Magwell, LLC. v. Susan Wells-Wilson
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Opinion
THIRD DIVISION DOYLE, P. J., REESE and BROWN, 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. https://www.gaappeals.us/rules
DEADLINES ARE NO LONGER TOLLED IN THIS COURT. ALL FILINGS MUST BE SUBMITTED WITHIN THE TIMES SET BY OUR COURT RULES.
June 30, 2021
In the Court of Appeals of Georgia A21A0198. WELLS v. WELLS-WILSON. A21A0199. MAGWELL, LLC v. WELLS-WILSON. A21A0229. FIRST NOLIA ENTERPRISES, INC. v. WELLS- WILSON.
BROWN, Judge.
In these related appeals, D. Richard Wells, Magwell, LLC, and First Nolia
Enterprises, Inc. separately appeal from a trial court’s order vacating an arbitration
award and returning the case to the arbitrator for a limited rehearing.1 Each appellant
1 The trial court’s order “is deemed final for appeal purposes even though it is undisputed the case must be returned to the arbitrator for rehearing.” Amerispec Franchise v. Cross, 215 Ga. App. 669 (452 SE2d 188) (1994). See also OCGA § 9-9- 13 (e) (“Upon vacating an award, the court may order a rehearing and determination of all or any of the issues either before the same arbitrators or before new arbitrators appointed as provided by this part. . . . The court’s ruling or order under this Code section shall constitute a final judgment and shall be subject to appeal in accordance with the appeal provisions of this part.”). asserts altogether different enumerations of error, while also incorporating by
reference each of the enumerations of the other two appellants. We will therefore
combine the arguments and enumerations of error set forth in Case Nos. A21A0198,
A21A0199, and A21A0229 and address them as a whole below. The appellants
collectively assert ten enumerations of error regarding the arbitrator overstepping his
authority and manifestly disregarding the law in a variety of ways and alleged errors
in the trial court’s order for rehearing. For the reasons explained below, we affirm in
part, vacate in part, and remand these cases with direction.
The function of the trial court in proceedings to confirm or vacate an arbitration award should be severely limited in order not to frustrate the purpose of avoiding litigation by resorting to arbitration. Consistent with this policy, OCGA § 9-9-13 (b) of the Georgia Arbitration Code sets forth five exclusive statutory grounds for vacating an arbitration award upon the application of a party subject to the award:
(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 [the Georgia Arbitration Code], unless the party applying to vacate the award continued with the arbitration with notice of this
2 failure and without objection; or (5) The arbitrator’s manifest disregard of the law.
The fact that the relief was such that it could not or would not be granted by a court of law or equity is not ground for vacating or refusing to confirm the award.
The authority of courts to review an award, pursuant to a motion to vacate, is very limited; courts cannot inquire into the merits of an arbitrable controversy; arbitrators are free to award on the basis of broad principles of fairness and equity; and an arbitrator need not make findings or state the reasons in support of the award. [When] reviewing a motion to vacate, appellate courts cannot make determinations as to the sufficiency of the evidence, as such judicial intervention would only frustrate the purpose of arbitration. The prohibition against considering the sufficiency of the evidence as grounds for vacating an arbitration award is unconditional. Therefore, a reviewing court is prohibited from weighing the evidence submitted before the arbitrator, regardless of whether the court believes there to be sufficient evidence, or even any evidence, to support the award.
(Citations, punctuation, and footnote omitted.) A&M Hospitalities v. Alimchandani,
Ga. App. (3) (856 SE2d 704) (2021). “In reviewing a trial court’s order confirming
3 an arbitration award, this Court will affirm unless the trial court’s ruling was clearly
erroneous.” (Citation and punctuation omitted.) First Option Mtg. v. S&S Financial
Mtg. Corp., 322 Ga. App. 14 (743 SE2d 574) (2013). Our research revealed no
Georgia decision outlining a specific standard of appellate review of a trial court’s
order vacating an arbitrator’s award and ordering a rehearing under OCGA § 9-9-13
(e). The Eleventh Circuit Court of Appeals has stated generally with regard to the
standard of review: “On an appeal of a district court’s decision to confirm or vacate
an arbitration award, we review the district court’s resolution of questions of law de
novo and its findings of fact for clear error.” (Citation and punctuation omitted.) EGI-
VSR v. Mitjans, 963 F3d 1112, 1121 (III) (11th Cir. 2020). As this Eleventh Circuit
standard comports with numerous Georgia decisions that appear to apply a de novo
standard of review on questions of law without so stating,2 and clarifies the specific
circumstance under which we will reverse the trial court on the ground that it has
clearly erred,3 we will apply this standard of review in this case.
2 See, e.g., A&M Hospitalities, Ga. App. at (3); King v. King, 354 Ga. App. 19, 23-29 (2) (840 SE2d 108) (2020). 3 For example, a clearly erroneous standard of review should be applied when a trial court rules on a hotly contested issue regarding whether an arbitrator attempted to solicit business from one of the party’s attorneys during a recess in the arbitration. See Doman v. Stapleton, 272 Ga. App. 114, 118 (2) (611 SE2d 673) (2005).
4 As the relevant facts are complicated and the proceedings below convoluted,4
4 Our ability to ascertain the course of the proceedings in the arbitration has been made more difficult by how portions of the record from the arbitration were made a part of the record in the superior court. Rather than having correspondence, filings, and rulings transmitted in chronological order at one time, appellants filed piecemeal notices of filing that included multiple documents from the arbitration with new superior court exhibit numbers. The record index from the superior court then lists only a generic “Notice of Filing” for each such filing, even though each contains multiple different documents from the arbitration. See, e.g., “Notice of Filing Appendix of Exhibits (Volume 3)” filed below on February 24, 2020, followed by 14 separate exhibits spanning 178 pages of the record. To their credit, counsel for Richard Wells included a novel section in his appellate brief titled, “Citation to the Parts of the Record and Transcript Essential to this Appeal,” which appears to list some of the relevant documents in chronological order. The record also includes a list of “Selected Arbitration Filings” that was attached as an exhibit to a brief filed by Susan Wells-Wilson below.
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THIRD DIVISION DOYLE, P. J., REESE and BROWN, 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. https://www.gaappeals.us/rules
DEADLINES ARE NO LONGER TOLLED IN THIS COURT. ALL FILINGS MUST BE SUBMITTED WITHIN THE TIMES SET BY OUR COURT RULES.
June 30, 2021
In the Court of Appeals of Georgia A21A0198. WELLS v. WELLS-WILSON. A21A0199. MAGWELL, LLC v. WELLS-WILSON. A21A0229. FIRST NOLIA ENTERPRISES, INC. v. WELLS- WILSON.
BROWN, Judge.
In these related appeals, D. Richard Wells, Magwell, LLC, and First Nolia
Enterprises, Inc. separately appeal from a trial court’s order vacating an arbitration
award and returning the case to the arbitrator for a limited rehearing.1 Each appellant
1 The trial court’s order “is deemed final for appeal purposes even though it is undisputed the case must be returned to the arbitrator for rehearing.” Amerispec Franchise v. Cross, 215 Ga. App. 669 (452 SE2d 188) (1994). See also OCGA § 9-9- 13 (e) (“Upon vacating an award, the court may order a rehearing and determination of all or any of the issues either before the same arbitrators or before new arbitrators appointed as provided by this part. . . . The court’s ruling or order under this Code section shall constitute a final judgment and shall be subject to appeal in accordance with the appeal provisions of this part.”). asserts altogether different enumerations of error, while also incorporating by
reference each of the enumerations of the other two appellants. We will therefore
combine the arguments and enumerations of error set forth in Case Nos. A21A0198,
A21A0199, and A21A0229 and address them as a whole below. The appellants
collectively assert ten enumerations of error regarding the arbitrator overstepping his
authority and manifestly disregarding the law in a variety of ways and alleged errors
in the trial court’s order for rehearing. For the reasons explained below, we affirm in
part, vacate in part, and remand these cases with direction.
The function of the trial court in proceedings to confirm or vacate an arbitration award should be severely limited in order not to frustrate the purpose of avoiding litigation by resorting to arbitration. Consistent with this policy, OCGA § 9-9-13 (b) of the Georgia Arbitration Code sets forth five exclusive statutory grounds for vacating an arbitration award upon the application of a party subject to the award:
(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 [the Georgia Arbitration Code], unless the party applying to vacate the award continued with the arbitration with notice of this
2 failure and without objection; or (5) The arbitrator’s manifest disregard of the law.
The fact that the relief was such that it could not or would not be granted by a court of law or equity is not ground for vacating or refusing to confirm the award.
The authority of courts to review an award, pursuant to a motion to vacate, is very limited; courts cannot inquire into the merits of an arbitrable controversy; arbitrators are free to award on the basis of broad principles of fairness and equity; and an arbitrator need not make findings or state the reasons in support of the award. [When] reviewing a motion to vacate, appellate courts cannot make determinations as to the sufficiency of the evidence, as such judicial intervention would only frustrate the purpose of arbitration. The prohibition against considering the sufficiency of the evidence as grounds for vacating an arbitration award is unconditional. Therefore, a reviewing court is prohibited from weighing the evidence submitted before the arbitrator, regardless of whether the court believes there to be sufficient evidence, or even any evidence, to support the award.
(Citations, punctuation, and footnote omitted.) A&M Hospitalities v. Alimchandani,
Ga. App. (3) (856 SE2d 704) (2021). “In reviewing a trial court’s order confirming
3 an arbitration award, this Court will affirm unless the trial court’s ruling was clearly
erroneous.” (Citation and punctuation omitted.) First Option Mtg. v. S&S Financial
Mtg. Corp., 322 Ga. App. 14 (743 SE2d 574) (2013). Our research revealed no
Georgia decision outlining a specific standard of appellate review of a trial court’s
order vacating an arbitrator’s award and ordering a rehearing under OCGA § 9-9-13
(e). The Eleventh Circuit Court of Appeals has stated generally with regard to the
standard of review: “On an appeal of a district court’s decision to confirm or vacate
an arbitration award, we review the district court’s resolution of questions of law de
novo and its findings of fact for clear error.” (Citation and punctuation omitted.) EGI-
VSR v. Mitjans, 963 F3d 1112, 1121 (III) (11th Cir. 2020). As this Eleventh Circuit
standard comports with numerous Georgia decisions that appear to apply a de novo
standard of review on questions of law without so stating,2 and clarifies the specific
circumstance under which we will reverse the trial court on the ground that it has
clearly erred,3 we will apply this standard of review in this case.
2 See, e.g., A&M Hospitalities, Ga. App. at (3); King v. King, 354 Ga. App. 19, 23-29 (2) (840 SE2d 108) (2020). 3 For example, a clearly erroneous standard of review should be applied when a trial court rules on a hotly contested issue regarding whether an arbitrator attempted to solicit business from one of the party’s attorneys during a recess in the arbitration. See Doman v. Stapleton, 272 Ga. App. 114, 118 (2) (611 SE2d 673) (2005).
4 As the relevant facts are complicated and the proceedings below convoluted,4
4 Our ability to ascertain the course of the proceedings in the arbitration has been made more difficult by how portions of the record from the arbitration were made a part of the record in the superior court. Rather than having correspondence, filings, and rulings transmitted in chronological order at one time, appellants filed piecemeal notices of filing that included multiple documents from the arbitration with new superior court exhibit numbers. The record index from the superior court then lists only a generic “Notice of Filing” for each such filing, even though each contains multiple different documents from the arbitration. See, e.g., “Notice of Filing Appendix of Exhibits (Volume 3)” filed below on February 24, 2020, followed by 14 separate exhibits spanning 178 pages of the record. To their credit, counsel for Richard Wells included a novel section in his appellate brief titled, “Citation to the Parts of the Record and Transcript Essential to this Appeal,” which appears to list some of the relevant documents in chronological order. The record also includes a list of “Selected Arbitration Filings” that was attached as an exhibit to a brief filed by Susan Wells-Wilson below. While Richard Wells asserts in his brief that “[t]he record transmitted to this Court on appeal includes all arbitration transcripts, procedural orders, motions, and key correspondence,” our review of the record shows that all exhibits and filings before the arbitrator were not made a part of the record before the superior court. For example, the arbitrator’s “Second Interim Award and Injunction,” states that on January 3, 2020, Susan Wells-Wilson filed a “Reply Brief in Support of a Proposed Injunction,” but we cannot locate that brief in the record before us. Likewise, the documents referenced in the transcript by exhibit number are not included with the transcripts filed in the superior court. Susan Wells-Wilson’s counsel explained to the arbitrator on the first day of the hearing that there were “two volumes of claimant exhibits which were numbered 1 though 99,” along with a “joint exhibit binder which is a smaller one . . . [numbered] 1 to 11,” and a third binder of respondent exhibits numbered 1 through 14. As courts do not review the sufficiency of the evidence to support an arbitration award, Greene v. Hundley, 266 Ga. 592, 594, n.5 (468 SE2d 350) (1996), these record issues do not preclude our consideration of the grounds asserted to vacate the arbitrator’s award under the Georgia Arbitration Code in this particular case. Cf. Gainesville Mechanical v. Air Data, 350 Ga. App. 614 (829 SE2d 838) (2019); Patterson v. Long, 321 Ga. App. 157, 162 (1) (b) (741 SE2d 242)
5 we will provide a brief, initial overview before providing more detailed facts in our
analysis of each enumerated error. Richard Wells, Susan Wells-Wilson, and Linda
Palmer are siblings; their parents, now deceased, formed Magnolia Advanced
Materials, Inc. (“Magnolia”) which manufactures epoxies. Until 2008, the majority
of Magnolia’s stock was owned by non-party Nolia Enterprises, L.L.L.P. (“Nolia
Partnership”); its general partner was First Nolia Enterprises, Inc. (“First Nolia”). As
Richard Wells owned 100 percent of First Nolia’s stock, he “was able to control the
manner in which the Magnolia stock held by [the] Nolia [Partnership] was voted.”
In anticipation of a 2008 sale of Magnolia, the parties finalized an “Operating
Agreement” creating a new entity, Magwell, LLC, (“Magwell”) and naming First
Nolia as the initial manager of Magwell. On the same day, Nolia Partnership’s stock
was transferred to Magwell. The Operating Agreement provided for arbitration
pursuant to the “commercial arbitration rules then in effect of the American
Arbitration Association” and stated that the Operating “Agreement and the
(2013), disapproved on other grounds, Johns v. Suzuki Motors of America, 310 Ga. 159, 165-166 (4) (b) (850 SE2d 59) (2020). Compare Brazzel v. Brazzel, 337 Ga. App. 758, 762-763 (2) (a) (789 SE2d 626) (2016) (holding the superior court did not err by finding that the lack of a complete arbitration transcript was a basis for denying the motion to vacate based upon an arbitrator’s alleged failure to rule on a submitted issue).
6 application or interpretation hereof shall be governed exclusively by the laws of the
State of Georgia, without regard to its conflicts of law principles.” It was agreed to
by the Nolia Partnership as the “Initial Member” through First Nolia, the General
Partner of Nolia Partnership, and signed by Richard Wells, in his capacity as the chief
executive officer of First Nolia. The plan was for Magwell to be completely dissolved
after the sale and distribution of money. The sale never took place.
Following subsequent disputes between the siblings regarding voting rights,
Susan Wells-Wilson commenced a commercial arbitration in 2018, naming Richard
Wells, Linda Palmer, Magwell, and First Nolia as respondents. She asserted claims
for declaratory judgment, breach of contract, breach of the implied covenant of good
faith and fair dealing, and stubborn litigiousness under OCGA § 13-6-11. In her
prayer for relief, she sought damages, interest, attorney fees, and declaratory and
injunctive relief. She summarized her claim for arbitration as one
concern[ing] the rights of the members of Respondent Magwell . . . to vote the corporate stock that Magwell holds in a family-owned corporation named Magnolia . . . . Two of the Respondents in particular, First Nolia . . . and Ric[hard] Wells, have attempted to deprive . . . Susan Wells-Wilson [ ] of her rights to vote her ownership interests with respect to that stock in accordance with her ownership interests under the Magwell Operating Agreement. They, along with Magwell, have
7 also refused to recognize the new board of directors elected by the shareholders of Magnolia . . . at the annual shareholders meeting held on October 15, 2018.
After the arbitrator issued a Final Award on February 12, 2020, Susan Wells-
Wilson asked the Superior Court of Fulton County to confirm the arbitration award,
and Richard Wells, Magwell, and First Nolia counterclaimed with requests to vacate
the final award, as well as previous awards issued by the arbitrator.5 The Business
Case Division of the Superior Court of Fulton County subsequently issued a ten-page
order concluding that no statutory ground existed to vacate the arbitrator’s decision
regarding the contract issues presented by the parties. But, based upon its decision to
vacate that portion of the award which “effectively enjoins Magwell from retaining
and paying legal counsel to represent it in this matter,” as well as the portion that
“fails to identify the amount of fees and expenses incurred on behalf of each of the
Respondents,” the trial court vacated the entire arbitration award and ordered the
arbitrator to rehear only specific issues related to attorney fees and expenses that will
be discussed in more detail below. Richard Wells, First Nolia, and Magwell have
5 Although Linda Palmer was named as a respondent in Susan Wells-Wilson’s application to confirm, she did “not oppose [Susan Wells-Wilson]’s request,” and agreed that Susan Wells-Wilson “is entitled to the relief so requested.”
8 appealed from this order; Susan Wells-Wilson and Linda Palmer have filed separate
appellee briefs.
1. Alleged Untimeliness of Successive Awards. First Nolia contends that “[t]he
trial court erred when it did not specifically vacate successive arbitration awards
issued more than thirty days after the hearing closed.” It asserts that both the Georgia
Arbitration Code, OCGA § 9-9-1 et seq., and the American Arbitration Association
(“AAA”) Commercial Rules require an arbitrator to issue an award within 30 days
after a hearing closes.
The Georgia Arbitration Code “was designed to preserve and ensure the
efficacy and expediency of arbitration awards.” ABCO Builders v. Progressive
Plumbing, 282 Ga. 308 (647 SE2d 574) (2007). Except for certain exceptions not
applicable here, it applies to “all disputes in which the parties thereto have agreed in
writing to arbitrate and shall provide the exclusive means by which agreements to
arbitrate disputes can be enforced.” OCGA § 9-9-2 (c). “A trial court shall vacate an
arbitration panel’s award only if it finds that a party was prejudiced by one of four
bases, including an ‘overstepping by the arbitrators of their authority.’ OCGA § 9-9-
13 (b) (3). [Cit.]” Conmac Corp. v. Southern Diversified Dev., 245 Ga. App. 895, 896
(1) (a) (539 SE2d 532) (2000). OCGA § 9-9-10 (b) provides:
9 An award shall be made within the time fixed therefor by the agreement or, if not so fixed, within 30 days following the close of the hearing or within such time as the court orders. The parties may extend in writing the time either before or after its expiration. A party waives the objection that an award was not made within the time required unless he notifies in writing the arbitrators of his objection prior to the delivery of the award to him.
In this case, the trial court found “no support for [appellant]s’ contention that their
rights were prejudiced by failure on the part of the arbitrator to follow proper
procedure.”
Before addressing the arguments raised by First Nolia, we will first examine
the procedural history of the arbitrator’s awards. On December 18, 2018, the
arbitrator held an initial case management conference attended by a representative of
AAA, Richard Wells, and attorneys representing Susan Wells-Wilson, Linda Palmer,
Richard Wells, Magwell, and First Nolia. All counsel agreed that the arbitrator had
“jurisdiction over the dispute in its current form” and that all parties were bound by
“the arbitration provision.”
“Procedural Order 1,” issued by the arbitrator on December 21, 2018, included
the following directives: “To the extent additional matters are put in issue, the Parties
may make a timely challenge to the jurisdiction of the Arbitrator over any additional
10 claims or defenses”; “Subject to Rule 6,” Susan Wells-Wilson was required to file a
motion to seek leave “to amend her statement of claim”; “The Arbitrator will issue
a written award in accordance with the Rules”; “The Arbitrator currently
contemplates that an interim award will first be made after which submissions
regarding attorneys fees and any other remaining matters will be made”; “In the final
award, the Arbitrator will resolve all issues raised by the Parties and shall present
findings of fact and conclusions of law in support of his conclusions”; “The parties
will have until January 7, 2019 to object or seek amendment to this Procedural Order
1.” (Emphasis supplied.) Appellants point to no objection to Procedural Order 1 in
the voluminous record before us.6
6 In an affidavit submitted in connection with appellants’ request that the trial court vacate the arbitration award, their counsel averred: At the preliminary conference, the parties discussed that the arbitrator would render an award on the merits and reserve the calculation of attorneys’ fees until after the award was entered. The first award was to include a ruling on the merits and the entitlement to attorneys’ fees. No mention was ever made of the arbitrator retaining jurisdiction following the merits award to award additional relief or to take additional briefing except as to the subject of attorneys’ fees. Magwell, First Nolia, and Wells did not agree to allow the arbitrator to continue jurisdiction for additional briefing and to award injunctive relief.
11 The arbitrator held evidentiary hearings on July 22, 2019 through July 24, 2019
and October 1, 2019. After the parties finished presenting evidence on October 1,
2019, the arbitrator advised that he
contemplate[d] that [he] will issue an interim award that deals with the various issues pertaining to the merits and also deals with attorneys’ fees, at least the entitlement to attorneys’ fees but not the amount of attorneys’ fees. . . . We’ll set aside the amount of attorneys’ fees for later. And we can discuss at the appropriate time how that’s done. My own hope is that you can simply exchange paperwork, exchange your billing records and make a decision — you know, come to an agreement about what’s reasonable. But if we have to have an evidentiary hearing about the amount of attorneys’ fees, we can schedule that. Does that work for everybody?
Counsel for the parties then agreed. On October 2, 2019, the parties presented oral
argument, and the arbitrator stated again at the end of the hearing that he would try
to prepare an “interim award” by the end of November. “And then at that point there
will be some disposition made of the attorneys’ fees issues as well as other issues in
the case, the merits issues.” Nothing was mentioned at the end of this hearing as to
whether it would remain open or closed. Later that day, the arbitrator sent an email
to counsel stating: “The evidentiary hearing on the merits is complete and the parties
12 have rested. . . . I plan to prepare a partial award dealing with the merits of the dispute
and the entitlement to attorneys’ fees.”
On November 14, 2019, an administrative representative of AAA sent a letter
to the parties via email stating:
The hearings are declared closed as of November 1, 2019 and the Arbitrator shall have until December 2, 2019 to render the Interim Award referenced in the Arbitrator’s email of October 2, 2019. Please be reminded any direct exchange with the Arbitrator is terminated. All communications shall be directed to the AAA.
(Punctuation omitted.) The letter indicates that the arbitrator was provided with a
copy of it. On the same day, joint counsel for Richard Wells, Magwell, and First
Nolia sent the following email to the AAA representative: “I have one question for
clarification. We had understood that [the arbitrator] would issue an interim award
on the merits and entitlement to attorneys’ fees, and then decide attorneys’ fees
thereafter, culminating in a final award. Does that require the record to remain open
to decide the fee issue?” The arbitration representative replied, “The Interim Award
will allow for the submittal of any submissions [the arbitrator] requests.”
On November 27, 2019, the arbitrator issued a 53-page decision titled “Interim
Award,” with an introduction stating:
13 This Interim Award disposes of issues related to entitlement to declaratory and injunctive relief, damages[,] and attorney’s fees. Based on the record and submission[s] of counsel and for the reasons discussed below, I find that clear and convincing evidence supports declaratory and injunctive relief and an award of legal expenses in favor of the Claimant. The form of any injunctive relief and the amount of attorneys’ fees to be awarded will need to be determined based on additional submissions and, if necessary, after additional hearings. Jurisdiction is retained pending a final award.
On the final pages of the Interim Award in a section titled “Relief,” the arbitrator
stated, in pertinent part:
1. Susan is entitled to the following declaration: The right to vote shares in Magnolia . . . owned by . . . Magwell . . . belongs to the owners of Magwell in proportion to their ownership.
2. The question of injunctive relief, if any, regarding the enforcement of this declaration, including as it relates to item 5 below, is deferred.
...
4. In accordance with Section 10.11 of the Operating Agreement [the arbitration clause] , Susan is entitled to an award of attorneys’ fees and expenses against Rick together with fees and charges
14 paid and advanced to the [AAA]. A determination of the amount to be paid by Rick to Susan is deferred.
5. Rick is not entitled to indemnity or payment of costs, advances, fees, or expenses under Section 6.05 of the Operating Agreement. Rick will be required to reimburse Magwell to the extent he has charged Magwell for costs, advances, fees or expenses related to this arbitration. This reimbursement will inure to the benefit of all Magwell unit holders, including Linda.
6. Directions and dates for further proceedings are being provided in a contemporaneous procedural order.
7. Jurisdiction is retained pending a final award.
(Footnote and emphasis omitted.)
“Procedural Order 5,” issued on the same date as the Interim Award, set dates
for the parties to submit briefs regarding “a draft form of injunction, including but not
necessarily limited to the restoration of funds to Magwell, LLC,” as well as a January
2, 2020 deadline for the parties to report to the arbitrator as to whether the parties
believed a hearing was necessary with regard to the form of the injunctive relief, and
a provisional hearing date of January 7, 2020. Based upon his assumption that
attorney fees and expenses were “continuing to accrue,” the arbitrator stated that a
15 determination of the amount of attorney fees and expenses of arbitration, would be
deferred until the form of injunctive relief had been determined.
Fourteen days later, on December 9, 2019, Susan Wells-Wilson submitted a
proposed form of injunctive relief and asked “that the declaration in the Interim
Award be clarified to ensure that the right to vote Magnolia stock owned by Magwell
rests with its members in proportion to their respective ownership interests.”
(Emphasis supplied.) The arbitrator stated in the Interim Award that “[t]he right to
vote shares in Magnolia . . . owned by . . . Magwell . . . belongs to the owners of
Magwell in proportion to their ownership.” (Emphasis supplied.) Later that month,
appellants filed objections to Susan Wells-Wilson’s request for clarification, citing
OCGA § 9-9-11, the portion of the Georgia Arbitration Code section outlining the
grounds and timing for a modification of an arbitration award. On December 30,
2019, the arbitrator issued an order captioned “Disposition of Application for
Clarification of Interim Award and Amended Interim Award” and ordered that “the
Interim Award is amended to replace ‘owners’ in paragraph 1 on page 52 with
‘Members.’ Otherwise the Interim Award is not altered at this time. The amended
language will appear in a final award. Jurisdiction is retained pending a final award.”
16 On December 20, 2019, the appellants objected “to the Arbitrator’s continuing
jurisdiction to award substantive relief on the merits of this case in the form of
specific injunctive relief.” They pointed out that they already had “addressed
injunctive relief in post-hearing briefs” and that “the [a]rbitrator failed to render a
complete decision on the merits by failing to determine the scope and substance of
any . . . injunctive relief to be granted.” In their view, the arbitrator’s continuing
jurisdiction was limited to the calculation and award of attorney fees.
On January 7, 2020, the arbitrator held a hearing, addressing in large part
whether a bond would be required if a portion of the injunctive relief requested by
Susan Wells-Wilson were granted, and if so, an appropriate amount. The parties also
presented abbreviated argument regarding the proposed injunction submitted by
Susan Wells-Wilson. On January 13, 2020, the arbitrator issued a “Second Interim
Award and Injunction” explaining that his November 27, 2019 Interim Award
“disposed of issues related to entitlement to declaratory and injunctive relief, damages
and attorneys’ fees . . . and that [t]his Second Interim Award and Injunction deals
with the form of injunction. The amount of attorneys’ fees and expenses being
awarded remains deferred. Jurisdiction is retained pending a final award.” It then
discussed the propriety of seven proposed injunctions submitted by Susan Wells-
17 Wilson. As noted by the arbitrator, “[t]he Magwell Respondents, while declining to
propose language for an injunction and maintaining that no injunction should be
issued, have offered various arguments in opposition to the issuance of an injunction
in the form suggested by Claimant.” The arbitrator then adopted some of Susan
Wells-Wilson’s proposed injunctions verbatim, modified some, and declined to give
one. In his analysis of the proposed injunction, the arbitrator explained:
The Interim Award noted that the denial of Claimant[‘]s rights under Section 6.01 of the Operating Agreement breached the Agreement. The Interim Award also noted that there is therefore no right to reimbursement of fees and expenses under Section 6.05 [indemnity of Managers] of the Operating Agreement and that funds should be restored to Magwell. . . . I do not believe that Mr. Wells has any entitlement to reimbursement under . . . the Operating Agreement for the simple reason that he is not a Manager. Nor do I believe First Nolia is entitled to reimbursement because, to the extent it has acted, it has acted through Mr. Wells and hence, like Mr. Wells, First Nolia is in breach of the Operating Agreement.
He then issued six injunctive orders relating to the right of Magwell’s members to
vote the shares of Magnolia stock owned by Magwell, the reimbursement of costs,
advances, fees, and expenses paid by Magwell related to the arbitration, and the
distribution of such recouped amounts to Magwell’s owners.
18 On February 12, 2020, based upon an affidavit from Susan Wells-Wilson’s
attorney establishing the amount of attorney fees and expenses and the appellants’
decision to agree to the reasonableness and sufficiency of the evidence to support an
award of $805,644.71, the arbitrator issued a “Final Award” incorporating its
previous awards and ordering Richard Wells to pay attorney fees in the amount of
$805,644.71. Each of the appellants reserved objection to an award of attorney fees
to Wells-Wilson generally.
Having summarized the procedural history surrounding the arbitrator’s awards,
we will now consider whether the trial court erred by failing to vacate the final three
awards on the grounds that they were issued more than 30 days after November 1,
2019, the date appellants contend the hearing was closed.
(a) December 30, 2019 Amended Interim Award. The Georgia Arbitration Code
provides a mechanism for an arbitrator to correct “a mistake in a description of any
person, thing, or property referred to in the award.” OCGA § 9-9-11 (a) (1). In an
order addressing the appellants’ objection to Susan Wells-Wilson’s request to clarify
the use of the word “owners” rather than “Members” in his November 27, 2019
Interim Award, the arbitrator explained that he used the word “owners” on one
occasion in the 53-page Interim Award and the word “Members” on five other
19 occasions; thus, he concluded that this was a mistake that could be corrected pursuant
to OCGA § 9-9-11 (a) (1). He also determined that “[w]hen the language is read in
the context of the Interim Award, I do not believe anyone could be misled by this
error.”
While First Nolia asserts this was an improper modification of the Interim
Award, we disagree. In our view, the arbitrator was authorized to issue an appropriate
and timely change to the award pursuant to OCGA § 9-9-11 (a) (1) (arbitrator may
change award to correct a mistake in the description of a person), and he did so within
the time allowed by OCGA § 9-9-11 (b) (3) (30 days after service of any objection
to request for change in award).
(b) January 13, 2020 Second Interim Award and Injunction. Appellants’
argument that this award should be set aside is fourfold: (1) after the Interim Award
was issued on November 27, 2019, the arbitrator “lost jurisdiction to do anything
other than calculate attorney’s fees” based upon the doctrine of functus officio; (2) the
arbitrator was not authorized to make substantive modifications to the November 27,
2019 Interim Award; (3) the arbitrator overstepped his authority by ignoring the
parties’ agreement about how the case was to proceed; and (4) it must be vacated
20 because it was issued more than 30 days after the close of the hearing on November
1, 2019.
(i) Functus officio. While our research has revealed no Georgia decision
applying the functus officio doctrine in the arbitration context, federal courts have
done so. See, e.g., SBC Advanced Solutions v. Communications Workers of America,
District 6, 794 F3d 1020, 1031 (II) (B) (8th Cir. 2015). As the Eleventh Circuit Court
of Appeals has explained: “This common law rule (meaning ‘task performed’)
provides that, while an arbitrator may correct clerical, typographical, or
computational errors in a final award, he has no power to revisit the merits of the
award after it has issued.” Intl. Brotherhood of Electrical Workers, Local Union 824
v. Verizon Florida, 803 F3d 1241, 1245 (I) (11th Cir. 2015). In Verizon Florida, the
Eleventh Circuit concluded that “regardless of the viability (or advisability)[7] of
functus officio as a matter of common law, [AAA] Rule 40[8] operated in precisely the
7 The Eleventh Circuit “recognize[d] that some courts have been critical of the doctrine and have opined that an arbitrator should have the inherent power to reconsider his award within a reasonable period of time. Nevertheless, it has never been abrogated by any court of which we have been made aware.” (Citations and footnote omitted; emphasis in original.) Verizon Florida, 803 F3d at 1247-1248 (III). 8 AAA Commercial Rule 50 is identical to the AAA Rule 40 cited by the Eleventh Circuit, and provides, in pertinent part: “The arbitrator is not empowered to redetermine the merits of any claim already decided.”
21 same manner and precluded the arbitrator here from revisiting the merits of the
original award after it was issued.” Id. at 1248 (III). Notably, the Eleventh Circuit
rejected an argument that an exception to functus officio for non-final awards should
be applied based upon the Eleventh Circuit’s conclusion that the particular award
before it was “a final adjudication.” Id. at 1247 (III), n.7.
In this case, even if we were to assume, without deciding, that the docrine of
functus officio applies to arbitration proceedings in Georgia, the arbitrator’s
November 27, 2019 Interim Award expressly states that the arbitrator had not yet
determined the form of injunctive relief. Thus, it was not a final award to which the
doctrine should be applied. See generally Ramirez v. Dept. of Homeland Security, 975
F3d 1342, 1348-1349 (I) (Fed. Cir. 2020) (noting “that the finality of an otherwise
interim award depends at least in part on whether the award states that it is final and
whether the arbitrator so intended”). Accordingly, we reject the appellants’ argument
that the trial court should have vacated the January 13, 2020 Second Interim Award
and Injunction based upon the doctrine of functus officio.
(ii) Alleged Substantive Modification. First Nolia contends that the arbitrator
substantively modified the original award by finding First Nolia and Magwell
breached the Operating Agreement for the first time in the January 13, 2020 Second
22 Interim Award and Injunction. In its view, this Court should construe OCGA § 9-9-10
(b) and § 9-9-11 together to find that the arbitrator “modified” the award in a manner
not authorized by the Georgia Arbitration Code, thereby mandating that it be vacated.
First Nolia does not link this particular argument to one of the five statutory grounds
for vacating an arbitrator’s award, asserting instead that the arbitrator’s approach in
this case “cannot be squared” with this Court’s decisions in Kent v. Mitchell, 319 Ga.
App. 115 (735 SE2d 110) (2012), and Conmac Corp., supra.
The appellants’ citation to Kent is misplaced as that case does not address an
arbitrator’s authority. Instead, it held that a trial court was not authorized to make a
substantive change to an arbitration award, i.e., changing the party against whom the
award was made from a professional corporation to an individual when the individual
was never a party to the arbitration. Id. at 116. As the arbitrator pointed out in this
case, all of the parties to the arbitration were members of Magwell in addition to
being owners.
Our decision in Conmac Corp., supra, is likewise inapposite. In Conmac, the
arbitration panel issued a final award which expressly stated that it “was ‘in full
settlement’ of all claims that had been submitted” and denied all claims other than a
monetary award. 245 Ga. App. at 895-896 (1) (b). In that particular circumstance, we
23 concluded that the arbitrator had overstepped his authority by modifying a final award
in a manner not authorized by OCGA § 9-9-11 (a). Id. at 897 (1) (b). Here, however,
the arbitrator’s award expressly provided that it was interim and not complete.
To the extent First Nolia’s brief can be construed as arguing that the trial court
should have vacated the Second Interim Award and Injunction on the ground that the
arbitrator “fail[ed] to follow the procedure of [The Georgia Arbitration Code],”
OCGA § 9-9-13 (b) (4), we note that this ground does not apply if “the party applying
to vacate the award continued with the arbitration with notice of this failure and
without objection.” OCGA § 9-9-13 (b) (4). In this case, the arbitrator’s December
21, 2018 Procedural Order 1, to which no party objected, states: “The arbitrator
currently contemplates that an interim award will first be made after which
submissions regarding attorneys fees and any other remaining matters will be made.”
(Emphasis supplied.) The time for appellants to object to the arbitrator’s proposal to
issue interim awards was long before the arbitrator issued his first Interim Award.
The arbitrator asked that objections be made to Procedural Order 1 by January 7,
2019, and the record contains no evidence that appellants objected to the arbitrator
issuing interim awards by that date or prior to the delivery of the First Interim Award
to them. See OCGA § 9-9-10 (b) (“A party waives the objection that an award was
24 not made within the time required unless he notifies in writing the arbitrators of his
objection prior to the delivery of the award to him.”). Based upon the particular facts
and circumstances of this case, we conclude that OCGA § 9-9-10 (b) did not require
the arbitrator to issue a final award within 30 days following the purported close of
the hearing on November 1, 2019.
(iii) Alleged Overstepping. First Nolia contends the arbitrator “overstepped his
authority [by] ignor[ing] the parties’ agreement about how the case was to proceed.”
One of the statutory grounds for vacating an arbitrator’s award is when there has been
“[a]n overstepping by the arbitrators of their authority.” OCGA § 9-9-13 (b) (3). As
the Supreme Court of Georgia has explained, this statutory “ground only comes into
play when an arbitrator determines matters beyond the scope of the case.” (Emphasis
supplied.) Progressive Data Systems v. Jefferson Randolph Corp., 275 Ga. 420, 421
(568 SE2d 474) (2002). “Thus, this ground does not apply where an issue is properly
raised before the arbitrator.” (Citation and punctuation omitted.) Berger v. Walsh, 326
Ga. App. 290, 293 (2) (756 SE2d 545) (2014). In this case, the parties’ arbitration
agreement authorized the arbitrator to resolve “[a]ny dispute, controversy[,] or claim
arising out of or in connection with, or relating to, [the Operating Agreement] or any
25 breach or alleged breach [thereof]. . . .” As the arbitrator’s authority comes from the
arbitration agreement, we find no merit in this argument.9
(iv) Issued Over 30 Days after Interim Award. With regard to the appellants’
argument that the January 13, 2020 Second Interim Award and Injunction should
have been vacated under OCGA § 9-9-10 (b) because it was issued more than 30 days
after the close of the hearing, we find no merit in this contention for the reasons
outlined in Division 1 (b) (ii) above.
(c) February 12, 2020 Final Award. Based upon the appellants’ consent to the
bifurcation of the amount of attorney fees, we find that the timing of the final award
did not violate OCGA § 9-9-10 (b). Nor do we find any prejudice to appellants based
upon the arbitrator’s incorporation of previous interim awards into the final award.
See Buchholz v. West Chester Dental Group, No. CA2007-11-292, 2008 Ohio App.
LEXIS 4450 *4 (Ohio Ct. App. October 13, 2008) (lower “court correctly noted that
9 To the extent First Nolia asserts the arbitrator overstepped his authority by failing to follow the AAA Commercial Rules, we note that Rule 8 provides: “The arbitrator shall interpret and apply these rules insofar as they relate to the arbitrator’s powers and duties.” In a December 30, 2019 Memorandum and Order, the arbitrator rejected the appellants’ contention that he lacked jurisdiction to award injunctive relief and concluded that his approach was “indicated by the circumstances of this case and well within my discretion under the rules. The Objections to jurisdiction to render injunctive relief are denied and overruled.”
26 in order to vacate the arbitrator’s award, it was required to find that appellant was
prejudiced by the arbitrator’s delay in providing the decision, and not merely by the
decision itself”) (emphasis in original).
2. Proper Parties to Arbitration. Richard Wells asserts that the trial court erred
by failing to vacate the arbitrator’s decision because members of Magwell, such as
himself, were not proper parties to an arbitration seeking a declaratory judgment
about the Operating Agreement of Magwell. He contends that the arbitrator
manifestly disregarded the law in this regard. For the reasons explained below, we
disagree.
[T]o prove that a manifest disregard of the law has occurred, a party wishing to have an arbitration award vacated must provide evidence of record that, not only was the correct law communicated to an arbitrator, but that the arbitrator intentionally and knowingly chose to ignore that law despite the fact that it was correct. . . . [T]his showing is an extremely difficult one to make. . . . [C]lear evidence of the arbitrator’s intent to purposefully disregard the law is required. That is, there must be concrete evidence of this intent either in the findings of the arbitrator, if he or she chooses to make such findings, or in the transcript of the arbitration hearing, if the parties choose to have the hearing transcribed.
27 ABCO Builders, 282 Ga. at 309. An arbitrator “that incorrectly interprets the law has
not manifestly disregarded it. It has simply made a legal mistake.” (Citation and
punctuation omitted.) Id.
Richard Wells contends that “this case is about whether the LLC or its
members may vote LLC-owned stock, nothing more.” Susan Wells-Wilson asserts in
her brief that the exclusion of Richard Wells and First Nolia from the arbitration
would allow them to oppose any effort to enforce any declaration or injunction she
obtained against Magwell “precisely because they were non-parties. Cf. OCGA § 9-4-
7 (a) (‘No declaration shall prejudice the rights of persons not parties to the
[declaratory] proceeding.’).” (Emphasis omitted.) She also contends that Richard
Wells “was also sued as a party to the Operating Agreement, not just as a passive
member of Magwell.” Additionally, she points out that “this is a case about which of
Magwell’s members have the right to vote the LLC-owned stock: all of the members
(including majority owners Susan [Wells-Wilson] and Linda [Palmer]), or only the
member-manager (i.e., First Nolia, which is controlled by another member, Ric[hard]
Wells).” (Emphasis in original.)
Before addressing whether the arbitrator manifestly disregarded the law by
keeping Magwell members in the declaratory judgment portion of the arbitration, we
28 will outline additional details about the parties’ dispute. On the same day that
Magwell was formed in 2008, each of the siblings, as limited partners, and First
Nolia, as the general partner, signed a “Consent of Partners to Restructuring and
Transfers” according to which Nolia Partnership’s shares of stock in Magnolia were
transferred to Magwell in exchange for 100 percent of the ownership interests of
Magwell; 1,000 ownership units of Magwell were transferred to the partners of the
Nolia Partnership in proportion to their ownership of the Nolia Partnership.
Accordingly, First Nolia, as general partner, owned 10 units, and each of the three
siblings owned 330 units, of Magwell. The Operating Agreement of Magnolia
specified that First Nolia, would be its initial manager and stated:
The business and affairs of the Company [Magwell] shall be managed by the Managers [First Nolia]. Except as otherwise expressly provided in this Agreement, the Managers [First Nolia] shall have full and complete authority, power, and discretion, acting in a fiduciary capacity, to manage and control the business, affairs and properties of the Company [Magwell], to make all decisions regarding those matters and to perform any and all other acts or activities customary or incident to the management of the Company’s [Magwell] business. Notwithstanding the foregoing, or any other provision of this Agreement, if a Manager [First Nolia], or any other person authorized to act on behalf of a Manager [First Nolia], transfers stock in a corporation which is a “controlled corporation” within the meaning of Code Section 2036 (b)
29 (2) [of the Internal Revenue Code of 1986] to the Company [Magwell], the right to vote with respect to such stock shall be exercised by the Members in proportion to their Ownership interests from time to time, and not by the Manager [First Nolia] (except to the extent of the Manager’s Ownership Interest).
(Emphasis supplied.) Operating Agreement, § 6.01. As the arbitrator explained in his
November 27, 2019 Interim Award, the outcome of the arbitration hinged on whether
the transfer condition in the italicized language above occurred (hereinafter “6.01
Condition”). Susan Wells-Wilson contended that such a transfer occurred when First
Nolia, which is owned and controlled by Richard Wells,10 transferred the Nolia
Partnership stock in Magnolia to Magwell. In her view, persons holding membership
interests in Magwell are therefore entitled to vote their Magwell shares in Magnolia
at Magnolia board elections.
Susan Wells-Wilson submitted her claim for arbitration after she attempted to
vote the Magnolia shares she and Linda owned through Magwell at a 2018 Magnolia
shareholders meeting. According to her claim for arbitration, Richard Wells, First
Nolia, and Magwell “refused to recognize the legitimacy of the shareholders vote”
10 Richard Wells is the CEO, CFO, and president of First Nolia, in addition to being the majority owner.
30 and Richard Wells “purported to vote all of Magwell’s shares of Magnolia stock in
favor of himself [and another] to continue serving as Magnolia’s only directors.”
Richard Wells then “ignored her objection [to his actions] and adjourned the
shareholders meeting.” Richard Wells is the chair and secretary of Magnolia.
With an understanding of the context for Susan Wells-Wilson’s arbitration
claim, we now consider Richard Wells’ assertion that the arbitrator manifestly
disregarded the law by deciding members of the LLC were proper parties to the
arbitration. In support of this assertion, he points to OCGA § 14-11-1107 (j), which
provides:
A member of a limited liability company is not a proper party to a proceeding by or against a limited liability company, solely by reason of being a member of the limited liability company, except:
(1) Where the object of the proceeding is to enforce a member’s right against or liability to the limited liability company; or
(2) In a derivative action authorized by Article 8 of this chapter.
(Emphasis supplied.) He asserts that even though he made the arbitrator aware of this
Code section, the arbitrator “ignored it.” The record of the proceedings before the
arbitrator shows that Richard Wells cited this Code section in one line of his
31 “Dispositive Motion,” which raised six separate grounds to dismiss all of Susan
Wells-Wilson’s claims in the arbitration. He argued that Susan Wells-Wilson could
circumvent OCGA § 14-11-1107 (j) only if she showed “cause to pierce the limited
liability company’s veil to go directly after Wells.”
In her response brief in opposition, Susan Wells-Wilson asserted that
“[s]electively dismissing some of th[e] parties in an arbitration that is likely to affect
the rights of all Magwell members would be a waste of time and would only increase
the likelihood of subsequent litigation.” She also reiterated that “the question is not
whether the members can be held individually liable for Magwell’s debts under some
sort of veil-piercing theory[.]” After the parties argued the issue in a hearing before
the arbitrator, the arbitrator issued a 12-page “Order and Opinion.” The arbitrator
described the motion before him as seeking dismissal of all four counts in Susan
Wells-Wilson’s statement of claim in the arbitration, and concluded that “[t]he motion
is granted as to Count III; it is denied as to Counts I, II[,] and IV.” The order does not
explicitly address the argument appellants made with regard to OCGA § 14-11-1107
(j).
In his brief before this Court, Richard Wells focuses primarily upon the merits
of whether he was a proper party to the arbitration and devotes little attention to
32 showing how the arbitrator manifestly disregarded the law below. The arbitrator’s
order on the dispositive motion was silent with regard to OCGA § 14-11-1107 (j) as
a grounds to dismiss Richard Wells from the arbitration, but did address whether
dismissal of each claim asserted by Susan Wells-Wilson was warranted. Based upon
the particular facts and circumstances of this case, we cannot say that the arbitrator
manifestly disregarded the law by failing to specifically address OCGA § 14-11-1107
(j) in the proceedings before him. As the United States District Court of the Southern
District of New York has pointed out, “an arbitrator’s silence on a point does not
necessarily equate to a finding of his having correctly understood and stated the law
and then having proceeded to ignore it in its application.” Dunhill Franchisees Trust
v. Dunhill Staffing Systems, 513 FSupp.2d 23, 32 (II) (A) (2) (S.D. N.Y. 2007). See
also Bunzl Distrib. USA v. Dewberry, 16 Fed. Appx. 519, 522 (8th Cir. 2001) (“While
the arbitrator elected to issue a written decision in this case, he didn’t specifically
discuss the burden of proof under Missouri law. It therefore cannot be said that it
clearly appears that the arbitrator identified applicable law and proceeded to reach a
contrary position in spite of it.”) (citation and punctuation omitted); Intl. Longshore
and Warehouse Union, Local 142 v. Grand Wailea Resort & Spa, No. 12-00708
ACK-RLP, 2013 U.S. Dist. LEXIS 129175 * 47 (II) (B) (D.Hi. September 10, 2013)
33 (“The Court is not allowed to interpret the Arbitrator’s silence as a manifest disregard
of the law.”).
3. Alleged Personal Liability for Breach of Contract. Richard Wells asserts that
the trial court erred when it authorized the arbitrator to impose breach of contract
liability on Magwell members and managers individually. In his view, the arbitrator
manifestly disregarded the law and overstepped his authority by holding Richard
“Wells personally responsible when Magwell (through First Nolia) refused to
distribute its votes to the Magwell member.”
Once again, additional facts will be recounted before addressing this claim of
error. In her claim before the arbitrator, Susan Wells-Wilson asserted, among other
claims for relief, that Richard Wells and First Nolia “breached the Operating
Agreement by refusing to recognize [her] right to vote 33% of the shares of Magnolia
Stock held by Magwell, based upon her 33% ownership interests in Magwell,” as well
as her right to vote Linda Palmer’s comparable ownership interests as Palmer’s proxy.
She sought “specific performance to enforce her rights under the Operating
Agreement,” as well as damages based upon the costs and expenses of the arbitration
pursuant to the arbitration clause in the Operating Agreement.
34 As outlined above, Richard Wells filed a dispositive motion that sought
dismissal of Susan Wells-Wilson’s breach of contract claim against him, in part,
based upon the same arguments he now asserts on appeal. In his order on the
dispositive motion, the arbitrator concluded that based upon “the current state of the
record, I believe the breach of contract count can be maintained.” In the November
27, 2019 Interim Order addressing the merits, the “Relief” portion of the order
included no finding that Richard Wells is personally liable to Susan Wells-Wilson for
breach of contract. While the arbitrator mentioned in his rendition of the facts that
Richard Wells, “as Magnolia secretary, refused to recognize the votes” of Susan
Wells-Wilson and concluded that Richard Wells was not entitled to indemnity under
Section 6.05 of the Operating Agreement11 because his “actions were in violation and
breach of the Operating Agreement,” we cannot say from our review of the
11 This Section provides in part: To the fullest extent permitted under Section 14-11-306 . . . or any successor statute, the Company [Magwell] shall indemnify . . . the Managers . . . in respect to any liabilities, damages, losses, costs or expenses incurred by the Managers as a result of any act or omission believed by the Managers in good faith to be within the scope of authority conferred upon them by this Agreement, provided such act or omission was not . . . a transaction for which a Manager received a personal benefit in violation or breach of the provisions of this Agreement or the Manager’s obligations to the Company [Magwell].
35 arbitrator’s order that the arbitrator found Richard Wells personally liable for breach
of contract. Nor does our review of the Final Award reveal any such finding by the
arbitrator.12
Richard Wells asks this Court to nonetheless overturn the trial court’s order
because it did not specifically address a non-existent finding by the arbitrator and
because its remand direction did not advise “the arbitrator that Wells was not
individually liable for a breach of contract. . . .” As the record fails to support Richard
Wells’ contention that the arbitrator manifestly disregarded the law or overstepped
his authority, we find no merit in this enumeration of error.
4. Lack of Damages for Alleged Breach of Contract. Richard Wells asserts that
the trial court should have vacated the arbitrator’s award “because the arbitrator
wrongly held Wells liable for breach of contract when Wells-Wilson suffered no
damages.” We find no merit in this claim of error for the same reasons outlined in
Division 3; the arbitrator did not hold Richard Wells liable for breach of contract.
12 While the arbitrator’s January 13, 2020 Second Interim Award and Injunction states that Susan Wells-Wilson was “denied rights pertaining to voting the Magnolia Shareholding . . . in breach of the Operating Agreement,” this statement was made in the context of declaratory and injunctive relief, not Richard Wells’ personal liability for breach of contract.
36 5. Arbitrator’s Interpretation of Voting Rights Condition. Magwell contends
that the trial court should have concluded that the arbitrator overstepped his authority
or manifestly disregarded the law by ignoring the Consent and the plain language of
the Operating Agreement. With regard to the central issue in this case — whether “a
Manager, or any person authorized to act on behalf of a Manager, transfer[red] stock
in a corporation which is a ‘controlled corporation’ within the meaning of Code
Section 2013 (b) (2) to the Company” — Magwell asserts that the transfer of stock
was made by Nolia Partnership, not a manager of Magwell. In its view, the trial court
should have vacated the arbitrator’s award because the arbitrator ignored the plain
language of the Operating Agreement and the Consent showing that the Nolia
Partnership transferred stock to Magwell.
(a) Overstepping. Magwell relies heavily upon this Court’s decision in Sweatt
v. Intl. Dev. Corp., 242 Ga. App. 753 (531 SE2d 192) (2000), to assert that the
arbitrator overstepped his authority by interpreting the Operating Agreement and
Consent in a manner contrary to the plain language of the documents. In Sweatt, we
were asked to determine whether an arbitrator overstepped his authority by awarding
actual damages for violation of a “contract which permitted only the recovery of
liquidated damages.” Id. at 755 (1).
37 In the context of remedies given by an arbitrator, the Supreme Court of Georgia
has stated: “An arbitrator has inherent power to fashion a remedy as long as the award
draws its essence from the contract or statutes.” (Citation and punctuation omitted.)
MARTA v. Local 732, Amalgamated Transit Union, 261 Ga. 191, 195 (2) (a) (403
SE2d 51) (1991). See also Greene v. Hundley, 266 Ga. 592, 595 (2) (468 SE2d 350)
(1996); Atlanta Gas Light Co. v. Trinity Christian Methodist Episcopal Church, 231
Ga. App. 617, 619 (2) (500 SE2d 374) (1998) (stating, “[a]s the awards are consistent
with the terms of the Agreement and thus reflect the ‘essence’ of the contract, they
do not demonstrate an imperfect execution of the umpire’s authority”). Additionally,
the Georgia Arbitration “Code specifically states that merely because the relief
granted in the arbitration award could not or would not be granted by a court of law
or equity is not ground for vacating or refusing to confirm an award.” Greene, 266
Ga. at 595 (1), citing OCGA § 9-9-13 (d).
In Sweatt, this Court paraphrased the holding in our earlier opinion in Atlanta
Gas Light Co., and made the following much more general statement: “An arbitration
award should be consistent with terms of the underlying agreement and reflect the
‘essence’ of that contract. . . . Although an arbitrator has some latitude in fashioning
remedies, he is not free to ignore the express terms of a valid and enforceable
38 contract.” Sweatt, 242 Ga. App. at 755 (1). We then concluded that the arbitrator
exceeded his authority by awarding actual damages rather than the liquidated
damages mandated by the contract. Id. at 756-757 (1). Following our decision in
Sweatt, litigants have tried, unsuccessfully, to use the language quoted above to assert
that an arbitrator oversteps his or her authority by interpreting the parties contract in
a manner alleged to be inconsistent with the plain terms of the agreement, as opposed
to fashioning a remedy not authorized by terms of the contract. See, e.g., Berger, 326
Ga. App. at 293 (2) (finding superior court erred by denying confirmation of
arbitration award based upon the superior court’s erroneous conclusion that the
arbitrator “impermissibly construed the unambiguous terms of the release agreements,
ignoring their plain language”); U.S. Intermodal & Thunderbolt Express v. Ga.
Pacific Corp., 267 Ga. App. 832, 833 (600 SE2d 800) (2004) (rejecting argument that
arbitrator overstepped authority because “arbitrator did not correctly interpret the
contracts in question”). As we explained in Berger,
the arbitrator exercised the authority granted to him by the parties to determine the applicability of the release agreements. [The appellee] essentially is “arguing that the arbitrator did not correctly interpret the contracts in question. Courts must not decide the rightness or wrongness of the arbitrators’ contract interpretation.”
39 (Citation and punctuation omitted.) 326 Ga. App. at 294-295 (2).
In this case, the parties’ arbitration agreement authorized the arbitrator to
resolve “[a]ny dispute, controversy[,] or claim arising out of or in connection with,
or relating to, [the Operating Agreement] or any breach or alleged breach [thereof].
. . .” As this language clearly and unambiguously authorized the arbitrator to consider
the parties’ dispute regarding the Operating Agreement, we find no merit in
Magwell’s claim that the arbitrator overstepped his authority by so doing. See Berger,
326 Ga. App. at 294-295 (2).13
As the Eleventh Circuit Court of Appeals recently explained:
Our respect for arbitration . . . means that some interpretive errors will go uncorrected. But if it were any other way, the efficiency gains of arbitration would be destroyed and arbitration would become merely a prelude to a more cumbersome and time-consuming judicial review process. When parties choose arbitration, we cannot override their decision by prioritizing our own answer over that of the arbitrator they
13 The only other authority upon which Magwell relies to show an overstepping by the arbitrator is a general statement in Southwire Co. v. American Arbitration Assn., 248 Ga. App. 226 (545 SE2d 681) (2001), paraphrasing our statement in Sweatt, supra, as follows: “the arbitrator may not ignore the plain language of the parties’ contract.” Southwire, 248 Ga. App. at 228 (2). But in Southwire, we concluded that the contract language at issue authorized the arbitrator’s award of interim relief; this decision does not mandate a different outcome here. Id. at 228-229 (3).
40 selected. And we are called to accept that the costs of allowing interpretive errors to stand are far outweighed by the general benefits that accrue from giving arbitral awards a strong presumption of finality.
(Citation and punctuation omitted.) Gherardi v. Citigroup Global Markets, 975 F3d
1232, 1238 (III) (A) (11th Cir. 2020).
(b) Manifest Disregard. Relying upon this Court’s recent opinion in Adventure
Motorsports Reinsurance v. Interstate Nat. Dealer Svcs., 356 Ga. App. 236 (846
SE2d 115) (2020), cert. granted, Adventure Motorsports Reinsurance v. Interstate
Nat. Dealer Svcs., No. S21C0008, 2021 Ga. LEXIS 216 (April 5, 2021),14 Magwell
contends that the arbitrator manifestly disregarded the plain language of the contract
showing that the entity transferring the shares of Magnolia stock was Nolia
Partnership, not Magwell’s manager First Nolia. In its view, “[t]he defined, explicit,
and clearly applicable law of Georgia is that if a contract is clear and unambiguous,
. . . the court simply enforces the contract according to its terms.” Therefore, Magwell
contends, “[a]n arbitrator cannot, as the arbitrator did here, reject the explicit
14 In its grant of certiorari, the Supreme Court of Georgia stated that it is particularly concerned with whether this Court erred “in reversing the trial court’s order confirming the arbitration award[.]”
41 contractual language to promote his preferred measure of what he perceives as
justice.”
The appellants made the same argument in their dispositive motion before the
arbitrator, which the arbitrator denied based upon his conclusion that he could not
determine, from the record presently before him, whether the condition was met when
shares in Magnolia were transferred to Magwell. He also found
that while the Operating Agreement is generally straightforward, the 6.01 Condition is ambiguous. It juxtaposes relatively clear language regarding management and control with a provision that arguably cedes control (but only to a restricted group of people) to avoid the application of the Internal Revenue Code. Based on the submissions of the parties and the matters noted at oral argument, it is clear that the application of the IRC Section 2036 is not always straightforward and indeed that the purpose, meaning and potential application of Paragraph 6.01 of the Operating Agreement is not only contested, but susceptible of differing interpretations.
In the November 27, 2019 Interim Award, the arbitrator did not revisit his finding that
the 6.01 Condition was ambiguous, focusing instead upon “discern[ing] the intent of
the parties in entering into the Operating Agreement and effectuat[ing] their intent.”
As we have previously explained, an arbitrator “that incorrectly interprets the
law has not manifestly disregarded it. It has simply made a legal mistake.” (Citation
42 and punctuation omitted.) ABCO Builders, 282 Ga. at 309. “[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.” (Citation and punctuation omitted.) Airtab,
Inc. v. Limbach Co., 295 Ga. App. 720, 722 (2) (a) (673 SE2d 69) (2009). A party
seeking to show manifest disregard of the law must present “evidence of a specific
intent to disregard the appropriate law.” ABCO Builders, 282 Ga. at 310. In this case,
based upon the totality of the arbitrator’s orders, we cannot say that the arbitrator
manifestly disregarded the law by concluding that the 6.01 Condition was ambiguous.
See Gainesville Mechanical v. Air Data, 350 Ga. App. 614, 617 (829 SE2d 838)
(2019). Our decision in Adventure Motorsports Reinsurance, supra, is distinguishable
because in that case we concluded that the arbitrator explicitly rejected contract
language regarding pricing. 356 Ga. App. at 240. In this case, the arbitrator
considered the language at issue and concluded that it was ambiguous.
6. New Claims Purportedly Raised in Closing Argument. First Nolia contends
that the trial court erred in concluding that the arbitrator could grant relief on claims
raised for the first time during closing argument at the end of the evidentiary
hearings. Specifically, it asserts that Wells-Wilson argued that Magwell should not
be permitted to indemnify Richard Wells and First Nolia for their attorney fees.
43 According to First Nolia, the arbitrator overstepped his authority by addressing the
late-raised claim regarding indemnity and finding that Richard Wells and First Nolia
are not entitled to indemnity. In support of this claimed error, First Nolia points to
AAA Commercial Rule 4 (e), requiring an arbitration filing to include “a statement
setting forth the nature of the claim including the relief sought” and AAA
Commercial Rule 6 (b) requiring any new or different claim to be made in writing and
filed with the arbitrator and providing that “no new or different claim may be
submitted except with the arbitrator’s consent.” In its view, Susan Wells-Wilson
should have amended her arbitration claim to assert a derivative action on behalf of
Magwell.
The record shows that Susan Wells-Wilson testified in the July 23, 2019
arbitration hearing that she had incurred attorney fees and costs in the arbitration as
a result of the appellants’ refusal to recognize her voting rights under the Operating
Agreement. She acknowledged that the appellants were asking for their fees and costs
in the arbitration, and she explained that Richard Wells sent her an email in June 22,
2019, stating that Magwell was paying for Richard Wells’ fees with Magwell’s
“undistributed taxable money,” meaning that Susan Wells-Wilson paid taxes on
money used to pay for Richard Wells’ legal expenses in the arbitration. Finally, she
44 testified that she and Linda Palmer were already sharing the cost of the legal expenses
incurred by the appellants in the arbitration in proportion to her and Palmer’s
ownership interest in Magwell.
During his testimony on July 24, 2019, Richard Wells confirmed that Magwell
was retaining $250,000 to pay for attorney fees, that Susan Wells-Wilson and Linda
Palmer “will be taxed on the undistributed $250,000 in their pro rata share,” and that
Magwell was paying for all fees in the arbitration. Finally, he confirmed that he was
using the indemnity provision of the Operating Agreement to cover his fees.
In closing argument before the arbitrator in October 2019, Susan Wells-
Wilson’s attorney
agree[d] with the Magwell respondents that the arbitrator has the authority to determine the shares of any fees and costs to be awarded based on the relative merits of each party’s position. That is to say it is not mandatory to award fees and expenses. . . . In terms of the Magwell respondents’ request for an award of attorneys’ fees or costs in their favor, I want to address that briefly. . . . In any event, Susan and Linda are already, quote, sharing in the cost and fees of the Magwell respondents’ defense in this case by bearing two-thirds of those costs and expenses due to the dividend that was paid to Magwell at the end of last year that Rick did not distribute to his sisters. . . . So who’s already paying for the Magwell respondents’ defense in this case? Susan and Linda, two-thirds of it. So the idea that there would be an award in
45 Magwell respondents’ favor of fees that they already are paying of course is — well, it makes my head hurt. It would be totally and grossly unfair.
Following the closing argument of the attorney for Magwell, First Nolia, and
Richard Wells, Linda Palmer’s attorney stated that he had “nothing to add regarding
the merits of the case” and suggested that Linda Palmer should not participate in the
award of attorney fees and expenses in the case “regardless of the outcome.” At that
point, the arbitrator posed the following question: “Suppose I decided that I should
undo in some way the charge of expenses to Magwell, how would that impact Ms.
Palmer and the position you’re taking?” Linda Palmer’s attorney responded that this
“would be separate from [the arbitration provision in the Operating Agreement] for
the awarding of expenses and that would seem to be more of a functional process for
Magwell. And we wouldn’t have a position opposing that.”15
In her post-hearing brief, Susan Wells-Wilson did not assert that Magwell’s
indemnification of fees and expenses should be set aside. Instead she asserted in a
footnote that if she should
15 Appellants’ counsel made no response to the hypothetical question posed by the arbitrator about undoing the charge of expenses to Magwell. Nor did they address the arbitrator’s potential action in this regard in their post-hearing brief.
46 not prevail, the Arbitrator should decline to award any litigation expenses to the Magwell Respondents, who have already used dividend proceeds that should have been distributed to Magwell’s owners to subsidize their defense in this arbitration (including Rick’s personal defense, despite the absence of any contractual indemnity rights for members in the Operating Agreement).
Based on our review of the hearing transcript and record, we find no support
for First Nolia’s claim that Susan Wells-Wilson asserted a new claim for the first time
in closing argument that sought to set aside Magwell’s contractual indemnity of First
Nolia and Richard Wells. Instead, it demonstrates an attempt to mitigate the amount
of any cost award in the event the arbitrator found her to be the unsuccessful party.
Accordingly, we find no merit in this claim of error.16
7. Arbitrator’s Alleged Improper Consideration of Derivative Claims. In an
enumeration of error closely related to that which we resolved in Division 6, Magwell
contends that the trial court erred by “remanding derivative action claims for decision
by the arbitrator when such derivative claims were not part of the arbitration, Ms.
16 First Nolia’s assertion that “the arbitrator overstepped his authority in deciding the merits of the question of whether Magwell was entitled to indemnify First Nolia and Wells and in issuing injunctive relief preventing Magwell from exercising its business judgment to the benefit of its Manager and a member[,]” will be addressed in Division 7, infra.
47 Wells-Wilson did not have standing to assert them, and the arbitrator overstepped his
authority and manifestly disregarded the law by hearing them.” In support of this
contention, Magwell characterizes the arbitrator’s award as “awarding damages to
Magwell on a claim it never asserted (recoupment of any legal fees it expended
defending First Nolia and Mr. Wells) and then usurping the business judgment of
Magwell by compelling it to make a cash distribution of any such recouped fees.”
(Emphasis in original.) It further asserts that while
[t]he trial court correctly vacated the arbitration award, [it] erroneously remanded the case to the arbitrator to make “a determination of all amounts (costs, advances, fees, or expenses related to the arbitration and any proceedings pertaining to the arbitration) to be reimbursed to Magwell from First Nolia and Wells and distributed to Magwell’s members.” Because the arbitrator overstepped his authority by ordering the distribution in the first instance, the trial court’s order requiring the arbitrator to take new evidence, calculate, and order a monetary distribution after rehearing erroneously and retroactively expands the arbitrator’s authority beyond what it was in the first proceeding.
(Footnotes and emphasis omitted.)
(a) Alleged Derivative Claims. We first address whether the arbitrator
overstepped or manifestly disregarded the law by considering the purported derivative
claims. In its November 27, 2019 Interim Award, the arbitrator concluded that Susan
48 Wells-Wilson was “entitled to recover her fees and expenses for prosecuting this
matter and the fees and costs paid or advanced to the American Arbitration
Association.” In a separate numbered division in the “Analysis” section of the award
captioned “Rick is obligated to reimburse Magwell,” the arbitrator stated in full:
Section 6.05 of the Operating Agreement would allow Rick as a manager to recover costs and expenses from Magwell except in certain circumstances, including where he has “received a personal benefit in violation or breach of the provisions of this Agreement or the Manager’s obligations to the Company.” Rick’s actions were in violation and breach of the Operating Agreement. He is not entitled to indemnity and must restore to Magwell the amounts he has caused it to pay in connection with this arbitration.
In the “Relief” portion of the Award, the arbitrator concluded, in pertinent part:
4. In accordance with Section 10.11 of the Operating Agreement, Susan is entitled to an award of attorneys’ fees and expenses against Rick together with fees and charges paid and advanced to the American Arbitration Association. A determination of the amount to be paid by Rick to Susan is deferred.
5. Rick is not entitled to indemnity or payment of costs, advances, fees or expenses under Section 6.05 of the Operating Agreement. Rick will be required to reimburse Magwell to the extent he has charged Magwell for costs, advances, fees or expenses related to this
49 arbitration. This reimbursement will inure to the benefit of all Magwell unit holders, including Linda.
(Footnote omitted.) Following this ruling by the arbitrator, counsel for Richard Wells,
First Nolia, and Magwell determined that a conflict existed and new counsel was
retained for First Nolia and Magwell.
On December 9, 2019, Susan Wells-Wilson submitted a proposed form of the
injunction to be issued and accompanying brief as directed by the arbitrator in
Procedural Order 5. In it, she suggested that the arbitrator issue an injunction
requiring: (1) both First Nolia and Richard Wells to reimburse Magwell for all fees
and costs associated with the arbitration that were paid by Magwell; and (2) Magwell
to distribute the reimbursed amounts in proportion to ownership interests.
In a brief filed on December 23, 2019, Richard Wells opposed the first part of
the proposed injunction on the following grounds: Susan Wells-Wilson lacked
standing to assert this claim for relief on behalf of Magwell; Magwell had not
requested such relief in its favor; Susan Wells-Wilson failed to take steps required
before a derivative action can be instituted; and it was beyond the scope of the claims
she submitted for arbitration. He also asserted that “[t]o the extent that the Arbitrator
is giving relief no party requested, it is beyond the Arbitrator’s jurisdiction and
50 violates Canon V.A. of The Code of Ethics for Arbitrators in Commercial
Disputes[.]” He also argued that an injunction is only available in Georgia when there
is no adequate remedy at law; as money damages are a remedy at law, the proposed
injunction would be inappropriate. With regard to the proposed injunction requiring
Magwell to distribute the money in proportion to ownership interests, Richard Wells
contended that it was “wholly outside the scope of the Arbitration,” not included in
the November 27, 2019 Interim Award, and an impermissible injunction to pay
money.
On January 13, 2020, following a hearing in which all parties presented
argument for and against these particular injunctions, as well as additional briefing
and objections by Richard Wells, the arbitrator issued its Second Interim Award and
Injunction. Before issuing the injunctions at the end of the 13-page interim award, the
arbitrator addressed the arguments outlined above and concluded that these
arguments
ignore[ ] my obligations under the applicable arbitration clause. It states, in pertinent part:
The expenses of arbitration, including the costs of experts, evidence and counsel fees, shall be borne by the unsuccessful or losing party in the dispute, controversy or
51 claim that is settled by such arbitration, or shared as determined by the arbitrator, taking into consideration the relative merits of each party’s positions.
Operating Agreement at Section 10.11. The fact that a derivative proceeding may also be an available remedy does not preclude my duty to make a determination relating to allocation of the expenses of the arbitration.
If Respondent Wells, on his own volition or as CEO of First Nolia, obtains reimbursement of attorneys’ fees and other expenses of the Arbitration from Magwell, then he will have preempted and frustrated my obligation to allocate fees and expenses. In effect, he will make an award o[f] fees and expenses to himself and First Nolia in advance of my determination. Moreover, he will have, in effect, assessed (and recovered) those fees and expenses against Magwell’s owners, including Claimant and the Respondent Palmer, who together own 66% of the beneficial interest in Magwell, and he may have imposed a tax liability on them as well.
This outcome strikes me as at odds with the intention of the parties under the Operating Agreement. The plain language of the Operating Agreement vests the decision regarding who is to pay attorneys’ fees and expenses and to whom belongs [sic] in the arbitrator. Under the circumstances, paragraphs 4 and 5 of Claimant’s draft will be included.
52 The arbitrator also stated that “the relevant arbitration clause effectively requires that
Magwell be reimbursed for attorneys’ fees and other expenses that it has paid, and I
am entirely comfortable that this reimbursement can and should be dealt with in an
injunction in this Arbitration at this time.” Based upon this reasoning, the arbitrator
included injunctive relief in the January 13, 2020 Second Interim Award and
incorporated it verbatim into the Final Award. The injunctive relief at issue required,
in pertinent part: (1) Richard Wells and First Nolia to reimburse Magwell for all fees
incurred in connection with the arbitration that were charged to or paid by Magwell;
and (2) Magwell to distribute amounts reimbursed to its owners in proportion to their
ownership interests.
In this case, the arbitrator expressly stated that he was issuing the injunctive
relief pursuant to Section 10.11 of the Operating Agreement (the arbitration clause).
While the declaratory relief also included a finding that Richard Wells was not
entitled to indemnity based upon a different provision of the Operating Agreement,
when construed together with the arbitrator’s stated reason for the injunction, we find
no support for Magwell’s assertion that the arbitrator overstepped his authority and
manifestly disregarded the law by ruling upon unasserted derivative claims. As the
Sixth Circuit Court of Appeals has recognized, “a mere ambiguity in the opinion
53 accompanying an award, which permits the inference that the arbitrator may have
exceeded his authority is not a reason for refusing to enforce the award. Thus, if there
is ambiguity in the legal meaning of an arbitration award, we will construe it in favor
of upholding the award.” (Citation and punctuation omitted.) Nationwide Mut. Ins.
Co. v. Home Ins. Co., 330 F3d 843, 847 (II) (A) (2) (6th Cir. 2003), citing United
Steelworkers of America v. Enterprise Wheel & Car Corp., 363 U. S. 593, 598 (80
SCt 1358, 4 LE2d 1424) (1960). In this case, the arbitrator’s injunction was aimed at
ensuring the costs and expenses of the arbitration were borne by the unsuccessful
party, not providing relief on unasserted derivative claims.
(b) Injunctive Relief. We now turn to the question of whether the arbitrator
overstepped his authority or manifestly disregarded the law by issuing injunctive
relief relating to the costs and expenses of the arbitration. Magwell contends that the
arbitrator overstepped by essentially awarding “monetary damages, albeit
uncalculated and without evidence, to Magwell and further order[ing] it to make a
cash distribution.” In its view, “[t]he arbitrator’s usurpation of the business judgment
of Magwell’s management is shocking.”17 First Nolia points out that the arbitrator
17 The Operating Agreement gave the Managers discretion, if considered advisable while acting in their fiduciary capacity, to distribute cash among the Interest Holders in proportion to their respective ownership interests in such amount
54 improperly enjoined the appellants to pay money, and that the issue before the trial
court “was whether the trial court could enforce an injunction that the trial court could
not issue itself.”
(i) Overstepping in the Injunction. As previously explained, overstepping
comes into play only when an arbitrator determines matters beyond the scope of the
case. Progressive Data Systems, 275 Ga. at 421. As the arbitrator’s injunction was
aimed at ensuring the costs and expenses of the arbitration were borne by the
unsuccessful party as outlined in the arbitration clause of the Operating Agreement,
we cannot say that it was beyond the scope of the case.
(ii) Manifest Disregard of the Law in the Injunction. As we previously
explained, “[a]n arbitrator has inherent power to fashion a remedy as long as the
award draws its essence from the contract or statutes,” MARTA, 261 Ga. at 195 (2)
(a), and the fact that a court “could not or would not” grant the same relief “is not [a]
ground for vacating or refusing to confirm an award.” (Citation and punctuation
omitted.) Greene, 266 Ga. at 595 (1). See also OCGA § 9-9-13 (d) (“The fact that the
relief was such that it could not or would not be granted by a court of law or equity
is not ground for vacating or refusing to confirm the award.”). On the other hand, an
and at such times as they may determine.
55 “arbitrator’s manifest disregard of the law” is a statutory ground to vacate, provided
a party’s “rights” were prejudiced. OCGA § 9-9-13 (b) (5).18 One commentator
posited that “[t]he ‘manifest disregard of the law’ vacatur ground and the provision
allowing arbitrators to fashion their own remedy even though a court of law could not
award the same relief are logically inconsistent. . . . How the Georgia Courts will
resolve this apparent conflict . . . remains to be seen.” Brent S. Gilfedder, “‘A
Manifest Disregard of Arbitration?’ An Analysis of Recent Georgia Legislation
Adding ‘Manifest Disregard of the Law’ to the Georgia Arbitration Code as a
Statutory Ground for Vacatur.” 39 Ga. L. Rev. 259, 284-285 (Fall 2004). See also
Yarn, Georgia Alternative Dispute Resolution: Practice and Procedure in Georgia
(3rd ed.), § 9:59, p. 304 (“There is some tension between [the manifest disregard]
standard and the broad remedial powers available under the [Georgia Arbitration
Code] and AAA rules.”) (citations and footnote omitted).
Based on the particular facts and circumstances of this case, we find that the
arbitrator fashioned a remedy that drew “its essence from the contract,” MARTA, 261
Ga. at 195 (2) (a), and was therefore a proper exercise of his authority under OCGA
18 The manifest disregard ground to vacate an arbitration award was enacted after OCGA § 9-9-13 (d). See Ga. L. 2003, p. 820, § 2.
56 § 9-9-13 (d). The appellants contend that the arbitrator manifestly disregarded the law
by (1) issuing an injunction that a court could not or (2) interfering with Magwell’s
business judgment with regard to distributions. Given the authority expressly
provided to the arbitrator by OCGA § 9-9-13 (d) to fashion its own remedy, which
is a more specific statute than OCGA § 9-9-13 (b) (5), we cannot say the arbitrator
manifestly disregarded the law by issuing the injunctions at issue. See Southstar
Energy Svcs. v. Ellison, 286 Ga. 709, 712 (1) (691 SE2d 203) (2010) (“For purposes
of statutory interpretation, a specific statute will prevail over a general statute, absent
any indication of a contrary legislative intent.”) (citation and punctuation omitted).
8. Alleged Improper Modification of Arbitrator’s Award. First Nolia asserts
that the trial court erred in “instructing the arbitrator to take new evidence and modify
the awards on remand by fundamentally changing the nature of the relief awarded,
when no party requested modification.” The record shows that the appellants asserted
in the trial court that “[t]he arbitrator overstepped his authority and manifestly
disregarded the law when he entered injunctions to pay money damages.” See OCGA
§ 9-9-13 (b) (3) (overstepping); OCGA § 9-9-13 (b) (5) (manifest disregard). The trial
court, however, concluded that the award should be vacated on different grounds:
OCGA § 9-9-13 (b) (3) (failed to make a final and definite award upon the subject
57 matter) and OCGA § 9-9-13 (b) (4) (failure to follow procedure of the Georgia
Arbitration Code). Specifically, the trial court found:
[T]he Final Award must be vacated insofar as it effectively enjoins Magwell from retaining and paying legal counsel to represent it in this matter and fails to identify the amount of fees and expenses incurred on behalf of each of the Respondents. Under the [Georgia Arbitration Code], a party has the right to be represented by an attorney and may claim such right at any time as to any part of the arbitration or hearings which have not taken place. This right may not be waived. OCGA § 9-9- 8 (c); see also Ga. Const., Art. 1, § 1, ¶ 12 (“No person shall be deprived of the right to prosecute or defend, either in person or by an attorney, that person’s own cause in any of the courts of this state.”) Consequently, the court finds that the arbitrator failed to follow the procedure of the [Georgia Arbitration Code] and that Magwell did not have notice of this failure and continue without objection. See OCGA § 9-9-13 (b) (4). Additionally, the findings made by the arbitrator as to [Richard Wells, First Nolia, and Magwell]s’ fees and expenses do not include amounts such that the court would be able to confirm the award and enter judgment. See OCGA § 9-9-13 (b) (3) (award shall be vacated where “a final and definite award upon the subject matter submitted was not made”).
(Punctuation omitted ; emphasis supplied.) The specific portions of the arbitrator’s
injunctive relief quoted by the trial court to reach the above conclusions follow:
58 (3) Respondents, D. Richard Wells and First Nolia . . . are permanently enjoined to cause the reimbursement from First Nolia and D. Richard Wells to Magwell of all costs, advances, fees, or expenses related to this arbitration that were incurred by any of the Magwell Respondents and have been charged to or paid by Magwell.
(4) Respondent Magwell . . . is permanently enjoined to cause all amounts reimbursed to Magwell under the preceding paragraph to be distributed to Magwell’s . . . owners in proportion to their respective ownership interests in Magwell.
(5) Respondents, D. Richard Wells, Magwell . . . and First Nolia . . . are permanently enjoined from charging any costs, advances, fees, or expenses related to this Arbitration and incurred by Respondents, D. Richard Wells, Magwell . . . and First Nolia . . . (or any of them) to Magwell. If any of these costs, advances, fees, or expenses are nevertheless charged to or paid by Magwell . . . they are to be promptly reimbursed and distributed in accordance with paragraphs 3 and 4 above.
(6) Without the authorization of a court exercising jurisdiction, Respondents D. Richard Wells, Magwell . . . and First Nolia . . . are permanently enjoined from charging to Magwell . . . any costs, advances, fees, or expenses related to any proceedings pertaining to this Arbitration (including any proceedings to confirm, modify, or vacate any awards issued in this arbitration) and incurred by Respondents, D. Richard Wells, Magwell . . . and First Nolia . . . (or any of them). If any
59 of these costs, advances, fees, or expenses are nevertheless charged to or paid by Magwell without the authorization of a court exercising jurisdiction, they are to be promptly reimbursed and distributed in accordance with paragraphs 3 and 4 above.
The trial court vacated the arbitrator’s award in its entirety19 and ordered the
following issues “be reheard and decided”:
1. A determination of all amounts (costs, advances, fees, or expenses related to the arbitration and any proceedings pertaining to the arbitration) paid or incurred by Magwell on its own behalf.
2. A determination of all amounts (costs, advances, fees, or expenses related to the arbitration and any proceedings pertaining to the arbitration) to be reimbursed to Magwell from First Nolia and Wells and distributed to Magwell’s members.
19 The trial court did so based upon its belief that it had no authority to vacate an award in part, quoting SCSJ Enterprises v. Hansen & Hansen Enterprises, 306 Ga. App. 188, 189 (702 SE2d 12) (2010), as follows: “the law of this State requires that, if a trial court vacates an arbitration award, it may do so only in its entirety.” Because Susan Wells-Wilson has not filed a cross-appeal asserting that the trial court erred by failing to confirm the portions of the award with which it had no issue, the propriety of the trial court’s decision to vacate the entire award with an instruction for a partial rehearing is not before us in this case. See Yarn, supra, § 9:59, p. 295 (“Georgia courts have remanded matters for rehearing on the limited portion of the award which caused vacatur. Judicial economy and the pro-arbitration intent of the [Georgia Arbitration Code] would seem to dictate that this practice would be followed; however, the courts have been known to vacate the entire award on the basis of an otherwise severable faulty portion.”) (citations and footnotes omitted).
60 3. That portion of the award enjoining Magwell from incurring further fees and expenses in this matter, in a manner consistent with this Order.
Appellants assert, through their incorporation of each other’s arguments and
briefs, that “[t]he trial court correctly vacated the arbitration award, but erroneously
remanded the case to the arbitrator to make ‘a determination of all amounts . . . to be
reimbursed . . . and distributed’” and that “[t]he trial court’s [above] vacatur of the
arbitration award has not been appealed — the only issues on appeal are whether the
trial court should have vacated on additional grounds and ordered a broader or
different rehearing.” As the trial court’s rehearing direction for a determination of
amounts is inextricably intertwined with its stated grounds for vacating the
arbitrator’s award, we cannot consider the propriety of one without the other.
There is scant Georgia case law addressing the lack of “a final and definite
award upon the subject matter submitted.” OCGA § 9-9-13 (b) (3). Other jurisdictions
addressing this ground for vacating an arbitrator’s award have stated:
The general rule is that in order for an award to be final and definite, it must resolve all issues submitted to arbitration, and determine each issue fully so that no further litigation is necessary to finalize the obligations of the parties under the award. Puerto Rico Maritime Shipping v. Star Lines, Ltd., 454 FSupp. 368, 372 (S.D. N.Y. 1978). An award must also
61 be clear enough to indicate what each party is required to do. Curacao v. Solitron, 356 FSupp. 1, 12 (S.D. N.Y.) (1973), aff’d, 489 F2d 1313, cert. denied, 416 U. S. 986 (94 SCt 2389, 40 LE2d 763) (1974).
(Punctuation omitted.) Dighello v. Busconi, 673 FSupp. 85, 90 (B) (3) (D.Conn.
1987). See also Resch v. Catlin Indem. Co., No. 19-8699 (KSH) (CLW), 2020 LEXIS
U.S. Dist. LEXIS 50235, *6 (D.N.J. March 23, 2020). And, “[t]he mere fact that
certain acts were to be performed in the future to effectuate the [a]rbitration [p]anel’s
primary rulings does not make the nonmonetary relief any less ‘final’ or ‘definite’
than the monetary relief.” Dighello, 673 FSupp. at 91 (B) (3). Accordingly, one
jurisdiction has upheld an award that was “remedial in nature, . . . not expressly or
implicitly prohibited by the terms of the arbitration agreement, and . . . well within
the arbiters’ authority and discretion to fashion appropriate relief under their broad
mandate to resolve ‘all disputes’ between the parties.” Id. See also Benistar Employer
Svcs. Trust Co. v. Benincasa, 207 A3d 67, 81 (III) (Conn. App. 2019) (“The absence
of a specific dollar figure does not render the rights and obligations in doubt as to
who is entitled to receive or pay the damages. The award provides sufficient guidance
from which the parties may identify the specific amounts of payments.”). On the other
hand, when an arbitration panel’s award “expressly” leaves an award “open for
62 judicial determination,” it is subject to being vacated based upon a lack of finality.
Gas Aggregation Svcs. v. Howard Avista Energy, 319 F3d 1060, 1069 (II) (E) (8th
Cir. 2003).
While the lack of an amount was not necessarily fatal to the arbitrator’s award
in this case, numbered paragraph (3) of the arbitrator’s injunctive relief in the Final
Award failed to provide a specific formula for First Nolia and Richard Wells’
obligation to reimburse Magwell. In a case in which one law firm represented all
three appellants through at least the November 27, 2019 Interim Award, this lack of
specificity renders the award indefinite as to which portion of the total amount paid
to the law firm during that time must be reimbursed by First Nolia and Richard Wells.
Additionally, numbered paragraph (6) of the arbitrator’s injunctive relief in the Final
Award is contingent upon court authorization and lacks finality. Simply put, the
award did not determine the issue “fully so that no further litigation is necessary to
finalize the obligations of the parties under the award.” Dighello, 673 FSupp. at 90
(B) (3). Accordingly, the trial court did not err by vacating the arbitrator’s award on
the statutory grounds stated in its order.
Our analysis does not end here, however, as the trial court’s rehearing order
required the arbitrator to make a specific determination of described amounts. As this
63 direction requires the arbitrator to find an amount, which, as outlined above, is not
always necessary for an arbitrator’s award to be final and definite, we vacate
numbered paragraphs (1) and (2) of the trial court’s order and remand with direction
for the trial court to order a rehearing on the issue of the “expenses of the arbitration”
in Section 10.11 of the Operating Agreement.20
For the reasons outlined above, we find no merit in First Nolia’s contention that
the trial court erroneously modified the arbitrator’s award in the absence of grounds
provided by OCGA § 9-9-14 (b). The issue of the “expenses of the arbitration” was
clearly within the purview of the arbitrator’s authority, and the trial court was
authorized to vacate the arbitration award for the reasons we have explained.
Accordingly, we disagree with First Nolia’s assertion that the issue was “not part of
the original case.”
We also find no merit in First Nolia’s contention that the authority to order a
rehearing after vacating an arbitrator’s award pursuant to OCGA § 9-9-13 (e) should
not be used as “an end-run around” the requirements for trial court modification
20 With regard to numbered paragraph (3) of the trial court’s order for a rehearing, none of the appellants take issue with it, and Susan Wells-Wilson has not filed a cross-appeal on any ground. We therefore do not address the propriety of the trial court’s order for a rehearing on “[t]hat portion of the award enjoining Magwell from incurring further fees and expenses in this matter. . . .”
64 found in OCGA § 9-9-14. In its view, these Code sections should be construed
together to preclude a trial court from ordering
an arbitrator to modify relief on remand. Instead, the trial court can direct the arbitrator only to drop the remedy from the award as unenforceable. In other words, if a trial court cannot confirm an award containing an unenforceable remedy, then the trial court should vacate the award, and if remand is needed, then remand with instruction not to impose the remedy.
We disagree with First Nolia’s proposed construction of the Georgia Arbitration
Code. The limited grounds for modification in OCGA § 9-9-14 (b) allow a court to
confirm an arbitration, and the circumstances which allow a court to modify are
completely different from the grounds mandating that a trial court vacate an
arbitrator’s award and order a rehearing.
9. Remand to Same Arbitrator. First Nolia argues that the trial court erred “in
remanding to the same arbitrator.” In support of this claimed error, First Nolia
contends that the trial court did not apply the proper standard when deciding to return
the case to the same arbitrator and that application of the proper standard mandates
the conclusion that the case should be sent to a new arbitrator for any rehearing. We
65 In the hearing on the motion to confirm/vacate the arbitration award, the trial
court advised the parties before issuing its written ruling that the case would go back
to the same arbitrator based on its “find[ing] that the arguments that have been made
that the arbitrator is somehow biased on behalf of the Claimant to be not substantiated
in the record.” The trial court’s subsequent written order cites the same standard with
regard to partiality of an arbitrator that First Nolia contends it failed to follow:
As to the degree of partiality required in order to vitiate [an] award, it has been held sufficient that the relationship between the arbitrators and one of the parties is of such a nature as to give clear grounds for suspicion of their proceedings and render it unlikely that they constituted the fair and impartial tribunal to which the other party is entitled. Torres v. Piedmont Builders, 300 Ga. App. 872, 873 [(686 SE2d 464)] (2009).[21]
(Punctuation omitted.) While this statement was made in the context of the
arbitrator’s partiality in issuing the award, it demonstrates that the trial court was
aware of the standard.
Rather than relying on the trial court’s written order to show the trial court
applied the incorrect standard, First Nolia points to statements made by the trial court
21 See also Edwards v. Employers Mut. Liability Ins. Co., 219 Ga. 121, 124-125 (132 SE2d 39) (1963).
66 in the hearing on the motion to confirm/vacate the arbitration award. Construing the
trial court’s written order as a whole, along with its statements in the hearing, we find
no merit in First Nolia’s contention that the trial court applied the wrong standard
when it decided to return the case to the same arbitrator. We likewise find no merit
in First Nolia’s remaining arguments that the trial court should not have returned the
case to the same arbitrator based upon alleged grounds for suspicion that he would
not be a fair and impartial tribunal in the rehearings.
10. Award of Expenses for Court Activity. In the remaining enumeration of
error submitted for our consideration, First Nolia contends that the trial court’s order
erroneously directs the arbitrator to award fees, costs, and expenses incurred in
connection with “court activity.” Based upon our holding in Division 8, this
enumeration is moot.
11. Conclusion. For the above-stated reasons, we affirm the trial court’s
decision to vacate the arbitrator’s award, vacate numbered paragraphs (1) and (2) of
that portion ordering a rehearing, and remand with direction for the trial court to order
67 a rehearing on the issue of the “expenses of the arbitration” in Section 10.11 of the
Operating Agreement.22
Judgment affirmed in part, vacated in part, and remanded with direction in all
three cases. Doyle, P. J., and Reese, J., concur.
22 A final note regarding the length of this opinion. As a federal district court observed:
The length of this opinion is due to the nature and the number of charges made by the [appellants]. . . . While it still remains true, that as long as even a glint of hope remains for judicial interference with the merits of an arbitration award, we must regretfully anticipate continued efforts to press contentions similar to that rejected here, hopefully this case may persuade others from pursuing such efforts.
(Citation and punctuation omitted.) Hunt v. Mobil Oil Corp., 654 FSupp. 1487, 1520 (S.D. N.Y. 1987).
Related
Cite This Page — Counsel Stack
Magwell, LLC. v. Susan Wells-Wilson, Counsel Stack Legal Research, https://law.counselstack.com/opinion/magwell-llc-v-susan-wells-wilson-gactapp-2021.