitrators in the underlying proceeding, especially given that they are "more expert than the district court at interpreting and applying [their] own rules...." Williams v. Tully, No. C-02-05687 MMC, 2005 WL 645943, at *5 (N.D. Cal. Mar. 18, 2005); see also Union Cent. Life Ins. Co. v. Andraos, No. 1:09-CV-758, 2011 WL 6091771, at *5 (S.D. Ohio Oct. 21, 2011), report and recommendation adopted, No. C-1-09-758, 2011 WL 6100275 (S.D. Ohio Dec. 7, 2011) (under similar factual circumstances, after an underlying arbitration had been terminated for non-payment of fees, holding that "plaintiff's argument that the parties' non-payment of arbitration fees equates to a waiver of arbitration is a procedural issue which should be determined by the arbitrator. The payment of arbitration fees is a condition precedent to arbitration, similar to the required submission of documents and abiding by time limits, which are considered procedural issues to be decided by an arbitrator.").
Petitioners also contend that the termination rendered Arbitrator Margulies functus officio, which would invalidate the Final Award. Orig. Pet. Mem. at 15. That doctrine holds that "once an arbitrator has made and published a final award, his authority is exhausted and he... can do nothing more in regard to the subject matter of the arbitration." Hill v. Wackenhut Servs. Int'l, 971 F.Supp.2d 5, 12 (D.D.C. 2013) (internal quotation marks and alterations omitted). An arbitral award is final if it "intended by the arbitrator to be his complete determination of every issue submitted to him." Am. Postal Workers Union v. U.S. Postal Serv., 422 F.Supp.2d 240, 246 (D.D.C. 2006) (internal quotation marks omitted). However, the
Petitioners focus their other manifest disregard challenges on Arbitrator Margulies's award of attorney fees and costs. These contentions are factually infirm. Most notably, Petitioners repeatedly assert that Arbitrator Margulies manifestly disregarded the law, or otherwise acted improperly, by awarding sanctions against Petitioners and BLG.
Petitioners' contention that they were not permitted to object to the award of attorney fees and costs is also contradicted by the factual record before the Court. The February 2016 Order plainly states that Petitioners could file an objection to Respondent's counsel's fee affidavit within 10 days. Orig. Pet., Attach. 2 at 3. That Petitioners apparently chose not to do so is irrelevant. See Renewed Pet. Opp., Attach. 13 at 1 (referring to the February 2016 Order, Petitioners' counsel wrote only that the "objections of the Rays are well known to this AAA proceeding"). Likewise, although Petitioners claim that Arbitrator Margulies failed to apply a reasonable standard in awarding fees, and that he focused solely on Respondent's counsel's pedigree, that is not correct. The fee award was based on "the experience and professional expertise demonstrated by
Petitioners' other contentions are similarly flawed. They claim that Arbitrator Margulies manifestly disregarded the law when he refused to stay the arbitration after Petitioners filed their Original Petition. Renewed Pet. Mem. at 11. However, Petitioners cite to no principle of law that unequivocally entitled them to a stay of the arbitration when the February 2016 Order was challenged in this Court. Petitioners also claim that Arbitrator Margulies was appointed in contradiction of the Arbitration Agreement because he was not "selected by the District of Columbia office of the American Arbitration Association," and because he practices in New Jersey rather than in the District of Columbia. See Renewed Pet. Mem. at 1 n.2, 12; Orig. Pet. Mem. at 11. However, the portion of the Arbitration Agreement that sets forth this criteria — and the Court notes that, in any event, there is no requirement that the arbitrator himself be located or barred in the District of Columbia — only applies to the initial selection of an arbitrator "within 30 days following notice by one party that he desires that a matter be arbitrated...." Orig. Pet., Attach. 3 at 13. The parties jointly agreed on the appointment of the first arbitrator, Judge Levie. Orig. Pet. Mem. at 7. The Arbitration Agreement does not specify the procedure for replacing an arbitrator, but does incorporate the AAA Rules, which the AAA followed in appointing Arbitrator Margulies to replace Arbitrator Ittig. Orig. Pet., Attach. 15 ("Pursuant to Rules R-20 and R-12(c), the AAA will fill this vacancy without the submission of an additional list to the parties."). Accordingly, the Court finds that the appointment of Arbitrator Margulies was in conformity with the Arbitration Agreement.
Respondent seeks confirmation of the Final Award and entry of judgment.
The Final Award provides for the following monetary amounts in favor of Respondent: (i) $80,248.48 "against [BLG] and Susan and John Ray, said sum to be assessed against the interests of Susan and John Ray in said entity first to the extent of their interest, if any"; (ii) $43,850.00 "against Susan Ray and [BLG] said sum to be assessed against the interest of Susan Ray first to the extent of her interest in said entity"; and (iii) attorney fees and costs in the amount of "$506,050.18, to be paid or reimbursed, such as the case may be, against [BLG], Susan Ray and John Ray, jointly and severally...." Renewed Pet., Attach. 2 at 2 (Final Award); Orig. Pet. Opp., Attach. 5 at 3 (September 24, 2015 Interim Order, incorporated by reference into the Final Award). According to the pleadings, $189,016.77 of the Final Award has already been paid out of BLG's distributions to Ms. Ray. Cross Mot. at 2. The Court offers no view on the propriety of this action. For the reasons described below, to the extent there are disagreements between the parties that arise out of the continued winding down of BLG, those disagreements are not for this Court to decide on the basis of the pending motions. The remaining amount currently due to Respondent under the Final Award is $441,131.89, which represents the $43,850.00 award against Ms. Ray, and $397,281.89 against Petitioners, jointly and severally, as compensation for Respondent's attorney fees and costs. Id. Accordingly, Respondent moves the Court to confirm the Final Award, and enter judgment in the amount of $441,131.89, apportioned between Petitioners in the manner just described.
Pursuant to § 9 of the FAA, the Court "must" confirm the Final Award "unless [the award] is vacated, modified, or corrected as prescribed" in §§ 10 or 11 of the FAA. Hall Street, 552 U.S. at 582, 128 S.Ct. 1396 (internal quotation marks omitted); Int'l Thunderbird Gaming Corp. v. United Mexican States, 473 F.Supp.2d 80, 83 (D.D.C. 2007) ("in the absence of a legal basis to vacate, this court has no discretion but to confirm the award"), aff'd, 255 Fed. Appx. 531 (D.C. Cir. 2007). Because the Court concludes that there is no valid basis to vacate the Final Award, the Court GRANTS Respondent's request to confirm the Final Award and for entry of judgment in the amount of $441,131.89.
The Court now turns to two ancillary issues raised in the Cross-Motion to Confirm. First, Respondent requests post-judgment interest. Cross. Mot. at 2. Pursuant to 28 U.S.C. § 1961(a), "[i]nterest shall be allowed on any money judgment in a civil case recovered in a district court." The Court's judgment in this matter is a "money judgment" that falls within the purview of § 1961. See Mediso Med. Equip. Developing Servs., Ltd. v. Bioscan, Inc., 75 F.Supp.3d 359, 364 (D.D.C. 2014); McVay v. Halliburton Energy Servs., Inc., 688 F.Supp.2d 556, 565 (N.D. Tex. 2010), aff'd, 608 Fed.Appx. 222 (5th Cir. 2015) ("Because a district court's confirmation of
Respondent also seeks attorney fees and costs for his efforts before this Court. Cross. Mot. at 3. The FAA does not provide independent grounds for attorney fees, and absent an underlying fee-shifting statute or a contractual agreement, the "American rule" is that each party should bear its own attorney fees and costs. See Riniker v. UnitedHealth Grp. Inc., No. 12-CV-2875 JNE/TNL, 2015 WL 1782566, at *8 (D. Minn. Apr. 20, 2015). Here, the Arbitration Agreement provides for the shifting of attorney fees as follows: "The losing party shall bear any fees and expenses of the arbitrator, other tribunal fees and expenses, reasonable attorney's fees of both parties, any costs of producing witnesses and any other reasonable costs or expenses incurred by him or the prevailing party or such costs shall be allocated by the arbitrator." Orig. Pet., Attach. 3 at 13. On the basis of the pending motions, the Court cannot exclude the possibility that attorney fees and costs are warranted based on this contractual language, but neither can the Court grant Respondent's motion for fees and costs at this time. Accordingly, Respondent's request for attorney fees and costs is DENIED WITHOUT PREJUDICE. Respondent may file a separate motion for attorney fees and costs as provided by Federal Rule of Civil Procedure 54(d)(2).
Petitioners have moved for the appointment of a receiver to administer the further winding down of BLG. See Receiver Mot. at 1-2. They contend that this relief is necessary to preclude further alleged misconduct by Respondent and his counsel in administering the funds and affairs of BLG, and in particular, the Escrow Account that Judge Levie ordered Respondent's counsel to administer. See id.; Renewed Pet. Reply at 16-17. The Court expresses no view on the validity of these contentions, as there are at least two independent, threshold reasons why the Court may not grant the relief that Petitioners seek.
First, the appointment of a receiver must be ancillary "to some primary relief which is sought and which equity may appropriately grant." Kelleam v. Md. Cas. Co., 312 U.S. 377, 381, 61 S.Ct. 595, 85 S.Ct. 899 (1941). In other words, a receivership "is not an end in itself." Id.; see also N.Y. Cmty. Bank v. Sherman Ave. Assocs., LLC, 786 F.Supp.2d 171, 175-76 (D.D.C. 2011); Wells Fargo Bank, N.A. v. Star Texas Gasoline & Oil Distributors, Inc., No. 2:14-CV-453, 2015 WL 419638, at *3 (S.D. Tex. Jan. 29, 2015) (collecting cases). In this matter, the Court has denied the primary relief sought by Petitioners — vacatur of the Final Award — and has granted the primary relief sought by Respondent — confirmation of the Final Award. Consequently, at this juncture, the only relief that Petitioners can and do seek is the appointment of a receiver; but the Court cannot appoint a receiver "when it is sought as the primary form of relief." Sherman, 786 F.Supp.2d at 176.
Beyond this first legal impediment lies the fact that the receivership issue has already been adjudicated in the underlying arbitration; and while Petitioners have requested that this Court appoint a receiver, they have not specifically challenged Judge
Respondent seeks sanctions pursuant to Federal Rule of Civil Procedure 11(b) against Petitioners' counsel, Dwight D. Murray, for a variety of misrepresentations that were allegedly made in Petitioners' pleadings to this Court, the most notable being Petitioners' frequent refrain that Arbitrator Margulies awarded sanctions against Petitioners and BLG. See Sanctions Mot. at 4-8. "The test for sanctions under Rule 11 is an objective one: that is, whether a reasonable inquiry would have revealed that there was no basis in law or fact for the asserted claim." Hickey v. Scott, 738 F.Supp.2d 55, 72 (D.D.C. 2010) (internal quotation marks and alterations omitted). "If the Court determines that Rule 11(b) has been violated, the court may impose an appropriate sanction on any attorney, law firm, or party that violated the rule or is responsible for the violation." Cheeks of N. Am., Inc. v. Fort Myer Const. Corp., 807 F.Supp.2d 77, 99 (D.D.C. 2011) (internal quotation marks omitted), aff'd, No. 11-7117, 2012 WL 3068449 (D.C. Cir. July 26, 2012). The imposition of sanctions is ultimately "left to the discretion of the district court judge," id. and the Court must "take into consideration that Rule 11 sanctions are a harsh punishment...." Hickey, 738 F.Supp.2d at 72; see also Hourani v. Mirtchev, 796 F.3d 1, 18 (D.C. Cir. 2015) ("once a district court finds a Rule 11 violation, it retains broad discretion in imposing sanctions"). After reviewing the record as a whole, the Court concludes that while some of Petitioners' contentions are potentially misleading, if viewed in context, they suggest positions that are not wholly frivolous or deceptive. The Court recognizes, however, that this is an exceedingly low bar by which to gauge attorney work product. Accordingly, although the Court in an exercise of its discretion DENIES Respondent's motion for sanctions in this instance, the Court pauses to stress that, to the extent there are further proceedings
For the foregoing reasons, the Court
The Final Award is confirmed, and judgment shall be entered in the amount of $441,131.89, apportioned as $43,850.00 against Petitioner Ms. Ray, and $397,281.89 against Petitioners jointly and severally, plus interest as provided in 28 U.S.C. § 1961, from the date of the judgment until the judgment is paid.
An appropriate Order accompanies this Memorandum Opinion.
