Doral Financial Corporation v. Garcia-Velez ( 2013 )

United States Court of Appeals
For the First Circuit
No. 12-1519
DORAL FINANCIAL CORPORATION,
Plaintiff, Appellant,
v.
CALIXTO GARCÍA-VÉLEZ; CARMEN T. GARCÍA-VÉLEZ,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Aida M. Delgado-Colón, U.S. District Judge]
Before
Lynch, Chief Judge,
Torruella and Selya, Circuit Judges.
Roberto A. Cámara-Fuertes, with whom José L. Ramírez-Coll and
Fiddler, González & Rodríguez, PSC, were on brief for appellant.
José Luis González-Castañer, with whom González Castañer,
C.S.P., was on brief for appellees.
July 31, 2013
TORRUELLA, Circuit Judge. Plaintiff-Appellant Doral
Financial Corp. ("Doral") filed this appeal after the district
court denied its petition to vacate an arbitral award. According
to Doral, the district court incorrectly rejected its contention
that the arbitration tribunal engaged in misconduct by denying the
issuance of pre-hearing and hearing subpoenas. Doral also argues
that the district court erred in its determination that the
tribunal had authority to order the payment of pre-award interest.
After carefully considering the record, we affirm.
I. Background
When Doral terminated Defendant-Appellee Calixto García-
Vélez as the President of its Consumer Banking Division, García-
Vélez began the arbitration proceedings underlying this appeal
seeking the severance compensation that he felt was contractually
due.1 Doral opposed the filing and argued that García-Vélez's
employment contract required no severance payment because the
termination was "for cause." Shortly thereafter, García-Vélez
accepted a top executive position at the Miami branch of a bank
with whom Doral competed in Puerto Rico. He notified Doral by
letter about his new employment, and Doral responded with an
1
The employment contract had an arbitration clause whereby
García-Vélez and Doral "agree[d] that any controversy or claim
arising out of, or relating to this Agreement, or the breach
thereof . . . shall be settled by confidential arbitration . . . in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association." There is no dispute that this clause
mandated the arbitration of García-Vélez's claims.
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amendment to its submission to the arbitration tribunal, adding the
claim that it owed no severance to García-Vélez because he had
breached the non-competition clause of his employment contract.
Doral also moved the tribunal for injunctive relief against García-
Vélez and commenced parallel litigation in state court against his
employer.2
The arbitration tribunal held a preliminary arbitration
conference on March 23, 2009. It subsequently issued a scheduling
order reflecting the agreements of the parties at the conference.
As relevant here, the order established May 15, 2009, as the
deadline for final requests for information, and August 7, 2009,
for the submission of a final witness list. The order also stated
that, "if a party wishes to issue a subpoena to a third party
. . . the parties shall first confer and determine if there is any
disagreement to the date and propriety of the subpoena. . . . Any
dispute, as to a subpoena, shall be resolved by the Tribunal
. . . ."
On September 4, 2009, five days before the first
arbitration hearing was scheduled to begin, Doral filed an "Urgent
Motion to Stay the Arbitration Proceedings," stating that the Miami
branch of the bank for which García-Vélez allegedly worked had
merged with its Puerto Rico holding company. According to Doral,
2
Early into the arbitration, Doral voluntarily dismissed the
claim for injunctive relief.
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the merger proved the falsity of García-Vélez's contention that he
exclusively worked for the Miami branch. The tribunal, however,
denied the stay, and the arbitration hearings commenced as
scheduled on September 9, 2009.
García-Vélez testified during the first days of the
arbitration hearings. However, on September 14, 2009, due to a
medical situation afflicting Doral's counsel, his testimony was
interrupted and the hearings were postponed until December 14,
2009. Doral took advantage of the two-month recess to serve
García-Vélez with a first set of interrogatories and a request for
production of documents. Doral also notified García-Vélez's
counsel that it intended to request pre-hearing third-party
subpoenas from his employer. García-Vélez did not respond, and
Doral filed a formal application with the tribunal to issue the
pre-hearing subpoenas.3
García-Vélez immediately opposed the formal request. He
argued that the subpoenas were untimely and that they sought to
change the schedule agreed upon by the parties. García-Vélez also
argued that the granting of the subpoenas would likely require the
3
The subpoenas sought 41 discovery items, most of them as broad
and open ended as the following three examples: (1) "A copy of any
and all documents exchanged . . . [with] García-Vélez from the year
2004 to the present . . . ."; (2) "A copy of any and all documents
analyzing the merger . . . ."; and (3) "A copy of any diagram,
chart, flowchart, or organizational tree depicting the internal
corporate structure of [the holding company] at present."
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arbitration to be further delayed. The tribunal agreed with
García-Vélez and denied Doral's requests as untimely.
Doral remained undeterred. On December 2, 2009, it filed
an application for hearing subpoenas directed at García-Vélez's
employer, seeking information and documents of the same nature as
those sought through the pre-hearing subpoenas. Doral also moved
the tribunal to reconsider its decision on the pre-hearing
subpoenas, explaining that it had learned about García-Vélez's
possible involvement with the merged Puerto Rico holding company
well after the discovery deadline had lapsed.4
The tribunal denied the issuance of hearing subpoenas as
well as Doral's reconsideration motion. As to the motion for
reconsideration, it found "the subpoenas . . . significantly
broader in scope than it would have permitted had the request been
timely submitted and the deadline for requesting such subpoenas has
long past." The tribunal held the same regarding the hearing
subpoenas and added that Doral "could have/should have determined
the witnesses it needed during the exchange of information process;
and, it has had notice of the potential rebuttal witnesses it now
wants to call since the September 10, 2009 [hearing]."
On December 11, 2009, the tribunal issued a written
decision further explaining the reasoning behind its prior order.
4
Doral argued that García-Vélez misrepresented his relationship
with the holding company as well as his professional
responsibilities leading up to, and continuing after, the merger.
-5-
There, the tribunal addressed the alleged misrepresentations by
García-Vélez, stating that "[t]he fact that [Doral] has maintained
the same claim against [García-Vélez] for his employment with . . .
the merged entity indicates that it should have requested the
information it believed relevant to its claim during the Exchange
of Information process." The tribunal further established that
Doral "has been aware since the beginning of these proceedings of
the witnesses that it is now attempting to subpoena related to its
non-competition claim[, because,] [f]or an extended period of
time[, Doral has] been engaged in collateral litigation with
[García-Vélez's] employer concerning the non-competition provision
in the Employment Agreement."
The arbitration hearings resumed on December 14, 2009,
and Doral had the opportunity to cross-examine García-Vélez as well
as to present evidence of its own. The tribunal then provided the
parties with the opportunity to file post-hearing briefs and
proposed awards.
The award was issued soon thereafter. In pertinent part,
the tribunal found García-Vélez "entitled to be compensated
pursuant to the terms of the Employment Agreement dealing with his
termination without cause."5 The tribunal also found that Doral
had failed to "establish that Mr. García-Vélez breached the non-
competition provision of the Employment Agreement" and held that he
5
Doral has not challenged this finding.
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was entitled to pre-award interest pursuant to Rule 43(d) of the
Commercial Arbitration Rules. The arbitral award totaled
$2,396,609, including $163,008 in pre-award interest.6
In due course, Doral filed suit in the district court
seeking vacatur of the award. It argued that the tribunal
improperly denied the issuance of the subpoenas and thus engaged in
"misconduct in refusing to hear evidence pertinent and material to
the issue of Mr. García-Vélez'[s] violation of the non-compete
clause of the Employment Agreement." Doral also posited that,
"[b]y awarding pre-award interest, the [a]rbitrator[s] . . .
exceeded [their] powers under the Employment Agreement and engaged
in a manifest disregard of the law." In all, Doral charged the
tribunal with "refus[ing] to hear material and pertinent evidence,
manifest disregard of the law, manifest and gross misconduct . . .
egregious failure to receive, evaluate and properly weigh the
available evidence, and implausibl[y] reading . . . the Employment
Agreement."
The district court denied the relief Doral sought in a
thorough written decision. Doral's reconsideration motion was also
denied, and this appeal timely ensued.
6
Doral was also ordered to pay $33,000 in administrative fees and
$201,462 in arbitrators' compensation.
-7-
II. Discussion
We review de novo a district court's decision to vacate
or confirm an arbitration award. UMASS Mem. Med. Ctr., Inc. v.
United Food & Commer. Workers Union, Local 1445, 527 F.3d 1, 5 (1st
Cir. 2008). Our review, however, honors the parties' decision "to
have disputes settled by an arbitrator," United Paperworkers Int'l
Union v. Misco, Inc., 484 U.S. 29, 37-38 (1987), and recognizes
that the arbitration process seeks to ameliorate the time and
expenses generally associated with judicial proceedings, Menorah
Ins. Co., Ltd. v. INX Reinsurance Corp., 72 F.3d 218, 223 (1st
Cir. 1995). See also Gilmer v. Interstate/Johnson Lane Corp., 500
U.S. 20, 31 (1991) ("[B]y agreeing to arbitrate, a party trades the
procedures and opportunity for review of the courtroom for the
simplicity, informality, and expedition of arbitration.") (quoting
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S.
614, 628 (1985)) (internal quotations omitted). For those reasons,
our de novo review in this area "is extremely narrow and
exceedingly deferential," Wheelabrator Envirotech Operating Servs.
Inc. v. Mass. Laborers Dist. Council Local 1144, 88 F.3d 40, 43
(1st Cir. 1996), so deferential indeed that we have stated that
"[a]rbitral awards are nearly impervious to judicial oversight,"
Teamsters Local Union No. 42 v. Supervalu, Inc., 212 F.3d 59, 61
(1st Cir. 2000).
-8-
The limited scope of our review, however, "is not
equivalent to granting limitless power to the arbitrator."
Georgia-Pacific Corp. v. Local 27, United Paperworkers Int'l Union,
864 F.2d 940, 944 (1st Cir. 1988). "Although we do not sit to hear
claims of factual or legal error by an arbitrator as an appellate
court does in reviewing decisions of lower courts, there are
limited exceptions to the general rule that arbitrators have the
last word." Kashner Davison Sec. Corp. v. Mscisz, 531 F.3d 68, 74
(1st Cir. 2008) (internal quotations and citations omitted). One
of those exceptions is encompassed in 9 U.S.C. § 10(a)(3). As
relevant here, § 10(a)(3) requires vacatur of an award when "the
arbitrators were guilty of misconduct in refusing to . . . hear
evidence pertinent and material to the controversy . . . ."7 Of
course, § 10(a)(3) does not require arbitrators to consider every
piece of relevant evidence presented to them. Hotels Condado
Beach, La Concha and Convention Ctr. v. Unión De Tronquistas Local
901, 763 F.2d 34, 40 (1st Cir. 1985) ("Every failure of an
arbitrator to hear relevant evidence does not constitute misconduct
requiring vacatur of an arbitrator's award."). "Vacatur is
appropriate only when the exclusion of relevant evidence so affects
7
Although Doral has not provided us with authority for the
proposition that a refusal to issue a subpoena qualify as a refusal
to hear evidence for purposes of § 10(a)(3), we need not (and do
not) decide this issue here, because Doral's contentions fail on
other grounds.
-9-
the rights of a party that it may be said that he was deprived of
a fair hearing." Id. (internal quotation and citation omitted).
Doral clings like a limpet in the heaviest sea to the
"fair hearing" requirement subsumed in § 10(a)(3), urging us to
find that the tribunal abridged it in refusing to issue the
subpoenas. Doral claims that this refusal in turn prevented the
introduction of relevant evidence regarding García-Vélez's
potential breach of the non-compete clause. Doral's position is
untenable for at least two reasons.
First, the record is devoid of evidence showing that
Doral was not afforded a "fair hearing." The "fair hearing"
requirement is rooted in due process concerns and thus calls for
(1) notice, and (2) an opportunity to present relevant evidence and
arguments. See Raytheon Co. v. Automated Bus. Sys., Inc., 882 F.2d
6, 8-9 (1st Cir. 1989).8 Doral does not argue (nor could it) that
the tribunal failed to provide adequate notice as to the schedule
governing the arbitration proceedings. In fact, it is undisputed
that the scheduling order the tribunal issued was agreed upon by
the parties. Moreover, the record before us unequivocally shows
that the tribunal granted Doral adequate notice in connection with
the process governing the issuance of subpoenas. The scheduling
order speaks for itself in this regard: "if a party wishes to issue
8
Doral makes no claim under 9 U.S.C. § 10(a)(2) that there was
any partiality in the arbitrators.
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a subpoena to a third party . . . the parties shall first confer
and determine if there is any disagreement to the date and
propriety of the subpoena . . . Any dispute, as to a subpoena,
shall be resolved by the Tribunal. . . ."
The tribunal also provided Doral ample opportunity to
present its position regarding the subpoenas. In fact, the
tribunal allowed Doral three opportunities at bat: (1) the
application for pre-hearing subpoenas; (2) the application for
hearing subpoenas; and (3) the motion to reconsider the pre-hearing
subpoenas order. On all three occasions, Doral had the opportunity
to argue why the subpoenas were warranted even though the deadline
to request information had lapsed, the hearings were already
underway, and García-Vélez had already testified at length.
The tribunal afforded Doral many other procedural
safeguards, including the health-related two-month continuance its
counsel obtained as well as the opportunity to (1) weigh in on the
scheduling order governing the arbitration proceedings; (2) cross-
examine García-Vélez; (3) introduce evidence of its own; and (4)
file a post-hearing memorandum and a proposed award. Furthermore,
the tribunal provided Doral with ample support, in written and
unequivocal form, for its decision to deny the subpoenas and for
its arbitration award, despite having no obligation to do so. See
Zayas v. Bacardí Corp., 524 F.3d 65, 70 (1st Cir. 2008) ("Although
arbitrators frequently elect to explain their decisions in written
-11-
opinions, they are under no cumpulsion to do so."). We are
therefore not persuaded by Doral's arguments that the tribunal
failed to satisfy the "fair hearing" exigencies behind § 10(a)(3).
Second, Doral's position is premised on unsupported and
unwarranted factual assumptions. On this front, we note that even
though Doral's proposed subpoenas requested a wide range of
information from García-Vélez's employer, it is uncertain whether
such information was available for production. But more
importantly, even assuming that the information sought was
accessible to Doral, there is nothing concrete in the record that
would indicate that García-Vélez in fact violated the non-
competition clause. In other words, all that Doral has to offer in
support of its position on appeal is the hunch that the subpoenas
would have potentially yielded relevant information for its case.
We cannot vacate an arbitral award based on sheer speculation
alone. See, e.g., Cytyc Corp. v. DEKA Prods. Ltd., 439 F.3d 27, 36
(1st Cir. 2006) (finding vacatur under § 10(a)(3) unwarranted
because, among other things, movant failed to produce concrete
evidence supporting its claim); cf. Hoteles Condado Beach, La
Concha and Convention Ctr., 763 F.2d at 40 (vacating award under
§ 10(a)(3) upon a concrete showing that the evidence excluded "was
both central and decisive" for the movant's case).
As it did in the district court, Doral places undue
weight on the "misrepresentations" García-Vélez allegedly made
-12-
during the arbitration in connection with the merger of his
employers. Doral presented the same argument to the arbitration
tribunal. But the tribunal discarded it, reasoning, inter alia,
that "[t]he fact that [Doral] has maintained the same claim against
[García-Vélez] for his employment with . . . the merged entity
indicates that it should have requested the information it believed
relevant to its claim during the Exchange of Information process."
We have no authority to second guess the tribunal's decision on
this issue. See Asociación de Empleados del E.L.A. v. Unión
Internacional de Trabajadores de la Industria de Automóviles, et
al., 559 F.3d 44, 47 (1st Cir. 2009) ("We do not sit as a court of
appeal to hear claims of factual or legal error by an arbitrator or
to consider the merits of the award."); see also Prudential-Bache
Sec., Inc. v. Tanner, 72 F.3d 234, 240-41 (1st Cir. 1995)
(declining to revisit arguments presented to, and rejected by, an
arbitration tribunal); Dean v. Sullivan, 118 F.3d 1170, 1173 (7th
Cir. 1997) (stating that courts have no authority to consider
afresh arguments decided by an arbitration tribunal).9
In sum, Doral's contentions ring hollow. The record
before us contains no evidence to support a finding that the
9
Nor can we second guess, as Doral invites us to do, the
arbitration tribunal's finding regarding the improper scope of
Doral's subpoenas or the tribunal's understanding of the procedural
exigencies set by its scheduling order. See Keebler Co. v. Truck
Drivers, Local 170, 247 F.3d 8, 11 (1st Cir. 2001) ("[T]he
arbitrator is free to set his own rules of procedure so long as he
stays within the bounds of fundamental fairness.").
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tribunal engaged in § 10(a)(3) misconduct. On the contrary, the
record presented to us shows that Doral lost the arbitration fairly
and squarely, after the tribunal afforded it more than adequate
process to present its side of the dispute. Accordingly, we are in
no position to grant the relief Doral requests under § 10(a)(3).
The same holds true for the relief Doral seeks in
connection with the grant of pre-award interest. As stated above,
Doral argues that the tribunal exceeded its authority in awarding
pre-award interest to García-Vélez and asks us to vacate that
portion of the award. We cannot do so. The record is uncontested
that the parties agreed to arbitrate their dispute in accordance
with the Commercial Arbitration Rules of the American Arbitration
Association. In granting pre-award interest to García-Vélez, the
tribunal explicitly referenced Rule 43(d)(1) of the Commercial
Arbitration Rules, which, in pertinent part, establishes that
"[t]he award of the arbitrator(s) may include . . . interest at
such rate and from such date as the arbitrators(s) may deem
appropriate." The record contains no evidence that the parties
limited the applicability of Rule 43(d)(1) in any way. Therefore,
Doral cannot now be heard to challenge the grant of pre-award
interest on the ground that the tribunal lacked the very same
authority that the parties explicitly granted to it by agreeing to
arbitrate under the Commercial Arbitration Rules of the American
-14-
Arbitration Association. To say more on this front would be to
carry coals to Newcastle.
III. Conclusion
For the foregoing reasons, the district court decision is
affirmed.
Affirmed.
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