Opinion
Civil Action No. 3:97-CV-1556-D.
March 9, 2000.
MEMORANDUM OPINION AND ORDER
Following adverse rulings in arbitration, plaintiffs move the court to vacate the arbitrators awards and the court's judgment confirming one award. The court denies the motion for the reasons that follow.
I
Plaintiffs Pacific Breakwater West, Inc., John Stillwell, and Marlee Stillwell sued defendants Wellness International Network, Ltd., Ralph Oats, and Cathy Oats (collectively, the "WIN Defendants"), and Bob Wagner and W.I.N. Success Center of Long Island (collectively, the "Wagner Defendants"). After the court granted defendants' motions to compel arbitration, the parties arbitrated plaintiffs' claims before Texas Senior District Judge Leonard E. Hoffman, Jr. ("Judge Hoffman" or "the Arbitrator"), who ruled in defendants' favor, entering two awards ("Awards") denominated as summary judgments. The WIN Defendants moved the court to confirm the Award in their favor. Plaintiffs did not respond to the motion, and on October 28, 1999 the court filed a judgment that confirmed the Award and ordered plaintiffs to pay the WIN Defendants $5,000 plus interest. The clerk of court entered the judgment on the docket on October 29, 1999. The Wagner Defendants have not yet moved the court to confirm the Award made in their favor.
On November 12, 1999 plaintiffs filed the instant motion for new trial, to vacate judgment, and to vacate arbitral awards. They maintain that the relief that plaintiffs obtained must be vacated pursuant to 9 U.S.C. § 10(a) because (1) Judge Hoffman refused to hear pertinent and material evidence, (2) he had improper ex parte contacts with counsel for the Wagner Defendants, and (3) the arbitration was fundamentally unfair.
II
The court begins by addressing a procedural matter. Plaintiffs move inter alia for a "new trial" and to "vacate" judgment. The court will treat this part of their motion as a Fed.R. Civ, P. 59(e) motion to alter or amend the judgment because plaintiffs filed the motion within ten countable days after the clerk of court entered the judgment on the docket.
As Rule 59(a) makes clear, a motion for new trial is appropriate when the case has been tried to a jury or to the court. There was no trial in this case so the motion cannot properly be considered a motion for new trial. The question becomes whether the new trial request (as well as the request to "vacate" judgment) is a Rule 59(e) motion to alter or amend the judgment or a Rule 60(b) motion for relief from judgment. The nature of the motion is determined by ascertaining when it was filed. See Lavespere v. Niagara Mach. Tool Works, Inc., 910 F.2d 167, 173 (5th Cir. 1990). The clerk entered the judgment in this case on the docket on October 29, 1999. Plaintiffs filed their motion on November 12, 1999, within ten countable days of the date of entry of the judgment. Accordingly, their motion should be treated as a Rule 59(e) motion to alter or amend the judgment. Id. ("If the motion is [filed] within ten days of the rendition of judgment, the motions falls under Rule 59(e); if it is [filed] after that time, it falls under Rule 60(b)." (footnote omitted)); see Freeman v. County of Bexar, 142 F.3d 848, 852 n. 7 (5th Cir. 1998) ("As an irrelevant aside, we note that after Lavespere was issued, rule 59(e) was amended to measure the 10-day filing period according to the motion's filing date rather its date of service.").
The court will treat the balance of plaintiffs' motion to vacate arbitral awards as a motion brought under 9 U.S.C. § 10(a), a provision of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., that authorizes the court to vacate an arbitration award.
III
This court had occasion in Mantle v. Upper Deck Co., 956 F. Supp. 719 (N.D.Tex. 1997) (Fitzwater. J.), to discuss the standards for assessing an arbitrator's award. Under the FAA, the court reviews the Arbitrator's Awards "under a highly deferential standard," one that "has been described as `among the narrowest known to the law.'" Id. at 726 (quoting ARW Exploration Corp. v. Aguirre, 45 F.3d 1455, 1462 (10th Cir. 1995)). "[R]eview of an arbitration award is extraordinarily narrow[.]" Id. (quoting Antwine v. Prudential Bache Secs., Inc., 899 F.2d 410, 413 (5th Cir. 1990)). "The court may not vacate the [Arbitrator's] award based on mere errors in interpretation or application of the law, or mistakes in factfinding." Id. (citing United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 38 (1987)). "Factual or legal errors by arbitrators — even clear or gross errors — do not authorize courts to annul awards." Id. (quoting Gingiss Int'l, Inc. v. Bormet, 58 F.3d 328, 333 (7th Cir. 1995)). "An arbitrator's erroneous interpretations or applications of law are not reversible." Id. (quoting ARW, 45 F.3d at 1463). "By consenting to arbitration, parties exchange `the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration.'" Id. (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985)).
The grounds for vacatur of an arbitration award are set forth in § 10(a) of the FAA, which provides that a court may vacate an award:
(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 of 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 arbitrators.9 U.S.C. § 10(a). In the Fifth Circuit, the grounds set out in the FAA provide the exclusive bases for vacatur. See Gulf Coast Indus. Workers Union v. Exxon Co., USA, 70 F.3d 847, 850 (5th Cir. 1995) ("Under the Federal Arbitration Act, 9 U.S.C. § 1, et seq., we can only disturb an arbitration award on the grounds set out in that Act."); McIlroy v. Paine Webber, Inc., 989 F.2d 817, 820 n. 2 (5th Cir. 1993) (per curiam) (holding that appellant's arguments would be disregarded "to the extent that they rely upon standards of review outside the scope of the Arbitration Act"); Mantle, 956 F. Supp. at 726-27.
IV
Plaintiffs first contend that Judge Hoffman engaged in misconduct by improperly refusing to hear evidence, in violation of § 10(a)(3), by (1) ruling by way of two summary judgments and refusing to hear any evidence (including witness testimony); (2) sustaining objections (69 of 70 lodged) that the Wagner Defendants interposed to virtually all of plaintiffs' summary judgment evidence, thereby refusing to consider virtually all of plaintiffs' written evidence; (3) granting summary judgment in the face of extensive opposition evidence that clearly raised numerous and substantial questions as to all elements of plaintiffs' causes of action, an action that would be eminently reversible if rendered by a district court; and (4) granting the WIN Defendants' motion for summary judgment without hearing any evidence.
A
"Submission of disputes to arbitration always risks an accumulation of procedural and evidentiary shortcuts that would properly frustrate counsel in a formal trial." Forsythe Int'l, S.A. v. Gibbs Oil Co. of Tex., 915 F.2d 1017, 1022 (5th Cir. 1990). "The arbitrator is not bound to hear all of the evidence tendered by the parties; however, he must give each of the parties to the dispute an adequate opportunity to present its evidence and arguments." Id. at 1023 (quoting Hoteles Condado Beach v. Union de Tronquistas Local 901, 763 F.2d 34, 39 (1st Cir. 1985)).
There is an important difference in bow a court assesses an arbitrator's refusal to hear evidence and how it evaluates the arbitrator's conclusion that evidence is legally inadmissible. "Viewed as a question of admissibility of evidence, the arbitrator has great flexibility and the courts should not review the legal adequacy of his evidentiary rulings." Amalgamated Meat Cutters Butcher Workmen of N. Am., Dist. Local No. 540 v. Neuhoff Bros. Packers, Inc., 481 F.2d 817, 820 (5th Cir. 1973). Absent exceptional circumstances, therefore, a reviewing court may not overturn an arbitration award based on the arbitrator's determination of the relevancy or persuasiveness of the evidence submitted by the parties." Hoteles Condado Beach, 763 F.2d at 39-40. "[A]n arbitrator's judgment as to whether evidence is or is not relevant to his determination is part of the bargain, and a court's power to disturb such discretionary determinations is quite limited." National Post Office Mailhandlers, Watchmen, Messengers Group Leaders Div., Laborers Int'l Union of N. Am., AFLCIO v. United States Postal Serv., 751 F.2d 834, 841 (6th Cir. 1985). "Arbitration awards will not be set aside due to the arbitrator's refusal to hear evidence unless the exclusion of the contested evidence prevented the parties from receiving a fundamentally fair hearing." Castleman v. AFC Enters., Inc., 995 F. Supp. 649, 653 (ND. Tex. 1997) (Sanders, J.).
B
Plaintiffs argue that Judge Hoffman "obviously refused to `hear' any evidence at all" because he declined to conduct a formal hearing in this matter. Ps. Mot. at 5, ¶ 11. They contend that "the mere fact that this case was disposed of by `summary judgments' makes it, in that respect alone, among the most extreme in the entire annals and jurisprudence of the law of judicial review of arbitration." Id. (footnote omitted). The court disagrees. Judge Hoffman issued written orders that provided reasonable bases for his rulings. Plaintiffs have not established what evidence Judge Hoffman refused to hear by not holding a formal hearing. Moreover, plaintiffs admit that the parties agreed to apply the Federal Rules of Civil Procedure in their arbitration, which they concede permit entry of summary judgment without a formal hearing. Id. at 5 n. 1. Because arbitration is even less formal than is federal court litigation, it is difficult to see the merit in their contention that the Awards should be vacated due to a failure to convene a formal hearing.
Plaintiffs have failed to establish that the entry of summary judgments without a formal hearing deprived them of a fair hearing. Therefore, the court declines to disturb the Awards on this basis.
C
Plaintiffs also aver that Judge Hoffman committed misconduct by sustaining 69 of the Wagner Defendants' 70 objections to plaintiffs' summary judgment evidence. They challenge Judge Hoffman's incorporation of the Wagner Defendants' views of the evidence as his basis for sustaining the objections. Plaintiffs also maintain that the objections "blatantly argue the weight of this evidence which was neither heard live nor considered on paper." Ps. Mot. at 8, ¶ 17. They argue that Judge Hoffman improperly struck their evidence en masse from factual consideration in the summary judgment context.
Plaintiffs' challenge essentially posits an error of law, not a refusal to hear evidence. Judge Hoffman considered the evidence but concluded, addressing each objection individually, that it was legally inadmissible. To provide plaintiffs a basis for vacatur, "[a]n evidentiary error `must be one that is not simply an error of law, but which so affects the rights of a party that it may be said that he deprived of a fair hearing.'" Forsythe, 915 F.2d at 1023 (quoting Newark Stereotypers' Union No. 18 v. Newark Morning Ledger Co., 397 F.2d 594, 599 (3d Cir. 1968)). When an arbitrator refuses to hear evidence because, after reasoned consideration, he deems it inadmissible, he does not act in a wanner that is fundamentally unfair. See id. Plaintiffs have failed to demonstrate that Judge Hoffman's evidentiary rulings provide a basis for relief.
Plaintiffs also contend that they "clearly raised numerous and substantial material fact questions as to all of the elements of their causes of action." Ps. Mot. at 7, ¶ 15. They argue that the Arbitrator's summary judgment decisions would be reversible had they been rendered by a district court, but concede that "this fact is not decisive in the context of judicial review of an arbitral award[.]" Id. Plaintiffs essentially advance a "manifest disregard of the law" argument, which has been rejected by the Fifth Circuit as a ground for vacatur. See Mantle, 956 F. Supp. at 727 ("`Manifest disregard for the law' and all other judge-made grounds for vacatur have been expressly rejected."). Therefore, plaintiffs cannot challenge Judge Hoffman's decision on this basis.
The court rejects plaintiffs' § 10(a)(3) argument and declines to vacate the Awards, or to alter or amend the judgment, on this basis.
V A
Plaintiffs next contend that the Awards and judgment must be vacated because, before he issued his ruling, Judge Hoffman engaged in improper ex parte contacts with counsel for the Wagner Defendants concerning materially contested issues. They maintain that his letter of transmittal that enclosed his ruling may have been the subject of collaboration between Judge Hoffman and defense counsel. To prove this allegation, they rely on the declaration of Patricia A. Allen ("Allen"), a legal assistant employed by plaintiffs' counsel. Allen avers that at a time when plaintiffs' counsel had not received notice that Judge Hoffman had ruled, or that a decision was imminent, Gayle E. Rosenstein, Esq. ("Rosenstein"), counsel for the Wagner Defendants, sent Judge Hoffman a proposed lengthy and specific order that granted the summary judgment motions and ruled on numerous related items. Rosenstein requested in her letter that Judge Hoffman provide the Wagner Defendants with a copy of his ruling on the motions. Allen Decl. ¶ 5. According to plaintiffs, the September 24, 1999 transmittal letter that Judge Hoffman issued with his evidentiary rulings and order granting summary judgment in favor of the Wagner Defendants used a font that appears to be identical to that used by Rosenstein's office and that differs from the font contained on other documents that bore his letterhead. Id. at ¶ 6. They posit that the handwriting on the envelope that enclosed the transmittal letter and other documents is not his, and was addressed to the former address of plaintiffs' counsel. Id. at ¶ 7.
B
The mere fact that an ex parte communication occurred is not sufficient to vacate an award. See, e.g., Kennecott Utah Copper Corp. v. Becker, 186 F.3d 1261, 1271 (10th Cir. 1999) (noting "that there is no rule of per se nonenforcement upon a showing of ex parte contact"). Arbitration panels are not held to the same rigorous ethical standards as are required of Article III courts. See Merit Ins. Co. v. Leatherby Ins. Co., 714 F.2d 673, 679-80 (7th Cir. 1983). Plaintiffs must demonstrate that Judge Hoffman engaged in misconduct, that his misconduct deprived them of a fair hearing, and that the challenged conduct influenced the outcome of the arbitration. M A Elec. Power Coop. v. Local Union No. 702, Int'l Bhd. of Elec. Workers, 977 F.2d 1235, 1237-38 (8th Cir. 1992). "Failure to make such a showing bars vacatur of the arbitral award because "the party seeking a vacation of an award on the basis of ex parte conduct must demonstrate that the conduct influenced the outcome of the arbitration,'" Remmey v. Paine Webber, Inc., 32 F.3d 143, 149 (4th Cir. 1994) (quoting MA Elec. Power Coop., 977 F.2d at 1238). A mere showing of ex parte contact without demonstrating how the conduct prejudiced the other party is insufficient to support overturning the arbitrator's award. See Mutual Fire, Marine Inland Ins. Co. v. Norad Reinsurace Co., 868 F.2d 52, 57 (3d Cir. 1989) (assuming arguendo ex parte contact occurred, allowing award to stand because appellants failed to show how contact prejudiced them).
Plaintiffs have failed to establish that Judge Hoffman relied on an ex parte communication in making his decision as opposed to simply communicating it. See Al-Harbi v. Citibank, N.A., 1995 WL 450523, at *3 (D.D.C. July 17, 1995) (refusing to reject award because "[p]laintiff ha[d] not demonstrated that the arbitrator improperly relied on ex parte evidence, much less that such information prejudiced the result."). They argue that the evidence suggests that Rosenstein provided a draft document for Judge Hoffman. The proof on which they rely does not show, however, that Judge Hoffman used the draft for any purpose other than to transmit his rulings. Plaintiffs have thus failed to show that the alleged communication between Judge Hoffman and Rosenstein prejudiced them. See Sunoco Overseas, Inc. v. Texaco Int'l Trader, Inc., 69 F. Supp.2d 502, 505 (S.D.N.Y. 1999) (stating that even if one party was notified of award before the other, "the purported ex parte communication most likely resulted in no prejudice to [the other party] whatsoever"). That ex parte communications of this type are insufficient to vacate arbitration awards is illustrated by the fact that post award, ex parte contacts are permissible where necessary to complete or clarify an award. See Glass, Molders, Pottery, Plastics Allied Workers Int'l Union, Local 182B v. Excelsior Foundry Co., 56 F.3d 844, 846 (7th Cir. 1995).
VI
Plaintiffs complain finally that the "extremely rare confluence" of the Arbitrator's refusal to hold a hearing and the striking of almost all of plaintiffs' extensive summary judgment evidence is more than enough to constitute fundamental unfairness. Ps. Mot. at 9, ¶ 21. They assert that coupled with Allen's testimony concerning ex parte contacts, the record presents a compelling case for vacating the Award.
In reviewing arbitration proceedings, courts are limited to the question whether the proceedings were fundamentally unfair. Forsythe, 915 F.2d at 1020 (citing Teamsters, Local Union 657 v. Stanley Structures, Inc., 735 F.2d 903, 906 (5th Cir. 1984)). "[A] fundamentally fair hearing requires only notice, opportunity to be heard and to present relevant and material evidence before the decision makers, and that the decision makers are not infected with bias." Bowles Fin. Group, Inc. v. Stifel, Nicolaus Co., 22 F.3d 1010, 1013 (10th Cir. 1994).
Although other circuits have not limited the scope of review to a strict reading of the FAA, the Fifth Circuit does not recognize extra-statutory grounds for vacatur of arbitral awards. See, e.g., Gulf Coast, 70 F.3d at 850. Thus although other circuits may consider the minimum requisites of fundamental fairness — notice, the opportunity to be heard and present evidence, and unbiased decisionmaking — in a broader context, the Fifth Circuit examines the requirement of fundamental fairness in relation to the statutory grounds for vacatur. For the reasons discussed above, the court holds that Judge Hoffman's refusal to hold a hearing, the striking of plaintiffs' summary judgment evidence, and the ex parte contact do not constitute fundamental unfairness or provide a basis, in combination, to vacate the Awards or judgment.
VII
In their motion, plaintiffs refer to evident partiality on the part of the Arbitrator. See Mot. at 3, ¶ 7 (stating that "[a]ctual proof of bias is often impossible to obtain and thus is not required to show evident partiality."); Allen Decl. ¶ 8 (alleging that Judge Hoffman was "consistently hostile" to counsel for plaintiffs during telephone conversations). Plaintiffs bear the burden of showing that a reasonable person would have to conclude that Judge Hoffman was partial to defendants. Mantle, 956 F. Supp. at 729. The mere appearance of bias or partiality is insufficient to vacate the award. Id. To the extent that plaintiffs seek relief separately on this basis, they have failed to meet their burden.
* * *
Plaintiffs' November 12, 1999 motion for new trial, to vacate judgment, and to vacate arbitral awards is denied.
SO ORDERED.
March 9, 2000.
SIDNEY A. FITZWATER UNITED STATES DISTRICT JUDGE