McKool Smith, P.C. v. Curtis International, Limite

Case: 15-11140 Document: 00513517668 Page: 1 Date Filed: 05/23/2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
No. 15-11140 May 23, 2016
Summary Calendar
Lyle W. Cayce
Clerk
McKOOL SMITH, P.C.,
Plaintiff - Appellee
v.
CURTIS INTERNATIONAL, LIMITED,
Defendant - Appellant
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 3:15-cv-1685
Before KING, CLEMENT, and OWEN, Circuit Judges.
PER CURIAM:*
Plaintiff–Appellee McKool Smith, P.C., won an arbitration award
against Defendant–Appellant Curtis International, Limited, for unpaid
attorney’s fees related to McKool Smith’s prior legal representation of Curtis
in a patent litigation. McKool Smith moved to confirm its arbitration award
in federal court, and Curtis filed its own counter-motion to vacate the award.
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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The district court granted McKool Smith’s motion and denied Curtis’s counter-
motion. Curtis now appeals. For the following reasons, we AFFIRM the
district court’s judgment.
I. FACTUAL AND PROCEDURAL BACKGROUND
This case arises from an attorney’s fees dispute between the parties
involving a separate patent litigation. In June and July of 2013, Defendant–
Appellant Curtis International, Limited (Curtis), was sued in two separate
patent infringement lawsuits in the United States District Court for the
Southern District of Florida. Curtis subsequently retained the law firm of
Plaintiff–Appellee McKool Smith, P.C. (McKool Smith), to represent it in the
patent infringement suits. Curtis engaged McKool Smith pursuant to a
standard engagement agreement governed by Texas state law. Included in the
agreement was a provision that stated that any disputes or differences
regarding McKool Smith’s representation would first be referred to non-
binding mediation and, if unresolved, would then be subject to binding
arbitration pursuant to the Federal Arbitration Act (FAA) and the Commercial
Arbitration Rules of the American Arbitration Association.
Curtis ultimately settled the patent litigation on January 14, 2014.
However, a dispute later arose between Curtis and McKool Smith regarding
unpaid invoices submitted by McKool Smith for its legal services and for
services provided by expert witnesses in the patent litigation. The parties were
unable to resolve the fee dispute through mediation, and McKool Smith
initiated arbitration on April 30, 2014. In its complaint for relief in arbitration,
McKool Smith alleged that Curtis had breached the engagement agreement
between the parties by failing to pay the invoices in a timely manner. McKool
Smith sought to recover unpaid legal fees in the amount of $1,309,992.16 and
expert fees totaling $92,149.40, as well as pre- and post-award interest. Curtis
disputed McKool Smith’s allegations and argued that the law firm could not
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prove that its fees were reasonable because—according to Curtis—McKool
Smith used block billing in its fee statements rather than task-based billing,
failed to exercise good billing judgment, and billed for experts and work that
Curtis did not authorize.
An arbitrator resolved McKool Smith’s claims and issued his final award
on May 13, 2015, awarding McKool Smith the full amount it requested plus
interest. Addressing Curtis’s objections, the arbitrator found that there was
no authority that stated block billing could negatively affect an attorney’s right
to recover its fees on an alleged breach of contract and that task-based billing
was only required in bankruptcy fee applications and in fee shifting
applications. 1 Moreover, the arbitrator found that McKool Smith’s billing
practices were neither duplicative nor inappropriate. As to Curtis’s expert fees
objection, the arbitrator found that the litigation strategy desired by Curtis
created certain costs, Curtis had given conflicting instructions on hiring
experts, McKool Smith would have faced sanctions if it did not have an expert
as part of the patent litigation, and McKool Smith still minimized its costs as
per Curtis’s instructions.
Following the arbitration, McKool Smith filed an application for an order
confirming its arbitration award in the United States District Court for the
Northern District of Texas pursuant to 9 U.S.C. §§ 9 and 13. Curtis then filed
its counter-motion to vacate the arbitration award, asserting that the award
was contrary to public policy, the arbitrator had exceeded his powers, and the
arbitrator exhibited manifest disregard of Texas state law by allowing McKool
Smith to collect for fees that were block billed and involved the use of
unauthorized experts. On October 14, 2015, the district court granted McKool
The arbitrator also noted that Curtis did not complain about McKool Smith’s invoices
1
when they were first issued and waited until the arbitration to file objections.
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Smith’s application and denied Curtis’s counter-motion. The district court
concluded that there was no ground for vacating the arbitration award. In
particular, it found that Curtis’s arguments that the award violated public
policy and was in manifest disregard of the law rested on non-statutory
grounds for vacatur that this circuit had previously foreclosed. The court also
rejected Curtis’s arguments that the arbitrator had exceeded his powers,
holding that the arbitrator had properly interpreted the agreement and that
Curtis’s challenges asserted errors that the court could not review. The court
thereafter entered final judgment, confirming the arbitration award. Curtis
timely appealed.
II. STANDARD OF REVIEW
“In light of the strong federal policy favoring arbitration, ‘[j]udicial
review of an arbitration award is extraordinarily narrow.’” Brook v. Peak Int’l,
Ltd., 294 F.3d 668, 672 (5th Cir. 2002) (quoting Gulf Coast Indus. Workers
Union v. Exxon Co., 70 F.3d 847, 850 (5th Cir. 1995)). As a result, “[w]e review
a district court’s confirmation of an award de novo, but the review of the
underlying award is exceedingly deferential.” Rain CII Carbon, LLC v.
ConocoPhillips Co., 674 F.3d 469, 472 (5th Cir. 2012) (quoting Apache Bohai
Corp. LDC v. Texaco China BV, 480 F.3d 397, 401 (5th Cir. 2007)). Under this
review, “[a]n award may not be set aside for a mere mistake of fact or law.” Id.
(quoting Apache, 480 F.3d at 401). Instead, “Section 10 of the [FAA] . . .
provides ‘the only grounds upon which a reviewing court may vacate an
arbitrative award.’” Id. (quoting Brook, 294 F.3d at 672). Section 10 of the
FAA provides, among other grounds, that a district court “may make an order
vacating [an arbitration] award upon the application of any party to the
arbitration . . . 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)(4).
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III. THE ARBITRATION AWARD
On appeal, Curtis asserts two bases for vacating the arbitration award:
(1) the arbitrator manifestly disregarded Texas law in granting the arbitration
award and (2) the arbitration award violates Texas public policy. While we
previously had recognized these as non-statutory grounds for vacatur, 2
following the Supreme Court’s decision in Hall Street Associates, L.L.C. v.
Mattel, Inc., 552 U.S. 576 (2008), we held “that the [FAA’s] statutory grounds
are the exclusive means for vacatur under the FAA.” Citigroup Glob. Mkts.,
Inc., v. Bacon, 562 F.3d 349, 355 (5th Cir. 2009); see also id. (“[T]o the extent
that manifest disregard of the law constitutes a nonstatutory ground for
vacatur, it is no longer a basis for vacating awards under the FAA.”).
Recognizing this point, Curtis argues that this circuit—as some circuits
have 3—should recognize manifest disregard of law and public policy as
statutory grounds for vacating arbitration awards. In particular, Curtis argues
that, if an arbitration agreement incorporates state law and an arbitrator
manifestly disregards this law or violates the state’s public policy, then that
arbitrator has “exceeded [his] powers” within the meaning of 9 U.S.C.
§ 10(a)(4).
2 This court had, at one point, held that “an arbitration award may be vacated on two
nonstatutory grounds: if the award displays manifest disregard of the law or is contrary to
public policy.” Sarofim v. Tr. Co. Of The W., 440 F.3d 213, 216 (5th Cir. 2006).
3 The Second, Fourth, and Ninth Circuits have all expressly recognized manifest
disregard of law as a statutory basis for vacatur. See Wachovia Sec., LLC v. Brand, 671 F.3d
472, 480 (4th Cir. 2012) (“[W]e find that manifest disregard continues to exist as either an
independent ground for review or as a judicial gloss [on the statutory grounds for vacatur].”);
Comedy Club, Inc. v. Improv W. Assocs., 553 F.3d 1277, 1290 (9th Cir. 2009) (“We have
already determined that the manifest disregard ground for vacatur is shorthand for . . .
§ 10(a)(4).”); Stolt-Nielsen SA v. AnimalFeeds Intern. Corp., 548 F.3d 85, 95 (2d Cir. 2008)
(discussing manifest disregard of the law “as a judicial gloss on the specific grounds for
vacatur enumerated in section 10 of the FAA”), overruled on other grounds, 559 U.S. 662
(2010).
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While we have yet to explicitly decide whether the bases for vacatur
asserted by Curtis can be statutory grounds for vacatur, we need not decide
this issue today. See Citigroup, 562 F.3d at 357 (recognizing the Second
Circuit’s approach to manifest disregard but finding that the case before it
“d[id] not include an erroneous application of that principle”); see also Stolt-
Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 672 n.3 (2010) (“We do
not decide whether ‘manifest disregard’ survives our decision in [Hall] 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.”). 4 Assuming—without
deciding—that manifest disregard of the law and a violation of a state’s public
policy fall within 9 U.S.C. § 10(a)(4), Curtis still fails to show any grounds for
vacatur of the arbitration award. This is because Curtis fails to overcome our
deferential standard of review and to demonstrate that the arbitrator
manifestly disregarded the law or issued the arbitration award in violation of
public policy. We address each of Curtis’ challenges in turn.
A. Manifest Disregard of the Law
Curtis first argues that the arbitration award should be vacated because
the arbitrator manifestly disregarded Texas law in issuing the arbitration
award. In particular, Curtis asserts that awarding McKool Smith attorney’s
fees disregarded Texas law because McKool Smith engaged in block billing,
failed to prove that it exercised good billing judgment for the fees it sought to
collect, and collected fees for work—including retaining experts—that Curtis
4 Curtis argues that the Supreme Court in Stolt-Nielsen determined that a violation
of public policy is a statutory ground for vacatur under 9 U.S.C. § 10(a)(4). Curtis
misconstrues Stolt-Nielsen. That decision makes no mention of state law public policy as a
basis for vacatur. Instead, the Supreme Court there held that an arbitration panel exceeded
its powers within the meaning of 9 U.S.C. § 10(a)(4) because the panel imposed its own view
of sound public policy regarding the availability of class arbitration rather than identifying
the rule of law governing the availability of class arbitration under the contract. Stolt-
Nielsen, 559 U.S. at 671–77.
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instructed McKool Smith not to perform. Under our pre-Hall opinions
addressing manifest disregard of the law, we held that manifest disregard of
the law “mean[t] more than error or misunderstanding with respect to the law.”
Prestige Ford v. Ford Dealer Comput. Servs., Inc., 324 F.3d 391, 395 (5th Cir.
2003) (quoting Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bobker, 808 F.2d
930, 933 (2d Cir. 1986)). It meant that “the arbitrator appreciate[d] the
existence of a clearly governing principle but decide[d] to ignore or pay no
attention to it.” Id. (quoting Merrill Lynch, 808 F.2d at 933); see id. (“The
governing law alleged to have been ignored by the arbitrators must be well
defined, explicit, and clearly applicable.”). And even upon such an error, under
our deferential review of arbitration awards, we did not vacate an award
absent a finding “that the award resulted in a ‘significant injustice.’” Kergosien
v. Ocean Energy, Inc., 390 F.3d 346, 355 (5th Cir. 2004) (quoting Williams v.
Cigna Fin. Advisors, Inc., 197 F.3d 752, 762 (5th Cir. 1999)).
Assuming—without deciding—that manifest disregard of the law can be
a statutory basis for vacatur, Curtis fails to show that the arbitration award
was in manifest disregard of Texas law. While Curtis asserts that Texas law
requires explaining block billing entries in fee disputes, Curtis points to cases
disfavoring, but not disallowing, block billing to prove attorney’s fees in fee-
shifting cases. See, e.g., Barrow v. Greenville Ind. Sch. Dist., No. 3:00-CV-0913-
D, 2005 WL 6789456, at *4 (N.D. Tex. Dec. 20, 2005); El Apple I, Ltd. v. Olivas,
370 S.W.3d 757, 763 (Tex. 2012). In fact, with respect to fee agreements, as in
the instant case, one Texas state court found that a law firm did not breach its
fiduciary duty or charge unreasonable fees when block billing a client when
the client never complained about the format of the bills during the
representation. See McGuire, Craddock, Strother & Hale, P.C. v. Transcon.
Realty Inv’rs, Inc., 251 S.W.3d 890, 895–96 (Tex. App.—Dallas 2008, pet.
denied). We therefore cannot conclude that the arbitrator disregarded well
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defined Texas law by allowing McKool Smith to collect block billed attorney’s
fees.
Curtis’s remaining arguments regarding McKool Smith’s failure to prove
good billing judgment and its alleged recovery of fees for unauthorized work
are essentially challenges to the factual findings of the arbitrator. 5 However,
on our deferential appellate review of arbitration awards, “[w]e refrain from
commenting on the correctness or incorrectness of the arbitrator’s factual
findings,” Local Union 59, Int’l Bhd. of Elec. Workers, AFL-CIO v. Green Corp.,
725 F.2d 264, 268 (5th Cir. 1984), and “we are bound by the arbitrator’s factual
findings regarding [the parties’] conduct,” Timegate Studios Inc. v. Southpeak
Interactive, L.L.C., 713 F.3d 797, 803 (5th Cir. 2013). Accordingly, we cannot
address the merits of Curtis’s remaining arguments.
B. Public Policy
Curtis next argues that the arbitration award should be vacated because
it violates Texas public policy. In our pre-Hall opinions addressing public
policy, we noted that “any public policy used to vacate an arbitration award
[had to] be ‘explicit,’ ‘well defined,’ and ‘dominant.’” Prestige Ford, 324 F.3d at
396 (quoting W.R. Grace & Co. v. Local Union 759, Int’l Union of United
Rubber, Cork, Linoleum & Plastic Workers of Am., 461 U.S. 757, 766 (1983)).
We further added that in “applying the narrow public policy exception, courts
are forbidden to use imprecise notions of public policy which would allow ill-
defined considerations to negate the rule favoring judicial deference.” Id.
(quoting Gulf Coast Indus. Workers Union v. Exxon Co., U.S.A., 991 F.2d 244,
Although Curtis asserts that Texas law requires a showing of good billing judgment
5
and does not allow an attorney to disregard a client’s instructions, the arbitrator did not
disregard these points of Texas law. Rather, the arbitrator made specific findings that
(1) McKool Smith exercised good billing judgment based on the evidence before him and (2) it
was not altogether clear whether Curtis had instructed McKool Smith not to perform certain
work but that McKool Smith still minimized whatever costs it could.
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249 (5th Cir. 1993)).
Assuming—again, without deciding—that a violation of public policy can
be a statutory basis for vacatur, Curtis fails to show that the arbitration award
violated Texas public policy. Reframing its previous arguments, Curtis asserts
that allowing McKool Smith to collect 100% of its billed fees for work that it
allegedly performed without Curtis’s consent would violate the well-defined
Texas public policy against unconscionable attorney’s fees. However, for the
reasons previously discussed, this argument is essentially a challenge to the
arbitrator’s underlying factual findings, and we cannot entertain such a
challenge. 6
IV. CONCLUSION
For the foregoing reasons, we AFFIRM the district court’s judgment.
6 Moreover, the Supreme Court of Texas has noted that while “a court [can] refuse to
confirm an arbitration award that is expressly based on a legally unenforceable obligation . . .
it is quite another thing for a court to re-examine whether an arbitrator has correctly
determined that an obligation is not of the sort that is legally unenforceable.” CVN Grp., Inc.
v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002). The instant challenge resembles the latter
scenario, in which the Supreme Court of Texas has cautioned against vacatur on public policy
grounds. See id. (“[A] court should not be permitted to reassess an arbitrator’s decision on
disputed evidence regarding the character of the obligation.”).
9