Katz, Nannis & Solomon, P.C. v. Levine

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SJC-11902
KATZ, NANNIS & SOLOMON, P.C., & others1 vs.
BRUCE C. LEVINE & another.2
Norfolk. December 10, 2015. - March 9, 2016.
Present: Gants, C.J., Spina, Cordy, Botsford, Duffly, Lenk,
& Hines, JJ.
Massachusetts Arbitration Act. Arbitration, Judicial review,
Scope of arbitration, Confirmation of award, Authority of
arbitrator, Damages, Attorney's fees. Contract,
Arbitration. Practice, Civil, Attorney's fees, Costs.
Damages, Attorney's fees.
Civil action commenced in the Superior Court Department on
February 27, 2013.
A motion to confirm an arbitration award was heard by
Patrick F. Brady, J.; a motion for attorney's fees and costs was
heard by him; and entry of separate and final judgments was
ordered by him.
The Supreme Judicial Court granted an application for
direct appellate review.
1
Allen G. Katz, Lawrence S. Nannis, and Jeffrey D. Solomon.
2
Levine, Caufield, Martin & Goldberg, P.C. (LCMG).
2
Thomas J. Carey, Jr. (Daniel J. Cloherty & Victoria L.
Steinberg with him) for Bruce C. Levine.
Warren D. Hutchison (Nancy M. Reimer with him) for the
plaintiffs.
Joseph S.U. Bodoff, for Levine, Caufield, Martin &
Goldberg, P.C., was present but did not argue.
BOTSFORD, J. The central question presented in this appeal
is whether parties to a commercial arbitration agreement may
alter by contract the scope or grounds of judicial review of an
arbitration award that are set out in the Massachusetts Uniform
Arbitration Act for Commercial Disputes (MAA), G. L. c. 251. We
decide that the grounds of judicial review are limited to those
delineated in G. L. c. 251, §§ 12 and 13.
Background. The defendant Bruce C. Levine and the
plaintiffs Allen G. Katz, Lawrence S. Nannis, and Jeffery D.
Solomon were members of an accounting firm known as Levine,
Katz, Nannis & Solomon, P.C. (LKNS or firm). They were each a
shareholder in the firm, and a party to a stockholder agreement
dated October 1, 1998 (agreement), that governed their
professional association and relationship.3 In 2011, Katz,
Nannis, and Solomon, purporting to act pursuant to the
agreement, voted to require the withdrawal of Levine as a
director and stockholder in LKNS; Levine disagreed that the
termination of his stockholder interest and position was in
3
At all times relevant to this case, Levine, Katz, Nannis,
and Solomon were the sole stockholders of the former accounting
firm Levine, Katz, Nannis & Solomon, P.C. (LKNS or firm).
3
accordance with the agreement's terms, and the arbitration at
issue in this case concerned that dispute. We summarize the
relevant provisions of the agreement, the parties' dispute
leading to arbitration, and the arbitration award, followed by a
summary of the proceedings in the Superior Court that led to
this appeal.
The agreement. The agreement provides that a stockholder
may withdraw voluntarily or be required to withdraw
involuntarily. Two provisions in the agreement relate to
involuntary withdrawal:
"4(e) Involuntary Withdrawal. A Stockholder may be
required to withdraw from the Corporation, for any reason,
upon the affirmative vote of the holders of at least 75% of
the issued and outstanding Shares, excluding the Shares of
the subject Stockholder.
"4(f) For Cause Withdrawal. A Stockholder may be required
to withdraw from the Corporation for 'Cause.' 'Cause'
shall be deemed to exist upon the occurrence of any of the
following:
"(i) Commission of an act of fraud, dishonesty or the
like involving the Corporation or any of its clients."4
Under section 5(a)(i) of the agreement a voluntarily withdrawing
stockholder is entitled to the redemption of his shares at "an
amount equal to the accrual basis book value of the [firm]"
4
Section 4(f) of the agreement delineates three other
"occurrence[s]" that fit within the definition of "[c]ause":
conviction of a crime involving fraud, dishonesty or moral
turpitude; loss of license to practice public accountancy; and
sexual harassment of any employee. None of these has relevance
to this case.
4
multiplied by the percentage of shares issued and outstanding
held by the withdrawing stockholder. Section 5(a)(i) also
provides that a stockholder subject to an involuntary
withdrawal, but not "for cause," is also generally entitled to
redemption. However, section 5(a)(iii) provides:
"If the withdrawal is for Cause (as defined in Section
4[f]) or as described in Section 8(a)(iii) [i.e., where
there is involuntary withdrawal and stockholder competes
with the firm], the subject Stockholder shall forfeit his
Shares . . . and the Redemption Price shall be $zero."
In addition to the redemption of shares, under section
8(a)(i), in certain circumstances, a withdrawing stockholder is
entitled to the payment of deferred compensation. However,
under section 8(a)(v), a stockholder whose withdrawal is for
cause receives no deferred compensation. In addition, under
section 8(a)(iii), if a stockholder's withdrawal is an
"involuntary withdrawal pursuant to Section 4(e)" and the
stockholder competes with the firm within three years after his
withdrawal, he receives no deferred compensation and must
compensate the firm pursuant to a stipulated formula. A
stockholder who withdraws and within three months employs an
employee of the firm also must pay liquidated damages to the
firm, under section 8(a)(vii).
Section 13(i) provides that the agreement is to "be subject
to and governed by the laws of the Commonwealth of Massachusetts
pertaining to agreements executed in and to be performed in the
5
Commonwealth of Massachusetts." Section 13(j) contains an
arbitration clause that provides in relevant part:
"Binding Arbitration. In the event of any dispute
concerning any aspect of this Agreement, the parties agree
to submit the matter to binding arbitration before a single
arbitrator appointed by the American Arbitration
Association . . . . The decision of the arbitrator shall
be final; provided, however, solely in the event of a
material, gross and flagrant error by the arbitrator, such
decision shall be subject to review in court. . . . [T]he
party against which final, adverse judgment is entered
[shall be] responsible for (in addition to its own) the
other party's(ies') costs and expenses, including
reasonable attorneys' fees."
The dispute. The arbitration at issue here arose out of a
dispute between Levine and the other three shareholders of LKNS,
relating to work Levine had performed for a firm client,
Levine's cousin Linda Sallop and her company (collectively,
Sallop). Sallop sustained tax losses in the amount of $750,000
when the Internal Revenue Service (IRS) refused to grant capital
gains treatment for an employee stock ownership plan in 2002
because the IRS did not receive the necessary documentation. In
2004, Levine knew that these events created "problems with
Sallop's [2002] tax return." In April, 2007, Sallop threatened
to sue Levine and LKNS. Five months later, Levine submitted a
professional liability insurance renewal application on behalf
of the firm that did not mention the lawsuit threatened by
Sallop. Sallop sued Levine and LKNS in September, 2008, and
Levine retained counsel to represent himself and LKNS in
6
defending against the suit and the threatened attachment of
LKNS's assets. Levine did not inform Katz, Nannis, or Solomon
of the lawsuit, of Levine's retention of legal counsel on behalf
of the firm, or of Sallop's motion to attach LKNS's assets at
the time that the lawsuit and motion were filed. Instead, he
did so for the first time during a stockholder meeting in
February, 2009, just before his deposition in the case. In
March, 2010, Levine informed the three that LKNS's insurance
coverage was rescinded because Levine had failed to disclose
Sallop's threatened lawsuit in a renewal application.
At a special meeting held August 10, 2011, Katz, Nannis,
and Solomon voted to terminate Levine's employment and to remove
him as an officer and director of the firm, which then changed
its name to Katz, Nannis & Solomon, P.C. (KNS). Soon after his
termination, Levine opened his own accounting firm, Levine,
Caufield, Martin & Goldberg, P.C. (LCMG), and a number of
employees of LKNS left that firm and joined Levine at LCMG. The
nature and terms of Levine's withdrawal from the firm and his
subsequent competition with KNS were the bases of the dispute
between Levine and the other LKNS stockholders, and became the
subject of the arbitration proceeding at issue here.
The arbitration and award. Pursuant to the terms of the
agreement's arbitration clause, the dispute was submitted to
binding arbitration before a single arbitrator appointed by the
7
American Arbitration Association. The arbitrator heard from
eleven witnesses over nine days. On December 19, 2012, the
arbitrator issued a partial final award in which he concluded
that Levine had been validly terminated or "withdraw[n]"
involuntarily as a stockholder in accordance with the agreement,
that there was sufficient evidence to require Levine's
withdrawal "for cause," and that he had been terminated for
cause. The arbitrator concluded, however, that it did not make
any difference whether Levine's involuntary withdrawal or
termination was "for cause" pursuant to section 4(f) of the
agreement or "for any reason" pursuant to section 4(e), because,
following his termination, Levine competed with KNS. The
arbitrator further found that because Levine was terminated for
cause, he forfeited his shares and was not entitled to receive
deferred compensation. With respect to damages, the arbitrator
determined that Levine would be liable to KNS for, among other
things, amounts paid by former clients of LKNS to Levine after
his termination for work performed before his termination,
liquidated damages for competing with KNS following his
termination, as well as liquidated damages on account of
employees who left KNS to join Levine. The arbitrator denied
both parties' requests for attorney's fees. After a hearing on
8
damages, the arbitrator issued the final award, ruling that KNS
was to receive $1,749,293.20,5 plus statutory interest.
Confirmation of the arbitration award. On February, 2013,
KNS filed the present action in the Superior Court seeking
confirmation of the arbitration award and also asserting claims
to ensure payment of the arbitration award and prevent Levine
from diverting money to LCMG.6 Levine filed an answer, an
opposition to KNS's motion to confirm the award, and a cross
motion to vacate or modify the arbitration award. A Superior
Court judge (motion judge) allowed KNS's motion to confirm the
award and denied Levine's cross motion to vacate or modify it.
KNS moved for an award of attorney's fees, and the judge allowed
the motion. With a stipulation by the parties in place that
secured any judgment that would enter against Levine, KNS moved
to dismiss the remaining claims against Levine and all claims
5
The arbitrator stated that the final award consisted of
$480,412 for Levine's competing with Katz, Nannis & Solomon,
P.C. (KNS), $200,477.52 as liquidated damages for the employees
of the firm (LKNS) hired by his new firm, and $1,068,403.70 for
amounts owed on account of the accounts receivable and work in
progress related to work that Levine had performed for clients
of LKNS before he was terminated but for which he had received
payment at his new firm.
6
The complaint included counts against Levine to enjoin his
encumbering or transferring assets, and to secure a judgment
directing Levine to satisfy the award; and counts against
Levine, Caufield, Martin & Goldberg, P.C. (LCMG), for injunctive
relief preventing it from encumbering or transferring assets as
well as for conversion, money had and received, and creation of
a constructive trust.
9
against LCMG. In February, 2014, judgment entered confirming
the arbitration award, dismissing the remaining claims, and
granting KNS attorney's fees and costs. Levine thereafter filed
a motion for a new trial, to amend or alter the judgment, or for
relief from judgment, which the motion judge denied. Levine
filed a timely appeal from both the judgment and the denial of
his postjudgment motion. We granted the defendants' application
for direct appellate review.
Discussion. 1. Scope of judicial review of arbitrator's
decision. The parties' agreement to arbitrate is governed by
the MAA, G. L. c. 251. See G. L. c. 251, § 1.7 The role of
courts with respect to confirming, vacating, and modifying an
arbitration award is outlined in §§ 11 through 13 of the MAA.
Section 11 provides that "[u]pon application of a party, the
court shall confirm" an arbitration award unless "grounds are
urged for vacating or modifying or correcting the award" as
provided in §§ 12 and 13. G. L. c. 251, § 11. Section 12 sets
7
Massachusetts adopted the Massachusetts Uniform
Arbitration Act for Commercial Disputes (MAA) in 1960. See
St. 1960, c. 374. The MAA superseded a 1925 statute that was
modeled after the New York arbitration statute. See Report of
the Commission on Uniform State Laws, 1960 House Doc. No. 84, at
7. New York's arbitration statute also served as a model for
the Uniform Arbitration Act (UAA) promulgated in 1955. P.A.
Finn, B.J. Mone, & J.S. Kelly, Mediation and Arbitration 121
(2015-2016).
10
forth the available grounds for vacating an arbitration award.8
As is relevant here, under § 12, the court shall vacate an award
if it "was procured by corruption, fraud or other undue means,"
or "the arbitrators exceeded their powers." G. L. c. 251,
§ 12 (a) (1), (3).9 Otherwise, a court is "strictly bound by an
arbitrator's findings and legal conclusions, even if they appear
erroneous, inconsistent, or unsupported by the record at the
arbitration hearing." Lynn v. Thompson, 435 Mass. 54, 61
8
Section 12 of the MAA provides in relevant part:
"(a) Upon application of a party, the court shall vacate
an award if: --
"(1) the award was procured by corruption, fraud or other
undue means;
"(2) there was evident partiality by an arbitrator
appointed as a neutral, or corruption in any of the
arbitrators, or misconduct prejudicing the rights of any
party;
"(3) the arbitrators exceeded their powers;
"(4) the arbitrators refused to postpone the hearing upon
sufficient cause being shown therefor or refused to hear
evidence material to the controversy or otherwise so
conducted the hearing . . . as to prejudice substantially
the rights of a party; or
"(5) there was no arbitration agreement and the issue was
not adversely determined in proceedings under [§ 2]
. . . ."
G. L. c. 251, § 12.
9
Section 13 of the MAA allows a court to modify or correct
an award in certain ways that do not affect the merits of the
decision or the controversy. G. L. c. 251, § 13.
11
(2001), cert. denied, 534 U.S. 1131 (2002). An error of law or
fact will not be reviewed by a court unless there is fraud; even
a grossly erroneous decision is binding in the absence of fraud.
Trustees of the Boston & Me. Corp. v. Massachusetts Bay Transp.
Auth., 363 Mass. 386, 390 (1973).
At the core of Levine's challenge to the arbitrator's award
-- and to the motion judge's confirmation of the award -- is the
claim that the arbitrator fundamentally misinterpreted the
agreement. Contrary to that interpretation, Levine argues that
an involuntary withdrawal under section 4(e) of the agreement is
a wholly separate and distinct type of withdrawal from a
withdrawal for cause under section 4(f), and that, insofar as
the arbitrator found that Levine's withdrawal was "for cause"
under section 4(f), Levine cannot be made subject to any
prohibition against competition, because, in his view, the
penalty for competing with the firm only applies if the
shareholder is terminated "involuntarily" under section 4(e).
Levine acknowledges that the arbitration agreement is governed
by G. L. c. 251. He argues, however, that to the extent his
objection to the award is a claim that the arbitrator committed
an error of law, Levine is entitled to have a court consider the
merits of his claim because in the arbitration clause of the
agreement, the parties specifically provided for judicial review
of an award to determine whether there was a "material, gross
12
and flagrant error" by the arbitrator.10 He reasons that
arbitration is strictly a creature of contract, that the aim of
the MAA is to enforce the parties' contractual agreement to
arbitrate, and that, therefore, the parties' agreed-upon
standard of judicial review should be enforced.
Although arbitration is a matter of contract, Commonwealth
v. Philip Morris Inc., 448 Mass. 836, 843 (2007), we disagree
that parties, through contract, may modify the scope of judicial
review that is set out in §§ 12 and 13 of the MAA. As
previously stated, the directive of G. L. c. 251, § 11, is that
a court "shall confirm" an award unless grounds for vacating it
pursuant to §§ 12 and 13 are shown; this statutory language
"carries no hint of flexibility." See Hall St. Assocs., L.L.C.
v. Matell, Inc., 552 U.S. 576, 587 (2008) (Hall St.).
In Hall St., the United States Supreme Court considered
whether the grounds stated in the Federal Arbitration Act (FAA),
9 U.S.C. §§ 1 et seq. (2012), for vacating or modifying an
arbitration award were the exclusive grounds, or whether parties
could expand the grounds -- and thereby expand the scope of
judicial review -- by the terms of their agreement. See 552
10
The language in section 13(j) of the agreement that
Levine points to is the following: "The decision of the
arbitrator shall be final; provided, however, solely in the
event of a material, gross and flagrant error by the arbitrator,
such decision shall be subject to review in court" (emphasis
added; emphasis in original omitted).
13
U.S. at 578, 586. The Court held that under the FAA the
statutory grounds are the exclusive grounds for judicial review
and parties are unable to contract otherwise. Id. at 586.
However, the Court also made clear that States are free to reach
a different result on grounds of State statutory law or common
law. Id. at 590 ("The FAA is not the only way into court for
parties wanting review of arbitration awards: they may
contemplate enforcement under state statutory or common law, for
example, where judicial review of different scope is
arguable").11 Nonetheless, the Court's analysis of the FAA in
Hall St. remains instructive and we reach the same result in
relation to the MAA.
The provisions of the MAA governing judicial review of an
arbitration award are substantively (and often linguistically)
identical to the analogous provisions in the FAA.12 The Court in
11
Some States have construed their arbitration statutes to
permit parties to modify by contract the scope of judicial
review of an arbitration award. See Raymond James Fin. Servs.,
Inc. v. Honea, 55 So. 3d 1161, 1163, 1169 (Ala. 2010); Cable
Connection, Inc. v. DIRECTV, Inc., 44 Cal. 4th 1334, 1340
(2008); Tretina Printing, Inc. v. Fitzpatrick & Assocs., Inc.,
135 N.J. 349, 358 (1994); Nafta Traders, Inc. v. Quinn, 339
S.W.3d 84, 87 (Tex. 2011), cert. denied, 132 S. Ct. 455 (2011).
See also HH E. Parcel, LLC v. Handy & Harman, Inc., 287 Conn.
189, 204 n.16 (2008).
12
The judicial review provisions in the Federal Arbitration
Act (FAA), 9 U.S.C. §§ 1 et seq. (2012), provide that if a party
applies to a court for an order confirming an arbitration award,
"the court must grant such an order unless the award is vacated,
modified, or corrected as prescribed in [§§] 10 and 11 of this
14
Hall St. ruled that "the statutory text gives [the Court] no
business to expand the statutory ground." Id. at 589. We are
not persuaded that there is any reason to read the corresponding
provisions of the MAA differently. See Warfield v. Beth Israel
Deaconess Med. Ctr., Inc., 454 Mass. 390, 394 (2009) ("the
language of the FAA and the MAA providing for enforcement of
arbitration provisions are similar, and we have interpreted the
cognate provisions in the same manner").
As the Court in Hall St., 552 U.S. at 586, recognized with
respect to the FAA, the legislative intent behind the MAA
becomes more clear when the language of its provisions governing
judicial review is compared to other provisions in which the
Legislature explicitly endorsed the parties' right to contract.
title." 9 U.S.C. § 9. The grounds for vacatur are listed in
§ 10(a) of the FAA, and include the following:
"(1) where the award was procured by corruption, fraud, or
undue means;
"(2) where there was evident partiality or corruption in
the arbitrators . . . ;
"(3) where the arbitrators were guilty of misconduct in
refusing to postpone the hearing . . . 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."
9 U.S.C. § 10(a). Compare G. L. c. 251, § 12 (a) (1)–(4),
quoted in note 8, supra.
15
For example, G. L. c. 251, § 3, directs that the parties'
contractual provisions for appointing an arbitrator are to be
followed in the first instance, and sets up a default method of
appointment if a contractually defined method is not available:
"If the arbitration agreement provides a method of
appointment of arbitrators, such method shall be followed.
In the absence thereof, or if the agreed method fails or
for any reason cannot be followed, or if an arbitrator
appointed fails or is unable to act and his successor has
not been duly appointed, the court on application of a
party shall appoint an arbitrator."
In contrast, G. L. c. 251, §§ 11 through 13, are not default
provisions. Section 11 commands that "the court shall confirm
an award" (emphasis added) except in the circumstances described
in §§ 12 and 13; the language of the statute leaves no room for
parties to contract otherwise.
Our reading of G. L. c. 251, §§ 11 through 13, to mean that
a court will review an arbitrator's award to determine only
whether one of the statutory grounds for vacating, modifying, or
correcting the award has been met accords with this court's
interpretation of the MAA since its enactment in 1960. See
Beacon Towers Condominium Trust v. Alex, 473 Mass. 472, 474
(2016) ("[A]n arbitration award is subject to a narrow scope of
review. . . . We do not review an arbitration award for errors
of law or errors of fact" [quotation and citation omitted]);
Lynn, 435 Mass. at 62 n.13 ("The Legislature has identified the
extremely limited grounds on which courts may vacate or modify
16
arbitration awards”); Plymouth-Carver Regional Sch. Dist. v. J.
Farmer & Co., 407 Mass. 1006, 1007 (1990) (Plymouth-Carver)
("Courts inquire into an arbitration award only to determine if
the arbitrator has exceeded the scope of his authority, or
decided the matter based on 'fraud, arbitrary conduct, or
procedural irregularity in the hearings'" [citation omitted]);
Floors, Inc. v. B.G. Danis of New England, Inc., 380 Mass. 91,
96 (1980) ("[T]he court should not interject itself or its
practice into arbitrations unless required to do so by statutory
provision or necessity" [citation omitted]); Trustees of the
Boston & Me. Corp., 363 Mass. at 390 (judicial review is based
on grounds stated in G. L. c. 251, §§ 12 and 13); Grobert File
Co. of Am. v. RTC Sys., Inc., 26 Mass. App. Ct. 132, 135 (1998)
("Once in the arena of arbitration, the powers of the arbitrator
concerning the issue are wide and the scope of judicial review
of the arbitration proceedings is narrow. Short of fraud,
arbitrary conduct, or significant procedural irregularity, the
arbitrator's resolution of matters of fact or law is binding.
. . . See also other statutory grounds for vacating an
arbitration award contained in G. L. c. 251, § 12" [citations
omitted]). The pertinent language of §§ 11 through 13 of the
MAA has not changed since the statute's enactment, and we
continue to adhere to our longstanding reading of it.13
13
In concluding here that allowing parties to define
17
In addition to the language of the MAA, there are strong
policy considerations that support limiting the scope of
judicial review to the statutorily defined "egregious departures
from the parties' agreed-upon arbitration," Hall St., 552 U.S.
at 586, that are listed in G. L. c. 251, §§ 12 and 13. Allowing
parties to expand the grounds for judicial review would
"undermine the predictability, certainty, and effectiveness of
the arbitral forum that has been voluntarily chosen by the
parties" (citation omitted). Plymouth-Carver, 407 Mass. at
1007. See Hall St., supra at 588 (purpose of arbitration is to
provide efficient alternative to parties seeking finality, not
"a prelude to a more cumbersome and time-consuming judicial
review process" [citation omitted]). If parties were able to
alternative grounds for standards of judicial review of an award
would contravene the express terms of the MAA, we join with the
courts that have declined to construe their State arbitration
statutes to permit contractual expansion or redefinition of the
scope of judicial review by the parties. See Brookfield Country
Club, Inc. v. St. James-Brookfield, LLC, 287 Ga. 408, 413 (2010)
("the [Georgia] Arbitration Code does not permit contracting
parties who provide for arbitration of disputes to contractually
expand the scope of judicial review that is authorized by
statute" [citation omitted]); HL 1, LLC v. Riverwalk, LLC, 15
A.3d 725, 727, 736 (Me. 2011) (grounds for vacating arbitration
award enumerated in Maine Uniform Arbitration Act [UAA] are
exclusive and do not provide for judicial review of errors of
law); John T. Jones Constr. Co. v. City of Grand Forks, 665
N.W.2d 698, 704 (N.D. 2003) ("We agree with the courts that hold
[that] parties to an arbitration agreement cannot contractually
expand the scope of judicial review beyond that provided by [the
North Dakota UAA]"); Pugh's Lawn Landscape Co. v. Jaycon Dev.
Corp., 320 S.W.3d 252, 260 (Tenn. 2010) (parties cannot expand
the scope of judicial review beyond scope of review provided by
Tennessee UAA).
18
redefine by contract language the scope of what a court was to
review with respect to every arbitration award, it would spawn
potentially complex and lengthy case-within-a-case litigation
devoted to determining what the parties intended by the
contractual language they chose. This is fundamentally contrary
to the intent and purpose of our arbitration statute. See
Lawrence v. Falzarano, 380 Mass. 18, 28 (1980) ("The purpose of
G. L. c. 251 governing arbitration is to provide further speedy
resolution of disputes by a method which is not subject to delay
and obstruction in the courts" [quotation and citation
omitted]).14 The policy of limited judicial review preserves
arbitration as an expeditious and reliable alternative to
litigation for commercial disputes. See Plymouth-Carver,
supra.15
14
This case is illustrative of the problem. Further
litigation likely would be necessary to determine the intended
meaning of "material, gross and flagrant error by the
arbitrator" as it stated in the arbitration clause of the
agreement. The parties' briefs on appeal before us suggest that
they do not agree on this point.
15
Levine argues that if the judicial scope of review agreed
to by the parties is rendered invalid, then the entire
arbitration clause is unenforceable. This argument was not
raised by Levine in the Superior Court, and was not raised until
Levine's reply brief to this court. An argument raised for the
first time in a reply brief is not properly before us, and we do
not consider it here. See Commissioner of Revenue v. Plymouth
Home Nat'l Bank, 394 Mass. 66, 67 n.3 (1985).
19
2. Vacatur under G. L. c. 251, § 12. In recognizing that
this court may decide that the scope of judicial review is
restricted to the grounds set out in G. L. c. 251, § 12, Levine
recasts his challenges to the award to fit within the provisions
of G. L. c. 251, § 12 (a) (3) (arbitrators exceeded their
authority), or § 12 (a) (1) (award was procured by fraud). The
repackaging effort fails.
Levine contends that the arbitrator exceeded his authority
in awarding KNS $480,412 in liquidated damages on account of
Levine's competing with KNS within three years following
Levine's withdrawal;16 and $1,068,403.70 to compensate for (1)
amounts allegedly paid to Levine after his termination from the
firm by former firm clients for work that Levine had earlier
completed and that had earlier been billed to the clients
(accounts receivable); and (2) amounts allegedly paid to Levine
after his termination for work that was still in progress at the
time Levine left LKNS (work in progress). An arbitrator exceeds
his or her authority by granting relief that is beyond the scope
of the arbitration agreement, beyond that to which the parties
16
Section 8(a)(iii)(1) of the agreement requires a
stockholder who withdraws involuntarily and violates the
noncompete provision to pay the firm "14% in the case of Levine
and Katz, and . . . 18% in the case of any other Stockholder, of
all gross billings from the withdrawn Stockholder's book of
business which is lost [by KNS] in the twelve month period
following the withdrawal." If the withdrawing stockholder
sufficiently demonstrates that some business was not lost by
KNS, this amount will be deducted from the amount owed.
20
bound themselves, or prohibited by law. Superadio Ltd.
Partnership v. Winstar Radio Prods., LLC, 446 Mass. 330, 334
(2006), quoting Plymouth-Carver, 407 Mass. at 1007. "If the
arbitrators in assessing damages commit an error of law or fact,
but do not overstep the limits of the issues submitted to them,
a court may not substitute its judgment on the matter."
Lawrence, 380 Mass. at 28-29. The issues of whether a
stockholder's withdrawal or termination pursuant to section 4(e)
or section 4(f) of the agreement (or both) gives rise to
damages, and if so, what those damages may be, fall squarely
within the broad arbitration clause in the agreement: "In the
event of any dispute concerning any aspect of this Agreement,
the parties agree to submit the matter to binding arbitration."
Levine asks us to substitute our interpretation of the contract
for that of the arbitrator.17 Interpreting the agreement is the
role of the arbitrator, not this court. See Plymouth-Carver,
407 Mass. at 1007 (reversing Superior Court's judgment vacating
award where question was one of interpretation of agreement);
Greene v. Mari & Sons Flooring Co., 362 Mass. 560, 563 (1972)
("courts have no business overruling [the arbitrator] because
17
In connection with his challenge to the damages awarded,
Levine again contests the arbitrator's conclusion that a "for
cause" withdrawal under section 4(f) of the agreement is subject
to the noncompete provision.
21
their interpretation of the contract is different from his"
[citation omitted]).
Levine also argues that the portion of the damages award
for payments collected from former KNS clients for accounts
receivable and work in progress was procured by fraud. He
contends that KNS misrepresented the amounts that were collected
by Levine and his new firm, and the arbitrator erroneously
relied on conclusory evidence of LKNS's historical rate or
percentage of collection on billings for Levine's work to
determine damages related to accounts receivable and work in
progress while ignoring the evidence that Levine presented.18 We
agree with the motion judge, who concluded that "the
arbitrator's approach was reasonable and more than fair to
18
Each party was asked to submit accounting and data
relating to the categories of damages described in the partial
final award. Levine submitted to the arbitrator a brief on
damages and attached as an exhibit a spreadsheet (referred to by
the parties as "Exhibit D") that purported to list accounts
receivable of his new firm, LCMG; Levine argued that the numbers
illustrated the amounts his new firm collected from former LKNS
clients. The arbitrator made clear in the final award, however,
that Levine "failed to provide the necessary data to more
accurately determine the sums due [to KNS] by him for accounts
receivable and work in progress." KNS's position is that the
spreadsheet proffered by Levine's counsel is a self-serving
document that offers little, and that Levine failed to produce
any evidence showing money paid to LCMG or Levine following
Levine's withdrawal to determine whether Levine invoiced former
firm clients for work performed prior to his departure. Exhibit
D is in the record before us, and although Levine characterizes
the numbers as an accurate statement of money received by LCMG
on account of work Levine performed while still at LKNS, we can
find no evidentiary substantiation of this proposition in the
record.
22
Levine" and the arbitrator was under no obligation to credit
Levine's testimony. There is nothing to show that the
arbitrator reached his conclusion on the basis of fraud or undue
means, "that is, in an underhanded, conniving, or unlawful
manner." Superadio Ltd. Partnership, 446 Mass. at 337. Levine
presents nothing more than a dispute over a question of fact
that is not reviewable by this court.
3. Remaining claims. Levine presents two additional
claims: (1) the motion judge erred in dismissing the remaining
counts of KNS's complaint -- that is, the counts that followed
the first count for confirmation of the arbitration award; and
(2) the judge also erred in awarding KNS attorney's fees and
costs associated with the dismissed claims.
These claims lack merit. First, the motion judge did not
abuse his discretion in dismissing the remaining counts against
Levine and his firm. After the parties stipulated to a form of
security for any judgment that might enter against Levine, the
remaining counts of KNS's complaint -- each of which was aimed
at securing any potential judgment confirming the arbitration
award -- all became moot, and the judge was warranted in
allowing KNS's motion to dismiss them. Second, the judge did
not err in awarding attorney's fees and costs in connection with
the dismissed claims. The agreement provided that "the cost of
enforcing any judgment entered by the arbitrator (including
23
reasonable attorney's fees) shall be borne by the party against
whom such award was made and/or judgment entered." The claims
that supplemented KNS's request to confirm the award were within
the purview of enforcing the judgment and sufficiently
interconnected to the confirmation of the award. Fabre v.
Walton, 441 Mass. 9, 10 (2004), Peckham v. Continental Cas. Ins.
Co., 895 F.2d 830, 841 (1st Cir. 1990).
Conclusion. The judgments of the Superior Court confirming
the arbitrator's award and dismissing the additional claims are
affirmed, as is the judgment granting attorney's fees and costs.
The plaintiffs may apply to this court for attorney's fees and
costs in accordance with the procedure set forth in Fabre, 441
Mass. at 10-11.
So ordered.