Balch v. Oracle Corporation

Filing 15

MEMORANDUM OPINION. Signed by Judge Deborah K. Chasanow on 11/15/2019. (sat, Chambers)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
:
DAVID BALCH
:
v.

:

Civil Action No. DKC 19-1353

:
ORACLE CORPORATION
:
MEMORANDUM OPINION
Presently pending and ready for resolution in this employment
contract case are the petition to vacate arbitration filed by
Plaintiff David Balch (ECF No. 1), the cross motion to confirm
arbitration award filed by Defendant Oracle Corporation, (ECF No.
7), and the joint motion to seal filed by both parties, (ECF No.
4).

The issues have been fully briefed, and the court now rules,

no hearing being deemed necessary.

Local Rule 105.6.

For the

following reasons, the petition to vacate will be denied, and the
motion to confirm will be granted, as will the motion to seal.
I.

Factual and Procedural Background1
Plaintiff David Balch joined Oracle Corporation (“Oracle”) in

2005.

(ECF No. 1-1, at 200).

For the next ten years, he worked

in Oracle’s National Security Group as a Vice President of Software

1

Unless otherwise noted, these facts are drawn from the
undisputed facts included in the “Procedural History” section of
the arbitration award (ECF No. 1-1, at 200-226) issued by the
arbitrator.

Sales.

(Id.).

In 2014, Mr. Balch announced that he planned to

retire at the end of the year.
Dodson,

requested

that

Mr.

(Id.).

Balch

stay

Mr. Balch’s boss, Glen
on

to

close

a

large

government contract that would come to be known as the “Mega Deal.”
(Id., at 201).

Mr. Balch agreed, and instead of retiring, signed

onto a new contract, known as the Fiscal Year 2015 Individualized
Compensation Plan (“the 2015 Compensation Plan”).

(Id., at 203).

The terms of that contract — which form the basis of this dispute
– are discussed at length below.

Mr. Balch ultimately closed the

Mega Deal, earning Oracle about $150 million in revenue.

(Id., at

201).
Several months later, after following through on his plans to
retire,

Mr.

Balch

Compensation Plan.

received

a

bonus

pursuant

to

the

2015

Oracle’s ultimate bonus payment for the Mega

Deal amounted to only $904,908, well shy of the $3,950,454 which
Mr. Balch believed he was owed.

(Id., at 14).

Pursuant to the

2015 Compensation Plan, Mr. Balch issued a Demand for Arbitration
to both Oracle and Mr. Dodson.
Arbitration
arbitrator”).

ensued

(ECF No. 1-1, at 200).

before

(Id., at 200).

a

single

arbitrator

(“The

After a Motion to Dismiss Demand

for Arbitration, the arbitrator dismissed Mr. Dodson from the case,
and discovery – complete with several depositions – commenced.
(Id., at 203).

Following discovery, both Mr. Balch and Oracle

filed motions pursuant to JAMS Rule 18, which the arbitrator
2

treated as motions for summary judgment under Fed. R. Civ. P. 56.
(Id.).

An oral hearing was conducted.

The arbitrator ruled for Oracle on both the remaining counts
in Mr. Balch’s Demand.

In so doing, The arbitrator determined

that 1) there were no material facts in dispute that would require
a hearing on the merits, 2) Oracle did not breach Mr. Balch’s 2015
Compensation Plan by its decision not to pay him a larger bonus,
and 3) Oracle did not violate the Maryland Wage Payment and
Collection Law (“MWPCL”) by breaching either the 2015 Compensation
Plan or by failing to pay Mr. Balch wages which were “due” to him.
(Id., at 203-04).
Mr. Balch filed a Petition to Vacate Arbitration Award in the
Circuit Court for Howard County, Maryland, which Oracle removed to
this court on May 8, 2019.

(ECF No. 1).

A week later, Oracle

filed its motion to Confirm Arbitration Award.
II.

(ECF No. 7).

The Award
Primarily at issue in the award was the interpretation of the

2015

Compensation

Plan.

This

contract

was

made

up

of

two

documents: the “Fiscal Year 2015 Incentive Compensation Plan”
(“the Incentive Plan”), (ECF No. 3, at 98) and the “FY15 Incentive
Compensation Terms & Conditions” (“the Terms and Conditions”),
(Id.,

at

112-207).

The

former

purported

to

contain

an

individualized means of calculating Mr. Balch’s bonus payments,

3

while the latter described “the generally applicable provisions”
of Oracle’s compensation plans which would also apply to Mr. Balch.
The text of Mr. Balch’s 2015 Compensation Plan contained one
significant difference from his plan for 2014: in 2014, Mr. Balch’s
Incentive Plan capped Mr. Balch’s bonus at 250% of a measure
referred to as Mr. Balch’s “Annual Target Variable” – essentially
a target for the revenue Mr. Balch was expected to generate.

(ECF

No. 1-1, at 206). The 2015 Incentive Plan had no such cap, arguably
suggesting – at least in Mr. Balch’s reading – that he would be
owed a potentially far greater bonus were he to exceed his Annual
Target Variable of $301,636.

(Id., at 211).

In his Demand, and

in his subsequent motion for summary judgment, Mr. Balch contended
that the removal of the cap – and the likely subsequent receipt of
a far greater bonus as a result of the Mega Deal – induced him to
stay on in 2015.

(Id., at 35-36).

The arbitrator determined that Mr. Balch was wrong for two
reasons.

First, he determined that “[t]here [was] no evidence

that Oracle intentionally singled out Mr. Balch to receive an
uncapped FY 2015 Compensation Plan. One might speculate that the
company

uncapped

his

plan

as

a

reward

for

postponing

retirement. Such a theory would be mere speculation[.]”
215).

his

(Id., at

The arbitrator determined this by reference to virtually

every piece of evidence in the arbitral record, including the

4

deposition testimony of numerous Oracle executives.

(Id., at 212-

18).
Second, the arbitrator carefully parsed the language of the
contract

to

determine

1)

that

provisions

in

those

documents

“authorized Oracle to impose a cap on Mr. Balch’s FY 2015 bonus
plan when correcting an Administrative Error,” and 2) that the
failure to include a bonus cap constituted an “Administrative
Error” under the contractual definition of that term.
211-12).

(Id., at

In both cases, he cited liberally and accurately from

the contract, referencing virtually every relevant clause of the
contract in the process.
As to the MWPCL claim, the arbitrator devoted eight pages to
a thoughtful analysis of relevant Maryland law.

(Id., at 218-26).

In so doing, he discussed the handful of precedents the parties
had raised, ultimately concluding that a few were apposite, a few
were not, and one, Hausfeld v. Love Funding Co., 131 F.Supp.3d 443
(D. Md. 2015), “is wrong” and “misse[d] the point that” the other
cases had raised regarding similar compensation language.

The

arbitrator concluded that the language in the 2015 Compensation
Plan comported with the contractual language analyzed in a line of
Maryland cases “that deal[] with plan documents that authorize the
employer to modify a bonus plan at any time before the bonus is
paid,” and thus that Mr. Balch’s bonus was not a “wage.”
1-1, at 218, 225).
5

(ECF No.

III. Standard of Review
Review of an arbitrator’s award is severely circumscribed;
indeed, the scope of review is among the narrowest known at law
because to allow full scrutiny of such awards would frustrate the
purpose of having arbitrations at all – i.e., the quick resolution
of disputes and the avoidance of the expense and delay associated
with litigation.

See Apex Plumbing Supply, Inc. v. U.S. Supply

Co., Inc., 142 F.3d 188, 193 (4th Cir. 1998).

If there is a valid

contract between the parties providing for arbitration, and if the
dispute resolved in the arbitration was within the scope of the
arbitration clause, then the substantive review is limited to those
grounds set out in § 10 of the Federal Arbitration Act (“FAA”), (9
U.S.C. § 10(a)).
Section 10 allows for vacating an award 1) where the award
was procured by corruption, fraud, or undue means; 2) where there
was evident partiality or misconduct on the part of the arbitrator;
or 3) where the arbitrator exceeded his or her powers, or so
imperfectly executed them that a mutual, final and definite award
upon the subject matter submitted was not made.

Id.

In addition,

a court may overturn a legal interpretation of an arbitrator if it
is “in manifest disregard of the law.”

Apex Plumbing, 142 F.3d at

193 (“Federal courts may vacate an arbitration award only upon a
showing of one of the grounds listed in the [FAA], or if the
arbitrator acted in manifest disregard of the law.”); Upshur Coals
6

Corp. v. United Mine Workers of Am., Dist. 31, 933 F.2d 225, 229
(4th Cir. 1991).

Mere misinterpretation of a contract or an error

of law does not suffice to overturn an award.
F.2d at 229.

See Upshur, 933

The burden is on the party challenging an award to

prove the existence of one of the grounds for vacating the award.
IV.

Analysis
In his Petition to Vacate, Mr. Balch advances three arguments

in favor of vacatur: 1) “The Award ignores the essence of the
parties’ agreement for Oracle to pay Balch Sales Compensation”
(ECF

No.

1-1,

at

17);

2)

“The

Arbitrator

deprived

Balch

a

fundamentally fair hearing” (Id. at 22-25); and 3) “The Award
manifestly disregards the Maryland Wage Law” (Id., at 25-30).
its Motion to Confirm, Oracle disputes all three.
A.

In

(ECF No. 7-1).

Essence of the Contract

Mr. Balch argues that where an award “fails to draw its
essence” from the parties’ contract, a petitioner is entitled to
vacatur.

(ECF No. 1-1, at 16-17).

An award does not “draw its

essence” from the contract when the result “is not rationally
inferable from the contract.”

Patten v. Signator Ins. Agency,

Inc., 441 F.3d 230, 235 (4th Cir. 2006).

“In other words, a court

may question the arbitrator’s interpretation, but it may not vacate
the award unless that interpretation is so misguided as to be
irrational.”

Sinai Hosp. of Balt., Inc. v. 1199 SEIE United

Healthcare Workers E., 65 F.Supp.3d 440, 445 (D. Md. 2014).
7

A

court may only vacate on these grounds if 1) the contract is
unambiguous and 2) the arbitrator has disregarded or modified the
unambiguous provisions “or based an award upon his own personal
notions of right and wrong[.]” Three S Delaware, Inc. v. DataQuick
Information Systems, Inc., 492 F.3d 520, 528 (4th Cir. 2007).
Mr. Balch’s argument misconstrues this standard.
that

the

arbitrator

did

not

use

the

contract

in

He suggests
making

his

decision, but rather a “modification of the 2015 Compensation Plan
to transform an uncapped compensation structure” which “ignores
the essence of Balch’s employment contract.”
20).

(ECF No. 1-1, at

Mr. Balch seems to believe that 1) Oracle was contractually

obligated to pay him an uncapped bonus which aligned to the penny
with the formula in his 2015 Compensation Plan, 2) Oracle’s payment
of a 300% bonus violated the contract because it was “arbitrary
and capricious”, and 3) the payment of a 300% bonus proved that
Oracle never intended to cap his bonus at 250%.

(Id., at 19-21).

These arguments, and not the arbitrator’s Award, ignore the terms
of the contract.
While the 2015 Compensation Plan does contain an (uncapped)
formula for calculating Mr. Balch’s bonus, it also includes the
following language:
I understand that I do not earn Commission or
Bonuses until the Company makes any and all
final
determinations
and
adjustments,
modifications or changes described in Section
IV F of the FY 15 Terms and Conditions. . . I
8

agree that any such adjustments, modifications
or changes will constitute an application of
the terms of the Plan as opposed to a
unilateral change by Oracle, and I accept that
they will be fully binding.
(ECF No. 3, at 98).
Likewise, the 2015 Terms and Conditions state the following,
which the arbitrator quoted and analyzed at length:
Sales activities and the sales process at
Oracle can be and often are extremely complex.
Oracle, sales management, and Employees
themselves
may
encounter
unforeseen
situations and have to adapt to unique sales
situations and constantly changing markets and
technologies which can produce circumstances
in
which
fairness
and
equity
require
management
of
sales
compensation
more
appropriately
tailored
to
particular
circumstances than is possible under a single
written document.
Accordingly, for those reasons, and not to
impose arbitrary and capricious treatment on
employees, the Company reserves the right in
its sole discretion to adjust, modify or
change the Individualized Compensation Plan
and/or these FY 15 Incentive Compensation
Terms and Conditions, during or after close of
the fiscal year, including but not limited to
making such adjustment, modification or change
for the purposes of addressing Administrative
Errors,
Unanticipated
Circumstances,
the
impact of Acquisitions, inaccurate Sales
Targets (i.e., quotas) and for the purposes of
addressing payments or potential payments
which are either beyond those reasonably
contemplated by the Company and/or which fail
to reflect a reasonable valuation of the
Employee’s contribution toward a transaction
or group of transactions. (emphasis added)
On the same
discretion

basis as the
to
modify
9

Company retains
individualized

Compensation Plans and the FY 15 Incentive
Compensation Plan Terms and Conditions,
adjustments, modifications and changes may be
made at any time to Sales Credits, Commission
Rates, Commissions, Sale Targets, Bonuses,
terms of a Bonus Plan funding formulas, or any
other applicable terms and conditions, which
may result in a decrease or increase in
compensation including but not limited to the
imposition of a Maximum Commission on total
earnings for a single transaction, group of
transactions or for the entire fiscal year.
The modifications provided for in this section
are valid only if approved by a President, and
Executive
Vice
President
(EVP
or
EVP
equivalent or his/her designee and Global
Incentive Compensation (CIC) through the
approval process. (emphasis added)
A new Individualized Compensation Plan need
not be issued to the Employee in order for the
modification described herein to be effective.
. . [T]he Company retains the right to make
the modifications at any time during the
fiscal year and until final year-ending
closing
and
reconciliation
of
Employee
Individualized Compensation Plans. (emphasis
added)
Employees do not earn Commissions or Bonuses
until the Company makes any and all final
determinations
and
adjustments,
modifications, or changes described above and
in Section 4 IV.
(ECF No. 1-1, at 209-10).
While quoting at length and devoting a significant word count
to interpretation does not guarantee that the arbitrator has
followed “the essence of the contract,” there is nothing to suggest
that the arbitrator disregarded, modified, or even misinterpreted
the contract.

Tellingly, Mr. Balch relies less on the words of

10

the contract than on his argument that “[t]here was no evidence,
and

the

Arbitrator

did

not

cite

any,

that

any

purported

‘Administrative Error’ was anything but a unilateral mistake by
Oracle.”
The

(ECF No. 1-1, at 18).
arbitrator

explicitly

addressed

the

contractual

definition of an “administrative error,” correctly interpreted the
contract to confer “sweeping” powers on Oracle “[w]hen it is
correcting an Administrative Error,”

and devoted the better part

of seven pages – all laden with deposition testimony – to the
proposition that “[t]here is no evidence that Oracle intentionally
singled out Mr. Balch to receive an uncapped FY 2015 Compensation
Plan.”

(ECF No. 1-1, at 211-18).

In other words, the arbitrator

did cite considerable evidence that the failure to insert a cap
was an “Administrative Error” as that term was defined in the
contract.

Because the arbitrator’s Award comported with the

essence of the contract, the court will not vacate on these
grounds.
B.

Fair Hearing

Mr. Balch’s next argument is that “the Arbitrator deprived
Balch of a fair hearing as to whether a cap ‘should have been there
all along.’”

(ECF No. 1-1, at 22).

Mr. Balch suggests that

deposition testimony, coupled with the language of the contract,
rendered the record so full of “material disputes of fact” that it
“required a full evidentiary hearing to resolve.”
11

(Id.).

As an initial matter, the fact that Mr. Balch moved for
summary judgment does not in and of itself render his argument
contradictory.

To argue at this stage that the arbitrator was

wrong to find “no material disputes of fact” because the record
was uncontroverted that Oracle’s interpretation of events was
correct does not contradict his argument at an earlier stage that
there were “no material disputes of fact” because the record was
uncontroverted

that

Mr.

Balch’s

have

broad

interpretation

of

events

was

correct.
“[A]rbitrators

discretion

to

set

applicable

procedure.” Wachovia Securities, LLC v. Brand, 671 F.3d 472, 480
(4th Cir. 2012).

Mr. Balch relies on a single, decades old,

unreported decision from the United States District Court for the
District of Columbia holding that “[b]y deciding [an arbitration]
on summary judgment, the arbitrators denied [a party’s] rights to
present its case in full and to test [the opposing party’s] case
through cross-examination.”

Chem-Met Co. v. Metaland Intern.,

Co., 1998 WL 35272368, at *4 (D.D.C., March 25, 1998).
however,

does

arbitration.

not

categorically

bar

summary

Chem-Met,

judgment

in

Nor is Chem-Met exactly on point: that decision

relied in large part (albeit without much explanation) on an
interpretation of AAA arbitration rules; this arbitration was
conducted under JAMS rules.

(Id., at *4).

12

More recent, published decisions contradict the sweeping
significance Mr. Balch assigns to Chem-Met.

See, e.g., ARMA,

S.R.O. v. BAE Systems Overseas, Inc. 961 F.Supp.2d 245, 264-64
(D.D.C. 2013) (“a number of other courts have found that the use
of summary judgment procedures in arbitration is not fundamentally
unfair . . . even when the arbitrator has decided to dispense with
oral hearings altogether.”). While courts in this circuit have not
squarely addressed summary judgment in arbitration, the court in
ARMA correctly noted that other federal courts have overwhelmingly
concluded that arbitrators’ broad discretion includes a free-hand
to decide cases on summary judgment.

See, e.g., Sheldon v.

Vermonty, 269 F.3d 1202 (10th Cir. 2001); Campbell v. American
Family Life Assur. Co. of Columbus, Inc., 613 F.Supp.2d 1114, 111819 (D. Minn. 2009); TIG Ins. Co. v. Global Intern. Reinsurance
Co., Ltd., 640 F.Supp.2d 519, 523 (S.D.N.Y. 2009); Matter of
Arbitration between InterCarbon Bermuda, Ltd. And Caltex Trading
and Transport Corp., 146 F.R.D. 64, 72-73 (S.D.N.Y. 1993).
The proposition that summary judgment can be appropriate in
arbitration is, as far as the court can tell, uncontradicted. But
even assuming that in some cases, use of summary judgment could
constitute a denial of a fair hearing, that is not the case here.
Just as the Fourth Circuit has been unequivocal in enforcing the
broad procedural discretion of arbitrators, so too has it been
crystal clear that “not every failure of an arbitrator to receive
13

relevant evidence constitutes misconduct requiring vacatur of an
arbitrator’s

award.”

e.Spire

Communications,

Inc.

v.

CNS

Communications, 39 Fed.Appx. 905, 910 (4th Cir. 2002); see also
Three S Delaware, 492 F.3d at 531-32.
In fact, Mr. Balch does not so much argue that the arbitrator
failed to hear evidence as he argues that he misinterpreted that
evidence and made faulty decisions on witness “credibility.” (ECF
No.

1-1,

at

24).

Section

10

of

the

FAA

does

not

include

misinterpretation of evidence as a ground for vacatur.

The

“fundamentally fair hearing” standard applies to an arbitrator’s
“refusing

to

controversy[.]”

hear

evidence

pertinent

and

material

to

the

e.Spire Communications, Inc., 39 Fed. Appx. at

910 (“a federal court may vacate an arbitrator’s award only if the
arbitrator’s refusal to hear pertinent and materials evidence
deprives a person of a ‘fundamentally fair hearing’”) (citing UMWA
v. Marrowbone Dev. Co., 232 F.3d 383, 385, 388 (4th Cir. 2000)).
Because the arbitrator had full discretion to determine the
case on summary judgment, because petitioner can point to no
failure to hear evidence, and because the arbitrator otherwise
afforded Mr. Balch a full and fair hearing through extensive
briefing and discovery, the court will not vacate the Award on
these grounds.

14

C.

Manifest Disregard

Finally,

Mr.

Balch

argues

that

disregards the Maryland Wage Law.”

“[t]he

Award

manifestly

(ECF No. 11, at 7).

Mr.

Balch’s real argument is that the arbitrator misapplied the MWPCL,
not that he disregarded it.

Again, Mr. Balch misconstrues both

the language of the Award and the exacting standard for manifest
disregard.
As the Second Circuit has put it, an arbitration award should
not be deemed in “manifest disregard” of the law where there is
even a “barely colorable justification” for the award.

Duferco

Int’l Steel Trading v. T Klaverness Shipping A/S, 333 F.3d 383,
391 (2d Cir. 2003).

Courts in this circuit have uniformly agreed,

noting that “mere errors of law[,]” do not constitute manifest
disregard

and

that

where

an

arbitrator

“diligently

and

conscientiously considered [] affirmative defense and contract
interpretation contentions, identified the correct principles of
controlling Maryland law which informed its decision, and reached
well-considered, though disparate, legal conclusions,” a court
should not vacate an award for manifest disregard of law.

Md.

Transit Admin. v. Nat’l R.R. Passenger Corp., 372 F.Supp.2d 478,
484-85 (D.Md. 2005).

See also, Frye v. Wild Bird Ctrs. of America,

Inc., 237 F.Supp.3d 302, 307 (D.Md. 2017) (“faulty legal reasoning,
or an erroneous legal conclusion does not suffice to overturn an
award”) (citing Upshur Coals Corp., 933 F.2d at 229).
15

Federal

courts

conduct

a

two-part

inquiry

to

determine

whether an arbitrator has acted in manifest disregard of law: 1)
is the applicable legal principle clearly defined and not subject
to reasonable debate? And 2) did the arbitrator refuse to heed
that legal principle?

UBS Fin. Servs., Inc. v. Padussis, 127

F.Supp.3d 483, 498 (D.Md. 2015) (citing Wachovia Securities, LLC,
671 F.3d at 483). In the Award, the arbitrator determined, through
well-reasoned analysis, that there is a contradiction in Maryland
courts’ application of the MWPCL.

(ECF No. 1-1, at 224).

It is

not this court’s place to pass on the merits of the arbitrator’s
contention that Hausfield v. Love Funding Co., 131 F.Supp.3d 443
(D.Md. 2015) is at odds with Varghese v. Honeywell Int’l Inc., 424
F.3d

411

(4th

Cir.

2005)

and

Sorensen

v.

Westec

Interactive

Security, Inc., 2008 WL 11367535 (D.Md. Sept. 2, 2008).

This

court’s job is merely to determine whether this contention is
subject to “reasonable debate.”

It is.

As to the second part of the inquiry, Mr. Balch argues that
“the Arbitrator fundamentally failed to apply the Wage Law, because
he failed to determine whether Balch’s 2015 Incentive Compensation
‘was exchanged for Balch’s work, and therefore was a wage.’”
No. 11, at 7).
controlling

(ECF

He argues that the arbitrator failed to heed the

legal

principle.

This

is

plainly

untrue:

the

arbitrator’s analysis specifically addressed whether the 2015
Compensation Plan aligned with a line of Maryland cases dealing
16

with “plan documents that authorize the employer to modify a bonus
plan at any time before the bonus is paid,” the import being that
in such cases, no bonus is “promised” and that an “unpromised”
bonus falls without the definition of a “wage” under Maryland law.
(ECF No. 1-1, at 218-25).
As the arbitrator put it, “the documents that define Mr.
Balch’s employment and compensation relationship state clearly and
at length that his bonus is unpromised, and, therefore, unearned
until

Oracle

has

exercised

Administrative Errors.”

its

(Id. at 23).

discretion

to

correct

The arbitrator then applied

the correct controlling principle of law: the MWPCL “protects the
proper expectation of promised renumeration.

Where there is no

promise, there can be no proper expectation.

Defining ‘wage’ as

the Maryland courts have done advances this goal.”
Varghese, 424 F.3d at 420).

(Id.) (citing

Contrary to Mr. Balch’s assertions,

then, the arbitrator concluded, in no uncertain terms, that Mr.
Balch’s bonus was not a “wage.”
Because the arbitrator identified the controlling principles
of the MWPCL, reasonably determined that an ambiguity existed in
the application of the law to apposite cases, and heeded the legal
principles laid out in the cases he perceived to be correct and on
point, the court cannot find that the arbitrator acted in manifest
disregard of the MWPCL.

Accordingly, the court will not vacate

the award on these grounds.
17

V.

The Motion to Seal
The motion to seal certain exhibits to and redact certain

content in Plaintiff’s petition to vacate will be granted for the
reasons

asserted.

The

parties

have

already

redacted

the

appropriate material in the copy that was electronically filed and
have filed both complete and redacted versions.
VI.

Conclusion
For the foregoing reasons, the petition to vacate will be

denied and motion to confirm arbitration award will be granted, as
will the joint motion to seal.

A separate order will follow.

/s/
DEBORAH K. CHASANOW
United States District Judge

18