828 F.3d 362
5th Cir.2016Background
- In 2008 Rainier DSC purchased a surgical/imaging property and sold fractional TIC interests to individual investors (the Investors), each contract including an arbitration clause.
- Southwest, the tenant, stopped paying rent and vacated the property; Investors sued Southwest, Rainier, and others alleging state-law claims and securities violations; Rainier moved to compel arbitration and the Investors agreed to arbitrate claims against Rainier.
- The arbitrator denied relief to the Investors and awarded Rainier over $500,000 in fees; the district court confirmed the arbitration award and severed the arbitrated claims against Rainier.
- Investors appealed, arguing the award should be vacated because (1) the district court’s failure to stay related litigation constituted “misbehavior” prejudicing arbitration, (2) the arbitrator refused to hear pertinent evidence (deposition testimony without live cross-examination), and (3) the case should be reassigned on remand.
- The Fifth Circuit reviewed confirmation and stay-denial de novo and framed vacatur under the FAA as available only for limited arbitrator misconduct that deprived a party of a fair hearing.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether district court’s failure to stay related litigation is "misbehavior" under 9 U.S.C. § 10(a)(3) warranting vacatur | District court should have stayed non-arbitrating parties; its failure prejudiced Investors and constitutes "other misbehavior" under §10(a)(3) | §10(a)(3) addresses arbitrator misconduct only; district-court actions cannot be the basis for vacatur under that provision | Rejected — §10(a)(3) applies to arbitrators; Investors’ argument fails |
| Whether arbitrator’s use of deposition excerpts without live cross-examination was misconduct under §10(a)(3) | Arbitrator improperly admitted deposition excerpts and denied the Investors’ ability to cross-examine Dunn and Mock live, depriving them of a fair hearing | Arbitrator permitted full deposition transcripts into evidence, asked Investors to justify subpoenas, and reasonably declined subpoenas given lack of proffered need and witnesses’ peripheral roles | Rejected — no prejudicial refusal to hear evidence; transcripts admitted and no showing of missing material evidence |
| Whether awareness or reliance on the district court’s summary-judgment opinion showed arbitrator bias | Rainier/arbitrator relied on district court rulings, creating unfair prejudice | Rainier expressly told arbitrator he was not bound by the court; identical outcomes do not prove bias; award shows independent evaluation | Rejected — no evidence arbitrator relied improperly or was biased |
| Whether case should be reassigned on remand | Investors sought reassignment given alleged procedural irregularities | Reassignment unnecessary absent a successful vacatur or demonstrated bias/misconduct | Not reached on merits because no vacatur established |
Key Cases Cited
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (U.S. 1995) (vacatur of arbitral awards is disfavored; limited circumstances)
- Laws v. Morgan Stanley Dean Witter, 452 F.3d 398 (5th Cir. 2006) (arbitrator error must deprive party of fair hearing to warrant vacatur)
- Wartsila Finland OY v. Duke Capital LLC, 518 F.3d 287 (5th Cir. 2008) (standard of review for confirmation of arbitration award)
- Waste Mgmt., Inc. v. Residuos Industriales Multiquim, S.A. de C.V., 372 F.3d 339 (5th Cir. 2004) (standard of review for denial of stay pending arbitration)
- Forsythe Int’l, S.A. v. Gibbs Oil Co. of Tex., 915 F.2d 1017 (5th Cir. 1990) (deference to arbitration procedures; courts should not overturn imperfect proceedings absent statutory basis)