Lifecare International, Inc. v. CD Medical, Inc. , 68 F.3d 429 ( 1995 )

United States Court of Appeals,
Eleventh Circuit.
No. 94-4595.
LIFECARE INTERNATIONAL, INCORPORATED, a California corporation,
Plaintiff-Appellee,
v.
CD MEDICAL, INC., a Delaware corporation, CD Medical B.V., a
Dutch corporation, Defendants-Appellants.
Nov. 7, 1995.
Appeal from the United States District Court for the Southern
District of Florida. (No. 90-283-CIV-FAN), Federico A. Moreno,
Judge.
Before EDMONDSON, Circuit Judge, HILL, Senior Circuit Judge, and
MILLS,1 District Judge.
RICHARD MILLS, District Judge:
Should the arbitration award be set aside on the ground that
one of the arbitrators was biased?
If that issue falls, was the arbitration award arbitrary and
capricious?
The district court rejected both grounds and affirmed the
arbitration award.
We agree and affirm.
I. BACKGROUND
Appellant, CD Medical, Inc., manufactures dialysis machines
and the disposable components used on those machines; they also
directly market those machines and disposable components in the
United States. Outside of the United States, the products were
marketed through several wholly-owned subsidiaries, including
1
Honorable Richard Mills, U.S. District Judge for the
Central District of Illinois, sitting by designation.
Appellant, CD Medical B.V. CD Medical B.V., in turn, markets the
products through either its wholly-owned subsidiaries or
independent contractors. Appellee, Lifecare International, Inc.
("Lifecare"), was one of those independent contractors.
In 1990, Lifecare sued CD Medical, Inc., and CD Medical, B.V.,
in the United States District Court for the Southern District of
Florida for breach of contract, fraud, and tortious interference.2
Pursuant to the Federal Arbitration Act and a 1984 agreement
between the parties, CD Medical moved to compel arbitration and to
stay the district court proceedings. Over Lifecare's objection,
the district court granted CD Medical's motion to compel
arbitration and ordered the parties to arbitrate.
In June of 1992, Lifecare filed its demand for arbitration.
The demand claimed that: (1) CD Medical breached a February 1987
oral agreement to return the country of Algeria to Lifecare's
exclusive territory; (2) CD Medical breached a written February
1988 settlement agreement which also returned Algeria to Lifecare's
exclusive territory; (3) CD Medical breached a December 1988
written agreement which returned Algeria to Lifecare for the 1989
year; and (4) CD Medical tortiously interfered with Lifecare's
advantageous business relationship with the Algerian Government.
Lifecare sought damages for lost profits from sales it would have
made in Algeria in the amounts of $10,731,313 for 1988 and
$13,557,562 for 1989, along with prejudgment interest and punitive
damages.
2
From this point forward, CD Medical, Inc., and CD Medical,
B.V., will be collectively referred to as "CD Medical," unless
otherwise indicated.
In February 1993, the liability portion of the trial was
conducted before a three-member arbitration panel. The principal
hearing consumed seventeen days, ending on February 24, 1993.
During a break in the hearings in February, Arbitrator Craig Stein,
an attorney, recounted an incident in which he was personally
involved where opposing counsel refused to reschedule a summary
judgment hearing so that he could travel abroad. Arbitrator Stein
apparently described such conduct as unprofessional, and in his
opinion, it warranted disciplinary action.
On April 27, 1993, the arbitrators informed the parties that
they intended to rule in Lifecare's favor on liability. Sometime
thereafter, one of the White & Case attorneys representing CD
Medical discovered that the "opposing counsel" to whom Arbitrator
Stein had previously referred to was another attorney who was
employed at White & Case.3 Consequently, CD Medical sought to
disqualify Arbitrator Stein. The American Arbitration Association
denied the motion to disqualify and the proceedings continued.
On November 18 and 19, and December 16, 1993, the arbitrators
heard testimony regarding the amount of damages. On January 14,
1994, Arbitrator Stein and another arbitrator awarded Lifecare
$10,102,674 in lost profits, $5,394,203.90 in prejudgment interest,
$13,527.47 in administrative fees and costs, $71,485.06 in
arbitrators' fees and expenses, and $39,048 in expert witness fees.
Neither Arbitrator Stein nor the other arbitrator who joined in the
3
Arbitrator Stein was apparently so upset from the incident
that he drafted a letter to the White & Case attorney which
stated that he could not believe that "a firm of White & Case's
stature would condone [that] type of behavior."
majority decision issued an opinion explaining their reasoning for
finding CD Medical liable or justifying the amount of damages. The
dissenting arbitrator wrote a three-page opinion addressing only
the issue of liability.
Thereafter, CD Medical discovered that Arbitrator Stein failed
to disclose two prior contacts between CD Medical and the law firm
that he became "of counsel" to, Greenberg Traurig Hoffman Lipoff
Rose & Quentel, P.A. ("Greenberg Traurig"). The most recent
contact occurred in January of 1990 when CD Medical interviewed
Greenberg Traurig to represent them in the instant dispute. The
prior contact complained of occurred in 1988 when CD Medical asked
Greenberg Traurig to review an amendment to the exclusive agreement
between CD Medical and Lifecare. Arbitrator Stein became "of
counsel" to Greenberg Traurig a few months before he was selected
as an arbitrator in this case in November of 1992.
Subsequently, Lifecare moved to confirm and CD Medical moved
to vacate the award in the district court. In support of its
motion to vacate, CD Medical first argued that Arbitrator Stein was
biased. In support of their assertion that there was evident
partiality, i.e., bias, on the part of Arbitrator Stein, CD Medical
argued that Arbitrator Stein failed to disclose the prior
scheduling dispute with the White & Case attorney and that he also
failed to disclose the two prior contacts between CD Medical and
the firm he became "of counsel" to, Greenberg Traurig. Second, CD
Medical claimed that the award was arbitrary and capricious.
On April 28, 1994, the district court, in a three-paragraph
order, denied CD Medical's motion to vacate and granted Lifecare's
motion to confirm the arbitration award. A final judgment was
entered on June 14, 1994, and this appeal ensued.
II. STANDARD OF REVIEW
As a result of the Supreme Court's recent decision in First
Options of Chicago, Inc. v. Kaplan, --- U.S. ----, ----, 115 S.Ct.
1920, 1926, 131 L.Ed.2d 985 (1995), the Eleventh Circuit will no
longer review a district court's confirmation of an arbitration
award under an "abuse of discretion" standard. Instead, the courts
are instructed to review the district court's factual findings for
"clear error" and examine its legal conclusions de novo. Davis v.
Prudential Sec., Inc., 59 F.3d 1186, 1188 (11th Cir.1995).
III. DISCUSSION
On appeal, CD Medical raises the same issues that were before
the district court; namely, (1) whether Arbitrator Stein's failure
to disclose his prior contact with the White & Case attorney and/or
his failure to disclose the two prior contacts between CD Medical
and Greenberg Traurig (the firm he later became "of counsel" to)
evidence bias on Arbitrator Stein's part, and (2) whether the award
was arbitrary and capricious.
A. Review of Arbitration Awards Generally
Our review of commercial arbitration awards is controlled by
the Federal Arbitration Act ("FAA"). See 9 U.S.C. §§ 1-16. As
stressed by this Court on numerous occasions, "[i]t is well settled
that judicial review of an arbitration award is narrowly limited."
Davis, 59 F.3d at 1190; accord, Brown v. Rauscher Pierce Refsnes,
Inc., 994 F.2d 775, 778 (11th Cir.1993); Robbins v. Day, 954 F.2d
679, 682 (11th Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct.
201, 121 L.Ed.2d 143 (1992). Indeed, "the FAA presumes that
arbitration awards will be confirmed," Davis, 59 F.3d at 1190;
Brown, 994 F.2d at 778, consequently, "federal courts should defer
to the arbitrator's resolution of the dispute whenever possible."
Robbins, 954 F.2d at 682.
The FAA enumerates only four narrow bases for vacating the
arbitration award; one of which is applicable in the instant case.
That is, pursuant to § 10(a)(2), the award may be vacated "[w]here
there is evident partiality or corruption in the arbitrators, or
either of them."4 In addition to the statutory grounds for
vacatur, the Eleventh Circuit has recognized two non-statutory
bases for vacating an arbitration award. Brown, 994 F.2d at 779.
One of the non-statutory grounds is at issue in the instant case;
whether the arbitration award was arbitrary and capricious. 5 Id.(citations omitted).
Each of the two bases for vacating the award will be addressed
in turn.
B. Evident Partiality
In order to vacate on the ground of evident partiality in a
nondisclosure case, the party challenging the arbitration award
must establish that the undisclosed facts create a "reasonable
impression of partiality." Middlesex Mut. Ins. Co. v. Levine, 675
F.2d 1197, 1201 (11th Cir.1982); Schmitz v. Zilveti, 20 F.3d 1043,
4
For the other three statutory bases for vacating an
arbitration award, see 9 U.S.C. § 10(a)(1), (3), and (4).
5
The second non-statutory ground recognized in the Eleventh
Circuit for vacating an arbitration award is when the award is
contrary to public policy. Brown, 994 F.2d at 779.
1046 (9th Cir.1994). This Court has reasoned that the alleged
partiality must be "direct, definite and capable of demonstration
rather than remote, uncertain and speculative." Levine, 675 F.2d
at 1201; accord, Consol. Coal v. Local 1643, United Mine Workers,
48 F.3d 125, 129 (4th Cir.1995); Health Services Management Corp.
v. Hughes, 975 F.2d 1253, 1264 (7th Cir.1992). Accordingly, the
mere appearance of bias or partiality is not enough to set aside an
arbitration award. Consol. Coal, 48 F.3d at 129; Health Services
Management Corp., 975 F.2d at 1264; Florasynth, Inc. v. Pickholz,
750 F.2d 171, 173 (2nd Cir.1984); see Schmitz, 20 F.3d at 1046-47(rejecting "appearance of bias" standard).
As noted, CD Medical offers two independent reasons for
vacating the arbitration award on the ground of evident partiality.
First, CD Medical claims that Arbitrator Stein's failure to
disclose the scheduling dispute with a White & Case attorney (the
law firm that represented CD Medical) qualifies as a reasonable
impression of partiality. We disagree. Although we, too, believe
that Arbitrator Stein should have disclosed the dispute prior to
the commencement of the arbitration proceedings and we understand
CD Medical's anger toward Arbitrator Stein for failing to disclose
the incident. Nevertheless, we cannot conclude that Arbitrator
Stein's failure to disclose the dispute creates a reasonable
impression of partiality.
The incident did not involve any of the parties to the
arbitration hearing. Rather, it involved an attorney who was
employed at the same law firm—White & Case—that represented one of
the parties—CD Medical. The White & Case attorney involved in the
dispute took no part in the arbitration proceedings. Furthermore,
the dispute occurred approximately 18 months prior to the
commencement of the arbitration hearing.
With that in mind, it is important to put this incident in
perspective. The incident involved an argument between two
attorneys over a scheduling dispute. Attorneys argue and disagree
with one another all the time. One can debate the professionalism
of such behavior, but that will not change the reality of it.
True, because Arbitrator Stein memorialized the incident in
writing6 and recalled the dispute some 18 months later, perhaps
this was something more than the typical argument between
attorneys. Regardless, we cannot conclude that Stein's failure to
disclose the incident created a reasonable impression of
impartiality.
CD Medical is essentially asking this Court to conclude that
because Arbitrator Stein was involved in a dispute with an
attorney: (1) whatever animosity or anger he harbored toward that
attorney remained 18 months later; (2) the animosity was
transferred to the entire firm; and (3) the animosity was
ultimately transferred to the White & Case client, CD Medical.
That, we cannot conclude. It appears to the Court that this case
involves a situation that is more in the line of remote, uncertain,
and speculative partiality or a mere appearance of bias or
partiality, as opposed to bias or partiality that is direct,
definite, and capable of demonstration. See Int'l Produce, Inc. v.
A/S Rosshavet, 638 F.2d 548, 551 n. 3 (2nd Cir.1981) ("It does not
6
See footnote 3, supra.follow that an arbitrator's personal feelings in favor of or
against one attorney would necessarily be transferred to another
attorney in the same firm."), cert. denied, 451 U.S. 1017, 101
S.Ct. 3006, 69 L.Ed.2d 389 (1981).
CD Medical's second argument in support of its claim that
Arbitrator Stein was biased is even weaker. Arbitrator Stein
became "of counsel" to the law firm of Greenberg Traurig in the
middle of 1992. In January of 1990, CD Medical interviewed
Greenberg Traurig for the purpose of obtaining representation in
the instant dispute. Additionally, in 1988, CD Medical asked
Greenberg Traurig to review an amendment to the distributorship
agreement between CD Medical and Lifecare.
Because of CD Medical's two contacts with Greenberg Traurig,
the firm Arbitrator Stein eventually joined "of counsel," CD
Medical asks the Court to conclude that such contacts evidence bias
on the part of Arbitrator Stein against CD Medical. We disagree.
Once again, we must first put this issue in perspective. At the
time of the two contacts, Arbitrator Stein was not even affiliated
with Greenberg Traurig. Furthermore, there is no evidence in the
record that Arbitrator Stein was even aware of the fact that CD
Medical contacted Greenberg Traurig in 1988 or 1990.
Again, we are not condoning Arbitrator Stein's conduct.
Indeed, even a rudimentary inquiry by Arbitrator Stein would have
likely revealed Greenberg Traurig's prior contacts with CD Medical.
However, based on the paltry record before us regarding this
particular issue, we cannot conclude that Arbitrator Stein's
failure to investigate and, of course, disclose the two prior
contacts between Greenberg Traurig and CD Medical creates a
reasonable impression of bias or partiality. Similar to their
first argument, it appears CD Medical's position here is based on
speculative bias or partiality as opposed to bias or partiality
that is direct, definite, and capable of demonstration.
In summary, the "evident partiality" question necessarily
entails a fact intensive inquiry. This is one area of the law
which is highly dependent on the unique factual settings of each
particular case. The black letter rules of law are sparse and
analogous case law is difficult to locate. In most cases, the
courts have little guidance when confronted with an issue in this
area of the law. Based on the facts before this Court, we simply
cannot conclude that Arbitrator Stein's conduct, although in
violation of Canon II of the American Arbitration Association's
Code of Ethics, rises to the level of creating a reasonable
impression of bias or partiality.7
C. Arbitrary and Capricious
The Eleventh Circuit permits a court to vacate an arbitration
award when that award is arbitrary and capricious. Raiford v.
Merrill Lynch, Pierce, Fenner & Smith, 903 F.2d 1410, 1412 (11th
Cir.1990). An award is arbitrary and capricious "only if "a ground
for the arbitrator's decision cannot be inferred from the facts of
the case.' " Ainsworth v. Skurnick, 960 F.2d 939, 941 (11th
Cir.1992) (quoting Raiford, 903 F.2d at 1413), cert. denied, ---
7
In accordance with Canon II of the American Arbitration
Association's Code of Ethics, Arbitrator Stein executed a
statement verifying that he had "no past or present relationship
with the parties or their counsel, direct or indirect, whether
financial, professional, social or of any kind."
U.S. ----, 113 S.Ct. 1269, 122 L.Ed.2d 665 (1993). This is,
however, a very difficult standard for the party contesting the
arbitration award to overcome. Indeed, the award is presumptively
correct, Sullivan, Long & Hagerty, Inc. v. Local 559, 980 F.2d
1424, 1427 (11th Cir.1993), and will be vacated only if there is no
ground whatsoever for the Panel's decision. Brown, 994 F.2d at
781. Furthermore, "[f]or an award to be vacated as arbitrary and
capricious, the Panel's award must contain more than an error of
law or interpretation." Id.With this standard of review in mind, there clearly exists a
ground for the Panel's decision.8 In February of 1988, CD Medical
and Lifecare negotiated a settlement agreement by means of an
offering and an accepting facsimile. 9 In the offering facsimile,
Lifecare, among other things, asked CD Medical to turn over the
Algerian market to Lifecare for an additional five-year period.
Lifecare also asked CD Medical to provide letters of compliance to
reassure or eliminate any potential confusion by the Algerian
Government as to who—CD Medical or Lifecare—held the exclusive
distributorship rights in Algeria. Finally, Lifecare asked CD
Medical to "work with [them] and not against [them]." In return,
Lifecare agreed to release CD Medical from any potential liability
8
Here, only the dissenting arbitrator wrote an opinion. The
two majority arbitrators did not write an opinion. However,
"[i]t is well settled that arbitrators are not required to
explain an arbitration award and that their silence cannot be
used to infer a grounds for vacating the award." Robbins, 954
F.2d at 684.
9
Although CD Medical will likely disagree with our
characterization of their response as an "accepting" facsimile,
we refer to it in this fashion merely to highlight a plausible
interpretation of the exchange between the parties.
arising from its prior actions regarding the Algerian dispute. In
April of 1988, CD Medical, having neglected to send the
clarification letters to the Algerian Government, contacted the
Algerian Government and informed them that they, not Lifecare,
should be Algeria's supplier and distributor.
Thus, certainly the arbitrators could have concluded that a
binding agreement was reached between CD Medical and Lifecare in
February of 1988 returning Algeria to Lifecare for an additional
five-year period. Further, the arbitrators could have concluded
that CD Medical breached that agreement by failing to provide the
clarification letters and by contacting the Algerian Government and
informing them that CD Medical, not Lifecare, should be Algeria's
supplier of medical equipment. Accordingly, a rational basis
indisputably exists supporting the arbitrator's decision.
In response, CD Medical notes that Lifecare's offering
facsimile contained a hand-written provision which intimated the
drafting of a formal contract amendment acknowledging the return of
Algeria to Lifecare for an additional five years. Further, the
last sentence of CD Medical's accepting facsimile provides that
"once the amendment and letter have been approved by both of us, we
believe that relationships can be better than ever." As a result
of these two provisions, CD Medical argues that no binding
agreement could have been reached by the parties in February of
1988 until a formal, written amendment to the contract was drafted
and signed by the parties. Since there was no formal amendment to
the original contract signed by the parties as contemplated by the
two facsimiles, CD Medical claims that Algeria was never returned
to Lifecare.
We disagree.
It is true that under Florida law where the parties do not
intend to be bound by their agreement (oral or written) until a
formal written contract is executed, there is no binding agreement
unless and until the written contract is in fact executed. See
Cohen v. Amerifirst Bank, 537 So.2d 1108, 1110 (Fla. 3rd
Dist.Ct.App.1989); Housing Auth. of Fort Pierce v. Foster, 237
So.2d 569, 571-72 (Fla. 4th Dist.Ct.App.1970). However, the
parties intent, of course, is what ultimately controls. Simply
because the parties contemplated the drafting of a subsequent
formal, written contract, does not denote that they did not intend
to be bound immediately by their oral or written negotiations.10
See Citizens Bank of Perry v. Harlie Lynch Constr. Co., 426 So.2d
52, 54 n. 2 (Fla. 1st Dist.Ct.App.1983); Foster, 237 So.2d at 571-
72; Eastern Air Lines, Inc. v. Mobil Oil Corp., 564 F.Supp. 1131,
1145 (S.D.Fla.1983) ("If parties so intend, a contract is binding
from the time it is made even though the parties also agree that a
formal writing embodying its provisions will subsequently be
prepared."), aff'd, 735 F.2d 1379 (Temp.Emer.Ct.App.1984).
Here, there was ample evidence produced at the arbitration
hearing supporting the conclusion that the parties intended their
February 1988 negotiations to be effective immediately,
irrespective of the drafting of a formal, written amendment to the
original contract. Tony Dow, Lifecare's principal, testified that
10
In this case, the negotiations are of course the offering
and accepting facsimiles.
he believed that they had a binding agreement in February of 1988.
Additionally, Tommy Brown, an executive of CD Medical, testified
that in February of 1988 he was "still operating under the premise
that [they] had an agreement." In fact, on February 29, 1988, Mr.
Brown sent a telex to the Algerian Government which stated that "it
is [CD Medical's] intention to service your account exclusively
11
through Lifecare [ ] for spare parts for the next 5 years."
Furthermore, immediately after the February 1988 negotiations, Mr.
Dow, with full knowledge of CD Medical, boarded a plane for Algeria
for the purpose of negotiating a contract with the Algerian
Government.
Thus, once again, certainly the arbitrators could have
concluded that a binding agreement existed in February of 1988
between CD Medical and Lifecare, and CD Medical subsequently
breached that agreement.12 As evidenced by the dissenting
arbitrator's opinion, one could definitely interpret the evidence
in a different light. Indeed, CD Medical's interpretation that no
binding contract existed until a formal contract amendment was
executed is a viable translation of the evidence. That, however,
is not the issue here. Our task is to merely review the
arbitration decision and determine whether any rational basis
exists for the award. In summary, the interpretation of the
11
This telex to the Algerian Government is apparently not
the clarification letter that was required to be sent to the
Algerian Government pursuant to the February 1988 negotiations.
12
Since we find that the breach of the February 1988
agreement qualifies as a rational basis supporting the
arbitration award, there is no need for us to discuss the
alternative grounds offered by Lifecare supporting the
arbitration award.
evidence discussed supporting the award is just as feasible as CD
Medical's interpretation supporting the overturning of the award.
Consequently, we cannot conclude that the arbitration award is
arbitrary and capricious.
IV. CONCLUSION
Since we conclude that the district court's order confirming
the arbitration award was not erroneous, we AFFIRM that order.