Court Opinion

ID: 2651697
Source: CourtListenerOpinion
Date Created: 2014-01-30 17:15:53.639228+00
Date Added: 2024-06-11T12:17:55.684626
License: Public Domain

FILED
                                                 United States Court of Appeals
                    UNITED STATES COURT OF APPEALS       Tenth Circuit

                           FOR THE TENTH CIRCUIT                       January 30, 2014

                                                                     Elisabeth A. Shumaker
                                                                         Clerk of Court
MARK F. BEVAN, M.D., in his
individual capacity and as a managing
member of TRC-Four Corners Dialysis
Clinics, LLC, a New Mexico limited
liability company,                                        No. 11-2155
                                              (D.C. No. 2:08-CV-00281-MCA-CG)
             Plaintiff-Appellant,                          (D. N.M.)

v.

DAVITA, INC., a Delaware corporation,
f/k/a Total Renal Care, Inc.,

             Defendant-Appellee.

                            ORDER AND JUDGMENT*

Before KELLY, McKAY, and O’BRIEN, Circuit Judges.

      Dr. Mark Bevan and DaVita, Inc. are joint venture partners who own and

operate several dialysis clinics in the Four Corners region (where Utah, Colorado,

*
      After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of this
appeal. See Fed. R. App. P. 34(a)(2); 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 This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral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.
New Mexico, and Arizona meet). In 2007, Dr. Bevan filed suit against DaVita in

New Mexico state court, claiming DaVita breached its contractual and fiduciary

duties by opening a new clinic with another physician in Durango, Colorado. DaVita

removed the suit to federal court and demanded arbitration, upon which Dr. Bevan

was awarded damages and a 44% ownership interest in the Durango clinic. The

district court confirmed the award, but Dr. Bevan appeals, claiming the district court

misconstrued the arbitrator’s decision. He says his interest in the Durango clinic is

not subject to that facility’s operating agreement, as the district court ruled, and any

ambiguity in the arbitrator’s decision should be remanded to the arbitrator for

clarification. We have jurisdiction under 28 U.S.C. § 1291 and 9 U.S.C. § 16, and

affirm the district court’s judgment.

                                            I

      Back in 1999, when Dr. Bevan formed the joint venture with DaVita’s

predecessor, he negotiated a 49% or 50% ownership interest in their mutually

operated dialysis clinics (“joint venture facilities”). The company, named TRC-Four

Corners Dialysis Clinics, LLC, was governed by several contracts, including

operating and option agreements (“the Four Corners operating agreement”), which,

among other things, provided that if either of the parties developed new business

opportunities within the Four Corners region, the other party would have the option

to equally participate in those opportunities. In his 2007 state suit, Dr. Bevan alleged

DaVita breached its contractual and fiduciary duties by developing the Durango

                                          -2-
clinic with another nephrologist, Dr. Mark Saddler, without informing him of the

opportunity. DaVita removed the suit to federal court and demanded arbitration

pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 3, 4. The arbitrator ultimately

agreed that DaVita breached its fiduciary duty, and he therefore awarded Dr. Bevan

$202,651.00 in damages and a 44% ownership interest in the Durango clinic. To

satisfy the award, DaVita attempted to transfer the 44% interest to Dr. Bevan but

requested that he sign a transfer agreement, as well as a joinder agreement, which

would bind him to the terms of the Durango clinic’s operating agreement. Dr. Bevan

refused, and both parties moved the district court to confirm the award.

      Dr. Bevan’s motion did not mention any dispute; he simply asked the court to

confirm the arbitration award. DaVita, however, argued that its management role

was established by the Durango clinic’s operating agreement and Dr. Bevan should

therefore take his interest in the clinic pursuant to those terms. DaVita observed that

the arbitrator expressly sought to preserve the Durango clinic’s governance structure

so as to maintain DaVita’s control over the facility and competent level of patient

care; accordingly, the arbitrator awarded Dr. Bevan a 44% interest, which allowed

DaVita to retain a 51% majority interest and Dr. Sadler to retain a 5% minority share.

      The district court, faced with these opposing views of the arbitration award,

directed the parties to show cause why the case should not be remanded to the

arbitrator for clarification. Dr. Bevan responded that remand was appropriate

because the Durango clinic’s operating agreement contained a host of provisions that

                                         -3-
were inconsistent with the arbitrator’s decision, including one that gave DaVita sole

discretion to make additional capital calls or issue additional ownership units, which

could dilute his interest. He also argued that nothing in the arbitrator’s decision

required that he sign the transfer and joinder agreements, and that other issues

relating to the joint venture facilities’ management warranted clarification as well.

      DaVita, however, opposed a remand. DaVita explained that during arbitration

proceedings, Dr. Bevan had effectively sought the same relief by seeking specific

performance of the Four Corners operating agreement so as to obtain a 50% interest

and control over the Durango clinic, just as he enjoyed at the joint venture facilities.

His request was denied, DaVita asserted, because the arbitrator granted him only a

44% minority interest in the Durango clinic to preserve DaVita’s control and the

satisfactory level of patient care. Thus, DaVita concluded that the arbitrator

unambiguously required Dr. Bevan to take his interest subject to the Durango clinic’s

operating agreement. The district court agreed and confirmed the award accordingly.

      Now on appeal to this court, Dr. Bevan insists that a remand to the arbitrator is

appropriate. He says the district court erred in confirming the award, which neither

specified that his interest in the Durango clinic would be governed by that facility’s

operating agreement, nor that he must sign DaVita’s transfer and joinder agreements.

For its part, DaVita maintains that the arbitration decision unambiguously requires

Dr. Bevan to take his 44% interest subject to the Durango clinic’s operating

agreement.

                                          -4-
                                            II

      “In reviewing a district court’s confirmation of an arbitration award, we

review factual findings for clear error and legal determinations de novo.” DMA Int’l,

Inc. v. Qwest Commc’ns Int’l, Inc., 585 F.3d 1341, 1344 (10th Cir. 2009). We

nevertheless “give extreme deference to the determination of the arbitrator” because

“[o]nce an arbitration award is entered, the finality of arbitration weighs heavily in its

favor and cannot be upset except under exceptional circumstances.” Id. (brackets and

internal quotation marks omitted). Indeed, this highly deferential standard “is among

the narrowest known to law,” Hollern v. Wachovia Sec., Inc., 458 F.3d 1169, 1172

(10th Cir. 2006) (internal quotation marks omitted), and although a remand to the

arbitrator is appropriate where an award is susceptible to more than one reasonable

interpretation, “[s]uch remands . . . are to be used sparingly in order not to thwart the

interest of achieving finality,” U.S. Energy Corp. v. Nukem, Inc., 400 F.3d 822, 831

(10th Cir. 2005).

      Here, the dispute centers on the following portion of the arbitration decision,

which awarded Dr. Bevan a 44% interest in the Durango clinic while maintaining

DaVita’s control:

             As damages for this breach of fiduciary duty, DaVita must
      disgorge 44% of the net distributions from the Durango chronic facility
      in the amount of $202,651.00. In addition DaVita must transfer to
      Dr. Bevan 44% of the ownership of the Durango chronic facility. These
      distributions represent income from ownership which Dr. Bevan would
      have acquired if permitted to be involved as an owner of the Durango
      chronic facility and if DaVita had timely disclosed its participation in
      the transaction and not breached its fiduciary duty to Dr. Bevan. It also

                                          -5-
      includes income lost to the Farmington facility which would have gone
      to Dr. Bevan, but for the breach. I do not award Dr. Bevan a
      disgorgement of or forfeiture of management fees because the evidence
      tended to show that DaVita is doing, at least, a competent job of
      managing the facilities.

             The equitable nature of this relief permits me to consider the
      paramount interest which these parties share—the interests of the
      patients at the facility whose needs for dialysis services are compelling.
      Thus, in order to prevent any possible disruption to the apparently
      satisfactory governance of that facility, I am exercising my equitable
      powers to limit the interest which Dr. Bevan may obtain in the Durango
      acute facility to no more than 44% of the total, which maintains
      Dr. Saddler’s 5% interest and maintains DaVita’s control. I am
      convinced that such preservation as to the governance of this facility is
      in the interest of the patients in the Durango chronic facility.

Aplt. App., Vol. 1 at 140 (emphasis added).

      Dr. Bevan rightly points out that nothing in the arbitrator’s decision requires

him to sign DaVita’s transfer or joinder agreements, nor does it specify that he will

be subject to the Durango clinic’s operating agreement. However, the arbitrator’s

decision is equally silent with regard to his claim that the Four Corners operating

agreement should be interposed on the Durango clinic, which would create a

conflicting, impractical governing structure. For example, the Four Corners

operating agreement requires that Dr. Bevan have the option of participating equally

in the development of any new clinic. See id. at 66 (Four Corners Option Agreement,

§ 1(b)). But the Durango clinic’s operating agreement specifically prohibits DaVita

from developing a new clinic with Dr. Bevan. See id. at 300 (Durango Operating

Agreement, § 9.6(b)). Even if the arbitrator had excised this prohibition from the

Durango clinic’s operating agreement, Dr. Saddler’s negotiated protection to his

                                         -6-
interest in the Durango clinic would be lost. See Nationwide Mut. Ins. Co. v. Home

Ins. Co., 330 F.3d 843, 846 (6th Cir. 2003) (“An arbitration panel may not determine

the rights or obligations of non-parties to the arbitration.”). And in any event, there

is no support for such an interpretation in the arbitrator’s decision.

      Instead, the plain language of the decision expressly limits Dr. Bevan’s

interest so as to preserve the Durango clinic’s governance structure. The arbitrator

said, “I am exercising my equitable powers to limit the interest which Dr. Bevan may

obtain in the Durango acute facility to no more than 44% of the total, which

maintains Dr. Saddler’s 5% interest and maintains DaVita’s control.” Aplt. App.,

Vol. 1 at 140. This language unequivocally restricts Dr. Bevan’s interest to 44% and

preserves the Durango clinic’s governance structure for the benefit of its patients.

Dr. Bevan contends that DaVita’s control was achieved through its majority

ownership interest, but the arbitrator clearly intended to preserve the clinic’s

governance structure as well. Any modification to that structure would defeat the

arbitrator’s expressly stated intent. Hence, Dr. Bevan’s interest in the Durango clinic

is clearly subject to that facility’s operating agreement.

      And lest there be any lingering doubt, Dr. Bevan effectively sought the same

relief during arbitration proceedings, but the arbitrator denied his request. He argued

that an equitable remedy for DaVita’s fiduciary breach was specific performance of

the Four Corners operating agreement. See id. at 279-80. He claimed that “specific

performance is an appropriate remedy” because “[u]nder the clear terms of the [Four

                                           -7-
Corners operating agreement], [he] would have been entitled to a 50% ownership

interest in the Durango unit,” “which was a unique business opportunity that DaVita

took for itself.” Id. Asserting he would be left “without any degree of control in the

Durango” clinic, id. at 279, Dr. Bevan asked the arbitrator to convey a 50% interest

in the facility to him, as should have happened under the Four Corners operating

agreement. See id. at 280. The arbitrator denied this relief and instead expressly

limited “the interest which Dr. Bevan may obtain in the Durango acute facility to no

more than 44% of the total, which maintains Dr. Saddler’s 5% interest and maintains

DaVita’s control.” Id. at 140. Having failed to obtain this relief during arbitration,

Dr. Bevan postulates on appeal that if DaVita had “complied with the Four Corners

[operating agreement] and its fiduciary duties . . . , [he] would have enjoyed equal

ownership and governance rights which he enjoys under the Four Corners [operating

agreement].”1 Aplt. Br. at 21. Yet that scenario did not play out, and the arbitrator

was not persuaded that specific performance was warranted to achieve that result.

Rather, the arbitrator was “convinced that [] preservation as to the governance of

[the] facility [was] in the interest of the patients in the Durango chronic facility.”

Aplt. App., Vol. 1 at 140. Dr. Bevan’s refusal to accept the arbitrator’s decision does
1
       This premise—that Dr. Bevan would have negotiated more favorable terms
under the Four Corners operating agreement—is the sole basis for Dr. Bevan’s
argument that the district court erred in suggesting he would have been in the same
position as Dr. Saddler in negotiating the terms of the Durango clinic’s operating
agreement. But the district court was merely presuming that both doctors would have
negotiated with DaVita at arm’s length, and in any event, the premise is speculative
because DaVita did not adhere to the Four Corners operating agreement.

                                           -8-
not render the decision ambiguous. Therefore, the district court correctly confirmed

the arbitration award.

                                           III

      The judgment of the district court is affirmed. Dr. Bevan’s motion to strike is

granted, as the referenced materials were not before the district court.

                                                      Entered for the Court

                                                      Monroe G. McKay
                                                      Circuit Judge

                                          -9-