E.Spire Communications, Inc. v. CNS Communications , 39 F. App'x 905 ( 2002 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
E.SPIRECOMMUNICATIONS, 
INCORPORATED,
Petitioner-Appellee,
v.  No. 02-1089
CNS COMMUNICATIONS, a/k/a CNS
Communications, Limited,
Respondent-Appellant.

Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Gerald Bruce Lee, District Judge.
(CA-01-46-MC)
Argued: June 6, 2002
Decided: July 15, 2002
Before NIEMEYER, WILLIAMS, and KING, Circuit Judges.
Affirmed by unpublished per curiam opinion.
COUNSEL
ARGUED: Lauren Anne Greenberg, THALER LIEBELER, L.L.P.,
Washington, D.C., for Appellant. Anessa Abrams, SCHMELTZER,
APTAKER & SHEPARD, P.C., Washington, D.C., for Appellee. ON
BRIEF: Paul S. Thaler, Lars H. Liebeler, THALER LIEBELER,
L.L.P., Washington, D.C., for Appellant. Eric L. Yaffe,
SCHMELTZER, APTAKER & SHEPARD, P.C., Washington, D.C.,
for Appellee.
2 E.SPIRE COMMUNICATIONS v. CNS COMMUNICATIONS
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
CNS Communications, Ltd. appeals the district court’s order con-
firming an arbitration award entered in favor of e.spire Communica-
tions, Inc. For the reasons set forth below, we affirm.
I.
CNS is a telecommunications company that provides its customers
with prepaid calling cards. In 1999, CNS and e.spire entered into a
series of agreements, whereby e.spire contracted to provide long dis-
tance and toll-free telecommunications services for resale by CNS.
Pursuant to preliminary contracts, e.spire began to provide services to
CNS, and on June 8, 2000, the parties met in Virginia to finalize their
respective obligations. At that meeting, CNS’s representative signed
a Master Services Agreement (MSA), which contained an arbitration
clause.1 Invoices for services rendered by e.spire to CNS under the
parties’ agreements totaled $9,400,456.28. CNS paid e.spire a total of
$2,678,941.00, leaving a balance due of $6,721,515.28.
On October 27, 2000, e.spire filed a Demand for Arbitration with
the American Arbitration Association (AAA). CNS filed a petition to
stay arbitration in the Supreme Court of the State of New York and
requested the court to vacate the demand for arbitration, asserting that
no valid arbitration agreement existed, and e.spire removed the action
to the United States District Court for the Southern District of New
York. On January 26, 2001, the parties entered into a settlement
1
As is discussed below, infra at 5-6, CNS claims that the MSA is not
a valid, enforceable contract but instead is a proposed contract and that
CNS’s representative signed the MSA "as a sign of good faith even
though the parties had not agreed upon material terms." (Appellant’s Br.
at 6.)
E.SPIRE COMMUNICATIONS v. CNS COMMUNICATIONS 3
agreement whereby they agreed to arbitrate the dispute before the
AAA.
On February 9, 2001, CNS submitted a letter to the AAA, which
it characterizes as a motion, arguing that New York was an improper
locale for the arbitration hearing and that the hearing should take
place in either Georgia or Virginia. Based upon the parties’ submis-
sions regarding locale, the arbitral panel ordered that the arbitration
take place in Arlington, Virginia.2 On April 19, 2001, the arbitral
panel conducted a preliminary hearing and set the case for arbitration
on July 9-11, 2001. The next day, the AAA entered a Scheduling
Order establishing that the parties were required to disclose all pro-
posed witnesses and exhibits by June 25, 2001. CNS never disclosed
any proposed witnesses or exhibits. As a result, the arbitral panel pre-
cluded CNS from offering any witnesses to testify on its behalf at the
arbitration hearing and from introducing exhibits during the hearing.
On June 19, 2001, approximately three weeks before the arbitration
hearing was scheduled to take place, CNS sent a letter, which it char-
acterizes as a motion, to the arbitral panel’s case manager, Amy Hen-
thorn Jones, in which CNS argued that the arbitral panel lacked
jurisdiction to consider the dispute because there was no valid agree-
ment to arbitrate. CNS alleges that Jones informed it that the motion
would be resolved prior to the hearing before the panel. On July 3,
2001, the parties were notified by a somewhat enigmatic letter signed
by Jones that the panel would not consider CNS’s motion because
"the Association does not determine issues of substances [sic] and due
to the fact that the Respondent [CNS] does not wish for this matter
to go before the Panel." (J.A. at 149.)
The arbitration hearing took place as scheduled on July 9, but CNS
did not attend. Despite CNS’s failure to attend the hearing, e.spire
was required to introduce evidence, including testimony and exhibits,
in support of its breach of contract claim. After the hearing, CNS was
given the opportunity to submit a "post-hearing brief . . . in the nature
of closing argument" on its behalf, but CNS failed to submit any
materials to the panel. (J.A. at 267 (internal quotation marks omit-
ted).) The panel issued an award in favor of e.spire for $6,721,515.28,
2
The locale was later changed to Washington, D.C.
4 E.SPIRE COMMUNICATIONS v. CNS COMMUNICATIONS
plus interest at the rate of 8% per annum, attorney’s fees, and other
related costs.
Thereafter, e.spire moved to confirm the arbitration award in the
United States District Court for the Eastern District of Virginia. CNS
opposed this motion, claiming that the award should be vacated. Find-
ing no reason to vacate the arbitration award, the district court granted
e.spire’s motion. CNS moved for reconsideration pursuant to Federal
Rule of Civil Procedure 60(b), and the district court denied this
motion. CNS filed a timely notice of appeal. On appeal, CNS claims
that the district court erred by refusing to vacate the arbitration award
on the basis that the arbitral panel exceeded its powers, by refusing
to vacate the arbitration award in light of misconduct by the arbitral
panel, and by concluding that the arbitral panel’s award was not a de
facto default judgment. We review the district court’s decision con-
firming the arbitration award de novo and its factual findings for clear
error. Peoples Security Life Ins. Co. v. Monumental Life Ins. Co., 991
F.2d 141, 145 (4th Cir. 1993).
II.
Section 9 of the Federal Arbitration Act (the FAA) provides that
any time within one year after an arbitration award is made, a party
to the arbitration may apply to a federal district court for an order
confirming the award. 9 U.S.C.A. § 9 (West 1999); Apex Plumbing
Supply, Inc. v. U.S. Supply Co., 142 F.3d 188, 191-92 (4th Cir. 1998)
(holding that, where parties have not specified in their agreement the
court to which they must apply for confirmation of the award, venue
is proper in any federal district court). The federal court’s review of
an arbitration award is tightly circumscribed. Union Pac. R.R. v.
Sheehan, 439 U.S. 89, 91 (1978) (per curiam) (stating that the scope
of review of arbitration award is "among the narrowest known to the
law" (internal quotation marks omitted)); Upshur Coals Corp. v.
United Mine Workers of America, 933 F.2d 225, 229 (4th Cir. 1991)
(noting that arbitration awards are "accorded great deference"). The
court must confirm the arbitration award unless the award is vacated,
modified, or corrected pursuant to section 10 or 11 of the FAA. 9
U.S.C.A. § 9 ("[A]t any time within one year after the award is made
any party to the arbitration may apply to the court . . . for an order
confirming the award, and thereupon the court must grant such an
E.SPIRE COMMUNICATIONS v. CNS COMMUNICATIONS 5
order unless the award is vacated, modified, or corrected as prescribed
in sections 10 and 11 of this title."). Under the FAA, an award may
be vacated only under five circumstances:
(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) Where the arbitrators were 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 misbehav-
ior by which the rights of any party have been preju-
diced.
(4) Where 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.
(5) Where an award is vacated and the time within which
the agreement required the award to be made has not
expired the court may, in its discretion, direct a rehear-
ing by the arbitrators.
9 U.S.C.A. § 10(a)(1)-(5) (West 1999).
A.
CNS first contends that the arbitration award should be vacated
pursuant to § 10(4) because the arbitral panel exceeded its powers by
entering an award in favor of e.spire when the dispute was not arbitra-
ble. In a related vein, CNS argues that the district court erred by rul-
ing on the issue of arbitrability in the first instance when the parties
had agreed to submit the issue of arbitrability to the arbitral panel.
In support of its claim that the dispute was not arbitrable, CNS
focuses on the MSA that was signed by both parties in June 2000.
6 E.SPIRE COMMUNICATIONS v. CNS COMMUNICATIONS
That contract contained an arbitration clause, but CNS contends that
the MSA was not binding because it was not intended to serve as a
final contract. Regardless of the binding nature of the MSA, on Janu-
ary 26, 2001, the parties entered into a settlement agreement that pro-
vides as follows:
1. CNS agrees to arbitrate with e.spire under the Commer-
cial Arbitration Rules of the American Arbitration Associa-
tion ("AAA") all disputes that are the subject of e.spire’s
October 27, 2000 Demand for Arbitration, including
e.spire’s claims for payment for services provided to CNS at
any time prior to October 27, 2000 and including any coun-
terclaims CNS may seek to assert against e.spire.
2. Subject to CNS’s above agreement in paragraph 1,
e.spire agrees to reopen the issue of the locale for the arbi-
tration hearings . . . .
3. Subject to CNS’s above agreement in paragraph 1,
e.spire agrees to reopen the issue of the party-arbitrator to
be appointed for CNS . . . .3
(J.A. at 122 (emphasis added).) The agreement was signed by CNS,
and CNS does not dispute that it is a valid, binding settlement agree-
ment. Rather, CNS claims that by referencing "all disputes," the set-
tlement agreement does not resolve the issue of arbitrability but
instead leaves that issue for the arbitral panel. This argument is, at
best, disingenuous, in that it ignores the plain terms of the settlement
agreement. Indeed, it is difficult to imagine a more explicit agreement
to arbitrate the substantive dispute than the following language: "CNS
agrees to arbitrate . . . e.spire’s claims for payment for services pro-
vided to CNS."4 Thus, CNS’s argument that the arbitral panel
3
The parties also agreed that the Southern District of New York "re-
tain[ed] jurisdiction over this matter to enforce the terms of this agree-
ment." (J.A. at 123.) Neither party, however, sought enforcement of the
agreement in the Southern District of New York.
4
CNS claims that giving the settlement agreement this construction is
illogical because CNS would have gained nothing from such an agree-
ment. We disagree. The agreement plainly allowed CNS the opportunity
to have the issues of locale and the appointment of the arbitrator
reopened.
E.SPIRE COMMUNICATIONS v. CNS COMMUNICATIONS 7
exceeded its authority because the substantive dispute was not arbitra-
ble is baseless.
Further, the district court did not improperly rule on the issue of
arbitrability in the first instance. As CNS conceded at oral argument,
the arbitral panel found that the dispute was arbitrable and that it pos-
sessed authority to resolve the dispute. (J.A. at 29-30 ("Pursuant to a
settlement agreement entered into between e.spire and CNS . . . CNS
agreed to arbitrate with e.spire . . . e.spire’s claims for payment for
services provided to CNS . . . ." (internal quotation marks omitted)));
(J.A. at 37 ("e.spire and CNS were parties to three executed and
enforceable master service agreements dated August 1999, January
2000, and June 2000.").) The district court discussed the arbitrability
of the dispute only in reference to the question presented by CNS —
whether the arbitral panel exceeded its authority. In light of the unam-
biguous terms of the settlement agreement and the arbitral panel’s
conclusion regarding arbitrability, the district court’s finding that the
panel did not exceed its authority undoubtedly was correct. Thus,
§ 10(4) does not provide a basis for vacating the arbitration award.
B.
CNS also argues that the arbitral panel engaged in misconduct
within the meaning of § 10(3) by refusing to hear evidence "pertinent
and material to the controversy" when it limited CNS’s participation
in the arbitration hearing by prohibiting it from introducing exhibits
or calling witnesses at the hearing after CNS failed to disclose any
proposed witnesses or exhibits.5 9 U.S.C.A. § 10(3). At the outset, we
5
CNS contends that the limitation amounted to a "sanction," but we
reject this characterization, as it is unsupported by the record. Thus, we
need not decide whether, and to what extent, the arbitral panel has the
authority to impose sanctions on parties before it. Suffice it to say, how-
ever, that the panel possesses some power to control the presentation of
evidence at the hearing. For example, AAA Commercial Arbitration
Rule 23 provides that arbitrators may set a schedule for the exchange of
exhibits and identification of witnesses. AAA Commercial Arbitration R.
23(a). Rule 23 further provides that "[t]he arbitrator is authorized to
resolve any disputes concerning the exchange of information." R. 23(c).
Similarly, Rule 32(a) states that each party generally is given the right
8 E.SPIRE COMMUNICATIONS v. CNS COMMUNICATIONS
note that CNS has not identified, either to the arbitral panel or this
court, any evidence that it would have presented at the hearing but for
the panel’s limitation on its right to present evidence. Consequently,
it is impossible to determine whether any evidence that was excluded
was "pertinent and material" to the controversy.
Moreover, even assuming the exclusion of pertinent and material
evidence, not every failure of an arbitrator to receive relevant evi-
dence constitutes misconduct requiring the vacatur of an arbitrator’s
award. Instead, a federal court may vacate an arbitrator’s award only
if the arbitrator’s refusal to hear pertinent and material evidence
deprives a person of a "fundamentally fair hearing." UMWA v. Mar-
rowbone Dev. Co., 232 F.3d 383, 385, 388 (4th Cir. 2000); Hoteles
Condado Beach, La Concha & Convention Ctr. v. Union de Tron-
quistas Local 901, 763 F.2d 34, 40 (1st Cir. 1985) (providing that
exclusion of relevant evidence only constitutes misconduct when the
exclusion unduly prejudices the rights of a party to the arbitration pro-
ceedings); AAA Commercial Arbitration R. 32 (providing that each
party must be "given a fair opportunity to present its case"). The limi-
tation on CNS’s right to present evidence at the hearing did not
deprive CNS of a fundamentally fair hearing. To the contrary, the
limitation was necessary to prevent undue prejudice to e.spire that
would have resulted from CNS’s failure to disclose its proposed evi-
dence. CNS was on clear notice from the Scheduling Order of the
deadlines and that the deadlines in the Order would be "strictly
enforced." (J.A. at 249.) Additionally, although the arbitral panel lim-
ited CNS’s participation in the hearing, it afforded CNS many oppor-
to present evidence in support of its position, but that "[t]he arbitrator has
the discretion to vary this procedure, provided that the parties are treated
with equality and that each party has the right to be heard and is given
a fair opportunity to present its case," R. 32(a), and that "[t]he arbitrator,
exercising his or her discretion, shall conduct the proceedings with a
view to expediting the resolution of the dispute and may direct the order
of proof, bifurcate proceedings and direct the parties to focus their pre-
sentations on issues . . . ." R. 32(b). Rule 33 states that "[t]he arbitrator
shall determine the admissibility, relevance, and materiality of the evi-
dence offered . . . ." R. 33(b). Finally, the Rules permit an arbitration to
"proceed in the absence of any party or representative who, after due
notice, fails to be present or fails to obtain a postponement." R. 31.
E.SPIRE COMMUNICATIONS v. CNS COMMUNICATIONS 9
tunities to present its case. The panel allowed CNS the opportunity to
attend the hearing, to make opening and closing statements, and to
cross examine e.spire’s witnesses. CNS did none of these things.
After the hearing, the arbitral panel again informed CNS of its right
to file a document in the form of a closing brief; CNS also did not
take advantage of this opportunity.
Notably, CNS does not contend that it lacked notice of the dead-
lines set forth in the Scheduling Order or that it was unaware that
non-compliance would affect its right to present evidence at the hear-
ing. It claims only that its non-compliance with the Scheduling Order
was the result of its belief that it did not need to comply with the
Scheduling Order because it was told by Jones that the arbitration
hearing would not take place until CNS’s jurisdictional motion was
resolved. Regardless of the merits of CNS’s jurisdictional argument,
this was an unreasonable strategy. CNS has not pointed to any docu-
ment or communication from the arbitral panel suggesting that CNS
was informed that it could disregard the Scheduling Order while it
awaited the arbitral panel’s ruling on the motion. All of the docu-
ments from the arbitral panel were unambiguous as to the relevant
deadlines and the date of the arbitration hearing. Moreover, CNS did
not seek a continuance of the hearing on the ground that a jurisdic-
tional motion was pending, as it was entitled to do pursuant to Rule
30. See AAA Commercial Arbitration R. 30 ("The arbitrator may
postpone any hearing upon . . . request of a party for good cause
shown."). Nor did CNS attend the hearing to present the jurisdictional
motion to the panel. Similarly, it did not submit a brief, either prior
to or after the hearing, arguing that the arbitral panel lacked jurisdic-
tion, and it did not inform the panel of Jones’s alleged assurances as
a basis for reconsidering the panel’s limitation on CNS’s right to pres-
ent evidence at the hearing. Thus, we are unpersuaded by CNS’s
claim that it was justified in ignoring almost every aspect of the arbi-
tration process. Accordingly, we agree with the district court that the
arbitral panel did not engage in misconduct within the meaning of
§ 10(3) by limiting CNS’s presentation of evidence at the arbitration
hearing as a result of CNS’s failure to identify any witnesses or exhib-
its. Cf. Trans Chem. Ltd. v. China Nat’l Machinery Import & Export,
161 F.3d 314, 319 (5th Cir. 1998), aff’g 978 F. Supp. 266, 307 (S.D.
Tex. 1997) (concluding that arbitral panel did not engage in miscon-
duct by enforcing its scheduling order).
10 E.SPIRE COMMUNICATIONS v. CNS COMMUNICATIONS
C.
CNS next argues that the arbitral panel’s failure to rule on its juris-
dictional motion amounted to misconduct within the meaning of
§ 10(3). As we note above, supra at 5-7, although the arbitral panel
did not rule on CNS’s motion, it did find that it possessed jurisdiction,
a finding that was amply supported by the record. Additionally, to the
extent Jones’s failure to forward the motion to the arbitral panel was
erroneous,6 CNS had countless opportunities to submit the motion
directly to the arbitral panel, yet it did not take advantage of any of
these opportunities. We find no support in the text of section 10(3),
or the caselaw interpreting that section, for vacatur of an arbitration
award on the basis of a procedural flaw that could have been, and
likely would have been, rectified by the arbitral panel had the
aggrieved party brought the error to the panel’s attention. Accord-
ingly, we conclude that the district court correctly found that the
alleged procedural error is an insufficient basis to justify vacatur of
the arbitration award under § 10(3).
III.
Finally, CNS contends that the district court erred by denying its
motion for reconsideration. In its motion for reconsideration, CNS
argued that the arbitration award in favor of e.spire amounted to a
default judgment and that CNS should be relieved from the judgment
pursuant to Federal Rule of Civil Procedure 60(b)(1), which provides
that a court may vacate a final judgment based upon "excusable
neglect." This argument lacks legal, as well as factual, support.
The Federal Rules of Civil Procedure apply in proceedings to con-
firm an arbitration award "only to the extent that matters of procedure
are not provided for in [Title 9]." Fed. R. Civ. P. 81(a)(3); Deiulemar
Compagnia Di Navigazione v. M/V Allegra, 198 F.3d 473, 481 (4th
Cir. 1999). "Under Rule 81(a)(3), the Federal Rules fill in only those
procedural gaps left open by the FAA." Id. at 482 (internal quotation
6
Arguably, the panel was under no obligation to consider the motion
because it was untimely. The Scheduling Order set a deadline of May 18,
2001 for the parties to raise any preliminary matters in connection with
the arbitration, and the motion was filed over one month after this dead-
line.
E.SPIRE COMMUNICATIONS v. CNS COMMUNICATIONS 11
marks omitted). The FAA provides for vacatur of an arbitration award
in five circumstances, and those circumstances are exclusive. Peoples
Sec. Life Ins. Co. v. Monumental Life Ins. Co., 991 F.2d 141, 145 n.4
(4th Cir. 1993) (stating that the five grounds for vacatur listed in § 10
are the "only" circumstances that justify vacatur). Because the FAA
contains exclusive procedures for vacating arbitration awards, Rule
60(b)(1) is inapplicable.7 Thus, we conclude that the district court did
not err by denying CNS’s motion for reconsideration.
IV.
Finding no error in the district court’s confirmation of the arbitra-
tion award entered in favor of e.spire, we affirm.
AFFIRMED
7
Even assuming Rule 60(b)(1) could provide an alternative mechanism
for vacating an arbitration award, CNS has not demonstrated that a
default judgment was entered because, despite CNS’s failure to appear
at the hearing, the award was entered based upon the panel’s consider-
ation of the merits of the dispute after requiring e.spire to submit evi-
dence in support of its claim; it was not based upon a technical default
by CNS. Val-U Constr. Co. v. Rosebud Sioux Tribe, 146 F.3d 573, 578
n.4 (8th Cir. 1998) ("We note that this case was not decided by default.
Val-U presented evidence to the arbitrator at the hearing [although Tribe
did not], and the arbitrator issued an award based on the evidence sub-
mitted."). Moreover, CNS concedes that counsel’s conduct was not the
result of neglect but instead was the result of deliberate, strategic deci-
sions. Cf. Thompson v. E.I. DuPont de Nemours & Co., 76 F.3d 530, 533
(4th Cir. 1996) (defining "neglect" as "inadvertence, mistake, or careless-
ness, as well as . . . intervening circumstances beyond the party’s con-
trol" (citation omitted)); Dowell v. State Farm Fire & Cas. Auto. Ins.
Co., 993 F.2d 46, 48 (4th Cir. 1993) (holding that no relief is available
under Rule 60(b)(6) for a deliberate decision). Because CNS was
apprised of its counsel’s decisions, was aware of the date of the hearing,
and was aware of the deadlines in the Scheduling Order, it is neither
inequitable nor improper to hold CNS accountable for its counsel’s
choices. Augusta Fiberglass Coating, Inc. v. Fodor Contracting Corp.,
843 F.2d 808, 811 (4th Cir. 1988) (distinguishing between fault of attor-
ney and fault of client in determining whether to set aside default judg-
ment pursuant to Rule 60(b)(1)).