Crawford Group v. William Holekamp ( 2008 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 07-3454
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Crawford Group, Inc., *
*
Appellant, *
* Appeal from the United States
v. * District Court for the
* Eastern District of Missouri.
William F. Holekamp, *
an individual, *
*
Appellee. *
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Submitted: May 15, 2008
Filed: October 6, 2008 (corrected 10/15/08)
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Before WOLLMAN, MURPHY, and SMITH, Circuit Judges.
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WOLLMAN, Circuit Judge.
The Crawford Group, the parent company of Enterprise Rent-A-Car, appeals
from the district court’s1 order confirming an arbitration award of some $20.7 million
in favor of William F. Holekamp in a dispute over the value of Holekamp’s stock in
the company. We affirm.
1
The Honorable Charles A. Shaw, United States District Judge for the Eastern
District of Missouri.
Holekamp began his employment with Crawford in St. Louis in 1976, having
earlier worked for Enterprise Car Rental. In 1980, Holekamp was transferred to
California for the purpose of acquiring on Crawford’s behalf a rental car company that
was experiencing financial difficulties. As Holekamp described it,
[t]he company that we acquired was in a lot of trouble. They had
a bunch of Pintos sitting on the lot. We were pushing Pintos up and
down the lot, jump starting them because the batteries were gone, they
had been sitting there for about six months, but we had to put them out
on rent.
Holekamp was successful in his efforts to revive the newly acquired moribund
company, and he was rewarded accordingly by way of salary and a percentage of the
profits. He returned to St. Louis in 1992 as executive vice president of Enterprise.
He retired at the end of 2000, becoming a consultant for an initial term of five years.
In 1999, Crawford began considering pursuing public financing for the
company, either through debt or equity. It was advised that to make such a public
offering attractive it should replace its method of compensating its senior executives
through large cash bonuses with a plan of compensation by way of awards of stock.
Crawford’s decision to follow this advice resulted in the 24-page February 2,
2000, Stock Award and Shareholder Agreement (Agreement) at issue in this appeal.2
The Agreement provided that for the purpose of the initial grant, the value of the stock
was to be determined by Arthur Andersen LLP.
2
The parties also entered into what was called the “BV Agreement,” which is
not at issue in this appeal.
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Paragraph 6(a) of the Agreement provides as follows:
The purchase price for Shares shall be the value of such Shares as
determined by the Administrator in good faith, disregarding the option
available to Shareholder under paragraph 4(a), as of the date of the
Trigger Event [i.e., July 31, 2004] or, if the Administrator in good faith
determines that the use of such exact date would produce an
inappropriate valuation, that date, as determined by the Administrator in
good faith, which is prior to and closest to the date of the Trigger Event
and which would not produce an inappropriate valuation (“Purchase
Price”). In determining the Purchase Price, the Administrator shall apply
valuation principles substantially the same as those which applied to
valuing the Award on the Award Date (which disregarded the option
available to Shareholder under paragraph 4(a)), unless the Administrator
in good faith determines that the use of such valuation principles would
produce an inappropriate valuation. The Administrator’s determination
of the Purchase Price shall be final and binding on all parties.
Paragraph 15 provides in part:
[A]ny controversy or claim that arises out of or in any way relates to this
Agreement, . . . shall be resolved solely by binding arbitration . . . .
Company shall be entitled to appoint one arbitrator, and all other parties
to the dispute . . . shall be entitled to appoint one arbitrator. . . . The two
arbitrators so appointed shall choose the third arbitrator. . . . Each
arbitrator shall have experience in arbitrating matters substantially
similar to the matter being arbitrated pursuant to this paragraph 15. The
arbitration shall be conducted in accordance with the Commercial
Arbitration Rules of the AAA or such other rules as determined by a
majority of the arbitrators serving. The arbitration award may grant
damages and/or any other relief deemed by the arbitrators to be just, . . .
provided, however, the arbitrators hall have no authority to amend this
Agreement. The arbitration award shall be final and binding on the
parties to the arbitration.
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In June 2004, Crawford informed Holekamp that it intended to repurchase
Holekamp’s stock in accordance with the terms of the Agreement. It tendered
payment in the amount of $11.4 million, based on the Administrator’s determination
of a price of $25.32 per share, which in turn was derived from an appraisal conducted
by Deloitte & Touche. In response, Holekamp filed a demand for arbitration, alleging,
in pertinent part, that Crawford’s call and proposed valuation of the stock breached
the Agreement. Crawford responded by filing suit in Missouri state court requesting
specific performance of the repurchase provisions of the Agreement. Holekamp
countered with the same claims that he had brought in his arbitration demand and
further alleged that the Agreement required Crawford to arbitrate its claims. On
summary judgment, the court granted Crawford specific performance of the
repurchase provisions. Finding that there was an issue with respect to the price under
the Agreement, the court concluded that “[i]n accordance with the parties’ agreements,
such dispute over value is to be determined by arbitration.” The Missouri Court of
Appeals summarily affirmed.
Holekamp designated Harry V. Ruffalo as an arbitrator, attaching a copy of his
vitae, which showed that Ruffalo held a law degree and that he had retired in 2000
after a 33-year partnership with Arthur Andersen & Co. The vitae did not indicate
that Ruffalo had any arbitration experience, and so Crawford requested confirmation
from the American Arbitration Association (AAA) that Ruffalo had experience as an
arbitrator and that he possessed the experience required by the Agreement. In
response, the AAA informed the parties that it had appointed Ruffalo to serve as an
arbitrator and enclosed a disclosure from Ruffalo in which he stated, among other
things, that “as a worldwide managing partner of tax, legal and business advisory
services from 1989 to 1997, I arbitrated from 200 to 400 matters.” Among the matters
described were a dispute over executive compensation and Ruffalo’s participation as
a member of the legal team representing Arthur Andersen in a large arbitration matter.
After concluding that the additional information provided by the AAA did not
establish that Ruffalo had the necessary experience, Crawford again expressed to the
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AAA its objection that Ruffalo did not meet the requirements set forth in Paragraph
15. Its letter detailing its perceptions of Ruffalo’s lack of experience in arbitration
matters concluded by saying: “Under Rule 17(b) of the AAA’s Commercial
Arbitration Rules, the AAA is responsible for making the determination of whether
Mr. Ruffalo possesses the qualifications to serve as an arbitrator in this particular
matter. We believe it is particularly important in this case that the AAA make this
determination.” In response to Crawford’s renewed objection, the AAA sent the
parties a letter that stated in part: “After careful consideration of the parties’
contentions, the Association has determined that Harry V. Ruffalo will be reaffirmed
as an arbitrator in the above matter.”
Following a three-day hearing, the arbitrators entered an interim award, in
which Arbitrators Ruffalo and Best set the purchase price of Holekamp’s stock at
$45.90 a share. Arbitrator Dietrich filed a dissent.
Crawford then commenced the present diversity action, which seeks to vacate
the arbitration award under the provisions of the Federal Arbitration Act (FAA), 9
U.S.C. § 10(a). Holekamp filed an alternative motion to confirm the award. It is from
the district court’s confirmation of the award that Crawford appeals.
On appeal from a district court’s order confirming, modifying, or vacating an
arbitration award, we review findings of fact for clear error and questions of law de
novo. Stark v. Sandberg, Phoenix & von Gontard, P.C., 381 F.3d 793, 798 (8th Cir.
2004) (citing First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 947-48 (1995)). The
district court affords the arbitrator’s decisions “an extraordinary level of deference”
and confirms “so long as the arbitrator is even arguably construing or applying the
contract and acting within the scope of his authority.” Id. (internal quotations
omitted); see First Options, 514 U.S. at 943 (“[T]he court should give considerable
leeway to the arbitrator, setting aside his or her decision only in certain narrow
circumstances.” (citing 9 U.S.C. § 10)). An arbitral award may be vacated only for
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the reasons enumerated in the FAA. Hall Street Assoc., L.L.C. v. Mattel, Inc., 128 S.
Ct. 1396, 1403 (2008); Stark, 381 F.3d at 799; see 9 U.S.C. § 10(a).
Crawford’s primary argument on appeal is that the selection and appointment
of arbitrator Ruffalo was not in accordance with the Agreement, with the result that
the arbitration panel exceeded its power to issue the award. As an initial matter, and
contrary to Holekamp’s contention, we conclude that Crawford did not forfeit judicial
review of the AAA’s decision to confirm Ruffalo as an arbitrator by failing to bring
the issue before the state court at the time of the AAA’s decision. See Cox v. Piper,
Jaffray & Hopwood, Inc., 848 F.2d 842, 843-44 (8th Cir. 1988) (“Appellants cannot
obtain judicial review of the [AAA’s] decisions about the qualifications of arbitrators
or other matters prior to the making of an award.”); see also Aviall, Inc. v. Ryder Sys.,
Inc., 110 F.3d 892, 895 (2d Cir. 1997) (under the FAA, courts may not hear a pre-
award challenge to an arbitrator unless it forms the basis for the revocation of the
contract) (interpreting 9 U.S.C. § 2).
Because the Agreement explicitly states that arbitration would be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (AAA Rules), the parties agreed to the method provided by the rules for
the resolution of disputes concerning the disqualification of arbitrators. Pursuant to
Rule 17(b) of the AAA Rules, the parties designated the AAA to decide the issue in
the first instance. Rule 17(b) provides that: “Upon objection of a party to the
continued service of an arbitrator, or on its own initiative, the AAA shall determine
whether the arbitrator should be disqualified . . . which decision shall be conclusive.”
The district court thus reviewed the AAA’s decision under the deferential standards
for vacatur of the ensuing arbitration award, and we do the same.
We may vacate an arbitration award pursuant to 9 U.S.C. § 10(a)(4) if the
arbitrators have exceeded their powers under the arbitration agreement. Arbitrators
exceed their powers if, inter alia, the method of their appointment provided in the
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agreement has not been followed. Hugs & Kisses, Inc. v. Aguirre, 220 F.3d 890, 893
(8th Cir. 2000); see 9 U.S.C. § 5 (“If in the agreement provision be made for a method
of naming or appointing an arbitrator or arbitrators or an umpire, such method shall
be followed . . . .”). Crawford does not argue that the procedures outlined in the
Agreement for the appointment of arbitrators were not followed. Instead, it argues
that Ruffalo did not possess the qualifications required by the Agreement. Assuming,
without deciding, that the term “method” in section 5 of the FAA includes the parties’
agreed-upon qualifications as well as procedures, we conclude that the parties’ method
of appointment was arguably followed, as was their chosen method of resolving the
issue. Crawford challenged Ruffalo’s appointment under AAA Rule 17, the parties
submitted their arguments and supporting documentation to the AAA, and the AAA
made the determination that Ruffalo was qualified to serve as an arbitrator. See Reeve
Bros. v. Capital-Mercury Shirt Corp., 962 F. Supp. 408, 411 (S.D.N.Y. 1997).
AAA Rule 17(a)(iii) permits the AAA to disqualify an arbitrator for “any
grounds for disqualification provided by applicable law.” The applicable law is
section 5 of the FAA, which provides that “[i]f in the agreement provision be made
for a method of naming or appointing an arbitrator or arbitrators or an umpire, such
method shall be followed . . . .” 9 U.S.C. § 5. Based on the above-described
information provided to the AAA with respect to Ruffalo’s qualifications, we
conclude that the AAA’s decision that he was qualified to serve is an arguable
interpretation of the provision that “Each arbitrator shall have experience in arbitrating
matters substantially similar to the matter being arbitrated . . . .” Accordingly, we
conclude that the AAA’s resolution of Crawford’s challenge to Ruffalo’s appointment
does not present a basis for vacatur of the arbitration award.
Crawford argues that Paragraph 6(a) of the Agreement deprived the arbitrators
of any authority to determine the purchase price of Holekamp’s shares. As set forth
above, however, Paragraph 15 of the Agreement provides that “any controversy or
claim that arises out of or in any way relates to this Agreement, including any dispute
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about whether any particular controversy is arbitrable . . ., shall be resolved solely by
binding arbitration . . . .” The arbitrators arguably applied the terms of the Agreement
when they determined that the issue was arbitrable. Although Paragraph 6(a) states
that “the Administrator’s determination of the Purchase Price shall be final and
binding on all parties,” it also provides that the Administrator’s determination must
be in good faith and must follow a certain procedure. The Administrator’s
determination is thus reviewable under the terms of the Agreement. Paragraph 15
submits nearly all issues to arbitration and may be interpreted to permit the arbitrators
to review the Administrator’s determination and fashion a remedy if the Administrator
has exceeded his limitations with respect to the purchase price. Thus, the case upon
which Crawford relies, Katz v. Feinberg, 290 F.3d 95 (2d Cir. 2002), is inapposite, for
in that case the agreement explicitly prohibited arbitration or review of any nature
whatsoever of the accountants’ price determination. We therefore conclude that the
arbitrators’ resolution of this issue does not present a basis for vacatur of the
arbitration award.
Crawford argues that because Holekamp requested the “fair market price” for
the stock in his demand for arbitration, the arbitrators’ award of more than fair market
price for the stock exceeded the scope of the submission to arbitration. The demand
also called for “such other relief as [the arbitrators] deem[ed] just and appropriate,”
however, and we agree with the district court that the award did not exceed the scope
of the submission.
Crawford also argues that the arbitrators’ determination of the purchase price
was irrational and failed to draw its essence from the Agreement because it greatly
exceeded the Administrator’s determination of the stock’s market value and was not
based upon the entirety of any single expert’s valuation.
Judicial review of an arbitration award is extremely narrow. We may set an
award aside only if the contract is not “susceptible of the arbitrator’s interpretation.”
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Hoffman v. Cargill, Inc., 236 F.3d 458, 462 (8th Cir. 2001) (internal quotation
omitted). In the absence of a good faith reason to the contrary, the Agreement
required the Administrator to “apply valuation principles substantially the same as
those which applied to valuing the Award on the Award Date” (which was February
2, 2000). Holekamp submitted evidence that supported his claim that the valuation
principles applied by Deloitte & Touche in 2004 differed from those applied by
Arthur Andersen in February 2000. Crawford submitted evidence in support of its
contention that the principles applied in both instances were essentially the same. In
their statement of reasons, Arbitrators Ruffalo and Best found that the Administrator
had failed to apply valuation principles substantially the same as those that were
applied in valuing Holekamp’s shares in February 2000 and that that failure
constituted a breach of the Administrator’s obligations under Paragraph 6(a) that
precluded any determination that the Administrator had acted in good faith.
The conflicting testimony submitted by the parties set forth persuasive
arguments in support of their respective positions. It was for the arbitrators to accept
those portions of the testimony which they found more persuasive. Whether we as
judges would have found that testimony equally as persuasive is beside the point, for
we may not set aside an award simply because we might have interpreted the
Agreement differently or disagreed with the arbitrators’ factual determinations. Id.In sum, then, we conclude that the arbitrators acted within the scope of their
authority in reaching their conclusion and in setting the price of the stock.
The judgment is affirmed.
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