Dream Medical Group v. Old South Trdg ( 2023 )

Case: 22-20286 Document: 00516667178 Page: 1 Date Filed: 03/06/2023
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
FILED
March 6, 2023
No. 22-20286 Lyle W. Cayce
Clerk
Dream Medical Group, L.L.C.; Joseph Agresti; BIJ
Motors TX, L.L.C.; BIJ LA, L.L.C.,
Plaintiffs—Appellees,
versus
Old South Trading Company, L.L.C.; Brendan Church,
Defendants—Appellants.
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:22-CV-134
Before Davis, Haynes, and Graves, Circuit Judges.
Per Curiam:*
Old South Trading Company, LLC (“OST”) and Brendan Church
(collectively, “Old South”) appeal the district court’s confirmation of an
arbitration award in favor of Dream Medical Group, LLC (“DMG”), Joseph
Agresti, BIJ Motors TX, LLC (“BIJ TX”), and BIJ LA, LLC (“BIJ LA”)
(collectively, “Dream”). The underlying arbitration concerned various
*
This opinion is not designated for publication. See 5th Cir. R. 47.5.
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No. 22-20286
transactions that occurred between the parties in 2020 and the contract
governing their business relationship. On appeal, Old South argues that the
arbitration award should be vacated under § 10(a)(3) and (4) of the Federal
Arbitration Act (“FAA”). Because Old South fails to demonstrate a
statutory basis for vacatur, we AFFIRM the district court’s confirmation of
the arbitration award.
I. Factual & Procedural Background
Church and Agresti, who founded OST and DMG, respectively, first
met in March 2020. They subsequently began to do business with each other,
with Old South supplying Dream with personal protective equipment
(“PPE”), namely face masks, and Dream distributing that PPE.
Dream sent Old South a proposed Resolution Agreement, which
provided that any dispute between the parties under the Agreement would
be resolved via arbitration pursuant to the rules of the American Arbitration
Association (“AAA”). Church initially refused to sign the proposed
Resolution Agreement. After receiving this refusal, Agresti called Church to
discuss the Resolution Agreement. Church alleges that during this call
Agresti represented to him that Dream would never enforce the Resolution
Agreement. Following this call, Church signed the Resolution Agreement on
behalf of Old South. Agresti subsequently emailed Church to exercise an
option under the Resolution Agreement to reject part of a previous
transaction and get a refund. Church agreed to pay only part of that refund.
Dream then moved for arbitration, arguing that Old South breached
the Resolution Agreement by failing to deliver certain masks and fully
provide its refund. Old South counterclaimed for rescission of the Resolution
Agreement, arguing that it was fraudulently induced to agree to the contract.
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An arbitration hearing took place. The arbitration panel 1 then issued
an award in favor of Dream. The Panel determined that (1) the parties
entered into the Resolution Agreement, and Old South breached the
Agreement; (2) Old South failed to prove fraudulent inducement by a
preponderance of the evidence; and (3) Old South failed to establish a right
to rescission of the Agreement.
Dream filed an application for confirmation of the arbitration award
with the district court. Old South moved to vacate the award. The district
court denied Old South’s motion and granted the application for
confirmation of the award, dismissing the case with prejudice.
Old South timely appealed the district court’s final judgment
confirming the arbitration award.
II. Standard of Review
The district court had diversity jurisdiction over this case under 28
U.S.C. § 1332(a)(1). We in turn have jurisdiction over this appeal pursuant
to 28 U.S.C. § 1291.
We review the “district court’s confirmation of an arbitration award
de novo, using the same standards as the district court.” Wartsila Finland
OY v. Duke Cap. LLC, 518 F.3d 287, 291 (5th Cir. 2008) (quotation omitted).
However, “[j]udicial review of an arbitration award is extraordinarily
narrow,” and we “defer to the arbitrator’s decision when possible.” Antwine
v. Prudential Bache Sec., Inc., 899 F.2d 410, 413 (5th Cir. 1990). “The burden
of proof is on the party seeking to vacate the award, and any doubts or
uncertainties must be resolved in favor of upholding it.” Cooper v. WestEnd
Cap. Mgmt., L.L.C., 832 F.3d 534, 544 (5th Cir. 2016).
1
The panel consisted of three arbitrators.
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Under the FAA, “a court ‘must’ confirm an arbitration award
‘unless’ it is vacated, modified, or corrected ‘as prescribed’ in §§ 10 and 11.”
Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 582 (2008) (quoting 9
U.S.C. § 9). Accordingly, our review focuses on the text of the FAA, which
supplies “the only grounds upon which a reviewing court may vacate an
arbitrative award.” Rain CII Carbon, LLC v. ConocoPhillips Co., 674 F.3d
469, 472 (5th Cir. 2012) (quotation omitted). In particular, § 10 of the FAA
describes the limited circumstances under which an arbitration award may be
vacated. See 9 U.S.C. § 10(a). These limited circumstances do not include
vacating an arbitration award based upon the merits of the claims that were
heard by arbitrators. See id.; see also Householder Grp. v. Caughran, 354 F.
App’x 848, 851 (5th Cir. 2009) (per curiam); Parker v. ETB Mgmt., L.L.C.,
667 F. App’x 850, 851 (5th Cir. 2016) (per curiam). 2
III. Discussion
Old South argues that the arbitration award should be vacated under
§ 10(a)(3) and (4) of the FAA. We consider Old South’s arguments below.
A. Old South’s § 10(a)(3) challenge
Under § 10(a)(3), a district court may vacate an arbitration award
where arbitrators have committed (1) “misconduct in refusing to postpone
the hearing, upon sufficient cause shown,” (2) misconduct “in refusing to
hear evidence pertinent and material to the controversy,” or (3) “any other
misbehavior by which the rights of any party have been prejudiced.”
Old South’s § 10(a)(3) argument is that the Panel denied it a fair
hearing and prejudiced it by not fully considering its fraudulent inducement
2
Although Parker and related unpublished opinions cited herein “[are] not
controlling precedent,” they “may be [cited as] persuasive authority.” Ballard v. Burton,
444 F.3d 391, 401 n.7 (citing 5th Cir. R. 47.5.4).
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claim. However, Old South concedes that the Panel did consider its claims.
In its opinion, the Panel reviewed Church and Agresti’s business
relationship, including the facts purportedly supporting Old South’s
fraudulent inducement claim, before determining that the preponderance of
the evidence did not demonstrate fraudulent inducement.
Thus, while Old South attempts to invoke § 10(a)(3), its arguments
functionally invite us to reassess the merits of its fraudulent inducement
claim and reach a different conclusion than the Panel. That is not something
we can do: § 10(a)(3) does not allow vacatur of an arbitration award based
upon our decision regarding the merits of a party’s claims. See 9 U.S.C.
§ 10(a)(3); see also Householder Grp., 354 F. App’x at 851; Parker, 667 F.
App’x at 851. Accordingly, we conclude that § 10(a)(3) does not support
vacatur of the arbitration award.
B. Old South’s § 10(a)(4) challenge
Under § 10(a)(4), a district court may vacate an arbitration award
“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.” To justify vacatur under § 10(a)(4), parties
“bear[] [the] heavy burden” of demonstrating more than an error, “or even
a serious error,” on the part of an arbitrator. Oxford Health Plans LLC v.
Sutter, 569 U.S. 564, 569 (2013) (quotation omitted). A court may only
overturn an arbitration award on this ground “if the arbitrator act[s] outside
the scope of his contractually delegated authority—issuing an award that
simply reflect[s] [his] own notions of [economic] justice rather than
draw[ing] its essence from the contract.” Id. (alterations in original) (internal
citation and quotation marks omitted).
Old South avers that (1) the Resolution Agreement provided that
disputes between the parties should be resolved in accordance with the
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AAA’s rules, and (2) the Panel breached an AAA rule by failing to fully
review Old South’s evidence of, and the applicable law regarding, fraudulent
inducement—as a result, it contends, § 10(a)(4) justifies vacatur of the
arbitration award. Like its § 10(a)(3) assertions, Old South’s § 10(a)(4)
arguments amount to an invitation for us to reassess the merits of the Panel’s
decision, which does not fall under the limited text of § 10(a)(4) or support
vacatur. See 9 U.S.C. § 10(a)(4); see also Householder Grp., 354 F. App’x at
851; Parker, 667 F. App’x at 851. “[D]oubts or uncertainties must be
resolved in favor of upholding” an arbitration award, Cooper, 832 F.3d at 544,
and, considering the nature of Old South’s arguments, we conclude that it
failed to satisfy its “heavy burden” under § 10(a)(4), see Oxford Health Plans
LLC, 569 U.S. at 569.
Separately, Old South argues that it didn’t voluntarily consent to
arbitration because it was fraudulently induced to sign the Resolution
Agreement, and, as such, vacatur is warranted under § 10(a)(4). However,
“[e]ven if [a] contract had been induced by fraud, the arbitration clause is
enforceable unless the plaintiffs were fraudulently induced into agreeing to
the arbitration clause itself.” Downer v. Siegel, 489 F.3d 623, 627 (5th Cir.
2007) (emphasis added). Because Old South’s fraudulent inducement
argument doesn’t focus on the Resolution Agreement’s arbitration clause,
this contention fails. See id. at 628. Accordingly, we conclude that none of
Old South’s § 10(a)(4) arguments justify vacatur. 3
3
Old South contends that the Panel’s purported failure to consider evidence
related to fraudulent inducement was “manifest disregard of the law” that mandates
vacatur. It does not elaborate on this contention or assert that manifest disregard supports
its statutory arguments. To the extent Old South submits manifest disregard as an
independent basis for vacatur, this argument fails given our precedent rejecting “manifest
disregard of the law as an independent, nonstatutory ground for setting aside an
[arbitration] award.” Citigroup Glob. Mkts., Inc. v. Bacon, 562 F.3d 349, 358 (5th Cir. 2009);
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IV. Conclusion
Based on the foregoing, we AFFIRM the district court’s
confirmation of the arbitration award.
see also Jones v. Michaels Stores, Inc., 991 F.3d 614, 615–16 (5th Cir. 2021) (noting that
Citigroup continues to be good law).
7