Opinion
No. C 02-0192 MMC
May 29, 2002
Before the Court are petitioners' Motion for an Order Confirming Arbitration Award, filed pursuant to 9 U.S.C. § 9, and respondent's Motion to Vacate Arbitration Award, filed pursuant to 9 U.S.C. § 10 (a). Having reviewed the papers submitted in support of and in opposition to the motions, the Court deems the motions appropriate for decision on the papers, VACATES the hearing scheduled for May 24, 2002, and rules as follows.
I. BACKGROUND
On or about May 3, 2000, petitioners and respondent entered into a written agreement titled "Job Action-Staffing Agreement" ("Agreement") under which respondent was to "[u]se its best efforts to provide [nursing] staff as needed to fill [petitioners'] weekly schedule." (See Freedman Decl. Ex. 1 at 1.) For an eight-week period beginning in June 2000, respondent provided replacement nursing staff to petitioners during a strike by petitioners' nurses. (See Freedman Decl. Ex. 2 at 1.)
Although the Agreement is not dated, the parties are in accord that it was executed on or about May 3, 2000. (See id. at ¶ 2; Flanagan Decl. ¶ 13.)
The Agreement included the following arbitration clause:
If any dispute arises under the terms of this Staffing Agreement, the parties agree that upon written demand of either party, the matter may be submitted for final and binding resolution to an arbitrator who shall have the authority to decide disputes concerning the interpretation and provisions of this Staffing Agreement. All arbitrators appointed to hear disputes arising under this g Staffing Agreement shall be selected by the rules of the American Arbitration Association or by any other rules, which may be agreed upon by the parties. The arbitrator shall have no authority to order either party to pay the costs of arbitration or attorney fees of the other party. Arbitration shall take place in City.(See id. Decl. Ex. 1 at 6.)
On February 2, 2001, respondent filed with the American Arbitration Association ("AAA") a demand for arbitration, alleging therein that petitioners breached the Agreement by failing to "pay the invoice balance due and owing in the amount of $2,664, 954," or alternatively, that petitioners were liable under a "common count" for the "reasonable value of the work, labor and services rendered" or under the theory of "promissory estoppel" for costs expended by respondent in reliance on petitioners' promise to pay "certain agreed upon rates of pay" for nurses provided under the Agreement. (See id. Ex. 6.) On February 22, 2001, petitioners filed with the AAA an answer and counterclaim, denying respondent's claims and raising three counterclaims: (1) that respondent breached the Agreement by failing to provided staffing "as confirmed by oral and written representations made by [respondent's] personnel to representatives of (petitioners];" (2) that respondent negligently misrepresented respondent's "ability to provide appropriate staffing as required by the Staffing Agreement;" and (3) that respondent breached the Agreement by filing a lawsuit and refusing to voluntarily dismiss that action until after petitioners had incurred attorneys fees and costs to prepare and file a demurrer. (See id. Ex. 7.)
On February 24, 2001, respondent filed an "Answering Statement of U.S. Nursing Corporation to Counterclaim and Objection to Jurisdiction of Arbitrator and Arbitrability of Counterclaim," in which respondent requested that the arbitrator, pursuant to "R-8 of the Commercial Dispute Resolution Procedures," conduct a preliminary hearing to rule on whether the parties had agreed to arbitrate the negligent misrepresentation claim. (See id. Ex. 8.) After a hearing on that matter, the arbitrator ruled that petitioners' negligent misrepresentation claim was arbitrable. (See id. Ex. 12.)
Rule R-8 of the AAA Commercial Dispute Resolution Procedures, titled "Jurisdiction," provides in relevant part as follows:
(a) The arbitrator shall have the power to rule on his or her own jurisdiction including any objections with respect to the existence, scope or validity of the arbitration agreement.
. . .
(c) A party must object to the jurisdiction of the arbitrator or to the arbitrability of a claim or counterclaim no later than the filing of the answering statement to the claim or counterclaim that gives rise to the objection. The arbitrator may rule on such objections as a preliminary matter or as part of the final award.(See id. Ex. 9.)
On November 29, 2001, the arbitrator issued an Arbitration Award ("Award"), in which the arbitrator concluded as follows: (1) respondent breached the Agreement by failing to use its "best efforts" to provide the nursing staff needed by petitioners (see id. Ex. 2 at 2); (2) although petitioners could have terminated the Agreement in light of respondent's breach, petitioners did not terminate and thus were liable to respondent for the services of the nurses provided by respondent in the amount of $2,555,352.20 (see id. Ex. 2 at 2-3); (3) respondent "misrepresented to [petitioners] that sufficient nurses to fill their order would be available," and petitioners relied on such misrepresentation to their detriment and incurred damages in the amount of $2,868,941.60 (see id. Ex. 2 at 3-4); and (4) respondent breached the Agreement by filing a civil action and not dismissing it until after petitioners had incurred damages consisting of attorney's fees and costs in the amount of $5,064.60, "not duplicative of work necessary irrespective of the forum." (See id. Ex. 2 at 5.) The arbitrator awarded petitioners the net amount of $319,994.76. (See id.)
The net figure included $1,340.76, representing respondents "share of deposits previously advanced to [AAA]." (See id. Ex. 2.)
II. DISCUSSION
Section 9 of the Federal Arbitration Act ("FAA") provides that "any party to the arbitration may apply to the court . . . for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified or corrected as prescribed in sections 10 and 11 of this title." See 9 U.S.C. § 9.Section 10 of the FAA provides that a district court "may make an order vacating the award upon the application of any party to the arbitration," where, inter alia "the arbitrators exceeded their powers," see 9 U.S.C. § 10 (a)(4), or "there was evident partiality . . . in the arbitrators. . . ." See 9 U.S.C. § 10 (a)(2).
Petitioners move to confirm the Award on the ground that there exists no basis to vacate, modify, or correct the Award. Respondent moves to vacate the Award on the ground that (1) the arbitrator exceeded her powers by finding that petitioners' negligent misrepresentation claim was arbitrable; (2) the arbitrator exceeded her powers by awarding petitioners attorneys' fees; and (3) the arbitrator failed to disclose information that would have shown that she was evidently partial in favor of petitioners.
A. Negligent Misrepresentation Claim
Respondent argues that petitioners' negligent misrepresentation claim was not arbitrable because that claim does not involve a dispute that "arises under the parties' Agreement. (See Freedman Decl. Ex. 1 at 6.) Respondent further argues that because the parties did not agree that the arbitrator should decide the question of arbitrability, the arbitrator's decision to exercise jurisdiction over the claim is subject to de novo review.
1. Standard of Review
Parties to an arbitration agreement may agree to submit questions of arbitrability to the arbitrator. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995). Where the parties have so agreed, a district court may set aside the arbitrator's decision "only in certain narrow circumstances." See id. 9 U.S.C. § 10. Where the parties have not agreed to submit the question of arbitrability to an arbitrator, but the arbitrator has ruled on that question, a district court decides the question de novo, "namely, independently." See First Options, 514 U.S. at 943.
Relying on First Options, respondent argues that because it filed an objection to the arbitrator's jurisdiction to hear the negligent misrepresentation claim, respondent "did not clearly and unmistakably agree to be bound by her ruling, and thus waive its right to de novo review." See Resp.'s Mot. to Vacate at 11:2-9; First Options, 514 U.S. at 947 (holding arbitrability subject to de novo review where parties did not "clearly agree" to submit the question of arbitrability to arbitration). Respondent's argument is not persuasive.
First Options requires de novo review where "the parties did not agree to submit the arbitrability question itself to arbitration." See id. at 943 (emphasis in original). Here, although respondent did file an "Objection to Arbitrability of Counterclaim for Negligent Misrepresentation," respondent expressly agreed to submit the arbitrability question to the arbitrator. Indeed, in its memorandum of points and authorities in support of its objection, respondent titled one section "Arbitrator Has Authority to Rule on Issue of Arbitrability."(See Freedman Decl. Ex. 10 at 8.) Respondent explained therein that the AAA Commercial Dispute Resolution Procedures are incorporated into the parties' Agreement, and that Rule R-8 provides that the arbitrator has the power to rule on her own jurisdiction, including ruling on objections concerning the scope of an arbitration agreement.
As noted above, the arbitration clause provides that "[a]ll arbitrators appointed to hear disputes arising under this Staffing Agreement shall be selected by the rules of the American Arbitration Association or by any other rules, which may be agreed upon by the parties." (See id. Decl. Ex. 1 at 6.) Respondent does not contend that the parties agreed to abide by any rules other than those of the AAA.
Respondent does not argue to this Court that the AAA Commercial Dispute Resolution Procedures are not incorporated into the parties' Agreement nor does. respondent deny that it requested that the arbitrator rule on the question of arbitrability. Where the parties have agreed to have an arbitrator decide the question of arbitrability, the applicable standard of review is one of deference to the arbitrator's decision. See First Options, 514 U.S. at 943 ("Did the parties agree to submit the arbitrability question itself to arbitration? If so, then the court's standard for reviewing the arbitrator's decision about that matter should not differ from the standard courts apply when they review any other matter that the parties have agreed to arbitrate.") (emphasis in original).
In sum, the Court finds respondent clearly agreed to submit, and did submit, the issue of arbitrability of the negligent misrepresentation claim to the arbitrator. Accordingly, the Court will review the arbitrator's determination as to arbitrability with deference. See id. at 943 ("[A] court must defer to an arbitrator's arbitrability decision when the parties submitted that matter to arbitration.")
2. Arbitrability of Negligent Misrepresentation Claim
Respondent argues that the Court should not defer to the arbitrator's decision as to the arbitrability of petitioners' negligent misrepresentation claim because the arbitrator exceeded her authority by "ignoring the plain language" of the Agreement (See Resp.'s Mot. to Vacate at 12:2-3), and/or because the arbitrator acted in "manifest disregard of the law." (See id. at 18:5-6.)
A district court's review of arbitration decisions is very narrow:
We review the Panel's award mindful that confirmation is required even in the face of erroneous findings of fact or misinterpretations of the law. It is not enough that the Panel may have failed to understand or apply the law. An arbitrator's decision must be upheld unless it is completely irrational or it 25 constitutes a manifest disregard of the law.French v. Merrill Lynch, Pierce, Fenner Smith, Inc., 784 F.2d 902, 906 (9th Cir. 1986) (internal quotations and citations omitted). Further, "any doubts concerning the scope of [an arbitration agreement] should be resolved in favor of arbitration." See id. at 908 (quoting Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 406 U.S. 1, 24-25 (1983)).
Here, the arbitrator concluded that the negligent misrepresentation claim was "directly related" to respondent's contractual promise to use its best efforts to provide staff as needed to fill petitioners' weekly schedule, and that the "evidence relevant to the [negligent misrepresentation claim] was intertwined with the evidence relevant to the breach of contract claim." (See, Freedman Decl. Ex. 12 at 1-2.) In so concluding, the arbitrator cited to cases which the arbitrator determined were supportive of her interpretation of the scope of the Agreement.See, e.g., Coast Plaza Doctors Hospital v. Blue Cross, 83 Cal.App.4th 677, 684-85 (2000) (holding claim for negligent interference with prospective economic advantage and other tort and statutory claims constituted disputes "arising under" the parties' agreement where those claims "center[ed] around and [were] clearly based upon" terms in the agreement and were "inextricably related to [the agreement's] terms and provisions").
Before this Court, but not before the arbitrator, respondent argues that there exist other cases that have interpreted the phrase "arising under," or similar language, very narrowly. See, e.g., Mediterranean Enterprises. Inc. v. Ssangyoung Corp., 708 F.2d 1458, 1464 (9th Cir. 1983) (holding "arising under covers "only those [disputes] relating to the interpretation and performance of the contract itself). Assuming,arguendo, respondent can rely at this time on law or arguments never presented to the arbitrator, respondent nonetheless has failed to make the requisite showing for vacatur. The cases cited by respondent involve determinations specific to the facts presented therein, and do not necessarily indicate that tort claims cannot fall within the scope of arbitration clauses containing language similar to that at issue, where such claims "relate to" the performance of the contract. See id.
In its memorandum on arbitrability submitted to the arbitrator, respondent did not cite to any cases that interpret the phrase "arising under or similar language. (See Freedman Decl. Ex. 10.) Instead, respondent argued, without citation to any case authority, that "tort claim[s] are clearly not included in the arbitration agreement, or anywhere else in the contract. . . ." (See id. Ex. 10 at 6.)
Here, as noted, the arbitrator concluded that the negligent misrepresentation claim "directly related" to the "best efforts" clause of the parties' Agreement. In a motion in limine filed prior to the arbitration hearing, respondent essentially agreed with the arbitrator's characterization of petitioners' negligent misrepresentation claim. In that motion, respondent argued that "[t]he false promise or promises that [petitioners] claim were made relate to the matter covered by the Job Action Staffing Agreement. . . ." (See Freedman Decl. Ex. 13 at 7.) The arbitrator's decision that the negligent misrepresentation claim was arbitrable can hardly be described as "completely irrational" or "in manifest disregard of the law." See French, 784 F.2d at 906.
Accordingly, the Award will not be vacated on the ground that the arbitrator erred in concluding the negligent misrepresentation claim was arbitrable.
B. Damages
On petitioners' claim that respondent breached the Agreement by filing suit in state court, the arbitrator awarded petitioners damages in the amount of $5,064.60, which represented the "fees and costs related to the action, not duplicative of work necessary irrespective of the forum."(See Freedman Decl. Ex. 2 at 5.)
Respondent contends that this amount was awarded in excess of the arbitrator's authority because the Agreement provided that "[t]he arbitrator shall have no authority to order either party to pay the costs of arbitration or attorney fees of the other party." (See id. Ex. 1 at 6.) Respondent argues that this provision prohibits any award of damages based on attorney's fees. Petitioners interpret the provision to preclude the arbitrator from awarding attorney's fees incurred in connection with a party's participation in the arbitration proceeding, but argue that the provision imposes no limitation on the type of damages that can be awarded on an arbitrable claim. The arbitrator implicitly interpreted the provision as proposed by petitioners. The arbitrator noted in her Award that neither party sought "fees or costs," and awarded the sum in question as "damages . . . due to the breach of the Agreement. . . ."(See id. Ex. 2 at 1, 5.)
"[A]n otherwise valid arbitration award will not be vacated unless it may be said with positive assurance that the agreement is not susceptible of an interpretation that covers the award." French, 784 F.2d at 908 (internal quotations, alterations, and citation omitted). If the Agreement were interpreted as proposed by respondent, the parties would have contracted to arbitrate claims for breach of contract based on the filing of a lawsuit, but at the same time would have precluded recovery of any damages incurred as a result of that breach. In other words, the parties would have contracted to engage in an idle act. By contrast, the arbitrator's interpretation gives meaning to the Agreement and is consistent with the language therein.
Accordingly, the arbitrator did not act in excess of her authority under the Agreement by awarding attorney's fees as damages for respondent's breach of contract.
C. Evident Partiality
Respondent argues that the Award should be vacated on the grounds of "evident partiality." See 9 U.S.C. § 10 (a)(2). "[E]vident partiality is present when undisclosed facts show a reasonable impression of partiality." Schmitz v. Zilveti, 20 F.3d 1043, 1046-47 (9th Cir. 1994) (vacating award where arbitrator failed to disclose his law firm's prior representation of arbitrating party's parent corporation).
Respondent argues that the arbitrator failed to disclose her "involvement with several non-profit groups benefitting children." (See Resp.'s Mot. to Vacate at 20:7-8.) In particular, respondent states that although the arbitrator disclosed that she was the founding president of the San Francisco Women Lawyers Alliance, she did not disclose that organization's participation in the operation of childcare centers located at two San Francisco courthouses, drafting legislation pertaining to childcare centers in courts statewide, and assisting the City and County of San Francisco in recovering delinquent fees earmarked for construction of child care centers. Respondent also states that the arbitrator did not disclose that both she and her husband were contributors to the lmpact Fund, an organization that, inter alia, "contributes to litigation involving children's issues." (See Freedman Decl. ¶ 24.) Respondent argues that because petitioner Lucile Packard Children's Hospital provides health care services to children, the arbitrator was required to disclose the above-referenced information.
Respondent has identified 16 grants made by the Impact Fund over the past four years to "parties that were involved in litigating children's issues." (See id.) of the 16 26 grants, 2 appear to have been made to entities challenging lack of access to obstetric and/or pediatric care by indigent women and/or female inmates. (See id.) None of the other grants appears to involve issues pertaining to medical care.
Vacatur of an arbitration award for "evident partiality" is appropriate where "the possibility of bias [is] direct, definite and capable of demonstration rather than remote, uncertain and speculative." See Middlesex Mutual Ins. Co. v. Levine, 675 F.2d 1197, 1202 (4th Cir. 1982); see also Schmitz, 20 F.3d at 1046 (citing Levine with approval). Here, respondent has not shown that the arbitrator had any prior involvement with any party to the arbitration, or any person or entity associated with any party to the arbitration, the usual circumstances involved where a court has found evident partiality. Compare Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145, 146 (1968) (finding evident partiality where arbitrator failed to disclose arbitrator's prior consulting work for party to arbitration),and Schmitz, 20 F.3d at 1048, with Apusento Garden (Guam) Inc. v. Superior Court, 94 F.3d 1346, 1352-53 (9th Cir. 1996) (holding arbitrator's failure to disclose arbitrator and expert witness for party were "passive investors in a limited partnership" insufficient to create a "reasonable impression of possible bias"). Rather, at best, respondent has shown that the arbitrator supported organizations that have indirectly engaged in or supported projects that could be perceived to benefit children generally. Any possibility of bias capable of being inferred from these activities is simply too "remote, uncertain and speculative" to warrant vacatur. See Levine, 675 F.2d at 1202.
Respondent has not cited to any case in which evident partiality has been found based on a showing similar to that made here.
Accordingly, respondent has failed to show evident partiality on the part of the arbitrator.
CONCLUSION
For the reasons stated, respondent has failed to show that the Award should be vacated.
Accordingly, petitioners' Motion for an Order Confirming Arbitration Award is hereby GRANTED and respondent's Motion to Vacate Arbitration Award is hereby DENIED.
This order terminates Docket Nos. 12 and 20.
The Clerk shall close the file.