COTTON CREEK CIRCLES, LLC, ET AL. v. SAN LUIS VALLEY WATER CO., ET AL.
Record No. 090283
Supreme Court of Virginia
February 25, 2010
JUSTICE
PRESENT: Hassell, C.J., Keenan, Koontz, Kinser, Lemons, and Millette, JJ., and Carrico, S.J. FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND, Beverly W. Snukals, Judge
OPINION BY JUSTICE BARBARA MILANO KEENAN
In this appeal, we consider whether the circuit court erred in confirming an arbitration award in a contract dispute involving the members of a limited liability company.
Cotton Creek Circles, LLC, was formed to develop and sell water rights to certain Colorado municipalities (the Project). This limited liability company has three members, one of which is co-owned by Gary C. Boyce. Boyce also owns Boyce Land & Cattle Company, a cattle ranching company.
The other two members of Cotton Creek Circles, LLC, are James River Capital Corporation and Deepwater Development, LLC. They are joined as parties with Cotton Creek Circles, LLC, in this appeal, and we will
Under the “Cotton Creek Circles, LLC Limited Liability Company Agreement” (the Operating Agreement), the members’ business activities are limited by the following provision (the non-compete clause):
[I]f [Cotton Creek Circles, LLC] has not abandoned in writing the pursuit of the Project, then for such period of time as any of the [members] is involved in the potential or actual purchase, development or sale of any water project within 100 miles of the boundaries of either the Cotton Creek Ranch or Rancho Rosado (the “Protected Water Project Area“), in no event shall any of the any [sic] Boyce Entities pursue the acquisition or development of water projects or any property relating thereto within the Protected Water Project Area without the prior written consent of [James River Capital Corporation].
(Emphasis added.)
In 2005, Boyce Land & Cattle Company leased land, known as Cherry Creek Ranch, for the purpose of grazing cattle. Under the lease agreement, Boyce Land & Cattle also obtained an option to purchase Cherry Creek Ranch (the Option). It is undisputed that Cherry Creek Ranch lies within the “Protected Water Project Area” designated by the non-compete clause, and that Cherry Creek Ranch could provide water for the Project.
A dispute arose among the parties regarding the Option, and the Cotton Creek plaintiffs filed a demand for arbitration under the following provision of the Operating Agreement:
THE MEMBERS AGREE THAT IN THE EVENT OF ANY DISPUTE WITH RESPECT TO THIS AGREEMENT, THEIR RESPECTIVE OBLIGATIONS HEREUNDER, OR ANY OTHER MATTER RELATING TO [COTTON CREEK CIRCLES, LLC] WHATSOEVER, SUCH DISPUTE SHALL BE SETTLED BY ARBITRATION . . . IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION.
(Emphasis added.)
At a hearing before a panel of arbitrators (the Panel), the Cotton Creek plaintiffs asserted that Boyce had breached the non-compete clause by attempting to exercise the Option in favor of Boyce Land & Cattle. Boyce conceded that he intended to exercise the Option for Boyce Land & Cattle but stated that he would provide a water rights easement to Cotton Creek Circles, LLC.
The Panel ruled that Boyce Land & Cattle owned the Option subject to an obligation to provide to Cotton Creek Circles, LLC an easement for the water rights to Cherry Creek Ranch. The Cotton Creek plaintiffs filed a motion in the circuit court to vacate the arbitration award, arguing that the Panel exceeded its powers by disregarding the unambiguous terms of the non-compete clause. The circuit court denied the motion to vacate and confirmed the arbitration award.
On appeal, the Cotton Creek plaintiffs argue that the circuit court should have vacated the Panel‘s award under
In response, Boyce argues that this Court‘s review of the arbitration award under
In resolving this issue, we consider de novo the circuit court‘s denial of the motion to vacate the Panel‘s award. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947-48 (1995); Patten v. Signator Ins. Agency, Inc., 441 F.3d 230, 234 (4th Cir. 2006); Apex Plumbing Supply, Inc. v. U.S. Supply Co., Inc., 142 F.3d 188, 191 n. 1 (4th Cir. 1998). We conduct our review mindful of the principle that judicial review of an arbitration award under the Act is “among the narrowest known to the law.” Long John Silver‘s Restaurants, Inc. v. Cole, 514 F.3d 345, 349 (4th Cir. 2008) (quoting U.S. Postal Serv. v. Am. Postal Workers Union, AFL-CIO, 204 F.3d 523, 527 (4th Cir. 2000)).
The parties agree that the scope of our review is defined by the Act‘s very limited vacatur authority. See Choice Hotels Int‘l, Inc. v. SM Prop. Mgmt., LLC, 519 F.3d 200, 207 (4th Cir. 2008); Long John Silver‘s, 514 F.3d at 349; Patten, 441 F.3d at 234. Under that authority, a party seeking to vacate an arbitration award bears the burden of demonstrating one of the exclusive grounds set forth in section 10 of the Act. See Hall Street Assocs., LLC v. Mattel, Inc., 552 U.S. 576, 584 (2008); Choice Hotels, 519 F.3d at 207; Citigroup Global Markets, Inc. v. Bacon, 562 F.3d 349, 358 (5th Cir. 2009).
In the present dispute, the parties have confined their argument to only one of those specific grounds for vacatur, namely, whether the Panel exceeded its powers as stated in
Under the Act, arbitrators do not exceed their powers if they misinterpret a contract or make errors of law. Apex Plumbing, 142 F.3d at 193-94; Richmond, Fredericksburg & Potomac R.R. Co. v. Transportation Commc‘ns Int‘l Union, 973 F.2d 276, 281 (4th Cir. 1992). Even serious errors of interpretation are not sufficient to overturn an arbitration award. See Long John Silver‘s, 514 F.3d at 349. Instead, for arbitrators to exceed their powers within the meaning of
Applying these principles, we conclude that the parties’ Operating Agreement granted the Panel the authority to settle the present dispute. The broad arbitration agreement, which conferred on the arbitrators the power to resolve “any dispute with respect to [the Operating Agreement],” necessarily included the authority to settle a dispute over the proper interpretation and application of the non-compete clause.
The Cotton Creek plaintiffs argue, nevertheless, that the Panel exceeded its powers by “ignoring” the language of the non-compete clause. We conclude that there is no merit in this contention.
The Panel‘s interim award expressly refers to the non-compete clause and, in reaching its decision, the Panel effectively interpreted the term “water projects” in the non-compete clause as referring to undertakings other than “the Project” referenced in that same clause. Thus, the Panel plainly applied the language of the non-compete clause by fashioning a remedy that prohibits Boyce from retaining all water rights in Cherry Creek Ranch, located within the Protected Water Project Area, to the exclusion of Cotton Creek Circles, LLC.
In reaching this conclusion, we emphasize that the grounds for vacatur provided in the Act, including the present challenge to the arbitrators’ exercise of their powers, do not permit a court to overturn an arbitration award based merely on a party‘s disagreement with the arbitrators’ decision. Remmey v. PaineWebber, Inc., 32 F.3d 143, 146 (4th Cir. 1994). “[P]arties may not seek a ‘second bite at the apple’ simply because they desire a different outcome.” Id. In effect, that is what the Cotton Creek plaintiffs have requested in this appeal.
In addition, we observe that even if the Panel erred in its interpretation of the non-compete clause, that error does not provide a basis for vacating the Panel‘s award pursuant to section 10 of the Act. As stated above, arbitrators do not exceed their powers, within the meaning of
For these reasons, we will affirm the circuit court‘s judgment confirming the arbitration award.
Affirmed.