Court Opinion

ID: 32416
Source: CourtListenerOpinion
Date Created: 2010-04-25 18:53:27+00
Date Added: 2024-06-11T16:48:28.227219
License: Public Domain

United States Court of Appeals
                                                                       Fifth Circuit
                                                                      F I L E D
                                                                      August 22, 2003
                  IN THE UNITED STATES COURT OF APPEALS
                          FOR THE FIFTH CIRCUIT                    Charles R. Fulbruge III
                                                                           Clerk

                                 No. 03-20047

MICHAEL M. PFEIFLE,

                                                      Plaintiff-Appellant,

versus

CHEMOIL CORPORATION,

                                                       Defendant-Appellee.

                       --------------------
           Appeal from the United States District Court
                for the Southern District of Texas
                           (H-02-CV-101)
                            ------------

Before WIENER, CLEMENT, and PRADO, Circuit Judges.

PER CURIAM:*

     Plaintiff-Appellant Michael M. Pfeifle appeals the district

court’s   order     confirming     an   arbitration   award   in     favor     of

Defendant-Appellee Chemoil Corporation.         Pfeifle contends that the

arbitrators    exceeded    their    contractual   authority    by      awarding

Chemoil damages that Pfeifle classifies as consequential and thus

violative of the arbitration agreement’s proscription of awarding

“indirect” damages.       Based largely on the highly deferential and

     *
        Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
narrowly limited standard by which federal courts review the

actions of arbitrators, we affirm.

       As indicated, the primary question presented in this appeal is

whether the arbitrators exceeded their jurisdiction and improperly

awarded “indirect” or consequential damages to Chemoil.                             Pfeifle

does not challenge the arbitrators’ conclusion that he breached his

contract by engaging in unauthorized transactions and subjecting

Chemoil to increased margin calls and financial loss.                            Rather, he

challenges only the arbitrators’ damage award, arguing that any

award of damages based on his unauthorized transactions must be

consequential damages, which fall within the arbitration clause’s

prohibition    of    awarding       “lost       profits     and    indirect       damages.”

Pfeifle relies heavily on the Texas Supreme Court’s recent opinion

in Miga v. Jensen, 96 S.W.3d 207 (Tex. 2002), reiterating that the

“rule in Texas has long been that contract damages are measured at

the time of breach, and not by the bargained-for-goods’ market gain

as of the time of trial.”               Miga, 96 S.W.3d at 214.

       We review a district court’s confirmation of an arbitration

award de novo.      Executone Info. Sys., Inc. v. Davis, 26 F.3d 1314,

1320 (5th Cir. 1994).          Our review of the underlying arbitration

award is “very deferential.” Id.; see also Baravati v. Josephthal,

Lyon   &   Ross,    Inc.,     28    F.3d       704,   706   (7th     Cir.       1994).    An

arbitrator’s       decision    must       be    affirmed     “if     it   is     rationally

inferable    from    the    letter        or    the   purpose       of    the    underlying

agreement,”    regardless          of    any    alleged     error    of    fact    or    law.

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Executone, 26 F.3d at 1320.            In determining whether an arbitrator

exceeded his jurisdiction, all doubts must be resolved in favor of

arbitration. Valentine Sugars, Inc. v. Donau Corp., 981 F.2d 210,

213 (5th Cir. 1993).

       Pfeifle     presents    a    compelling       argument   under    Miga    that,

because the parties excluded indirect damages, all that remains are

general damages which must be calculated as of the date of the

breach.        Under this reasoning, no subsequent trading losses are

recoverable, even if they are the proximate result of the breach.

Pfeifle reasons that, just as the subsequent gains at issue in Miga

were   not      recoverable    as    general    damages,      the   losses     Chemoil

incurred are not compensable in this case.

       As we are not reviewing a merits judgment from a federal

district court, but an order confirming an arbitration award,

Pfeifle must establish that his claim falls within one of the

highly circumscribed grounds for vacatur of an arbitration award.

Pfeifle advances only one such ground as the basis for vacatur,

that     the     arbitrators       “exceeded        their   powers”     in    awarding

consequential damages.             We conclude that he has not established

that vacatur is warranted in this case.

       As a threshold matter, Pfeifle’s claim is difficult if not

impossible to evaluate in light of the necessarily sparse record on

appeal    in     arbitration    cases.         In    this   particular       case,   the

arbitrators’ award is largely devoid of explanation or analysis.

Regarding damages, the arbitrators stated only that “[a]s to the

                                          3
breach of the Contract for opening new positions which required new

margin on and after October 12, 2000, Chemoil is entitled to

damages” and concluded that “[b]ased on the evidence presented at

the   hearings,    the    amount    of   those   damages    is   found    to   be

$1,000,000.”      In light of these bald findings, Pfeifle’s theory

that the damages necessarily account for consequential trading

losses is conjectural at best.

      Further,    Pfeifle’s    legal     argument,   that   general      damages

account only for difference-in-value damages and must be calculated

as of the instant of breach, has never been applied to the type of

breach at issue in this case, i.e., the violation of a direct order

to refrain from trading.           In Miga and other cases that Pfeifle

cites,   the   general    difference-in-value        damages     were   easy   to

calculate:     The “goods” promised were the options at the price

fixed in the employment agreement; the breach occurred when the

employer failed to deliver the promised goods on the date the

employee sought to exercise the options.                Both the amount of

general damages and the time for calculating those damages were

readily determinable.       These cases are not truly analogous to the

situation presented in the instant case, however.

      According to the arbitrators, Pfeifle breached the agreement

when he engaged in risky, unauthorized trades that resulted in

substantial margin calls, allegedly causing some $9 million in

losses to Chemoil.       Yet the arbitrators awarded only $1 million in

                                         4
damages.    Stated simply, we cannot determine from the arbitrators’

decision what, if any, rationale produced their award.

       Although the arbitrators were without authority to award

indirect damages, they were not required to justify, explain, or

otherwise give reasons for the damages that they did award.         See,

e.g., Valentine Sugars, Inc., 981 F.2d at 214 (“Arbitrators need

not provide reasons for their award.”); Anderman/Smith Operating

Co. v. Tennessee Gas Pipeline Co., 918 F.2d 1215, 1219 n.3 (5th

Cir.   1990)(“[A]rbitrators   are   generally   not   even   required   to

disclose or explain the reasons that underlie their decision.”)

Unlike the arbitrator in Delta Queen Steamboat Co. v. District 2

Marine Engineers Beneficial Ass’n, 889 F.2d 599 (5th Cir. 1989),

the panel here did not expressly award damages for lost profits or

trading losses in violation of the arbitration agreement.           Even

though Pfeifle speculates that, in his case, the arbitrators must

have awarded trading losses, there is nothing in their decision

akin to the finding of “carelessness” in Delta Queen to support his

deduction.    Delta Queen Steamboat Co., 889 F.2d at 604.      Given the

“extraordinary deference” owed to decisions of arbitrators and the

rule that any doubts must be resolved in favor of arbitration,

Pfeifle’s argument fails.

       Finally, and perhaps most importantly, even if the arbitrators

incorrectly calculated the damage award, an arbitrator’s erroneous

interpretation of law or facts is not a basis for vacatur of an

award.     See El Dorado Sch. Dist. No. 15 v. Cont’l. Cas. Co., 247

                                    5
F.3d    843,    847    (8th   Cir.      2001)(“Our         disagreement     with   an

arbitrator’s interpretation of the law or determination of facts is

an insufficient basis for setting aside his award.”); Widell v.

Wolf, 43 F.3d 1150, 1151 (7th Cir. 1994)(“Over and over we have

held that arbitrators’ errors —— even clear or gross errors —— do

not authorize courts to annul awards.”)(internal citation omitted).

Courts consistently emphasize the narrowness of judicial review of

arbitration awards, describing it as “among the narrowest known to

the law,” ARW Exploration Corp. v. Aguirre, 45 F.3d 1455, 1462

(10th Cir. 1995)(quotations omitted), and caution that                     “when they

contract for arbitration, parties should be aware that they get

what they bargain for and that arbitration is far different from

adjudication.”        El Dorado, 247 F.3d at 847 (internal quotations

omitted).      Even if Pfeifle’s interpretation of Texas contract law

is   correct,    he   has   not    explained       how    this   warrants    vacatur.

“Courts . . . do not sit to hear claims of factual or legal error

by an arbitrator as an appellate court does in reviewing decisions

of lower courts.”       United Paperworkers Int’l Union v. Misco, Inc.,

484 U.S. 29, 38 (1987).

       Given    our   standard     of      review    and     the   fact     that   the

arbitrators’ decision does not expressly recognize or account for

consequential     damages,    their     award       is    “rationally     inferable.”

Therefore,      the   order   of     the       district    court   confirming      the

arbitration award in favor of Chemoil Corporation is, in all

respects,

                                           6
AFFIRMED.

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