1

The Honorable Joseph F. Bataillon, United States District Judge for the

District of Nebraska.

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 03-1296 

___________

Claude M. Schoch, *

*

Appellee, *

* Appeal from the United States

v. * District Court for the

* District of Nebraska.

InfoUSA, Inc.; American Business *

Information Marketing, Inc., *

*

Appellants. *

___________

Submitted: June 19, 2003

Filed: September 3, 2003

___________

Before BOWMAN, BEAM, and RILEY, Circuit Judges.

___________

RILEY, Circuit Judge.

InfoUSA, Inc. and American Business Information Marketing, Inc.

(collectively infoUSA) appeal from the district court’s1

 order confirming an

arbitration award in favor of Claude M. Schoch (Schoch) and entry of judgment in

Schoch’s favor. InfoUSA argues the award should be vacated because (1) the
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arbitrator exceeded his contractual authority, and (2) the award is completely

irrational and evidences a manifest disregard for the law. We affirm.

I. BACKGROUND

In September 1996, infoUSA bought Schoch’s business for $20,000,000 in

cash and stock and entered into a three-year employment agreement with Schoch for

an annual salary of $225,000. InfoUSA also granted Schoch the option to purchase

360,000 shares of infoUSA stock (180,000 shares before intervening 2-for-1 stock

split). The options vested over a four-year period (90,000 shares annually in August

of 1997, 1998, 1999, and 2000) and could “be exercised for up to three months after

termination of employment or consulting relationship.” The employment agreement

ended on September 9, 1999, and the parties did not renew the agreement. At the

time the employment agreement ended, the options to purchase 270,000 shares had

vested, while the option for the remaining 90,000 shares would not vest until August

2000. Even though the employment agreement had ended, Schoch did some work for

infoUSA in October, November, and December 1999, but did not get paid for this

work. During this time, Schoch apparently attempted to get infoUSA to extend his

agreement so he could work until the remaining 90,000 shares vested, but infoUSA

refused. In mid-December 1999, infoUSA’s stock price rose significantly, and the

market price exceeded the exercise price of Schoch’s options. On December 17,

1999, Schoch tried to exercise his options to purchase 360,000 shares. InfoUSA

refused his tender offer, claiming Schoch’s employment agreement ended on

September 9, 1999, which meant his three-month exercise period had ended on

December 9, 1999.

In March 2000, Schoch sued infoUSA for breach of contract, reformation, and

unjust enrichment. In February 2001, Schoch and infoUSA agreed to arbitrate the

dispute and the district court granted a stay pending arbitration. The parties hired a

retired state court trial judge to arbitrate the dispute. After holding three days of

hearings and reviewing post-hearing briefs, the arbitrator issued a nine-page opinion
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The arbitrator also determined Schoch was not entitled to compensation for

work performed from September through December 1999, and the option for the

remaining 90,000 shares did not vest.

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containing his findings and conclusions. The arbitrator decided Schoch continued in

an employment relationship until December 17, 1999, such that the options for

270,000 shares had not expired.2

 The arbitrator then decided Schoch’s damages for

not being allowed to exercise his options amounted to $1,632,000.

Schoch moved the district court to confirm the arbitration award, while

infoUSA moved to vacate the award. InfoUSA maintained that a heightened standard

of review applied because the arbitration agreement contained the following

language: “The Arbitrator shall issue an award consisting of findings of fact and

conclusions of law. . . . The Arbitrator’s decision and award shall be valid and

binding, judgment may be entered on such award, and such award shall be final as

to the Parties, as long as the Arbitrator has not exceeded his or her authority (i.e.,

the award would be limited to disputes arising out of the [Complaint] . . . , and

resolved in accordance with applicable law).” (emphasis added). Even if a

heightened standard of review does not apply, infoUSA argued the arbitrator’s award

should be vacated because he exceeded his contractual authority and the award is

completely irrational and evidences a manifest disregard for the law. Refusing to

apply a heightened standard of review, the district court granted Schoch’s motion to

confirm the award and entered judgment for Schoch in the amount of $1,632,000.

 

II. DISCUSSION

A. Standard of Review

In reviewing the district court’s order confirming the arbitrator’s award, we

accept the court’s factual findings unless clearly erroneous, but decide questions of

law de novo. Boise Cascade Corp. v. Paper Allied-Indus., Chem. & Energy Workers,

309 F.3d 1075, 1080 (8th Cir. 2002). However, the underlying award itself is entitled
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to “an extraordinary level of deference.” Id. (citation omitted). We are simply “not

authorized to reconsider the merits of an arbitral award, ‘even though the parties may

allege that the award rests on errors of fact or on misinterpretation of the contract.’”

Id. (citation omitted). We will confirm the arbitrator’s award “even if we are

convinced that the arbitrator committed serious error, so ‘long as the arbitrator is even

arguably construing or applying the contract and acting within the scope of his

authority.’” Id. (citation omitted).

Although an arbitrator has broad authority, the arbitrator is not wholly free

from judicial review. Id. An arbitrator’s award can be vacated for the reasons

provided in the Federal Arbitration Act (FAA). See 9 U.S.C. § 10(a) (reasons include

corruption, fraud, undue means, evident partiality, misconduct, or ultra vires acts).

Relevant to this case, a district court may vacate an arbitrator’s award when the

arbitrator exceeds his powers. Id. § 10(a)(4). In addition to the statutory reasons for

vacating arbitration awards, our court has recognized two “extremely narrow”

judicially created standards for vacating an arbitration award. Hoffman v. Cargill,

Inc., 236 F.3d 458, 461 (8th Cir. 2001). First, an arbitrator’s award can be vacated

if it is “completely irrational,” meaning “it fails to draw its essence from the

agreement.” Boise Cascade, 309 F.3d at 1080. “An arbitrator’s award draws its

essence from the [parties’ agreement] as long as it is derived from the agreement,

viewed in light of its language, its context, and any other indicia of the parties’

intention.” Id. (quoting Johnson Controls, Inc., Sys. & Servs. Div. v. United Ass’n

of Journeymen, 39 F.3d 821, 825 (7th Cir. 1994)). The second judicially created

standard for vacating an arbitration award is when the award “evidence[s] a manifest

disregard for the law.” Id. (citation omitted). An arbitrator’s award “manifests

disregard for the law where the arbitrators clearly identify the applicable, governing

law and then proceed to ignore it.” Id. (citation omitted).

In addition to the narrow FAA and judicially created standards for vacating

arbitration awards, infoUSA asks us to recognize the right of parties to contract for
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a heightened standard of review of an arbitrator’s award. Indeed, infoUSA claims it

and Schoch contracted for a heightened standard of review, requiring the district

court, and our court, to review the arbitrator’s award de novo.

We recognize the circuit courts are split on whether parties to arbitration

agreements can expand the scope of judicial review of arbitration awards. Compare

Bowen v. Amoco Pipeline Co., 254 F.3d 925, 937 (10th Cir. 2001) (holding “parties

may not contract for expanded judicial review of arbitration awards”), and Chicago

Typographical Union v. Chicago Sun-Times, Inc., 935 F.2d 1501, 1505 (7th Cir.

1991) (noting parties cannot contract for judicial review of arbitration awards because

“federal jurisdiction cannot be created by contract,” but recognizing parties “can

contract for an appellate arbitration panel to review the arbitrator’s award”), with

Roadway Package Sys., Inc. v. Kayser, 257 F.3d 287, 293 (3d Cir. 2001) (“We now

join with the great weight of authority and hold that parties may opt out of the FAA’s

off-the-rack vacatur standards and fashion their own.”), LaPine Tech. Corp. v.

Kyocera Corp., 130 F.3d 884, 888 (9th Cir. 1997) (holding courts must honor

arbitration agreements that indisputably contract for heightened judicial scrutiny of

an arbitrator’s award), and Gateway Tech., Inc. v. MCI Telecomm. Corp., 64 F.3d

993, 997 (5th Cir. 1995) (parties can contract for heightened de novo review of

arbitration awards).

Our court has specifically reserved resolving this issue until the circumstances

require it. In UHC Management Co. v. Computer Science Corp., 148 F.3d 992, 997

(8th Cir. 1998), this court made known that contracting for a heightened standard of

review is not “yet a foregone conclusion.” Expressing grave skepticism, we also

made the following statement: “It is not clear, however, that parties have any say in

how a federal court will review an arbitration award when Congress has ordained a

specific, self-limiting procedure for how such a review is to occur [under the FAA].

. . . Congress did not authorize de novo review of such an award on its merits; it

commanded that when the exceptions do not apply, a federal court has no choice but
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While we do not expressly adopt the Tenth Circuit’s persuasive reasoning in

Bowen, we again express skepticism as to whether parties can contract for heightened

judicial review of arbitration awards, which would seemingly amend the FAA, crown

arbitrators mini-district courts, force federal trial courts to sit as appellate courts, and

completely transform the nature of arbitration and judicial review. See Hoffman, 236

F.3d at 462 (“Arbitration is not a perfect system of justice, nor is it designed to be.

‘[W]here arbitration is contemplated the courts are not equipped to provide the same

judicial review given to structured judgments defined by procedural rules and legal

principles. Parties should be aware that they get what they bargain for and that

arbitration is far different from adjudication.’ Arbitration is designed primarily to

avoid the complex, time-consuming and costly alternative of litigation.”) (citations

omitted); Eljer Mfg., Inc. v. Kowin Dev. Corp., 14 F.3d 1250, 1254 (7th Cir. 1994)

(“Arbitration does not provide a system of ‘junior varsity trial courts’ offering the

losing party complete and rigorous de novo review. It is a private system of justice

offering benefits of reduced delay and expense. A restrictive standard of review is

necessary to preserve these benefits and to prevent arbitration from becoming a

‘preliminary step to judicial resolution.’”) (citations omitted).

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to confirm.”3

 Id. However, we noted that, if parties could contract for heightened

judicial review, “the parties’ intent to do so must be clearly and unmistakably

expressed.” Id. at 998.

UHC Management was decided in July 1998. InfoUSA and Schoch entered

into their binding arbitration agreement on June 8, 2001. These sophisticated parties

had fair warning they needed appropriate language to create heightened judicial

review. If infoUSA and Schoch intended to contract for heightened judicial scrutiny,

as infoUSA claims they did, one would imagine they would express such an intent

using crystal-clear language. They did not. Because the parties did not “clearly and

unmistakably” express an intent to have the district court review de novo the

arbitrator’s award, we will not read such an intent into their agreement. The district

court correctly reviewed the arbitrator’s award under the narrow FAA and judicially

created standards. We will now proceed to do the same.
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B. No Reason to Vacate Arbitrator’s Award

Under the narrow FAA and judicially created vacatur standards enunciated

above (as opposed to a rigorous de novo review), we agree with the district court that

we have no reason to vacate the arbitrator’s award in this case. The arbitrator did not

exceed his contractual authority, his award was not completely irrational, and he did

not evidence a manifest disregard for the law.

The arbitrator reasonably complied with his contractual authority in issuing his

award. He conducted a three-day hearing and reviewed the parties’ written briefs

before he issued his nine-page award. In his award, the arbitrator recognized and

analyzed the appropriate issues to be resolved, as required by the arbitration

agreement. He complied with the agreement by issuing factual findings and legal

conclusions. After concluding the term “employment or consulting relationship” was

broader than simply being an employee, the arbitrator then discussed how Schoch had

continued performing work for infoUSA, at infoUSA’s request, after the employment

agreement ended. Based on this finding, the arbitrator decided Schoch was in an

employment relationship until December 17, 1999. In determining Schoch’s damages

for infoUSA’s failure to allow Schoch to exercise his options, the arbitrator stated

valid legal principles. After hearing live testimony, reviewing the evidence, and

studying the parties’ briefs, the arbitrator concluded Schoch would not have sold all

270,000 shares at a profit, but found no evidence Schoch would not have sold any

shares at all. The arbitrator judged the credibility of witnesses, including experts, in

deciding Schoch would have sold all of the shares, but at different prices over a

period of time. The arbitrator then determined, with the “requisite reasonable

certainty,” Schoch’s damages were $1,632,000.

Although infoUSA may disagree with the arbitrator’s factual and legal

conclusions, the arbitrator did not exceed his contractual authority. Because the

arbitrator attempted to comply with the parties’ agreement, the award was not

completely irrational, as it drew its essence from the agreement. 
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Finally, the award does not evidence a manifest disregard for the law. The

arbitrator interpreted the contractual phrase “employment or consulting relationship”

to be broader than being an employee under an employment agreement. After noting

Schoch continued to work for infoUSA after the employment agreement ended, the

arbitrator determined Schoch was in an employment relationship. The arbitrator

specifically stated he determined damages with the “requisite reasonable certainty.”

Even if the arbitrator made legal errors, he did not completely ignore the law.

Although we may disagree with the arbitrator’s factual findings or legal

analysis, our limited review does not authorize us to substitute our judgment for that

of an arbitrator hired by the parties. In UHC Management, we explained:

We may not set an award aside simply because we might have

interpreted the agreement differently or because the arbitrators erred in

interpreting the law or in determining the facts. Although this result

may seem draconian, the rules of law limiting judicial review and the

judicial process in the arbitration context are well established and the

parties here, both sophisticated in the realms of business and law, can be

presumed to have been well versed in the consequences of their decision

to resolve their disputes in this manner.

Id. (quoting Stroh Container Co. v. Delphi Indus., Inc., 783 F.2d 743, 751 (8th Cir.

1986)).

InfoUSA complains it did not receive the benefit of its bargain. We disagree.

InfoUSA did not bargain for the benefits and protections of our state or federal

judicial systems. Instead, infoUSA chose to resolve its dispute quickly and efficiently

through arbitration. InfoUSA got exactly what it bargained for.
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III. CONCLUSION

Because we conclude the district court properly confirmed the arbitration

award, we affirm.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.