Court Opinion

ID: 9915187
Source: CourtListenerOpinion
Date Created: 2024-01-04 19:07:58.684136+00
Date Added: 2024-06-11T13:18:15.676880
License: Public Domain

01/04/2024
               IN THE COURT OF APPEALS OF TENNESSEE
                           AT NASHVILLE
                               February 8, 2023 Session

   UNIFIRST CORP. v. INDUS. FABRICATION & REPAIR, INC. ET AL.

                Appeal from the Chancery Court for Davidson County
                  No. 21-1114-IV    Russell T. Perkins, Chancellor
                      ___________________________________

                           No. M2022-00625-COA-R3-CV
                       ___________________________________

This appeal arises from confirmation of an arbitration award. The appellants objected to
confirmation, arguing that they lacked notice of the arbitration. One of the appellants also
claimed that it never agreed to arbitrate. The winning party submitted that the objections
were untimely and did not state a cognizable ground for vacatur under the Federal
Arbitration Act. We vacate and remand.

 Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Vacated
                                  and Remanded

W. NEAL MCBRAYER, J., delivered the opinion of the court, in which FRANK G.
CLEMENT, JR., P.J., M.S. and KRISTI M. DAVIS, J., joined.

Michael R. Franz, Knoxville, Tennessee, for the appellants, Industrial Fabrication &
Repair, Inc., and Industrial Fabrication Resources, Inc.

Sarah M. Ferraro, Nashville, Tennessee, for the appellee, UniFirst Corporation.

                                        OPINION

                                             I.

        Following a payment dispute, UniFirst Corporation initiated an arbitration
proceeding against Industrial Fabrication & Repair, Inc. and Industrial Fabrication
Resources, Inc. (together, “Respondents”). On October 11, 2021, the arbitrator issued an
award finding Respondents jointly and severally liable for $28,267.51 in damages and
arbitration costs. When Respondents failed to pay, UniFirst petitioned to confirm the
award.
       Respondents objected to confirmation. They asserted that they never received any
notice of the arbitration. And Industrial Fabrication Resources claimed that it was not a
party to the agreement. Thus, it never agreed to arbitrate.

        UniFirst argued that Respondents raised their objections too late. The Federal
Arbitration Act limited the time frame for challenging an arbitration award to three months
after the award was filed or delivered.1 9 U.S.C. § 12. Having missed this mandatory
deadline, Respondents were not entitled to judicial review of the award. Besides, UniFirst
continued, Respondents had not alleged sufficient grounds to vacate an arbitration award
under the FAA. See id. § 10.

       Respondents insisted that their objections were timely. Each entity submitted an
affidavit from its company president stating that he first learned about the arbitration when
he was served with UniFirst’s confirmation petition.

        The trial court confirmed the award. See id. § 9. It determined that Respondents
missed the statutory timeframe for filing a motion to vacate, modify, or correct the
arbitration award. Id. § 12. And it agreed that Respondents had not asserted a cognizable
ground to vacate the award under the FAA. See id. § 10(a).

                                                   II.

       When reviewing a trial court’s decision to confirm an arbitration award or its refusal
to vacate an award, we accept the court’s findings of fact unless they are clearly erroneous.
First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947-48 (1995); Arnold v. Morgan
Keegan & Co., 914 S.W.2d 445, 450 (Tenn. 1996). But we decide questions of law de
novo. First Options of Chicago, Inc., 514 U.S. at 947-48. Statutory interpretation is a
question of law. Lawson v. Hawkins Cnty., 661 S.W.3d 54, 59 (Tenn. 2023).

                                                    A.

        Under the FAA, “[n]otice of a motion to vacate, modify, or correct an award must
be served upon the adverse party or his attorney within three months after the award is filed
or delivered.” 9 U.S.C. § 12. And “objections that might have formed the basis for a timely
action to vacate an award may not be raised as defenses in an action to confirm the award
after the limitations period for an action to vacate has expired.” Occidental Chem. Corp.
v. Int’l Chem. Workers Union, 853 F.2d 1310, 1316 (6th Cir. 1988).

        1
          The arbitration provision specified that the parties would resolve their disputes through binding
arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association
and that the Federal Arbitration Act would govern.

                                                    2
       The trial court found that Respondents served their objections to confirmation
outside of the permitted three-month period. The “operative act to trigger th[e] three-
month-period is the filing or delivery of the award.” Tallakoy, LP v. Black Fire Energy,
Inc., 680 Fed. Appx. 441, 445 (6th Cir. 2017). The parties agree that the arbitration award
was filed on October 11, 2021. If the limitation period is calculated from the date of filing,
Respondents’ objections were untimely.

       Respondents insist that their objections were timely because they served their
answers on UniFirst within three months of the date the award was delivered. They contend
that the award was delivered when it was received. The record reflects that they first
received a copy of the award on January 11, 2022.

       The FAA does not define “delivered.” See 9 U.S.C. § 12. So we must give this
term a natural and ordinary meaning in the statutory context. See Lawson, 661 S.W.3d at
59. One meaning of “deliver” is “to bring or transport to the proper place or recipient;
distribute.” AMERICAN HERITAGE DICTIONARY (5th ed. 2016). So interpreting “delivered”
as the date the award was received “comports with ordinary meaning.” Nordahl Dev.
Corp., Inc. v. Salomon Smith Barney, 309 F. Supp. 2d 1257, 1269 (D. Or. 2004), aff’d sub
nom. Olson v. Salomon Smith Barney, Inc., 137 Fed. Appx. 972 (9th Cir. 2005). Other
courts have reached this same conclusion. See, e.g., Pfannenstiel v. Merrill Lynch, Pierce,
Fenner & Smith, 477 F.3d 1155, 1158 (10th Cir. 2007); Sargent v. Paine Webber, Jackson
& Curtis, Inc., 882 F.2d 529, 531 (D.C. Cir. 1989); Silicon Power Corp. v. Gen. Elec.
Zenith Controls, Inc., No. CIV. A. 08-4331, 2009 WL 1971390, at *4-5 (E.D. Pa. July 7,
2009); ABNL Ltd. v. Baker Hughes Process Sys., No. CV H-04-4662, 2005 WL 8164068,
at *7 (S.D. Tex. May 16, 2005); Eagle Energy, Inc. v. Dist. 17, United Mine Workers of
Am., 177 F.R.D. 357, 357 (S.D. W. Va. 1998).

       But, as UniFirst points out, the arbitration provision in this case incorporated the
Commercial Arbitration Rules of the American Arbitration Association. And those rules
include a definition for “delivery of award.” Based on that definition, UniFirst urges this
Court to construe “delivered” as the date the award was placed in the mail.

        UniFirst’s argument is appealing. “[A]rbitration is a matter of contract, and courts
must enforce arbitration contracts according to their terms.” Henry Schein, Inc. v. Archer
& White Sales, Inc., 139 S. Ct. 524, 528 (2019). If the parties mutually agreed to be bound
by the AAA Commercial Arbitration Rules, those rules became part of the arbitration
contract. See Lasco Inc. v. Inman Constr. Corp., 467 S.W.3d 467, 473 (Tenn. Ct. App.
2015). In this context, courts will give effect to the definition of “delivery” mutually agreed
upon by the contracting parties. See Webster v. A.T. Kearney, Inc., 507 F.3d 568, 572-73
(7th Cir. 2007) (concluding the “clear mutual consent to service by mail, coupled with the
definition of ‘delivery’ as placement in the mail, establish that, at least for purposes of this
case, the award was ‘delivered’ . . . when the AAA case manager placed the award in the
                                                3
mail”); Domnarski v. UBS Fin. Servs., Inc., 919 F. Supp. 2d 183, 185 (D. Mass. 2013)
(reasoning that “delivery” meant “date of mailing” based on definition in FINRA Code).

        But here UniFirst’s date-of-mailing argument fails as a matter of proof. The
arbitration rule that UniFirst cites is not a part of the appellate record. See In re Dakota
C.R., 404 S.W.3d 484, 502 (Tenn. Ct. App. 2012) (“[A]ttaching a document to a party’s
appellate brief does not make the document part of the appellate record.”). So we may not
consider it. UT Med. Group, Inc. v. Vogt, 235 S.W.3d 110, 122 (Tenn. 2007); TENN. R.
APP. P. 13(c). More importantly, the date the award was placed in the mail or otherwise
served is not in the record. The arbitration award does not include a certificate of service.
And UniFirst did not submit any other evidence that supplied this missing information.

       So the trial court’s finding that Respondents’ objections were untimely was clearly
erroneous. The undisputed evidence in the record reflects that the award was filed on
October 11, 2021, but it was not delivered until it was received on January 11, 2022.
Respondents served their defenses to confirmation on or about February 18, 2021, well
within the permitted three months.2

      This conclusion does not end our analysis. The trial court also determined that
Respondents did not assert a cognizable ground to vacate the arbitration award.

                                                    B.

       Section 10 of the FAA provides the exclusive grounds for vacating an arbitration
award. Hall St. Assocs., LLC v. Mattel, Inc., 552 U.S. 576, 589 (2008); Grain v. Trinity
Health, Mercy Health Servs. Inc., 551 F.3d 374, 377 (6th Cir. 2008). A 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;

        2
          Contrary to UniFirst’s argument on appeal, a formal motion to vacate the award was unnecessary.
See McLaurin v. Terminix Int’l Co., LP, 13 F.4th 1232, 1241 (11th Cir. 2021) (“[A] party may raise the
grounds under Section 10 and Section 11 as defenses to a motion to confirm an arbitration award so long
as those defenses are timely.”); Florasynth, Inc. v. Pickholz, 750 F.2d 171, 175 (2d Cir. 1984) (explaining
that 9 U.S.C. § 12 bars an untimely effort to vacate an arbitration award whether raised in a formal motion
to vacate or “as a defense to a motion to confirm”); Hughes Socol Piers Resnick & Dym, Ltd. v. G3
Analytics, LLC, 336 F. Supp. 3d 924, 931 (N.D. Ill. 2018) (reasoning that “the language of § 12 is broad
and applies to any ‘motion to vacate, modify, or correct an award’ under the FAA, including defenses raised
against petitions to confirm awards”).

                                                    4
       (3) where the arbitrators were 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) where 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).

        Respondents asserted that they never received any notice of the arbitration and, thus,
had no opportunity to present evidence to the arbitrator. Lack of notice is not one of the
grounds listed in § 10(a). Gingiss Int’l, Inc. v. Bormet, 58 F.3d 328, 331 (7th Cir. 1995).
Yet “[a]ll parties in an arbitration proceeding are entitled to notice and an opportunity to
be heard.” Totem Marine Tug & Barge, Inc. v. N. Am. Towing, Inc., 607 F.2d 649, 650
(5th Cir. 1979); Nationwide Mut. Ins. Co. v. Home Ins. Co., 278 F.3d 621, 624 (6th Cir.
2002). Federal courts recognize that lack of notice, if proven, may warrant vacatur under
the FAA. See, e.g., 21st Century Fin. Servs., L.L.C. v. Manchester Fin. Bank, 747 F.3d
331, 335 n.8 (5th Cir. 2014) (acknowledging, without deciding, that a lack-of-notice claim
may fall within § 10(a)(1) or (4)); Choice Hotels Int’l, Inc. v. SM Prop. Mgmt., LLC, 519
F.3d 200, 209 (4th Cir. 2008) (reviewing lack-of-notice claim under § 10(a)(4)); Teamsters
Loc. 312 v. Matlack, Inc., 118 F.3d 985, 994 (3d Cir. 1997) (“[I]t has become axiomatic
that a district court may vacate an award if a party to an arbitration proceeding has not been
given notice and opportunity to present arguments and evidence on the merits of the
dispute.”); Carpenters 46 N. Cal. Cntys. Conf. Bd. v. Zcon Builders, 96 F.3d 410, 413 (9th
Cir. 1996) (considering “whether the notice given to [a party] was so inadequate as to deny
it a fundamentally fair hearing” under § 10(a)(3)); Gingiss Int’l, Inc., 58 F.3d at 331
(considering whether lack of notice warranted vacatur under § 10(a)(3)).

        Based on the federal precedent, we conclude that an absence of notice may warrant
vacatur under the FAA. Respondents contend that the arbitrator, in issuing the award
without ensuring that they received adequate notice of the arbitration, exceeded his powers
or so imperfectly executed them that a mutual, final, and definite award was never made.
See 9 U.S.C. § 10(a)(4). Courts have vacated arbitration awards on this basis. See, e.g.,
Choice Hotels Int’l, Inc., 519 F.3d at 209 (affirming the trial court’s vacatur of an
arbitration award because the arbitrator failed to ensure that notice of the initiation of
arbitration was provided in accordance with the arbitration contract). But the burden of
proof is great. See 21st Fin. Servs., L.L.C., 747 F.3d at 337-38 (explaining that the
proponent must establish a lack of both actual and constructive notice).

       Here, the trial court refused to hear Respondents’ proof. UniFirst contends that this
error was harmless because the arbitrator resolved the notice issue. We disagree. When a
                                              5
party asserts that it did not receive notice of an arbitration, courts do not defer to an
arbitrator’s finding to the contrary. See id. at 336-37; Choice Hotels Int’l, Inc., 519 F.3d
at 205, 209; Carpenters 46 N. Cal. Cntys. Conf. Bd., 96 F.3d at 413. Respondents are
entitled to an opportunity to prove that they lacked sufficient notice of the arbitration.

                                             C.

        Industrial Fabrication Resources argued separately that it never agreed to arbitrate
this dispute. “[A]rbitration under the [FAA] is a matter of consent, not coercion.” Volt
Info. Scis., Inc. v. Bd. of Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 478 (1989).
A party cannot be required to submit to arbitration unless he agreed to do so. AT&T Techs.,
Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 647 (1986). If Industrial Fabrication
Resources did not agree to arbitration, the arbitrator had no authority to issue an award
against it. See 9 U.S.C. § 10(a)(4); Rapid Settlements, Ltd. v. Green, 294 S.W.3d 701, 706
(Tex. App. 2009) (concluding that “arbitrator exceeded his powers in issuing an award
against a party not subject to arbitration”); Porzig v. Dresdner, Kleinwort, Benson, N. Am.
LLC, 497 F.3d 133, 139 (2d Cir. 2007) (“The authority of the arbitral panel is established
only through the contract between the parties who have subjected themselves to arbitration,
and a panel may not exceed the power granted to it by the parties in the contract.”).

       The only parties to the agreement were UniFirst and Industrial Fabrication & Repair.
Industrial Fabrication Resources never signed the contract. But “parties can become
contractually bound absent their signatures.” Harvey ex rel. Gladden v. Cumberland Tr.
& Inv. Co., 532 S.W.3d 243, 265 (Tenn. 2017) (quoting Fisser v. Int’l Bank, 282 F.2d 231,
233 (2d Cir. 1960)). And UniFirst claimed that Industrial Fabrication Resources was
contractually bound because it was the successor to one of the contracting parties.

       The trial court erred when it confirmed the arbitration award without deciding
whether the arbitration provision was binding on Industrial Fabrication Resources.
Industrial Fabrication Resources raised a contract formation issue. This was a question for
the court to resolve, not the arbitrator. Granite Rock Co. v. Int’l Bhd. of Teamsters, 561
U.S. 287, 298 (2010); Caremark, LLC v. Chickasaw Nation, 43 F.4th 1021, 1030 (9th Cir.
2022); Rowland v. Sandy Morris Fin. & Est. Planning Servs., LLC, 993 F.3d 253, 257 (4th
Cir. 2021); Fedor v. United Healthcare, Inc., 976 F.3d 1100, 1105 (10th Cir. 2020). Courts
owe no deference to the arbitrator when deciding contract formation issues. DK Joint
Venture 1 v. Weyand, 649 F.3d 310, 317 (5th Cir. 2011); Galindo v. Lanier Worldwide,
Inc., 526 S.E.2d 141, 145-46 (Ga. App. 1999); see also Town & Country Salida, Inc. v.
Dealer Computer Servs., Inc., 521 Fed. Appx. 470, 474 (6th Cir. 2013) (explaining that
“courts need not defer to the arbitrators [on contract formation issues] because if a party
did not agree to arbitration, the arbitrators have no authority to issue an award”). The court
must resolve this issue independently using ordinary state law contract principles. First
Options of Chicago, Inc., 514 U.S. at 944; Harvey ex rel. Gladden, 532 S.W.3d at 265.

                                              6
                                           III.

       Because Respondents served timely objections to confirmation and they asserted
cognizable grounds to vacate the award, we vacate the trial court’s decision. We remand
this case for the court to resolve the objections to confirmation. The court should first
determine whether the arbitration provision was binding on Industrial Fabrication
Resources. If Industrial Fabrication Resources did not agree to arbitration, the court must
vacate the arbitration award against it. The court must also decide, based on the proof
presented, whether the award should be vacated because Respondents did not receive
adequate notice of the arbitration.

                                                     s/ W. Neal McBrayer
                                                  W. NEAL MCBRAYER, JUDGE

                                            7