Hicks v. Cadle Company ( 2009 )

FILED
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
December 7, 2009
FOR THE TENTH CIRCUIT Elisabeth A. Shumaker
Clerk of Court
KERRY R. HICKS,
Plaintiff-Appellee/
Cross-Appellant,
Nos. 08-1306, 1307,
v. 1429 & 1435
(D.C. No. 1:04-CV-02616-ZLW-KLM)
THE CADLE COMPANY; BUCKEYE (D. Colo.)
RETIREMENT CO., LLC, LTD.;
WILLIAM E. SHAULIS; DANIEL C.
CADLE,
Defendants-Appellants/
Cross-Appellees.
ORDER AND JUDGMENT *
Before HENRY, Chief Judge, PORFILIO, and HARTZ, Circuit Judges.
These appeals and cross-appeal are from the district court’s confirmation of
an arbitration award and vacatur of post-award, prejudgment interest. The Cadle
*
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
these appeals. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The cases are
therefore ordered submitted without oral argument. This order and judgment is
not binding precedent, except under the doctrines of law of the case, res judicata,
and collateral estoppel. It may be cited, however, for its persuasive value
consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
Company; Buckeye Retirement Co., LLC, LTD. (Buckeye); William E. Shaulis;
and Daniel C. Cadle argue that (1) the arbitrator lacked jurisdiction; (2) they were
denied their right to a jury trial; (3) the arbitrator’s decision was made in manifest
disregard of the law and in violation of public policy; and (4) the district court
improperly reviewed the arbitrator’s decision. In case number 08-1435, Kerry R.
Hicks argues that the district court erred in vacating the arbitrator’s award of
post-award, prejudgment interest. We have jurisdiction under 28 U.S.C. § 1291
and 9 U.S.C. § 16(a)(1)(D). We affirm the confirmation of the arbitration award
and reverse the vacatur of post-award, prejudgment interest.
I. BACKGROUND
This case has a lengthy history, which we summarize only briefly now. For
a more detailed background discussion, see our prior decision in Hicks v. Bank of
America, N.A., 218 F. App’x 739, 741-44 (10th Cir. 2007).
The underlying dispute concerns collection activities on a promissory note.
In December 1999, Mr. Hicks, the Chief Executive Officer of Specialty Care
Network, Inc., and Patrick Jaeckle, another corporate officer, borrowed
$3,350,000 from Bank of America. Under the written terms of the note, both
were jointly and severally liable for the full amount. Mr. Hicks, however, had
entered into an oral side agreement with a Bank of America employee, limiting
his liability to $2,350,000 and agreeing that his signature on the note for the full
amount was an accommodation until Bank of America could perfect its interest in
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Mr. Jaeckle’s collateral for the other $1,000,000. The note contained an
arbitration clause, providing that “any controversy or claim between or among the
parties hereto including but not limited to those arising out of or relating to” the
note or any related agreement “including any claim based on or arising from an
alleged tort, shall be determined by binding arbitration in accordance with the
Federal Arbitration Act.” Aplt. App., Vol. I at 110 (capitalization omitted).
In January 2000, Mr. Hicks paid $2,000,000 on the note. Bank of America
renewed the note for the remaining $1,350,000. Later, Specialty Care Network
paid $350,000. The note was again renewed; this time for $1,000,000. Bank of
America never perfected a security interest in Mr. Jaeckle’s collateral, and he
never paid on the note.
In October 2002, Bank of America sold the $1,000,000 note to The Cadle
Company, which began collection efforts. Bank of America informed The Cadle
Company that it had concluded that Mr. Hicks was not obligated under the note.
In September 2003, Buckeye, an alter ego of The Cadle Company, sued Mr. Hicks
in Tennessee federal district court to recover the balance due on the note. On
October 23, Mr. Hicks initiated arbitration proceedings in Colorado against Bank
of America, Buckeye, and The Cadle Company, contending that Bank of America
committed fraud in connection with the sale of the $1,000,000 note and Buckeye
and The Cadle Company violated the arbitration clause by filing suit in Tennessee
and engaging in tortious collection activities.
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In December 2003, Bank of America repurchased the $1,000,000 note. The
Tennessee lawsuit was dismissed. Bank of America sold the note to a third party,
acknowledging that Mr. Hicks had been released from liability under the note.
On September 27, 2004, while arbitration was pending, Mr. Shaulis,
Buckeye’s manager, wrote letters to the Tennessee and Colorado attorneys
general suggesting that Mr. Hicks should be investigated for the crime of bank
fraud. On December 3, Mr. Hicks filed suit against Bank of America and the
defendants in Colorado state court. He asserted the claims pending in arbitration
and added new claims against defendants based on the letters for abuse of
process, defamation, and intentional infliction of emotional distress. Bank of
America removed the suit to federal district court and moved to stay the action
pending arbitration. Defendants joined the motion for stay, noting that the action
must proceed to arbitration as the note’s arbitration clause encompassed nearly all
of the claims asserted by Mr. Hicks. Mr. Hicks opposed a stay, stating the note
did not include his claims against defendants that were based on the letters, no
defendants held the note at the time of the letters, and the parties never agreed to
arbitrate these claims.
On January 13, 2005, Mr. Hicks filed an amended complaint asserting only
the claims against defendants. On January 14, the district court stayed the lawsuit
pending completion of arbitration.
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On January 25, 2005, Arbiter James D. Hinga determined that he had
jurisdiction over the claims in the amended complaint, but he bifurcated them.
He directed that in the first phase of arbitration, he would hear claims concerning
the filing of the Tennessee lawsuit and in the second phase of arbitration, he
would hear claims based on the allegations of bank fraud in the letters.
On March 23, 2005, in clarifying the stay pending arbitration, the district
court determined that all defendants voluntarily submitted to the arbitrator’s
jurisdiction for resolution of the claims in Mr. Hicks’s amended complaint. The
court determined that defendants’ prior assertion that those claims must be
decided in arbitration amounted to consent to the jurisdiction of the arbitrator to
decide the claims in the amended complaint. Additionally, the court decided that
judicial estoppel precluded defendants from claiming that they were not subject to
the jurisdiction of the arbitrator for resolution of those claims.
On April 28, 2005, in the first phase of arbitration, Arbiter Hinga awarded
Mr. Hicks $400,000 in damages, plus attorney’s fees. The Arbiter decided that
The Cadle Company and Buckeye improperly filed suit in Tennessee when the
note’s arbitration clause provided for arbitration and improperly attempted to
collect on the note even though Bank of America had explained to The Cadle
Company and Buckeye that Mr. Hicks was not liable. Additionally, Arbiter
Hinga found that it was outrageous conduct to send letters to the attorneys general
accusing Mr. Hicks of bank fraud.
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On October 26, 2005, the district court confirmed this award under the
Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16, rejecting The Cadle Company’s
and Buckeye’s arguments that the arbitrator exceeded his authority and that the
arbitration award manifestly disregarded the law. The court, however, deferred
entering final judgment because other claims remained pending in arbitration, but
concluded that the award was final for purposes of confirmation. Defendants
appealed, and we affirmed. See Hicks, 218 F. App’x at 749.
Before the second phase of arbitration was completed, Arbiter Hinga passed
away. A new arbiter, Arbiter Frank N. Dubofsky, was selected. The second
phase hearing was held in October 2006. After the hearing, Arbiter Dubofsky
allowed Mr. Hicks to amend his statement of claims to conform to the evidence
presented that defendants had made fourteen additional communications
concerning bank fraud and perjury by Mr. Hicks.
On May 14, 2007, Arbiter Dubofsky decided in favor of Mr. Hicks on his
defamation and emotional distress claims and against him on the abuse of process
claim. The Arbiter stated that by the referring of the letters to the attorneys
general, along with the other communications from Mr. Shaulis and Mr. Cadle to
various governmental units from 2004 to 2006, all accusing Mr. Hicks of illegal
conduct, defendants had “engaged in a relentless campaign to defame, intimidate
and harass Hicks by raising alleged bank fraud, perjury and other serious
allegations against” him. Aplt. App., Vol. I at 78. Finding no bank fraud or
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perjury by Mr. Hicks and that defendants never had a reasonable belief that either
occurred, the arbitrator concluded that any claim of bank fraud or perjury was to
retaliate against and intimidate Mr. Hicks. Further, the arbitrator found that
defendants caused Mr. Hicks severe emotional distress by trying to have him
criminally indicted and financially destroyed. Because defendants acted
intentionally, willfully, wantonly, and maliciously in order to harm Mr. Hicks, the
arbitrator decided that an award of punitive damages was warranted. In his final
award, on June 18, Arbiter Dubofsky awarded Mr. Hicks (1) $750,000 in
compensatory damages and $950,000 in punitive damages against Mr. Cadle, The
Cadle Company, and Buckeye; and (2) $200,000 in compensatory damages and
$10,000 in punitive damages against Mr. Shaulis. In addition, the arbitrator
awarded prejudgment interest on the compensatory damages from September 27,
2004 and post-award, prejudgment interest from the dates of the final arbitration
awards through confirmation.
On July 23, 2008, the district court ruled on Mr. Hicks’s motion to confirm
the second-phase arbitration award and defendants’ motions to vacate the award.
The court reaffirmed that the arbitrator had jurisdiction over the defendants and
over the claims. Additionally, the court rejected defendants’ argument that the
arbitrator manifestly disregarded the law in many ways, including disregarding
the Tennessee parol evidence rule and statute of frauds by validating the oral side
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agreement; 1 deciding the issue of Mr. Hicks’s criminal liability for bank fraud;
granting Mr. Hicks’s motion to amend his claims to conform to the evidence;
misapplying the Tennessee anti-Strategic Lawsuits Against Political Participation
statute, Tenn. Code Ann. § 4-21-1003; concluding Mr. Hicks suffered severe
emotional distress; and awarding punitive damages. The court, however, vacated
the award of post-award, prejudgment interest, concluding that the arbitrator
manifestly disregarded the clear, controlling Tennessee law of Francois v. Willis,
205 S.W.3d 915, 916 (Tenn. Ct. App. 2006), which held that prejudgment interest
cannot be awarded in personal injury actions. On August 6, the district court
denied Mr. Cadle’s motion for reconsideration.
On October 7, 2008, the district court granted Mr. Hicks’s motion for entry
of judgment and certification under Fed. R. Civ. P. 54(b) of the October 26, 2005
order confirming Arbiter Hinga’s final arbitration award and the July 23, 2008
order confirming Arbiter Dubofsky’s final arbitration award in all aspects other
than the award of post-award, prejudgment interest. The court entered final
judgment pursuant to Rule 54(b) on October 10, and denied Mr. Cadle’s motion
for reconsideration on October 22.
1
The note provided, and the parties agree, that Tennessee law applies.
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Defendants appeal from various orders. We consolidated their appeals,
Nos. 08-1306, 08-1307, and 08-1429. Mr. Hicks cross appeals the portion of the
order denying post-award, prejudgment interest in No. 08-1435. 2
II. DISCUSSION
In their appeals, defendants raise several arguments: (1) the arbitrator
lacked jurisdiction to consider the second-phase claims; (2) they are not judicially
estopped from asserting that the arbitrator lacked jurisdiction; (3) even if the
arbitrator had jurisdiction, he acted outside the scope of his authority; (4) the
district court should not have confirmed the arbitration award because the
arbitrator manifestly disregarded the law and violated public policy; and (5) the
district court failed to apply the proper deferential standard of review. We
discuss each of these arguments in turn, rejecting each. After that discussion we
consider Mr. Hicks’s cross-appeal. He argues that the district court misapplied
Tennessee post-award, prejudgment interest law when denying him interest. We
agree, and we remand for the district court to amend the judgment to include
interest.
2
On October 17, 2007, the district court allowed Mr. Hicks to file a
supplemental complaint pertaining to alleged conduct by Mr. Cadle, The Cadle
Company, and Buckeye occurring after the second-phase award. The court
referred those claims for arbitration. This third phase of arbitration is not part of
this appeal.
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A. The arbitrator had jurisdiction to consider the second-phase claims.
Defendants first argue that the arbitrator lacked jurisdiction over them
when he arbitrated the second-phase claims. We review the question of
arbitrability de novo. Coors Brewing Co. v. Molson Breweries, 51 F.3d 1511,
1513 (10th Cir. 1995).
As the parties are well aware, we begin with the strong federal policy,
evinced by the FAA, in favor of arbitration for resolving disputes. ARW
Exploration Corp. v. Aguirre, 45 F.3d 1455, 1462 (10th Cir. 1995). But “the
FAA’s proarbitration policy does not operate without regard to the wishes of the
contracting parties.” Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52,
57 (1995); Hollern v. Wachovia Sec., Inc., 458 F.3d 1169, 1174 (10th Cir. 2006)
(“Arbitrators derive their authority from the parties’ arbitration agreement.”).
Because “arbitration is a matter of contract, . . . a party cannot be required to
submit to arbitration any dispute which he has not agreed to submit.” ARW
Exploration Corp., 45 F.3d at 1460 (quotation marks and brackets omitted). If a
contract has a broad, sweeping arbitration clause, it is presumed that disputes will
be arbitrated. Id. at 1462. A party may overcome this presumption “only if ‘it
may be said with positive assurance that the arbitration clause is not susceptible
of an interpretation that covers the asserted dispute.’” Id. (quoting AT&T Techs.,
Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 650 (1986)). We resolve any
doubts in favor of arbitrability. Litton Fin. Printing Div. v. NLRB, 501 U.S. 190,
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209 (1991); Hollern, 458 F.3d at 1173 (“In assessing the scope of the arbitrators’
authority, we are mindful of the strong presumption requiring all doubts
concerning whether a matter is within the arbitrators’ powers to be resolved in
favor of arbitrability.”).
Defendants argue that they and Mr. Hicks never had a meeting of the minds
to arbitrate the second-phase claims concerning the letters. They point out that
Mr. Hicks only agreed to arbitrate the first-phase claims, which arose when
Buckeye held the note, and he did not agree to arbitrate the claims related to bank
fraud asserted in the letters, which arose after Bank of America reacquired the
note and he had been relieved of any liability under the note. Defendants contend
that the second-phase arbitration claims therefore did not arise between or among
the parties as the note’s arbitration clause required. Thus, they assert that
arbitration was improper because they were not parties to the note, all
second-phase claims asserted in the second phase of arbitration occurred after
Mr. Hicks had been released from liability under the note, and the arbitration
clause of the note did not provide a basis for arbitration jurisdiction over
defendants for the new tort claims.
We agree with the district court that the second-phase claims were within
the jurisdiction of the arbitrator. The note’s arbitration clause applied to all
controversies arising out of and related to the note. See Aplt. App., Vol. I at 110.
The note was binding on Bank of America’s successors. See Hicks, 218 F. App’x
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at 746. Defendants’ tortious actions are directly tied to the note. Defendants
engaged in a continuous course of wrongful conduct all arising from a note with a
broad arbitration clause. See Riley Mfg. Co. v. Anchor Glass Container Corp.,
157 F.3d 775, 781 (10th Cir. 1998) (recognizing that “when a dispute arises under
an expired contract that contained a broad arbitration provision, courts must
presume that the parties intended to arbitrate their dispute[,] even if the facts of
the dispute occurred after the contract expired”).
Also, defendants contend that Mr. Shaulis and Mr. Cadle were never parties
to the note. While this is true, they joined the motion for a stay and requested
that all claims be decided by arbitration. Also, under the circumstances presented
here, the two are bound by the arbitration clause as agents of The Cadle Company
and Buckeye. See Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d
1110, 1121 (3d Cir. 1993) (“Because a principal is bound under the terms of a
valid arbitration clause, its agents, employees, and representatives are also
covered under the terms of such agreements.”); Arnold v. Arnold Corp., 920 F.2d
1269, 1281 (6th Cir. 1990) (following policy favoring arbitration, court decided
that nonsignatories of arbitration agreement can be bound under agency
principles).
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B. The defendants are judicially estopped from asserting arbitral
jurisdiction.
Defendants argue that they did not waive their right to have the
second-phase claims tried in court. They contend that although they joined in
Bank of America’s stay motion, they did not move to have the lawsuit dismissed,
since the lawsuit claims were intertwined with the arbitration claims.
The district court held that defendants were judicially estopped from
contesting arbitral jurisdiction. In our decision affirming the first phase of
arbitration, we noted that defendants waived any objection to arbitration and were
estopped from asserting that the arbitrator lacked jurisdiction because they had
stated, when they joined Bank of America’s motion for stay, that this action must
be arbitrated. See Hicks, 218 F. App’x at 746. This is the law of the case. See
Homans v. City of Albuquerque, 366 F.3d 900, 904 (10th Cir. 2004) (“In general,
the law of the case doctrine provides that when a court decides upon a rule of law,
that decision should continue to govern the same issues in subsequent stages in
the same case.” (quotation omitted)).
To the extent that all of defendants’ objections to judicial estoppel were not
before us in the prior appeal, we conclude, based on defendants’ request for
arbitration of the claims raised in the amended complaint, that they are judicially
estopped from asserting that the arbitrator lacked jurisdiction over this appeal.
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See New Hampshire v. Maine, 532 U.S. 742, 749-51 (2001) (discussing judicial
estoppel).
C. The arbitrator acted within the scope of his authority.
Even if the arbitrator had jurisdiction over the claims asserted in the
amended complaint, defendants contend that he went beyond the scope of those
claims by awarding damages in favor of Mr. Hicks for defamation and intentional
infliction of emotional distress due to fourteen subsequent acts by them, for
defamation because of the accusation that Mr. Hicks committed perjury, and for
alter ego liability. Also, defendants contend that the arbitrator improperly
awarded punitive damages even though Mr. Hicks had never requested them. We
conclude that under the broad arbitration clause, the arbitrator acted within his
jurisdiction.
The arbitrator had discretion to allow Mr. Hicks to amend his statement of
claims to conform to the evidence. See United Steelworkers of Am. v. Ideal
Cement Co., 762 F.2d 837, 841 (10th Cir. 1985) (citing John Wiley & Sons, Inc. v.
Livingston, 376 U.S. 543, 557 (1964)) (recognizing that procedural matters are
within discretion of arbitrator). The assertion that Mr. Hicks committed perjury
by arguing that he did not commit bank fraud directly relates to the issues in
arbitration and therefore was within the arbitrator’s authority to arbitrate. Also,
“there was abundant evidence before the arbitrator that [The Cadle Company] and
Buckeye operated as alter-egos.” Hicks, 218 F. App’x at 746.
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Likewise, the arbitrator acted within his jurisdiction by considering whether
to award punitive damages. Under Tennessee law, punitive damages need not be
specifically pleaded in the complaint. See Allen v. Melton, 99 S.W.2d 219, 226
(Tenn. Ct. App. 1936). Rather, “a court may . . . award punitive damages . . . if it
finds a defendant has acted either (1) intentionally, (2) fraudulently,
(3) maliciously, or (4) recklessly.” Hodges v. S.C. Toof & Co., 833 S.W.2d 896,
901 (Tenn. 1992). In his amended complaint, Mr. Hicks contended that
defendants acted maliciously, intentionally, willfully, recklessly, and
outrageously. Aplt. App., Vol. II at 18-20. In awarding punitive damages, the
arbitrator found these contentions to be true.
Additionally, we note that Mr. Hicks asked for punitive damages in his
statement of claims filed eighteen months before the second-phase arbitration
hearing. Id., Vol. I at 71. Yet defendants never asserted that punitive damages
should not be at issue until after all of the evidence had been presented to the
arbitrator. 3
D. The District Court correctly confirmed the arbitration award,
because the arbitrator neither manifestly disregarded the law nor
violated public policy.
Next, defendants argue that the district court erred in confirming the
arbitration award because the arbitrator manifestly disregarded the law and
3
Because, as discussed earlier, the district court correctly determined that
this case should be decided by arbitration, we reject defendants’ argument that the
district court denied them a jury trial.
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violated public policy. When reviewing a district court’s decision to confirm or
vacate an arbitration award, we review legal questions de novo and factual
findings for clear error. See Bowen v. Amoco Pipeline Co., 254 F.3d 925, 931
(10th Cir. 2001). We owe no deference to the district court’s decision. See ARW
Exploration Corp., 45 F.3d at 1462. But we afford great deference to the
arbitrator’s decision. U.S. Energy Corp. v. Nukem, Inc., 400 F.3d 822, 830
(10th Cir. 2005). Our review is “strictly limited,” and “this highly deferential
standard has been described as among the narrowest known to the law.” Bowen,
254 F.3d at 932 (quotation marks omitted).
We have held consistently that we may vacate an arbitration award only
under the limited circumstances set forth in the FAA, 9 U.S.C. § 10, 4 or under
4
Under § 10, we may vacate an arbitration award
(1) where the award was procured by corruption, fraud, or undue
means;
(2) where there was evident partiality or corruption in the arbitrators,
or either of them;
(3) where the arbitrators were guilty of misconduct in refusing to
postpone the hearing, upon sufficient cause shown, or in refusing to
hear evidence pertinent and material to the controversy; or of any
other misbehavior by which the rights of the 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.
(continued...)
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certain judicially-created exceptions, such as an arbitrator’s manifest disregard
for the law or for a violation of public policy. See, e.g., Lewis v. Circuit City
Stores, Inc., 500 F.3d 1140, 1150 (10th Cir. 2007); Hollern, 458 F.3d at 1172;
Sheldon v. Vermonty, 269 F.3d 1202, 1206 (10th Cir. 2001); Bowen, 254 F.3d at
932 & n.3; see also, e.g., MACTEC, Inc. v. Gorelick, 427 F.3d 821, 827 (10th Cir.
2005) (listing statutory grounds for vacatur and recognizing that Supreme Court
has held that vacatur is proper when arbitrator manifestly disregards law); U.S.
Energy Corp., 400 F.3d at 830 (stating that “arbitral award is subject to reversal
only if it evinces a ‘manifest disregard’ of the law”); Jenkins v. Prudential-Bache
Sec., Inc., 847 F.2d 631, 633-34 (10th Cir. 1988) (“[F]ederal courts have never
limited their scope of review to a strict reading of [§10]. Viewed either as an
inherent appurtenance to the right of judicial review or as a broad interpretation
of [§ 10(d)] prohibiting arbitrators from exceeding their powers, the arbitration
award has traditionally been subjected to a short of ‘abuse of discretion’
standard.”).
Last year, the Supreme Court held in Hall Street Associates, L.L.C. v.
Mattel, Inc., 552 U.S. 576, 128 S. Ct. 1396, 1400, 1401, 1403, 1404 (2008), that
the FAA sets forth the exclusive grounds for vacating or modifying an arbitration
4
(...continued)
9 U.S.C. § 10(a).
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award under the FAA, 9 U.S.C. §§ 10 and 11. 5 The Court rejected Hall Street
Associates’ assertion that Wilko v. Swan, 346 U.S. 427, 436-37 (1953),
recognized manifest disregard of the law as an independent basis for vacatur
beyond § 10. Hall Street Assocs., 128 S. Ct. at 1403-04. Instead, the Court noted
that the issue was not directly presented in Wilko and the language of Wilko is
vague:
Maybe the term “manifest disregard” was meant to name a new
ground for review, but maybe it merely referred to the § 10 grounds
collectively, rather than adding to them. Or, as some courts have
thought, “manifest disregard” may have been shorthand for
§ 10(a)(3) or § 10(a)(4), the subsections authorizing vacatur when the
arbitrators were “guilty of misconduct” or “exceeded their powers.”
Hall Street Assocs., 128 S. Ct. at 1404 (citations omitted). The Court, therefore,
decided that the text of the FAA “compels a reading” that the statute sets forth
exclusive grounds for review. Id.
5
The question in Hall Street Associates, 128 S. Ct. at 1400-01, was whether
a contract may supplement the statutory grounds for vacatur or modification of an
arbitration award set forth in 9 U.S.C. §§ 9-11 to allow the federal court to review
de novo the legal conclusions of the arbitrator. The Court refused to expand the
detailed categories of §§ 10 and 11, which set forth “extreme arbitral conduct,” to
“review for just any legal error.” Hall St. Assocs., 128 S. Ct. at 1404-05.
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We have not addressed whether judicially-created grounds for vacatur
survive after Hall Street Associates. 6 Other courts, however, have addressed the
issue and have reached differing conclusions.
Some courts have decided that manifest disregard of the law is no longer an
independent ground for vacating arbitration awards under the FAA. See, e.g.,
Citigroup Global Mkts., Inc. v. Bacon, 562 F.3d 349, 350, 355 (5th Cir. 2009)
(“Hall Street unequivocally held that the statutory grounds are the exclusive
means for vacatur under the FAA. Our case law defines manifest disregard of the
law as a nonstatutory ground for vacatur. . . . Thus, to the extent that manifest
disregard of the law constitutes a nonstatutory ground for vacatur, it is no longer
a basis for vacating awards under the FAA.”); Ramos-Santiago v. United Parcel
Serv., 524 F.3d 120, 124 n.3 (1st Cir. 2008) (acknowledging in dicta holding in
Hall Street Associates “that manifest disregard of the law is not a valid ground for
vacating or modifying an arbitral award in cases brought under the Federal
6
In Youngs v. American Nutrition, Inc., 537 F.3d 1135, 1141 (10th Cir.
2008), we did not cite Hall Street Associates. But we required the party seeking
to vacate the arbitration award “to show that one of the limited statutory grounds
exists for setting aside the arbitration result.” Youngs, 537 F.3d at 1141 (citing to
both Utah and federal law). The issue of the applicability of the manifest
disregard doctrine was not at issue or addressed.
And in DMA International, Inc. v. Qwest Communications International,
Inc., 585 F.3d 1341, 2009 WL 3627941, at *2 & n.2 (10th Cir. Nov. 4, 2009), we
declined to decide whether manifest disregard remains valid law. Instead, we
decided that “the arbitrator did not act with manifest disregard of the law or in
any other way that would justify vacatur” of the arbitrator’s award. Id. at *2 n.2.
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Arbitration Act”); see also AIG Baker Sterling Heights, LLC v. Am.
Multi-Cinema, Inc., 579 F.3d 1268, 1271 (11th Cir. 2009) (noting that Hall Street
Associates “confirmed[ that §§] 10 and 11 of the FAA offer the exclusive grounds
for expedited vacatur or modification of an award under the statute”); Grain v.
Trinity Health, Mercy Health Servs. Inc., 551 F.3d 374, 380 (6th Cir. 2008) (“It is
true that we have said that ‘manifest disregard of the law’ may supply a basis for
vacating an award, at times suggesting that such review is a ‘judicially created’
supplement to the enumerated forms of FAA relief. . . . Hall Street’s reference
to the ‘exclusive’ statutory grounds for obtaining relief casts some doubt on the
continuing vitality of that theory. But either way, we have used the ‘manifest
disregard’ standard only to vacate arbitration awards, not to modify them.”), cert.
denied, 130 S. Ct. 96 (2009); Crawford Group, Inc. v. Holekamp, 543 F.3d 971,
976 (8th Cir. 2008) (citing Hall Street Associates and stating that “[a]n arbitral
award may be vacated only for the reasons enumerated in the FAA”).
The Second Circuit has recognized that Hall Street Associates held that the
statute sets forth exclusive grounds for vacating arbitration awards, but,
nonetheless, decided that manifest disregard is a “judicial gloss on the specific
grounds for vacatur enumerated in section 10 of the FAA, [and therefore] remains
a valid ground for vacating arbitration awards.” Stolt-Nielsen SA v. AnimalFeeds
Int’l Corp., 548 F.3d 85, 94 (2d Cir. 2008), cert. granted, 129 S. Ct. 2793
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(2009). 7 In reaching this conclusion, the Second Circuit realized that this holding
conflicted with dicta in its prior cases treating manifest disregard as a ground for
vacatur separate from the grounds listed in the FAA. Id. Further, the Second
Circuit decided that the Supreme Court did not entirely abrogate the
manifest-disregard doctrine, since the Court “speculated” that manifest disregard
referred to the § 10 grounds. Id. at 94-95.
The Ninth Circuit has held that manifest disregard remains a valid ground
for vacatur in that circuit because it had already treated manifest disregard as a
part of § 10(a)(4). Comedy Club, Inc. v. Improv W. Assocs., 553 F.3d 1277, 1290
(9th Cir. 2009), cert. denied, 130 S. Ct. 145 (2009). The court joined the Second
Circuit in its interpretation of Hall Street Associates. Comedy Club, 553 F.3d at
1290 (citing Stolt-Nielsen).
We need not decide whether § 10 provides the exclusive grounds for
vacating an arbitrator’s decision, because defendants demonstrate neither manifest
disregard of the law nor violation of public policy. “Manifest disregard of the
law has been defined as willful inattentiveness to the governing law. To warrant
setting aside an arbitration award based on manifest disregard of the law, the
record must show the arbitrators knew the law and explicitly disregarded it.”
7
Certiorari was granted on an unrelated question: “Whether imposing class
arbitration on parties whose arbitration clauses are silent on that issue is
consistent with the” FAA. Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp.,
2009 WL 797583 (certiorari petition).
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Hollern, 458 F.3d at 1176 (quotation marks omitted). Further, the public policy
exception applies only to contract disputes; it does not apply to tort claims.
Bowen, 254 F.3d at 932 n.3.
According to defendants, they had a good-faith basis to ask the Colorado
and Tennessee attorneys general to investigate bank fraud, yet the arbitrator acted
in manifest disregard of the law and in violation of public policy by deciding that
there was no bank fraud without considering the good-faith issue. Under
Tennessee law, the issue in defamation cases is what a reasonably prudent person
would have done to ascertain the truth or falsity of a communication. Pate v.
Serv. Merch. Co., 959 S.W.2d 569, 574-75 (Tenn. Ct. App. 1996). The arbitrator
did not disregard this law, as he specifically determined that defendants’ actions
were unreasonable.
In addition, defendants argue that the arbitrator manifestly disregarded
Tennessee law indicating that there can be no liability for reporting financial
fraud to a government agency or for communicating matters of concern to
government agencies. See Tenn. Code Ann. §§ 39-14-909, 4-21-1002(a). Rather,
they contend the arbitrator disregarded this law and imposed an obligation on
them to prove bank fraud by a preponderance of the evidence before making a
report to a government agency.
Arbiter Dubofsky decided that the Tennessee anti-SLAPP statute did not
provide immunity because defendants reported bank fraud to retaliate against
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Mr. Hicks; they negligently and recklessly failed to investigate; they falsely,
recklessly, and negligently accused Mr. Hicks of committing crimes; and
Mr. Cadle admitted there was no bank fraud. See id. § 4-21-1003(b) (stating
anti-SLAPP immunity does not apply if person providing information knew it was
false, communicated information in reckless disregard of its falsity, or acted
negligently in failing to determine if the information was false). Likewise,
Arbiter Dubofsky decided that defendants did not have a reasonable subjective or
objective belief that Mr. Hicks perjured himself. Defendants therefore have failed
to show a manifest disregard of the law.
Defendants also claim that the arbitrator manifestly disregarded the law by
(1) validating the oral side agreement and determining there was no bank fraud
and (2) deciding that they were liable for defamation even though the letters to
the attorneys general were not defamatory since there was not a single false
statement in them. In these arguments, defendants are merely disagreeing with
the arbitrator’s decision. These, therefore, are not reasons to vacate the arbitrate
award for a manifest disregard of the law.
Further, defendants argue that the arbitrator improperly awarded damages
based on Mr. Cadle’s alleged attacks upon others. Evidence of attacks on others,
namely Arbitrator Hinga and Mr. Hicks’s counsel, is relevant to show that
defendants intended to harm Mr. Hicks. See Phillip Morris USA v. Williams,
549 U.S. 346, 355, 357 (2007) (deciding evidence of harm to others is relevant to
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show reprehensibility, but cannot be used to punish defendant for harms to
nonparties).
Finally, defendants argue that the arbitrator exceeded his powers and
manifestly disregarded the law by assessing punitive damages against them when
Mr. Hicks never sought punitive damages. We have already determined that the
arbitrator acted within the scope of his authority, and as a result, we reject the
contention.
E. The district court applied the proper deferential standard of review.
Defendants argue that the district court improperly made an independent
inquiry into the underlying facts of the case and validated the arbitrator’s finding
that Mr. Hicks had an oral side agreement with a Bank of America employee that
contradicted the terms of the note. According to defendants, the district court was
limited to deciding whether the arbitrator manifestly disregarded the law.
It is true, as defendants argue, that courts may not independently review an
arbitrator’s decision on the merits, even when there are allegations of factual
errors and misinterpretation of the parties’ agreement. Major League Baseball
Players Ass’n v. Garvey, 532 U.S. 504, 509 (2001); Bowen, 254 F.3d at 932. But
our review of the district court’s order convinces us that the district court did not
find facts or specifically validate Arbitrator Dubofsky’s rulings. Instead, the
court merely recited the facts and confirmed the arbitrator’s decision, all while
applying the proper deferential standard of review.
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F. The district court misapplied Tennessee law on post-award
prejudgment interest.
On cross appeal, Mr. Hicks argues that under Tennessee law he is entitled
to post-award, prejudgment interest in the amount of $394,119.51 on the two final
arbitration awards. He contends the district court denied this interest based on an
erroneous interpretation of Tennessee law that post-award, prejudgment interest is
not recoverable on personal injury verdicts. Because the arbitration awards were
meant to compensate him as of the dates they were issued, Mr. Hicks maintains
that he should be granted post-award, prejudgment interest that would compensate
him for the delay between the award and its confirmation and entry of judgment.
State law applies when determining the issue of prejudgment interest. See
Strickland Tower Maint., Inc. v. AT&T Commc’ns, Inc., 128 F.3d 1422, 1429
(10th Cir. 1997). We review the district court’s interpretation of state law de
novo. Beardsley v. Farmland Co-Op, Inc., 530 F.3d 1309, 1313 (10th Cir. 2008).
The district court decided and the Tennessee law is clear that prejudgment
interest may not be awarded in personal injury actions. See Francois, 205 S.W.3d
at 916. But the court did not recognize that principles of equity also govern when
awarding prejudgment interest in a Tennessee case. Myint v. Allstate Ins. Co.,
970 S.W.2d 920, 927 (Tenn. 1998). In deciding whether an award is equitable
under the circumstances of the particular case, “a court must keep in mind that the
purpose of awarding the interest is to fully compensate a plaintiff for the loss of
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the use of funds to which he . . . was legally entitled, not to penalize a defendant
for wrongdoing.” Id. The certainty of a claim is “one of many nondispositive
facts to consider when deciding whether prejudgment interest is, as a matter of
law, equitable under the circumstances.” Id. at 928; see also id. (“[T]he more
clear the fact that the plaintiff is entitled to compensatory damages, the more
clear the fact that the plaintiff is also entitled to prejudgment interest as part of
the compensatory damages.”). Prejudgment interest is “based on the recognition
that a party is damaged by being forced to forego the use of its money over time.”
Scholz v. S.B. Int’l, Inc., 40 S.W.3d 78, 82 (Tenn. Ct. App. 2000).
Mr. Hicks is not seeking prejudgment interest for the period of time prior to
the arbitrators’ awards. See Louisville & N. R.R. v. Wallace, 17 S.W. 882, 883
(Tenn. 1891) (deciding award was “measure of recovery” in personal injury
action). Instead, he seeks the interest from the time of the arbitration awards until
the entry of judgment. This interest would compensate him for the loss of the use
of the money after its award. Here, the lengthy delay between the time of the
arbitrators’ awards and the entry of judgment justifies an award of post-award,
prejudgment interest. See Lawson v. State, No. 03A01-9806-BC-00185, 1998 WL
880931, at *3 (Tenn. Ct. App. Dec. 17, 1998) (unpublished). We must reverse
and remand this claim to the district court.
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III. CONCLUSION
We AFFIRM the district court’s judgment confirming the arbitration
awards and REVERSE the district court’s vacatur of post-award, prejudgment
interest. We REMAND to the district court to amend its judgment to award
post-award, prejudgment interest of $394,119.51.
Entered for the Court
Robert H. Henry
Chief Circuit Judge
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