Aero-Smith, Inc. v. Cardinal Air Ltd. Liability Co. , 302 F. App'x 141 ( 2008 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 07-1686
AERO-SMITH, INCORPORATED, a Maryland corporation; JETLINK,
MRB, LLC, a Delaware limited liability company,
Plaintiffs - Appellees,
v.
CARDINAL AIR LIMITED LIABILITY COMPANY, a West Virginia
limited liability company,
Defendant - Appellant.
Appeal from the United States District Court for the Northern
District of West Virginia, at Martinsburg. John Preston Bailey,
District Judge. (3:07-cv-00015-JPB)
Argued: September 22, 2008 Decided: December 3, 2008
Before WILLIAMS, Chief Judge, and TRAXLER and GREGORY, Circuit
Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Christopher L. Allen, ALLEN & BLACKFORD, P.C.,
Gaithersburg, Maryland, for Appellant. William Richard McCune,
Jr., Martinsburg, West Virginia, for Appellees. ON BRIEF:
Robert G. Blackford, ALLEN & BLACKFORD, P.C., Gaithersburg,
Maryland, for Appellant. Alex A. Tsiatsos, LAW OFFICES OF WM.
RICHARD MCCUNE, JR., P.L.L.C., Martinsburg, West Virginia, for
Appellees.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
Cardinal Air Limited Liability Company (ACardinal@) appeals
from the district court=s decision granting summary judgment to
Aero-Smith, Inc. (AAero-Smith@) and JetLink, MRB, LLC (AJetLink@),
which confirmed an arbitration award issued in favor of Aero-
Smith. We affirm.
I.
The facts underlying this controversy are set forth at
length in the award of the arbitrator below. By way of summary,
Aero-Smith is a party to a fixed-base operation lease and
operating agreement with the Eastern West Virginia Regional
Airport Authority (the AAuthority@). Aero-Smith, in turn,
entered into a sublease agreement with Cardinal under which
Cardinal was authorized to build a hangar on the subleased
property to be used for aircraft storage and maintenance. Among
other things, Cardinal was obligated under the agreement to
comply with the standards promulgated by the Authority, maintain
certain insurance for the operation, and maintain a full-time
manager for operations at the airport. In the event of default,
Cardinal was required Ato remedy, or undertake to remedy, to
[Aero-Smith=s] reasonable satisfaction, such default for a period
of thirty (30) days after receipt of notice from [Aero-Smith] to
remedy the same.@ J.A. 63. If Cardinal failed to sufficiently
remedy or undertake to remedy the default to Aero-Smith=s
3
reasonable satisfaction, the sublease agreement authorized Aero-
Smith to terminate the sublease and retake the premises,
including the hangar. The agreement also provided for payment
to Cardinal of the book value of any improvements to the
property (i.e., the hangar), less a predetermined rate of
depreciation, in the event of cancellation or termination Afor
any cause other than a breach of or default by@ Cardinal. J.A.
64. Finally, the agreement provided for mandatory arbitration
of A[a]ll claims or disputes arising out of or relating to th[e]
[a]greement . . . in accordance with the Commercial Arbitration
Rules of the American Arbitration Association.@ J.A. 64. Such
Aaward rendered by the arbitrator or arbitrators shall be final,
and judgment may be entered upon it in accordance with
applicable law in any court having jurisdiction thereof.@ J.A.
64.
On November 3, 2005, Aero-Smith notified Cardinal that it
was in default of the sublease agreement based upon Cardinal=s
failure to maintain a qualified full-time manager of operations
and failure to meet the minimum standards of the Authority. On
January 9, 2006, Aero-Smith filed a demand for arbitration
asserting that Cardinal had not remedied the deficiencies to
Aero-Smith=s satisfaction and requesting that Cardinal be deemed
in default and the sublease terminated.
4
On December 27, 2006, the matter proceeded to arbitration.
The arbitrator found in favor of Aero-Smith, terminated the
sublease, and ordered Cardinal to vacate the premises. Among
other things, the arbitrator found that Cardinal was in breach
of the agreement, had failed to take appropriate steps to remedy
the breach and had, instead, Apersisted in [its] unauthorized use
of the [hangar] with the Authority and Aero-Smith at risk, and
hid[den] [its] misconduct from the Authority.@ J.A. 116. The
arbitrator further found that Cardinal, Arather than curing its
breaches, [had] chose[n] to continue its default, and indeed to
proceed with attempts to conceal its misconduct.@ J.A. 116.
Nevertheless, the arbitrator also chose to award compensation to
Cardinal in the amount of $288,891.30, payable by Aero-Smith
and/or JetLink, 1 B an amount representing the book value of the
hangar less depreciation in accordance with the compensation
provision of the sublease agreement -- based upon the
arbitrator=s belief that A[t]ermination without some compensation
is too severe a remedy . . . in view of all the circumstances.@
J.A. 117. The arbitrator subsequently issued a clarification of
1
On February 3, 2006, Aero-Smith sold its assets to
JetLink, including its rights under the sublease agreement.
However, neither party sought to add JetLink as a party to the
arbitration.
5
the earlier award, ordering Cardinal to vacate the premises by
January 30, 2007.
On January 11, 2007, Aero-Smith and JetLink filed suit in
West Virginia state court seeking enforcement of the arbitration
award, as well as damages for wrongful occupation of the hangar,
costs and fees. Cardinal removed the action to federal court on
the basis of diversity of citizenship. The district court
granted summary judgment in favor of Aero-Smith and JetLink,
enforcing the arbitration award, ordering transfer of possession
of the premises from Cardinal to JetLink, and ordering Aero-
Smith and JetLink to tender the compensation award to Cardinal
as calculated by the arbitrator. Cardinal appealed, and the
district court granted the parties= joint motion to stay payment
pending this appeal.
II.
This Court reviews the district=s court decision to grant
summary judgment and confirm an arbitration award de novo. See
Choice Hotels Int=l, Inc. v. Shiv Hospitality, LLC, 491 F.3d 171,
176 (4th Cir. 2007).
A.
Cardinal=s first assertion on appeal is that the arbitration
award should be set aside under West Virginia law because the
6
sublease agreement, from its inception, fraudulently included a
right by Aero-Smith to take possession of the hangar upon
default by Cardinal and contained a compensation provision upon
cancellation or termination that was unconscionably low.
Specifically, Cardinal contends that during a September 1998
meeting between Aero-Smith and the Authority, a representative
of the Authority made a statement reflecting an intent that
Aero-Smith would not preserve a right to retake and repossess
the hangar in the event of default by the sublessee. The
subsequent inclusion of a Acontrary@ sublease provision granting
this improvement to Aero-Smith upon default, Cardinal argues,
constituted an act of Aactual fraud@ under West Virginia law
sufficient to set aside the arbitration award. See Barber v.
Union Carbide Corp., 304 S.E.2d 353, 357 (W. Va. 1983) (holding
that, under West Virginia law, Aan arbitration award rendered
pursuant to the terms of a commercial contract@ will not be
reviewed Aexcept for actual fraud@). Cardinal also contends that
the provision requiring Aero-Smith to pay only book value less
depreciation for the hangar in the event of a default is an
unconscionable contract provision, evidenced by the fact that
the appraised value exceeded $700,000 and that Cardinal had
recently rejected offers by Aero-Smith and JetLink to purchase
the rights to the hangar for in excess of $600,000. See Ashland
7
Oil, Inc. v. Donahue, 223 S.E.2d 433, 440 (W. Va. 1976) (noting
that unconscionable contract provisions may be unenforceable);
Barber, 304 S.E.2d at 357 (noting that the courts will also
Ainquire into such matters as whether the agreement to arbitrate
was a contract of adhesion and whether the arbitration is proper
under the totality of the commercial circumstances@).
At the outset we note that Cardinal does not contend that
there was partiality, corruption, or fraudulent behavior on the
part of the arbitrator, which can serve as the basis for setting
aside an arbitration award. Nor does it appear that Cardinal
contests, in isolation, the validity of the arbitration
provision contained within the sublease. Beyond this, however,
Cardinal=s claimed right to set aside the arbitration award on
the basis of fraud and unconscionability is not always clearly
articulated or consistent. Giving Cardinal the benefit of the
doubt, however, we construe the argument to be two-fold: first,
that the arbitration award was fraudulently procured by Aero-
Smith by its use of the termination and compensation provisions
in the arbitration proceeding and, second, that the termination
and compensation provisions in the sublease agreement are
8
unenforceable under West Virginia law. 2 Neither claim, however,
entitles Cardinal to relief from the arbitration award.
First, Cardinal=s assertion that we must set aside the
arbitration award because Aero-Smith fraudulently procured it by
including the termination and compensation provisions and using
them in the arbitration proceeding years later to Asteal@ the
hangar from Cardinal Air is without merit. The notes of the
September 1998 meeting between Aero-Smith and the Authority were
in the possession of Cardinal during the arbitration
proceedings, but Cardinal chose not to pursue this argument
2
The parties have jointly argued that West Virginia law
exclusively governs the claims on appeal, as they have been
articulated by Cardinal. To the extent Cardinal seeks to avoid
enforcement of the arbitration award by asserting that the
sublease agreement is unenforceable because Aero-Smith
fraudulently entered into the agreement and because the
agreement is unconscionable, we agree that West Virginia law
would govern the enforceability of the contract. With regard to
the arbitration award itself, West Virginia statutory and case
law does not materially differ, for purposes of this appeal,
from the Federal Arbitration Act, which requires the enforcement
of arbitration agreements Asave upon such grounds as exist at law
or in equity for the revocation of any contract,@ 9 U.S.C.A. ' 2
(West 1999), and which allows the court to vacate any
arbitration award that Awas procured by corruption, fraud, or
undue means,@ 9 U.S.C.A. ' 10(a)(1) (West Supp 2008); see W. Va.
Code ' 55-10-4 (providing that A[n]o [arbitration] award shall be
set aside, except for errors apparent on its face, unless it
appears to have been procured by corruption or other undue
means, or by mistake, or that there was partiality or
misbehavior in the arbitrators, or any of them, or that the
arbitrators so imperfectly executed their powers that a mutual,
final and definite award upon the subject matter submitted was
not made@).
9
before the arbitrator. In any event, the statement made by the
Authority representative during the meeting falls woefully short
of establishing that Aero-Smith procured the arbitration award
through fraudulent means or behavior. Cardinal was not present
at the meeting and the meeting took place before the sublease
agreement was drafted or executed by Cardinal and Aero-Smith,
both of whom are sophisticated commercial parties. Thus, even
if the sublease agreement between Cardinal and Aero-Smith
contravened the statement made at the meeting by the Authority=s
representative, this does not render the termination or
compensation provisions included by these sophisticated parties
fraudulent or unconscionable. Furthermore, the arbitrator
addressed and dismissed Cardinal=s allegation that Aero-Smith was
attempting to Asteal@ the hangar in the arbitration proceedings
and found instead that Athe testimony regarding the hangar sale
offers and responses by the Cardinal principals, the sellers,
reflects a pattern of good faith offers, on the one hand, and
unreasonable responses, on the other.@ J.A. 117. Thus, Cardinal
has clearly failed to demonstrate the requisite fraud on the
arbitration proceedings necessary to set aside the arbitration
award.
Second, Cardinal=s claim that the sublease agreement is
unenforceable under state law because the termination provision
10
was fraudulently included by Aero-Smith and because the
compensation provision is unconscionable also fails. Again,
both Aero-Smith and Cardinal are sophisticated commercial
parties. Cardinal retained counsel to draft the sublease
agreement and offered no evidence demonstrating a lack of
meaningful choice. Furthermore, the compensation provision,
which determines the value of Cardinal=s improvement by book
value of the hangar minus eight years of depreciation, does not
render the agreement unconscionable. On the contrary, as
applied by the arbitrator, 3 it effectually prevented total
forfeiture of the hangar in the case of a breach by Cardinal.
B.
Cardinal next contends that the arbitration award should be
set aside because the arbitrator, in reaching the conclusion
that Cardinal was in default, A>ignore[d] the plain language of
the contract=@ and reformed its terms in disregard of West
Virginia law. Upshur Coals Corp. v. United Mine Workers of Am.,
Dist. 31, 933 F.2d 225, 228 (4th Cir. 1991) (quoting United
3
As noted earlier, the sublease agreement appears to only
provide for such payment in the event of cancellation or
termination Afor any cause other than a breach of or default by@
Cardinal. J.A. 64 (emphasis added). However, the arbitrator
believed that termination without compensation was Atoo severe a
remedy . . . in view of all the circumstances.@ J.A. 117.
11
Paperworkers Int=l Union v. Misco, Inc., 484 U.S. 29, 38 (1987)).
We are unpersuaded.
As noted above, the sublease agreement was Asubject to
termination by@ Aero-Smith in the event of Adefault by [Cardinal]
in the performance of any terms, covenants or conditions of
th[e] [a]greement, and the failure of [Cardinal] to remedy, or
undertake to remedy, to [Aero-Smith=s] reasonable satisfaction,
such default for a period of thirty (30) days after receipt of
notice from [Aero-Smith] to remedy the same.@ J.A. 63. Cardinal
argues the arbitrator altered this language to require that
Cardinal remedy the default within thirty days, rather than to
require only that Cardinal Aundertake to remedy@ the default Afor@
30 days. Cardinal claims that it did Aundertake to remedy@ the
default Afor@ thirty days because it had obtained a new manager
within this time frame, even though it had not obtained
approval.
On judicial review, A[a]n arbitrator=s award is entitled to
a special degree of deference.@ Upshur, 933 F.2d at 228. A>The
arbitrator may not ignore the plain language of a contract,=@ but
the A>court should not reject an award on the ground that the
arbitrator misread the contract.=@ Id. at 228-29 (quoting Misco,
484 U.S. at 38); see also Choice Hotels, 491 F.3d at 177. The
arbitrator=s interpretation of the law is also accorded
12
deference. See Upshur, 933 F.2d at 229. A>As long as the
arbitrator is even arguably construing or applying the contract,=
a court may not vacate the arbitrator=s judgment.@ Choice
Hotels, 491 F.3d at 177 (quoting Misco, 484 U.S. at 38).
Cardinal has failed to demonstrate that the arbitrator
disregarded the plain language of the sublease or disregarded
the applicable law. The sublease agreement provides that it is
subject to termination if Cardinal fails to undertake to remedy
its default Ato [Aero-Smith=s] reasonable satisfaction . . . for
a period of thirty (30) days.@ J.A. 63. The language does not
describe the required duration of the attempt to remedy the
default that Cardinal must make. Rather, it describes the
amount of time that Cardinal must not allow to go by before
making its attempt. This created an objective standard by which
the arbitrator was to judge the efforts of Cardinal to remedy
their non-compliance with the terms of the sublease agreement.
The arbitrator did just that, expressly finding that Cardinal
was continually noncompliant with the standards set forth in
their sublease, even after being placed on notice of the
default. The arbitrator=s use of the word Awithin@ in the award
was not used to place an additional term into the contract, but
to explain that Aero-Smith=s dissatisfaction with the remedial
steps taken by Cardinal was reasonable. The arbitrator found
13
that, A[h]ad Cardinal and [its newly appointed manager]
discontinued their unauthorized use of the [hangar] for aircraft
storage and maintenance within thirty days of receipt of the
notice of breach, obtained the requisite [hangar] insurance and
named the Authority and Aero-Smith as named insured, and
cooperated fully with the Airport manager and the Authority,
this might be a closer question.@ J.A. 116. Instead, they Adid
none of these things, . . . persisted in their unauthorized use
of the [hangar] with the Authority and Aero-Smith at risk, and
hid their misconduct from the Authority.@ J.A. 116. Thus, as
found by the arbitrator, Cardinal Achose to continue its default@
and Aconceal its misconduct@ instead of undertaking to cure the
breaches. J.A. 116. In short, we do not perceive the
arbitrator=s use of the word Awithin@ as an assertion that the
sublease required that every deficiency must be cured in thirty
days, but rather that Cardinal did not take reasonable steps to
correct its noncompliant operations and, therefore, did not
attempt to cure the default with the thirty days to the
reasonable satisfaction of Aero-Smith.
C.
Finally, Cardinal claims that the arbitration award must be
set aside because it orders AAero-Smith and/or JetLink@ to pay
the $228,891.30 award, even though JetLink was not added to the
14
arbitration proceedings after it purchased Aero-Smith=s assets.
We are unpersuaded.
First, contrary to Cardinal=s assertion, the terms of the
sublease agreement, which provides for when outside parties may
be joined in an arbitration under the agreement, did not require
JetLink=s joinder in the arbitration proceedings and, while the
provision may well have allowed it, neither party took steps to
join JetLink.
Second, as recognized by both the arbitrator and the
district court, the failure to join JetLink in the arbitration
proceedings does not affect the validity of the award as
rendered or JetLink=s legal obligation to render payment pursuant
to it. When Aero-Smith sold all of its assets, including the
sublease agreement, to JetLink, JetLink Astep[ped] in the shoes
of [its] assignor,@ Aero-Smith, and became liable to render
payment to Cardinal upon the latter=s surrender of the premises.
Cook v. Eastern Gas and Fuel Assocs., 39 S.E.2d 321, 326 (W. Va.
1946). Additionally, even as a nonsignatory, JetLink rendered
itself bound by the arbitrator=s decision. Generally, a party
may not be subject to arbitration without consent. See State ex
rel. City Holding Co. v. Kaufman, 609 S.E.2d 855, 859 (W. Va.
2004) (per curiam); International Paper Co. v. Schwabedissen
Maschinen & Anlagen GMBH, 206 F.3d 411, 416 (4th Cir. 2000).
15
However, a nonsignatory Acan agree to submit to arbitration by
means other than personally signing a contract containing an
arbitration clause.@ International Paper, 206 F.3d at 416. For
example, the doctrine of equitable estoppel Arecognizes that a
party may be estopped from asserting that the lack of his
signature on a written contract precludes enforcement of the
contract=s arbitration clause when he has consistently maintained
that other provisions of the same contract should be enforced to
benefit him.@ Id. at 418. Here, JetLink assumed the benefits of
the arbitration provisions by taking possession of the hangar,
voluntarily joined in this action to enforce the award, admits
that it is bound by the arbitration award as Aero-Smith=s
successor, and represents that it stands ready to pay the
amounts due to Cardinal. As a result, the arbitration award
need not be set aside merely because the parties did not seek to
officially add JetLink as a party to the arbitration proceedings
below.
III.
For the foregoing reasons, the decision of the district
court granting summary judgment to the plaintiffs is hereby
affirmed.
AFFIRMED
16