Patrick T. Manion v. Stephen E. Nagin , 392 F.3d 294 ( 2004 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 03-2869
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Patrick T. Manion, Jr., *
*
Appellant, *
*
v. *
*
Stephen E. Nagin; Herzfeld & Rubin; *
Herzfeld & Rubin, P.C.; *
Nagin Gallop Figueredo, P.A., *
*
Defendants *
*
Boat Dealers’ Alliance, Inc., *
*
Appellee. *
Appeals from the United States
District Court for the
District of Minnesota.
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No. 03-2870
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Patrick T. Manion, Jr.; Nancy Manion, *
*
Appellants, *
*
v. *
*
Alex Stirling; Beaver Park Marina, *
Inc.; William G. Schaeffer; Boats, Inc.;
*
Brian Olson; Donald C. Mackenzie; *
Bruce Marine; Bruce Crowder; Tom *
Crowder; Marineone Corp.; Tony *
Lunpkin; Cope Auto & Marine, Inc.; *
Kenneth Cope; Counce Marine, Inc.; *
Tandy Counce; Crocker’s Marine, *
Inc.; Crocker & Co., L.L.C.; *
Morehead Marine, Inc.; Newland Kay *
Crocker; Terry G. Wilder; Custom *
Fiberglass Manufacturers, Inc.; Frank *
Franklin; “Just Add Water” Boats, Inc.;*
Tim Meyer; Killinger Marine Center, *
Inc.; Douglass Killinger; Norris *
Marine, LTD.; Tom Stidham; Phil Dill *
Boats, Inc.; Phil Dill, Jr.; Port Harbor
*
Marine, Inc.; Robert Soucy; Russo’s *
Marine Mart, Inc.; Lawrence J. Russo, *
Sr.; Summerville Marine, Inc.; *
Cleveland Wilson; Texas Marine & *
Brokerage, Inc.; Texas Marine of *
Houston, Inc.; Texas Marine of Clear *
Lake, Inc.; Michael Hebert, *
*
Appellees. *
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Submitted: October 18, 2004
Filed: December 16, 2004
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Before MURPHY, HEANEY, and BEAM, Circuit Judges.
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HEANEY, Circuit Judge.
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In this consolidated appeal, Patrick T. Manion, Jr., challenges the district
court’s1 order confirming an arbitration award in favor of the Boat Dealers’ Alliance,
Inc. (BDA), and Patrick and Nancy Manion contest the district court’s order
dismissing their claims against individual members of BDA (the Members). We
affirm.
BACKGROUND
Patrick Manion worked for many years in the pleasure boat industry. In 1995,
he formed BDA, a cooperative of independent retail marine dealers, for the purpose
of obtaining better product pricing by leveraging the group’s buying power. BDA
was incorporated in Florida, and Manion executed a long-term employment
agreement which named him as BDA’s Executive Director. The agreement required
Manion and BDA to arbitrate any dispute that arose between them. Manion’s wife,
Nancy Manion, also worked for BDA as an at-will employee.
BDA was initially satisfied with Manion’s performance, but by 1999, BDA was
in dire financial straits. At an emergency shareholders meeting held on February 13,
1999, Manion was terminated. Manion sued BDA, contending that his termination
was improper and that BDA had wrongfully converted ninety shares of preferred
stock in BDA that Manion owned. Manion sought an injunction requiring BDA to
continue compensating him under the terms of his employment agreement, and
declaratory relief related to the interpretation of that agreement. The district court
ordered Manion to arbitrate his claims against BDA, denied his claims for declaratory
and injunctive relief, and stayed the remainder of the proceedings. Manion appealed,
and this court affirmed the order denying injunctive relief, and dismissed the
remainder of his appeal due to a lack of jurisdiction. See Manion v. Nagin, 255 F.3d
1
The Honorable Ann D. Montgomery, United States District Judge for the
District of Minnesota.
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535 (8th Cir. 2001). Manion also sued the Members, alleging tortious interference
with contract; conversion; securities fraud; breach of fiduciary duty; unjust
enrichment; tortious interference with prospective business relationships; and
conspiracy.2 Nancy Manion, who was also terminated, sued the individual members
for tortious interference with an employment at-will relationship; tortious interference
with prospective business relationships; and conspiracy.
Manion and BDA then began the arbitration process, which, according to the
arbitrator, “continued over many months with a full range of discovery proceedings
and motion practice comparable to complex litigation in United States District
Court.” (Appellee’s App. at 70.) The proceedings included seven days of testimonial
hearings, held from May 29 to June 7, 2002, and the admittance of 191 marked
exhibits. On June 11, 2002, the arbitrator sent counsel for Manion and BDA a letter
confirming their agreement that final submissions would be due at a later date, and
that “[f]urther proceedings respecting costs, disbursements and attorney fees award
will be needed after prevailing party is determined.” (Id. at 148.)
On November 12, 2002, the arbitrator issued a thirty-one page decision entitled
“Findings of Fact, Conclusions of Law and Interim Arbitration Award” (Interim
Award). The arbitrator found that Manion’s employment contract allowed BDA to
terminate him for operating in bad faith against BDA’s interest, or for grossly
negligent conduct which substantially impaired the continued viability of BDA. He
further found Manion to have demonstrated bad faith in at least three instances: 1) by
failing to deduct BDA’s operating expenses before making dividend payments to
BDA’s members; 2) by failing to deduct operating expenses before calculating his
own compensation; and 3) by withholding financial information that would have
2
Patrick Manion also sued Stephen E. Nagin, BDA’s general counsel, and his
various law firms, asserting a number of claims related to Manion’s involvement with
BDA. See Manion v. Nagin, Nos. 04-1579 & 04-1705. These companion cases are
being considered separately by this panel.
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alerted BDA to his bad faith.3 Because of Manion’s bad faith conduct, the arbitrator
concluded that BDA was legally justified in terminating Manion’s employment
contract. The arbitrator found that Manion remained the rightful owner of his ninety
shares of preferred stock. Since Manion maintained “legal beneficial and
unencumbered title to 90 shares of BDA preferred stock,” (id. at 92), he had no valid
claim for conversion of that stock. The arbitrator invited Manion and BDA to submit
written position papers concerning the amount and terms of payment for any preferred
stock dividends and unpaid salary owed to Manion. The arbitrator further allowed
the parties to submit position papers on whether either was the substantially
prevailing party and thus entitled to attorneys fees pursuant to Manion’s employment
contract. The position papers were “due by simultaneous submission to the Arbitrator
and [the American Arbitration Association] 30 days subsequent to receipt of this
Interim Award.” (Id. at 94.)
BDA filed its submissions in a timely fashion. Manion did not file a timely
submission with the arbitrator, but rather sent a letter to the American Arbitration
Association (AAA) raising objections to the Interim Award. On January 7, 2003, a
hearing was held during which Manion explained that he never submitted a position
paper to the arbitrator because he was forbidden from doing so as a result of a letter
from the AAA instructing the parties not to have any further direct communication
with the arbitrator. Manion’s counsel then engaged the arbitrator in a discussion
pertaining to which rules of procedure governed the arbitration proceeding.
Thereafter, Manion sought to vacate the Interim Award, contending that it was
invalid because the arbitrator did not use the rules of procedure contemplated by the
parties. The district court denied the motion, and on February 21, 2003, the arbitrator
issued a document entitled “Final Award.” The Final Award incorporated the Interim
3
The arbitrator also found that Manion was grossly negligent, but not in a
manner which affected the continued viability of BDA.
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Award’s findings of fact and conclusions of law. As to the remaining outstanding
issues, the arbitrator found that Manion was owed $41,181 in past due wages, and
$12,670 in dividends. He further found that Manion’s damages were offset by
monies he overpaid himself for wages and dividends before he was terminated, such
that Manion’s overpayments exceeded his damages by $28,763. Thus, Manion was
entitled to no further payment from BDA, and BDA was entitled to a credit of
$28,763 against any future dividend payments to Manion. Lastly, because BDA
prevailed on the wrongful termination issue, the arbitrator awarded BDA attorneys
fees and costs in the amount of $223,770.50.
BDA moved to confirm the arbitration award in district court, and Manion
moved to vacate it. The Members moved to dismiss the Manions’ claims against
them for failure to state a claim, or, in the alternative, for summary judgment. The
district court heard argument on the motions on May 9, 2003. At the hearing,
Manion argued that the arbitration proceedings were not held under the rules
contemplated by the parties and thus should be vacated. He did not, however,
identify any evidence or argument that he was precluded from presenting to the
arbitrator. Finding no error sufficient to justify vacating the arbitration award, the
district court confirmed the award. As to the Manions’ claims against the Members,
the court found that each substantive claim was collaterally estopped due to the
arbitrator’s conclusions about the propriety of BDA’s termination of Manion and
Manion’s continued ownership of his preferred stock. The court further found that
the conspiracy claim failed because it was not based on the commission of any
underlying tort. Manion appeals, contending that the district court erred in
confirming the arbitration award; the Manions collectively appeal the dismissal of
their claims against the Members.
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ANALYSIS
We review the district court’s findings of fact supporting its confirmation of
an arbitration award for clear error and its legal conclusions de novo. Stark v.
Standberg, Phoenix, & von Gontard, P.C., 381 F.3d 793, 798 (8th Cir. 2004). Our
review of the underlying arbitration award, though, is “very limited.” Gas
Aggregation Servs. v. Howard Avista Energy, LLC, 319 F.3d 1060, 1064 (8th Cir.
2003); see also Stark, 381 F.3d at 798 (“When reviewing an arbitral award, courts
accord ‘an extraordinary level of deference’ to the underlying award itself, because
federal courts are not authorized to reconsider the merits of an arbitral award ‘even
though the parties may allege that the award rests on errors of fact or on
misinterpretation of the contract.’” (citations omitted)); Bhd. of Maint. of Way
Employees v. Terminal R.R. Ass’n, 307 F.3d 737, 739 (8th Cir. 2002) (noting “our
scope of review of the arbitration award itself is among the narrowest known to the
law”). If the arbitrator is arguably construing or applying the arbitration contract and
acting within the scope of his authority, we must uphold the award “[e]ven if the
court is convinced that the arbitrator committed serious error.” Gas Aggregation
Servs., 319 F.3d at 1064.
Under the Federal Arbitration Act (FAA), a court may only 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 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.
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9 U.S.C. § 10(a). In addition to the grounds enumerated in the FAA, we have
recognized two “extremely narrow” extra-statutory bases for vacating an arbitration
award where the award is either completely irrational or manifests a disregard for the
law. Hoffman v. Cargill Inc., 236 F.3d 458, 461 (8th Cir. 2001); see also Stark, 381
F.3d at 798. “An arbitration decision may only be said to be irrational where it fails
to draw its essence from the agreement, and an arbitration decision only manifests
disregard for the law where the arbitrators clearly identify the applicable, governing
law and then proceed to ignore it.” Hoffman, 235 F.3d at 461-62.
Having reviewed the voluminous record in this case against the above
analytical backdrop, we find no error in the district court’s confirmation of the
arbitration award. Manion contends that the arbitrator failed to abide by the parties’
choice of the AAA’s Employment Rules to govern the proceedings, and that he
therefore exceeded his powers and rendered a completely irrational decision.
Manion’s counsel admitted at oral argument before this court, however, that the
arbitrator did not prevent him from presenting any of his evidence.4 Manion suggests
that because the arbitrator found against him on his claim of wrongful termination,
the arbitrator must have ignored the evidence which compelled a contrary conclusion.
Essentially, Manion asks us to reweigh the evidence that was before the arbitrator,
which our prior decisions make clear is not our prerogative. See, e.g., Hoffman, 236
F.3d at 462. The arbitration award reflects a careful consideration of Manion’s
employment contract, what type of conduct would justify his termination, and
whether BDA had proven any instances of that conduct. The arbitrator’s conclusion
that Manion’s termination was justified by at least three instances of malfeasance is
amply supported by evidence submitted to the arbitrator, and we will not disturb it on
appeal.
4
On the contrary, the record shows that the arbitration proceedings were
extended and extensive, covering over a week’s time for hearings which were
documented in nearly two thousand pages of transcript.
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Manion further argues that his conversion claim was denied in manifest
disregard of the law and contravened fundamental notions of due process and fair
play. He provides no authority for these assertions, and we have found no record
evidence to support his contentions. On the contrary, the arbitrator’s decision–that
Manion’s conversion claim fails because he is the still the rightful owner of the stocks
claimed to be converted–appears to place him in the same position as if he had
prevailed on his conversion claim.
We find equally unavailing Manion’s complaint that the bifurcated award
procedure employed by the arbitrator should result in vacation of the decision. The
arbitrator’s Interim Award, issued on November 12, 2002, finally determined the
substantive issues of whether Manion was wrongfully terminated and whether his
preferred stock had been converted by BDA. Prior to the issuance of that award, the
parties had agreed “[f]urther proceedings respecting costs, disbursements and attorney
fees award will be needed after prevailing party is determined.” (Appellee’s App. at
148.) The arbitrator did not decide the amount of past due wages and dividends owed
to Manion in his Interim Award, but rather held that decision until the Final Award,
granting the parties an opportunity to submit argument on these issues. Manion now
claims that because he did not specifically agree that any damages issues would be
reserved, the arbitrator acted without authority by not deciding these issues in his
Interim Award.
We find no reversible error here. First, we question whether the arbitrator
deviated from the procedures agreed to by the parties. The record indicates that the
parties agreed the arbitrator would reserve ruling on certain issues ancillary to
substantive liability findings, and that is precisely what happened. Moreover, it is
difficult to discern any prejudice to Manion from the bifurcated award procedure. In
the Interim Award, the arbitrator rejected the substance of both Manion’s wrongful
termination and conversion claims. The only unresolved issues were the amounts
BDA owed for past wages and dividends, and whether either party was entitled to
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costs and attorneys fees as the prevailing party. Each party was given the opportunity
to argue its position on those matters, and each did. Indeed, the arbitrator granted
Manion a time extension so that he could file his submission, casting doubt on any
argument that the three and a half month delay between the Interim Award and Final
Award somehow unduly burdened him. Manion would have us review the details of
his arbitration proceedings employing a level of scrutiny conferred by neither the
FAA nor the Constitution. We decline the invitation, and thus affirm the district
court’s confirmation of the arbitration award.
We next consider whether the district court properly dismissed the Manions’
claims against the Members. The district court held that the claims were precluded
by application of the collateral estoppel doctrine.5 “A district court’s rulings on
issues of law, including the application of collateral estoppel, are reviewed de novo.”
Banks v. Int’l Union Elec., Elec., Technical, Salaried, & Mech. Workers, 2004 WL
2754689, at *4 (8th Cir. Dec. 3, 2004).
Collateral estoppel is appropriate when: (1) the issue sought to be
precluded is identical to the issue previously decided; (2) the prior
action resulted in a final adjudication on the merits; (3) the party sought
to be estopped was either a party or in privity with a party to the prior
action; and (4) the party sought to be estopped was given a full and fair
opportunity to be heard on the issue in the prior action.
Wellons, Inc. v. T.E. Ibberson Co., 869 F.2d 1166, 1168 (8th Cir. 1989); see
also Mandich v. Watters, 970 F.2d 462, 465 (8th Cir. 1992) (applying Minnesota
law). A final arbitration award has the same preclusive effect as a prior judgment.
U.S. West Fin. Servs., Inc. v. Buhler, Inc., 150 F.3d 929, 932 (8th Cir. 1998).
5
The district court held that the Manions’ conspiracy claims failed because they
were not based on any viable underlying tort, rather than due to collateral estoppel.
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We agree with the district court that each of the Manions’ claims, save the
conspiracy allegations, are collaterally estopped.6 Tortious interference with contract
requires proof, inter alia, that a contract was breached, Kallok v. Medtronic, Inc., 573
N.W.2d 356, 362 (Minn. 1998), and the arbitrator found that BDA did not breach its
employment contract with Manion. Manion based his conversion and securities fraud
claims on the allegation that BDA now has his preferred stock, but the arbitrator
explicitly found that Manion still holds title to and owns the stock. Manion’s claim
for breach of fiduciary duty is premised on alleged surreptitious conduct of the
Members that resulted in Manion’s wrongful termination and conversion of his stock;
his unjust enrichment theory, also relates to his employment and stock ownership.
As to the Manions’ claim for tortious interference with prospective business
relationships, we cannot ascertain from the complaint what prospective business
relationships are alleged to have been disturbed. Construing the complaint liberally,
Maki v. Allete, Inc., 383 F.3d 740, 742 (8th Cir. 2004), we assume that the Manions
claim the Members wrongfully interfered with their relationships with BDA. Again,
though, the arbitrator found that it was Manion’s conduct that was wrongful, and he
may not revisit that finding here.7 With no underlying tort supporting the Manions’
conspiracy claim, it fails as well. We thus affirm the dismissal of the Manions’ suit
against the Members.
CONCLUSION
For the reasons stated herein, we affirm the district court’s confirmation of the
arbitration award and dismissal of the Manions’ claims against the Members.
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6
Manion contends that the district court erred by applying collateral estoppel
because the arbitration proceedings were “fundamentally unfair.” (Appellant’s Br.
at 57.) As discussed at length above, we disagree.
7
The Manions’ brief contains no independent argument for reversal of Nancy
Manion’s claim for tortious interference with an at-will employment relationship.
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