Aero-Smith Inc v. Cardinal Air LLC

Filing 920081203

Opinion

UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 07-1686

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)

Argued:

September 22, 2008

Decided:

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Affirmed by unpublished per curiam opinion.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Unpublished opinions are not binding precedent in this circuit.

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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

operation

agreement Authority

with (the

West

Virginia

Regional in turn, which

AAuthority@). agreement to build with a

Aero-Smith, Cardinal on

into was

a

sublease

under

authorized

hangar

the

subleased Among to

property to be used for aircraft storage and maintenance. other things, Cardinal was obligated under the

agreement

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

undertake

remedy

3

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

property

(i.e.,

hangar),

less

predetermined

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

arbitration

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.

Among

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

provision

of

sublease

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

1

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

6

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

Cardinal

during

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

8

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

proceedings,
2

Cardinal

pursue

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

was

fraudulently

included is

by

Aero-Smith

and

because

the

compensation both

provision and

unconscionable are counsel

also

fails.

Again,

Aero-Smith

Cardinal retained no

sophisticated to draft the a

commercial sublease lack of

parties. agreement meaningful which

Cardinal and

offered

evidence

demonstrating compensation

choice. the

Furthermore, value of

the

provision, by book

determines

Cardinal=s

improvement

value of the hangar minus eight years of depreciation, does not render applied the by agreement the unconscionable. it On the contrary, as

arbitrator, 3

effectually

prevented

total

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

Virginia law.

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.

3

11

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

require

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

accorded

deference.

See

Upshur,

933

F.2d

at

229.

A>As

long

as the

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

make.

Rather,

describes

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

default.

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

that,

A[h]ad

Cardinal

and

[its

newly

appointed

manager]

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

default

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

became

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

successor,

and

represents

stands

ready

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

affirmed. AFFIRMED

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