Arbitration Clause: Appellate Review of the Award on the Merits

June 20, 2017 § 3 Comments

Yesterday we talked about Paige Electric Company’s unsuccessful challenge on appeal to an arbitration clause. The company had asked the circuit court to vacate the award because Davis & Feder were negligent as a matter of law, and that the arbitrator had disregarded the evidence and exceeded his authority. When the circuit judge denied their motion and dismissed their case, they appealed.

In Paige Electric Company v. Davis & Feder, P.A., decided on April 11, 2017, the COA affirmed. Judge Barnes wrote the opinion:

¶19. Paige Electric argues that the award should be vacated as Davis & Feder were negligent as a matter of law, and therefore, the arbitrator disregarded the evidence and exceeded the scope of his authority. The United States Supreme Court has held that in reviewing whether an issue is arbitrable, “considerable leeway [should be given] to the arbitrator” and his or her decision should be set aside “only in certain narrow circumstances.” First Options of Chicago Inc. v. Kaplan, 514 U.S. 938, 943 (1995). Errors of law or fact, or an erroneous decision of matters submitted to the judgment of the arbitrators, are insufficient to invalidate an award fairly and honestly made. Nothing in the award relative to the merits of the controversy as submitted, however wrongly decided, is ground for setting aside an award in the absence of fraud, misconduct or other valid objections. Wilson, 830 So. 2d at 1156 (¶12) (quoting Hutto v. Jordan, 204 Miss. 30, 36, 36 So. 2d 809, 811 (1948)).

¶20. “[J]udicial review of arbitration award is narrowly limited, and a motion to vacate, modify, or correct an arbitration award is not an opportunity to relitigate issues decided in the arbitration.” City of Hattiesburg v. Precision Constr. LLC, 192 So. 3d 1089, 1096 (¶27) (Miss. Ct. App. 2016). Mississippi Code Annotated section 11-15-23 (Rev. 2004) provides the four grounds upon which an arbitrator’s decision may be vacated:

(a) That such award was procured by corruption, fraud, or undue means;

(b) That there was evident partiality or corruption on the part of the arbitrators, or any one of them;

(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent or material to the controversy, or other misbehavior by which the rights of the party shall have been prejudiced;

(d) That the arbitrators exceeded their powers, or that they so imperfectly executed them that a mutual, final, and definite award on the subject matter was not made.

“In Mississippi, we have always considered ‘undue means’ to constitute some nefarious conduct on the part of the arbitrator – not simply an incorrect or sloppy conclusion of law.” Robinson v. Henne, 115 So. 3d 797, 802 (¶17) (Miss. 2013) (citing McClendon v. Stewart, 133 Miss. 253, 258, 97 So. 547 (1923)). The Mississippi Supreme Court has held: “[A] mistake of law, a mistake of fact, or a decision lacking an evidentiary basis is insufficient to constitute a violation of any of the four statutory categories that permit the vacatur of an arbitrator’s decision.” Id. at 803 (¶19).

¶21. The circuit judge found that the arbitrator did not exceed his powers in this instance. She further concluded there was “nothing in this record to indicate that Mr. Latham refused or failed to review the case law, nothing to indicate he had any preconceived notions or opinions and certainly nothing to indicate what evidence he focused on or didn’t focus on.” We find no error in the circuit court’s holding. Giving a reasonable presumption “in favor of the validity of arbitration proceedings,” we affirm the circuit court’s judgment.

Between yesterday’s post and today’s, you can deduce the breathtaking sweep of rights that you cede when you agree to an arbitration clause in a contract. Not only do you give up your right to a jury trial, but you also surrender the right to appellate review except on quite narrow, difficult-to-prove grounds.

Arbitration Clause: Challenge after Arbitration

June 19, 2017 § Leave a comment

When Paige Electric Company retained the law firm of Davis & Feder, the retainer agreement included a clause requiring any dispute arising out of the agreement, including claims of legal malpractice, to be submitted to arbitration. Paige did sue the law firm, which invoked the arbitration clause, and the case was heard by Arbitrator Larry Latham, who ruled entirely in the law firm’s favor and denied Paige any relief.

Paige filed motions in Circuit Court to declare the arbitration clause void and to vacate the award. The circuit judge denied the motions, dismissed the suit with prejudice, and Paige appealed.

In Paige Electric Company v. Davis & Feder, P.A., decided April 11, 2017, the COA affirmed. Judge Barnes wrote for a unanimous court:

¶10. “In arbitration cases, . . . the scope of review is extremely limited.” Wilson v. Greyhound Bus Lines Inc., 830 So. 2d 1151, 1155 (¶9) (Miss. 2002). “The scope of judicial review of an arbitration award is quite narrow, and every reasonable presumption will be indulged in favor of the validity of arbitration proceedings.” Id. (quoting Craig v. Barber, 524 So. 2d 974, 977 (Miss. 1988)).

*****

¶11. Addressing Paige Electric’s claim that the arbitration clause in the retainer agreement was unconscionable, and its alternative claim the malpractice claims involving the lien should be severed from the arbitration award and set for trial, the circuit court concluded that the company had waived any objection, as it had voluntarily consented to the arbitration.

¶12. Mississippi has not addressed the precise issue of whether a challenge to the validity of an arbitration clause may be brought post-arbitration. But other jurisdictions have held that participation in arbitration proceedings waives the right to object to an arbitrator’s authority. “A party cannot ‘sit silent, wait until an adverse award is issued, and then first argue that the arbitrator did not have the authority even to hear the claim.’” Advocate Fin. Grp. v. Poulos, 8 N.E.3d 598, 609 (¶53) (Ill. App. Ct. 2014) (quoting First Health Grp. v. Ruddick, 911 N.E.2d 1201, 1213 (Ill. App. Ct. 2009)); see also Ahluwalia v. QFA Royalties LLC, 226 P.3d 1093, 1098 (Colo. App. 2009) (“If a party willingly allows an issue to be submitted to arbitration, it cannot await the outcome and later argue that the arbitrator lacked authority to decide the matter.”). “[W]illing participation is consent to the arbitrator’s power to resolve the dispute.” Unite Here Local 23 v. I.L. Creations of Maryland Inc., 148 F. Supp. 3d 12, 19 (D.D.C. 2015). “Given that arbitration is an optional alternative to judicial resolution of disputes[,] . . . when the parties have agreed to arbitration, the law discourages the loser from seeking a second de novo (or even quasi-de novo) shot at obtaining its desired result[.]” Id. at 18-19.

¶13. Paige Electric argues that because there was a “separate contract prepared for lien claims against the hotel” produced on February 25, 2015, during discovery, “Paige Electric cannot be considered to have consented to arbitration,” and it “cannot be bound to any agreement to arbitrate the dispute over the lien claims[.]” [Fn 3] The circuit court judge declined to make any findings “whether there was a second contract or not,” because the lien claims were submitted for arbitration and had been decided by the arbitrator. But the court did observe that the “second contract . . . was known to Paige Electric in February by [its] own pleadings, and at that time [it] had fully the ability to say. . . these liens aren’t included.” The judge concluded:

[It] didn’t do that. What [it] did do, however, was go through the entire arbitration process, two and a half days of arbitration hearings, and then submit a post-hearing memorandum . . . [that] very clearly indicates the lien claims were considered and are part of the arbitration.
. . . .
And, therefore, the court finds [Paige Electric] waived any objection [it] may have had with regard to the arbitration of the lien claims. Whether the court agrees they would have been included or not, the parties agreed to include them, the arbitrator was presented those.

[Fn 3] The second “contract” was merely handwritten notes made by Brisolara on a legal pad, dated March 16, 2007, three days prior to the parties’ signing the retainer agreement. The note has Jerry Paige’s name at the top, and simply states “Hourly pay for lien. [One third]
for suit” and that Jerry Paige “wants to sign contract against [SCS and] Studio Inn and file suit.” There is no evidence that Paige Electric signed a second contract for the lien work at an hourly rate; nor is there evidence Davis & Feder billed Paige Electric for this work.

¶14. At no point prior to or during the arbitration hearing did Paige Electric object to arbitrating the lien claims. Paige Electric was represented by counsel throughout this process, and the parties agreed to arbitration; it was not court-ordered. In a letter to Davis & Feder, dated June 12, 2013, counsel for Paige Electric stated that “[t]here is no objection to this [arbitration] procedure,” and he requested that “appropriate steps be taken at this time to arrange for arbitration of this claim[.]” Thus, we find no error in the circuit court’s determination that Paige Electric waived its right to object to the validity of the arbitration clause and to the arbitration of the lien claims.

¶15. Notwithstanding the waiver of the claims, we find no merit to Paige Electric’s claim that the arbitration clause was procedurally unconscionable because the arbitration clause was not properly explained to Jerry Paige, and because the clause is “inconspicuous” and used “overly broad verbiage.” Whether an arbitration clause is procedurally unconscionable can be shown by: “(1) lack of knowledge; (2) lack of voluntariness; (3) inconspicuous print; (4) the use of complex, legalistic language; (5) disparity in sophistication or bargaining power of the parties; and/or (6) lack of opportunity to study the contract and inquire about the terms.” See Caplin Enters. Inc. v. Arrington, 145 So. 3d 608, 614 (¶12) (Miss. 2014) (citing MS Credit Ctr. Inc. v. Horton, 926 So. 2d 167, 177 (¶29) (Miss. 2006)).

¶16. The retainer agreement was a simply-worded five-page agreement, and the arbitration clause took up an entire page of the contract, in an easy-to-read font. Compare E. Ford Inc. v. Taylor, 826 So. 2d 709, 716-17 (¶21) (Miss. 2002) (finding an arbitration provision “procedurally unconscionable,” as the “preprinted” arbitration clause “appears less than one third the size of many other terms in the document, [and] appears in very fine print and regular type font”). Moreover, in the June 12, 2013 letter from Paige Electric’s counsel to Davis & Feder, the attorney stated that “[Jerry] Paige advises me that his contract with Davis [&] Feder requires all disputes with clients be arbitrated,” indicating an understanding by Jerry Paige of the agreement’s terms and conditions.

¶17. We also reject, on the merits, Paige Electric’s alternative claim that the arbitration clause only applied to the representation for the claim against SCS for payment, not the claims related to the “prosecution of any liens or related claims against Hancock Hotels,” and that “the malpractice claims related to the hotel owner should be severed and set for trial before a jury.” Paige Electric cites Complaint of Hornbeck Offshore (1984) Corp., 981 F. 2d 752, 754-55 (5th Cir. 1993), to support its claim. However, the retainer agreement states that the provision regarding the arbitration of disputes “shall apply to any dispute between the parties which arises from, or is related to, a claimed breach of this agreement[.]” (Emphasis added). In Hornbeck, the United States Court of Appeals for the Fifth Circuit specifically held that “arbitration clauses containing the ‘any dispute’ language . . . are of the broad type.” Id. at 755. “[I]t is difficult to imagine broader general language than that
contained in the arbitration clause, ‘any dispute.’” Id. (citation omitted). The Mississippi Supreme Court has also held:

Broad arbitration language governs disputes “related to” or “connected with” a contract, and narrow arbitration language requires arbitration of disputes that directly “arise out of” a contract. . . . Because broad arbitration language is capable of expansive reach, courts have held that “it is only necessary that the dispute touch matters covered by the contract to be arbitrable.” Horton, 926 So. 2d at 176 (¶¶24-25) (quoting Pennzoil Exploration & Prod. Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1067-68 (5th Cir.1998)). We find the lien claim against the hotel owner was directly “related to” Paige Electric’s claims against SCS; the lien against the hotel owner was necessary only in the event that Paige Electric could not collect a judgment from SCS.

¶18. Accordingly, we find the circuit court did not err in denying Paige Electric’s motion to declare the arbitration clause invalid, or alternatively, to sever Paige Electric’s lien claims from the arbitration award and set those claims for trial.

A few observations:

  • Unless you can build a convincing case based on those factors in ¶15 up there, you will find it mighty hard to get around an arbitration provision in a freely-negotiated contract.
  • If you’re planning to include an arbitration clause in your retainer agreements, be sure it’s as broad as possible.
  • When you wait until after the arbitration is concluded to raise the issue of the validity of the arbitration clause, you’ve waited too late.

We’ll talk in another post about Paige’s claim that the arbitration clause should have been vacated by the circuit court.

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