RALPH F. PATTEN, JR., Plaintiff-Appellant, v. SIGNATOR INSURANCE AGENCY, INCORPORATED; SIGNATOR INVESTORS, INCORPORATED; JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, Defendants-Appellees.
No. 05-1148
United States Court of Appeals for the Fourth Circuit
Decided: March 13, 2006
Argued: February 2, 2006
Before WIDENER, LUTTIG, and KING, Circuit Judges.
COUNSEL
John Michael Shoreman, MCFADDEN & SHOREMAN, Washington, D.C., for Appellant. Michael Joseph Murphy, OGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C., Washington, D.C., for Appellees.
KING, Circuit Judge:
Appellant Ralph F. Patten, Jr., appeals from the district court‘s denial of his motion to vacate an arbitration award rendered in favor of John Hancock Mutual Life Insurance Company, Signator Insurance Agency, Incorporated, and Signator Investors, Incorporated (collectively the “respondents“). Patten v. Signator Ins. Agency, Inc., No. 02-1745 (D. Md. Jan. 4, 2005). By this appeal, Patten seeks only to vacate that aspect of the arbitration award dismissing as time-barred his claims against Signator Investors. Patten asserts that the arbitrator acted without authority when he unilaterally imposed an implied one-year limitations period onto the governing arbitration agreement between Patten and Signator Investors. As explained below, the arbitration agreement does not explicitly prescribe any limitations period with respect to an arbitration demand, and it supersedes all other agreements between the parties. In the circumstances presented, the arbitrator‘s ruling constituted a manifest disregard of the law and was not drawn from the essence of the governing arbitration agreement. As a result, we vacate the district court‘s refusal to vacate the arbitration award as to Signator Investors, and we remand for further proceedings.
I.
A.
Patten first began working as a sales agent for Hancock in the Washington, D.C. area in 1972. In 1989, he became a General Agent for Hancock in Bethesda, Maryland. In 1992, he entered into an agreement with Hancock and its affiliates, designated as a “Mutual Agreement to Arbitrate Claims” (the “Mutual Agreement“). J.A. 18.1 The Mutual Agreement required, inter alia, that any claims arising between Patten and Hancock (or any of Hancock‘s affiliates or subsidiaries) were to be resolved by mandatory arbitration. The Mutual Agreement specifically provided, in a section captioned “Required
In 1998, Patten entered into a new and superseding agreement with Signator Investors, to become its branch manager in Bethesda (the “Management Agreement“).2 The Management Agreement provided, inter alia, that “Signator [Investors] and Branch Manager [Patten] mutually consent to the resolution by arbitration of all claims or controversies.” Management Agmt. ¶ 11. The Management Agreement was silent, however, on any requirements of timing or manner with respect to an arbitration demand. The Management Agreement also provided that it “supersedes all previous agreements, oral or written, between the parties hereto regarding the subject matter hereof.” Id. at ¶ 12. Finally, the Management Agreement mandated that it was to “be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts.” Id. at ¶ 13.
On October 18, 1999, Hancock reprimanded Patten for alleged deficiencies in his performance as a General Agent — specifically, for advancing premiums on behalf of his clients, in violation of company policy. On December 13, 2000, the respondents each terminated Patten, effective January 2, 2001. On August 2, 2001, Patten sent a letter to the respondents advising them that he had been wrongfully terminated and discriminated against because of his age, and that he was preparing to file a lawsuit on the basis of these claims. The respondents, by letter of August 30, 2001, advised Patten that his allegations were “unequivocally denie[d],” and the parties then apparently entered into unsuccessful settlement negotiations.
On March 4, 2002, Patten forwarded the respondents a demand for arbitration, asserting claims of discrimination, wrongful termination,
B.
On May 20, 2002, Patten filed a complaint for enforcement of arbitration in the District of Maryland, seeking to compel arbitration. The parties thereafter filed cross-motions for summary judgment and, on November 5, 2002, the court ruled in favor of Patten and directed the respondents to submit to arbitration. Patten v. Signator Ins. Agency, Inc., No. 02-1745, slip op. at 1 (D. Md. Nov. 5, 2002). Because the court concluded that arbitration should be compelled “under the Mutual Agreement, the Court [found] it unnecessary to address Plaintiff‘s argument regarding the Management Agreement.” Id. In its opinion, the court observed that all other questions concerning the arbitration — including the satisfaction of time and notice requirements — were “within the arbitrator‘s purview.” Id. at 2.
The parties entered into arbitration in 2003 under the auspices of the American Arbitration Association (the “AAA“). On January 24, 2003, Patten filed a demand for arbitration with the AAA, making allegations of (1) wrongful termination, (2) breach of contract, (3) breach of the implied covenant of good faith and fair dealing, and (4) unlawful discrimination in violation of federal law as well as the law of Massachusetts and Maryland. After selecting an arbitrator under the procedures of the AAA, the parties engaged in discovery and exchanged witness lists. On December 8, 2003, the respondents filed a motion for summary judgment in the arbitration proceedings, asserting, inter alia, that Patten had failed to comply with the one-year notice provision of the Mutual Agreement. On December 18, 2003, Patten filed an opposition to the respondents’ summary judgment request, asserting that the arbitration proceedings arose under both the Management Agreement and the Mutual Agreement. Patten contended that he had complied with the applicable notice requirements
By his arbitration award of January 10, 2004, the arbitrator dismissed the arbitration proceedings as time-barred and entered summary judgment for the respondents, without conducting a hearing on the merits. See Arb. Award at 6.4 As a preliminary matter, he determined that the arbitration proceedings were governed by both the Mutual Agreement and the Management Agreement. While the arbitrator accurately observed that the Management Agreement contained no notice requirement, he determined that it “necessarily contain[ed] an implied term limit.” Id. The arbitrator then “look[ed] to the Mutual Agreement for guidance,” and “adopt[ed]” its one-year limitations period. Id. at 7.5 Because Patten sent his demand for arbitration fourteen months after his termination in January 2001, the arbitrator dismissed Patten‘s claims “on the sole ground that Claimant‘s March 4, 2002 Demand for Arbitration is time-barred.” Id. at 7.
C.
On April 9, 2004, Patten filed a motion in the district court proceedings seeking to vacate the arbitration award‘s determination that the claims in arbitration under the Management Agreement were time-barred. By this motion, Patten contended that the arbitrator had acted in manifest disregard of the law, and had failed to draw his award from the essence of the agreement, by concluding that the Management Agreement contained an implied one-year limitations
II.
The process and extent of federal judicial review of an arbitration award are substantially circumscribed. As a general proposition, a federal court may vacate an arbitration award only upon a showing of one of the grounds specified in the Federal Arbitration Act, see
A.
This dispute was submitted to arbitration pursuant to two separate agreements: first, the Mutual Agreement of 1992, which Patten entered into with Hancock and its affiliates (which included Signator Investors); and second, the Management Agreement, which Patten and Signator Investors entered into in 1998.7 On appeal, however, Patten seeks only to vacate the arbitrator‘s dismissal of his claims under the Management Agreement against Signator Investors. Importantly, he does not, in this appeal, take issue with those aspects of the arbitration award dismissing his claims against Hancock and Signator Insurance as time-barred under the Mutual Agreement. Appellant‘s Br. at 4. Thus, the governing arbitration agreement in this appeal is contained in Paragraph 11 of the Management Agreement between Patten and Signator Investors. That arbitration agreement provides, in pertinent part:
Signator [Investors] and Branch Manager [Patten] mutually consent to the resolution by arbitration of all claims or controversies (“claims“) . . . that Signator [Investors] may have against Branch Manager or that Branch Manager may have against Signator [Investors] . . . . The claims covered by this consent to arbitration include all claims arising out of or in connection with the business of Signator [Investors]. . . .
Management Agmt. ¶ 11.
Patten contends that the arbitration award should be vacated as to Signator Investors because the arbitrator‘s most crucial ruling — that the governing arbitration provision in the Management Agreement contained an implied time limitation on an arbitration demand — constituted a manifest disregard of the law, and failed to draw its essence from the agreement. In seeking to vacate an arbitration award, of course, an appellant “shoulders a heavy burden.” Remmey v. PaineWebber, Inc., 32 F.3d 143, 149 (4th Cir. 1994). Put simply, an arbitrator‘s legal determination “may only be overturned where it is in manifest disregard of the law,” and an arbitrator‘s interpretation of a contract must be upheld so long as it “draws its essence from the agreement.” Upshur Coals Corp. v. United Mine Workers, Dist. 31, 933 F.2d 225, 229 (4th Cir. 1991) (internal quotation marks omitted). Under our precedent, a manifest disregard of the law is established only where the “arbitrator[ ] understand[s] and correctly state[s] the law, but proceed[s] to disregard the same.” Id. (internal quotation marks omitted). Moreover, an arbitration award does not fail to draw its essence from the agreement merely because a court concludes that an arbitrator has “misread the contract.” Id. (internal quotation marks omitted). An arbitration award fails to draw its essence from the agreement only when the result is not “rationally inferable from the contract.” Apex Plumbing Supply, Inc. v. U.S. Supply Co., 142 F.3d 188, 193 n.5 (4th Cir. 1998).8
In supporting the district court‘s ruling on the motion to vacate, Signator Investors relies solely on the circumscribed scope of review which we are obliged to apply in assessing an arbitration award. And although the authority of an arbitrator is broad, and subject to great deference under the applicable standard of review, “it is not unlimited.” Mo. River Serv., Inc. v. Omaha Tribe of Neb., 267 F.3d 848, 855 (8th Cir. 2001)
In this case, as explained below, the arbitrator disregarded the plain and unambiguous language of the governing arbitration agreement when he concluded that it included an implied one-year limitations period. In so doing, the arbitrator acted in manifest disregard of the law and failed to draw his award from the essence of the agreement.
C.
In assessing the timeliness of Patten‘s arbitration demand, the arbitrator correctly recognized that the Management Agreement contained no explicit time limitation. The arbitrator nonetheless determined, however, that the Management Agreement “necessarily contain[ed] an implied term limit.” Arb. Award at 6. In certain instances, when the contracting parties have failed to specify a term that is essential to the determination of their rights and duties under an arbitration agreement, the arbitrator may supply a term that is “reasonable in the circumstances.” See Restatement (Second) of Contracts § 204 (1981); see also Mo. River Serv., 267 F.3d at 855. In the circumstances of this case, however, the one-year limitations period imposed by the arbitrator was not reasonable, in that it contradicted the plain and unambiguous terms of the Management Agreement.
The Management Agreement unambiguously provided that, as to its parties (Patten and Signator Investors), it “supersede[d]” the
Moreover, the arbitrator ignored the fact that the Management Agreement provided that it was to “be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts.” Management Agmt. ¶ 13. If the arbitrator felt the need to import a limitations period into the Management Agreement, the most obvious source was that which governed their agreement: Massachusetts law. And under Massachusetts law, claims of wrongful termination and discrimination are subject to a three-year statute of limitations, see
Put succinctly, the arbitrator appears to have revised the governing arbitration agreement on the basis of his own “personal notions of right and wrong,” and imposed a limitations period on the parties that they had specifically rejected. See Upshur Coals, 933 F.2d at 229; see also U.S. Postal Serv., 204 F.3d at 527 (“When the arbitrator ignores the unambiguous language chosen by the parties, the arbitrator simply fails to do his job.“). Consequently, this dispute does not fall into the category of awards based on “misapplication of principles of contractual interpretation [or] erroneous interpretation,” which are not to be disturbed by judicial review. See Apex Plumbing, 142 F.3d at 194. Rather, the arbitrator in this instance simply “amend[ed] or alter[ed] the agreement,” and thus he “act[ed] without authority.” Mo. River Serv., 267 F.3d at 855 (internal quotation marks omitted). The arbitra-
Although our standard of review of an arbitration award is properly a limited and deferential one, it does not require that we affirm an award that contravenes the plain and unambiguous terms of the governing arbitration agreement. See United Paperworkers Int‘l Union, AFL-CIO v. Misco, Inc., 484 U.S. 29, 38 (1987); Mo. River Serv., 267 F.3d at 855. In these circumstances, the arbitration award as to Patten and Signator Investors failed to draw its essence from the governing arbitration agreement and was made in manifest disregard of the law.
IV.
Pursuant to the foregoing, we vacate the district court‘s denial of Patten‘s motion to vacate the arbitration award as to Signator Investors. We remand for such other and further proceedings as may be appropriate.
VACATED AND REMANDED
RALPH F. PATTEN, JR., Plaintiff-Appellant, v. SIGNATOR INSURANCE AGENCY, INCORPORATED; SIGNATOR INVESTORS, INCORPORATED; JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, Defendants-Appellees.
No. 05-1148
United States Court of Appeals for the Fourth Circuit
Decided: March 13, 2006
I agree with the majority that the arbitrator‘s interpretation of the Management Agreement was clearly erroneous. I cannot join its opinion, however, because under our precedents, clear error alone is insufficient to vacate an arbitrator‘s award. Accordingly, I would affirm the district court‘s denial of appellant‘s motion to vacate the arbitration award.
In Remmey v. Painewebber, Inc., 32 F.3d 143, 149 (4th Cir. 1994), we held that an arbitrator does not manifestly disregard the law unless he “understand[s] and correctly state[s] the law, but proceed[s] to disregard the same,” see ante at 8. Although the majority quotes this standard, it neglects the critical explanation of this standard. In that critical explanation, we emphasized that the “appellant is required to show that the arbitrators were aware of the law, understood it correctly, found it applicable to the case before them, and yet chose to
The majority is similarly in error when it concludes that the arbitrator‘s award failed to “draw its essence from the agreement” because the arbitrator “based his award on his own personal notions of right and wrong.” See ante at 8-9, 10-11; Upshur Coals Corp. v. United Mine Workers, Dist. 31, 933 F.2d 225, 229 (4th Cir. 1991). Upshur Coals equated awards where “the arbitrator must have based his award on his own personal notions of right and wrong” with awards where the arbitrator was not “even arguably construing or applying the contract.” See 933 F.2d at 229. Appellant does not come close to meeting this standard either, because there is no doubt that the arbitrator was attempting to construe the Management Agreement. See J.A. 44-46. The arbitrator‘s failure to notice the clause simply was not a bad faith abdication of his duty to ground the award in the Management Agreement prompted by an illicit desire to rule in favor of appellees.
At worst, because of a failure to notice the superseding clause, the arbitrator‘s error arose because he believed that he had to render the two agreements consistent, which led him to imply a notice requirement into the Management Agreement even though no such requirement is expressed in that agreement. See J.A. 44-46. we have squarely held that “as a matter of law,” an award cannot be vacated merely on the basis of the “misinterpretation of a contract.” See Apex Plumbing Supply, Inc. v. U.S. Supply Co., 142 F.3d 188, 193-94 (4th Cir. 1998). Indeed, in Apex Plumbing, the party seeking to challenge the award made an unsuccessful argument that was almost identical to the one that Patten does in this case, claiming that “more than a mere ‘misinterpretation’ of the contract had transpired because the arbitrator‘s valuation decision irrationally disregarded an unambiguous provision of the Agreement.” Id. at 194. Rejecting the argument,
The level of deference that this court has bestowed upon arbitrators is extraordinary. It may even be excessive. However, we are bound by this standard until such time as it is reconsidered by the court en banc. See United States v. Collins, 415 F.3d 304, 311 (4th Cir. 2005). I would, concededly with some reluctance, apply this standard and affirm the district court‘s refusal to vacate the arbitrator‘s award.