Hicks v. Bank of America, N.A. , 218 F. App'x 739 ( 2007 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES CO URT O F APPEALS
February 21, 2007
FO R TH E TENTH CIRCUIT Elisabeth A. Shumaker
Clerk of Court
KERRY R. HICK S,
Plaintiff-Appellee,
v. No. 05-1399
(D.C. No. 04-CV-2616-(ZLW ))
B AN K OF A M ER IC A, N .A , (D . Colo.)
Defendant-Appellee,
and
TH E CAD LE C OM PA N Y ; B UCKEYE
RETIR EM ENT CO., LLC, LTD.;
W ILLIAM E. SHAU LIS; DANIEL C.
CA DLE,
Defendants-Appellants.
KERRY R. HICK S,
Plaintiff-Appellee, No. 05-1525
(D.C. No. 04-CV-2616-(ZLW ))
v. (D . Colo.)
B AN K OF A M ER IC A, N .A ,
Defendant,
and
TH E CAD LE C OM PA N Y ; B UCKEYE
RETIR EM ENT CO., LLC, LTD.;
W ILLIAM E. SHAU LIS; DANIEL C.
CA DLE,
Defendants-Appellants.
OR D ER AND JUDGM ENT *
Before KELLY, L UC ER O, and HA RTZ, Circuit Judges.
W e have consolidated these appeals for purposes of disposition. See Fed.
R. App. P. 3(b)(2). Appellants (the “Cadle defendants”) challenge orders of the
district court confirming an arbitration award. This case presents three issues:
(1) whether the Cadle Company was properly made a party to the arbitration;
(2) whether the arbitrator manifestly disregarded Tennessee abuse-of-process law
in aw arding damages to K erry H icks; and (3) whether Bank of America, N.A.
(“B OA ”) is properly dismissed from the case. After first establishing that we
have jurisdiction pursuant to 9 U.S.C. § 16(a)(1)(D), we apply the high standard
of review applicable to arbitration decisions, under which standard we reject each
of Cadle defendants’ merits arguments and AFFIRM .
*
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and
collateral estoppel. It may be cited, however, for its persuasive value consistent
with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
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I
At the outset, we are confronted by a controversy concerning the proper
content of the record on appeal. Plaintiff-appellee Kerry Hicks contends that five
volumes of the Cadle defendants’ appendix w ere not before the district court
when it reached its decision on confirmation, and should therefore be excluded.
These allegedly improper materials include pleadings filed in the arbitration, the
rules and procedures followed by the arbitrator, exhibits filed w ith the arbitrator,
and a transcript of the arbitration proceedings.
Our review persuades us that the complete arbitration hearing transcript
was never part of the district court record. As such, we will not consider it as
part of the record on appeal. See Allen v. M innstar, Inc., 8 F.3d 1470, 1473-76
(10th Cir. 1993). W e will consider, however, those portions of the transcript and
the arbitration exhibits that were specifically provided to the district court. See
id. at 1475-76.
A
The pertinent facts are these. Hicks was the founder and president of
Specialty Care Network (“SCN”), a physician practice management business.
SCN entered into a revolving loan and security agreement with BOA. In
November 1999, SCN sought an additional loan of $3,550,000 from BOA in order
to raise venture capital to restructure its business and to pay off its revolving line
of credit. BOA was unwilling to advance any more funds to SCN, but it was
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willing to loan the money to SCN’s officers, with the understanding the funds
would then be passed through to the company.
SCN’s officers agreed to borrow the $3,550,000 from BOA and to use the
funds for restructuring. The officers orally agreed with W alker Choppin, a Senior
Vice President of BOA, to a division of responsibility for repayment of this loan
as follow s:
(1) Hicks, $2 million, individually;
(2) Patrick Jaeckle, $1 million, individually;
(3) Hicks and Jaeckle, $350,000, jointly; and
(4) David Hicks and D. Paul Davis, $100,000 each, individually.
W ith only a few hours left to close the transaction, Choppin faxed a
promissory note to Hicks. To Hicks’ surprise, however, the terms of the note
diverged from the oral agreement, making Hicks and Jaeckle jointly and severally
liable for the full amount of the loan. Choppin assured Hicks that his liability
would not extend beyond the $2 million previously agreed-upon. He further
explained that BOA needed Hicks’ signature to satisfy internal BOA processing
requirements until Jaeckle’s collateral had been perfected. Hicks and Jaeckle
signed the note as drafted at the eleventh hour, on December 31, 1999.
The note contained the following integration provision:
NO TICE OF FINA L AG REEM ENT. THIS WRITTEN
PR OM ISSO RY N O TE R EPRESENTS THE FINAL AGREEM ENT
BETW EEN TH E PARTIES AND M AY NO T BE CO NTR AD ICTED
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B Y EV ID EN CE O F PR IO R, CONTEM PORANEOUS, OR
SUBSEQUENT ORAL AGREEM ENTS OF THE PARTIES. THERE
A RE N O U N WRITTEN ORAL AGREEM ENTS BETW EEN THE
PARTIES.
The note also contained a provision that required binding arbitration of:
A N Y CO N TR OV ER SY O R CLAIM BETW EEN OR AM ONG THE
PARTIES H ERETO INCLUDING BU T N OT LIM ITED TO TH OSE
AR ISING OU T OF OR RELA TING TO TH IS INSTRU M ENT,
AG REEM ENT O R D OC UM ENT O R A NY RELATED
IN STR UM EN TS, A G REEM ENTS OR DOCUM ENTS, INCLUDING
AN Y C LAIM BA SED ON O R A RISING FROM AN ALLEG ED
TORT[.]
The bridge loan to SCN worked as anticipated: SCN paid off the remainder
of the BOA revolver, and restructured its business as Health Grades.com, Inc.
Hicks paid the $2 million he had agreed to pay under the note, and David Hicks
and Davis each paid off their $100,000 obligations. Yet not all w as smooth
sailing – Jaeckle did not pay his obligation under the note prior to the due date,
and neither Hicks nor Jaeckle paid the $350,000 joint obligation when it became
due. The note w as renewed twice on essentially the same terms, eventually
reflecting a remaining balance of $1 million and a maturity date of September 30,
2000. 1 Hicks claims that Choppin assured him each time that he was not actually
liable for the $1 million attributed to Jaeckle, and that his name w ould be
removed as soon as BOA had perfected its interest in Jaeckle’s collateral.
1
Further references to “the note” in this decision may encompass the original and
renewal notes, as required by context.
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B
Jaeckle did not pay the note, and BOA did not perfect a security interest in
his collateral. Instead, on October 2002, BOA charged off the note and sold it to
the Cadle C ompany (“Cadle”), as part of a distressed loan pool. After Cadle
began collection efforts, Hicks’ attorney wrote to BOA’s attorney demanding that
BOA inform Cadle that Hicks had been released from liability on the note.
Hicks’ attorney also wrote to Cadle advising it that Hicks was not liable.
BOA’s counsel wrote to Cadle on July 24, 2003, reiterating its position that
Hicks w as not liable on the note. The letter referred to “ample information” in
BOA’s loan file at the time the loan was sold showing that BOA understood Hicks
to be free of liability. Notwithstanding BOA’s representations, or the note’s
arbitration provision, defendant Buckeye Retirement Co., LLC (“Buckeye”), an
alter ego of Cadle, sued Hicks and Jaeckle on September 29, 2003 in federal
district court in Tennessee, seeking to collect on the note. On October 23, 2003,
Hicks moved to stay the Tennessee action, and initiated arbitration proceedings in
Denver, seeking tort damages against Cadle and Buckeye for abuse of process.
BOA ultimately repurchased the note.
C
On September 27, 2004, while the arbitration was pending, W illiam
Shaulis, Buckeye’s manager, wrote a letter to the attorneys general of Tennessee
and Colorado, suggesting that Hicks be investigated for bank fraud. The letter
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stated that “[Hicks], in our opinion, admit[ted] to bank fraud as his defense to a
large commercial note that we were trying to collect after we purchased that note
from a bank.” The letter informed the Tennessee attorney general that if he
reviewed the relevant banking laws, he would “have a slam-dunk case because of
the court filings, as well as Hicks’ sworn deposition testimony.”
D
On December 3, 2004, Hicks filed a complaint in Colorado state court
against BOA and Cadle defendants asserting several tort claims. BOA removed
the complaint to federal district court. On January 14, 2005, the district court
stayed the action pending the outcome of the arbitration.
The arbitrator held hearings and subsequently entered a decision on Hicks’
claim s against C adle defendants and BOA. He dismissed the claims against B OA ,
finding that “Bank of A merica did nothing in this case to merit an aw ard against
it.” Terming the filing of the Tennessee law suit “offensive” in light of the note’s
arbitration clause, the arbitrator awarded Hicks attorneys’ fees incurred in
defending against that suit. The arbitrator further awarded Hicks $400,000
against Cadle and Buckeye, jointly and severally, in light of the their “callous[],”
“shocking,” and “outrageous” conduct in attempting to collect on the note
notwithstanding BOA’s letter explaining Hicks’ non-liability. He subsequently
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entered a “final arbitration award,” which upheld the prior award and applied the
Tennessee prejudgment interest statute to the attorneys’ fee portion of the award. 2
H icks filed a motion to confirm the arbitrator’s award, in which BOA
joined. Cadle defendants opposed confirmation. On July 28, 2005, the district
court entered an order (1) confirming that portion of the arbitrator’s award that
released B OA from liability, and (2) dismissing BOA from the case. On
October 26, 2005, the district court entered an order confirming the remainder of
the A pril 28, 2005, final arbitration aw ard. In its second order, the district court
deferred the entry of final judgment, noting that “other claims remain pending
between the parties in arbitration.” It concluded, however, that the arbitration
award was “final” for purposes of confirmation. Cadle defendants have
separately appealed from both the district court’s order of July 28, 2005
(No. 05-1399), and its order of October 26, 2005 (No. 05-1525).
II
Hicks has challenged our jurisdiction to entertain this appeal. Specifically,
he argues that because there are claims still pending before the arbitrator, the
arbitrator’s award (and, hence, the order confirming it) cannot yet be final. The
Federal Arbitration Act’s (“FAA”) appeal provision provides, however, that “[a]n
appeal may be taken from . . . an order . . . confirming or denying confirmation of
2
The arbitrator made reference in this final arbitration award to “the $444,000
amount” of his prior aw ard. This appears to be a typographical error.
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an [arbitrator’s] award or partial award.” 9 U.S.C. § 16(a)(1)(D ) (emphasis
added). Hicks’ position effectively reads the words “or partial award” out of
§ 16(a)(1)(D ). Under the FAA, an arbitration award that does not resolve all
controversies between the parties may be confirmed, and an appeal taken from
that confirmation. See Hew lett-Packard Co. v. Berg, 61 F.3d 101, 104 (1st Cir.
1995). Hicks’ related argument that appellate jurisdiction does not attach until
the district court enters judgment is also unavailing. The First Circuit explained
in Berg that a confirmation order is final for purposes of appeal, even absent the
entry of a final judgment satisfying the usual prerequisites of 28 U.S.C. § 1291and Fed. R. Civ. P. 58, because “Congress directed in the statute governing
arbitration-related appeals that such an ‘order’ confirming an award should be
immediately appealable. The reason is a pro-arbitration policy designed to
expedite confirmation of arbitration awards.” Hewlett-Packard, 61 F.3d at 104(citation omitted).
It must be acknowledged that Cadle defendants’ first appeal was taken from
an order not final within the meaning of § 16(a)(1)(D), because the district court
had not yet confirmed either a full “award or a partial award.” The October 26,
2005, order, however, confirmed the arbitrator’s “final arbitration award” of
April 28, 2005 in its entirety. The second order was therefore an appealable order
within the meaning of § 16(a)(1)(D), and the entry of that order caused the first
case to ripen for purposes of appellate review. See Jackson v. Volvo Trucks N .
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Am., Inc., 462 F.3d 1234, 1238 (10th Cir. 2006). As such, we now have
jurisdiction to hear both cases in this consolidated appeal.
III
“In review ing the district court’s confirmation of the arbitration award, w e
review its factual findings for clear error and questions of law de novo.” Sheldon
v. Vermonty, 269 F.3d 1202, 1206 (10th Cir. 2001). “[W ]e must give extreme
deference to the determination of the [arbitrator] for the standard of review of
arbitral awards is among the narrowest known to law.” Id. (quotation omitted).
M ere errors in the arbitrator’s factual findings do not justify review or reversal.
Id.The FAA recognizes only a few grounds on which the district court may
vacate an arbitration award:
(1) where the award was procured by corruption, fraud, or undue
means;
(2) where there was evident partiality or corruption in the arbitrators,
or either of them;
(3) w here the arbitrators w ere guilty of misconduct in refusing to
postpone the hearing, upon sufficient cause shown, or in refusing to
hear evidence pertinent and material to the controversy; or of any
other misbehavior by which the rights of any party have been
prejudiced; or
(4) w here the arbitrators exceeded their powers, or so imperfectly
executed them that a mutual, final, and definite award upon the
subject matter submitted was not made.
9 U.S.C. § 10(a).
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“W e have also recognized a handful of judicially created reasons that a
district [court] may rely upon to vacate an arbitration award, and these include
violations of public policy, manifest disregard of the law, and denial of a
fundamentally fair hearing.” Sheldon, 269 F.3d at 1206 (quotation omitted).
“Outside of these limited circumstances, an arbitration award must be confirmed.”
Id. “This Court has characterized the manifest disregard standard as willful
inattentiveness to the governing law. M anifest disregard of the law clearly means
more than error or misunderstanding with respect to the law.” ARW Exploration
Corp. v. Aguirre, 45 F.3d 1455, 1463 (10th Cir. 1995) (citations and quotations
omitted). “Even erroneous interpretations or applications of law will not be
disturbed.” Id.A
Cadle first contends that the arbitrator manifestly disregarded the law and
imperfectly executed his powers by entering an award against Cadle, a non-party
to the note. Recognizing that the arbitrator’s decision is anything but a model of
clarity either generally or as to this issue, the decision indicates the arbitrator
believed Buckeye to be a strawman for purposes of assigning liability. Cadle
contends that the note’s arbitration provision required arbitration only of “any
controversy or claim between or among the parties hereto.” As Buckeye
purchased the note and was solely responsible for filing the Tennessee action,
Cadle argues that it should not have been compelled to arbitrate. Cadle further
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argues that to the extent the arbitrator’s finding of joint and several liability
presumes Buckeye’s corporate veil should be pierced, some minimal piercing
analysis was required.
Cadle’s position faces two insurmountable hurdles. First, there was
abundant evidence before the arbitrator that Cadle and Buckeye operated as
alter-egos. By its terms, the note was binding upon BOA’s successors and
assigns, one of which was Cadle, the original purchaser of the note from BOA.
Although an arms-length sale or assignment of the note might have divested a
prior holder of liability for its successor’s actions, there is sufficient evidence in
the record that Cadle and Buckeye did not operate at arms length. Accordingly,
w e hold that the arbitrator’s decision did not reflect manifest disregard of the law ,
even absent clear findings on the grounds for Cadle’s liability.
Second, and more importantly, Cadle vigorously participated in the
arbitration, advancing a counterclaim against Hicks and joining in BOA’s motion
to stay pending completion of the arbitration. As the district court further noted,
in their “Joinder in Bank of America’s, N.A., M otion To Stay The Action Pending
Completion of Ongoing Arbitration (Joinder),” Cadle defendants asserted that this
action must be arbitrated because the arbitration clause in the note clearly
encompassed all of the issues and claims Hicks asserted. Cadle therefore waived
its objection to arbitration and is estopped from arguing that the arbitrator lacked
personal jurisdiction to enter an aw ard against it. See Nat’l W recking Co. v. Int’l
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Bhd. of Teamsters Local 731, 990 F.2d 957, 960 (7th Cir. 1993) (“Failure to
present an issue before an arbitrator waives the issue in an enforcement
proceeding.”).
B
Cadle defendants next argue that the arbitrator evidently and manifestly
disregarded Tennessee law in entering the award. The arbitrator’s award was
based on abuse of process. Delphic as his decision is, the arbitrator’s finding of
abuse of process appears to rest on three grounds: (1) Cadle defendants were on
notice that BOA believed Hicks w as not liable on the note, but attempted to
collect from him regardless; (2) Cadle defendants filed suit against H icks despite
the note’s arbitration provision; and (3) Cadle defendants wrote baseless and
harassing letters to the attorneys general of Colorado and Tennessee claiming
Hicks had committed bank fraud.
Under Tennessee law , “a plaintiff must establish by evidence two elements
to recover for abuse of process: (1) the existence of an ulterior motive; and (2) an
act in the use of process other than such as would be proper in the regular
prosecution of the charge.” Givens v. M ullikin ex rel. Estate of M cElwaney,
75 S.W .3d 383, 400 (Tenn. 2002) (quotations omitted). “The test as to whether
process has been abused is whether the process has been used to accomplish some
end which is without the regular purview of the process, or which compels the
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party against whom it is used to do some collateral thing which he could not
legally and regularly be compelled to do.” Id. at 401 (quotation omitted).
Cadle defendants first find manifest disregard of the law in the arbitrator’s
alleged failure to apply Tennessee’s parol evidence rule. They contend that the
note’s integration clause prohibited reliance on any prior or contemporaneous oral
agreement. Therefore, they claim, the arbitrator should have found as a matter of
Tennessee law that Hicks was liable for the full balance on the note,
notwithstanding any “secret oral side agreement” he claims to have reached with
Choppin. As such, they argue they acted properly in attempting to collect on the
note, and could not be liable to H icks for abuse of process.
Hicks responds that under Tennessee law , the statute of frauds is not a
defense to a tort action. The cases Hicks cites, however, concern fraudulent
inducement or fraudulent misrepresentation going to the existence of the contract
itself. See, e.g., Brungard v. Caprice Records, Inc., 608 S.W .2d 585, 588
(Tenn. App. 1980). The arbitrator specifically found in his award that BOA did
not defraud Hicks in obtaining the loan in question, and so these cases do not
control. The record is unclear with regard to the arbitrator’s reliance on evidence
of the oral agreement in finding that Hicks was not liable on the note at the time
Cadle defendants attempted to collect from him; the award makes no
determination as to Hicks’ ultimate liability on the note. Assuming arguendo that
Cadle defendants are correct that the arbitrator erroneously applied the parol
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evidence rule and side-stepped the note’s integration clause, a finding that Hicks
was not liable on the note is not a predicate to finding that Cadle defendants
engaged in abuse of process.
Rather, the core basis for the award is the arbitrator’s finding that Cadle
defendants abused process by haling Hicks into federal district court in
Tennessee, despite the fact that the note contained an unambiguous arbitration
provision. Instead of acknowledging that Hicks’ liability on the note was an open
question, and that further investigation or, at a minimum, arbitration were
warranted, Cadle defendants “went [forward] with their collection efforts in Court
because the arbitration clause gave [them] no pause.” A lthough it is not the only
possible reading, the arbitrator’s decision can be read to reference the uncertainty
about Hicks’ liability primarily to establish Cadle defendants’ ulterior motive in
bringing the Tennessee action, namely to harass Hicks. This interpretation is
bolstered by the arbitrator’s decision on Cadle defendants’ motion for summary
disposition, which acknowledged the role of the parol evidence rule, but did not
accord it controlling weight.
Cadle defendants next contend that the award was not based “on any
perversion or misdirection of the litigation process.” If Hicks w ere in fact liable
on the note, they contend they could not have “directed [the litigation process]
outside of its lawful course to the accomplishment of an objective other than that
for which it is provided.” This misstates the required showing to succeed on an
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abuse of process claim in Tennessee – a showing of some legal basis for filing
suit or otherwise using the judicial process is not a defense where (1) there was an
ulterior motive; and (2) the process used was improper. See Givens, 75 S.W .3d at
400 (“[T]he gist of the tort is not commencing an action or causing process to
issue without justification, but misusing, or misapplying process justified in itself
for an end other than that which it was designed to accomplish.”). Although
Cadle defendants’ liability for abuse of process in attempting to collect from
Hicks may be a close call, our review is limited to whether the arbitrator
manifestly disregarded the law. Under that standard, we have no basis for
vacating the award.
C
Cadle defendants next argue that the arbitrator imperfectly exercised his
powers by failing to make a final and definite award on the issue of whether
Hicks was actually liable on the note. See 9 U.S.C. § 10(a)(4). As discussed
supra, however, the arbitrator’s finding that Cadle defendants engaged in abuse of
process did not require him to determine whether H icks was liable on the note.
He merely needed to determine whether filing suit on the note, rather than
pursuing arbitration, was an abuse of process. The arbitrator reached a final and
definite decision on this issue. W e therefore reject this argument.
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D
Cadle defendants’ final challenge to the merits of the arbitrator’s decision
is that he “improperly included in his Award, and as a basis for his award of
damages, the issue of Buckeye’s September 2004 letter to two state Attorneys
General reporting a potential fraud which [the arbitrator] found to be beyond all
norms of debt collection activity.” They contend that this issue was not properly
before the arbitrator, because it w as explicitly reserved for later determination.
Cadle defendants’ argument that the arbitrator reserved all consideration of the
bank fraud issues to a later proceeding, and thus should not have used them as
even a partial basis for making a determination on Hicks’ abuse of process claim,
finds at least partial support in the record. Yet even assuming the arbitrator did
improperly rely on the bank fraud allegations to find abuse of process, he did not
manifestly disregard the law when he provided sufficient alternate grounds for his
determination, namely Cadle defendants’ decision to file suit in Tennessee.
IV
On appeal Cadle defendants argue for the first time that the procedure used
to select the arbitrator was violated, insofar as they were not properly consulted
before he was selected, and that the arbitrator was biased due to a prior
association with Hicks’ counsel. Neither of these arguments w ere presented to
the district court, and we w ill not consider them on appeal. See Smith v. Rogers
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Galvanizing Co., 128 F.3d 1380, 1385-86 (10th Cir. 1997) (“Generally, we will
not consider an issue that was not raised and resolved in the trial court.”).
V
Cadle defendants appealed from the district court’s order N o. 05-1399.
That order confirmed that portion of the arbitrator’s award finding that there was
no basis for any award against BOA, and dismissed BOA from the action
accordingly. In their brief Cadle defendants have not raised any arguments
opposing confirmation of this aspect of the award. “[T]he failure to raise an issue
in an opening brief w aives that issue.” Silverton Snowmobile Club v. U.S. Forest
Serv., 433 F.3d 772, 783 (10th Cir. 2006) (quotation omitted). As such, the
portion of the first district court order confirming the award as to BOA and
dismissing BOA from the case is affirmed.
VI
The orders of the district court are AFFIRM ED. All pending motions are
DENIED.
Entered for the Court
Carlos F. Lucero
Circuit Judge
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