Court Opinion

ID: 70511
Source: CourtListenerOpinion
Date Created: 2010-04-26 07:03:12+00
Date Added: 2024-06-11T17:17:25.030697
License: Public Domain

United States Court of Appeals,

                            Eleventh Circuit.

                                No. 94-4595.

 LIFECARE INTERNATIONAL, INCORPORATED, a California corporation,
Plaintiff-Appellee,

                                     v.

   CD MEDICAL, INC., a Delaware corporation, CD Medical B.V., a
Dutch corporation, Defendants-Appellants.

                                Nov. 7, 1995.

Appeal from the United States District Court for the Southern
District of Florida. (No. 90-283-CIV-FAN), Federico A. Moreno,
Judge.

Before EDMONDSON, Circuit Judge, HILL, Senior Circuit Judge, and
MILLS,1 District Judge.

     RICHARD MILLS, District Judge:

     Should the arbitration award be set aside on the ground that

one of the arbitrators was biased?

     If that issue falls, was the arbitration award arbitrary and

capricious?

     The district court rejected both grounds and affirmed the

arbitration award.

     We agree and affirm.

                                I. BACKGROUND

     Appellant, CD Medical, Inc., manufactures dialysis machines

and the disposable components used on those machines;           they also

directly market those machines and disposable components in the

United States.   Outside of the United States, the products were

marketed   through    several    wholly-owned   subsidiaries,   including

     1
      Honorable Richard Mills, U.S. District Judge for the
Central District of Illinois, sitting by designation.
Appellant, CD Medical B.V.             CD Medical B.V., in turn, markets the

products         through    either      its     wholly-owned    subsidiaries      or

independent contractors.              Appellee, Lifecare International, Inc.

("Lifecare"), was one of those independent contractors.

       In 1990, Lifecare sued CD Medical, Inc., and CD Medical, B.V.,

in the United States District Court for the Southern District of

Florida for breach of contract, fraud, and tortious interference.2

Pursuant to the Federal Arbitration Act and a 1984 agreement

between the parties, CD Medical moved to compel arbitration and to

stay the district court proceedings.                  Over Lifecare's objection,

the     district     court      granted    CD    Medical's     motion     to   compel

arbitration and ordered the parties to arbitrate.

       In June of 1992, Lifecare filed its demand for arbitration.

The demand claimed that:              (1) CD Medical breached a February 1987

oral agreement to return the country of Algeria to Lifecare's

exclusive territory;            (2) CD Medical breached a written February

1988 settlement agreement which also returned Algeria to Lifecare's

exclusive territory;             (3) CD Medical breached a December 1988

written agreement which returned Algeria to Lifecare for the 1989

year;       and (4) CD Medical tortiously interfered with Lifecare's

advantageous business relationship with the Algerian Government.

Lifecare sought damages for lost profits from sales it would have

made       in   Algeria    in   the   amounts    of   $10,731,313   for    1988   and

$13,557,562 for 1989, along with prejudgment interest and punitive

damages.

       2
      From this point forward, CD Medical, Inc., and CD Medical,
B.V., will be collectively referred to as "CD Medical," unless
otherwise indicated.
     In February 1993, the liability portion of the trial was

conducted before a three-member arbitration panel.         The principal

hearing consumed seventeen days, ending on February 24, 1993.

During a break in the hearings in February, Arbitrator Craig Stein,

an attorney, recounted an incident in which he was personally

involved where opposing counsel refused to reschedule a summary

judgment hearing so that he could travel abroad.         Arbitrator Stein

apparently described such conduct as unprofessional, and in his

opinion, it warranted disciplinary action.

     On April 27, 1993, the arbitrators informed the parties that

they intended to rule in Lifecare's favor on liability.         Sometime

thereafter, one of the White & Case attorneys representing CD

Medical discovered that the "opposing counsel" to whom Arbitrator

Stein had previously referred to was another attorney who was

employed at White & Case.3     Consequently, CD Medical sought to

disqualify Arbitrator Stein.   The American Arbitration Association

denied the motion to disqualify and the proceedings continued.

     On November 18 and 19, and December 16, 1993, the arbitrators

heard testimony regarding the amount of damages.          On January 14,

1994, Arbitrator Stein and another arbitrator awarded Lifecare

$10,102,674 in lost profits, $5,394,203.90 in prejudgment interest,

$13,527.47   in   administrative   fees   and   costs,    $71,485.06   in

arbitrators' fees and expenses, and $39,048 in expert witness fees.

Neither Arbitrator Stein nor the other arbitrator who joined in the

     3
      Arbitrator Stein was apparently so upset from the incident
that he drafted a letter to the White & Case attorney which
stated that he could not believe that "a firm of White & Case's
stature would condone [that] type of behavior."
majority decision issued an opinion explaining their reasoning for

finding CD Medical liable or justifying the amount of damages. The

dissenting arbitrator wrote a three-page opinion addressing only

the issue of liability.

     Thereafter, CD Medical discovered that Arbitrator Stein failed

to disclose two prior contacts between CD Medical and the law firm

that he became "of counsel" to, Greenberg Traurig Hoffman Lipoff

Rose & Quentel, P.A. ("Greenberg Traurig").            The most recent

contact occurred in January of 1990 when CD Medical interviewed

Greenberg Traurig to represent them in the instant dispute.            The

prior contact complained of occurred in 1988 when CD Medical asked

Greenberg Traurig to review an amendment to the exclusive agreement

between CD Medical and Lifecare.         Arbitrator Stein became "of

counsel" to Greenberg Traurig a few months before he was selected

as an arbitrator in this case in November of 1992.

     Subsequently, Lifecare moved to confirm and CD Medical moved

to vacate the award in the district court.            In support of its

motion to vacate, CD Medical first argued that Arbitrator Stein was

biased.    In support of their assertion that there was evident

partiality, i.e., bias, on the part of Arbitrator Stein, CD Medical

argued    that   Arbitrator   Stein   failed   to   disclose   the   prior

scheduling dispute with the White & Case attorney and that he also

failed to disclose the two prior contacts between CD Medical and

the firm he became "of counsel" to, Greenberg Traurig.         Second, CD

Medical claimed that the award was arbitrary and capricious.

     On April 28, 1994, the district court, in a three-paragraph

order, denied CD Medical's motion to vacate and granted Lifecare's
motion to confirm the arbitration award.       A final judgment was

entered on June 14, 1994, and this appeal ensued.

                      II. STANDARD OF REVIEW

      As a result of the Supreme Court's recent decision in First

Options of Chicago, Inc. v. Kaplan, --- U.S. ----, ----, 115 S.Ct.

1920, 1926, 131 L.Ed.2d 985 (1995), the Eleventh Circuit will no

longer review a district court's confirmation of an arbitration

award under an "abuse of discretion" standard. Instead, the courts

are instructed to review the district court's factual findings for

"clear error" and examine its legal conclusions de novo.   Davis v.

Prudential Sec., Inc., 59 F.3d 1186, 1188 (11th Cir.1995).

                          III. DISCUSSION

     On appeal, CD Medical raises the same issues that were before

the district court; namely, (1) whether Arbitrator Stein's failure

to disclose his prior contact with the White & Case attorney and/or

his failure to disclose the two prior contacts between CD Medical

and Greenberg Traurig (the firm he later became "of counsel" to)

evidence bias on Arbitrator Stein's part, and (2) whether the award

was arbitrary and capricious.

A. Review of Arbitration Awards Generally

      Our review of commercial arbitration awards is controlled by

the Federal Arbitration Act ("FAA").    See 9 U.S.C. §§ 1-16.    As

stressed by this Court on numerous occasions, "[i]t is well settled

that judicial review of an arbitration award is narrowly limited."

Davis, 59 F.3d at 1190;   accord, Brown v. Rauscher Pierce Refsnes,

Inc., 994 F.2d 775, 778 (11th Cir.1993);    Robbins v. Day, 954 F.2d

679, 682 (11th Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct.
201, 121 L.Ed.2d 143 (1992).        Indeed, "the FAA presumes that

arbitration awards will be confirmed," Davis, 59 F.3d at 1190;

Brown, 994 F.2d at 778, consequently, "federal courts should defer

to the arbitrator's resolution of the dispute whenever possible."

Robbins, 954 F.2d at 682.

     The FAA enumerates only four narrow bases for vacating the

arbitration award; one of which is applicable in the instant case.

That is, pursuant to § 10(a)(2), the award may be vacated "[w]here

there is evident partiality or corruption in the arbitrators, or

either of them."4       In addition to the statutory grounds for

vacatur, the Eleventh Circuit has recognized two non-statutory

bases for vacating an arbitration award.     Brown, 994 F.2d at 779.

One of the non-statutory grounds is at issue in the instant case;

whether the arbitration award was arbitrary and capricious. 5    Id.

(citations omitted).

     Each of the two bases for vacating the award will be addressed

in turn.

B. Evident Partiality

         In order to vacate on the ground of evident partiality in a

nondisclosure case, the party challenging the arbitration award

must establish that the undisclosed facts create a "reasonable

impression of partiality."    Middlesex Mut. Ins. Co. v. Levine, 675

F.2d 1197, 1201 (11th Cir.1982); Schmitz v. Zilveti, 20 F.3d 1043,

     4
      For the other three statutory bases for vacating an
arbitration award, see 9 U.S.C. § 10(a)(1), (3), and (4).
     5
      The second non-statutory ground recognized in the Eleventh
Circuit for vacating an arbitration award is when the award is
contrary to public policy. Brown, 994 F.2d at 779.
1046 (9th Cir.1994).        This Court has reasoned that the alleged

partiality must be "direct, definite and capable of demonstration

rather than remote, uncertain and speculative."           Levine, 675 F.2d

at 1201;    accord, Consol. Coal v. Local 1643, United Mine Workers,

48 F.3d 125, 129 (4th Cir.1995);          Health Services Management Corp.

v. Hughes, 975 F.2d 1253, 1264 (7th Cir.1992).            Accordingly, the

mere appearance of bias or partiality is not enough to set aside an

arbitration award.       Consol. Coal, 48 F.3d at 129;     Health Services

Management Corp., 975 F.2d at 1264;          Florasynth, Inc. v. Pickholz,

750 F.2d 171, 173 (2nd Cir.1984);          see Schmitz, 20 F.3d at 1046-47

(rejecting "appearance of bias" standard).

         As noted, CD Medical offers two independent reasons for

vacating the arbitration award on the ground of evident partiality.

First,    CD   Medical   claims    that   Arbitrator   Stein's   failure   to

disclose the scheduling dispute with a White & Case attorney (the

law firm that represented CD Medical) qualifies as a reasonable

impression of partiality.         We disagree.   Although we, too, believe

that Arbitrator Stein should have disclosed the dispute prior to

the commencement of the arbitration proceedings and we understand

CD Medical's anger toward Arbitrator Stein for failing to disclose

the incident.      Nevertheless, we cannot conclude that Arbitrator

Stein's failure to disclose the dispute creates a reasonable

impression of partiality.

     The incident did not involve any of the parties to the

arbitration hearing.        Rather, it involved an attorney who was

employed at the same law firm—White & Case—that represented one of

the parties—CD Medical.      The White & Case attorney involved in the
dispute took no part in the arbitration proceedings.                                Furthermore,

the     dispute         occurred       approximately          18     months      prior   to     the

commencement of the arbitration hearing.

        With that in mind, it is important to put this incident in

perspective.             The    incident       involved        an    argument       between     two

attorneys over a scheduling dispute.                         Attorneys argue and disagree

with one another all the time.                     One can debate the professionalism

of such behavior, but that will not change the reality of it.

True,       because      Arbitrator         Stein        memorialized         the   incident     in

writing6 and recalled the dispute some 18 months later, perhaps

this        was    something         more    than    the      typical         argument   between

attorneys.         Regardless, we cannot conclude that Stein's failure to

disclose          the    incident       created          a    reasonable        impression      of

impartiality.

        CD Medical is essentially asking this Court to conclude that

because       Arbitrator        Stein       was     involved        in    a   dispute    with   an

attorney:         (1) whatever animosity or anger he harbored toward that

attorney          remained      18    months       later;          (2)    the    animosity      was

transferred         to    the    entire      firm;           and    (3)   the    animosity      was

ultimately transferred to the White & Case client, CD Medical.

That, we cannot conclude.                   It appears to the Court that this case

involves a situation that is more in the line of remote, uncertain,

and    speculative         partiality         or     a    mere     appearance       of   bias    or

partiality, as opposed to bias or partiality that is direct,

definite, and capable of demonstration. See Int'l Produce, Inc. v.

A/S Rosshavet, 638 F.2d 548, 551 n. 3 (2nd Cir.1981) ("It does not

        6
         See footnote 3, supra.
follow that an arbitrator's personal feelings in favor of or

against one attorney would necessarily be transferred to another

attorney in the same firm."), cert. denied, 451 U.S. 1017, 101

S.Ct. 3006, 69 L.Ed.2d 389 (1981).

      CD Medical's second argument in support of its claim that

Arbitrator Stein was biased is even weaker.                Arbitrator Stein

became "of counsel" to the law firm of Greenberg Traurig in the

middle of 1992.        In January of 1990, CD Medical interviewed

Greenberg Traurig for the purpose of obtaining representation in

the instant dispute.          Additionally, in 1988, CD Medical asked

Greenberg Traurig to review an amendment to the distributorship

agreement between CD Medical and Lifecare.

     Because of CD Medical's two contacts with Greenberg Traurig,

the firm Arbitrator Stein eventually joined "of counsel," CD

Medical asks the Court to conclude that such contacts evidence bias

on the part of Arbitrator Stein against CD Medical.            We disagree.

Once again, we must first put this issue in perspective.               At the

time of the two contacts, Arbitrator Stein was not even affiliated

with Greenberg Traurig.         Furthermore, there is no evidence in the

record that Arbitrator Stein was even aware of the fact that CD

Medical contacted Greenberg Traurig in 1988 or 1990.

     Again,   we   are    not   condoning   Arbitrator     Stein's    conduct.

Indeed, even a rudimentary inquiry by Arbitrator Stein would have

likely revealed Greenberg Traurig's prior contacts with CD Medical.

However, based on the paltry record before us regarding this

particular    issue,     we   cannot   conclude   that   Arbitrator   Stein's

failure to investigate and, of course, disclose the two prior
contacts     between    Greenberg   Traurig    and   CD   Medical   creates   a

reasonable impression of bias or partiality.                Similar to their

first argument, it appears CD Medical's position here is based on

speculative bias or partiality as opposed to bias or partiality

that is direct, definite, and capable of demonstration.

     In summary, the "evident partiality" question necessarily

entails a fact intensive inquiry.             This is one area of the law

which is highly dependent on the unique factual settings of each

particular case.        The black letter rules of law are sparse and

analogous case law is difficult to locate.                In most cases, the

courts have little guidance when confronted with an issue in this

area of the law.       Based on the facts before this Court, we simply

cannot    conclude     that   Arbitrator   Stein's   conduct,   although      in

violation of Canon II of the American Arbitration Association's

Code of Ethics, rises to the level of creating a reasonable

impression of bias or partiality.7

C. Arbitrary and Capricious

         The Eleventh Circuit permits a court to vacate an arbitration

award when that award is arbitrary and capricious.                  Raiford v.

Merrill Lynch, Pierce, Fenner & Smith, 903 F.2d 1410, 1412 (11th

Cir.1990). An award is arbitrary and capricious "only if "a ground

for the arbitrator's decision cannot be inferred from the facts of

the case.' "         Ainsworth v. Skurnick,      960 F.2d 939, 941 (11th

Cir.1992) (quoting Raiford, 903 F.2d at 1413), cert. denied, ---

     7
      In accordance with Canon II of the American Arbitration
Association's Code of Ethics, Arbitrator Stein executed a
statement verifying that he had "no past or present relationship
with the parties or their counsel, direct or indirect, whether
financial, professional, social or of any kind."
U.S. ----, 113 S.Ct. 1269, 122 L.Ed.2d 665 (1993).            This is,

however, a very difficult standard for the party contesting the

arbitration award to overcome.      Indeed, the award is presumptively

correct, Sullivan, Long & Hagerty, Inc. v. Local 559, 980 F.2d

1424, 1427 (11th Cir.1993), and will be vacated only if there is no

ground whatsoever for the Panel's decision.         Brown, 994 F.2d at

781.       Furthermore, "[f]or an award to be vacated as arbitrary and

capricious, the Panel's award must contain more than an error of

law or interpretation."       Id.

           With this standard of review in mind, there clearly exists a

ground for the Panel's decision.8      In February of 1988, CD Medical

and Lifecare negotiated a settlement agreement by means of an

offering and an accepting facsimile. 9      In the offering facsimile,

Lifecare, among other things, asked CD Medical to turn over the

Algerian market to Lifecare for an additional five-year period.

Lifecare also asked CD Medical to provide letters of compliance to

reassure or eliminate any potential confusion by the Algerian

Government as to who—CD Medical or Lifecare—held the exclusive

distributorship rights in Algeria.         Finally, Lifecare asked CD

Medical to "work with [them] and not against [them]."       In return,

Lifecare agreed to release CD Medical from any potential liability

       8
      Here, only the dissenting arbitrator wrote an opinion. The
two majority arbitrators did not write an opinion. However,
"[i]t is well settled that arbitrators are not required to
explain an arbitration award and that their silence cannot be
used to infer a grounds for vacating the award." Robbins, 954
F.2d at 684.
       9
      Although CD Medical will likely disagree with our
characterization of their response as an "accepting" facsimile,
we refer to it in this fashion merely to highlight a plausible
interpretation of the exchange between the parties.
arising from its prior actions regarding the Algerian dispute.                  In

April      of   1988,    CD    Medical,   having     neglected   to     send    the

clarification letters to the Algerian Government, contacted the

Algerian Government and informed them that they, not Lifecare,

should be Algeria's supplier and distributor.

      Thus, certainly the arbitrators could have concluded that a

binding agreement was reached between CD Medical and Lifecare in

February of 1988 returning Algeria to Lifecare for an additional

five-year period.         Further, the arbitrators could have concluded

that CD Medical breached that agreement by failing to provide the

clarification letters and by contacting the Algerian Government and

informing them that CD Medical, not Lifecare, should be Algeria's

supplier of medical equipment.              Accordingly, a rational basis

indisputably exists supporting the arbitrator's decision.

      In     response,    CD    Medical   notes     that   Lifecare's      offering

facsimile contained a hand-written provision which intimated the

drafting of a formal contract amendment acknowledging the return of

Algeria to Lifecare for an additional five years.                    Further, the

last sentence of CD Medical's accepting facsimile provides that

"once the amendment and letter have been approved by both of us, we

believe that relationships can be better than ever."                  As a result

of   these      two   provisions,   CD    Medical    argues   that    no   binding

agreement could have been reached by the parties in February of

1988 until a formal, written amendment to the contract was drafted

and signed by the parties.          Since there was no formal amendment to

the original contract signed by the parties as contemplated by the

two facsimiles, CD Medical claims that Algeria was never returned
to Lifecare.

      We disagree.

         It is true that under Florida law where the parties do not

intend to be bound by their agreement (oral or written) until a

formal written contract is executed, there is no binding agreement

unless and until the written contract is in fact executed.                    See

Cohen      v.   Amerifirst   Bank,    537     So.2d    1108,   1110   (Fla.   3rd

Dist.Ct.App.1989);         Housing Auth. of Fort Pierce v. Foster, 237

So.2d 569, 571-72 (Fla. 4th Dist.Ct.App.1970).                    However, the

parties intent, of course, is what ultimately controls.                  Simply

because the parties contemplated the drafting of a subsequent

formal, written contract, does not denote that they did not intend

to be bound immediately by their oral or written negotiations.10

See Citizens Bank of Perry v. Harlie Lynch Constr. Co., 426 So.2d

52, 54 n. 2 (Fla. 1st Dist.Ct.App.1983);              Foster, 237 So.2d at 571-

72;   Eastern Air Lines, Inc. v. Mobil Oil Corp., 564 F.Supp. 1131,

1145 (S.D.Fla.1983) ("If parties so intend, a contract is binding

from the time it is made even though the parties also agree that a

formal     writing     embodying   its   provisions     will   subsequently    be

prepared."), aff'd, 735 F.2d 1379 (Temp.Emer.Ct.App.1984).

      Here, there was ample evidence produced at the arbitration

hearing supporting the conclusion that the parties intended their

February        1988   negotiations      to    be     effective   immediately,

irrespective of the drafting of a formal, written amendment to the

original contract.        Tony Dow, Lifecare's principal, testified that

      10
      In this case, the negotiations are of course the offering
and accepting facsimiles.
he believed that they had a binding agreement in February of 1988.

Additionally, Tommy Brown, an executive of CD Medical, testified

that in February of 1988 he was "still operating under the premise

that [they] had an agreement."             In fact, on February 29, 1988, Mr.

Brown sent a telex to the Algerian Government which stated that "it

is [CD Medical's] intention to service your account exclusively
                                                                                       11
through Lifecare [ ] for spare parts for the next 5 years."

Furthermore, immediately after the February 1988 negotiations, Mr.

Dow, with full knowledge of CD Medical, boarded a plane for Algeria

for   the   purpose        of   negotiating     a   contract     with    the   Algerian

Government.

       Thus,      once    again,     certainly      the    arbitrators      could    have

concluded that a binding agreement existed in February of 1988

between CD Medical and Lifecare, and CD Medical subsequently

breached     that        agreement.12     As     evidenced       by   the   dissenting

arbitrator's opinion, one could definitely interpret the evidence

in a different light.           Indeed, CD Medical's interpretation that no

binding contract existed until a formal contract amendment was

executed is a viable translation of the evidence.                       That, however,

is    not   the    issue     here.      Our    task   is    to   merely     review    the

arbitration decision and determine whether                       any rational basis

exists for the award.                In summary, the interpretation of the

       11
      This telex to the Algerian Government is apparently not
the clarification letter that was required to be sent to the
Algerian Government pursuant to the February 1988 negotiations.
       12
      Since we find that the breach of the February 1988
agreement qualifies as a rational basis supporting the
arbitration award, there is no need for us to discuss the
alternative grounds offered by Lifecare supporting the
arbitration award.
evidence discussed supporting the award is just as feasible as CD

Medical's interpretation supporting the overturning of the award.

Consequently, we cannot conclude that the arbitration award is

arbitrary and capricious.

                            IV. CONCLUSION

     Since we conclude that the district court's order confirming

the arbitration award was not erroneous, we AFFIRM that order.