Aero-Smith Inc v. Cardinal Air LLC
UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
AERO-SMITH, INCORPORATED, a Maryland corporation; JETLINK, MRB, LLC, a Delaware limited liability company, Plaintiffs - Appellees, v. CARDINAL AIR LIMITED LIABILITY limited liability company, COMPANY, a West Virginia
Defendant - Appellant.
Appeal from the United States District Court for the Northern District of West Virginia, at Martinsburg. John Preston Bailey, District Judge. (3:07-cv-00015-JPB)
September 22, 2008
December 3, 2008
Before WILLIAMS, Chief Judge, and TRAXLER and GREGORY, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Christopher L. Allen, ALLEN & BLACKFORD, P.C., Gaithersburg, Maryland, for Appellant. William Richard McCune, Jr., Martinsburg, West Virginia, for Appellees. ON BRIEF: Robert G. Blackford, ALLEN & BLACKFORD, P.C., Gaithersburg, Maryland, for Appellant. Alex A. Tsiatsos, LAW OFFICES OF WM. RICHARD MCCUNE, JR., P.L.L.C., Martinsburg, West Virginia, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM: Cardinal Air Limited Liability Company (ACardinal@) appeals from the district court=s decision granting summary judgment to Aero-Smith, Inc. (AAero-Smith@) and JetLink, MRB, LLC (AJetLink@), which confirmed an arbitration award issued in favor of AeroSmith. We affirm. I. The facts underlying this controversy are set forth at
length in the award of the arbitrator below. Aero-Smith operating Airport entered Cardinal is a party to a the fixed-base Eastern
By way of summary, lease and
Regional in turn, which
AAuthority@). agreement to build with a
Aero-Smith, Cardinal on
subleased Among to
property to be used for aircraft storage and maintenance. other things, Cardinal was obligated under the
comply with the standards promulgated by the Authority, maintain certain insurance for the operation, and maintain a full-time manager for operations at the airport. In the event of default,
Cardinal was required Ato remedy, or undertake to remedy, to [Aero-Smith=s] reasonable satisfaction, such default for a period of thirty (30) days after receipt of notice from [Aero-Smith] to remedy the same.@ remedy or J.A. 63. to If Cardinal failed to sufficiently the default to Aero-Smith=s
reasonable satisfaction, the sublease agreement authorized AeroSmith to terminate the sublease and retake the premises,
including the hangar. to Cardinal of the the
The agreement also provided for payment book value of any a improvements to rate the of
depreciation, in the event of cancellation or termination Afor any cause other than a breach of or default by@ Cardinal. 64. J.A.
Finally, the agreement provided for mandatory arbitration
of A[a]ll claims or disputes arising out of or relating to th[e] [a]greement . . . in accordance with the Commercial Arbitration Rules of the American Arbitration Association.@ J.A. 64. Such
Aaward rendered by the arbitrator or arbitrators shall be final, and judgment may be entered upon it in accordance with J.A.
applicable law in any court having jurisdiction thereof.@ 64.
On November 3, 2005, Aero-Smith notified Cardinal that it was in default of the sublease agreement based upon Cardinal=s failure to maintain a qualified full-time manager of operations and failure to meet the minimum standards of the Authority. January 9, 2006, Aero-Smith filed a demand for On
asserting that Cardinal had not remedied the deficiencies to Aero-Smith=s satisfaction and requesting that Cardinal be deemed in default and the sublease terminated. 4
On December 27, 2006, the matter proceeded to arbitration. The arbitrator found in favor of Aero-Smith, terminated the
sublease, and ordered Cardinal to vacate the premises.
other things, the arbitrator found that Cardinal was in breach of the agreement, had failed to take appropriate steps to remedy the breach and had, instead, Apersisted in [its] unauthorized use of the [hangar] with the Authority and Aero-Smith at risk, and hid[den] [its] misconduct from the Authority.@ J.A. 116. The
arbitrator further found that Cardinal, Arather than curing its breaches, [had] chose[n] to continue its default, and indeed to proceed with attempts to conceal its misconduct.@ J.A. 116.
Nevertheless, the arbitrator also chose to award compensation to Cardinal in the amount of $288,891.30, payable by Aero-Smith and/or JetLink, 1 B an amount representing the book value of the hangar less depreciation the in accordance agreement with -the based compensation upon the
arbitrator=s belief that A[t]ermination without some compensation is too severe a remedy . . . in view of all the circumstances.@ J.A. 117. The arbitrator subsequently issued a clarification of
On February 3, 2006, Aero-Smith sold its assets to JetLink, including its rights under the sublease agreement. However, neither party sought to add JetLink as a party to the arbitration. 5
the earlier award, ordering Cardinal to vacate the premises by January 30, 2007. On January 11, 2007, Aero-Smith and JetLink filed suit in West Virginia state court seeking enforcement of the arbitration award, as well as damages for wrongful occupation of the hangar, costs and fees. the basis of Cardinal removed the action to federal court on diversity of citizenship. The district court
granted summary judgment in favor of Aero-Smith and JetLink, enforcing the arbitration award, ordering transfer of possession of the premises from Cardinal to JetLink, and ordering AeroSmith and JetLink to tender the compensation award to Cardinal as calculated by the arbitrator. Cardinal appealed, and the
district court granted the parties= joint motion to stay payment pending this appeal.
II. This Court reviews the district=s court decision to grant summary judgment and confirm an arbitration award de novo. See
Choice Hotels Int=l, Inc. v. Shiv Hospitality, LLC, 491 F.3d 171, 176 (4th Cir. 2007). A. Cardinal=s first assertion on appeal is that the arbitration award should be set aside under West Virginia law because the
sublease agreement, from its inception, fraudulently included a right by Aero-Smith to take possession of the hangar upon
default by Cardinal and contained a compensation provision upon cancellation Specifically, or termination contends that that was unconscionably a September low. 1998
meeting between Aero-Smith and the Authority, a representative of the Authority made a statement reflecting an intent that
Aero-Smith would not preserve a right to retake and repossess the hangar in the event of default by the sublessee. The
subsequent inclusion of a Acontrary@ sublease provision granting this improvement to Aero-Smith upon default, Cardinal argues, constituted an act of Aactual fraud@ under West Virginia law sufficient to set aside the arbitration award. See Barber v.
Union Carbide Corp., 304 S.E.2d 353, 357 (W. Va. 1983) (holding that, under West Virginia law, Aan arbitration award rendered pursuant to the terms of a commercial contract@ will not be reviewed Aexcept for actual fraud@). Cardinal also contends that
the provision requiring Aero-Smith to pay only book value less depreciation for the hangar in the event of a default is an unconscionable contract provision, evidenced by the fact that the appraised value exceeded $700,000 and that Cardinal had
recently rejected offers by Aero-Smith and JetLink to purchase the rights to the hangar for in excess of $600,000. 7 See Ashland
Oil, Inc. v. Donahue, 223 S.E.2d 433, 440 (W. Va. 1976) (noting that unconscionable contract provisions may be unenforceable); Barber, 304 S.E.2d at 357 (noting that the courts will also Ainquire into such matters as whether the agreement to arbitrate was a contract of adhesion and whether the arbitration is proper under the totality of the commercial circumstances@). At the outset we note that Cardinal does not contend that there was partiality, corruption, or fraudulent behavior on the part of the arbitrator, which can serve as the basis for setting aside an arbitration award. contests, in isolation, Nor does it appear that Cardinal the validity of the arbitration
provision contained within the sublease.
Beyond this, however,
Cardinal=s claimed right to set aside the arbitration award on the basis of fraud and unconscionability is not always clearly articulated or consistent. Giving Cardinal the benefit of the first,
doubt, however, we construe the argument to be two-fold:
that the arbitration award was fraudulently procured by AeroSmith by its use of the termination and compensation provisions in the arbitration proceeding and, second, that the termination and compensation provisions in the sublease agreement are
unenforceable under West Virginia law. 2
Neither claim, however,
entitles Cardinal to relief from the arbitration award. First, Cardinal=s assertion that we must set aside the
arbitration award because Aero-Smith fraudulently procured it by including the termination and compensation provisions and using them in the arbitration proceeding years later to Asteal@ the hangar from Cardinal Air is without merit. The notes of the
September 1998 meeting between Aero-Smith and the Authority were in the possession but of Cardinal chose not during to the arbitration this argument
The parties have jointly argued that West Virginia law exclusively governs the claims on appeal, as they have been articulated by Cardinal. To the extent Cardinal seeks to avoid enforcement of the arbitration award by asserting that the sublease agreement is unenforceable because Aero-Smith fraudulently entered into the agreement and because the agreement is unconscionable, we agree that West Virginia law would govern the enforceability of the contract. With regard to the arbitration award itself, West Virginia statutory and case law does not materially differ, for purposes of this appeal, from the Federal Arbitration Act, which requires the enforcement of arbitration agreements Asave upon such grounds as exist at law or in equity for the revocation of any contract,@ 9 U.S.C.A. ' 2 (West 1999), and which allows the court to vacate any arbitration award that Awas procured by corruption, fraud, or undue means,@ 9 U.S.C.A. ' 10(a)(1) (West Supp 2008); see W. Va. Code ' 55-10-4 (providing that A[n]o [arbitration] award shall be set aside, except for errors apparent on its face, unless it appears to have been procured by corruption or other undue means, or by mistake, or that there was partiality or misbehavior in the arbitrators, or any of them, or that the arbitrators so imperfectly executed their powers that a mutual, final and definite award upon the subject matter submitted was not made@). 9
before the arbitrator.
In any event, the statement made by the
Authority representative during the meeting falls woefully short of establishing that Aero-Smith procured the arbitration award through fraudulent means or behavior. Cardinal was not present
at the meeting and the meeting took place before the sublease agreement was drafted or executed by Cardinal and Aero-Smith, both of whom are sophisticated commercial parties. if the sublease agreement between Cardinal and Thus, even Aero-Smith
contravened the statement made at the meeting by the Authority=s representative, this does not render the termination or
compensation provisions included by these sophisticated parties fraudulent or unconscionable. Furthermore, the arbitrator
addressed and dismissed Cardinal=s allegation that Aero-Smith was attempting to Asteal@ the hangar in the arbitration proceedings and found instead that Athe testimony regarding the hangar sale offers and responses by the Cardinal principals, the sellers, reflects a pattern of good faith offers, on the one hand, and unreasonable responses, on the other.@ J.A. 117. Thus, Cardinal
has clearly failed to demonstrate the requisite fraud on the arbitration proceedings necessary to set aside the arbitration award. Second, Cardinal=s claim that the sublease agreement is
unenforceable under state law because the termination provision 10
unconscionable are counsel
Cardinal retained no
sophisticated to draft the a
commercial sublease lack of
parties. agreement meaningful which
Furthermore, value of
provision, by book
value of the hangar minus eight years of depreciation, does not render applied the by agreement the unconscionable. it On the contrary, as
forfeiture of the hangar in the case of a breach by Cardinal. B. Cardinal next contends that the arbitration award should be set aside because the arbitrator, in reaching the conclusion that Cardinal was in default, A>ignore[d] the plain language of the contract=@ and reformed its terms in disregard of West
Upshur Coals Corp. v. United Mine Workers of Am.,
Dist. 31, 933 F.2d 225, 228 (4th Cir. 1991) (quoting United
As noted earlier, the sublease agreement appears to only provide for such payment in the event of cancellation or termination Afor any cause other than a breach of or default by@ Cardinal. J.A. 64 (emphasis added). However, the arbitrator believed that termination without compensation was Atoo severe a remedy . . . in view of all the circumstances.@ J.A. 117.
Paperworkers Int=l Union v. Misco, Inc., 484 U.S. 29, 38 (1987)). We are unpersuaded. As noted above, the sublease agreement was Asubject to
termination by@ Aero-Smith in the event of Adefault by [Cardinal] in the performance of any terms, covenants or conditions of
th[e] [a]greement, and the failure of [Cardinal] to remedy, or undertake to remedy, to [Aero-Smith=s] reasonable satisfaction, such default for a period of thirty (30) days after receipt of notice from [Aero-Smith] to remedy the same.@ argues the arbitrator altered this language J.A. 63. to Cardinal that
Cardinal remedy the default within thirty days, rather than to require only that Cardinal Aundertake to remedy@ the default Afor@ 30 days. Cardinal claims that it did Aundertake to remedy@ the
default Afor@ thirty days because it had obtained a new manager within this time frame, even though it had not obtained
approval. On judicial review, A[a]n arbitrator=s award is entitled to a special degree of deference.@ Upshur, 933 F.2d at 228. A>The
arbitrator may not ignore the plain language of a contract,=@ but the A>court should not reject an award on the ground that the arbitrator misread the contract.=@ Id. at 228-29 (quoting Misco, The
484 U.S. at 38); see also Choice Hotels, 491 F.3d at 177. arbitrator=s interpretation of 12 the law is also
arbitrator is even arguably construing or applying the contract,= a court may not vacate the arbitrator=s judgment.@ Choice
Hotels, 491 F.3d at 177 (quoting Misco, 484 U.S. at 38). Cardinal has failed to demonstrate that the arbitrator
disregarded the plain language of the sublease or disregarded the applicable law. The sublease agreement provides that it is
subject to termination if Cardinal fails to undertake to remedy its default Ato [Aero-Smith=s] reasonable satisfaction . . . for a period of thirty (30) days.@ describe default the that required Cardinal duration must J.A. 63. of the The language does not attempt it to remedy the the
amount of time that Cardinal must not allow to go by before making its attempt. This created an objective standard by which
the arbitrator was to judge the efforts of Cardinal to remedy their non-compliance with the terms of the sublease agreement. The arbitrator did just that, expressly finding that Cardinal was continually noncompliant with the standards set forth in their sublease, even after being placed on notice of the
The arbitrator=s use of the word Awithin@ in the award
was not used to place an additional term into the contract, but to explain that Aero-Smith=s dissatisfaction with the remedial steps taken by Cardinal was reasonable. 13 The arbitrator found
discontinued their unauthorized use of the [hangar] for aircraft storage and maintenance within thirty days of receipt of the notice of breach, obtained the requisite [hangar] insurance and named the Authority and Aero-Smith as named insured, and
cooperated fully with the Airport manager and the Authority, this might be a closer question.@ J.A. 116. Instead, they Adid
none of these things, . . . persisted in their unauthorized use of the [hangar] with the Authority and Aero-Smith at risk, and hid their misconduct from the Authority.@ J.A. 116. Thus, as
found by the arbitrator, Cardinal Achose to continue its default@ and Aconceal its misconduct@ instead of undertaking to cure the breaches. J.A. 116. In short, we do not perceive the
arbitrator=s use of the word Awithin@ as an assertion that the sublease required that every deficiency must be cured in thirty days, but rather that Cardinal did not take reasonable steps to correct attempt its to noncompliant cure the operations with and, the therefore, thirty days did to not the
reasonable satisfaction of Aero-Smith. C. Finally, Cardinal claims that the arbitration award must be set aside because it orders AAero-Smith and/or JetLink@ to pay the $228,891.30 award, even though JetLink was not added to the 14
arbitration proceedings after it purchased Aero-Smith=s assets. We are unpersuaded. First, contrary to Cardinal=s assertion, the terms of the sublease agreement, which provides for when outside parties may be joined in an arbitration under the agreement, did not require JetLink=s joinder in the arbitration proceedings and, while the provision may well have allowed it, neither party took steps to join JetLink. Second, as recognized by both the arbitrator and the
district court, the failure to join JetLink in the arbitration proceedings does not affect the validity of the award as
rendered or JetLink=s legal obligation to render payment pursuant to it. When Aero-Smith sold all of its assets, including the Astep[ped] in the shoes liable to render
sublease agreement, to JetLink, JetLink of [its] assignor,@ Aero-Smith, and
payment to Cardinal upon the latter=s surrender of the premises. Cook v. Eastern Gas and Fuel Assocs., 39 S.E.2d 321, 326 (W. Va. 1946). Additionally, even as a nonsignatory, JetLink rendered Generally, a party See State ex
itself bound by the arbitrator=s decision.
may not be subject to arbitration without consent.
rel. City Holding Co. v. Kaufman, 609 S.E.2d 855, 859 (W. Va. 2004) (per curiam); International Paper Co. v. Schwabedissen
Maschinen & Anlagen GMBH, 206 F.3d 411, 416 (4th Cir. 2000). 15
However, a nonsignatory Acan agree to submit to arbitration by means other than personally signing a contract containing an arbitration clause.@ International Paper, 206 F.3d at 416. For
example, the doctrine of equitable estoppel Arecognizes that a party may be estopped from asserting that the lack of his
signature on a written contract precludes enforcement of the contract=s arbitration clause when he has consistently maintained that other provisions of the same contract should be enforced to benefit him.@ Id. at 418. Here, JetLink assumed the benefits of
the arbitration provisions by taking possession of the hangar, voluntarily joined in this action to enforce the award, admits that it is bound by the arbitration that it award as Aero-Smith=s to pay the
amounts due to Cardinal.
As a result, the arbitration award
need not be set aside merely because the parties did not seek to officially add JetLink as a party to the arbitration proceedings below. III. For the foregoing reasons, the decision of the district court granting summary judgment to the plaintiffs is hereby
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