Opinion ID: 4523247
Heading Depth: 2
Heading Rank: 2

Heading: Exclusive Remedy

Text: Having held that the case properly was retained in federal court, we now review the district court’s decision to grant judgment for the defendants on the pleadings. The district court held that the defendants enjoyed arbitral immunity and that the Federal Arbitration Act (“FAA”) provided the exclusive remedy for complaints of bias or a corrupt arbitrator’s conduct. Because these are independent reasons for dismissal, our agreement with either obviates the need to consider the other. Here, we rule on exclusive-remedy grounds and do not opine on the legitimacy of arbitral immunity. Judicial review in the arbitration context is limited. The Supreme Court has held that the statutory bases for vacating an arbitrator’s award are the only grounds on which a court may vacate an award. Hall St. Assocs. L.L.C. v. Mattel, Inc., 552 U.S. 576, 586 (2008) (citing 9 U.S.C. §§ 10 & 11). Relying on Hall Street, this court rejected one effort to go beyond the statutory language by holding that “manifest disregard of the law” is not an independent ground for challenging an arbitral award. Citigroup Glob. Mkts., Inc. v. Bacon, 562 F.3d 349, 358 (5th Cir. 2009). Further, purportedly independent claims are not a basis for a challenge if they are disguised collateral attacks on the 8 Case: 18-31184 Document: 00515374081 Page: 9 Date Filed: 04/07/2020 No. 18-31184 arbitration award. Gulf Petro Trading Co. v. Nigerian Nat’l Petroleum Corp., 512 F.3d 742, 747, 750 (5th Cir. 2008). The defendants argue that Texas Brine’s suit is an impermissible collateral attack on the arbitration award that seeks to bypass the congressionally created remedy for challenging an arbitration through a vacatur or modification proceeding. The defendants rely in part on two Sixth Circuit cases in which the court found an impermissible collateral attack on the arbitration award. Decker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 205 F.3d 906 (6th Cir. 2000); Corey v. New York Stock Exch., 691 F.2d 1205 (6th Cir. 1982). Texas Brine argues that those cases are distinguishable, and to the extent that the reasoning of those decisions is applicable, we should reject the reasoning as flawed. We have previously applied those very cases, though, to determine whether a party was attempting an impermissible collateral attack on an arbitration award. Gulf Petro, 512 F.3d at 750. The question then is whether Texas Brine’s claims constitute impermissible collateral attacks. In the Sixth Circuit’s Corey decision, an arbitration panel dismissed a plaintiff’s claim and assessed costs against him; the plaintiff did not appeal or move to vacate the judgment within the statutory period. 691 F.2d at 1208. The plaintiff sued the arbitrators and the sponsoring organization, alleging that the latter deprived him of a fair hearing by “select[ing] members of the arbitration panel in violation of the [sponsoring organization’s] rules” and by rescheduling hearings over the plaintiff’s objections. Id. The plaintiff also alleged that the arbitrators had prejudged the merit of his claims and inappropriately disallowed certain evidence. Id. The plaintiff asked for punitive damages for the mental anguish and physical problems he alleged occurred because of these acts. Id. 9 Case: 18-31184 Document: 00515374081 Page: 10 Date Filed: 04/07/2020 No. 18-31184 The Sixth Circuit held that the FAA was the exclusive remedy for the alleged wrongdoing and that the plaintiff’s claims impermissibly collaterally attacked the arbitration award. Id. at 1211–12. The wrongdoing alleged in the complaint was “squarely within the scope of section 10 of the Arbitration Act.” Id. at 1212. The court noted that the complaint “challenge[d] the very wrongs affecting the award for which review is provided under section 10 of the Arbitration Act. The mere presence of the [sponsoring organization] or the arbitrators or the prayer for damages does not change the substance of [the plaintiff’s] claim.” Id. at 1213. As a result, the court affirmed the district court’s summary judgment in favor of the defendant. Id. The Sixth Circuit expounded on its approach to analyzing collateral attacks in Decker. There, the plaintiff brought tortious interference and breach-of-contract claims. Decker, 205 F.3d at 909–10. The court held that these were impermissible collateral attacks because the plaintiff’s harm resulted from the prejudice to the plaintiff in the arbitration proceedings and the impact on the arbitration award. Id. at 910. We have used the Sixth Circuit decisions in our analysis of a collateral attacks on an arbitration award. In Gulf Petro, the plaintiff asserted claims under the Racketeer Influenced and Corrupt Organizations Act, the Texas Deceptive Trade Practices Act, and Texas common-law fraud and the tort of civil conspiracy; it sought vacatur of the arbitration award under the FAA. 512 F.3d at 745. The plaintiff sought damages for “(1) costs and expenses of the arbitration and subsequent legal challenges; (2) lost expenses and profits that would have been awarded had the panel rendered a fair award; (3) reputational injury suffered as a consequence of not prevailing in the arbitration; and (4) lost business opportunities suffered as a consequence of not prevailing in the arbitration.” Id. at 749. 10 Case: 18-31184 Document: 00515374081 Page: 11 Date Filed: 04/07/2020 No. 18-31184 We held that to categorize a claim against an arbitration decision, we look to “the relationship between the alleged wrongdoing, purported harm, and arbitration award.” Id. The test for a collateral attack is not merely whether the claims “attempt to relitigate the facts and defenses that were raised in the prior arbitration.” Id. at 749–50. Such a limitation would not align with Corey and Decker, “where the plaintiffs were found to be engaged in collateral attacks even though they did not attempt to relitigate the facts and defenses of the underlying disputes that had prompted arbitration, but instead were alleging that wrongdoing had tainted the arbitration proceedings and caused unfair awards.” Id. at 750. We found that the plaintiff’s claims in Gulf Petro constituted a collateral attack because the plaintiff was seeking to remedy wrongdoing that Section 10 was meant to address. Id. We now apply this analysis to Texas Brine’s claims. We start with the alleged wrongdoing. Alleging wrongdoing that would justify vacatur is a sign of a collateral attack. Id. at 749. In Gulf Petro, the plaintiff alleged two kinds of wrongdoing: first, that the defendant bribed the arbitrators for a favorable outcome and, second, that the arbitrators failed to disclose their business dealings and ex parte communications with the defendant. Id. Texas Brine alleges similar wrongdoing involving the arbitrators’ failure to disclose potential conflicts of interest. Further, the alleged wrongdoing here resembles the wrongdoing that led the Louisiana court to vacate the underlying arbitration awards, namely, the arbitrators’ conflicts of interest. This wrongdoing is “squarely within the scope of section 10” of the FAA, Corey, 691 F.2d at 1212, which allows for vacatur based on “evident partiality or corruption in the arbitrators,” 9 U.S.C. § 10(a)(2). Next, we look to the purported harm. See Gulf Petro, 512 F.3d at 749. In its petition for damages, Texas Brine alleges harm that we may summarize 11 Case: 18-31184 Document: 00515374081 Page: 12 Date Filed: 04/07/2020 No. 18-31184 into a few categories: (1) the strategic disadvantage in the arbitration process due to arbitrator bias; (2) a “tainted” arbitration; and (3) wasted money spent on the arbitration. For example, Texas Brine alleges that the nondisclosure of conflicts of interest “deprived Texas Brine of the opportunity to make an informed decision as to [DiLeo’s] continued service as an arbitrator.” Texas Brine also contends that the arbitrators had an “unjust advantage” in the proceedings because of the nondisclosure. As in Decker and Corey, the harm to Texas Brine from the strategic disadvantage and the “tainted” arbitration ultimately manifested in its effect on the arbitration awards. Decker, 205 F.3d at 910. This means that it is the kind of harm appropriately remedied through Section 10 of the FAA. Id. Further, in Gulf Petro, the fact that the plaintiff sought costs and expenses did not affect our finding that the plaintiff was collaterally attacking the arbitration award. 512 F.3d at 749–50. The purported harm in this case is of the kind that Gulf Petro, Corey, and Decker addressed. Last, we look to the requested relief and its relationship to the alleged wrongdoing and purported harm. See Gulf Petro, 512 F.3d at 749. Texas Brine complains that “[v]acatur is an incomplete remedy.” Instead, the argument goes, Texas Brine should be reimbursed for all the fees and costs it paid during the arbitration and state-court litigation. According to Texas Brine, it is owed over $12 million, including over $560,000 from fees paid directly to the AAA and the arbitrators. In its prayer for relief, Texas Brine requested that the court grant various forms of relief and that the court find “such relief is delictual [i.e., based on tort], or alternatively, contractual, in nature.” Texas Brine also requested that the defendants “fully disgorge [themselves] of all amounts paid during the arbitration proceedings . . . .” As previously mentioned, Gulf Petro categorized a plaintiff’s request for reimbursement of 12 Case: 18-31184 Document: 00515374081 Page: 13 Date Filed: 04/07/2020 No. 18-31184 the costs and fees that it paid in the arbitration as a collateral attack. 512 F.3d at 749. Texas Brine acknowledges the exclusive-remedy rule from Hall Street, but it attempts to distinguish its own claims from those in Corey. Texas Brine emphasizes that it successfully obtained vacatur under Section 10, while the plaintiff in Corey did not. Corey’s holding, though, and the analysis we adopted in Gulf Petro, did not turn on whether the plaintiff sought vacatur of the arbitration award. Nothing in our caselaw indicates that the exclusive-remedy rule is merely an exhaustion rule, a prerequisite to filing additional claims in tort, contract, or equity that in essence attack the underlying arbitration. Here, the state court vacated the arbitral awards under Section 10 due to the same wrongdoing that Texas Brine alleges in its new lawsuit. Congress identified some potential problems that may arise in arbitration in Section 10 of the FAA and provided a limited remedy. The relief, purported harm, and alleged wrongdoing here show that Texas Brine’s claims, at heart, are in fact an unauthorized collateral attack on the arbitration. The district court was correct to dismiss the challenge. III. Texas Brine’s Motion to Supplement the Record Texas Brine seeks to supplement the record on appeal with recently produced documents from the state-court litigation. The evidence relates to the AAA’s administration of the underlying arbitration. Even if admitted, the evidence would not change that Section 10 of the FAA was the appropriate means of challenging the arbitrators’ acts, and collateral attacks are not allowed. We DENY the motion to supplement. AFFIRMED. 13