Sabre Glbl Inc v. Melody Shan ( 2019 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_______________
Nos. 18-2079 and 18-2144
_______________
SABRE GLBL, INC,
Appellant in No. 18-2144
v.
MELODY SHAN, a/k/a SHAN MELODY XIAOYUN,
Appellant in No. 18-2079
_______________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 2:15-cv-08900)
District Judge: Honorable William J. Martini
_______________
Argued January 24, 2019
Before: CHAGARES, BIBAS, Circuit Judges, and SÁNCHEZ,* Chief District Judge.
(Filed: July 3, 2019)
Patricia L. Peden [ARGUED]
Burke Williams & Sorensen
1901 Harrison Street
Suite 900
Oakland, CA 94612
Counsel for Melody Shan
Christine A. Amalfe [ARGUED]
Gibbons
One Gateway Center
*
The Honorable Juan R. Sánchez, Chief District Judge of the United States District Court
for the Eastern District of Pennsylvania, sitting by designation.
Newark, NJ 07102
Counsel for Sabre GLBL, Inc.
_______________
OPINION**
_______________
SÁNCHEZ, Chief District Judge.
Following a five-day hearing, an arbitrator found that Melody Shan had breached
her fiduciary and contractual obligations to Sabre GLBL, Inc., her former employer, and
awarded Sabre damages, injunctive relief, and attorney’s fees for these and other
violations of state and federal law. Sabre moved to confirm the arbitration award in its
entirety, and Shan moved to vacate the arbitrator’s award of “head start” disgorgement
damages and attorney’s fees. Granting both motions in part, the District Court confirmed
the award of damages and injunctive relief, but vacated the award of attorney’s fees.
Both parties now appeal from the District Court’s judgment. Because we find no basis to
disturb either of the challenged components of the arbitrator’s award, we will affirm the
judgment insofar as it confirmed the award of head start damages and reverse it insofar as
it vacated the award of attorney’s fees.
I. BACKGROUND
For nearly two decades, Shan worked for Sabre, a Texas-based technology
solutions provider to the global travel and tourism industry, in various capacities in the
United States and China. In 2013, after a seven-year stint in China, Shan returned to the
**
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
2
United States as a consultant in Sabre’s headquarters in Dallas, Texas. She later
relocated to New Jersey and continued working for Sabre remotely.
In connection with her new consulting position, Shan entered into an Employee
Intellectual Property and Confidentiality Agreement (EIPC Agreement) with Sabre in
September 2013. The EIPC Agreement prohibited Shan from disclosing Sabre’s
confidential information or using the information for her own benefit or for the benefit of
a third party. It also restricted Shan’s ability to compete with Sabre and interfere with
Sabre’s relationships with its employees, contractors, and customers both during and for a
period of time after her employment with the company. The Agreement also included a
choice of law and arbitration provision, specifying that its “construction, interpretation
and enforcement” would be governed by Texas law and that “any and all claims,
disputes, or controversies arising out of or related to this Agreement, or the breach of this
Agreement, shall be resolved by binding arbitration.” App. 136.
Notwithstanding the prohibitions in the EIPC Agreement, Shan started a
competing Chinese company—Pi-Solution Hangzhou—while still employed by Sabre,
and began recruiting Sabre employees and soliciting Sabre customers for her new
company. Shan ultimately acquired a 68 percent ownership interest in Pi-Solution
Hangzhou through Resource Optimization Intelligent Solution Limited (ROIS), a Hong
Kong holding company she formed for the purpose of acquiring shares in Pi-Solution
Hangzhou. Shan was at all times the sole shareholder in ROIS.
In September 2014, Shan resigned from Sabre and returned to China, where she
continued to work on her competing venture. Fourteen months later, in November 2015,
3
Sabre sued Shan in New Jersey state court. Sabre alleged that Shan had breached the
EIPC Agreement and her fiduciary duty to Sabre by misusing Sabre’s confidential and
trade secret information, stealing Sabre’s employees, soliciting Sabre’s customers, and
competing with Sabre through Pi-Solution Hangzhou. Sabre alleged that these actions
also violated other state and federal law.
Shan removed the action to federal court and moved to compel arbitration
pursuant to the EIPC Agreement’s arbitration clause. The District Court granted the
motion, and in April 2016 Sabre initiated an arbitration proceeding before the Judicial
Arbitration and Mediation Services (JAMS) in Dallas, Texas.
A five-day arbitration hearing was held in September 2017, and the parties
thereafter submitted closing briefs. On January 6, 2018, the arbitrator issued an Interim
Award. Applying Texas law, the arbitrator found that Shan had breached her fiduciary
duty to Sabre and awarded Sabre two categories of damages for the breach. First, the
arbitrator found Sabre was entitled to disgorgement of $200,000 of the salary Shan
received from Sabre during the period of her disloyalty. And second, the arbitrator
awarded Sabre $1,173,318 in “head start” damages, representing the benefit Shan
received from her misconduct based on her equity interest in Pi-Solution Hangzhou,
which obtained an unlawful development and operations head start as a result of Shan’s
misconduct.1
1
Sabre also sought to recover a third category of damages for Shan’s breach of fiduciary
duty—saved development cost damages, representing Shan’s share of the development
costs Pi-Solution Hangzhou avoided as a result of her misconduct. The arbitrator
4
As to Sabre’s remaining claims, the arbitrator also found Shan liable for breach of
contract; tortious interference with Sabre’s employment contracts, customer contracts,
and prospective economic advantage; and violations of the New Jersey Trade Secrets Act
(NJTSA), N.J. Stat. Ann. § 56:15-1 to -9, and the federal Computer Fraud and Abuse Act,
18 U.S.C. § 1030. Although the arbitrator declined to award any additional damages on
these claims, he granted Sabre injunctive relief on its breach of contract claim and
awarded Sabre attorney’s fees, in an amount to be determined, under the NJTSA.
Following issuance of the Interim Award, Sabre moved to confirm the Award, and
Shan moved to vacate it. On February 12, 2018, after further briefing on the fee issue,
the arbitrator issued a Final Award, which fixed the award of attorney’s fees at $450,000,
but was otherwise identical to the Interim Award. Sabre thereafter moved to confirm the
Final Award. On April 23, 2018, the District Court issued an opinion and order granting
Sabre’s motion to confirm the Final Award as to damages and injunctive relief, but
granting Shan’s motion to vacate the award of attorney’s fees. Judgment was entered in
the case the following day. Both parties now appeal.
II. JURISDICTION AND STANDARD OF REVIEW
The District Court had jurisdiction under 28 U.S.C. §§ 1331, 1332, 1367(a), and
1441. This Court has jurisdiction under 28 U.S.C. § 1291 and 9 U.S.C. § 16(a)(1)(D)-
(E). “On appeal from a district court’s ruling on a motion to confirm or vacate an
declined to award this category of damages, however, finding Sabre’s evidence of Pi-
Solution Hangzhou’s saved development costs to be speculative.
5
arbitration award, we review its legal conclusions de novo and its factual findings for
clear error.” Sutter v. Oxford Health Plans LLC, 675 F.3d 215, 219 (3d Cir. 2012), aff’d,
569 U.S. 564 (2013).
Review of the underlying arbitration award, in contrast, is “extremely deferential.”
Dluhos v. Strasberg, 321 F.3d 365, 372 (3d Cir. 2003). Under the Federal Arbitration
Act (FAA), a court may vacate an arbitration award only on the following grounds:
(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 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). This Court has held that an arbitration award may also be vacated
where the award “evidence[s] a manifest disregard for the law rather than an erroneous
interpretation of the law.” Dluhos, 321 F.3d at 370 (alteration in original) (quoting Local
863 Int’l Bhd. of Teamsters v. Jersey Coast Egg Producers, Inc., 773 F.3d 530, 534 (3d
Cir. 1985)).
It is an open question in this Circuit whether an arbitrator’s manifest disregard of
the law remains a valid basis for vacatur in light of the Supreme Court’s holding in Hall
Street Assocs., L.L.C. v. Mattel, Inc., that § 10 of the FAA provides the statute’s
“exclusive grounds for expedited vacatur” of an arbitration award. 552 U.S. 576, 584
6
(2008). The Supreme Court has declined to decide whether the manifest disregard
standard survives Hall Street Assocs. either “as an independent ground for review or as a
judicial gloss on the enumerated grounds for vacatur set forth at 9 U.S.C. § 10.” Stolt-
Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 672 n.3 (2010). And while other
Courts of Appeals are divided on the issue, this Court has found it unnecessary to weigh
in to date. See, e.g., Whitehead v. Pullman Grp., LLC, 811 F.3d 116, 120-21 (3d Cir.
2016) (noting the existence of a circuit split on the continued vitality of the manifest
disregard standard but declining to address the issue where the arbitrator’s alleged error
did not “rise to the level of manifest disregard of the law”). We again find it unnecessary
to resolve this issue. The parties have not briefed it. And even assuming the manifest-
disregard standard retains its vitality, Shan has not shown that relief is warranted under
that standard.
III. DISCUSSION
A. Shan’s Appeal
Shan appeals from the District Court’s judgment insofar as it denied her motion to
vacate the award of head start damages. Shan argues vacatur is warranted because the
arbitrator manifestly disregarded numerous aspects of Texas law in awarding such
damages. She also invokes three statutory grounds for vacatur, arguing the arbitrator
exceeded his powers by failing to address her mitigation of damages affirmative defense
in his written opinion, deprived her of a fair hearing on damages by allowing Sabre to
submit an untimely expert report, and exhibited evident partiality by refusing to follow
7
the controlling law on damages. We begin by discussing the basis for the head start
damages award and then address each of these asserted grounds for vacatur in turn.
1. Head Start Damages
In awarding head start damages, the arbitrator accepted the methodology and
calculations provided by Sabre’s damages expert, Robert L. Vigil, Ph.D., who submitted
a written report and testified at the arbitration hearing. The premise of this damages
theory is that Shan’s breach of her fiduciary duty to Sabre—including her acquisition and
use of Sabre’s confidential information and trade secrets and recruitment of key Sabre
employees—gave Pi-Solution Hangzhou a two-year head start, which the company
would not have had but for Shan’s misconduct. Head start damages represent Dr. Vigil’s
effort to quantify the value Shan obtained from this two-year head start based on her
ownership interest, through ROIS, in Pi-Solution Hangzhou.
To calculate head start damages, Dr. Vigil first determined the incremental value
of the head start to Pi-Solution Hangzhou by estimating the value of the company as of
December 31, 2014, with and without the head start and taking the difference between the
two.2 He then multiplied this figure by 68 percent, Shan’s ownership interest in Pi-
Solution Hangzhou, through ROIS, to determine the amount Shan personally benefitted
from her misappropriation and disloyalty. In this manner, Dr. Vigil determined that the
2
In valuing the company with the head start, Dr. Vigil relied on a transaction in which an
outside investor committed to purchase 20 percent of Pi-Solution Hangzhou in exchange
for ¥10 million. He then discounted the resulting valuation to determine the value of the
company without the head start to reflect that, but for Shan’s fiduciary breach, the
company would not have achieved that valuation for an additional two years.
8
incremental value Pi-Solution Hangzhou received from the two-year head start was
$1,725,467, and Shan’s share of this incremental value was $1,173,318. Citing Dr.
Vigil’s expert report, the arbitrator awarded Sabre $1,173,318 in head start damages,
noting that Dr. Vigil had used “an accepted and credible approach” in calculating the
benefit to Shan from her misconduct. App. 877.
2. “Manifest Disregard”
Shan principally challenges the award of head start damages on the ground that the
arbitrator manifestly disregarded various aspects of Texas law in granting such relief.3
To obtain vacatur under this standard, Shan must show more than that the arbitrator erred
in interpreting or applying the governing law. Whitehead, 811 F.3d at 121. She must
show the arbitrator’s decision “‘fl[ies] in the face of clearly established legal precedent,’
such as where an arbitrator ‘appreciates the existence of a clearly governing legal
principle but decides to ignore or pay no attention to it.’” Id. (first quoting Merrill Lynch,
Pierce, Fenner & Smith, Inc. v. Jaros, 70 F.3d 418, 421 (6th Cir. 1995); then quoting
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bobker, 808 F.2d 930, 933 (2d Cir.
1986)). None of the alleged legal errors identified by Shan warrants relief under this
standard.
Shan first argues the arbitrator manifestly disregarded the legal principles
governing the award of damages for breach of fiduciary duty and trade secret
3
To the extent that Shan also argues the arbitrator exceeded his powers under the EIPC
Agreement by manifestly disregarding Texas law, we do not separately address this
argument.
9
misappropriation set forth in Carbo Ceramics, Inc. v. Keefe, 166 F. App’x 714 (5th Cir.
2006), the case he cited to support his damages award. We disagree for two reasons.
First, Carbo Ceramics is not “clearly established legal precedent.” Whitehead,
811 F.3d at 121 (quoting Jaros, 70 F.3d at 421). Texas law governs Shan’s breach of
fiduciary duty claim. And while Carbo Ceramics purports to apply Texas law, it cites no
Texas law to prove the principle for which Shan cites it. Instead, Carbo Ceramics cites
two federal cases: Bourns, Inc. v. Raychem Corp., 331 F.3d 704 (9th Cir. 2003), and
Univ. Computing Co. v. Lykes-Youngstown Corp., 504 F.2d 518 (5th Cir. 1974). Carbo
Ceramics, 166 F. App’x at 723. Bourns is a Ninth Circuit case applying California law.
And Univ. Computing Co. is a Fifth Circuit case applying Georgia law.
So we have a non-precedential Fifth Circuit case citing applications of California
and Georgia law. This is not a clearly established legal precedent of Texas law. It is not
Texas law at all. Thus, the arbitrator would not have manifestly disregarded clearly
established principles of Texas law even if he had misapplied Carbo Ceramics.
Second, the arbitrator did not misapply Carbo Ceramics. Carbo Ceramics did not
involve a request for head start damages; the plaintiff in the case sought to establish
damages for trade secret misappropriation based on a “profit-split method,” which
entailed allocating a portion of the defendant’s overall profits to the plaintiff’s
misappropriated trade secrets. Id. at 723-24. Addressing this damages theory, the court
noted it “d[id] not fit within” the established methods of calculating damages for trade
secret misappropriation outlined elsewhere in the opinion. Id. at 724. Yet the court did
not reject the theory for this reason, instead holding the plaintiff could not recover
10
because the revenue projections underlying the theory were too speculative to support
relief. Id.4
Shan argues Sabre’s head start damages calculation was likewise flawed as a
matter of proof, but this argument is based on the faulty premise that head start damages
and saved development costs are “the same thing.” Shan Br. 21. Proceeding from this
premise, Shan argues that by accepting Sabre’s head start damages theory, the arbitrator
effectively allowed Sabre to recover saved development costs absent any evidence of
such costs, which the arbitrator expressly found was lacking. As Dr. Vigil’s report and
hearing testimony make clear, however, head start damages and saved development costs
are separate damages theories that seek disgorgement of two different benefits Shan
received as a result of her misconduct. Head start damages represent the benefit to Shan
from the increase in Pi-Solution Hangzhou’s value, as of December 31, 2014, as a result
of the company’s being two years further along than it otherwise would have been in
developing and commercializing its products and services.5 Saved development costs, in
4
Insofar as Shan argues head start damages are impermissible because they are not
among the damages theories discussed by the court in Carbo Ceramics, the case does not
support this interpretation. The court did not hold the enumerated theories were the
exclusive methods of calculating trade secret misappropriation damages; on the contrary,
it expressly recognized that “plaintiffs are entitled to adapt their damage theory to fit
within the particular facts of the case.” 166 F. App’x at 724.
5
Contrary to Shan’s assertion, head start damages are not based on any actual
development and operations costs Pi-Solution Hangzhou saved during a two-year head
start period, but on the impact of the two-year development and operations head start on
the value of the company. Thus, insofar as Shan argues the arbitration award should be
vacated because it was based on the “improper material assumption[]” that Shan
“received save[d] development and operational expenses,” Shan Br. 33, this argument is
also unfounded.
11
contrast, represent the benefit to Shan from Pi-Solution Hangzhou’s ability to avoid
incurring certain research and development costs by using the confidential information
and trade secrets Shan misappropriated rather than developing that information on its
own. The arbitrator’s finding that Sabre failed to prove Pi-Solution Hangzhou’s saved
development costs thus has no impact on the award of head start damages.
Shan also argues Carbo Ceramics precludes the head start damages awarded in
this case because the foundation of Sabre’s damages calculation—Dr. Vigil’s valuation of
Pi-Solution Hangzhou—is no less speculative than the revenue projections on which the
damages calculation in Carbo Ceramics was based. This argument is unpersuasive. The
expert in Carbo Ceramics relied on the defendant’s business plan to project ten years of
future revenue for a plant that had neither been built nor produced a product. See 166 F.
App’x at 723-24. Here, in contrast, Dr. Vigil based his valuation of Pi-Solution
Hangzhou on what an actual outside investor was willing to pay for a 20 percent interest
in the company. Carbo Ceramics does not preclude this method of valuation,6 and the
arbitrator therefore did not act in manifest disregard of that case by accepting Dr. Vigil’s
6
Nor is Dr. Vigil’s valuation method precluded by M & A Tech., Inc. v. iValue Grp., Inc.,
295 S.W.3d 356 (Tex. App. 2009), another case Shan argues the arbitrator manifestly
disregarded. In M & A Tech., the court reversed a $3 million jury award to a startup
whose value had been “totally destroyed” when its servers were erased, finding the award
could not be justified based on the company’s $2.4 million in shareholder equity because
the $3 million damage award was “well outside . . . the range for the shareholder equity.”
Id. at 365, 368. The court did not hold that shareholder equity is categorically an
impermissible method of establishing the value of a company.
12
calculation. In sum, nothing in Carbo Ceramics forecloses the head start damages
awarded in this case.
Shan also argues the arbitrator manifestly disregarded Texas law regarding
causation and apportionment in accepting Sabre’s damages calculation because Sabre did
not prove the amount of damages attributable to each trade secret or piece of confidential
information she allegedly misappropriated. In lieu of assessing damages item by item,
Dr. Vigil determined that Shan’s misappropriation of Sabre’s confidential information
and trade secrets and other breaches of her fiduciary duty to Sabre in the aggregate gave
Pi-Solution Hangzhou a two-year head start. Shan cites no clearly established Texas law
precluding this approach.
Shan argues apportionment was required under Tex. Advanced Optoelectronic
Sols., Inc. v. Renesas Elecs. Am., Inc., 895 F.3d 1304 (Fed. Cir. 2018), a case decided
after the Final Award in this case was issued. In that case, the Federal Circuit, applying
Texas law, vacated an award of disgorgement of profits for trade secret misappropriation
where the plaintiff’s expert failed to “explain which of the trade secrets contributed to
what amount of profit to be disgorged.” Id. at 1317. The court vacated the award only
after concluding that the defendant could not be liable for misappropriating two of the
three trade secrets at issue and that there was “no basis to conclude that the remaining
ground for liability . . . support[ed] the entire award.” Id. The case thus does not
establish that apportionment of damages is required in all cases involving trade secrets.7
7
The two cases Shan cited to the arbitrator for the proposition that Sabre was required to
apportion its claimed damages among the misappropriated trade secrets—Pike v. Tex.
13
Shan argues vacatur is required here because much of the allegedly
misappropriated information that contributed to Pi-Solution Hangzhou’s head start—
including Sabre’s source code—was neither confidential nor trade secrets, and damages
attributable to such information must therefore be excluded from any award. Although
Shan frames this argument in terms of the arbitrator’s manifest disregard of the law
regarding causation and apportionment, she in effect seeks to relitigate the status of the
misappropriated information. The status of this information was contested in the
arbitration, and the arbitrator agreed with Sabre that Shan had misappropriated Sabre’s
confidential information and trade secrets, including its source code. Shan has not
established a reason to disturb the arbitrator’s findings in this regard. See Tanoma
Mining Co. v. Local Union No. 1269, United Mine Workers of Am., 896 F.2d 745, 748
(3d Cir. 1990) (holding an arbitrator’s factual findings need only have “some support in
the record”).8
EMC Mgmt., LLC, No. 10-14-00274-CV, 2017 WL 2507783 (Tex. App. June 7, 2017),
and Alcatel USA, Inc. v. Cisco Sys., Inc., 239 F. Supp. 2d 660 (E.D. Tex. 2002)—are also
inapposite. Pike did not address apportionment. And in Alcatel, the court mentioned
apportionment in the course of rejecting a plaintiff’s attempt to equate the value of its
allegedly misappropriated trade secrets with the entire purchase price of the
misappropriating company, noting the plaintiff’s failure to apportion the purchase price
among its intellectual property and other components of the sale. See 239 F. Supp. 2d at
670-71. Neither case has any application here.
8
Shan also argues Dr. Vigil’s head start damages calculation was flawed because he
improperly included all products in development at Pi-Solution Hangzhou in his
valuation of the company, even though the company had products in development
unrelated to the misappropriated information. In calculating head start damages, Dr.
Vigil assumed that all or most of Pi-Solution Hangzhou’s value, as of December 31,
2014, was attributable to products that were (or would be) developed sooner than they
otherwise would have been as a result of Shan’s misappropriation and disloyalty.
14
Shan next argues the arbitrator manifestly disregarded Texas law prohibiting
disgorgement damages where the parties’ relationship is governed by an express contract.
This argument also lacks merit. Under Texas law, the existence of a valid, express
contract covering the subject matter of the parties’ dispute generally precludes recovery
under a quasi-contract theory, such as unjust enrichment. Fortune Prod. Co. v. Conoco,
Inc., 52 S.W.3d 671, 684 (Tex. 2000). But Shan cites no authority extending this
principle to claims for breach of fiduciary duty, which sound in tort. And, in fact, the
Texas Supreme Court has recognized that equitable remedies are available for breach of
fiduciary duty claims, even when contractual remedies are also available. See ERI
Consulting Eng’rs, Inc. v. Swinnea, 318 S.W.3d 867, 872-78 (Tex. 2010). While Shan
argues the only available equitable remedy in a case governed by contract is
disgorgement of salary, the case she cites for this proposition merely recognizes that “a
person who renders service to another in a relationship of trust may be denied
compensation for his service if he breaches that trust.” McCullough v. Scarbrough,
Medlin & Assocs., Inc., 435 S.W.3d 871, 904-05 (Tex. App. 2014). It does not clearly
foreclose other forms of equitable relief. See ERI Consulting Eng’rs, 318 S.W.3d at 873
(recognizing the courts’ power to fashion equitable remedies that require a fiduciary to
“account to his principal for all he has received” from his betrayal of trust, including
Although Shan notes that other products not traceable to her misconduct were in
development as of the December 31, 2014, valuation date, she offers no basis on which to
conclude that Dr. Vigil’s assumption that the company’s value was driven largely by
products that were traceable to her misconduct was incorrect—much less that the
arbitrator manifestly disregarded Texas law in accepting it.
15
“profit disgorgement and fee forfeiture” (quoting Kinzbach Tool Co. v. Corbett-Wallace
Corp., 160 S.W.2d 509, 514 (Tex. 1942))).
Shan’s related argument that the award of head start damages was improper
because Sabre’s damages calculation was based on a valuation date after she left Sabre is
also unpersuasive. Although Dr. Vigil used a December 31, 2014, valuation date in
calculating head start damages, such damages were based on Shan’s misappropriation of
trade secrets and solicitation of Sabre’s employees and customers, conduct that largely
occurred while Shan was still employed at Sabre. Moreover, while Shan maintains her
post-resignation conduct was governed solely by the EIPC Agreement, her fiduciary
obligations to Sabre did not completely end when she resigned, as she continued to have
a duty “not to use or to disclose to third persons . . . trade secrets . . . or other similar
confidential matters . . . .” Hunn v. Dan Wilson Homes, Inc., 789 F.3d 573, 581 (5th Cir.
2015) (ellipses in original) (quoting NCH Corp. v. Broyles, 749 F.2d 247, 254 (5th Cir.
1985)).
Finally, Shan argues the arbitrator intentionally disregarded Texas law regarding
corporate separateness, first by ordering disgorgement from Shan of a benefit reaped by
Pi-Solution Hangzhou absent a finding that Shan and Pi-Solution Hangzhou are alter
egos, and second by calculating Shan’s interest in Pi-Solution Hangzhou using shares
owned by ROIS absent a finding that Shan and ROIS are alter egos.
It is a “bedrock principle of corporate law . . . that an individual can incorporate a
business and thereby normally shield himself from personal liability for the corporation’s
. . . obligations.” Willis v. Donnelly, 199 S.W.3d 262, 271 (Tex. 2006). But this principle
16
is not implicated here. The arbitration award did not impose liability on Shan for Pi-
Solution Hangzhou’s obligations, but for her own misconduct in recruiting Sabre
employees, soliciting Sabre customers, and misappropriating Sabre’s confidential
information and trade secrets, all while still employed by Sabre. There was no need to
pierce Pi-Solution Hangzhou’s corporate veil to hold Shan liable for her own misconduct.
Cf. Hyman Farm Serv., Inc. v. Earth Oil & Gas Co., 920 S.W.2d 452, 455 (Tex. App.
1996) (“Under longstanding Texas law, corporate agents can be held individually liable
for fraudulent or tortious acts committed while working for a corporation.”).
Shan concedes as much, but argues the arbitrator could not order her to disgorge a
benefit that Pi-Solution Hangzhou received as a result of her misconduct without a
finding of alter ego. In awarding head start damages, however, the arbitrator credited the
theory that Shan’s misconduct not only benefitted Pi-Solution Hangzhou by giving the
company a two-year development and operations head start but also benefitted Shan
personally by increasing the value of her ownership interest in Pi-Solution Hangzhou
through ROIS. There was no need to pierce Pi-Solution Hangzhou’s corporate veil to
require Shan to disgorge the value she personally received as a result of her misconduct.
Shan cites no clearly established law holding to the contrary.
Whether the arbitrator erred in calculating the benefit Shan received from Pi-
Solution Hangzhou’s ill-gotten head start based on shares of Pi-Solution Hangzhou
owned by ROIS without making an explicit finding that Shan and ROIS are alter egos is a
closer question. We need not resolve this issue, however, as Shan waived it by failing to
raise it before the arbitrator. While Shan raised the issue of corporate separateness in her
17
closing brief, her objection there was that Sabre was improperly equating Shan with Pi-
Solution Hangzhou, not ROIS. Shan did not mention ROIS in her closing brief to the
arbitrator or in her opening brief in the District Court. Rather, Shan first objected that
ROIS’s shares in Pi-Solution Hangzhou could not be imputed to her absent an alter ego
finding in her reply memorandum in support of her motion to vacate in the District Court.
Because Shan did not raise this issue before the arbitrator, the issue is waived. See
Teamsters Local Union No. 764 v. J.H. Merritt & Co., 770 F.2d 40, 42-43 (3d Cir. 1985)
(recognizing a party may waive objections to an arbitrator’s decision by failing to address
the objections before the arbitrator).
Despite her many assertions of legal error, Shan has not identified any clearly
governing principle of Texas law that the arbitrator was aware of but chose to ignore in
awarding head start damages. There is thus no basis on which to conclude such damages
were awarded in manifest disregard of the law.
3. Section 10(a)(4)
Shan also argues the award of head start damages should be vacated under
§ 10(a)(4) of the FAA because the arbitrator exceeded his powers by failing to address
her mitigation of damages affirmative defense in his written decision. Shan raised this
defense in her closing brief, arguing she was entitled to mitigation of damages because
Sabre delayed in filing a lawsuit against her and then exploited this delay by using a
recent equity investment in Pi-Solution Hangzhou to calculate head start damages. But
the arbitrator did not specifically address it in either the Interim or the Final Award. Shan
argues this lapse deprived her of the “mutual, final, and definite award” required under
18
the statute and the “reasoned award” to which the parties agreed. Shan Br. 37-38. We
disagree.
“[A] reasoned award is something more than a line or two of unexplained
conclusions, but something less than full findings of fact and conclusions of law on each
issue raised before the panel.” Leeward Constr. Co. v. Am. Univ. of Antigua-Coll. of
Med., 826 F.3d 634, 640 (2d Cir. 2016). The award must “set[] forth the basic reasoning
of the arbitral panel on the central issue or issues raised before it”; it “need not delve into
every argument made by the parties.” Id.
The award in this case was more than sufficient to satisfy this standard. In his 16-
page Final Award, the arbitrator set forth the reasons for his findings as to liability and
damages on each of Sabre’s claims for relief and specified that the award “resolves all
claims between the Parties submitted for decision in this arbitration proceeding” and that
“[a]ll relief requested but not granted is denied.” App. 882. Shan argues the arbitrator
was required to address her mitigation of damages argument because it was her “only
affirmative defense.” Shan Br. 38. But there is no basis on which to conclude this
defense was a central issue in the case. On the contrary, Shan raised the defense in the
final paragraph of her 25-page closing brief, offered no evidentiary support for her
assertion that “Sabre waited for damages to escalate before resolving its claims against
Ms. Shan,” and cited no legal authority in support of her mitigation theory. App. 861.
The arbitrator’s failure to specifically address the mitigation defense is thus not surprising
and does not run afoul of the requirement of a reasoned award or render the award
anything less than definite and final. Cf. Stage Stores, Inc. v. Gunnerson, 477 S.W.3d
19
848, 861, 863 (Tex. App. 2015) (holding a “key defense” that was raised during opening
and closing statements and on which both parties elicited testimony “merit[ed] some
reasoning in the [arbitration] award”).
4. Section 10(a)(3)
Shan also argues the award of head start damages should be vacated under
§ 10(a)(3) of the FAA because the arbitrator deprived her of a fair hearing on damages by
denying her motion to strike Dr. Vigil’s expert report, which Sabre submitted less than
three weeks before the hearing and more than two months after the deadline for expert
designations had passed. Shan argues this ruling permitted Sabre to “sandbag” her with
previously undisclosed damages theories on the eve of the hearing and prevented her
from adequately preparing her defense. Shan Br. 34.
Section 10(a)(3) permits a court to vacate an arbitration award where, inter alia,
the arbitrator was guilty of “misbehavior by which the rights of any party have been
prejudiced.” 9 U.S.C. § 10(a)(3). “Arbitrators have wide latitude in how they conduct
proceedings”; hence, a court’s role in reviewing an arbitrator’s procedural decisions is
extremely limited. Office & Prof’l Emps. Int’l Union, Local No. 471 v. Brownsville Gen.
Hosp., 186 F.3d 326, 334-35 (3d Cir. 1999). A court may vacate an arbitration award
based on an arbitrator’s error in “the receipt or rejection of evidence” only if the error “so
affects the rights of a party that it may be said that he was deprived of a fair hearing.”
Newark Stereotypers’ Union No. 18 v. Newark Morning Ledger Co., 397 F.2d 594, 599
(3d Cir. 1968); accord Teamsters Local 312 v. Matlack, Inc., 118 F.3d 985, 995-96 (3d
20
Cir. 1997) (holding § 10(a)(3) permits vacatur of an arbitration award based on a
“fundamental procedural error”).
The procedural ruling in this case falls well short of this standard. The record
reflects that Shan bears at least some responsibility for Sabre’s late production of its
expert report, as Shan herself failed to comply with the discovery deadline and admittedly
did not produce many of the documents cited in the report until after the deadline for
expert discovery had passed. Moreover, while Shan claimed the late disclosure
prejudiced her by impairing her ability to prepare a meaningful rebuttal report, she
strenuously opposed a continuance to afford her additional time to depose Dr. Vigil and
retain a rebuttal expert. To accommodate Shan’s concerns, the arbitrator ruled that she
would be permitted to present expert rebuttal testimony at the hearing without producing
a written expert report. And Shan did, in fact, present a rebuttal expert on damages at the
hearing. In these circumstances, we cannot say Shan was deprived of a fair hearing on
damages.
5. Section 10(a)(2)
Finally, Shan argues the award of head start damages should be vacated under
§ 10(a)(2) of the FAA because the arbitrator’s refusal to follow the controlling law in
awarding such damages can only be explained on the basis of partiality toward Sabre.
This argument is meritless. Section 10(a)(2) allows a court to vacate an arbitration award
“where there was evident partiality . . . in the arbitrators.” This standard is met “only if a
reasonable person would have to conclude that [the arbitrator] was partial to one side.”
21
Freeman v. Pittsburgh Glass Works, LLC, 709 F.3d 240, 253 (3d Cir. 2013). There is no
evidence of such bias here.
Because Shan has not shown the District Court erred in denying her motion to
vacate the award of head start damages, this ruling will be affirmed.
B. Sabre’s Cross-Appeal
Sabre cross-appeals from the District Court’s judgment insofar as it granted
Shan’s motion to vacate the award of attorney’s fees. The arbitrator awarded Sabre
$450,000 in attorney’s fees under the NJTSA, which permits an award of fees to a
prevailing party if “willful and malicious misappropriation exists.” N.J. Stat. Ann.
§ 56:15-6. The District Court vacated the fee award under § 10(a)(4) of the FAA, finding
the arbitrator exceeded his powers in allowing fees because the arbitration agreement
“expressly foreclosed” this remedy. App. 1093. Sabre challenges this ruling, arguing the
arbitration agreement is, at a minimum, ambiguous as to the availability of attorney’s fees
and the fee award is therefore consistent with a rational interpretation of the agreement.
An arbitrator’s authority derives from the parties’ agreement to arbitrate. Puleo v.
Chase Bank USA, N.A., 605 F.3d 172, 194 (3d Cir. 2010) (en banc). “By contractually
restricting the issues they will arbitrate, the individuals with whom they will arbitrate,
and the arbitration procedures that will govern, parties to an arbitration agreement may
place limits upon the arbitrator’s powers that are enforceable by the courts.” Sutter, 675
F.3d at 219. In agreeing to arbitrate, however, the parties “bargain[] for the arbitrator’s
construction of their agreement,” not a court’s. Oxford Health Plans LLC v. Sutter, 569
U.S. 564, 569 (2013) (quoting E. Associated Coal Corp. v. Mine Workers, 531 U.S. 57,
22
62 (2000)). Thus, so long as an arbitral decision reflects that the arbitrator “even
arguably constru[ed] or appl[ied] the contract,” the decision will withstand scrutiny under
§ 10(a)(4), even if a court is persuaded the arbitrator committed serious errors in doing
so. Id. (quoting E. Associated Coal Corp., 531 U.S. at 62). Only when an arbitrator
“strays from interpretation and application of the agreement”—when he “decides an issue
not submitted to him, grants relief in a form that cannot be rationally derived from the
parties’ agreement and submissions, or issues an award that is so completely irrational
that it lacks support altogether”—does he exceed his authority and subject the award to
vacatur under § 10(a)(4). Sutter, 675 F.3d at 219-20 (first quoting Stolt-Nielsen, 559 U.S.
at 671; then citing Ario v. Underwriting Members of Syndicate 53 at Lloyds for the 1998
Year of Account, 618 F.3d 277, 295-96 (3d Cir. 2010)).
In the arbitration provision of the EIPC Agreement, the parties agreed to arbitrate
clams “arising out of or related to this Agreement, or the breach of this Agreement,” and
to submit such claims to JAMS “in Dallas, Texas, for prompt resolution pursuant to its
Employment Arbitration Rules & Procedures and subject to JAMS Policy on
Employment Arbitration Minimum Standards of Procedural Fairness.” App. 136. The
arbitration clause goes on to provide that “[a]ll rights, remedies and defenses applicable
to claims asserted in a court of law will apply in the arbitration,” and that “[t]he Parties
shall bear their own attorneys’ fees, and shall bear equally the expenses of the arbitral
proceedings, including without limitation the fees of the arbitrator.” Id. The JAMS
Minimum Standards referenced in the parties’ arbitration agreement also address
attorney’s fees. Minimum Standard No. 1, titled “All Remedies Available,” provides,
23
“All remedies that would be available under the applicable law in a court proceeding,
including attorneys fees and exemplary damages, as well as statutes of limitations, must
remain available in the arbitration. Post-arbitration remedies, if any, must remain
available to an employee.” App. 1037 (emphasis added).
The parties dispute whether their arbitration agreement can be interpreted to
permit an award of attorney’s fees where, as here, the applicable law provides fee-
shifting as a remedy. Shan argues the language in the agreement specifying that the
parties “shall bear their own attorneys’ fees” is dispositive and expressly precludes any
award of attorney’s fees. In Shan’s view, the Minimum Standards cannot trump the plain
language of the arbitration agreement because the Minimum Standards are not part of that
agreement as a matter of Texas contract law. Sabre argues that by providing that claims
submitted to arbitration will be resolved “subject to” the JAMS Minimum Standards, the
arbitration agreement incorporates the Standards by reference and thus requires that
attorney’s fees remain an available remedy in arbitration, if fees would be available under
the applicable law in a court proceeding. Sabre contends the Minimum Standards take
precedence over the language elsewhere in the arbitration agreement that the parties
“shall bear their own attorneys’ fees.”9 But even if they do not, Sabre maintains the
9
Sabre’s argument in this regard is based in part on a letter that JAMS sent to the parties
at the outset of the arbitration proceedings, enclosing a copy of the Minimum Standards
and advising the parties that the Minimum Standards would be applicable
“notwithstanding any contrary provisions set forth in the parties’ pre-dispute arbitration
agreement.” App. 1036. The letter also stated the parties “agreement to proceed” with
the arbitration would “constitute[] [their] agreement to the foregoing.” Id. Sabre argues
that by proceeding with the arbitration after receiving the JAMS letter, Shan consented to
the applicability of the Minimum Standards. Shan disputes this, citing the EIPC
24
arbitration agreement is at least ambiguous as to the availability of attorney’s fees when
authorized by a fee-shifting statute.
The parties first raised their competing interpretations in the arbitration after the
arbitrator issued his Interim Award, as part of their additional briefing on the attorney’s
fees issue.10 Although the arbitrator did not address the parties’ arguments in the Final
Award, he implicitly rejected Shan’s contention that the arbitration agreement precludes
attorney’s fees, awarding Sabre $450,000 in fees for Shan’s violation of the NJTSA.11
We are not persuaded the arbitrator “stray[ed] from interpretation and application of the
agreement” in making the fee award. Sutter, 675 F.3d at 220 (quoting Stolt-Nielsen, 559
U.S. at 671).
To prevail on this issue, Shan was required to show that the authority to award
attorney’s fees could not “be rationally derived from the parties’ agreement and
Agreement’s “Entire Agreement” integration clause, which prohibits implied
amendments. See App. 136. Because we conclude the award of attorney’s fees must
stand regardless of any impact the JAMS letter may have had on the parties’ arbitration
agreement, we need not resolve this dispute.
10
While the parties’ post-Interim Award briefing regarding attorney’s fees is not part of
the record, it is undisputed that the parties advanced their competing interpretations of the
arbitration agreement with respect to the availability of fees as part of that briefing. See
Sabre Br. 33 n.17; Shan Reply Br. 25-26 n.10; Sabre Reply Br. 7 n.9.
11
Shan argues the arbitrator cannot have awarded attorney’s fees based on the JAMS
Minimum Standards because Sabre sought attorney’s fees based only on the NJTSA and
Shan’s discovery violations, not the Minimum Standards. Contrary to Shan’s assertion,
however, there was no reason for Sabre to provide notice that it was asserting a claim for
fees under the Minimum Standards because the substantive basis for the claim was the
NJTSA, which provides for fee-shifting. The Minimum Standards, in contrast, provided
the arbitrator with authority to grant the NJTSA’s fee-shifting remedy.
25
submissions.” Id. at 219-20. As long as there is an “arguable interpretation and/or
application” of the agreement that would permit an award of attorney’s fees, the award
must stand. Brentwood Med. Assocs. v. United Mine Workers of Am., 396 F.3d 237, 241
(3d Cir. 2005) (quoting Exxon Shipping Co. v. Exxon Seamen’s Union, 993 F.2d 357, 360
(3d Cir. 1993)); accord Ario, 618 F.3d at 296 (holding an arbitration award is irrational
when it cannot be supported “on any theory of relief”).
The District Court found the arbitration agreement unambiguously precluded the
arbitrator from awarding attorney’s fees. But this Court previously found an arbitration
agreement with similarly conflicting language to be ambiguous in Quilloin v. Tenet
HealthSystem Phila., Inc., 673 F.3d 221 (3d Cir. 2012). There, as here, the arbitration
agreement provided the parties would be “responsible for the fees and costs of [their]
own respective legal counsel.” Id. at 226. However, the agreement also provided that the
arbitrator had “the authority to award any remedy that would have been available to [the
employee]” had the dispute been litigated in court under the applicable law and that “no
remedies that otherwise would be available to [the parties] in a court of law w[ould] be
forfeited by virtue of the agreement to use and be bound by the [arbitration agreement].”
Id. at 226-27. Addressing the arbitration agreement on appeal from the denial of a
motion to compel arbitration, this Court held the arbitration clause was “ambiguous
regarding the award of attorneys’ fees” and this ambiguity had to be interpreted by the
arbitrator. Id. at 231.
We reach the same conclusion here. As was the case in Quilloin, in advocating for
their respective interpretations, the parties rely on conflicting principles of contract
26
interpretation, which “point in different directions.” Quilloin v. Tenet HealthSystem
Phila., Inc., 763 F. Supp. 2d 707, 726 (E.D. Pa. 2011), rev’d on other grounds, 673 F.3d
221 (3d Cir. 2012). Applying the principle that contract terms should be construed “as a
whole in an effort to harmonize and give effect to all provisions of the contract,” the
arbitration agreement can at least arguably be interpreted to require the parties to pay
their own attorney’s fees during the arbitration, while still allowing the arbitrator to
award fees as a remedy if the applicable law permits. Rouse v. Tex. Capital Bank, N.A.,
394 S.W.3d 1, 5 (Tex. App. 2011). While Shan offers a number of arguments as to why
this interpretation is incorrect under a proper application of other Texas contract
interpretation principles, including the rule that ambiguities in a contract should be
construed against the drafter, our task is not “to review the merits of every construction of
the contract,” United Steelworkers of Am. v. Enter. Wheel & Car Corp., 363 U.S. 593,
598-99 (1960), but to determine whether the award can be supported “on any theory of
relief,” Ario, 618 F.3d at 296. Because the fee award in this case passes this test, the
award must stand. Accordingly, we will reverse the District Court’s judgment insofar as
it vacated the award of attorney’s fees.
IV. CONCLUSION
For the foregoing reasons, we will affirm the District Court’s judgment insofar as
it confirmed the award of head start damages, reverse the judgment insofar as it vacated
the award of attorney’s fees, and remand to the District Court for entry of a judgment
confirming the arbitrator’s Final Award in its entirety.
27