Opinion ID: 199031
Heading Depth: 2
Heading Rank: 1

Heading: Rulings on the Arbitrability of the Bonus Issue

Text: 19 Coady's employment was primarily governed by his 1993 employment agreement with Ashcraft & Gerel, which was amended in 1994. 7 The employment agreement, as amended, covers Coady's duties, his compensation, and his degree of control over the Boston office, and also sets liquidated damages for a breach by either party. The agreement includes the following arbitration clause: 20 It is agreed by the parties that any ambiguities or questions of interpretation of this contract shall be the subject of discussions by COADY and a [partners' committee].... Any decision which [the committee] may reach in such a matter shall be binding on the partnership. Either party may at [its] option elect to submit the matter to Binding arbitration, the reasonable expenses and costs of which will be borne by the loser; however, both parties agree to use reasonable means and good faith to attempt to resolve any differences that may arise prior to resorting to arbitration. 21 (emphasis added). 22 In its March 1998 decision, the district court interpreted this arbitration clause, stating:This arbitration provision is not a standard broad arbitration clause applying to any dispute between Coady and Ashcraft & Gerel arising out of or relating to the Employment Agreement. Instead, this Court reads this arbitration clause to define a limited scope of arbitration. Under the Employment Agreement, the parties have agreed to arbitrate disputes (1) requiring clarification of the meaning of a particular contractual provision because the language of the contract suggests more than one reasonable interpretation (ambiguities) and (2) requiring construction of the substantive provisions of the contract. Once the arbitrator determines the meaning of a contractual provision, the role of the arbitrator is complete. Unless the parties mutually agree to continue arbitration for the purpose of complete resolution of a dispute, the dispute must be resolved through litigation, or private settlement. 23 Coady, 996 F. Supp. at 107 (emphasis added). 8 24 The district court then proceeded to identify which of the disputed issues were arbitrable. See id. at 108-09. On the issue of the payment of Coady's bonus for the first half of 1997, the district court wrote: 25 By the express terms of the Employment Agreement, Coady is entitled to a bi-annual bonus equal to twenty-five percent of the net profits of the Boston office. This bonus payment is capped; Coady's total annual compensation cannot exceed a senior partner's draw for the same calendar year. Coady asserts that Ashcraft & Gerel has failed to make this bonus payment for the first half of 1997. The calculation of the bonus is the subject of arbitration as the determination of net profit requires interpretation of whether certain expenses are related. However, the obligation to make this payment is not the subject of arbitration, as there is no ambiguity in the Employment Agreement regarding Ashcraft & Gerel's duty[] to make this bonus payment. 26 Id. at 108 (citations omitted) (emphasis added). In the conclusion of its opinion, the court identified four issues for arbitration. Only one was related to the bonus issue: What are the related expenses for determining the Boston office's net profits? Id. at 109. As described earlier, the related expenses issue was removed from consideration by the law firm's acceptance, during the arbitration, of Coady's figures. 9 27 In its November 4, 1998 report on the issues subject to arbitration, and again in its February 1999 Findings, Orders, and Award, the arbitration panel stated that it believed that the amount of Coady's bonus -- not simply the nature of related expenses for determining the Boston office's net profits -- was subject to arbitration. The arbitrators based this conclusion on the district court's statement that [t]he calculation of the bonus is the subject of arbitration, Coady, 996 F. Supp. at 108, and on the district court's later affirmance of the arbitrators' discovery order. In its February 1999 decision, the panel also found that Coady had made a prima facie case that Ashcraft & Gerel had manipulated its 1997 senior partner draw in order to reduce his bonus, and ordered further discovery that would allow it to calculate what Coady's bonus should have been. 28 In its April 1999 Memorandum and Order, the district court denied Ashcraft & Gerel's motion to vacate in part the arbitration award. The court held that deference should be given to the arbitration panel's view of the scope of its authority, citing Larocque v. R.W.F, Inc., 8 F.3d 95 (1st Cir. 1993). [A]n arbitrator's view of the scope of the issue... is entitled to the same... deference... normally accorded to the arbitrator's interpretation of the collective bargaining agreement itself. Id. at 97 (quoting El Dorado Tech. Servs., Inc. v. Union Gen. de Trabajadores, 961 F.2d 317, 321 (1st Cir. 1992)) (internal quotation marks omitted). 29 On the bonus issue, the court concluded that the arbitrators had not exceeded the scope of their authority when they sought to calculate the amount of Coady's bonus and ordered discovery on the senior partner draw to facilitate the calculation of the bonus amount. Quoting its March 1998 order of reference, the court wrote: 30 This Court concluded that the panel was to identify the related expenses for determining the Boston office's net profits to help calculate the bonus owed Coady. Ashcraft sought to limit the panel's scope to these related expenses only and now objects to the panel's going beyond this identification. In its discussion, however, this Court stated that [t]he calculation of the bonus is the subject of arbitration as the determination of net profits requires interpretation of whether certain expenses are 'related.' Thus, the Court's limited conclusion should be read in light of its more expansive discussion of this issue. 31 (citations omitted). 32 After another hearing and two supplemental orders, the arbitration panel issued its final order on June 30, 1999, which the court confirmed at a hearing on September 15, 1999. The district court did not issue a written explanation of its September 15 decision. At the hearing, however, the court repeated the reasoning from its April 1999 decision: first, the March 1998 decision did refer the calculation of Coady's bonus to the arbitrators; and second, the arbitrators' conclusions as to the scope of the arbitration should be given deference. 33 In Ashcraft & Gerel's view, the district court's March 1998 decision concerning the scope of arbitration held that the employment contract limited arbitration to matters of contract interpretation only. Ashcraft & Gerel argues that the arbitrators exceeded their authority when they held that Ashcraft had manipulated the senior partners' draw and determined that the firm owed Coady additional bonus compensation. The firm argues that the district court erred in its April 1999 decision; when it ruled that the arbitrators had not exceeded the scope of their authority, the firm says, the court was misinterpreting its own March 1998 decision. 34 Coady argues that the district court's confirmation of the arbitration award was proper. According to Coady, the calculation of his bonus required interpretation of an ambiguous term in the employment contract, a task the arbitrators were specifically empowered to engage in by both the employment contract and the district court order. Coady phrases the question facing the arbitrators this way: was Coady's compensation capped by the number announced by Ashcraft & Gerel as the senior partners' draw, or did the firm have an obligation under the contract to follow its usual accounting practices to determine the cap on Coady's compensation? Coady says that the panel concluded in its February 1999 order that the cap number was not the one announced by Ashcraft in 1997, but that the actual number was yet unknown, as Coady had submitted prima facie evidence of a substantial straddle of income in 1997. 35