Cooper v. Westend Capital Management, L.L.C.
2016 U.S. App. LEXIS 14640
| 5th Cir. | 2016Background
- Cooper, Bolton, and Ozag executed an Operating Agreement (2009) for WestEnd that (1) allowed manager expulsion for cause by unanimous vote of other managers and (2) required binding arbitration for disputes.
- In August 2012 Bolton and Ozag voted to expel Cooper for alleged misappropriation, fiduciary breaches, and obstructing an SEC probe; WestEnd obtained a TRO in Louisiana state court against Cooper for post-expulsion conduct and later voluntarily dismissed that TRO.
- WestEnd then filed a JAMS arbitration in San Francisco; Cooper sued in federal court seeking to enjoin arbitration, arguing waiver and res judicata based on the TRO suit; the district court denied injunctive relief and stayed the federal case pending arbitration.
- The JAMS Arbitrator (a retired California judge) ruled for the WestEnd Parties, awarding damages to Bolton, Ozag, and WestEnd plus fees and costs; Cooper moved in federal court to vacate the award alleging nondisclosure/partiality and that the arbitrator exceeded his powers.
- The district court confirmed the arbitration award; Cooper appealed the denial of the injunction and the confirmation order; the Fifth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether district court erred by refusing to enjoin arbitration because WestEnd waived arbitration by filing the TRO suit | Cooper: filing TRO constituted substantial invocation of judicial process and prejudiced him, so WestEnd waived arbitration | WestEnd: TRO sought injunctive relief on separate post-expulsion conduct and did not litigate the same claims; no substantial invocation | No waiver: TRO did not seek merits of arbitrable claims and did not substantially invoke judicial process |
| Whether the TRO dismissal bars arbitration under res judicata | Cooper: state-court dismissal with prejudice precludes relitigation of same matters, including arbitration claims | WestEnd: TRO concerned post-expulsion harassment, not the contract and tort claims pursued in arbitration | Res judicata does not apply: TRO and arbitration arise from different transactions/subject matters |
| Whether FAA or California law governs vacatur/review of the award | Cooper: choice-of-law provision specifying California law means state vacatur standards apply | WestEnd: FAA applies absent express incorporation of state arbitration law | FAA governs vacatur: a general choice-of-law clause is insufficient to displace FAA standards |
| Whether award should be vacated for evident partiality or exceeding arbitrator powers | Cooper: JAMS failed to disclose connections (e.g., other JAMS arbitrators); Arbitrator exceeded powers by deciding matters outside arbitration (venue, nonarbitrable 2007 agreement, statute of limitations) | WestEnd: no specific facts of bias; parties adopted JAMS Rules delegating arbitrability and procedural issues to Arbitrator; any legal errors are insufficient for vacatur | Award affirmed: no clearly evident partiality; Arbitrator had authority over arbitrability; purported legal errors or statute-of-limitations rulings do not justify vacatur under §10(a) |
Key Cases Cited
- Empacadora de Carnes de Fresnillo, S.A. de C.V. v. Curry, 476 F.3d 326 (5th Cir.) (standards for reviewing injunctions re: arbitration)
- Apache Bohai Corp. v. Texaco China, B.V., 330 F.3d 307 (5th Cir.) (stay of proceedings pending arbitration is nonfinal for FAA §16 purposes)
- American Heritage Life Ins. Co. v. Orr, 294 F.3d 702 (5th Cir.) (when stay may be treated as final dismissal under FAA §16)
- Green Tree Financial Corp.-Ala. v. Randolph, 531 U.S. 79 (U.S. 2000) (final decision definition for appellate jurisdiction)
- Nicholas v. KBR, Inc., 565 F.3d 904 (5th Cir.) (arbitration waiver standard)
- Al Rushaid v. Nat’l Oilwell Varco, Inc., 757 F.3d 416 (5th Cir.) (presumption against finding waiver of arbitration)
- Action Indus., Inc. v. U.S. Fid. & Guar. Co., 358 F.3d 337 (5th Cir.) (choice-of-law clause insufficient to displace FAA absent clear intent)
- BNSF Ry. Co. v. Alstom Transp., Inc., 777 F.3d 785 (5th Cir.) (FAA rules apply absent express reference to state arbitration law)
- Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (U.S.) (FAA provides exclusive statutory grounds for vacatur/modification)
- Oxford Health Plans LLC v. Sutter, 569 U.S. 564 (U.S. 2013) (§10(a)(4) review is deferential; award stands if it draws its essence from the contract)
- Rain CII Carbon, LLC v. ConocoPhillips Co., 674 F.3d 469 (5th Cir.) (extraordinarily narrow judicial review of arbitration awards)
- Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671 (5th Cir.) (clear-and-unmistakable delegation of arbitrability to arbitrator)
- Positive Software Sols., Inc. v. New Century Mortg. Corp., 476 F.3d 278 (5th Cir.) ("evident partiality" is a stern, difficult standard)
- Timegate Studios, Inc. v. Southpeak Interactive, L.L.C., 713 F.3d 797 (5th Cir.) (arbitrator’s award will be upheld if it draws its essence from the contract)