947 F.3d 101
1st Cir.2020Background
- In 2010 IBC purchased Beralcast from Hoolahan and Mattheson for cash plus IBC stock; the Share Purchase Agreement included (a) a four-month-and-one-day TSX transfer restriction and (b) Article 2.3(e)(ii) disclaiming any obligation by IBC to register or facilitate U.S. resales.
- In 2011 Hoolahan attempted to sell his IBC shares but the transfer agent declined the sale after IBC refused to approve it; his broker and counsel were told IBC had blocked the sale because of an undisclosed ULBA claim against Hoolahan’s affiliated company AMS.
- Discovery in unrelated litigation revealed an IBC–Mattheson Voluntary Pooling Agreement that permitted Mattheson to sell shares in 2011–2012; Mattheson realized significant proceeds that Hoolahan did not.
- Hoolahan arbitrated, relying heavily on testimony by his lawyer Schoenberger recounting a 2012 phone call with IBC CFO Simon Anderson; the arbitrator found IBC acted in bad faith (citing admitted "ill-will"), awarded Hoolahan damages based on Mattheson’s sale price and awarded attorneys’ fees and costs.
- IBC sought modification from the arbitrator (unsuccessful), petitioned to vacate in district court (denied), and appealed to the First Circuit arguing vacatur under FAA §10(a)(1), §10(a)(3), §10(a)(4) and common‑law manifest disregard for the law (damages computation/offsets).
Issues
| Issue | Plaintiff's Argument (Hoolahan) | Defendant's Argument (IBC) | Held |
|---|---|---|---|
| Whether award was procured by "undue means" under 9 U.S.C. § 10(a)(1) based on Schoenberger's phone-call testimony | Schoenberger’s testimony was credible and admissible; he did not know IBC was represented when he called | Testimony violated professional‑conduct rules (no contact with represented party) and procured the award | No undue means; arbitrator credited Schoenberger, no intentional malfeasance shown, reliance on multiple evidentiary sources supported award |
| Whether arbitrator committed misconduct under § 10(a)(3) by refusing to postpone hearing or admit Anderson’s affidavit | No prejudice; arbitrator properly weighed live testimony and credibility | Anderson’s live rebuttal was necessary; refusing postponement/affidavit denied fair hearing | Forfeited on appeal; no plain‑error shown; IBC never sought continuance or timely offered affidavit; no vacatur |
| Whether arbitrator exceeded powers under § 10(a)(4) by awarding attorneys’ fees | Fees are permissible because arbitrator found IBC acted in bad faith; Delaware law allows fee‑shifting in extraordinary/bad‑faith cases | AAA rules/Delaware American Rule bar fees absent agreement or mutual request | Not exceeded: arbitrator found bad faith and Delaware law permits fee awards in extraordinary circumstances; AAA Rule 47 allows awards authorized by governing law |
| Whether arbitrator exceeded powers under § 10(a)(4) by misreading the Agreement (ignored specific disclaimer in art. 2.3(e)(ii) in favor of art. 13.3) | Arbitrator construed the contract and reasonably applied general and specific provisions in context | Specific disclaimer precludes any obligation to assist resale, so there was no breach | Arbitrator at least arguably construed and applied the contract; serious error alone insufficient to vacate; no excess of authority found |
| Whether award showed "manifest disregard of the law" for failing to offset damages (2013 sale, retained shares) | Failure to offset produced duplicative damages/windfall | Issues waived below; arbitrator was aware of retained shares; math supports award methodology | No manifest disregard: arguments waived or undeveloped; no non‑fact like in Electronics Corp.; arbitrator considered evidence and was not required to detail every offset |
Key Cases Cited
- United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29 (arbitrator decisions need only draw their essence from the contract)
- Stolt‑Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662 (FAA enforces arbitration agreements according to their terms)
- Hall Street Assocs. v. Mattel, Inc., 552 U.S. 576 (limits on judicial review under the FAA raise questions about non‑statutory vacatur)
- Oxford Health Plans LLC v. Sutter, 569 U.S. 564 (error by arbitrator, even serious, generally not a basis to vacate)
- Cytyc Corp. v. DEKA Prods. Ltd. P'ship, 439 F.3d 27 (review is highly deferential; panel must at least arguably construe contract)
- Dialysis Access Ctr., LLC v. RMS Lifeline, Inc., 932 F.3d 1 (First Circuit summary of de novo review with great circumspection of arbitration awards)
- Nat'l Cas. Co. v. First State Ins. Grp., 430 F.3d 492 ("undue means" requires intentional malfeasance)
- Prudential‑Bache Sec., Inc. v. Tanner, 72 F.3d 234 (arbitrator did not exceed authority in awarding attorneys' fees when governing law permitted them)