[Hat tip to our blog contributor Peter S. Vogel] The United States Court of Appeals for the Tenth Circuit held that an arbitrator did not act with manifest disregard of the law when he turned to extrinsic evidence to determine the parties’ intent. The court also granted sanctions to compensate the company for unnecessary legal fees incurred when the other party appealed the arbitral award. I. Background In DMA Int’l, Inc. v. Qwest Communications Int’l, Inc., No. 08-1392 (10th Cir. Nov. 4, 2009), DMA International, Inc. (DMA) contracted to provide database research services to Qwest Communications International, Inc. (Qwest) in April 2004. Their contract contains the following fee provision: [F]ees for Services rendered hereunder are as follows: Twenty-five dollars and twenty cents ($25.20) per circuit satisfactorily completed. (Fee is based on an hourly rate of forty-five dollars ($45) with 1.8 circuits completed per hour). Eight months later, when the contract expired, DMA billed Qwest for $5.4 million, which included a $1.6 million deduction representing fees already paid by Qwest. Qwest refused to pay the final balance claiming that the $1.6 million paid to DMA was enough to satisfy its obligations under their contract. DMA submitted the dispute to arbitration and the arbitrator ruled against DMA. Then, DMA filed a motion to vacate the award in district court. The district court held that DMA had no basis for vacatur and confirmed the arbitral award. DMA now appeals. DMA claims that the amount due under the contract should be based on the number of circuits completed. At $25.20 per circuit, for 285,000 circuits resulting on a final balance due of $5.4 million. On the other hand, Qwest insists that the parties intended the services to be paid per hour, at the rate stated in parenthesis. That is, $45 per hour at a rate of 1.8 circuits per hour yields a final price of $1.7 million. II. Manifest Disregard of the Law The Tenth Circuit first addressed DMA’s main argument that the arbitrator manifestly disregarded the law. The court highlighted the standard stating that “[T]he record must show the arbitrator knew the law and explicitly disregarded it.” The court explained that the arbitrator found the contract provision ambiguous and appropriately considered extrinsic evidence, in accord with Colorado contract law. The evidence included an eleven-day arbitration hearing in which 16 witnesses testified and 140 exhibits were admitted. At the end, the arbitrator concluded that the parties intended for DMA to be paid at the rate of $45 per hour. Therefore, the court agreed with the district court that the arbitrator “correctly stated the law governing contract interpretation and applied it to the fees provision.” Interestingly, the court also noted on footnote 2 that: Qwest contends that this argument is foreclosed by Hall Street Associates v. Mattel, Inc., 128 S. Ct. 1396 (2008), in which the Supreme Court held that 9 U.S.C. § 10 provides the exclusive grounds for expedited vacatur of an arbitration award. 128 S. Ct. at 1403. Whether manifest disregard for the law remains a valid ground for vacatur is an interesting issue, but as the district court noted, one not central to the resolution of this case. As described below, the arbitrator did not act with manifest disregard of the law or in any other way that would justify vacatur. (emphasis added) III. Attorney Fees Next, the court turned to Qwest’s motion for attorney fees under 28 U.S.C. § 1927 (Counsel Liability for Excessive Costs). The court noted that the Federal Rule of Appellate Procedure 38 (Damages and Costs for Frivolous Appeal) also authorizes the court to “award just damages and single or double costs to the appellee if [the court] determine[s] that an appeal is frivolous.” Then, citing Lewis v. Circuit City Stores, Inc., 500 F.3d 1140, 1153 (10th Cir. 2007), the court said that “[b]ecause arbitration presents such a ‘narrow standard of review,’ Section 1927 sanctions are warranted if the arguments presented are ‘completely meritless.’” The court distinguished Lewis and found that the facts of present case are more similar to B.L. Harbert International LLC v. Hercules Steel Co., 441 F.3d 905 (11th Cir. 2006). The court warned that “protracted attempts to vacate arbitration awards destroy the ‘promise of arbitration’ and will not be tolerated.” Finally, the court reasoned that DMA’s argument amounts to say that the arbitrator clearly erred in interpreting the contract provision, and that even a showing of clear error is not enough to vacate an arbitral award. Accordingly, the court held that DMA’s appeal of the arbitral award met both of the standards (28 U.S.C. § 1927 and Rule 38) and remanded the case for the district to determine the attorney fees and costs. Technorati Tags: arbitration, ADR, law

ABC News reported that Tracy Barker, former employee of Halliburton/ KBR has won a $2.93 million arbitration award. Ms. Barker claims that she was sexually assaulted by a U.S. State Department employee in Iraq in 2005. Read more about this case here, here, and here. Technorati Tags: arbitration, ADR, law,

By Holly Hayes As noted in a previous post (available here) Texas House Bill 2256, signed into law on June 19, 2009, provides a procedure for mediation of out-of-network health benefit claim disputes. The law gives patients the option to mediate when they are ‘balance-billed’ by their insurance company for services provided by out-of-network facility-based physicians like radiologists, pathologists, and neonatologists. ‘Balance billing’ occurs when a physician bills a patient for the difference between what the physician charges for a service and what an insurer pays the physician for that service. When a physician is not in-network for an insurer, there is no contracted payment rate that the physician has agreed to accept from the insurer so the insurer can pay what is deemed appropriate and the patient is billed for the difference. At the federal level, H.R. 3962, the “Affordable Health Care for America Act” is currently being considered in Congress. The bill defines ‘cost sharing’ (see bottom of page 9) and specifically excludes “premiums, balance billing amounts for non-network providers, or spending for non-covered services.” Although the bill says that out-of-pocket payments are capped for an individual at $5,000 or $10,000 for a family, out-of-network balance billing amounts are not included in those caps. Find out more at the The Wall Street Journal Health Blog (here). Look for an analysis of how other states are approaching ‘balance billing’ in a future post. Technorati Tags: Healthcare, ADR, law, mediation Holly Hayes is a mediator at Karl Bayer, Dispute Resolution Expert where she focuses on mediation of health care disputes. Holly holds a B.A. from Southern Methodist University and a Masters in Health Administration from Duke University. She can be reached at: holly@karlbayer.com.

As the United States Court of Appeals for the Fifth Circuit decides more “manifest disregard” of the law cases, we thought that you might be interested in reading our guest-post published at the Loree Reinsurance and Arbitration Law Forum earlier this year. Check it out! Hall Street Meets S. Maestri Place: What Standards of Review will the Fifth Circuit Apply to Arbitration Awards Under FAA Section 10(a)(4) after Citigroup? By Victoria VanBuren May 4, 2009 I. Introduction I am delighted to be invited to guest-blog today by Philip J. Loree Jr. of the Loree Reinsurance and Arbitration Law Forum. I was thrilled that Phil jumped right on it when I suggested that we should guest-post on each others blogs in the near future. Phil did an outstanding job discussing the Arbitration Fairness Act of 2009 (read the post here) last week as a guest-blogger at Disputing. He suggested that I explore the topic of “manifest disregard” of the law in light of the United States Supreme Court decision Hall Street Associates, LLC v. Mattel, Inc. 128 S.Ct. 1396 (2008) and the Fifth Circuit ruling in Citigroup Global Markets, Inc. v. Bacon, 562 F.3d 349 (5th Cir. 2009). So, after conquering some initial, mild trepidation about my first guest-blogging experience, here I am. II. Discussion: Hall Street and Citigroup In Hall Street, the Supreme Court concluded that the Sections 10 and 11 provide the exclusive bases for vacatur and modification of arbitration awards under the Federal Arbitration Act (”FAA”). Under Section 10, the grounds to vacate an arbitration award are: (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; 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). The Court stated that “manifest disregard” of the law was not an independent ground for vacating awards. The Court, however, observed that in the past it may have used the term “manifest disregard” to refer collectively to all FAA Section 10 grounds, or as a “shorthand” for situations where the arbitrators were “guilty of misconduct” under Section 10(a)(3), or “exceeded their powers” under Section 10 (a)(4). Over the past year, the circuit courts have differed over whether the “manifest disregard” doctrine survives the Supreme Court’s holding in Hall Street. Recently, in Citigroup, it was the Fifth Circuit’s turn to decide the doctrine’s fate. There, Debra Bacon discovered that her husband had made five fund withdrawals from her Citigroup Individual Retirement account without her authorization. Bacon notified Citigroup as soon as she discovered what happened, but this notification was seven months after her husband had withdrawn $50,000, and five months after her husband had withdrawn another $150,000. Bacon filed for divorce. Citigroup refused to reimburse Bacon, and in 2004, she submitted her claim to an arbitration panel as required by her contract with Citigroup. The panel ordered Citigroup to pay Bacon $256,000 ($218,000 in damages and $38,000 in attorneys’ fees). Citigroup petitioned to vacate the award claiming that the arbitration panel had “manifestly disregarded” the law. The United States District Court for the Southern District of Texas vacated the award on the ground that the arbitration panel “manifestly disregarded” the law. According to the District Court: Bacon was not harmed by the fund withdrawals because her husband used the money for their benefit and subsequently promised to pay her back; Bacon’s claims were barred by Texas law, which permits such claims only if the customer reports unauthorized transactions within thirty days of the withdrawal; and Texas law requires apportionment among liable parties, which in this case, includes Bacon’s husband. The District Court said that although Citigroup “briefed and argued the requirements of Texas’s law on [bank] accounts, the panel ignored its contents obdurately.” The court concluded that “[a] lawless award must be vacated.” When the District Court decided the case (Aug. 2, 2007), Hall Street had not been decided. On appeal, the Fifth Circuit, citing Hall Street, held that Sections 10 and 11 provide the exclusive grounds for vacatur and modification of arbitral awards. Citing case law within the Fifth Circuit, the Court observed that the Fifth Circuit was “among the very last [of the circuit courts] to adopt manifest disregard,” and added that case law reflected that the narrow doctrine had a “standard difficult to satisfy.” The Court also stated that “the term itself, as a term of legal art, is no longer useful in actions to vacate arbitration awards.” The court ultimately ruled that “to the extent that manifest disregard of the law constitutes a nonstatutory ground for vacatur, it is no longer a basis for vacating awards under the FAA.” III. Manifest Disregard in the Fifth Circuit: The Future In Citigroup, the Fifth Circuit rejected “manifest disregard” as an independent, nonstatutory ground for setting aside an award. Nevertheless, the court remanded the case to the District Court to determine whether vacatur is available under any of the FAA statutory grounds. While “manifest disregard” is no longer an independent ground for vacatur in the Fifth Circuit, Citigroup may be able to use Section 10(a)(4) of the FAA as an alternative basis for relief. The court in Brabham v. A.G. Edwards & Sons, Inc., 376 F.3d 377 (5th Cir. 2004) clarified that the “essence of the agreement” test — under which an arbitration decision can be vacated if it does not draw its essence from the contract — is not a separate nonstatutory ground for vacatur but is part of Section 10(a)(4) of the FAA. Citigroup may have a legitimate argument that the arbitrators “exceeded their powers” […]