Dalton Johnson v. Directory Assistants Inc. , 797 F.3d 1294 ( 2015 )

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 14-15631
Non-Argument Calendar
________________________
D.C. Docket No. 5:14-cv-01358-IPJ
DALTON JOHNSON,
individually,
ALABAMA WOMEN'S CENTER FOR
REPRODUCTIVE ALTERNATIVES LLC,
Plaintiffs - Appellees,
versus
DIRECTORY ASSISTANTS INC.,
a Connecticut Corporation doing
business in Alabama,
Defendant - Appellant.
________________________
Appeal from the United States District Court
for the Northern District of Alabama
________________________
(August 20, 2015)
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Before HULL, ROSENBAUM, and JILL PRYOR, Circuit Judges.
PER CURIAM:
Directory Assistants, Inc. (“DAI”) appeals the district court’s decision to
vacate an arbitration award against the Alabama Women’s Center for Reproductive
Alternatives (“AWCRA”) and Dalton Johnson (collectively, “plaintiffs”). After
careful review, we vacate the district court’s order and remand for further
proceedings.
I.
DAI is an advertising consulting company. In 2009, Dalton Johnson,
AWCRA’s administrator, signed a contract with DAI to have the company take
over and manage AWCRA’s advertising activity. Mr. Johnson wrote on the
contract that he was signing on behalf of “Alabama Women’s Center L.L.C.” The
parties agree that no such organization is registered to do business in Alabama.
Mr. Johnson asserts that he was actually signing on behalf of AWCRA, but he
shortened the organization’s name because of limited space on the contract. The
contract included an arbitration provision, which read in part:
[W]e both agree to resolve any dispute arising out of or relating to this
contract through confidential binding arbitration and agree to try to
mutually choose the arbitration service, the location and which state’s
law will govern. If we are unable to come to a mutual agreement, or if
one of us refuses to participate in choosing, the party filing the
demand will have the right to make the choices unilaterally, as long as
the filing party has made a good faith attempt to come to a mutual
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agreement. The non-filing party expressly consents to and waives any
and all objections to the choices made.
Doc. 13-1 at 2.
The plaintiffs assert that DAI’s services were unsatisfactory. They allege
that they communicated their dissatisfaction, but DAI refused to provide a solution.
The plaintiffs ceased paying DAI in the second year of the contract. Subsequently,
on February 27, 2013, DAI’s representative David Ford emailed Mr. Johnson in an
attempt to agree on a location for arbitration to settle the dispute between the
parties. Mr. Ford stated that he wanted to arbitrate in Connecticut under
Connecticut law, but he would be willing to arbitrate in an equidistant location,
such as Raleigh, North Carolina. Mr. Ford further stated that because Mr. Johnson
“ha[d] not been very responsive in our efforts to work this out,” DAI would give
him until March 5, 2013 to respond. Doc. 13-4. If he did not do so, then DAI
would move forward with unilaterally selecting the arbitration location and
governing law, as provided in the contract.
The following day, Mr. Ford discussed the matter with the plaintiffs’
attorney. The parties failed to agree on an arbitration location, and Mr. Ford
reiterated his deadline of March 5 in a follow-up email to the attorney. The email
also included a detailed case study of another arbitration that DAI had won. On
March 11, Mr. Ford emailed the plaintiffs’ attorney, asking if she intended to
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respond regarding an arbitration location. A few hours later, counsel replied that a
response was forthcoming.
By April 1, 2013, the attorney still had not communicated a response from
Mr. Johnson. Mr. Ford stated in an email that if he did not hear from Mr. Johnson
by April 3, DAI would move forward with filing an arbitration action. The
plaintiffs’ counsel responded that “medical emergencies . . . ha[d] prevented the
gathering of documentation,” but she would communicate a response as soon as
she received the remaining documents from Mr. Johnson. Doc. 13-11. On April
17, Mr. Ford again emailed the attorney and stated that if there was no resolution
of the arbitration forum by April 25, DAI would choose the forum unilaterally.
When the attorney did not respond, on April 22, Mr. Ford told her that DAI would
be filing an arbitration demand that week. Again, the attorney did not respond.
On November 1, 2013, DAI filed a demand for arbitration with the
Alternative Dispute Resolution Center (“ADRC”). Mark V. Connolly was chosen
as the arbitrator, and he disclosed that he had served as an arbitrator in a dispute
involving DAI approximately five years earlier. The plaintiffs challenged Mr.
Connolly, asking that he be replaced because of his prior experience with DAI.
The ADRC denied this request because, after reviewing the record, “[Mr.
Connolly] does not believe, nor do we, that his disclosure is of a material nature or
would affect his impartiality or judgment . . . in the instant case.” Doc. 18-5 at 1.
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Subsequently, the plaintiffs participated in the arbitration by filing an answer and
counterclaims, 1 objecting to DAI’s unilateral selection of the arbitrator and
arbitration location, and participating in two preliminary conferences with the
arbitrator.
In an initial ruling, the arbitrator determined that DAI had attempted to
negotiate the terms of arbitration in good faith and that the matter could proceed to
a hearing. The hearing was scheduled for March 3 and 4, 2014, but on February
27, the plaintiffs’ attorney requested a continuance. The hearing was moved to
April 14 and 15. On April 7, the arbitrator received a letter from the plaintiffs’
attorney stating that “due to extraordinary circumstances and the current state of
affairs surrounding [the plaintiffs’] industry,” the plaintiffs were “not able to
continue with the arbitration of this matter.” Doc. 17 at 62. The attorney did not
request a continuance. The arbitrator determined that he could continue the
arbitration ex parte, pursuant to Rule 18 of the ADRC’s Commercial Rules. The
hearing took place on April 14. DAI appeared by counsel and presented evidence
to support its claim of breach of contract.
The arbitrator issued his decision on April 21, 2014, concluding that the
plaintiffs breached their contract with DAI. The arbitrator awarded DAI
$51,999.36 in liquidated damages, $39,000.00 in late fees, $877.75 in hearing
1
The counterclaims did not proceed to arbitration because the plaintiffs failed to pay the
required arbitration fees.
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exhibit expenses, and $7,795.30 in arbitration costs and fees. The total award was
$99,672.41.
The plaintiffs filed this case against DAI in the Circuit Court of Madison
County, Alabama. The complaint included claims of fraud, breach of contract, and
misrepresentation, as well as a request to vacate the arbitration award issued by the
ADRC. DAI removed the case to federal district court based on the diversity of
citizenship of the parties. DAI then filed a motion to compel arbitration of the
plaintiffs’ three counterclaims. The district court held a hearing on the motion but
deferred ruling until the court could resolve the plaintiffs’ request to vacate the
arbitration award. The court requested that the parties brief the issue of whether
the award should be vacated.
The plaintiffs filed a brief arguing that the arbitration award should be
vacated. The defendants filed their opposition, arguing in part that the plaintiffs’
request to vacate the award was procedurally improper because it was not made in
the form of a motion. The district court issued an order construing the plaintiffs’
request to vacate the award, included in their complaint, as a motion to vacate.
The district court also decided that the parties needed “one more ‘bite’ at the
proverbial apple” and ordered further briefing on the plaintiffs’ motion to vacate.
Order, Doc. 14 at 5-6.
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After the parties filed additional briefs, the district court released the order
that is the subject of this appeal. The court granted DAI’s motion to compel
arbitration of the plaintiffs’ counterclaims. The court further granted the plaintiffs’
motion to vacate the arbitration award based on the court’s finding that the
arbitrator was biased. DAI appealed the district court’s grant of the motion to
vacate.
II.
In considering the district court’s decision on the motion to vacate the
arbitration award, “we accept the district court’s findings of fact to the extent they
are not clearly erroneous and review questions of law de novo.” Scott v.
Prudential Sec., Inc., 141 F.3d 1007, 1014 (11th Cir. 1998), overruled in part on
other grounds by Hall Street Assocs., L.L.C v. Mattell, Inc., 552 U.S. 576 (2008).
III.
A.
The Federal Arbitration Act (“FAA”) imposes strict procedural requirements
on parties seeking to vacate arbitration awards. DAI argues that the plaintiffs’
request to vacate the award was procedurally barred because the request appeared
in the complaint, rather than in a separate motion. DAI is correct that the FAA
generally requires parties to make a motion to vacate an award. 9 U.S.C. § 6.
However, in O.R. Securities, Inc. v. Professional Planning Associates, Inc., 857
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F.2d 742 (11th Cir. 1988), we affirmed a district court’s decision to consider a
request to vacate made in a complaint, rather than a motion. We noted that the
Federal Rules are liberal, such that “an erroneous nomenclature does not prevent
the court from recognizing the true nature of a motion,” and that the parties had
adequately briefed the issue of vacatur before the district court. Id. at 746. This
case is on all fours with O.R. Securities, especially considering the lengthy briefing
on this issue that the parties submitted to the district court. While the plaintiffs
improperly included their request to vacate the arbitration award in their complaint,
it was not error for the district court to construe the request as a motion.
B.
Next, DAI challenges the district court’s decision to vacate the arbitration
award. “There is a presumption under the FAA that arbitration awards will be
confirmed, and federal courts should defer to an arbitrator’s decision whenever
possible.” Frazier v. CitiFinancial Corp., LLC, 604 F.3d 1313, 1321 (11th Cir.
2010) (internal quotation marks omitted). The FAA provides four circumstances
where it is appropriate for a court to 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 any party have been
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prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly
executed them that a mutual, final, and definite award upon the
subject matter submitted was not made.
9 U.S.C. § 10(a).
While several judicially-created bases for vacatur had developed in this
circuit over the past few decades, we held in Frazier that such grounds are no
longer valid in light of the Supreme Court’s decision in Hall Street. Frazier, 604
F.3d at 1324.2 Thus, the grounds for vacatur listed in § 10(a) are exclusive.
The district court vacated the arbitration award under § 10(a)(2) because it
found evident partiality on the part of the arbitrator. “[A]n arbitration award may
be vacated due to the ‘evident partiality’ of an arbitrator only when either (1) an
actual conflict exists, or (2) the arbitrator knows of, but fails to disclose,
information which would lead a reasonable person to believe that a potential
conflict exists.” Univ. Commons-Urbana, Ltd. v. Universal Constructors, Inc., 304
F.3d 1331, 1339 (11th Cir. 2002). The district court apparently based its decision
on the first ground, the existence of an actual conflict. The court’s opinion further
suggests that the arbitrator was biased because the arbitrator: (1) found that DAI
attempted in good faith to agree to an arbitration location and applicable law; (2)
conducted an ex parte hearing, while writing an arbitration award that suggested
2
In accordance with Frazier, we must reject that plaintiffs’ argument that they have
established non-statutory grounds for vacatur.
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AWCRA was present at the hearing; 3 (3) held Mr. Johnson and a non-party to the
contract (AWCRA) liable; and (4) improperly used the liquidated damages
provision to calculate damages.
On appeal, the plaintiffs concede that they “have not alleged that there was
an actual conflict” on the part of the arbitrator. Appellees’ Br. at 14. Rather, they
argue that the arbitration award should be vacated under § 10(a)(2) because “[t]he
arbitrator and ADRC both refused to provide information to [plaintiffs] regarding
how many arbitrations the service had conducted with DAI in the past,” which
“created a reasonable impression of bias in [the plaintiffs].” 4 Id. at 15.
The plaintiffs have not pointed to any part of the record showing when or
how they requested additional information from ADRC. Our independent
3
The district court found that the arbitrator “allow[ed] his opinion to suggest that the
plaintiffs were present but simply failed to object to the defendant’s evidence.” Doc. 21 at 12-
13. However, the arbitrator’s decision contains an entire section entitled “Respondents’ Notice
of Not Attending the Hearing,” which describes in detail the plaintiffs’ letter notifying the
arbitrator that they would not continue with the proceeding, and notes that the arbitrator “ruled
. . . that the arbitration hearing would proceed . . . on an ex parte basis.” Doc. 13-14 at 9. To the
extent the district court found that the arbitrator attempted to conceal the ex parte nature of the
hearing, we reject that finding as clear error.
4
The plaintiffs make two other arguments in this vein: (1) that the ADRC failed to
properly investigate their objections to Mr. Connolly, the arbitrator, and (2) that the arbitration
award should be vacated because the ADRC, rather than Mr. Connolly personally, disclosed that
Mr. Connolly had previously served as an arbitrator in a dispute involving DAI. As to the first
argument, the plaintiffs merely state, without elaboration or citation, that the ADRC’s
investigation did not follow the organization’s own rules or FAA procedures. The plaintiffs fail
to explain how the investigation was improper or how its impropriety would justify vacating the
arbitration award. Accordingly, we reject this argument. As to the second argument, the
plaintiffs waived it by failing to raise it in the district court. See Ramirez v. Sec’y, 686 F.3d
1239, 1249 (11th Cir. 2012). Even if we were to consider the argument, however, we would find
it has no merit. Assuming arguendo that it matters whether the source of disclosure is the
arbitrator or the arbitration service, the argument is contradicted by the record, which shows that
the plaintiffs received a disclosure form personally completed by the arbitrator.
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examination of the record has not revealed any such evidence. But even if the
plaintiffs could show that they asked the ADRC to disclose how many times DAI
had used the arbitration service, we are unconvinced that the failure to disclose that
information would justify vacatur. The §10(a)(2) inquiry focuses on whether “the
undisclosed facts create a reasonable impression of partiality.” Lifecare Int’l v. CD
Medical, 68 F.3d 429, 433 (11th Cir. 1995) (internal quotation marks omitted).
Assuming DAI had used the ADRC to conduct several arbitrations, we do not
think this fact alone would lead a reasonable person to suspect partiality, especially
because the ADRC uses a variety of arbitrators. Given the lack of evidence
supporting the plaintiffs’ argument under § 10(a)(2), we cannot affirm the district
court’s order on this basis.
C.
The plaintiffs next argue that the arbitration award is due to be vacated under
§ 10(a)(3) because the arbitrator failed to postpone the hearing. “[A] mere
difference of opinion between the arbitrators and the moving party as to the correct
resolution of a procedural problem will not support vacatur under section
10(a)(3).” Scott, 141 F.3d at 1016. “[W]e must decide whether there was any
reasonable basis for failing to postpone the hearing to receive relevant evidence.”
Id. (internal quotation omitted). In Scott, the appellant argued that he could not
attend the arbitration hearing because “the demands of ongoing litigation in Miami
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required his presence there.” Id. We held that this was not a compelling excuse
because the appellant was under no court-ordered obligation to remain in Miami,
and “self-imposed scheduling obstacles . . . do not require an arbitrator to postpone
a hearing.” Id.Here, the plaintiffs argue that they could not attend the hearing “due to
financial constraints caused [] by the services of DAI which caused a decline in
Johnson and AWCRA’[s] business and the current state of Johnson and
AWCRA’[s] industry.” Appellees’ Br. at 17. The plaintiffs presented no evidence
to support this claim of financial hardship. Moreover, the plaintiffs did not provide
this excuse to the arbitrator; they merely stated that they could not attend “due to
extraordinary circumstances and the current state of affairs surrounding [the
plaintiffs’] industry.” Doc. 17 at 62. The plaintiffs never requested that the
hearing dates be moved. Their letter simply informed the arbitrator that the
plaintiffs would no longer participate in the arbitration. Under these
circumstances, where a party participated in an arbitration proceeding only to
withdraw a week before the hearing with little explanation and no request for
extension, vacatur is inappropriate under § 10(a)(3) for a failure to postpone a
hearing.
The plaintiffs also argue for vacatur under § 10(a)(3) because, they allege,
the arbitrator failed to consider evidence that the plaintiffs had put forth prior to the
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arbitration hearing. Vacatur is appropriate where the arbitrator refuses to consider
evidence “pertinent and material to the controversy.” 9 U.S.C. § 10(a)(3).
Unfortunately, the plaintiffs have not identified the evidence the arbitrator
purportedly failed to consider, much less shown why any such evidence was
pertinent or material to the case. Their brief states only that the plaintiffs
submitted “documents and correspondence” and baldly asserts that the arbitrator
did not consider this evidence. Appellees’ Br. at 18. We can determine neither
what these documents said nor whether the arbitrator in fact considered them.
Accordingly, we reject the plaintiffs’ argument.
D.
Finally, the plaintiffs argue that vacatur is justified under § 10(a)(4)5 because
the arbitrator exceeded his powers by (1) ruling that DAI had attempted to
negotiate the terms of arbitration in good faith and (2) granting DAI an exorbitant
award. To vacate an award under § 10(a)(4), “[i]t is not enough to show that the
arbitrator committed an error — or even a serious error.” Oxford Health Plans
LLC, v. Sutter, 569 U.S. __, 133 S. Ct. 2064, 2068 (2013) (alterations and internal
quotation marks omitted). “[A]n arbitral decision even arguably construing or
applying the contract must stand, regardless of a court’s view of its (de)merits.”
Id. (internal quotation omitted). “So the sole question for us is whether the
5
The parties agree that § 10(a)(1), which allows for vacatur of an award procured by
corruption, fraud, or undue means, does not apply to this case.
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arbitrator (even arguably) interpreted the parties’ contract, not whether he got its
meaning right or wrong.” Id.
The arbitrator’s rulings here do not meet this standard. First, the arbitrator
clearly was construing the contract’s arbitration provision when he found that DAI
made good faith attempts to agree to arbitration terms. Notably, the finding is also
supported by the record, which shows that DAI attempted to come to an agreement
with the plaintiffs several times, despite the plaintiffs’ non-responsiveness.
Second, the arbitrator applied the contract when he used its liquidated damages
provision to calculate the arbitral award. Because both of these rulings were
derived from the contract, the arbitrator’s actions did not exceed the scope of his
power. Although the district court’s disagreement with the arbitrator’s decisions is
evident in the court’s ruling that DAI failed to act in good faith and that the
liquidated damages clause was a penalty under Alabama law, mere disagreement
with an arbitrator’s legal or factual determinations does not justify vacatur under §
10(a)(4).
IV.
Because the plaintiffs have failed to show that any of the circumstances
enumerated in 9 U.S.C. § 10(a) are present here, we vacate the district court’s grant
of the motion to vacate the award. We remand to the district court for further
proceedings consistent with this opinion.
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VACATED AND REMANDED.
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