Opinion
Civil No. AMD 03-1258
September 22, 2003
MEMORANDUM OPINION
In this diversity action, pro se plaintiff Sunny O. Ekokotu, who was a party to an arbitration proceeding with defendant Bundy American Corporation, seeks an order vacating the arbitral award pursuant to the Federal Arbitration Act ("FAA"). See 9 U.S.C. § 9. Ekokotu's claims arose out of his attempts to establish and operate a "Rent-A-Wreck" motor vehicle leasing franchise in Georgia pursuant to a franchise agreement with Bundy. The arbitrator denied relief to Ekokotu and, as well, denied relief to Bundy as to Bundy's counterclaim. I have given careful attention to the parties' contentions as set forth in their written arguments. A hearing is not needed. Local R. 105.6. For the reasons explained below, I shall deny the petition to vacate and confirm the award in its entirety.
The United States Code, Title 9, § 9 states, in pertinent part:
If the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration, and shall specify the court, then at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title. If no court is specified in the agreement of the parties, then such application may be made to the United States court in and for the district within which such award was made.9 U.S.C. § 9.
I.
Ekokotu is a Georgia resident. Bundy is a Maryland corporation which franchises the operation of "Rent-A-Wreck" leasing firms. On or about September 28, 2000, Ekokotu and Bundy entered into a franchise agreement. The franchise agreement contemplated that Ekokotu would operate a "Rent-A-Wreck" franchise in a "Primary Service Area" defined as "the area located within [a] 1.75 mile radius from 1948 Wesley Chapel Road in Decatur Georgia." The initial franchise fee was eleven thousand dollars and yearly fees were due thereafter. Ekokotu paid the initial franchise fee.For reasons not entirely clear in the record, Ekokotu never operated a "Rent-A-Wreck" franchise pursuant to the franchise agreement. Apparently, zoning and/or other difficulties arose and Ekokotu requested of Bundy a reassignment or re-designation of his "Primary Service Area." Bundy denied Ekokotu's request, apparently insisting on additional payments as consideration for reforming the franchise agreement. Ekokotu declined to pay accruing fees. On or about September 21, 2001, about a year after the franchise agreement was executed by the parties, Bundy formally terminated the franchise agreement on the ground that Ekokotu failed to open the franchise.
Thereafter, on or about August 15, 2002, pursuant to the franchise agreement, Ekokotu commenced arbitration proceedings against Bundy. In the arbitration proceedings, Ekokotu sought relief on both contract and tort theories. Specifically, he alleged that Bundy had breached the franchise agreement in one or more ways and he sought recovery of the eleven thousand dollar initial franchise fee. In addition, Ekokotu alleged common law claims for fraudulent inducement, defamation, and invasion of privacy, and one or more statutory claims for violation of the federal Fair Credit Reporting Act, 15 U.S.C. § I681, et seq. The gravamen of the latter claims was the fact that, apparently without Ekokotu's knowledge or permission, or otherwise not in accordance with law, Bundy had obtained a copy of Ekokotu's consumer credit report and, furthermore, after the dispute between the parties had arisen, Bundy reported the unpaid fees to Credit Reporting Agencies as delinquencies, which had an adverse impact on Ekokotu's credit rating and thus his personal financial circumstances. Ekokotu sought $9.35 million in damages. In its counterclaim, Bundy sought $70,192 in unpaid franchise fees, penalties, interest, and attorney's fees.
The arbitrator heard the case on March 11, 2003, and issued his decision on March 31, 2003. The arbitrator found that Ekokotu had presented insufficient evidence to support any of his claims and/or that the franchise agreement simply did not afford him the rights to which he claimed an entitlement, i.e., to relocate the "Rent-A-Wreck" franchise to a different address without Bundy's consent or to avoid paying a fee to Bundy for approval of a new location. Specifically as to the tort claims, the arbitrator found that Bundy's adverse report to the credit reporting agency "undoubtedly affected [Ekokotu] adversely and caused him anxiety and inconvenience, [but that Ekokotu] did not present persuasive evidence of any damage measurable in monetary terms he suffered as a result of [Bundy's] actions in this regard." Finally, in denying Bundy's counterclaim, the arbitrator relied heavily on his finding that Bundy had breached the implied duty of good faith implied in all contracts under Maryland law. Specifically, inter alia, the arbitrator found a breach of the duty of good faith in Bundy's failure to provide timely and effective notice to Ekokotu (1) of its right to accelerate franchise fees upon a breach of the franchise agreement, and (2) of its practice of reporting delinquencies to credit reporting agencies, as well as (3) its failure to make formal demand for payment prior to reporting Ekokotu's delinquency to credit reporting agencies. The arbitrator apportioned the administrative fees for the arbitration proceedings two-thirds to Ekokotu and one-third to Bundy. He ordered the compensation to the arbitrator ($3700) to be split evenly by the parties. The relatively large administrative fees (a total of $16,900) arose by virtue of the large damage (more than $3 million) award sought by Ekokotu.
II.
The FAA sets out four limited statutory grounds on which a district court can vacate an arbitration award. 9 U.S.C. § 10(a)(1)-(4); see also Remmey v. PaineWebber, Inc., 32 F.3d 143, 146 (4th Cir. 1994) (explaining that Congress has limited the statutory grounds upon which arbitration can be vacated to 9 U.S.C. § 10(a)(1)-(4)), cert. denied, 513 U.S. 1112 (1995). In addition, a court may overturn a legal interpretation of an arbitration panel if "it is in manifest disregard for the law." See, e.g., Upshur Coals Corp. v. United Mine Workers of America, 933 F.2d 225, 229 (4th Cir. 1991) (citing American Postal Workers v. United States Postal Serv., 682 F.2d 1280, 1284 (9th Cir. 1982), cert. denied, 459 U.S. 1200 (1983); Remmey, 32 F.3d at 149; Apex Plumbing Supply, Inc. v. U.S. Supply Co., Inc., 142 F.3d 188, 193 (4th Cir.) ("Federal courts may vacate an arbitration award only upon a showing of one of the grounds listed in the [FAA], or if the arbitrator acted in manifest disregard of law." (citing In re A.H. Robins Co., Inc., 197 B.R. 513, 516 (E.D. Va. 1994)), cert. denied, 525 U.S. 876 (1998)).
The United States Code, FAA, Title 9, § 10 states, in pertinent part:
(a) In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration —
(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 or 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.
(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.
(5) Where an award is vacated and the time within which the agreement required the award to be made has not expired the court may, in its discretion, direct a rehearing by the arbitrator.9 U.S.C. § 10.
The Fourth Circuit has emphasized "the limited scope of judicial review that courts are permitted to exercise over arbitral decisions." Remmey, 32 F.3d at 146; see Upshur Coals Corp., 933 F.3d at 228 ("An arbitrator's award is entitled to a special degree of deference on judicial review."); Apex Plumbing Supply, Inc., 142 F.3d at 193 ("Review of an arbitrator's award is severely circumscribed."). "Limited judicial review is necessary to encourage the use of arbitration as an alternative to formal litigation. This policy is widely recognized, and the Supreme Court has often found occasion to approve it." Remmey, 32 F.3d at 146 (citations omitted); see Unites States v. Aegis/Zublin Joint Venture, 869 F. Supp. 387, 391 (E.D. Va. 1994) ("[T]he Court's jurisdiction under the [FAA] is strictly limited to avoid frustrating the purpose of arbitration-avoiding litigation." (citing Jardine Matheson Co., Inc. v. Saita Shipping, Ltd., 712 F. Supp. 423, 426 (S.D.N.Y. 1989))).
The Fourth Circuit has further explained the policy favoring arbitration:
A policy favoring arbitration would mean little, of course, if arbitration were merely the prologue to prolonged litigation. If such were the case, one would hardly achieve the "twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation." . . . Open up arbitral awards to myriad legal challenges would eventually reduce arbitral proceedings to the status of preliminary hearings. Parties would cease to utilize a process that no longer had finality. To avoid this result, courts have resisted temptations to redo arbitral decisions. As the Seventh Circuit put it, "arbitrators do not act as junior varsity trial courts where subsequent appellate review is readily available to the losing party." . . .Remmey, 32 F.3d at 146 (citations omitted).
In reviewing arbitral awards, therefore, district and appellate courts are confined to ascertaining "whether the arbitrators did the job they were told to do-not whether they did it well, or correctly, or reasonably, but simply whether they did it." Id. (internal quotation marks omitted) (quoting Richmond, Fredericks burg Potomac R.R. Co. v. Transportation Communications Int's Union, 973 F.2d 276, 281 (4th Cir. 1992)). "Courts are not free to overturn an arbitral result because they would have reached a different conclusion if presented with the same facts." Id. As the Fourth Circuit has determined, an arbitration award is enforceable "`even if the award resulted from a misinterpretation of law, faulty legal reasoning or erroneous legal conclusion,' . . . and may only be reversed `when arbitrators understand and correctly state the law, but proceed to disregard the same.'" Upshur Coals Corp., 933 F.2d at 229 (citations omitted); see Aegis/Zublin Joint Venture, 869 F. Supp. at 391.
A party making a claim based on manifest disregard shoulders a heavy burden. "[A]n arbitration panel's interpretation of the law will not be reversed [for manifest disregard of the law] unless the `arbitrators understand and correctly state the law, but proceed to disregard the same.'" Remmey, 32 F.3d at 149 (quoting Upshur Coals Corp., 933 F.2d at 229). A court's belief that the law has been misapplied "does not justify vacation of an arbitral award." Id. The parties are required to demonstrate that the arbitrators "were aware of the law, understood it correctly, found it applicable to the case before them, and yet chose to ignore it in propounding their decision. "Id. (citing National Wrecking Co. v. International Brotherhood of Teamsters, Local 731, 990 F.2d 957, 961 (7th Cir. 1993); Folkways Music Publishers, Inc. v. Weiss, 989 F.2d 108, 111-12 (2d Cir. 1993)); see Marshall v. Green Giant Co., 942 F.2d 539, 550 (8th Cir. 1991) ("[T]here must be some showing in the record, other than the result obtained, that the arbitrators knew the law and expressly disregarded it." (internal quotation marks omitted) (alteration in original) (quoting O.R. Secs. v. Professional Planning Assoc., 857 F.2d 742, 7417 (11th Cir. 1988))). The arbitrator's interpretation must not be just erroneous but must amount to an "overt disregard" of the law. Folkways Music Publishers, Inc., 989 F.2d at 111 (citing Wilko v. Swan, 346 U.S. 427, 436-37 (1953)).
III.
Application of the appropriate standard of review compels the rejection of Ekokotu's arguments in support of his petition to vacate the award. Ekokotu argues at length that the arbitrator made errors of law in failing to award him damages for invasion of privacy, defamation, and under the Fair Credit Reporting Act. There is no showing, however, that the arbitrator concluded that Bundy actually violated any such legal norms in the first instance. More fundamentally, even if it were true that errors of law were manifest in the arbitral award, a proposition which is doubtful at best, mere errors of law do not provide a justification for vacating an arbitral award. National Wrecking Co., 990 F.2d at 961-62 ("The arbitrator's award may be erroneous, but, even if it is, it does not evidence a manifest disregard for the [law]"). Read in its entirety, the award in this case demonstrates that the arbitrator struck a reasoned and fair balance as between the competing claims of the parties. By giving Ekokotu the benefit of protection afforded by the implied covenant of good faith and fair dealing recognized in Maryland law, the arbitrator rendered a decision which significantly reduced Ekokotu's potential exposure to a substantial monetary award in respect to Bundy's counterclaim. Moreover, the arbitrator's allocation of responsibility for fees and expenses attendant to the arbitration proceedings likewise struck a fair and reasonable balance under the circumstances in this case.IV.
For the reasons set forth herein, the arbitral award shall be confirmed. An Order follows.
ORDER
For the reasons set forth in the foregoing Memorandum, it is this 22nd day of September, 2003, by the United States District Court for the District of Maryland, ORDERED
(1) That the Petition to Vacate Arbitration Award (Paper No. 1) is DENIED; and it is further ORDERED
(2) That the ARBITRAL AWARD WHICH IS THE SUBJECT OF THIS CASE IS CONFIRMED; and it is further ORDERED
(3) That the Clerk shall CLOSE THIS CASE and TRANSMIT a copy of this Order and the foregoing Memorandum Opinion to all counsel and to plaintiff pro se.