Court Opinion

ID: 168807
Source: CourtListenerOpinion
Date Created: 2010-08-14 16:51:30+00
Date Added: 2024-06-11T17:24:59.107811
License: Public Domain

F I L E D
                                                      United States Court of Appeals
                                                              Tenth Circuit
                  UNITED STATES CO URT O F APPEALS
                                                          February 21, 2007
                         FO R TH E TENTH CIRCUIT         Elisabeth A. Shumaker
                                                             Clerk of Court

KERRY R. HICK S,

          Plaintiff-Appellee,

  v.                                             No. 05-1399
                                        (D.C. No. 04-CV-2616-(ZLW ))
B AN K OF A M ER IC A, N .A ,                     (D . Colo.)

          Defendant-Appellee,

  and

TH E CAD LE C OM PA N Y ; B UCKEYE
RETIR EM ENT CO., LLC, LTD.;
W ILLIAM E. SHAU LIS; DANIEL C.
CA DLE,

          Defendants-Appellants.

KERRY R. HICK S,

          Plaintiff-Appellee,                    No. 05-1525
                                        (D.C. No. 04-CV-2616-(ZLW ))
  v.                                              (D . Colo.)

B AN K OF A M ER IC A, N .A ,

          Defendant,

  and

TH E CAD LE C OM PA N Y ; B UCKEYE
RETIR EM ENT CO., LLC, LTD.;
W ILLIAM E. SHAU LIS; DANIEL C.
CA DLE,

          Defendants-Appellants.
                           OR D ER AND JUDGM ENT *

Before KELLY, L UC ER O, and HA RTZ, Circuit Judges.

      W e have consolidated these appeals for purposes of disposition. See Fed.

R. App. P. 3(b)(2). Appellants (the “Cadle defendants”) challenge orders of the

district court confirming an arbitration award. This case presents three issues:

(1) whether the Cadle Company was properly made a party to the arbitration;

(2) whether the arbitrator manifestly disregarded Tennessee abuse-of-process law

in aw arding damages to K erry H icks; and (3) whether Bank of America, N.A.

(“B OA ”) is properly dismissed from the case. After first establishing that we

have jurisdiction pursuant to 9 U.S.C. § 16(a)(1)(D), we apply the high standard

of review applicable to arbitration decisions, under which standard we reject each

of Cadle defendants’ merits arguments and AFFIRM .

*
 After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and
collateral estoppel. It may be cited, however, for its persuasive value consistent
with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.

                                        -2-
                                           I

      At the outset, we are confronted by a controversy concerning the proper

content of the record on appeal. Plaintiff-appellee Kerry Hicks contends that five

volumes of the Cadle defendants’ appendix w ere not before the district court

when it reached its decision on confirmation, and should therefore be excluded.

These allegedly improper materials include pleadings filed in the arbitration, the

rules and procedures followed by the arbitrator, exhibits filed w ith the arbitrator,

and a transcript of the arbitration proceedings.

      Our review persuades us that the complete arbitration hearing transcript

was never part of the district court record. As such, we will not consider it as

part of the record on appeal. See Allen v. M innstar, Inc., 8 F.3d 1470, 1473-76

(10th Cir. 1993). W e will consider, however, those portions of the transcript and

the arbitration exhibits that were specifically provided to the district court. See

id. at 1475-76.

                                          A

      The pertinent facts are these. Hicks was the founder and president of

Specialty Care Network (“SCN”), a physician practice management business.

SCN entered into a revolving loan and security agreement with BOA. In

November 1999, SCN sought an additional loan of $3,550,000 from BOA in order

to raise venture capital to restructure its business and to pay off its revolving line

of credit. BOA was unwilling to advance any more funds to SCN, but it was

                                          -3-
willing to loan the money to SCN’s officers, with the understanding the funds

would then be passed through to the company.

       SCN’s officers agreed to borrow the $3,550,000 from BOA and to use the

funds for restructuring. The officers orally agreed with W alker Choppin, a Senior

Vice President of BOA, to a division of responsibility for repayment of this loan

as follow s:

       (1) Hicks, $2 million, individually;

       (2) Patrick Jaeckle, $1 million, individually;

       (3) Hicks and Jaeckle, $350,000, jointly; and

       (4) David Hicks and D. Paul Davis, $100,000 each, individually.

       W ith only a few hours left to close the transaction, Choppin faxed a

promissory note to Hicks. To Hicks’ surprise, however, the terms of the note

diverged from the oral agreement, making Hicks and Jaeckle jointly and severally

liable for the full amount of the loan. Choppin assured Hicks that his liability

would not extend beyond the $2 million previously agreed-upon. He further

explained that BOA needed Hicks’ signature to satisfy internal BOA processing

requirements until Jaeckle’s collateral had been perfected. Hicks and Jaeckle

signed the note as drafted at the eleventh hour, on December 31, 1999.

       The note contained the following integration provision:

       NO TICE OF FINA L AG REEM ENT. THIS WRITTEN
       PR OM ISSO RY N O TE R EPRESENTS THE FINAL AGREEM ENT
       BETW EEN TH E PARTIES AND M AY NO T BE CO NTR AD ICTED

                                          -4-
      B Y EV ID EN CE O F PR IO R, CONTEM PORANEOUS, OR
      SUBSEQUENT ORAL AGREEM ENTS OF THE PARTIES. THERE
      A RE N O U N WRITTEN ORAL AGREEM ENTS BETW EEN THE
      PARTIES.

The note also contained a provision that required binding arbitration of:

      A N Y CO N TR OV ER SY O R CLAIM BETW EEN OR AM ONG THE
      PARTIES H ERETO INCLUDING BU T N OT LIM ITED TO TH OSE
      AR ISING OU T OF OR RELA TING TO TH IS INSTRU M ENT,
      AG REEM ENT O R D OC UM ENT O R A NY RELATED
      IN STR UM EN TS, A G REEM ENTS OR DOCUM ENTS, INCLUDING
      AN Y C LAIM BA SED ON O R A RISING FROM AN ALLEG ED
      TORT[.]

      The bridge loan to SCN worked as anticipated: SCN paid off the remainder

of the BOA revolver, and restructured its business as Health Grades.com, Inc.

Hicks paid the $2 million he had agreed to pay under the note, and David Hicks

and Davis each paid off their $100,000 obligations. Yet not all w as smooth

sailing – Jaeckle did not pay his obligation under the note prior to the due date,

and neither Hicks nor Jaeckle paid the $350,000 joint obligation when it became

due. The note w as renewed twice on essentially the same terms, eventually

reflecting a remaining balance of $1 million and a maturity date of September 30,

2000. 1 Hicks claims that Choppin assured him each time that he was not actually

liable for the $1 million attributed to Jaeckle, and that his name w ould be

removed as soon as BOA had perfected its interest in Jaeckle’s collateral.

1
  Further references to “the note” in this decision may encompass the original and
renewal notes, as required by context.

                                         -5-
                                         B

      Jaeckle did not pay the note, and BOA did not perfect a security interest in

his collateral. Instead, on October 2002, BOA charged off the note and sold it to

the Cadle C ompany (“Cadle”), as part of a distressed loan pool. After Cadle

began collection efforts, Hicks’ attorney wrote to BOA’s attorney demanding that

BOA inform Cadle that Hicks had been released from liability on the note.

Hicks’ attorney also wrote to Cadle advising it that Hicks was not liable.

      BOA’s counsel wrote to Cadle on July 24, 2003, reiterating its position that

Hicks w as not liable on the note. The letter referred to “ample information” in

BOA’s loan file at the time the loan was sold showing that BOA understood Hicks

to be free of liability. Notwithstanding BOA’s representations, or the note’s

arbitration provision, defendant Buckeye Retirement Co., LLC (“Buckeye”), an

alter ego of Cadle, sued Hicks and Jaeckle on September 29, 2003 in federal

district court in Tennessee, seeking to collect on the note. On October 23, 2003,

Hicks moved to stay the Tennessee action, and initiated arbitration proceedings in

Denver, seeking tort damages against Cadle and Buckeye for abuse of process.

BOA ultimately repurchased the note.

                                         C

      On September 27, 2004, while the arbitration was pending, W illiam

Shaulis, Buckeye’s manager, wrote a letter to the attorneys general of Tennessee

and Colorado, suggesting that Hicks be investigated for bank fraud. The letter

                                        -6-
stated that “[Hicks], in our opinion, admit[ted] to bank fraud as his defense to a

large commercial note that we were trying to collect after we purchased that note

from a bank.” The letter informed the Tennessee attorney general that if he

reviewed the relevant banking laws, he would “have a slam-dunk case because of

the court filings, as well as Hicks’ sworn deposition testimony.”

                                          D

      On December 3, 2004, Hicks filed a complaint in Colorado state court

against BOA and Cadle defendants asserting several tort claims. BOA removed

the complaint to federal district court. On January 14, 2005, the district court

stayed the action pending the outcome of the arbitration.

      The arbitrator held hearings and subsequently entered a decision on Hicks’

claim s against C adle defendants and BOA. He dismissed the claims against B OA ,

finding that “Bank of A merica did nothing in this case to merit an aw ard against

it.” Terming the filing of the Tennessee law suit “offensive” in light of the note’s

arbitration clause, the arbitrator awarded Hicks attorneys’ fees incurred in

defending against that suit. The arbitrator further awarded Hicks $400,000

against Cadle and Buckeye, jointly and severally, in light of the their “callous[],”

“shocking,” and “outrageous” conduct in attempting to collect on the note

notwithstanding BOA’s letter explaining Hicks’ non-liability. He subsequently

                                         -7-
entered a “final arbitration award,” which upheld the prior award and applied the

Tennessee prejudgment interest statute to the attorneys’ fee portion of the award. 2

      H icks filed a motion to confirm the arbitrator’s award, in which BOA

joined. Cadle defendants opposed confirmation. On July 28, 2005, the district

court entered an order (1) confirming that portion of the arbitrator’s award that

released B OA from liability, and (2) dismissing BOA from the case. On

October 26, 2005, the district court entered an order confirming the remainder of

the A pril 28, 2005, final arbitration aw ard. In its second order, the district court

deferred the entry of final judgment, noting that “other claims remain pending

between the parties in arbitration.” It concluded, however, that the arbitration

award was “final” for purposes of confirmation. Cadle defendants have

separately appealed from both the district court’s order of July 28, 2005

(No. 05-1399), and its order of October 26, 2005 (No. 05-1525).

                                           II

      Hicks has challenged our jurisdiction to entertain this appeal. Specifically,

he argues that because there are claims still pending before the arbitrator, the

arbitrator’s award (and, hence, the order confirming it) cannot yet be final. The

Federal Arbitration Act’s (“FAA”) appeal provision provides, however, that “[a]n

appeal may be taken from . . . an order . . . confirming or denying confirmation of

2
 The arbitrator made reference in this final arbitration award to “the $444,000
amount” of his prior aw ard. This appears to be a typographical error.

                                          -8-
an [arbitrator’s] award or partial award.” 9 U.S.C. § 16(a)(1)(D ) (emphasis

added). Hicks’ position effectively reads the words “or partial award” out of

§ 16(a)(1)(D ). Under the FAA, an arbitration award that does not resolve all

controversies between the parties may be confirmed, and an appeal taken from

that confirmation. See Hew lett-Packard Co. v. Berg, 61 F.3d 101, 104 (1st Cir.

1995). Hicks’ related argument that appellate jurisdiction does not attach until

the district court enters judgment is also unavailing. The First Circuit explained

in Berg that a confirmation order is final for purposes of appeal, even absent the

entry of a final judgment satisfying the usual prerequisites of 28 U.S.C. § 1291

and Fed. R. Civ. P. 58, because “Congress directed in the statute governing

arbitration-related appeals that such an ‘order’ confirming an award should be

immediately appealable. The reason is a pro-arbitration policy designed to

expedite confirmation of arbitration awards.” Hewlett-Packard, 61 F.3d at 104

(citation omitted).

      It must be acknowledged that Cadle defendants’ first appeal was taken from

an order not final within the meaning of § 16(a)(1)(D), because the district court

had not yet confirmed either a full “award or a partial award.” The October 26,

2005, order, however, confirmed the arbitrator’s “final arbitration award” of

April 28, 2005 in its entirety. The second order was therefore an appealable order

within the meaning of § 16(a)(1)(D), and the entry of that order caused the first

case to ripen for purposes of appellate review. See Jackson v. Volvo Trucks N .

                                        -9-
Am., Inc., 462 F.3d 1234, 1238 (10th Cir. 2006). As such, we now have

jurisdiction to hear both cases in this consolidated appeal.

                                          III

      “In review ing the district court’s confirmation of the arbitration award, w e

review its factual findings for clear error and questions of law de novo.” Sheldon

v. Vermonty, 269 F.3d 1202, 1206 (10th Cir. 2001). “[W ]e must give extreme

deference to the determination of the [arbitrator] for the standard of review of

arbitral awards is among the narrowest known to law.” Id. (quotation omitted).

M ere errors in the arbitrator’s factual findings do not justify review or reversal.

Id.

      The FAA recognizes only a few grounds on which the district court may

vacate an arbitration award:

      (1) where the award was procured by corruption, fraud, or undue
      means;

      (2) where there was evident partiality or corruption in the arbitrators,
      or either of them;

      (3) w here the arbitrators w ere 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) w here 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).

                                         -10-
      “W e have also recognized a handful of judicially created reasons that a

district [court] may rely upon to vacate an arbitration award, and these include

violations of public policy, manifest disregard of the law, and denial of a

fundamentally fair hearing.” Sheldon, 269 F.3d at 1206 (quotation omitted).

“Outside of these limited circumstances, an arbitration award must be confirmed.”

Id. “This Court has characterized the manifest disregard standard as willful

inattentiveness to the governing law. M anifest disregard of the law clearly means

more than error or misunderstanding with respect to the law.” ARW Exploration

Corp. v. Aguirre, 45 F.3d 1455, 1463 (10th Cir. 1995) (citations and quotations

omitted). “Even erroneous interpretations or applications of law will not be

disturbed.” Id.

                                           A

      Cadle first contends that the arbitrator manifestly disregarded the law and

imperfectly executed his powers by entering an award against Cadle, a non-party

to the note. Recognizing that the arbitrator’s decision is anything but a model of

clarity either generally or as to this issue, the decision indicates the arbitrator

believed Buckeye to be a strawman for purposes of assigning liability. Cadle

contends that the note’s arbitration provision required arbitration only of “any

controversy or claim between or among the parties hereto.” As Buckeye

purchased the note and was solely responsible for filing the Tennessee action,

Cadle argues that it should not have been compelled to arbitrate. Cadle further

                                          -11-
argues that to the extent the arbitrator’s finding of joint and several liability

presumes Buckeye’s corporate veil should be pierced, some minimal piercing

analysis was required.

      Cadle’s position faces two insurmountable hurdles. First, there was

abundant evidence before the arbitrator that Cadle and Buckeye operated as

alter-egos. By its terms, the note was binding upon BOA’s successors and

assigns, one of which was Cadle, the original purchaser of the note from BOA.

Although an arms-length sale or assignment of the note might have divested a

prior holder of liability for its successor’s actions, there is sufficient evidence in

the record that Cadle and Buckeye did not operate at arms length. Accordingly,

w e hold that the arbitrator’s decision did not reflect manifest disregard of the law ,

even absent clear findings on the grounds for Cadle’s liability.

      Second, and more importantly, Cadle vigorously participated in the

arbitration, advancing a counterclaim against Hicks and joining in BOA’s motion

to stay pending completion of the arbitration. As the district court further noted,

in their “Joinder in Bank of America’s, N.A., M otion To Stay The Action Pending

Completion of Ongoing Arbitration (Joinder),” Cadle defendants asserted that this

action must be arbitrated because the arbitration clause in the note clearly

encompassed all of the issues and claims Hicks asserted. Cadle therefore waived

its objection to arbitration and is estopped from arguing that the arbitrator lacked

personal jurisdiction to enter an aw ard against it. See Nat’l W recking Co. v. Int’l

                                          -12-
Bhd. of Teamsters Local 731, 990 F.2d 957, 960 (7th Cir. 1993) (“Failure to

present an issue before an arbitrator waives the issue in an enforcement

proceeding.”).

                                         B

      Cadle defendants next argue that the arbitrator evidently and manifestly

disregarded Tennessee law in entering the award. The arbitrator’s award was

based on abuse of process. Delphic as his decision is, the arbitrator’s finding of

abuse of process appears to rest on three grounds: (1) Cadle defendants were on

notice that BOA believed Hicks w as not liable on the note, but attempted to

collect from him regardless; (2) Cadle defendants filed suit against H icks despite

the note’s arbitration provision; and (3) Cadle defendants wrote baseless and

harassing letters to the attorneys general of Colorado and Tennessee claiming

Hicks had committed bank fraud.

      Under Tennessee law , “a plaintiff must establish by evidence two elements

to recover for abuse of process: (1) the existence of an ulterior motive; and (2) an

act in the use of process other than such as would be proper in the regular

prosecution of the charge.” Givens v. M ullikin ex rel. Estate of M cElwaney,

75 S.W .3d 383, 400 (Tenn. 2002) (quotations omitted). “The test as to whether

process has been abused is whether the process has been used to accomplish some

end which is without the regular purview of the process, or which compels the

                                        -13-
party against whom it is used to do some collateral thing which he could not

legally and regularly be compelled to do.” Id. at 401 (quotation omitted).

      Cadle defendants first find manifest disregard of the law in the arbitrator’s

alleged failure to apply Tennessee’s parol evidence rule. They contend that the

note’s integration clause prohibited reliance on any prior or contemporaneous oral

agreement. Therefore, they claim, the arbitrator should have found as a matter of

Tennessee law that Hicks was liable for the full balance on the note,

notwithstanding any “secret oral side agreement” he claims to have reached with

Choppin. As such, they argue they acted properly in attempting to collect on the

note, and could not be liable to H icks for abuse of process.

      Hicks responds that under Tennessee law , the statute of frauds is not a

defense to a tort action. The cases Hicks cites, however, concern fraudulent

inducement or fraudulent misrepresentation going to the existence of the contract

itself. See, e.g., Brungard v. Caprice Records, Inc., 608 S.W .2d 585, 588

(Tenn. App. 1980). The arbitrator specifically found in his award that BOA did

not defraud Hicks in obtaining the loan in question, and so these cases do not

control. The record is unclear with regard to the arbitrator’s reliance on evidence

of the oral agreement in finding that Hicks was not liable on the note at the time

Cadle defendants attempted to collect from him; the award makes no

determination as to Hicks’ ultimate liability on the note. Assuming arguendo that

Cadle defendants are correct that the arbitrator erroneously applied the parol

                                         -14-
evidence rule and side-stepped the note’s integration clause, a finding that Hicks

was not liable on the note is not a predicate to finding that Cadle defendants

engaged in abuse of process.

      Rather, the core basis for the award is the arbitrator’s finding that Cadle

defendants abused process by haling Hicks into federal district court in

Tennessee, despite the fact that the note contained an unambiguous arbitration

provision. Instead of acknowledging that Hicks’ liability on the note was an open

question, and that further investigation or, at a minimum, arbitration were

warranted, Cadle defendants “went [forward] with their collection efforts in Court

because the arbitration clause gave [them] no pause.” A lthough it is not the only

possible reading, the arbitrator’s decision can be read to reference the uncertainty

about Hicks’ liability primarily to establish Cadle defendants’ ulterior motive in

bringing the Tennessee action, namely to harass Hicks. This interpretation is

bolstered by the arbitrator’s decision on Cadle defendants’ motion for summary

disposition, which acknowledged the role of the parol evidence rule, but did not

accord it controlling weight.

      Cadle defendants next contend that the award was not based “on any

perversion or misdirection of the litigation process.” If Hicks w ere in fact liable

on the note, they contend they could not have “directed [the litigation process]

outside of its lawful course to the accomplishment of an objective other than that

for which it is provided.” This misstates the required showing to succeed on an

                                         -15-
abuse of process claim in Tennessee – a showing of some legal basis for filing

suit or otherwise using the judicial process is not a defense where (1) there was an

ulterior motive; and (2) the process used was improper. See Givens, 75 S.W .3d at

400 (“[T]he gist of the tort is not commencing an action or causing process to

issue without justification, but misusing, or misapplying process justified in itself

for an end other than that which it was designed to accomplish.”). Although

Cadle defendants’ liability for abuse of process in attempting to collect from

Hicks may be a close call, our review is limited to whether the arbitrator

manifestly disregarded the law. Under that standard, we have no basis for

vacating the award.

                                          C

      Cadle defendants next argue that the arbitrator imperfectly exercised his

powers by failing to make a final and definite award on the issue of whether

Hicks was actually liable on the note. See 9 U.S.C. § 10(a)(4). As discussed

supra, however, the arbitrator’s finding that Cadle defendants engaged in abuse of

process did not require him to determine whether H icks was liable on the note.

He merely needed to determine whether filing suit on the note, rather than

pursuing arbitration, was an abuse of process. The arbitrator reached a final and

definite decision on this issue. W e therefore reject this argument.

                                         -16-
                                          D

      Cadle defendants’ final challenge to the merits of the arbitrator’s decision

is that he “improperly included in his Award, and as a basis for his award of

damages, the issue of Buckeye’s September 2004 letter to two state Attorneys

General reporting a potential fraud which [the arbitrator] found to be beyond all

norms of debt collection activity.” They contend that this issue was not properly

before the arbitrator, because it w as explicitly reserved for later determination.

Cadle defendants’ argument that the arbitrator reserved all consideration of the

bank fraud issues to a later proceeding, and thus should not have used them as

even a partial basis for making a determination on Hicks’ abuse of process claim,

finds at least partial support in the record. Yet even assuming the arbitrator did

improperly rely on the bank fraud allegations to find abuse of process, he did not

manifestly disregard the law when he provided sufficient alternate grounds for his

determination, namely Cadle defendants’ decision to file suit in Tennessee.

                                          IV

      On appeal Cadle defendants argue for the first time that the procedure used

to select the arbitrator was violated, insofar as they were not properly consulted

before he was selected, and that the arbitrator was biased due to a prior

association with Hicks’ counsel. Neither of these arguments w ere presented to

the district court, and we w ill not consider them on appeal. See Smith v. Rogers

                                         -17-
Galvanizing Co., 128 F.3d 1380, 1385-86 (10th Cir. 1997) (“Generally, we will

not consider an issue that was not raised and resolved in the trial court.”).

                                          V

      Cadle defendants appealed from the district court’s order N o. 05-1399.

That order confirmed that portion of the arbitrator’s award finding that there was

no basis for any award against BOA, and dismissed BOA from the action

accordingly. In their brief Cadle defendants have not raised any arguments

opposing confirmation of this aspect of the award. “[T]he failure to raise an issue

in an opening brief w aives that issue.” Silverton Snowmobile Club v. U.S. Forest

Serv., 433 F.3d 772, 783 (10th Cir. 2006) (quotation omitted). As such, the

portion of the first district court order confirming the award as to BOA and

dismissing BOA from the case is affirmed.

                                          VI

      The orders of the district court are AFFIRM ED. All pending motions are

DENIED.

                                                     Entered for the Court

                                                     Carlos F. Lucero
                                                     Circuit Judge

                                         -18-