Court Opinion

ID: 1027293
Source: CourtListenerOpinion
Date Created: 2013-07-05 07:20:57.757983+00
Date Added: 2024-06-11T15:27:39.028023
License: Public Domain

UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                               No. 07-1686

AERO-SMITH, INCORPORATED, a Maryland corporation; JETLINK,
MRB, LLC, a Delaware limited liability company,

                Plaintiffs - Appellees,

           v.

CARDINAL AIR LIMITED LIABILITY        COMPANY,    a   West   Virginia
limited liability company,

                Defendant - Appellant.

Appeal from the United States District Court for the Northern
District of West Virginia, at Martinsburg. John Preston Bailey,
District Judge. (3:07-cv-00015-JPB)

Argued:   September 22, 2008                 Decided:   December 3, 2008

Before WILLIAMS, Chief Judge, and TRAXLER and GREGORY, Circuit
Judges.

Affirmed by unpublished per curiam opinion.

ARGUED:   Christopher  L.   Allen, ALLEN   &   BLACKFORD,  P.C.,
Gaithersburg, Maryland, for Appellant.   William Richard McCune,
Jr., Martinsburg, West Virginia, for Appellees.        ON BRIEF:
Robert G. Blackford, ALLEN & BLACKFORD, P.C., Gaithersburg,
Maryland, for Appellant.   Alex A. Tsiatsos, LAW OFFICES OF WM.
RICHARD MCCUNE, JR., P.L.L.C., Martinsburg, West Virginia, for
Appellees.
Unpublished opinions are not binding precedent in this circuit.

                                2
PER CURIAM:

        Cardinal Air Limited Liability Company (ACardinal@) appeals

from the district court=s decision granting summary judgment to

Aero-Smith, Inc. (AAero-Smith@) and JetLink, MRB, LLC (AJetLink@),

which confirmed an arbitration award issued in favor of Aero-

Smith.     We affirm.

                                                    I.

     The    facts         underlying          this       controversy     are    set    forth    at

length in the award of the arbitrator below.                             By way of summary,

Aero-Smith       is       a    party     to    a     fixed-base     operation         lease    and

operating       agreement         with        the    Eastern     West    Virginia      Regional

Airport     Authority           (the     AAuthority@).             Aero-Smith,        in   turn,

entered    into       a       sublease    agreement         with   Cardinal        under   which

Cardinal    was       authorized         to     build      a    hangar   on     the   subleased

property to be used for aircraft storage and maintenance.                                  Among

other    things,       Cardinal         was     obligated        under    the      agreement    to

comply with the standards promulgated by the Authority, maintain

certain insurance for the operation, and maintain a full-time

manager for operations at the airport.                          In the event of default,

Cardinal was required Ato remedy, or undertake to remedy, to

[Aero-Smith=s] reasonable satisfaction, such default for a period

of thirty (30) days after receipt of notice from [Aero-Smith] to

remedy the same.@               J.A. 63.        If Cardinal failed to sufficiently

remedy     or    undertake         to     remedy          the   default       to    Aero-Smith=s

                                                    3
reasonable satisfaction, the sublease agreement authorized Aero-

Smith     to    terminate      the    sublease        and       retake     the     premises,

including the hangar.             The agreement also provided for payment

to    Cardinal     of   the    book    value     of    any       improvements        to    the

property       (i.e.,    the     hangar),    less      a    predetermined          rate     of

depreciation, in the event of cancellation or termination Afor

any cause other than a breach of or default by@ Cardinal.                                 J.A.

64.     Finally, the agreement provided for mandatory arbitration

of A[a]ll claims or disputes arising out of or relating to th[e]

[a]greement . . . in accordance with the Commercial Arbitration

Rules of the American Arbitration Association.@                           J.A. 64.        Such

Aaward rendered by the arbitrator or arbitrators shall be final,

and     judgment    may     be    entered       upon       it    in      accordance       with

applicable law in any court having jurisdiction thereof.@                                 J.A.

64.

       On November 3, 2005, Aero-Smith notified Cardinal that it

was in default of the sublease agreement based upon Cardinal=s

failure to maintain a qualified full-time manager of operations

and failure to meet the minimum standards of the Authority.                                 On

January    9,    2006,    Aero-Smith        filed      a    demand       for     arbitration

asserting that Cardinal had not remedied the deficiencies to

Aero-Smith=s satisfaction and requesting that Cardinal be deemed

in default and the sublease terminated.

                                            4
      On December 27, 2006, the matter proceeded to arbitration.

The   arbitrator    found    in   favor       of   Aero-Smith,   terminated       the

sublease, and ordered Cardinal to vacate the premises.                          Among

other things, the arbitrator found that Cardinal was in breach

of the agreement, had failed to take appropriate steps to remedy

the breach and had, instead, Apersisted in [its] unauthorized use

of the [hangar] with the Authority and Aero-Smith at risk, and

hid[den] [its] misconduct from the Authority.@                   J.A. 116.        The

arbitrator further found that Cardinal, Arather than curing its

breaches, [had] chose[n] to continue its default, and indeed to

proceed with attempts to conceal its misconduct.@                        J.A. 116.

Nevertheless, the arbitrator also chose to award compensation to

Cardinal in the amount of $288,891.30, payable by Aero-Smith

and/or JetLink, 1 B an amount representing the book value of the

hangar    less   depreciation     in   accordance       with   the     compensation

provision    of    the      sublease      agreement      --    based     upon     the

arbitrator=s belief that A[t]ermination without some compensation

is too severe a remedy . . . in view of all the circumstances.@

J.A. 117.    The arbitrator subsequently issued a clarification of

      1
       On February 3, 2006, Aero-Smith sold its assets to
JetLink, including its rights under the sublease agreement.
However, neither party sought to add JetLink as a party to the
arbitration.

                                          5
the earlier award, ordering Cardinal to vacate the premises by

January 30, 2007.

      On January 11, 2007, Aero-Smith and JetLink filed suit in

West Virginia state court seeking enforcement of the arbitration

award, as well as damages for wrongful occupation of the hangar,

costs and fees.      Cardinal removed the action to federal court on

the   basis   of   diversity   of   citizenship.   The   district   court

granted summary judgment in favor of Aero-Smith and JetLink,

enforcing the arbitration award, ordering transfer of possession

of the premises from Cardinal to JetLink, and ordering Aero-

Smith and JetLink to tender the compensation award to Cardinal

as calculated by the arbitrator.           Cardinal appealed, and the

district court granted the parties= joint motion to stay payment

pending this appeal.

                                     II.

       This Court reviews the district=s court decision to grant

summary judgment and confirm an arbitration award de novo.            See

Choice Hotels Int=l, Inc. v. Shiv Hospitality, LLC, 491 F.3d 171,

176 (4th Cir. 2007).

                                     A.

      Cardinal=s first assertion on appeal is that the arbitration

award should be set aside under West Virginia law because the

                                      6
sublease agreement, from its inception, fraudulently included a

right       by   Aero-Smith      to       take    possession      of    the      hangar     upon

default by Cardinal and contained a compensation provision upon

cancellation           or   termination           that      was   unconscionably            low.

Specifically,          Cardinal    contends          that   during      a   September       1998

meeting between Aero-Smith and the Authority, a representative

of    the    Authority      made      a   statement      reflecting         an    intent    that

Aero-Smith would not preserve a right to retake and repossess

the    hangar     in    the     event      of    default     by   the    sublessee.         The

subsequent inclusion of a Acontrary@ sublease provision granting

this improvement to Aero-Smith upon default, Cardinal argues,

constituted an act of Aactual fraud@ under West Virginia law

sufficient to set aside the arbitration award.                                See Barber v.

Union Carbide Corp., 304 S.E.2d 353, 357 (W. Va. 1983) (holding

that, under West Virginia law, Aan arbitration award rendered

pursuant to the terms of a commercial contract@ will not be

reviewed Aexcept for actual fraud@).                     Cardinal also contends that

the provision requiring Aero-Smith to pay only book value less

depreciation for the hangar in the event of a default is an

unconscionable contract provision, evidenced by the fact that

the    appraised        value    exceeded        $700,000     and      that      Cardinal    had

recently rejected offers by Aero-Smith and JetLink to purchase

the rights to the hangar for in excess of $600,000.                               See Ashland

                                                 7
Oil, Inc. v. Donahue, 223 S.E.2d 433, 440 (W. Va. 1976) (noting

that unconscionable contract provisions may be unenforceable);

Barber, 304 S.E.2d at 357 (noting that the courts will also

Ainquire into such matters as whether the agreement to arbitrate

was a contract of adhesion and whether the arbitration is proper

under the totality of the commercial circumstances@).

      At the outset we note that Cardinal does not contend that

there was partiality, corruption, or fraudulent behavior on the

part of the arbitrator, which can serve as the basis for setting

aside an arbitration award.        Nor does it appear that Cardinal

contests,   in   isolation,   the        validity   of   the   arbitration

provision contained within the sublease.            Beyond this, however,

Cardinal=s claimed right to set aside the arbitration award on

the basis of fraud and unconscionability is not always clearly

articulated or consistent.        Giving Cardinal the benefit of the

doubt, however, we construe the argument to be two-fold:            first,

that the arbitration award was fraudulently procured by Aero-

Smith by its use of the termination and compensation provisions

in the arbitration proceeding and, second, that the termination

and   compensation   provisions     in    the   sublease   agreement   are

                                    8
unenforceable under West Virginia law. 2          Neither claim, however,

entitles Cardinal to relief from the arbitration award.

     First,    Cardinal=s   assertion    that    we    must    set    aside   the

arbitration award because Aero-Smith fraudulently procured it by

including the termination and compensation provisions and using

them in the arbitration proceeding years later to Asteal@ the

hangar from Cardinal Air is without merit.                The notes of the

September 1998 meeting between Aero-Smith and the Authority were

in   the   possession       of   Cardinal       during    the        arbitration

proceedings,   but   Cardinal    chose   not    to    pursue    this   argument

     2
       The parties have jointly argued that West Virginia law
exclusively governs the claims on appeal, as they have been
articulated by Cardinal. To the extent Cardinal seeks to avoid
enforcement of the arbitration award by asserting that the
sublease    agreement  is    unenforceable   because   Aero-Smith
fraudulently entered into the agreement and because the
agreement is unconscionable, we agree that West Virginia law
would govern the enforceability of the contract. With regard to
the arbitration award itself, West Virginia statutory and case
law does not materially differ, for purposes of this appeal,
from the Federal Arbitration Act, which requires the enforcement
of arbitration agreements Asave upon such grounds as exist at law
or in equity for the revocation of any contract,@ 9 U.S.C.A. ' 2
(West 1999), and which allows the court to vacate any
arbitration award that Awas procured by corruption, fraud, or
undue means,@ 9 U.S.C.A. ' 10(a)(1) (West Supp 2008); see W. Va.
Code ' 55-10-4 (providing that A[n]o [arbitration] award shall be
set aside, except for errors apparent on its face, unless it
appears to have been procured by corruption or other undue
means, or by mistake, or that there was partiality or
misbehavior in the arbitrators, or any of them, or that the
arbitrators so imperfectly executed their powers that a mutual,
final and definite award upon the subject matter submitted was
not made@).

                                    9
before the arbitrator.       In any event, the statement made by the

Authority representative during the meeting falls woefully short

of establishing that Aero-Smith procured the arbitration award

through fraudulent means or behavior.             Cardinal was not present

at the meeting and the meeting took place before the sublease

agreement was drafted or executed by Cardinal and Aero-Smith,

both of whom are sophisticated commercial parties.                  Thus, even

if   the   sublease    agreement      between     Cardinal    and    Aero-Smith

contravened the statement made at the meeting by the Authority=s

representative,       this   does     not   render     the    termination     or

compensation provisions included by these sophisticated parties

fraudulent     or   unconscionable.         Furthermore,      the    arbitrator

addressed and dismissed Cardinal=s allegation that Aero-Smith was

attempting to Asteal@ the hangar in the arbitration proceedings

and found instead that Athe testimony regarding the hangar sale

offers and responses by the Cardinal principals, the sellers,

reflects a pattern of good faith offers, on the one hand, and

unreasonable responses, on the other.@            J.A. 117.      Thus, Cardinal

has clearly failed to demonstrate the requisite fraud on the

arbitration proceedings necessary to set aside the arbitration

award.

     Second,    Cardinal=s    claim    that     the   sublease    agreement   is

unenforceable under state law because the termination provision

                                       10
was     fraudulently          included      by       Aero-Smith       and    because        the

compensation        provision      is     unconscionable           also   fails.       Again,

both       Aero-Smith      and    Cardinal           are    sophisticated          commercial

parties.           Cardinal      retained       counsel       to    draft    the    sublease

agreement         and   offered    no     evidence         demonstrating       a    lack    of

meaningful        choice.        Furthermore,         the     compensation      provision,

which      determines      the    value    of    Cardinal=s         improvement      by   book

value of the hangar minus eight years of depreciation, does not

render      the     agreement     unconscionable.              On     the    contrary,      as

applied      by     the   arbitrator, 3         it    effectually         prevented       total

forfeiture of the hangar in the case of a breach by Cardinal.

                                             B.

       Cardinal next contends that the arbitration award should be

set aside because the arbitrator, in reaching the conclusion

that Cardinal was in default, A>ignore[d] the plain language of

the    contract=@       and   reformed      its       terms    in    disregard       of    West

Virginia law.           Upshur Coals Corp. v. United Mine Workers of Am.,

Dist. 31, 933 F.2d 225, 228 (4th Cir. 1991) (quoting United

       3
       As noted earlier, the sublease agreement appears to only
provide for such payment in the event of cancellation or
termination Afor any cause other than a breach of or default by@
Cardinal.   J.A. 64 (emphasis added).    However, the arbitrator
believed that termination without compensation was Atoo severe a
remedy . . . in view of all the circumstances.@ J.A. 117.

                                             11
Paperworkers Int=l Union v. Misco, Inc., 484 U.S. 29, 38 (1987)).

We are unpersuaded.

      As    noted    above,     the    sublease       agreement     was    Asubject   to

termination by@ Aero-Smith in the event of Adefault by [Cardinal]

in   the   performance     of    any    terms,    covenants       or     conditions   of

th[e] [a]greement, and the failure of [Cardinal] to remedy, or

undertake to remedy, to [Aero-Smith=s] reasonable satisfaction,

such default for a period of thirty (30) days after receipt of

notice from [Aero-Smith] to remedy the same.@                    J.A. 63.       Cardinal

argues     the    arbitrator    altered       this    language      to    require   that

Cardinal remedy the default within thirty days, rather than to

require only that Cardinal Aundertake to remedy@ the default Afor@

30 days.         Cardinal claims that it did Aundertake to remedy@ the

default Afor@ thirty days because it had obtained a new manager

within     this     time   frame,      even    though     it     had      not   obtained

approval.

      On judicial review, A[a]n arbitrator=s award is entitled to

a special degree of deference.@                Upshur, 933 F.2d at 228.             A>The

arbitrator may not ignore the plain language of a contract,=@ but

the A>court should not reject an award on the ground that the

arbitrator misread the contract.=@               Id. at 228-29 (quoting Misco,

484 U.S. at 38); see also Choice Hotels, 491 F.3d at 177.                             The

arbitrator=s        interpretation       of     the     law    is      also     accorded

                                          12
deference.         See    Upshur,   933    F.2d      at    229.        A>As    long   as   the

arbitrator is even arguably construing or applying the contract,=

a   court    may    not    vacate   the     arbitrator=s          judgment.@           Choice

Hotels, 491 F.3d at 177 (quoting Misco, 484 U.S. at 38).

      Cardinal      has    failed   to     demonstrate        that       the     arbitrator

disregarded the plain language of the sublease or disregarded

the applicable law.          The sublease agreement provides that it is

subject to termination if Cardinal fails to undertake to remedy

its default Ato [Aero-Smith=s] reasonable satisfaction . . . for

a period of thirty (30) days.@              J.A. 63.         The language does not

describe    the     required     duration       of   the    attempt       to     remedy    the

default     that    Cardinal     must     make.       Rather,      it         describes    the

amount of time that Cardinal must not allow to go by before

making its attempt.          This created an objective standard by which

the arbitrator was to judge the efforts of Cardinal to remedy

their non-compliance with the terms of the sublease agreement.

The arbitrator did just that, expressly finding that Cardinal

was continually noncompliant with the standards set forth in

their   sublease,         even   after    being      placed       on     notice       of   the

default.     The arbitrator=s use of the word Awithin@ in the award

was not used to place an additional term into the contract, but

to explain that Aero-Smith=s dissatisfaction with the remedial

steps taken by Cardinal was reasonable.                       The arbitrator found

                                           13
that,     A[h]ad    Cardinal      and     [its     newly       appointed     manager]

discontinued their unauthorized use of the [hangar] for aircraft

storage and maintenance within thirty days of receipt of the

notice of breach, obtained the requisite [hangar] insurance and

named     the    Authority     and    Aero-Smith     as    named      insured,     and

cooperated fully with the Airport manager and the Authority,

this might be a closer question.@                J.A. 116.      Instead, they Adid

none of these things, . . . persisted in their unauthorized use

of the [hangar] with the Authority and Aero-Smith at risk, and

hid their misconduct from the Authority.@                  J.A. 116.         Thus, as

found by the arbitrator, Cardinal Achose to continue its default@

and Aconceal its misconduct@ instead of undertaking to cure the

breaches.        J.A.   116.         In   short,    we    do    not   perceive     the

arbitrator=s use of the word Awithin@ as an assertion that the

sublease required that every deficiency must be cured in thirty

days, but rather that Cardinal did not take reasonable steps to

correct    its     noncompliant      operations     and,       therefore,    did   not

attempt    to    cure   the    default     with     the    thirty     days    to   the

reasonable satisfaction of Aero-Smith.

                                          C.

     Finally, Cardinal claims that the arbitration award must be

set aside because it orders AAero-Smith and/or JetLink@ to pay

the $228,891.30 award, even though JetLink was not added to the

                                          14
arbitration proceedings after it purchased Aero-Smith=s assets.

We are unpersuaded.

      First, contrary to Cardinal=s assertion, the terms of the

sublease agreement, which provides for when outside parties may

be joined in an arbitration under the agreement, did not require

JetLink=s joinder in the arbitration proceedings and, while the

provision may well have allowed it, neither party took steps to

join JetLink.

      Second,    as    recognized    by      both   the    arbitrator        and    the

district court, the failure to join JetLink in the arbitration

proceedings     does    not    affect     the   validity        of    the   award    as

rendered or JetLink=s legal obligation to render payment pursuant

to it.       When Aero-Smith sold all of its assets, including the

sublease agreement, to JetLink, JetLink                 Astep[ped] in the shoes

of   [its]    assignor,@      Aero-Smith,    and    became      liable      to   render

payment to Cardinal upon the latter=s surrender of the premises.

Cook v. Eastern Gas and Fuel Assocs., 39 S.E.2d 321, 326 (W. Va.

1946).     Additionally, even as a nonsignatory, JetLink rendered

itself bound by the arbitrator=s decision.                   Generally, a party

may not be subject to arbitration without consent.                     See State ex

rel. City Holding Co. v. Kaufman, 609 S.E.2d 855, 859 (W. Va.

2004)    (per   curiam);      International     Paper     Co.    v.    Schwabedissen

Maschinen & Anlagen GMBH, 206 F.3d 411, 416 (4th Cir. 2000).

                                        15
However, a nonsignatory Acan agree to submit to arbitration by

means other than personally signing a contract containing an

arbitration clause.@          International Paper, 206 F.3d at 416.                       For

example, the doctrine of equitable estoppel Arecognizes that a

party    may    be    estopped    from     asserting        that    the    lack      of   his

signature on a written contract precludes enforcement of the

contract=s arbitration clause when he has consistently maintained

that other provisions of the same contract should be enforced to

benefit him.@        Id. at 418.        Here, JetLink assumed the benefits of

the arbitration provisions by taking possession of the hangar,

voluntarily joined in this action to enforce the award, admits

that    it     is    bound   by   the    arbitration        award     as    Aero-Smith=s

successor,      and    represents       that     it   stands       ready   to     pay     the

amounts due to Cardinal.                As a result, the arbitration award

need not be set aside merely because the parties did not seek to

officially add JetLink as a party to the arbitration proceedings

below.

                                          III.

       For the foregoing reasons, the decision of the district

court    granting      summary    judgment       to   the    plaintiffs         is   hereby

affirmed.

                                                                                  AFFIRMED

                                           16