Hermanns v. Albertson's, Inc. , 203 F. App'x 916 ( 2006 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES CO URT O F APPEALS
October 24, 2006
TENTH CIRCUIT Elisabeth A. Shumaker
Clerk of Court
ROBERT P. HERM ANNS,
Plaintiff - Appellant, No. 04-4298
v. (D.C. No. 2:04-CV-617-DB)
ALBERTSO N’S, INC., (D. Utah)
Defendant - Appellee.
OR D ER AND JUDGM ENT *
Before HA RTZ, M cKA Y, and TYM KOVICH, Circuit Judges.
Appellant Robert Hermanns served as an executive at American Stores
Company (“ASC”), a food and drug retail chain, for roughly three years before
being terminated without cause in 1997. As part of his employment,
M r. Hermanns entered into an employment agreement with ASC (the
“Agreement”) that provided for, among other things, a Special Long Range
Retirement Plan (“SLRRP”) benefit package. The SLRRP obligated ASC to pay
M r. Hermanns approximately $300,000 per year for twenty years from the time he
turned fifty-seven years old. Payment of the SLRRP w as conditioned on
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
M r. H ermanns’ compliance with the Agreement’s non-compete provisions.
Specifically, under Section VI-B of the Agreement, M r. Hermanns’ SLRRP
benefits would terminate upon his accepting employment with “a business
endeavor anywhere in the United States competing, as defined in Section VIII-B4
hereof, with the Company or any of its subsidiaries . . . unless waived in writing
by the Board of Directors of the Company.” 1 (R ., vol. 1, at 62.)
In 1999, ASC completed a reverse triangular merger with Albertson’s, Inc.
(“Albertsons”). As a result, ASC became a wholly owned subsidiary of
Albertsons. The parties dispute the extent to which ASC functioned outside of
Albertsons’ direct control following the merger. The arbitrator found that, post-
merger, “ASC continues in existence as a Delaware corporation with bylaws and
its own board of directors and officers who are employees of [Albertsons].” (R .,
vol. 3, at 1158 ¶ 14.)
In both 2000 and 2001 M r. Hermanns was due and received his SLRRP
benefits from Albertsons, not ASC. He received waivers from Albertsons’ board
of directors during this time to permit him to serve as an executive of a small, but
competing, grocery chain. In 2002, however, Albertsons refused to grant
M r. Hermanns a waiver were he to accept employment with A ssociated G rocers,
1
Section VIII-B4 defines competition to mean “a retail establishment in the
food or drug business in direct competition with a business operated by the
Company or its subsidiaries.” (R., vol. 1, at 65.)
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which Albertsons viewed as a significant competitor in the Northwest market.
According to Albertsons, its market area, as opposed to ASC’s former area, was
the relevant measure for the scope of the non-compete provisions. M r. Hermanns
nevertheless accepted employment with Associated Grocers, whereupon
Albertsons terminated its SLRRP payments.
M r. Hermanns initiated binding arbitration with Albertsons to recover the
SLRRP benefits. The arbitrator found in favor of Albertsons, and the district
court denied Appellant’s subsequent motion to vacate that award.
In considering a district court’s decision concerning a motion to vacate an
arbitration aw ard, w e review questions of law de novo but findings of fact for
clear error. See Bowen v. Amoco Pipeline Co., 254 F.3d 925, 931 (10th Cir.
2001). Our standard of review over the underlying arbitral decision, however, is
far more limited. Appellate review of “arbitral awards is among the narrow est
known to the law.” Litvak Packing Co. v. United Food & Com mercial Workers,
Local U nion No. 7, 886 F.2d 275, 276 (10th Cir. 1989). Consequently, “as long
as the arbitrator is even arguably construing or applying the contract and acting
within the scope of his authority, that a court is convinced he committed serious
error does not suffice to overturn his decision.” United Paperworkers Int'l v.
M isco, Inc., 484 U.S. 29, 38 (1987). W e lack the authority to review whether the
arbitrator rightly or wrongly decided the matter and can only examine whether the
arbitrator’s decision “draws its essence from the agreement.” Pub. Serv. Co. of
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Colo. v. Int’l Bhd. of Elec. Workers, Local Union No. III, 902 F.2d 19, 20 (10th
Cir. 1990) (per curiam); see also United Steelworkers of Am. v. Enter. Wheel &
Car Corp., 363 U.S. 593, 599 (“[T]he courts have no business overruling [the
arbitrator] because their interpretation of the contract is different from his.”).
Appellant argues that the arbitrator both exceeded his authority and
manifestly disregarded clearly established law in arriving at his decision, though
these two separate bases actually interrelate. According to Appellant, the
Agreement expressly identified ASC as the “Company.” This is evident.
Appellant asserts, however, that the arbitrator exceeded his authority by
im perm issibly replacing A lbertsons as the “Company” following the merger. A s
a result, Appellant charges that the arbitrator “re-wrote” the Agreement in a way
that altered its “fundamental nature.” (Appellant’s Br. at 11.) Appellant cites
several cases granting vacature where an arbitrator overstepped his bounds by
providing an unwarranted interpretation of an otherwise unambiguous contractual
term. But this is not such a case.
Following the merger, 2 the arbitrator found that the evidence reflected that
2
Albertsons and ASC effected a reverse triangular merger, or reverse
phantom merger. In a reverse triangular merger, the acquiring company
(Albertsons) creates a transitory subsidiary (Abacus Holdings, Inc.) for the
purpose of the merger, which merges into the target company (ASC). The target
company’s shareholders are given consideration for their shares, and their stock is
cancelled; the target company remains a corporation but becomes a subsidiary of
the acquiring company. Thus, ASC remained as a legal entity but had only one
(continued...)
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a change of control occurred at ASC. W e are not permitted to disturb this
finding. Appellant urges that the arbitrator’s finding that, post-merger, “ASC
continues in existence as a Delaw are corporation with bylaws and its own board
of directors and officers,” (R., vol. 3, at 1158 ¶ 14), is conclusive proof that ASC
continues to be the “Company” under the contract. However, this omits the
remaining portion of that finding, wherein the arbitrator found that the A SC board
of directors and officers became employees of Albertson’s. (Id.) W e cannot say,
as Appellant urges, that this case presents an instance where the arbitrator
substituted his own definition for one expressed in the contract. The arbitrator
necessarily needed to determine the appropriate parties to the Agreement
following the merger. The record reveals the parties’ disagreements over A SC’s
ability to function as an entity distinct from Albertsons’ control post-merger, an
issue on which the arbitrator made factual determinations that were both within
his authority and outside ours to question.
The weakness of Appellant’s position is best indicated by his contention
that the “[c]ontract as written [ ]clearly does not preclude [him] from competing
with ASC’s parent company.” (Appellant’s Br. at 24 (emphasis omitted).) W hen
the contract was written, ASC had no parent company. It strikes this court as odd
2
(...continued)
new shareholder, namely, Albertsons, which, despite Appellant’s protestations,
the arbitrator appears to have found assumed management and control of ASC.
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that a contract would define the parties to it by referencing hypothetical, future
controlling entities. Rather, as in most contracts, changes in ownership are
provided for in other contract provisions. Here, the arbitrator relied on Section
XIII-G of the Agreement to aid his understanding of the word “Company”
following the merger. 3 The arbitrator concluded that Albertsons, “through the
merger[,] is the successor to ASC (within the meaning of Section XIII-G) in the
ASC Employment Agreement.” (R., vol. 3, at 1162 ¶ 39 (emphasis added).)
Appellant asserts that the arbitrator manifestly disregarded longstanding corporate
law on the issue of successorship as well as recent law concerning reverse
triangular mergers in arriving at this conclusion. 4 W e observe that Appellant
ignores the emphasized parenthetical clause that restricts his finding of
successorship based on the extremely broad “or otherwise” language of Section
XIII-G. Of course, the arbitrator also permissibly relied upon extrinsic evidence
that supports his interpretation.
3
Section XIII-G provides: “This Agreement shall be binding upon and
inure to the benefit of the Parties hereto and the Company’s successors and
assigns, whether by merger, consolidation or otherw ise.” (R ., vol. 1, at 68.)
4
Reverse triangular mergers afford more favorable tax consequences and
permit nontransferability of assets and liabilities, unlike plain vanilla
consolidations. The parties cited to several cases in an attempt to establish
whether reverse triangular mergers permit the parent to be considered the target’s
successor-in-interest. Contrary to the parties’ assertions, the law on this issue is
not clear, nor need we make it so here given the arbitrator’s parenthetical
qualification of his use of the term “successor.” W e note that Appellant conceded
that had this been a plain vanilla merger, he would be without recourse.
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Based on the broad authority granted arbitrators, we must say that the
decision here clearly finds its essence in those provisions of the contract relating
to defining the “Company” following a merger. Although this court would have
been inclined to examine more closely ASC’s corporate form given the use of the
reverse triangular merger, it is not our role to do so when confronting arbitral
decisions. “‘[A]s we have explained and emphasized, our function is to do no
more than determine whether the arbitrator’s decision was drawn from the
Agreement and the several permissible sources he employed to enable him to
render his . . . [a]ward.’” Int’l Bhd. of Elec. Workers, Local Union No. 611 v.
Pub. Serv. Co. of N.M ., 980 F.2d 616, 619 (10th Cir. 1992) (alteration in original)
(quoting NCR Corp. v. Int’l Ass’n of M achinists & Aerospace Workers, Dist.
Lodge No. 70, 906 F.2d 1499, 1506 (10th Cir. 1990)).
AFFIRM ED.
Entered for the Court
M onroe G. M cKay
Circuit Judge
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