Opinion ID: 2981427
Heading Depth: 2
Heading Rank: 1

Heading: The communications with Morton

Text: 3 No. 11-1778 Barrick Enterprises, Inc. v. Crescent Petroleum, Inc., et al. Crescent alleges that the Arbitrator’s “ex parte” communications with Morton (a Barrick employee) prejudiced Crescent and was in excess of its powers. As such, it argues, the district court should have vacated the award pursuant to the Federal Arbitration Act. See 9 U.S.C. §10(a). The Federal Arbitration Act, which governs the parties’ rights in arbitration, provides that a court may only vacate an arbitration award in the following instances: (1) where the award was procured by corruption, fraud, or other 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 misbehavior by which the rights of any party have been prejudiced; or (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. 9 U.S.C. §10(a) (emphasis added). Additionally, in Wilko v. Swan, 346 U.S. 427, 436-37 (1953), overruled on other grounds, Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477 (1989), the Supreme Court recognized nonstatutory grounds for reversal where the Arbitrator acts with manifest disregard for the law. We have “emphasized that manifest disregard of the law is a very narrow standard of review.” Jaros, 70 F.3d at 421. (internal citation omitted). “A mere error in interpretation or application of the law is insufficient. Rather, the decision must fly in the face of clearly established legal precedent.” Id. (internal citation omitted).
On May 11, 2009, the Arbitrator communicated with Morton outside the presence of counsel. Crescent argues that it was “severely prejudiced” by this communication because it had “no idea what [Morton] testified to, and had no opportunity to cross-examine her.” It further argues that 4 No. 11-1778 Barrick Enterprises, Inc. v. Crescent Petroleum, Inc., et al. Morton’s testimony is “presumably biased in favor of her employer,” Barrick. Crescent points out that “some courts have . . . held that arbitrators cannot conduct ex parte hearings or receive evidence unless it is done in the presence of the other arbitrators and the parties.” See Jones v. St. Louis-San Francisco Ry. Co., 728 F.2d 257, 263 (6th Cir. 1984). At first blush, this principle and the Order’s language potentially appear to provide Crescent with cause for complaint. Ultimately, however, Crescent’s arguments are unconvincing. As an initial matter, Crescent’s reliance on Jones is misplaced. The Jones principle is an observation, not a rule, and references decisions that do not control this court. See Jones, 728 F.2d at 263 (referring to decisions from other jurisdictions, e.g., Totem Marine Tug & Barge v. North Am. Towing, 607 F.2d 649, 653 (5th Cir. 1979)1 and Katz v. Uvegi, 187 N.Y.S.2d 511, 518 (N.Y. Sup. Ct. 1959)). Jones is also factually distinguishable. In that case, we considered whether an arbitration award was proper where an arbitration board rendered its decision after some members 1 To be sure, our sister circuit’s opinion in Totem Marine vacated an arbitrator’s award where the arbitrator received information ex parte. But the arbitrator’s behavior in that case went far beyond what occurred here. In Totem Marine, while post-arbitration deliberations were taking place, the arbitrators realized that their notes included inconsistent earnings figures. Id. at 650. To resolve this inconsistency, they phoned one party’s counsel; obtained a figure that they deemed definitive even though it did not match any of the figures in their notes; used that figure to complete their computations; and neither notified the other party of the communication nor gave it an opportunity to respond to the figure. Id. at 650-52. On appeal, the Fifth Circuit found not only that the arbitrators should not have considered the earnings figure to begin with, id. at 651-52, but that, not surprisingly, the method by which they obtained the figure was improper, id. at 652. In so doing, the court observed that “arbitrators cannot conduct ex parte hearings or receive evidence excect in the presence of each other and of the parties, unless otherwise stipulated.” Id. (quotation and citation omitted) (emphasis added). Even if this decision were controlling, it would be distinguishable. The facts are different, and, as we will discuss below, the Arbitrator’s conversation with Morton was, we conclude, “otherwise stipulated.” 5 No. 11-1778 Barrick Enterprises, Inc. v. Crescent Petroleum, Inc., et al. resigned, and neither of the two substitute arbitrators attended the hearing or heard all the evidence presented. See Jones, 728 F.2d at 264. “Thus, a majority of the board did not fully consider appellant’s claims.” Id. We concluded that the board failed to afford the litigants “complete fairness” as required by the Railway Labor Act, 45 U.S.C. § 153. Id. at 263-64. Those factors simply are not present in the instant case, and merely acknowledging the law in other jurisdictions does not constitute a holding that binds this court. But even if Jones were helpful to Crescent, Crescent’s interpretation of the Order and its complaint of prejudice would still be unavailing. To be sure, the provision of the Order that Crescent cites is arguably subject to multiple interpretations: “The Arbitrator shall be free to direct questions and request documents or records from the parties as may be needed to evaluate and render a final determination of the Account Balance so long as any such questions or requests, and the subsequent disclosures thereto, are disclosed to the opposing party.” (emphasis added). According to Crescent, this means that when the Arbitrator directed questions at Morton, he was required to disclose the actual questions and subjects covered to Crescent. Courts give contract language “its ordinary and natural meaning.” See Royal Ins. Co. of Am. v. Orient Overseas Container Line Ltd., 525 F.3d 409, 421 (6th Cir. 2008) (internal citation and quotation omitted). “Disclose” means “to make known,” or to “divulge.” Webster’s Third New International Dictionary 645 (8th ed. 1986). Nevertheless, it is unclear whether, under the Order, the Arbitrator simply must alert the parties that questioning will occur and cover certain subjects (which, as discussed below, the Arbitrator did), or must disclose the actual questions asked (which 6 No. 11-1778 Barrick Enterprises, Inc. v. Crescent Petroleum, Inc., et al. the Arbitrator did not). If “disclose” means the latter, Crescent may, indeed, have been prejudiced by the Arbitrator’s departure from the agreed-upon procedure. But there are two problems with Crescent’s argument. The first is that the contract is only arguably ambiguous, and even if “disclose” means to divulge questions with exacting specificity, we review the Arbitrator’s different interpretation with great deference. As we have said, as long as the Arbitrator is “even arguably construing . . . 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.” J.V.B. Indus., 894 F.2d at 866 (citing Misco, 484 U.S. at 38); cf. Jaros, 70 F.3d at 421 (“If a court can find any line of argument that is legally plausible and supports the award then it must be confirmed. Only where no judge or group of judges could conceivably come to the same determination as the arbitrators must the award be set aside.”). In light of the foregoing, we decline to disturb the award based on the Arbitrator’s interpretation of the disclosure requirement. Second, Crescent agreed to the procedure by which Morton was questioned, i.e., without counsel and without full and specific disclosure of the items discussed and questions asked. A series of emails between the Arbitrator, Barrick’s counsel, and Crescent’s counsel demonstrates Crescent’s acquiescence. On May 7, 2009, the Arbitrator sent the following email to counsel for both Barrick and Crescent: At this time we would like to invite Barrick’s controller [Morton] to our offices to assist us in understanding certain data entry processes of the business. . . . Please advise. 7 No. 11-1778 Barrick Enterprises, Inc. v. Crescent Petroleum, Inc., et al. In response to Barrick’s counsel asking to be present at the meeting, the Arbitrator responded as follows (also on May 7, 2009): I would not think so. That would add pressure to her that is not warranted for what we are seeking to understand at this time. Having been through the data we desire to understand more about the customer payment cycle Barrick employs. It is nothing that she will have to ‘prep’ for or that she should feel stressed/nervous about. Anticipating both your desires to be at any meeting, I confirm to you that we will not be sharing any form of balance information with her, such that one side would feel at an advantage over the other. Counsel for Crescent was copied on that email. Crescent neither asked to be present nor objected to the proceedings, and they took place on May 11, 2009. One day later, the Arbitrator extended a similar invitation to Crescent’s counsel, inviting gas station owner Mohammed El-Bathy to “come to our offices to assist us in understand[ing] the procedures employed by Crescent and the materials presented to us.” The Arbitrator noted that “[a]ttorney presence is not required.” Counsel for Crescent responded, “I think your approach is wise. I will have my client contact you to meet. I will not be present, as I assume [counsel for Barrick] will not be either.” (emphasis added). Crescent’s acquiescence is fatal to its argument. In Order of Ry. Conductors and Brakemen v. Clinchfield R. Co., 407 F.2d 985, 988 (6th Cir. 1969), we stated that parties in arbitration waive their right to complain about defects in the arbitration process if such objections are not raised at that time: It is also well settled that defects in proceedings prior to or during arbitration may be waived by a party’s acquiescence in the arbitration with knowledge of the defect. Moreover, if the impeaching party’s own action contributes to a variance from the prescribed procedure, such party may be estopped to complain of the variance. 8 No. 11-1778 Barrick Enterprises, Inc. v. Crescent Petroleum, Inc., et al. In that case, the arbitration board was composed of five members despite the statutory requirement that it be composed of either three or six. This court held that “the unions waived their right to object to the statutory departure by participating in the arbitration proceedings without objection on this point.” Id. at 989.2 Counsel for Crescent was copied on all emails sent by the Arbitrator regarding his desire to meet and speak ex parte with Morton, yet did not raise an objection despite language in the Order which may have precluded the arrangement. Counsel for Crescent also explicitly agreed to follow a similar course of conduct with his own client, stating to the Arbitrator, “I think your approach is wise.” On these facts, Crescent has waived any objection it may have had to the ex parte communications, whether or not they constituted a departure from the Order’s prescriptions. In light of the foregoing facts and the extremely narrow standard of review, we conclude that the ex parte meeting does not constitute grounds for relief.
Crescent next argues that the district court should have vacated the award because, in conducting the ex parte proceeding, the Arbitrator failed to “adhere to the terms” of the Order, and thus exceeded its powers. See 9 U.S.C. § 10(a)(4) (permitting a court to vacate an arbitration award “where the arbitrators exceeded their powers”). This court has instructed that arbitrators “do not exceed their authority unless ‘they display a manifest disregard of the law,’ which ‘means more than 2 Though Clinchfield was decided over forty years ago, we still rely upon it. See Armco Emples. Indep. Fedn., Inc. v. AK Steel Corp., 149 F. App’x 347, 352 (6th Cir. 2005); Nationwide Mut. Ins. Co. v. Home Ins. Co., 330 F.3d 843, 846 (6th Cir. 2003). 9 No. 11-1778 Barrick Enterprises, Inc. v. Crescent Petroleum, Inc., et al. mere error in interpretation or application of the law.’” Appalachian Reg’l Healthcare, Inc. v. Beyt, Rish, Robbins Grp., Architects, No. 91-6063, 1992 U.S. App. LEXIS 12100,  (6th Cir. May 19, 1992) (citing J.V.B. Indust., 894 F.2d at 866). Rather, “the decision must fly in the face of clearly established legal precedent.” Jaros, 70 F.3d at 421. (internal citation omitted). 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.” J.V.B. Indus., 894 F.2d at 866 (citing Misco, 484 U.S. at 38). Though the contract is perhaps ambiguous regarding the disclosure requirement, it would be all but impossible to say that the Arbitrator was not “arguably construing or applying the contract and acting within the scope of his authority.” Id. And we know of no cases that would indicate that the Arbitrator’s ex parte meeting with Morton flies in the face of clearly established precedent. Finally, Crescent lodged no objection to the proceedings, and “defects in proceedings prior to or during arbitration may be waived by a party’s acquiescence in the arbitration with knowledge of the defect.” Clinchfield R.R. Co., 407 F.2d at 988. For the foregoing reasons, we conclude that Crescent’s arguments are without merit.