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denying leave to file supplemental complaint where the court found "that Plaintiffs’ proposed breach of contract action raises the same issues presented by their Motion to Vacate. In fact, the relief requested ... is exactly the relief Plaintiffs seek by vacating the award, namely, a reduction or offset in the amount of attorney's fees awarded by the arbitrator"
Summary of this case from Gulf LNG Energy, LLC v. Eni U.S. Gas Mktg.Opinion
Civil Action No. 3:97-CV-2548-L
July 9, 2002
MEMORANDUM OPINION AND ORDER
Before the court are the following six motions:
1. Defendant NPE's Motion to Confirm Arbitration Award and to Enter Final Judgment and a Permanent Injunction, filed June 25, 2001;
2. ErgoBilt's and BodyBilt's Motion to Vacate Arbitration Award, filed July 30, 2001;
3. Ergobilt's and BodyBilt's Motion for Leave to File Supplemental Complaint and Original Counterclaim, filed August 23, 2001;
4. Audubon Indemnity Company's Motion to Intervene, filed September 6, 2001;
5. Neutral Posture's Motion for Attorney's Fees and Costs, September 12, 2001; and,
6. Neutral Posture's request, by letter, for a conference with the court, dated June 19, 2002.
Neutral Posture filed a substantially identical Motion for Attorney's Fees and Costs on August 31, 2001. Because both motions request the same relief and rely on the same reasoning, the court considers them as one motion. Accordingly, this Memorandum Opinion and Order resolves both the motion for attorney's fees filed August 31, 2001 and the motion filed September 12, 2001.
clerk of the court is hereby directed to file and make part of the record of this case the letter dated June 19, 2001 from attorney Joseph G. Werner to this court concerning certain alleged settlement negotiations between the parties. The court construes Mr. Werner's request as a motion for a conference with the court.
After considering the motions, the responses, the replies, the evidence submitted, and the applicable law, the court grants in part and denies in part Defendant NPE's Motion to Confirm Arbitration Award and to Enter Final Judgment and a Permanent Injunction; grants in part and denies in part ErgoBilt's and BodyBilt's Motion to Vacate Arbitration Award; denies ErgoBilt's and BodyBilt's Motion for Leave to File Supplemental Complaint and Original Counterclaim; grants Audubon Indemnity Company's Motion to Intervene; denies Neutral Posture's Motion for Attorney's Fees and Costs; and denies Neutral Posture's motion for a court conference.
I. Factual and Procedural History
This case involves a dispute between two manufacturers of office and industrial ergonomic chairs. On October 16, 1997, Plaintiff ErgoBilt, Inc. ("ErgoBilt") filed suit in this court against Defendant Neutral Posture Ergonomics, Inc. ("NPE"), alleging false advertising under the Lanham Act, 15 U.S.C. § 1125. ErgoBilt is a publicly traded company, incorporated in Texas, and is the parent company of BodyBilt, Inc. ("BodyBilt"). On November 26, 1997, NPE filed counterclaims and cross-claims against both ErgoBilt and BodyBilt (collectively, "Plaintiffs"). By Memorandum Opinions and Orders dated August 10, 1998, the court dismissed ErgoBilt's original complaint and dismissed certain of NPE's counterclaims. On January 24, 1999, the parties filed their Agreed Joint Motion to Refer Claims to Arbitration, in which they requested that NPE's remaining counterclaims be submitted to arbitration before the American Arbitration Association ("AAA"). This court granted the parties' request on February 19, 1999.
The parties share a protracted and bitter history of litigation in state court. In 1996, the parties entered into a Settlement Agreement which provides:
Except as limited by this Agreement, the arbitrator shall have the right to award or include in the award any relief which the arbitrator deems proper in the circumstances, including without limitation money damages, specific performance, injunctive relief, and attorneys fees and costs; provided, however, no punitive or exemplary damages shall be awarded. The award and decision of the arbitrator shall be conclusive and binding upon all parties to the arbitration proceeding, and judgment upon the award may be entered in any court of competent jurisdiction.
The parties arbitrated their dispute before Arbitrator Alvin Zimmerman ("Arbitrator"). The arbitration took place between April 10-14, 2000, and again between December 18-20, 2000. The Arbitrator considered numerous claims and counterclaims of the parties. Plaintiffs asserted claims for breach of contract, violation of the Lanham Act, unfair competition, tortious interference with contractual relations, and false advertising. NPE asserted claims for breach of contract, trademark infringement, patent infringement, and tortious interference with contract. Both parties sought injunctive relief, damages, and attorney's fees.
The Arbitrator issued the Final Award of Arbitrator on May 2, 2001, and a corrected Final Award of Arbitrator on June 5, 2001 (the "award"). The award ordered Plaintiffs to pay to NPE (1) $300,000 in damages for trademark infringement; (2) $25,000 in damages relating for disparagement; (3) $1,357,742.39 in attorney's fees and costs; and (4) $65,195.61 to reimburse NPE for fees it paid to the AAA in connection with the arbitration, with postjudgment interest for these monetary awards set "at 10% accruing from the 20th day from the date of this award." Additionally, the Award permanently enjoined Plaintiffs from the use of NPE's trademark. On June 25, 2001, NPE moved to confirm the arbitration award, requesting that this court enter final judgment and a permanent injunction in accordance with the Arbitrator's determination. Plaintiffs move to vacate the award.
II. Plaintiffs' Motion to Vacate
A. Review of an Arbitration Award in General
Under the Federal Arbitration Act ("FAA"), a district court's review of an arbitration award is usually "extremely narrow." Antwine v. Prudential Bache Sec., Inc., 899 F.2d 410, 413 (5th Cir. 1990); Gateway Techs. v. MCI Telecomms., 64 F.3d 993, 996 (5th Cir. 1995). A court may not vacate an arbitration award based on mere errors in interpretation or application of the law, or mistakes in factfinding. See United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 38 (1987) (stating "[a]s long as [an] arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, that a court is convinced he committed serious error does not suffice to overturn his decision"); see also Gingess Int'l, Inc. v. Bormet, 58 F.3d 328, 333 (7th Cir. 1995) ("Factual or legal errors by arbitrators — even clear or gross errors — do not authorize courts to annul awards."). "An arbitrator's erroneous interpretations or applications of law are not reversible." ARW Exploration Corp. v. Aguirre, 45 F.3d 1455, 1462 (10th Cir. 1995). A district court must "defer to the arbitrator's resolution of the dispute whenever possible," Atlantic Aviation, Inc. v. EBM Group, Inc., 11 F.3d 1276, 1282 (5th Cir. 1994), and must "affirm the arbitrator's decision if it is rationally inferable from the letter or purpose of the underlying agreement." Executone Inform. Sys., Inc. v. Davis, 26 F.3d 1314, 1320 (5th Cir. 1994). Under this limited review, the court identifies only those errors that render the arbitration award "fundamentally unfair." See Forsythe Int'l, S.A. v. Gibbs Oil Co. of Texas, 915 F.2d 1017, 1020 (5th Cir. 1990).
Despite this narrow standard of review, several grounds exist that render an arbitration award so fundamentally unfair that a court may vacate the award. Section 10(a) of the FAA sets forth the statutory grounds for vacatur of an arbitration award. 9 U.S.C. § 10 (a). Specifically, a district court may vacate an award if (1) the award was procured by corruption, fraud, or undue means; (2) there is evidence of partiality or corruption among the arbitrators; (3) the arbitrators were guilty of misconduct which prejudiced the rights of one of the parties; or (4) 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. Id. In addition, the Fifth Circuit recognizes a number of nonstatutory grounds for vacatur. In this regard, a district court may vacate an arbitration when the award (1) is contrary to public policy; (2) is arbitrary and capricious; (3) does not "draw its essence" from the underlying contract; or (4) is in manifest disregard of the law. See Williams v. Cigna Fin. Advisors, Inc., 197 F.3d 752, 758 (5th Cir. 1999) (collecting cases); see also Harris v. Parker College of Chiropractic, 286 F.3d 790, 792 n. 1 (5th Cir. 2002); Weinberg v. Silber, 140 F. Supp.2d 712, 717 (N.D. Tex. 2001).
B. Grounds for Vacation
1. Manifest Disregard of the Law
A district court may vacate an arbitration award if it is in manifest disregard of the law. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942 (1995) (stating "parties [are] bound by [an] arbitrator's decision not in `manifest disregard' of the law"); Williams, 197 F.3d at 758. The Circuit Courts have emphasized that the "manifest disregard" doctrine is "severely limited," and "clearly means more than error or misunderstanding with respect to the law." DiRussa v. Dean Witter Reynolds, 121 F.3d 818, 821 (2d Cir. 1997) (citations omitted). Instead,
[t]he error must have been obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator. Moreover, the term `disregard' implies that the arbitrator appreciates the existence of a clearly governing legal principle but decides to ignore or pay no attention to it.
Id. at 821; accord Williams, 197 F.3d at 762 n. 2 (collecting cases); Blanchard Co. v. Heritage Capital Corp., No. 3:97-CV-0690-H, 2000 WL 1281205, at *3 (N.D. Tex. Sept. 11, 2000) (applying manifest disregard standard). Thus, a district court may vacate an arbitration award on these grounds if, based on the information available, (1) it was manifest that the arbitrators acted contrary to applicable law, and (2) confirmation of the award would result in significant injustice, taking into account all the circumstances of the case. See Williams, 197 F.3d at 762 (adopting this "helpful" two part test for applying manifest disregard standard); Harris, 286 F.3d at 292 n. 1; Blanchard, 2000 WL 1281205, at *3.
2. The "Essence" Test
A district court may also vacate an arbitration award if it does not draw its "essence" from the underlying contract. See United Steelworkers v. Enterprise Wheel Car Corp., 363 U.S. 593, 597 (1960) (stating award "is legitimate only so long as it draws its essence from the [arbitration agreement]"); Williams, 197 F.3d at 758; Executone, 26 F.3d at 1324; Brotherhood of R.R. Trainmen v. Central of Ga. Ry., 415 F.2d 403, 412 (5th Cir. 1969). Under this test, the court must determine whether the arbitrator's award "was so unfounded in reason and fact, so unconnected with the wording and purpose of the [arbitration agreement] as to `manifest an infidelity to the obligation of an arbitrator." Executone, 26 F.3d at 1325 (citations omitted). In making the "essence" inquiry, a district court is not limited to the arbitrator's explanation for the award. Id. Instead, "[t]he single question is whether the award, however arrived at, is rationally inferable from the contract." Id. (quoting Anderman/Smith Operating Co. v. Tennessee Gas Pipeline Co., 918 F.2d 1215, 1219 n. 3 (5th Cir. 1990)). All doubts whether an award draws its essence from the contract must be resolved in favor of the arbitrator. See Valentine Sugars, Inc. v. Donau Corp., 981 F.2d 210, 213 (5th Cir. 1993).
3. Arbitrary and Capricious
Finally, a district court may vacate an arbitration award if the result is arbitrary and capricious. In the Fifth Circuit, an award is arbitrary and capricious when it "is so palpably faulty that no judge, or a group of judges, could ever conceivably have made such a ruling." Safeway Stores v. American Bakery and Confectionery Workers, Local 111, 390 F.2d 79, 83 (5th Cir. 1968); see also Alabama Ed. Ass'n v. Alabama Prof'l Staff Org., 655 F.2d 607, 609 (5th Cir. 1981). "For an award to be vacated as arbitrary and capricious, the Panel's award must contain more than an error of law or interpretation." Brown v. Rauscher Pierce Refsnes, Inc., 994 F.2d 775, 781 (11th Cir. 1993). The award must either exhibit "a wholesale departure from the law," or "not [be] grounded in the contract which provides for the arbitration." Id.
C. Plaintiffs' Contentions
Plaintiffs first contend they are entitled to a less deferential standard of review because (1) they participated in the arbitration proceedings under a "reservation of rights," (2) the arbitration agreement contains a choice of law clause, and (3) the clause requires the arbitrator to be skilled in the law and to have twenty years of experience. The court does not believe any of these provisions or that Plaintiffs "reserved their rights" broaden or enhance the standard of review. The Fifth Circuit holds that a district court must conduct its review of an arbitration award in accordance with the terms of the contract. See Gateway Techs., 64 F.3d at 997. In Gateway Techs., the arbitration agreement included "express and unambiguous" language providing for a more searching standard of review. Id. (contracting for review of "errors of law"). Based on this language, the Fifth Circuit determined that the district court erred by not reviewing the arbitration award de novo. Id. Other courts concur, but generally require the contract to clearly demonstrate an intent by the parties to expand the standard of review. See, e.g., UHC Mgmt. Co. v. Computer Sciences Corp., 148 F.3d 992, 998 (8th Cir. 1998) (stating arbitration contract must show a "clear and unmistakable" intent to alter the standard of review); Mantle, 956 F. Supp. at 726 (applying the default standard of review specified by the FAA because parties did not expressly provide for expanded judicial review). The court finds nothing in the contract at issue, or that Plaintiffs participated in the arbitration proceeding under a "reservation of rights," to demonstrates the parties' intent to alter the standard of review. The court therefore reviews the arbitration award in accordance with the default standards specified by the FAA and articulated above.
Plaintiffs move to vacate the arbitration award contending that the Arbitrator erred (1) in awarding damages on NPE's trademark infringement claim; (2) by failing to award damages on Plaintiffs' breach of contract claim; (3) in awarding attorney's fees on the trademark infringement claim; and (4) by failing to apportion attorney's fees in accordance with the law and the parties stipulations. Plaintiffs contend these acts and omissions constitute grounds for vacatur because they are in manifest disregard of the law, are arbitrary and capricious, and do not draw their essence from the contract. Finally, Plaintiffs contend the arbitration proceedings were infected by evident partiality as defined by 9 U.S.C. § 10 (a)(2).
1. Evident Partiality
The court first addresses Plaintiffs' contention that the award should be vacated under 9 U.S.C. § 10(a)(2). Section 10(a)(2) authorizes a district court to vacate an arbitration award "where there was evident partiality or corruption in the arbitrators." A party urging vacatur on the ground of evident partiality bears an "onerous burden," and must produce specific facts to show that the alleged partiality is "direct, definite, and capable of demonstration rather than remote, uncertain, or speculative." Mantle v. Upper Deck Co., 956 F. Supp. 719, 729 (N.D. Tex. 1997) (citation omitted). Plaintiffs contend the arbitrator maintained a "long standing personal and professional relationship" with counsel for Defendant, and that the arbitrator did not disclose this relationship until approximately sixteen months into the arbitration proceedings. Upon disclosure, however, the AAA issued a letter to the parties, stating that "any objections to the continued service of the arbitrator based on the above disclosure should be filed with this office, copying all other parties, on or before 1:00 P.M. November 13, 2000." Plaintiffs did not file an objection.
The court determines that Plaintiffs waived any § 10(a)(2) complaint by failing to object to the continued service of the arbitrator after the relationship had been disclosed. A party "cannot stand by during arbitration, withholding certain arguments, then, upon losing the arbitration, raise such arguments in federal court." Gateway Techs., 64 F.3d at 998 (quoting Nat'l Wrecking Co. v. Int'l Brotherhood of Teamsters, Local 731, 990 F.2d 957, 960 (7th Cir. 1993); Wellman v. Writers Guild of America, West, Inc., 146 F.3d 666, 673 (9th Cir. 1998) ("It is well settled that a party may not sit idly through an arbitration proceeding and then collaterally attack that procedure on grounds not raised before the arbitrators when the result turns out to be adverse."). Accordingly, the court denies Plaintiffs' Motion to Vacate on § 10(a)(2) evident partiality grounds.
2. Trademark Infringement Damages
Plaintiffs next contend the award of trademark infringement damages is in manifest disregard of the law. Specifically, Plaintiffs argue the award must be vacated because NPE did not proffer sufficient evidence of its damages. To establish grounds for vacatur, Plaintiffs must demonstrate that the arbitrator appreciated the existence of a clearly governing legal principle, but decided to disregard it. See DiRussa, 121 F.3d at 821. The court may not vacate an award based on mere errors in the application of the law or on mistakes in factfinding. See Misco, Inc., 484 U.S. at 38. Based on its review of the information available, the court cannot conclude that the arbitrator acted in manifest disregard of the law.
In this case, the arbitrator determined that Plaintiffs had intentionally and in bad faith infringed NPE's trademark. Based on these findings, he concluded that NPE was entitled to recover those profits reasonably attributable to sales made by customers who had relied on the infringing mark. In determining the appropriate damage award, the arbitrator correctly described the legal standard for recovery as established by Seatrax, Inc. v. Sonbeck Int'l, Inc., 200 F.3d 358 (5th Cir. 2000) (establishing six-factor test to determine whether to award infringer's profits), and made factual findings to support the award. See Def.'s Mot. to Confirm Arbitration Award App. at 11 ("To some extent each of [the six Seatrax elements] can be answered affirmatively."). Plaintiffs' objection thus boils down to a dissatisfaction with either the arbitrator's application of the law or the sufficiency of the evidence. The district court may not vacate an arbitration award in either circumstance. See Misco, Inc., 484 U.S. at 38 (stating gross errors do not authorize a court to annul an arbitration award); Elger Mfg., Inc. v. Kowin Dev. Corp., 14 F.3d 1250, 1256 (7th Cir. 1994) ("A question of sufficiency of the evidence before the arbitrator simply does not trigger the review powers of [the] court."); I.U.O.E. Local 347 v. ARCO Chem. Co., 979 F. Supp. 1094, 1099 (S.D. Tex. 1997) ("Rather than burden of proof questions, the proper inquiry for [the district court] is whether the means used by the arbitrator rise to the level of arbitrariness, capriciousness, or fundamental unfairness."). Because Plaintiffs have not demonstrated that the arbitrator acted contrary to applicable law, the court denies Plaintiffs' Motion to Vacate with respect to the damage award on NPE's trademark infringement claim.
3. Breach of Contract
Plaintiffs next contend that the arbitrator failed to address their breach of contract claim. Plaintiffs argue that such failure renders the award void as arbitrary and capricious, in manifest disregard of the law, and in violation of 9 U.S.C. § 10 (a)(4) (authorizing vacatur when award fails to constitute a "mutual, final, and definite award"). The court finds no merit to these challenges.
The arbitration award states that it settles all claims submitted to arbitration, and that "[a]ll claims not expressly granted herein are hereby denied." A party cannot succeed on a § 10(a)(4) challenge when the arbitration award contains this type of language. See Antwine, 899 F.2d at 411 (denying § 10(a)(4) relief because arbitrator's decision stated "[a]ll claims submitted by [Plaintiffs] are denied. . . . This Award is in full settlement of all claims submitted to this Arbitration"); Remmey v. Painewebber, Inc., 32 F.3d 143, 150 (4th Cir. 1994) (rejecting § 10(a)(4) challenge because arbitration award containing such language "could hardly be more final and definite"). The settlement language in this case is simple, unambiguous, and disposes of all of the parties' claims. That the award does not specifically mention Plaintiffs' breach of contract claim is of no moment. See Antwine, 899 F.2d at 412 (stating "[i]t has long been settled that arbitrators are not required to disclose or explain the reasons underlying the award"); Remmey, 32 F.3d at 150.
Moreover, the information available to the court demonstrates that the arbitrator considered, and rejected, Plaintiffs' breach of contract claim. Although the award was by no means a model of pellucid draftsmanship, it is clear that the arbitrator rejected Plaintiffs' theory of damages, a necessary element of their contract claim. As stated before, a court "may not reconsider an award based on alleged errors of fact or law," Nauru Phosphate Royalties, Inc. v. Drago Daic Interests, Inc., 138 F.3d 160, 164-65 (5th Cir. 1998), nor does this court "sit as an appellate court or a court of review, to decide the merits of the grievance or the correctness of the award." United Steelworkers of America, AFL-CIO v. Mueller Brass Co., 479 F. Supp. 413, 416 (N.D. Miss. 1979). Based on these facts, and its reading of the arbitration award, the court cannot conclude that the arbitrator acted contrary to applicable law or that his reasoning "is so palpably faulty that no judge, or a group of judges, could ever conceivably have made such a ruling." Safeway Stores, 390 F.2d at 83. Accordingly, the court denies Plaintiffs' Motion to Vacate with respect to Plaintiffs' breach of contract challenges.
4. Attorney's Fees
Finally, Plaintiffs contend that the arbitrator improperly awarded attorney's fees. Plaintiffs argue that the award of attorney's fees on NPE's successful trademark infringement claim is in manifest disregard of the law and arbitrary and capricious. Plaintiffs also argue that the award should be vacated because the arbitrator failed to apportion the attorney's fee award as required by law and the parties' stipulations.
After reviewing the arbitration award and the applicable law, the court believes the award of fees on NPE's trademark infringement claim is proper. First, the arbitration agreement authorizes the arbitrator to award attorney's fees. The agreement states "the arbitrator shall have the right to award . . . any relief which the arbitrator deems proper in the circumstances, including without limitation money damages, specific performance, injunctive relief, and attorney fees and costs; provided, however, no punitive or exemplary damages shall be awarded." Federal law further authorizes an award of attorney's fees in trademark infringement cases, stating "[t]he court in exceptional circumstances may award reasonable attorney fees to the prevailing party." 15 U.S.C. § 1117 (a); Seatrax, 200 F.3d at 372-73 (explaining "the exceptional case is one in which the defendant's trademark infringement can be characterized as malicious, fraudulent, deliberate, or willful"). Here, the arbitrator expressly determined that the infringement in this case was exceptional pursuant to 15 U.S.C. § 1117 (a), finding Plaintiffs' acts "willful and deliberate and not innocent." Plaintiffs contend such a finding was unsupported by the evidence. As stated before, however, the court may not question the sufficiency of the evidence or the arbitrator's application of the law. The court therefore confirms the award of attorney's fees on NPE's trademark infringement claim.
Plaintiffs next contend that the attorney's fee award is arbitrary and capricious because the arbitrator awarded fees for claims upon which Defendant did not prevail. A "district court may vacate an award of attorney's fees and the amount thereof issued by an arbitration panel under proper authority only if the award is arbitrary and capricious." Marshall Co., Inc. v. Duke, 114 F.3d 188, 190 (11th Cir. 1997); see also Brown, 994 F.2d 779. The court may also vacate an award where the arbitrator exceeds his powers. See 9 U.S.C. § 10 (a)(4); Totem Marine Tug Barge, Inc. v. North American Towing, Inc., 607 F.2d 649, 651 (5th Cir. 1979). In this case, the parties stipulated that any award of attorney's fees must be apportioned according to the claims upon which each party was successful. Despite this stipulation, the arbitrator awarded approximately $1,400,000 in attorney's fees to NPE, which represents its total fees, unapportioned by claim.
Based on the information available, the court concludes the parties stipulated to the apportionment of attorney's fees according to the claims upon which each party was successful. The parties made the following stipulation during the arbitration hearing on April 14, 2000:
Mr. Cagle: Mr. Dry and I have a stipulation. Subject to apportionment, we both stipulate to the attorney's fees by both sides.
Arbitrator: Reasonableness and necessity?
Mr. Cagle: Yes.
App. at 832-33 (emphasis added). Counsel for NPE further demonstrated its agreement to apportion fees in a letter written by Mr. Cagle to the Arbitrator dated July 6, 2000. See App. at 5085-86. In this letter, Mr. Cagle stated that NPE "stipulated to the reasonableness of [its] attorney's fees (subject to apportionment) expended . . . ." (emphasis added). Id. Mr. Cagle further stated that it would "segregate those fees solely attributable to NPE's prosecution of its patent infringement claim" and that "[s]hould it prove necessary, NPE will seek the remainder of its attorney's fees through other causes of action." Id. Based on these representations to the arbitrator, and the parties' stipulation during the hearing, the court concludes the parties and the arbitrator were all aware that the attorney's fees were to be apportioned according to each party's successful claims.
Significantly, Defendant never denies that it stipulated to fee apportionment. Instead, Defendant argues that because the arbitration agreement itself does not limit the fee award, the arbitrator was authorized to enter an unapportioned award despite Defendant's stipulation. The court disagrees. An arbitrator exceeds his authority when he awards damages on a claim not submitted by the parties to the arbitration panel. See Totem Marine, 607 F.2d at 651; Valentine Sugars, 981 F.2d at 213-14. "Before arbitration can actually proceed, it is necessary for the parties to supplement the agreement to arbitrate by defining the issue to be submitted to the arbitrator and by explicitly giving him authority to act." Piggly Wiggly Operator's Warehouse, Inc. v. Piggly Wiggly Operator's Warehouse Indep. Truck Driver's Union Local No. 1., 611 F.2d 580, 583 (5th Cir. 1980) (explaining "[t]he scope of an arbitrator's authority . . . is not always controlled by the [arbitration agreement] alone"). In Totem Marine, for example, the Plaintiff, North American, failed to list damages for "charter hire" in its itemized statement of damages, and later conceded to the arbitration panel that damages for "charter hire" was not an issue in the arbitration. Totem Marine, 607 F.2d at 651. The arbitration panel, nevertheless, awarded damages for charter hire, stating "[Plaintiff] erroneously asked only for its return expenses . . . in damages. The proper measure of North American's damages was [charter hire damages]." Id. at 650. The Fifth Circuit vacated the award, finding it "anomalous for the arbitration panel to award an unrequested item of damages three times larger than any item claimed by [Plaintiff]." Id. at 651.
The holding in Totem Marine controls the result in this case. There, as here, one party admitted to an arbitration panel that the case did not present a particular issue, and in reliance upon that representation, the other party failed to produce evidence on the issue. In this case, Defendant stipulated on the record that its attorney's fees would be apportioned by cause of action. Despite having made this stipulation, Defendant failed to segregate its fees, and the arbitrator entered an unapportioned award. Plaintiffs timely and vigorously contested the amount of Defendant's fee award once they became aware that Defendant had abandoned their agreement to apportion fees. Given the parties' stipulations, the court believes the award of attorney's fees in this case creates a massive windfall for the Defendant. Based on its review of the arbitration award and the Fifth Circuit's holding in Totem Marine, the court finds the amount of attorney's fees awarded to NPE to be arbitrary and capricious and in excess of the arbitrator's authority. Accordingly, the court grants Plaintiffs' Motion to Vacate, and hereby vacates that portion of the award allocating attorney's fees to NPE.
5. Miscellaneous Relief
Plaintiffs make a number of other "miscellaneous" challenges to the arbitration award. Specifically, Plaintiffs contend that the award was punitive, that the arbitrator improperly received evidence after the issuance of the final award, that the arbitrator was "biased," and that the arbitrator lacked authority to issue the injunction. The court has carefully reviewed the arbitration award, the parties' briefs, and the applicable law, and finds no merit to any of these challenges. Accordingly, the court denies Plaintiffs' Motion to Vacate on all of these grounds.
B. Plaintiffs' Motion for Leave to File Supplemental Complaint and Counterclaim
Although Plaintiffs request leave to file a "supplemental" complaint, their motion and briefing papers ask for leave to file their complaint pursuant to Fed.R.Civ.P. 15(a). Plaintiffs motion, however, is properly considered under Fed.R.Civ.P. 15(d), which permits a party to file a supplemental pleading setting forth transactions or events which have occurred since the date of the pleading sought to be supplemented. Fed.R.Civ.P. 15(d); see also Burns v. Exxon Corp., 158 F.3d 336, 343 (5th Cir. 1998). In any event, "[i]nsomuch as the discretion exercised by the court in deciding whether to grant leave to amend is similar to that exercised on a motion for leave to file a supplemental pleading," the formal distinction between the two rules "is of no consequence." 6A CHARLES ALAN WRIGHT ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1504. Thus, "[a]n application for leave to file a supplemental pleading is addressed to the discretion of the court and should be freely granted when doing so will promote the economic and speedy disposition of the entire controversy between the parties, will not cause undue delay or trial inconvenience, and will not prejudice the rights of any of the other parties to the action." Id. Because the parties' have briefed Plaintiffs' motion under Fed.R.Civ.P. 15(a), and because the standards do not substantially differ in any material respect, the court analyzes the motion under Rule 15(a).
Plaintiffs seek leave to amend their complaint to assert a claim for breach of contract. Plaintiffs allege that the stipulation of the parties during the arbitration proceeding constituted a contract which NPE breached when it failed to apportion its attorney's fees for the purposes of the arbitration award. Plaintiffs further allege that they have incurred substantial damages as a result of NPE's breach, including (1) the issuance of an excessive arbitration award; (2) the expense of retaining counsel to resist the confirmation of the arbitration award; and (3) the expense of retaining counsel to prosecute the proposed breach of contract action. Defendant opposes the amendment, contending it constitutes an impermissible collateral attack on an arbitration award and because the claim is based on an unenforceable agreement. For the reasons stated herein, the court determines that Plaintiffs' motion for leave to amend should be denied.
Under Rule 15(a), other than in circumstances which do not apply here, "a party may amend the party's pleadings only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires." Fed.R.Civ.P. 15(a). Although Rule 15(a) "evinces a bias in favor of granting leave to amend, such leave is not automatic." Price v. Pinnacle Brands, Inc., 138 F.3d 602, 608 (5th Cir. 1998); see also Foman v. Davis, 371 U.S. 178, 182 (1962). A motion for leave should not be denied, however, "unless there is a substantial reason to do so." Leffall v. Dallas Indep. Sch. Dis., 28 F.3d 521, 524 (5th Cir. 1994); Jacobsen v. Osborne, 133 F.3d 315, 318 (5th Cir. 1998).
In deciding whether to allow amendment, the Fifth Circuit instructs the district court to "consider such factors as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party, and futility of amendment." Price, 138 F.3d at 608. "Even if substantial reason to deny leave exists, the court should consider prejudice to the movant, as well as judicial economy, in determining whether justice requires granting leave." Jamieson v. Shaw, 772 F.2d 1205, 1208 (5th Cir. 1985). The court may deny leave "because the theory presented in the amendment lacks legal foundation or because the theory has been adequately presented in a prior version of the complaint." Id.
The court finds that Plaintiffs' proposed breach of contract action raises the same issues presented by their Motion to Vacate. In fact, the relief requested in Plaintiffs' proposed amended complaint is exactly the relief Plaintiffs seek by vacating the award, namely, a reduction or offset in the amount of attorney's fees awarded by the arbitrator. Under these circumstances, the court believes Plaintiffs' proposed breach of contract action amounts to "no more, in substance, than an impermissible collateral attack on the award itself." Decker v. Merrill Lynch, Pierce, Fenner, Smith, Inc., 205 F.3d 906, 910 (6th Cir. 2000) (quoting Corey v. New York Stock Exch., 691 F.2d 1205, 1211 (6th Cir. 1982)). Moreover, both Plaintiffs' proposed breach of contract claim and its motion to vacate turn on the significance of the stipulations made by the parties (luring the arbitration proceedings. Because the court must determine, and in fact has determined, the significance of these stipulations to resolve the Motion to Vacate, the court finds no prejudice in denying Plaintiffs' motion to amend. The court therefore concludes Plaintiffs' proposed amended complaint is duplicative, unnecessary, and will unnecessarily delay the resolution of this case. Accordingly, the court denies Plaintiffs' Motion for Leave to File Supplemental Complaint and Original Counterclaim.
C. Motion to Intervene
Audubon Indemnity Company ("AIC") moves to intervene pursuant to Fed.R.Civ.P. 24. A party may intervene in a lawsuit if (1) the intervention is timely; (2) the party has an interest in the subject matter of the action; (3) the disposition of the case may impair or impede the party's ability to protect that interest; and (4) the party is not adequately represented by the existing parties. Fed.R.Civ.P. 24(a)(2); Sierra Club v. Espy, 18 F.3d 1202, 1204-05 (5th Cir. 1994) (stating "[f]ederal courts should allow intervention where no one would be hurt and the greater justice could be attained"). The court notes that NPE appears to oppose AIC's motion to intervene; however, no brief or response was filed by NPE or by Plaintiffs stating why such motion to intervene should be denied. Moreover, AIC alleges it has a direct, substantial, and legally protectable interest in the arbitration award. In particular, AIC contends it is entitled to reimbursement of the attorney's fees it paid on behalf of its insured NPE. AIC further alleges that its interest will not be adequately protected by the existing parties. In light of the foregoing allegations, the court grants AIC's Motion to Intervene, and hereby orders the clerk to file AIC's Complaint in Intervention.
D. Defendant's Motion for Attorney's Fees and Costs
NPE moves for attorney's fees and costs incurred in opposing Plaintiffs' opposition to NPE's motion to confirm and Plaintiffs' motion to vacate. A district court may award attorney's fees against a party making challenges to arbitration awards that are not cognizable under the FAA, are frivolous, or are without legal justification. See Int'l Ass'n of Machinists Aerospace Workers, Dist. 776 v. Texas Steel, Co., 639 F.2d 279, 283 (5th Cir. 1981). Because the court does not find Plaintiffs' challenges to the arbitration award frivolous or without legal justification, the court denies Defendant's motions for attorney's fees and costs.
E. Miscellaneous
Finally, the court received a letter from Mr. Werner, counsel for NPE, dated June 19, 2002, in which he requests a conference with the court. Mr. Werner is concerned that the position of his client has been compromised or prejudiced by representations, which he contends are untrue, made by Mr. Ernest P. Nycz, counsel for Plaintiffs. The court acknowledges that Mr. Nycz's representations concerning the possible settlement of this case delayed the court from ruling on the pending motions; however, it is not unusual or uncommon for the court to delay ruling on a motion, particularly when the motion raises complex issues, if the parties are in settlement negotiations, or represent to the court that negotiations are underway. The dispute between the parties in this action certainly is not the first time the court has had to resolve outstanding motions because settlement talks failed or never commenced because of one party's refusal to discuss settlement. Assuming Plaintiffs' counsel's representations to the court were incorrect, they in no way affected the court's ruling on the merits of this case. Mr. Werner has adequately stated his position, and the court has not been influenced by his statements or those of Mr. Nycz. Whether settlement talks were underway simply was of no moment to the court insofar as deciding the merits of the outstanding motions. of course, the court welcomes the resolution of any case by the parties without court intervention, but when no settlement is consummated, the court does what it is supposed to do: rule on the outstanding motions, which is precisely what is has done here. The court does not believe a conference with counsel is necessary. Accordingly, Mr. Werner's request for a conference is denied.
As previously stated, the court acknowledges that because of the statements attributed to Mr. Nycz, it delayed ruling on the outstanding motions. Given the age of this case, Mr. Nycz should not have made the statements because they unnecessarily delayed the court's ruling and constituted a misrepresentation to the court. Mr. Nycz is admonished that the court does not appreciate such misrepresentations and will take action as necessary if this conduct is repeated.
III. Conclusion
For the reasons stated herein, Defendant NPE's Motion to Confirm Arbitration Award and to Enter Final Judgment and a Permanent Injunction is granted in part and denied in part as herein provided; ErgoBilt's and BodyBilt's Motion to Vacate Arbitration Award is granted in part and denied in part as herein provided; Ergobilt's and Bodybilt's Motion for Leave to File Supplemental Complaint and Original Counterclaim is denied; Audubon Indemnity Company's Motion to Intervene is granted; Neutral Posture's Motion for Attorney's Fees and Costs is denied; and Neutral Posture's request, by letter, for a conference with the court is denied.
Having granted in part and denied in part the parties' motions to confirm and vacate, the court next considers the remaining procedural issues. The Fifth Circuit has made clear that when statements in an arbitration award are ambiguous or leave issues unresolved, as is the case here, remand to the arbitrator for clarification is proper. See San Antonio Newspaper Guild Local No. 25 v. San Antonio Light Div., 481 F.2d 821, 825 (5th Cir. 1973); Oil Chemical Atomic Workers, Int'l Union, Local No. 4-228, 818 F.2d 437, 442 (5th Cir. 1987). The only remaining substantive issue to be resolved in this action is the amount of attorney's fees to be awarded NPE in accordance with the parties' agreement to apportion their fees. Accordingly, the court must remand the issue of attorney's fees to the arbitrator, unless the parties agree to waive remand and request that the court resolve this issue. See Miller Brewing Co. v. Fort Worth Distrib. Co., Inc., 781 F.2d 494, 497 (5th Cir. 1986) ("The right to arbitration, like any other contract right, can be waived.") (citations omitted). Waiver of remand may be in the best interest of the parties because, as the court has noted elsewhere, the parties have litigated their dispute for the better part of a decade, and remand to the arbitrator would only further delay the resolution of this spirited and acrimonious dispute. of course, all parties may not agree to waiver, or MS may not agree to submit its claim in intervention to arbitration. Additionally, a party may object to AIS's participation in the arbitration even if it agreed to submit its claim to arbitration. The parties, including the intervenor, are hereby ordered to file in writing a joint report no later than July 22, 2002, stating each party's position on these matters and whether it agrees for the court to decide the issue of attorney's fees.