Shah v. Devasthali , 2016 NMCA 53 ( 2016 )

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New Mexico Compilation
Commission, Santa Fe, NM
'00'04- 09:45:06 2016.06.09
Certiorari Denied, May 19, 2016, No. S-1-SC-35869
IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
Opinion Number: 2016-NMCA-053
Filing Date: March 30, 2016
Docket No. 34,096
BIREN SHAH, M.D.,
Plaintiff-Appellant,
v.
RAMAKRISHNA DEVASTHALI, M.D., PUNEET
GHEI, M.D., LAS CRUCES IMAGING, LLC,
LAS CRUCES RADIOLOGY ASSOCIATES, INC.,
and DAGS ENTERPRISES, LLC,
Defendants-Appellees.
APPEAL FROM THE DISTRICT COURT OF DOÑA ANA COUNTY
Manuel I. Arrieta, District Judge
Business Law Southwest LLC
Donald F. Kochersberger III
Alicia M. LaPado
Albuquerque, NM
for Appellant
Kemp Smith LLP
CaraLyn Banks
Ken Slavin
Las Cruces, NM
for Appellees
OPINION
BUSTAMANTE, Judge.
1
{1} After an arbitrator awarded Appellant Dr. Biren Shah $1,465,876, Defendants moved
for—and were granted—a modification of the award. The district court reduced the award
to $150,000. Discerning no basis for the reduction, we reverse the district court’s
modification and remand for confirmation of the arbitration award.
BACKGROUND
{2} Appellant Dr. Biren Shah (Shah) and Defendants Dr. Ramakrishna Devasthali and
Dr. Puneet Ghei are radiologists. In or around 2004, Shah joined the other doctors1 as an
employee, director, and stockholder of Las Cruces Radiology Associates, Inc. (LCRA).
LCRA was governed by its bylaws (the Bylaws). Together, Shah, Devasthali, Ghei, and Alvi
also formed two limited liability companies, Las Cruces Imaging, LLC (LC Imaging) and
DAGS, LLC (DAGS). LC Imaging leased the radiology equipment used by the radiologists
and DAGS owned the property in which they operated. LC Imaging and DAGS were
governed by separate operating agreements (the Operating Agreements).
{3} In 2010 Shah’s employment with LCRA was “terminated for cause,” which resulted
in termination of his stockholder status with LCRA and expulsion as a member from LC
Imaging and DAGS. In early 2011 Shah filed a complaint in district court against Defendants
for breach of contract, wrongful termination, breach of the duty of good faith and fair
dealing, equitable estoppel, and unjust enrichment. He also requested an accounting,
dissolution, and declaratory judgment. Defendants filed a motion to dismiss and to compel
arbitration pursuant to an arbitration provision included in the Operating Agreements. After
a hearing, the district court entered sixty-seven findings of fact and granted the motion to
compel arbitration. The findings of fact are discussed in more detail as part of our analysis
of the parties’ arguments. We refer to this order as the Arbitration Order.
{4} A five-day arbitration took place before an arbitrator appointed by the American
Arbitration Association. Without articulating the basis for his decision, the arbitrator ordered
Defendants to pay Shah $1,465,876. After Shah moved to confirm the arbitration award,
Defendants filed a motion to modify or correct the arbitration award. The district court
granted Defendants’ motion to modify the arbitration award on the ground that the arbitrator
had exceeded his authority because the award was inconsistent with the parties’ agreements.
We call this order the Modification Order. In the Modification Order, the district court
reduced the amount of the award from $1,465,876 to $150,000. Shah appeals the
Modification Order.
DISCUSSION
{5} The question on appeal is whether the district court was correct in its conclusion that
1
A fourth radiologist, Dr. Naveed Alvi, was also a stockholder. Dr. Alvi is not a party
to this appeal.
2
“[t]he [a]rbitrator exceeded the scope of his authority when he awarded an amount beyond
what was required under the contracts.” We conclude that the district court erred in its
interpretation of the Bylaws, in its factual findings, and by reconsidering its original findings
after arbitration was complete.
{6} We begin by setting out the standard of review of the district court’s modification of
an arbitration award. Next, we discuss the relevant provisions of the agreements between the
parties. Finally, we assess the district court’s Modification Order.
Standard of Review
{7} Arbitration provisions permit parties to “submit their disputes to an impartial private
tribunal for a final and binding decision based upon the parties’ presentation of arguments
and evidence. This process allows for the informal, speedy, and inexpensive final disposition
of disputes, and also aids in relieving the judiciary’s heavily burdened caseload[.]”
Fernandez v. Farmers Ins. Co. of Ariz., 1993-NMSC-035, ¶ 8, 115 N.M. 622, 857 P.2d 22
(citations omitted). The modification of arbitration awards by district courts is governed by
Section 44-7A-25 of the Uniform Arbitration Act. NMSA 1978, §§ 44-7A-1 to -32 (2001).
Section 44-7A-25 provides that
the court shall modify or correct the award if: (1) there was an evident
mathematical miscalculation or an evident mistake in the description of a
person, thing or property referred to in the award; (2) the arbitrator has made
an award on a claim not submitted to the arbitrator and the award may be
corrected without affecting the merits of the decision upon the claims
submitted; or (3) the award is imperfect in a matter of form not affecting the
merits of the decision on the claims submitted.
{8} This provision sharply limits the district court’s discretion to modify an arbitration
award. Our Supreme Court has observed that “[t]he [Uniform] Arbitration Act neither
empowers the district court to review an arbitration award on the merits of the controversy,
nor grants the district court the authority to review an award for errors of law or fact.” In re
Arbitration Between Town of Silver City & Silver City Police Officers Ass’n (Silver City),
1993-NMSC-037, ¶ 7, 115 N.M. 628, 857 P.2d 28; see Foster v. Turley, 808 F.2d 38, 42
(10th Cir. 1986) (“Because a primary purpose behind arbitration agreements is to avoid the
expense and delay of court proceedings, it is well settled that judicial review of an arbitration
award is very narrowly limited[.]” (citation omitted)).
{9} In addition, the purposes of the Uniform Arbitration Act depend on finality in
arbitration awards. Consequently, “[o]nce an arbitration award is entered, the finality that
courts should afford the arbitration process weighs heavily in favor of the award.” State ex
rel. Hooten Constr. Co. v. Borsberry Constr. Co., 1989-NMSC-007, ¶ 4, 108 N.M. 192, 769
P.2d 726. In the interest of finality, district courts should “exercis[e] great caution when
asked to set aside an arbitration award, which is the product of the theoretically informal,
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speedy and inexpensive process of arbitration, freely chosen by the parties.” Id. Consistent
with these principles, “[i]t is not the function of the court to hear the case de novo and
consider the evidence presented to the arbitrators, but rather to conduct an evidentiary
hearing and enter findings of fact and conclusions of law upon each issue raised in the
application to vacate or modify the award.” Melton v. Lyon, 1989-NMSC-027, ¶ 7, 108 N.M.
420, 773 P.2d 732; cf. Silver City, 1993-NMSC-037, ¶ 7 (“De novo review of the merits of
arbitration awards by the district court would only serve to frustrate the purpose of
arbitration, which seeks to further judicial economy by providing a quick, informal, and less
costly alternative to judicial resolution of disputes.”).
{10} In the context of appeals from orders modifying arbitration awards, our primary task
is to determine de novo whether the district court adhered to the structure described above.
In addition, on appeal, this Court “determine[s] whether substantial evidence in the record
supports the district court’s findings of fact, and whether the court correctly applied the law
to the facts when making its conclusions of law[.]” Silver City, 1993-NMSC-037, ¶ 8
(citation omitted). To the extent the latter question depends on interpretation of a contract,
we review the contract terms de novo. Nearburg v. Yates Petroleum Corp., 1997-NMCA-
069, ¶ 8, 123 N.M. 526, 943 P.2d 560 (“Since resolution of the issue on appeal depends upon
interpretation of documentary evidence, we are in as good a position as the district court to
interpret the operating agreement.”). “The contract will be considered and construed as a
whole, with meaning and significance given to each part in its proper context, so as to
ascertain the parties’ intentions.” Segura v. Kaiser Steel Corp., 1984-NMCA-046, ¶ 12, 102
N.M. 535, 697 P.2d 954.
{11} In this case, the parties did not provide any testimony or other evidence concerning
their individual understanding of the agreements or the course of negotiation, if any, leading
to the operative versions of the agreements. Nor do the parties argue that the agreements are
ambiguous. Given that the parties have not provided any evidence outside the documents
themselves, our task is limited to construing the documents on their face. Cf. C.R. Anthony
Co. v. Loretto Mall Partners, 1991-NMSC-070, ¶ 15, 112 N.M. 504, 817 P.2d 238 (holding
that the court may consider collateral evidence of the circumstances surrounding the
execution of agreements in determining whether the language of the agreement is unclear).
The Bylaws and Operating Agreements
{12} We turn next to the operative provisions of the corporate Bylaws and the LLC
Operating Agreements. The Bylaws provide that “[a]ll stockholders of [LCRA] must be
employees of [LCRA]” and that “[i]n the event a [s]tockholder’s employment with [LCRA]
terminates for any reason, [LCRA] shall purchase the [s]tockholder’s share in [LCRA] as
set forth herein.” Article VI of the Bylaws governs when shares will be transferred and how
they will be valued. Consistent with the requirement that all stockholders must be
employees, one of these sections addresses purchase of the terminated employee’s shares by
the other stockholders. In addition to termination of employment, other events—death,
divorce, disability, bankruptcy, and “expulsion” of a stockholder—will also act as triggers
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requiring the transfer of the stockholder’s shares.
{13} Two of the triggering provisions are of particular interest here because our analysis
depends in large part on which of these two provisions the arbitrator should have or did rely
on in making the award. The first is titled “Bankruptcy, Expulsion, [a]nd Unspecified Events
[o]f Expulsion[,]” and addresses share transfer when a stockholder is “expelled from
[LCRA].” We call this provision “the Expulsion Provision.”
{14} The Expulsion Provision states that
[a]ny [s]tockholder that has been expelled from [LCRA] or who is the holder
of an [i]nterest in [LCRA] which has resulted in an unspecified event of
expulsion shall convey that [s]tockholder’s common stock in [LCRA] to the
other [s]tockholders of [LCRA] for the value calculated under Section 10[.]C
and Section 11 of this Article.
The corresponding valuation provision, Section 10.C, is titled “Bankruptcy and Undefined
Events of Expulsion.” It provides that the “[s]tockholder’s common stock in [LCRA] shall
be purchased by the remaining [s]tockholders for the lesser of the following: (1) $50,000[,
or] (2) The value of the [s]tockholder’s common stock in [LCRA] as determined pursuant
to the formula set forth in [the Bylaws.]” (emphasis added). [RP 148-149, ¶10.]
{15} The second key provision is titled “Resignation, Retirement, or Termination of
Employment” and applies when a stockholder resigns, retires, or is involuntarily terminated
from employment. We call this provision “the Termination Provision.” The Termination
Provision states that “[i]n the event a [s]tockholder resigns, or retires from employment with
[LCRA] or the [s]tockholder’s employment with [LCRA] is terminated, that [s]tockholder’s
common stock in [LCRA] shall be purchased by the remaining [s]tockholders . . . in
accordance with Section 10 and Section 11 of this Article.” Although Section 10.D is not
specifically referenced in the Termination Provision, its title, “Resignation, Retirement, or
Termination of Employment[,]” mirrors that of the Termination Provision. Section 10.D
provides that “[i]n the event a [s]tockholder voluntarily resigns or retires from employment
with [LCRA] or the [s]tockholder’s employment with [LCRA] is terminated, the value of the
[s]tockholder’s common stock in [LCRA] shall be determined [according to a formula up
to 100% of the value of the stock].”
{16} We note that, in spite of the significant difference in the valuation of the stock when
a stockholder is expelled versus when a stockholder’s employment is terminated, the terms
“expulsion” and “termination” are not defined in the Bylaws. Nevertheless, there is no
indication in the Bylaws that termination of employment and expulsion are indistinct and
overlapping acts. In fact, expulsion and termination are addressed in different sections of the
Bylaws. We conclude that the concept of termination of employment with LCRA is distinct
from that of expulsion. The district court erred to the extent it conflated the two concepts in
its reading of the Bylaws.
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{17} Reading the Bylaws as a whole, we conclude that when a stockholder is expelled
through “expulsion” or an “undefined event of expulsion,” the other stockholders may
purchase the expelled stockholder’s stock for the lesser of $50,000 or the value of the
common stock, but when a stockholder’s employment is terminated, the purchase price is
not capped at $50,000 and may be up to 100% of the value of the stock.
{18} Shah does not challenge the district court’s findings of fact that he was expelled from
LC Imaging and DAGS as a result of the termination of his employment with LCRA, and
that an expelled member’s interest in LC Imaging and DAGS is limited to the lesser of
$50,000 or the value of the member’s capital account. Rather, his argument focuses on the
provisions in the Bylaws governing the purchase price for his stock in LCRA as set out
above. We include the following description of the provisions in the Operating Agreements
merely to provide context for our discussion of the provisions in the Bylaws.
{19} Like the Bylaws, the Operating Agreements have two sets of provisions, the first
setting out what happens to the stock when an “event[] of dissolution” occurs, and the
second setting out how the stock shall be valued in each of those instances. “Events of
dissolution” include
a [m]ember’s i) death; ii) divorce; iii) disability . . . ; iv) bankruptcy; v)
retirement; vi) resignation; vii) withdrawal; viii) termination of a [m]ember’s
[i]nterest [in] Las Cruces Radiological Associates, LLC [sic] . . . ; ix) gift of
interest during lifetime; x) expulsion of a [m]ember; xi) any other event
which would cause the dissolution of [LC Imaging or DAGS] under
applicable law.
(Emphasis added.). In the event of expulsion from the limited liability companies, the
“[m]ember’s interest in the [c]ompany shall be purchased by the remaining [m]embers for
the lesser of the following: (1) $50,000[,] (2) The value of the [m]ember’s capital account
as determined pursuant to the formula set forth in [the Operating Agreement.]”
Modification of the Arbitration Award
{20} As a preliminary matter, we briefly address Defendants’ argument that the arbitrator
exceeded the scope of his authority because “the only issues presented at [a]rbitration were:
(1) whether [Shah] could establish his substantive claims against [Defendants]; and (2) if,
and only if, he established the substantive claim against [Defendants], the amount of
damages to be awarded to [Shah].” Defendants maintain that because the arbitrator found
no liability on Shah’s substantive claims, a damages award was inappropriate. This argument
is unavailing for three reasons. First, the issue of the value of Shah’s LCRA stock was
squarely before the arbitrator regardless of his determination of liability on Shah’s tort and
breach of contract claims. The district court’s Arbitration Order included the following
finding.
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Given the structure of the business relationship and the events that
trigger expulsion, unless the value of [Shah’s] stock in LCRA . . . is also
considered in arbitration, the intent of the [p]arties to have the rights of a
[m]ember in the [two limited liability companies] cease and total value of a
[m]ember’s assets determined, provisions of the Operating Agreements,
including the arbitration provisions, would be rendered meaningless and
unreasonable.
(Emphasis added.) This finding of fact was requested by Defendants. In addition, and
although it was not adopted by the district court, we note that Defendants also requested a
finding of fact stating their request “that arbitration be compelled and that the arbitrator
make a determination regarding [Shah’s] wrongful termination and related claims and
perform an accounting and a determination of the value of [Shah’s] assets in LC Imaging,
DAGS, and LCRA, Inc.” (Emphasis added.). In addition to Shah’s substantive claim, the
arbitrator was clearly tasked with determining the value of Shah’s interest in LCRA.
{21} Second, nothing in the district court’s Arbitration Order (or in Defendants’ requested
findings of fact) supports Defendants’ position. The word “damages” does not appear in the
Arbitration Order and nothing in the Arbitration Order implies that the arbitrator’s
determination of the value of Shah’s stock depended on the arbitrator’s liability findings.
Third, there is no indication in the arbitrator’s award that the award was based on damages
for Shah’s tort or breach of contract claims. Defendants’ argument is merely speculative as
to the arbitrator’s basis for the award. Because we determine below that the arbitrator’s
award was consistent with the Bylaws, we will not guess at other possible bases for the
award that have no support in the record.
{22} We now address the district court’s modification of the arbitration award. The district
court concluded that the arbitrator exceeded his authority because the award was inconsistent
with the Bylaws. This conclusion is based on its implicit finding, in the Modification Order,
that Shah had been expelled from LCRA. Based on this finding, the district court also found
that the governing transfer provision was the Expulsion Provision. The associated valuation
provision (Section 10.C) provides that the stock purchase price was the lesser of $50,000 or
the stock value. The district court concluded that Shah was entitled to only $50,000 for his
stock in LCRA, in addition to $50,000 each for his interest in DAGS and LC Imaging.
{23} But in the Arbitration Order, which governed the arbitration, the district court found
that Shah’s employment had been terminated. Indeed, the Arbitration Order includes three
statements to the effect that Shah’s employment with LCRA was terminated, one of which
also states that “termination of [Shah’s] employment with LCRA, Inc. triggered the
termination of his status as a stockholder with LCRA, Inc. and his status as a [m]ember in
LC Imaging and DAGS.” Several of these findings closely resemble, or are identical to,
findings requested by Defendants and are supported by an affidavit by Devasthali stating that
Shah’s employment with LCRA was terminated. Tellingly, the district court specifically
cited to the Termination Provision in its finding that “[o]nce [Shah’s] employment with
7
LCRA . . . was terminated and his stock ownership in LCRA . . . ceased, he was
contractually bound to have his stock purchased by the remaining stockholders.” As noted
above, the Termination Provision specifies that the purchase price must be determined
pursuant to Section 10, but does not specify which subsection. Section 10.D, which shares
the same title as the Termination Provision, does not include the “lesser of” language found
in Section 10.C.
{24} Under these circumstances, we discern no basis on which the district court could
properly modify the arbitrator’s award. First, the Arbitration Order specified that Shah’s
employment was terminated. Given this finding, the arbitrator could—and apparently
did—apply the term of the Bylaws related to employment termination: the Termination
Provision. In addition, the arbitrator could reasonably have concluded that Section 10.D, not
Section 10.C, governed the valuation of Shah’s LCRA stock based on the way the transfer
provisions and associated valuation provisions are organized and the similarities in the titles
of Section 10.D and the Termination Provision. Cf. United Steelworkers of Am. v. Enter.
Wheel & Car Corp., 363 U.S. 593, 599 (1960) (stating that “[i]t is the arbitrator’s
construction [of the contract] which was bargained for; and so far as the arbitrator’s decision
concerns construction of the contract, the courts have no business overruling him because
their interpretation of the contract is different from his”). Hence, the arbitrator’s award for
Shah’s LCRA stock pursuant to Section 10.D is consistent with the district court’s findings
of fact and the terms of the Bylaws specified in the Arbitration Order. We conclude that the
district court erred in finding otherwise. See Major League Baseball Players Ass’n v.
Garvey, 532 U.S. 504, 509 (2001) (stating that “if an arbitrator is even arguably construing
or applying the contract and acting within the scope of his authority, the fact that a court is
convinced he committed serious error does not suffice to overturn his decision.” (internal
quotation marks and citation omitted)).
{25} In addition, the district court’s finding in the Modification Order that Shah was
expelled from LCRA, instead of terminated from his employment as set forth in the
Arbitration Order, is not supported by the evidence. Cf. State ex rel. Goodmans Office
Furnishings, Inc. v. Page & Wirtz Constr. Co., 1984-NMSC-103, ¶ 7, 102 N.M. 22, 690 P.2d
1016 (“Findings of fact which are supported by substantial evidence will not be disturbed
on appeal.”). Devasthali’s affidavit states that “Shah’s employment with [LCRA] was
terminated.” There is no similar evidence in the record supporting the district court’s finding
that the removal of Shah from LCRA was an “expulsion” instead of a termination of
employment within the terms of the Bylaws. To the extent Defendants rely on a joint pre-
hearing statement submitted to the arbitrator stating that Shah was expelled “as a
[s]tockholder/[m]ember,” we are not convinced by this statement because it post-dates and
contradicts the district court’s original factual findings in the Arbitration Order.
{26} Finally, the district court erred in revisiting the findings in the Arbitration Order. In
essence, Defendants argued in the district court that Shah’s employment was terminated and
requested findings to that effect. The district court adopted those findings and ordered
arbitration consistent with those findings. Once the arbitrator entered his award in favor of
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Shah based on those findings, Defendants argued that the district court’s original
findings—the ones Defendants originally requested and to which they never objected—were
incorrect and requested different findings. Defendants’ efforts to circumvent the arbitration
award are untenable. One of the purposes of arbitration “is to reduce caseloads in the
courts.” United Tech. & Res., Inc. v. Dar Al Islam, 1993-NMSC-005, ¶ 11, 115 N.M. 1, 846
P.2d 307. As this case demonstrates, permitting Defendants to argue for a different factual
finding post-arbitration improperly gave them an opportunity to relitigate the arbitrator’s
original task. See id. ¶ 23 (“Having bitten once at the arbitration apple, [a party] cannot
[then] take a second bite from the judicial one.”). Moreover, even if the district court, in
hindsight, felt that either its original findings or the arbitrator’s award were in error, it did
not have the authority to modify them under the circumstances here because “[district courts]
do[] not have the authority to review arbitration awards for errors as to the law or the facts;
if the award is fairly and honestly made and if it is within the scope of the submission, the
award is a final and conclusive resolution of the parties’ dispute.” Casias v. Dairyland Ins.
Co., 1999-NMCA-046, ¶ 7, 126 N.M. 772, 975 P.2d 385 (internal quotation marks and
citation omitted).
CONCLUSION
{27} An arbitration award may be modified by the district court only in limited
circumstances. Since we conclude that those circumstances do not exist here, we reverse the
district court’s modification of the award and remand for confirmation of the arbitrator’s
award.
{28} IT IS SO ORDERED.
____________________________________
MICHAEL D. BUSTAMANTE, Judge
WE CONCUR:
____________________________________
TIMOTHY L. GARCIA, Judge
____________________________________
J. MILES HANISEE, Judge
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