SBRMCOA, LLC v. Beach Associates, LLC

Opinions

Opinion

For Publication IN THE SUPREME COURT OF THE VIRGIN ISLANDS

SBRMCOA LLC and SAPPHIRE BEACH S Ct Civ No 2020 0004 RESORT AND MARINA CONDOMINIUM Re SUPer Ct CiV N0 570 20l5 (STT) OWNERS ASSOCIATION Appellants/Plaintiffs 1

I

v

BEACHSIDE ASSOCIATES LLC Agpellee/Defendant

On Appeal from the Superior Court of the Virgin Islands Division of St Thomas St John Superior Court Judge Hon Renee Gumbs Carty

Considered March 9, 2021

Filed February 8 2024

Cite as 2024 VI 10

BEFORE RHYS S HODGE Chief Justice, MARIA M CABRET, Associate Justice, and IVE ARLINGTON SWAN Associate Justice

APPEARANCES

Maria T Hodge, Esq Hodge & Hodge St Thomas, U S V I Attorneyfor Appellants

Neil D Goldman, Esq Goldman & Van Beck P C Alexandria, VA

Gregory H Hodges, Esq Dudley Newman Feuerzeig LLP St Thomas, U S V I AttorneysfiJr Appellee

OPINION OF THE COURT

CABRET, Associate Justice

Opinion of the Court

Page 2 of l I fill SBRMCOA, LLC, and Sapphire Beach Resort and Marina Condominium Association (collectively the “COA”) appeal from the Superior Court 5 December 23, 2019 judgment, which continued an arbitration award concerning wastewater services provided by the Appellee Beachside Associates, LLC We affirm I BACKGROUND

‘2 This matter involves a long and contentious dispute regarding the control of and charges for wastewater services at the Sapphire Beach Resort and Marina Bayside Resorts, Inc sponsored the creation of the Sapphire Beach Resort and Marina Condominium, and entered into an agreement with the COA as the representative of all the Condominium’s apartment owners, to provide sewage services in exchange for a reasonable charge In 2005, Bayside Resorts defaulted on a promissory note and mortgage it owed to Beachside Associates, and abandoned its reSponsibilities to the COA, including its agreement to provide sewage services The COA initially provided wastewater treatment on its own, but Beachside Associates began to provide this service after it successfully foreclosed on Bayside Resorts’ mortgage and obtained ownership of the property, including the wastewater treatment plant However, the COA and Beachside Associates could not agree on the cost of this service, resulting in the COA withholding payments to Beachside Associates 113 On January 22, 2009, Beachside Associates and the COA executed an arbitration agreement, in which the Association agreed to make certain interim payments to Beachside Associates for the provision of sewage services, and that “the claims of Beachside against the COA for recovery of charges for treating the wastewater, and the challenges by the COA to the propriety of such charges, shall be determined by binding arbitration ” (J A 188 89 ) Beachside Associates made such a claim on February 15 2013 alleging that the COA had failed to pay $1 095 993 85

Page 3 of ll in charges accrued since it began providing wastewater services On February 14, 2013, the COA and Beachside Associates executed a stipulation in which they refined several of the procedures set forth in the arbitration clause, including agreeing that the matter had been referred to arbitration “pursuant to an ‘all disputes’ arbitration clause” and that “[t]hese arbitration proceedings shall be governed by the rules set forth in Exhibit 4 to this Stipulation the law of the United States Virgin Islands and 9 U S C A § 1 et seq (J A 470) Among the rules in Exhibit 4 to the stipulation was a provision providing that “[p]roceedings to enforce, confirm, modify or vacate an Award will be controlled by and conducted in conformity with the Federal Arbitration Act, 9 U S C Sec 1 et seq or applicable state law ” (J A 495 ) 114 Ultimately, the arbitrator entered a final award on October 10, 2013, which fully incorporated an earlier partial final award entered on June 19, 2013 Among many other things, the arbitrator awarded Beachside Associates the sum of $1,042,516 00 plus unspecified interest for wastewater services it provided to the COA through September 23, 2013, and directed Beachside Associates to “[s]et up a payment plan with the COA to pay off the amount owed over a period of five years with interest and flow charges being earned from and after September 23 2013 (J A 156) 115 Thereafter, both the COA and Beachside Associates filed motions with the Superior Court to vacate the award in part and affirm it in part The Superior Court issued a judgment on June 8, 2015, in which it confirmed the award of $1,042,516 00 plus $15,851 62 in interest,1 vacated numerous other provisions of the final award that are not relevant to this appeal, and also directed

' Although the final award did not include a specific monetary award for interest, the Superior Court determined the amount of interest owed by using the prejudgment interest rate the arbitrator established in the earlier partial final award (J A 270)

Page 4 of I]

that the matter be “REMANDED to the arbitrator to determine the precise terms of the five year payment plan of the sums awarded in section 5 of the Final Award ” (J A 271 ) The COA and Beachside Associates both appealed the June 8, 2015 judgment to this Court, but this Court dismissed both appeals for lack of appellate jurisdiction because it did not constitute a final judgment within the meaning of title 4, section 32(a) of the Virgin Islands Code and no other basis for appellate jurisdiction existed SBRMCOA LLC v Beachszde Assocmtes LLC, S Ct Civ No 2015 0053 2015 WL 9581398 at *3 4 (VI Dec 28 2015) (unpublished) 116 The arbitrator held hearings on March 2, 2016, and July 26, 2016, which culminated in issuance of a new award on August 22, 2016 In that award, the arbitrator established the precise terms of a five year payment plan for both the earlier award and the new award However, the arbitrator also considered a new claim by Beachside Associates premised on the COA’s failure to pay for services provided between September 23 2013, and April 26, 2016, and awarded it an additional $357 417 03 plus interest on that claim ‘7 Beachside Associates filed a motion to confirm the August 22, 2016 award with the Superior Court on March 22 2017 On April 17 2017 the COA submitted a filing which requested confirmation of the portion of the August 22 2016 award establishing the payment plan but requested that the award of $357 413 03 be vacated because it purportedly exceeded the scope of the Superior Court’s remand order Beachside Associates filed a reply on May 12, 2017, in which it alleged that the COA s vacatur request had been untimely because section 12 of the Federal Arbitration Act (the “FAA ’), 9 U S C § 12 requires that a motion to vacate or modify an arbitration award be filed within three months of its issuance 118 The Superior Court, in a December 23, 2019 judgment confirmed the August 22, 2016 award in its entirety Specifically the Superior Court agreed with Beachside Associates that the

Page 5 of l l COA had waived its right to challenge any aspect of the August 22, 2016 award since it failed to comply with the limitations period found in section 12 of the FAA The COA timely filed a notice of appeal with this Court on January 17 2012 See VI R APP P 5(a)(l)

II DISCI SSION

A Jurisdiction and Standard of Review T9 This Court has jurisdiction over “all appeals arising from final judgments, final decrees or final orders of the Superior Court, or as otherwise provided by law ” V I CODE ANN tit 4, § 32(a) “[T]he denial of a motion to vacate an arbitration award constitutes a final judgment for purposes of section 32(a) ’ Tremcorp Holdings Inc v Harris, 65 V I 364 367 (V I 2016) 1110 “When reviewing the Superior Court's decision to confirm an arbitration award, we exercise plenary review over the Superior Court's application of the law and review any findings of fact for clear error ” Gov? of V] v St Thomas St John Educ Admmzsrrators'Ass’n Local 101 o b o Forde( Forde ) 67 V I 623 628 (V I 2017)

B Post Remand Arbitration Award 1111 The COA, as its first issue on appeal renews its argument that the arbitrator acted improperly by awarding Beachside Associates an additional $357,413 03 plus interest in the August 22, 2016 award on its new claim for failure to pay for services provided between September 23 2013 and Apri126 2013 Surprisingly the COA does not directly address the Superior Court s stated reason for declining to vacate that award that the COA waived its objection to the award because it did not request vacatur or modification within the three month limitations period in section 12 of the FAA 1112 This Court has held that only the substantive provisions ofthe FAA preempt Virgin Islands law, and even then, only in cases where the FAA applies due to a nexus with interstate commerce

Page 6 of l I

See Allen v HOVENSA L L C 59 V I 430 442 n 2 (V I 2013) (citing World Fresh Market v PD CM Assocs S Ct Civ No 2011 0051 2011 WL 3851739 at *2 (VI Aug 25 2011) (unpublished)) Nevertheless, all provisions of the FAA both substantive and procedural will apply to any case in which the parties have unequivocally contracted for the FAA to govern the proceeding See Tremcorp Holdings Inc v Harris 67 V I 601 605 (V I 2017) (applying the three month limitation period found in section 12 of the FAA when the parties agreed to arbitration “pursuant to the [FAA]’) {[13 Here, the COA and Beachside Associates agreed in their February 14, 2013 stipulation that “[t]hese arbitration proceedings shall be governed by the rules set forth in Exhibit 4 to thlS Stipulation the law of the United States Virgin Islands and 9 U S C A § 1 et seq (J A 470 ) Moreover, the agreed upon rules include a rule specifically providing that “[p]roceedings to enforce, confirm, modify or vacate an Award will be controlled by and conducted in conformity with the Federal Arbitration Act, 9 U S C Sec 1 et seq or applicable state law ” (J A 495 ) As such, the three month limitations period codified in section 12 ofthe FAA applied to this particular arbitration proceeding even if it were not generally applicable to all arbitrations in the Virgin Islands 1|l4 Perhaps recognizing that its stipulated agreement and this Court’s case law renders the three month limitations period applicable, the COA flames its arguments in terms of the arbitrator flouting the authority of the Superior Court, emphasizing that the June 8, 2015 judgment contained “a simple and limited remand directive” which “w[as] explicit and fixed by the terms ofthe remand judgment,” and that “[t]he arbitrator, well informed of the limits of his authority on remand imposed by the court, nevertheless announced his intention not to comply with the court’s judgment” and engaged in “defiance” of the judgment (Appellant’s Br 13 ) But the COA fails

Page 7 of 11

to recognize that section 12 of the FAA does not contain an exception to the three month limitations period for motions to vacate or modify premised on arbitrators exceeding their authority In fact, courts have consistently held that the three month limitations period applies even when it is alleged that the arbitrator has exceeded his authority or jurisdiction See e g In! 1 Union of Operating Engmeers Local No 841 v Murphy Co 82 F 3d 185 189 (7th Cir 1996) (holding that to the extent the arbitrator acted without authority, the party “should have moved the district court within 90 days to vacate the award”), Carpenters 46 Northern Caltfornza Counties Conference 3d v Meddles 535 F Supp 775 777 (N D Cal 1981) ( The federal statute of limitations under 9 U S C {5 12 has been held applicable even where the party seeking to vacate the arbitration asserts that the arbitrator lacked jurisdiction to enter the award ”), DeLorto v Unzted Parcel Serwce Inc 401 F Supp 408 409 (D Mass 1975) (same) Consequently, the Superior Court correctly held that the COA waived its objection to the August 22, 2016 award due to its failure to seek vacatur or modification ofthat award within the three month limitations period established in section 12 of the FAA D Manifest Disregard of the Law 1115 The COA further contends that the Superior Court erred when it issued its June 8, 2015 judgment confirming the portions of the June 19, 2013 and October 13, 2013 awards that awarded $1,042,516 00 plus interest to Beachside Associates According to the GOA, the arbitrator manifestly disregarded the law, in that he purportedly failed to apply the common law doctrines of

Page 8 of l I officious intermeddler and unclean hands 2 1|16 As a threshold matter, it is highly unclear whether the Superior Court or this Court even possesses the authority to review an arbitrator’s decision for a manifest disregard of the law Although this Court in Gov tofthe V] v St Thomas St John Educational Admmlstrators ASS n, 67 VI 623 (VI 2017), recognized manifest disregard of the law as a basis for vacating an arbitration award, it did so in the limited context of establishing a common law rule to govern situations not governed by the FAA Id at 633 But in this case the parties expressly and unambiguously agreed for the FAA to govern the underlying arbitration proceedings and agreed to a rule providing that “[p]roceedings to enforce, confirm, modify or vacate an [a]ward will be controlled by and conducted in conformity with the Federal Arbitration Act, 9 U S C Sec 1 et seq or applicable state law ” (J A 470, 495 ) Therefore, it is not the Virgin Islands common law of arbitration, but rather the FAA, that governs this issue 1117 Although the FAA sets forth several bases for vacating an arbitration award, manifest disregard of the law is not one of them Nevertheless, prior to 2008, many federal appellate courts recognized manifest disregard as a nonstatutory basis for vacatur See CItzgroup Global Markets Inc v Bacon 562 F 3d 349 353 & n 3 (5th Cir 2009) (collecting cases) However in 2008 the United States Supreme Court strongly questioned whether manifest disregard represents an independent nonstatutory ground for vacating an arbitration award See Hall Street Assocmtes LLC v Mattel Inc 552 U S 576, 585 (2008) As a result several federal courts of appeal

2 Under the offieious intermeddler doctrine, a person who voluntarily confers a benefit upon another is generally precluded from obtaining restitution See Tipper v Great Lakes Chem Co , 281 So 2d 10, 13 (Fla 1973) “The unclean hands doctrine is an equitable tenet that demands one who seeks equitable relief to be free from wrongdoing in the matter before the court” so as “to prevent a party from reaping benefits from his misconduct ” Fairway Developers Inc v Marcum, 832 N E 2d 581 584 85 (Ind Ct App 2005)

Page 9 of l] subsequently overruled their prior precedents adopting the manifest disregard standard as an independent nonstatutory ground for vacatur, based on the Hall Street decision’s implication that the FAA only permits a court to vacate an arbitration award pursuant to the grounds expressly set forth in the statute, see e g Cmgroup, 562 F 3d at 358, Ramos-Santlaga v United Parcel Serv , 524 F 3d 120, 124 n 3 (lst Cir 2008), while other courts maintained the manifest disregard standard but recast it to only include the factors set forth in section 10 of the FAA, see e g Stall Nzelsen SA v AnzmalFeeds Int! Corp 548 F 3d 85 93 95 (2d Cir 2008)‘ Comedy Club Inc v Improv West Assocs 553 F 3d 1277 1290 (9th Cir 2009) 1118 Nevertheless, even if the manifest disregard standard remains a valid basis for vacating an arbitration award despite the United States Supreme Court’s decision in Hall Street, that standard has not been met with respect to either of the COA’s claims Prior to Hall Street, it was well established that to obtain vacatur of an arbitration award based on a manifest disregard for the law, the party seeking vacatur was required to prove “(1) the applicable legal principle is clearly defined and not subject to reasonable debate, and (2) the arbitrator[] refused to heed that legal principle ” Long John Sliver s Rests Inc v Cole 514 F 3d 345 (4th Cir 2008) (quoting Merrzll Lynch Plerce Fenner & Smith Inc v Jams 70 F 3d 418 421 (6th Cir 1995)) $19 Here the doctrines of unclean hands and officious intermeddler are not clearly defined in the Virgin Islands and are certainly subject to reasonable debate In its appellate brief, the COA cites to no statute or decision of this Court adopting either doctrine as the law of the Virgin Islands nor could it cite to any such case law, because it does not exist Rather, the COA asserts that “[t]he clear law in the Virgin Islands” with respect to both doctrines “is set out in the Restatement of Restitution ” (Appellant’s Br 23 24) But it is now well established that “mechanistic and uncritical reliance on the Restatements” as stating the law of the Virgin Islands

Page 10 of 11 is not appropriate, for “the Restatements no longer hold an automatic preferred status in Virgin Islands law, but as in all other jurisdictions, merely represent persuasive authority, just like law review commentaries and decisions rendered by courts outside of the Virgin Islands ” Gov t ofthe V! v Connor, 60 V I 597 602 (VI 2014) It is axiomatic that an arbitrator could not have manifestly disregarded the law of the Virgin Islands in failing to apply the doctrines of unclean hands and officious intermeddler when there is no valid statute or binding precedent of this Court adopting those common law rules See Collins v D R Horton Inc , 505 F 3d 874, 884 (9th Cir 2007) (holding that an arbitrator cannot manifestly disregard the law when no binding precedent exists on that point of law) Therefore, even if manifest disregard for the law remains a basis for vacating an arbitration award under the FAA, the Superior Court committed no error by continuing the June 19 2013 and October 13 2013 awards 11] CONCLUSION

1120 The COA waived its right to challenge the correctness of the August 22, 2016 award because it failed to seek vacatur or modification within the three month limitations period set forth in section 12 of the FAA And even if a court can review an arbitration award under the FAA for manifest disregard of the law, the Superior Court correctly continued the June 19, 2013, and October 13, 2013 awards since it is not clear, but rather reasonably debatable, whether the common law doctrines of unclean hands and officious intermeddler are recognized in the Virgin Islands Accordingly, we affinn the June 8, 2015 and December 23, 2019 judgments of the Superior Court Dated this 8“I day of February, 2024 BY THE COURT

C fit

1 ARIA M CABRET

Assoeiateym

c

Page 11 of II ATTEST

VERONICA J HANDY ESQ Clerk of the Court

By Isl Reisha Corneiro Deputy Clerk

Dated February 8, 2024