SECOND DIVISION BARNES, P. J., MILLER and RAY, JJ.
NOTICE: Motions for reconsideration must be physically received in our clerk’s office within ten days of the date of decision to be deemed timely filed. http://www.gaappeals.us/rules/
March 17, 2014
In the Court of Appeals of Georgia A13A1782. BERGER v. WELSH.
RAY, Judge.
Floyd K. Berger appeals from a trial court order vacating an arbitration award
in his favor after an evidentiary hearing before a Financial Industry Regulatory
Authority (“FINRA”) arbitrator. He contends that the superior court erred in (1)
applying state law, rather than federal law, in its review of the award; (2) vacating the
award on the grounds that the arbitrator overstepped his authority and manifestly
disregarded the law; (3) ordering a rehearing on the issue of attorney fees and
expenses; and (4) denying his cross-motion to confirm the award. For the reasons that
follow, we reverse the superior court’s decision and remand with instruction that the
court confirm the award. Berger was an employee of Bear Stearns & Co. in Atlanta who held a primarily
administrative position with fixed compensation, but also worked on client accounts
where compensation was commission-based. He alleged that because he was salaried,
the firm’s payroll system did not offer a convenient way for him also to receive
commissions. With the firm’s agreement, he and a Bear Stearns’ commission-based
financial advisor, John Welsh, agreed that Berger would enter his commission-based
production information under Welsh’s representative number. Berger alleged that for
several years, as per their agreement, Welsh transferred the appropriate portion of
commissions to him, but then began to skip payments. In June 2011, after both men
had left their jobs at Bear Stearns, Berger filed a statement of claim against Welsh
with FINRA’s dispute resolution division, alleging, inter alia, breach of contract and
unjust enrichment, and seeking attorney fees and an award of approximately $55,000
exclusive of interest, attorney fees, and costs.
During a hearing before a FINRA arbitrator, Welsh moved to dismiss, arguing
that the claims had been released in a severance agreement Berger signed with Bear
Stearns, in which Berger agreed to release Bear Stearns and its current and former
employees from claims arising prior to the date of the release agreements. He further
argued that any award would give Berger double recovery, because Berger received
2 severance pay in consideration for signing the releases. The arbitrator denied the
motion, and after the hearing, ruled in Berger’s favor, finding that Welsh owed him
$98,575, which included pre-judgment interest. The arbitrator did not award attorney
fees. Welsh filed a motion in the Superior Court of Cobb County to vacate or modify
the award, and after a hearing, the superior court vacated the award and ordered a
rehearing on Welsh’s claim for attorney fees. Berger appeals.
1. Berger first contends that the superior court erred in applying state law,
rather than federal law, in its review of his case.
At the outset of the order being appealed, the superior court states that it must
determine whether to apply the Georgia Arbitration Code (“GAC”), OCGA § 9-9-1
et seq., or the Federal Arbitration Act (“FAA”), 9 USC § 1 et seq., to the parties’
cross motions to vacate or confirm the award. On appeal, Welsh argues that the
superior court was correct in deciding the case under the GAC; Berger counters that
because this was a FINRA arbitration and involved interstate commerce, the FAA
applies. Without deciding whether the underlying dispute involved interstate
commerce, the trial court determined that, regardless, the GAC still would apply. We
need not engage in a choice of law analysis, however, because under either the FAA
or the GAC, the trial court erred in vacating the arbitration award.
3 “It is well established under both federal and Georgia law that judicial review
of an arbitration is among the narrowest known to the law.” (Citations and
punctuation omitted.) Malice v. Coloplast Corp., 278 Ga. App. 395, 397 (629 SE2d
95) (2006), superseded by statute on other grounds as noted in Murphree v. Yancey
Bros. Co., 311 Ga. App. 744, 747 n. 10 (716 SE2d 824) (2011). Further, “[b]ecause
our state arbitration code closely tracks federal arbitration law, we look to federal
cases for guidance in construing our own statutes.” (Citation and punctuation
omitted.) Brookfield Country Club, Inc. v. St. James-Brookfield, LLC, 287 Ga. 408,
412 (1) (696 SE2d 663) (2010) (Brookfield II).
The GAC, by its enactment, “repealed common law arbitration in its entirety,
and it must, therefore, be strictly construed.” (Footnotes omitted.) Greene v. Hundley,
266 Ga. 592, 594 (1) (468 SE2d 350) (1996). Thus, it strictly limits the scope of a
superior court’s review of an arbitrator’s award and limits any subsequent appellate
review. Id. at 597 (3). These limits on a court’s power to vacate an arbitration award
exist “in order not to frustrate the legislative purpose of avoiding litigation by resort
to arbitration. Hence, the [GAC] demands that courts give extraordinary deference to
the arbitration process and awards so that the trial court cannot alter the award.”
(Citations and punctuation omitted.) Patterson v. Long, 321 Ga. App. 157, 159-160
4 (1) (741 SE2d 242) (2013). The GAC provides five exclusive statutory bases for
vacatur. Phan v. Andre & Blaustein, LLP, 309 Ga. App. 191, 193 (1) (709 SE2d 863)
(2011). OCGA § 9-9-13 (b) provides
[t]he award shall be vacated on the application of a party who . . . participated in the arbitration . . . if the [reviewing] court finds that the rights of the party were prejudiced by: (1) Corruption, fraud, or misconduct in procuring the award; (2) Partiality of an arbitrator appointed as a neutral; (3) An overstepping by the arbitrators of their authority or such imperfect execution of it that a final and definite award upon the subject matter submitted was not made; (4) A failure to follow the procedure of this part, unless the party applying to vacate the award continued with the arbitration with notice of this failure and without objection; or (5) The arbitrator’s manifest disregard of the law.
The superior court vacated the arbitrator’s decision pursuant to the third and
fifth factors, finding that the arbitrator overstepped his authority and manifestly
disregarded the law.
As under the GAC, the FAA likewise “imposes a heavy presumption in favor
of confirming arbitration awards.” (Citation omitted.) Riccard v. Prudential Ins. Co.,
307 F.3d 1277, 1288 (II) (B) (11th Cir. 2002). The grounds for vacatur pertinent to
this appeal are defined in 9 USC § 10 (a), which provide, in pertinent part, that an
award may be vacated
5 (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) 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.
“The burden is on the party requesting vacatur of the award to prove one of these four
grounds.” (Citation omitted.) Riccard, supra at 1289 (II) (B). As crafted, this appeal
involves only the fourth factor of 9 USC § 10, that is, whether the arbitrator exceeded
his powers.
2. Berger argues that the superior court erred in vacating the arbitration award
on the grounds that the arbitrator overstepped his authority. The superior court found
that the arbitrator overstepped his authority by entering an award in favor of Berger
on claims that, according to Welsh, Berger had previously released.
“Overstepping” like the other grounds for vacating arbitration awards is very limited in scope. “Overstepping” has been described as “addressing issues not properly before the arbitrator.” Thus, this ground does not apply where an issue is properly raised before the arbitrator. The limits
6 of an arbitrator’s authority are defined by the parties’ arbitration agreement.
(Citations and punctuation omitted.) Henderson v. Millner Dev., LLC, 259 Ga. App.
709, 711 (1) (578 SE2d 289) (2003). Likewise, under the FAA, “arbitrators may
exceed their power within the meaning of § 10 (a) (4) if they fail to comply with
mutually agreed-upon contractual provisions in an agreement to arbitrate.” (Citation
and footnote omitted.) Cat Charter, LLC v. Schurtenberger, 646 F.3d 836, 843 (II)
(A) (2011) (11th Cir. 2011). This Court has determined that “[u]nder both federal and
Georgia law, arbitration is a matter of contract, meaning that arbitrators derive their
authority to resolve disputes only from the parties’ agreement.” (Footnote omitted.)
Barge v. St. Paul Fire & Marine Ins. Co., 245 Ga. App. 112, 113 (1) (535 SE2d 837)
(2000).
Here, Berger and Welsh apparently had no written agreement that would have
provided for arbitration of their dispute over the payment of the commissions.
However, after Berger filed his statement of claim with FINRA, Welsh and Berger
both signed an agreement to submit the issues in the statement of claim, as well as
any answers, cross-claims or counterclaims, to arbitration in accordance with FINRA
procedures. The parties’ filings addressed, inter alia, breach of contract, unjust
7 enrichment, money had and received, and attorney fees. Welsh specifically raised the
defense of release of claims in his answer, and at the arbitration hearing, his counsel
moved to dismiss the action based on the existence of the release agreements. FINRA
Rule 13504 (a) (6) (A) gives an arbitrator the authority to determine whether claims
have been released.
The superior court did not find, nor did either side argue, that the release
agreements were not properly before the arbitrator. Further, the superior court did not
find, nor did the parties argue, that the arbitrator addressed any other issues that were
not properly raised or were outside the scope of his authority under the parties’
agreement to arbitrate under FINRA.
Rather, Welsh argues, and the superior court found, that the arbitrator
overstepped his authority because he impermissibly construed the unambiguous terms
of the release agreements, ignoring their plain language. Both Welsh and the superior
court cite Carey v. Houston Oral Surgeons, LLC, 265 Ga. App. 812, 815-816 (1) (595
SE2d 633) (2004), where this Court found that if parties have entered into an
unambiguous release of claims, no construction of the release contract is permissible,
and they connect that general principle to Sweatt v. Intl. Dev. Corp. 242 Ga. App.
753, 757 (1) (531 SE2d 192) (2000), in which this Court vacated an arbitrator’s award
8 finding that he impermissibly ignored the explicit, unambiguous liquidated damages
provision in the parties’ contract by awarding actual damages.
While these principles are correct, the instant case is distinguishable. Berger
argued before the arbitrator that a third-party beneficiary of a contract – in this case,
Welsh – must be an intended third-party beneficiary in order to enforce that contract.
Under any arguably applicable law, to enforce a contract, a third-party beneficiary
must be the intended, not incidental, beneficiary, and determining the intent of such
a contract is a matter of contract construction. See Archer Western Contractors, Ltd.
v. Estate of Pitts, 292 Ga. 219, 228 (2) (735 SE2d 772) (2012); Versico, Inc. v.
Engineered Fabrics Corp., 238 Ga. App. 837, 840-841 (2) (520 SE2d 505) (1999);1
1 Welsh appears to argue that because the release agreements provide that in the event of any dispute between Berger and Bear Stearns, New York law controls, then New York law also applies here. Regardless of the merits of this contention, “[i]t is ancient law in New York that to succeed on a third party beneficiary theory, a non- party must be the intended beneficiary of the contract , not an incidental beneficiary to whom no duty is owed.” (Citation omitted.) County of Suffolk v. Long Island Lighting Co., 728 F.2d 52, 63 (II) (C) (2d Cir. 1984) (applying New York law). See also Amin Realty v. K & R Constr. Corp., 306 A.D.2d 230, 231-232, 762 N.Y.S.2d 92 (2003).
9 Interface Kanner, LLC v. JPMorgan Chase Bank, N.A., 704 F.3d 927, 932-933 (III)
(A) (2) (11th Cir. 2013).
Thus, we cannot say that the arbitrator overstepped his authority or rendered
an award that did not reflect the essence of the contract, because the parties in
agreeing to FINRA arbitration clearly agreed to allow the arbitrator to determine the
applicability of the release agreements, and that is what he did. As noted above, the
superior court did not find “that the arbitrator acted outside the scope of his
contractually delegated authority. Hence, we must treat the arbitrator’s award as if it
represented an agreement between [Berger] and [Welsh] as to the proper meaning of
the [release agreements.]” Eastern Associated Coal Corp. v. United Mine Workers of
America, District 17, 531 U.S. 57, 62 (II) (121 SCt 462, 148 LE2d 354) (2000).
The arbitrator’s order does not reveal whether he considered the issue of
Welsh’s status as an intended beneficiary. The arbitrator made no findings of fact or
conclusions of law related to the underlying award. The GAC does not require an
arbitrator to make written findings of fact or to explain the rationale behind an award.
Greene, supra at 595 (2). “The authority of an arbitrator gives [him] the inherent
power to fashion a remedy as long as the award draws its essence from the contract
or statute.” (Punctuation and footnote omitted.) Id. Here, the arbitrator exercised the
10 authority granted to him by the parties to determine the applicability of the release
agreements. Welsh essentially is “arguing that the arbitrator did not correctly interpret
the contracts in question[.] . . . [C]ourts must not decide the rightness or wrongness
of the arbitrators’ contract interpretation[.]” (Citation and punctuation omitted.) U.S.
Intermodal & Thunderbolt Express v. Ga. Pacific Corp., 267 Ga. App. 832, 833 (600
SE2d 800) (2004). Likewise, under the FAA, because the parties
bargained for the arbitrator’s construction of their agreement . . . an arbitral decision even arguably construing or applying the contract must stand, regardless of the court’s view of its demerits. Thus, the sole question a court should ask under the exacting standards of § 10 (a) (4) is whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.
(Citation and punctuation omitted.) Southern Communications Svcs., Inc. v. Thomas,
720 F.3d 1352, 1358-1359 (II) (A) (11th Cir. 2013). Even if the arbitrator made a
factual error, “an arbitration award cannot be set aside for mistakes of fact made by
the arbitrator[.]” Scana Energy Marketing, Inc. v. Cobb Energy Mgmt. Corp., 259 Ga.
App. 216, 219 (1) (d) (576 SE2d 548) (2002). The same holds true under the FAA.
See Cat Charter, LLC, supra at 840 (I), n. 4 (noting that “the arbitrator’s improvident,
11 even silly, factfinding does not provide a basis for a reviewing court to refuse to
enforce the award”) (citation and punctuation omitted).
3. Berger asserts that the superior court erred in vacating the arbitration award
on the grounds that the arbitrator showed manifest disregard for the law pursuant to
OCGA § 9-9-13 (b) (5). We agree.
[T]he concept of manifest disregard has never been the equivalent of insufficiency of the evidence or a misapplication of the law to the facts It is a much narrower standard, requiring a showing in the record, other than the result obtained, that the arbitrators knew the law and expressly disregarded it. Arbitrators must deliberately ignore applicable law to fall within the manifest disregard prohibition in OCGA § 9-9-13 (b) (5). Further, a finding of manifest disregard of the law requires (1) that the governing law alleged to have been disregarded is well defined, explicit and clearly applicable, and (2) proof that the arbitrator was aware of the law but decided to ignore it. Thus, an error in interpreting the applicable law does not constitute manifest disregard.
(Citations and punctuation omitted; emphasis in original). Brookfield Country Club,
Inc. v. St. James-Brookfield, LLC, 299 Ga. App. 614, 620-621 (3) (683 SE2d 40)
(2009) (Brookfield I), affirmed by Brookfield II, supra. The burden of showing that
both elements of manifest disregard of the law have been satisfied is on the party
seeking to vacate the award. Patterson, supra at 160 (1).
12 The superior court cited Carey, supra at 815-816 (1) for the proposition that the
law prohibits contract construction and requires arbitrators to enforce contracts
according to their plain terms when the contracts are unambiguous. The superior
court determined that “the Arbitrator announced his intention to ignore the plain and
unambiguous terms of the Release Agreements expressly releasing Welsh from
liability to Berger, both individually and in Welsh’s official capacity as a ‘past or
present’ Bear Stearns employee.” The trial court provides a citation to a specific
transcript page in support of its ruling. This transcript page shows the arbitrator, in
ruling on Welsh’s motion to dismiss, noted that the dispute was between the parties
“as individuals” but stated that he read the release as being directed at actions
“possibly exposing the firm to liability.”
Welsh points to this statement as showing the arbitrator’s stated intent to
“ignore” or impermissibly “interpret[]” the “unambiguous terms of the Release
Agreements[.]” Welsh argues that the releases unambiguously barred any claim
Berger had against him with their language releasing Bear Stearns as well as its
current and former employees from liability “whether as individuals or in their
official capacity.”
13 However, immediately following the arbitrator’s statement cited above and
with which Welsh takes issue, the arbitrator added, reading from the General Release,
Finally, I note on page 73 of the release that it says that Employee, however, does not intend to nor is Employee waiving any rights that may arise after the date that this agreement was signed. There has been an allegation that the agreement, if there was such an agreement between Mr. Berger and Mr. Welsh, was affirmed after the date that the release is signed. Therefore, I am going to deny the motion to dismiss.
Rather than showing a deliberate intent to ignore the plain language of the release
agreements, the statements above show that the arbitrator considered that language
in the context of the motion to dismiss, and denied the motion because he believed
at least some of the claims may have arisen after the release date and therefore were
excluded, by the plain terms of the release agreement, from its purview.
Again, the arbitrator’s order (as opposed to his ruling on the motion to dismiss)
states no legal or factual rationale underlying the award. Our Supreme Court, noting
that a showing of manifest disregard “is an extremely difficult one to make[,]” has
offered an example of an appropriate situation for such a finding, which
occurred only because the arbitration award itself made an explicit recital of the winning party’s argument that the correct law should be ignored rather than followed. In that case, proof of a manifest disregard
14 of the law was blatantly evident on the face of the award. In any other case, similarly clear evidence of the arbitrator’s intent to purposefully disregard the law is required.
(Citations omitted; emphasis supplied.) ABCO Builders, Inc. v. Progressive
Plumbing, Inc., 282 Ga. 308, 309 (647 SE2d 574) (2007). Such evidence is not
present here.
As for the FAA, it has no provision for vacatur that mirrors the GAC’s manifest
disregard standard.
Given that, in our circuit, we recognize neither an incorrect legal conclusion, nor a manifest disregard of the law, as grounds for vacating or modifying an award, we are left, under [9 USC] § 10 (a) (4), with a single question: did the arbitrator exceed his powers, or so imperfectly execute them that a mutual, final, and definite award upon the subject matter was not made?
(Punctuation omitted.) Southern Communications Svcs, supra at 1360 (II) (C). Given
our determination in Division 2, supra, “[t]he answer to that question is no.” Id. The
superior court’s vacatur of the arbitrator’s award must be reversed.
4. Berger argues that the superior court erred in ordering a rehearing on the
issue of Welsh’s arbitration-related attorney fees and expenses. We agree.
15 In ordering the rehearing, the superior court relied upon OCGA § 9-9-13 (e),
which provides that “[u]pon vacating an award, the court may order a rehearing and
determination of all or any of the issues[.]” (Emphasis supplied.) Given our reversal
of the superior court’s vacatur of the underlying award, as outlined in Divisions 2 and
3, the lower court’s basis for ordering a rehearing no longer exists.
5. Finally, Berger contends that the superior court erred in denying his motion
to confirm the arbitration award. We agree.
The GAC provides that a reviewing court “shall confirm an award upon
application of a party made within one year after its delivery to [the party], unless the
award is vacated or modified by the court as provided in [the GAC].” OCGA § 9-9-
12. Likewise, the FAA at 9 USC § 9 mandates that a reviewing court “must grant” an
application to confirm an arbitrator’s award unless the award is vacated as prescribed
in 9 USC § 10. Brookfield I at 618-619 (1). “There is nothing malleable about ‘must
grant[.]’” (Citation and punctuation omitted.) Id. at 619 (1).
Berger moved to confirm the award within the relevant time frame under both
statutes. Given our determinations in Divisions 2 - 4, supra, we find that the superior
court erred in denying the motion to confirm the award.
Judgment reversed and case remanded with instruction. Barnes, P. J., and
Miller, J., concur.