SANTOMENO v. UNITED STATES MINERAL PRODUCTS COMPANY et al

Filing 7

OPINION. Signed by Judge Kevin McNulty on 1/7/13. (dc, )

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
CHARLES SANTOMENO,

Civ. No. 2:12-3782 (KM)
Petitioner,
OPINION

V.

UNITED STATES MINERAL
PRODUCTS COMPANY d/b/a
ISOLATEK INTERNATIONAL,
Respondent.
KEVIN MCNULTY, U.S.D.J.:

This action comprises the motions brought by the Petitioner, Charles
Santomeno, to vacate, and by the Respondent, United States Mineral Products
Company d/b/a Isolatek International (“Isolatek”) to confirm, a May 11, 2012,
arbitration award in favor of Isolatek (the “Award”). The Award was rendered by
Rolando Torres, Esq., an arbitrator assigned to resolve the parties’ dispute by
the American Arbitration Association (the “AAA”) in accordance with the
arbitration provision in Santomeno’s employment contract. This motion is
decided without oral argument. See Fed. R. Civ. P. 78(b).
The arbitrator found that Santomeno had breached his employment
agreement and awarded Isolatek recoupment of certain salary and benefits it
had paid to Santomeno. Santomeno moved to vacate part of the Award, arguing
that the arbitrator exceeded his authority under the agreement by awarding
recoupment of amounts paid outside the limitations period outlined in the
arbitration provision of his employment agreement. Isolatek cross-moved to
confirm the arbitration award.
For the reasons set forth below, Isolatek’s Cross-Motion to Confirm the
Award is granted because the award draws its essence from Santomeno’s
employment agreement. Santomeno’s Motion to Vacate the Award is denied.

1

I.

1
BACKGROUND
A. Summary

This dispute stems from the fraying of the employment relationship
between Isolatek, a company that manufactures fire retardants, and
Santomeno, a long-time employee at the executive level.
Santomeno began working for Isolatek in 1973 and, except for one year
in the 1970s, stayed at Isolatek until 2009, ultimately serving as President and
Chief Operating Officer. (Interim Arb. Opinion and Award (the “Interim Op.”) at
3 [ECF No. 1-81). When his contract was set to expire, he and Isolatek entered
into a new employment agreement dated December 15, 2004 (the “Employment
2
Agreement”).
-

In the spring of 2007, Isolatek’s Board appointed a new CEO, Giovanni
Pacheco. (Id. at 4). Pacheco and Santomeno disagreed on Santomeno’s role.
(Id.). On September 4, 2007, the conflict escalated when Santomeno refused to
go on a business trip and instead indicated he would file for arbitration. (Id.).
Pacheco then placed Santomeno on administrative leave, although all of the
terms and conditions of the Employment Agreement remained in full force and
effect. (Id. at 4-5). Santomeno’s employment, and the Employment Agreement,
terminated on January 31, 2009. (Cohen Cert., Ex. C at 29 [ECF No. 1-6]).
A few months later, on June 17, 2009, Santomeno filed the underlying
arbitration action, alleging that he was not paid his bonuses for 2006-2009 or
his last three months’ salary, as required by the Employment Agreement.
(Interim Op. at 1). Isolatek counterclaimed for breach of contract, breach of
duty of loyalty, and breach of the restrictive covenant in the Agreement, based
on contacts between Santomeno and a competitor. (Id. at 1, 12-17).
Santomeno’s bonus claims for 2006-07 were denied on summary judgment
1

The facts recited in the parties’ Motions are stated to provide the
background of the dispute. The Court is not making its own factual findings in
this context.
2

In 2001, the company was placed under bankruptcy protection after
being named as a defendant in an asbestos litigation. Thus Santomeno actually
entered into the contract with Isolatek’s bankruptcy trustee.
The Employment Agreement provided for a year of severance pay, which
would have kept Santomeno on the payroll until January 31, 2010. (EmpI. Agr.
¶ 3 [ECF No. 1-4])
2

because they were filed outside of the
Employment Agreement. (Id. at 2). After
reviewing documentary and testimonial
award in favor of Isolatek in the amount
Award at 7-8 [ECF No. 1-9 at 7-8]).

one year limitations period in the
holding an evidentiary hearing and
evidence, the arbitrator entered an
of $797,736.50. (Final Decision and

B. The Employment Agreement
The Employment Agreement provided that Santomeno would serve as
President and Chief Operating Officer. In this role, he would report directly to,
and receive direction from, the Chairman and Chief Executive Officer. (Empl.
Agr. ¶ 1 [ECF No. 1-4]). In general, Santomeno would be responsible for
Isolatek’s day-to-day operations, and throughout his tenure, his

wQkmgtLmcncr
devoted to the performance of [his] duties [under the
Employment Agreement] in a manner which will faithfully
and diligently further the business of [Isolatek].
(Id.).

Santomeno and Isolatek agreed that any disputes related to the
Employment Agreement would be submitted to “final and binding arbitration
before a single arbitrator” in accordance with the AAA’s National Rules for
Resolution of Employment Disputes. The Employment Agreement contained a
limitations period in which Santomeno or Isolatek could file for arbitration:
To start the arbitration process, Employee or Company must
submit a written request to AAA within one (1) year of the
date on which the event giving rise to a cause of action
occurs.
Any failure to request arbitration within this
time frame shall constitute a waiver by Employee or
Company of all rights to raise any claims in any forum
arising out of any Claim that was subject to arbitration.
.

.

.

(Id. ¶ 6(d)) (emphasis added). The same provision also outlined the arbitrator’s
authority:

The arbitrator shall have all of the power of a court of law
and equity, including the power to order discovery, in the
arbitrator’s discretion, as is available under the then current
Federal Rules of Civil Procedure, and to grant legal and
equitable remedies.
3

(Id. ¶ 6(g)) (emphasis added).
C. The Arbitration
4
On June 17, 2009, Santomeno filed an arbitration grievance with the
AAA, claiming that he was not paid the bonuses due under the Employment
Agreement from 2006 to 2009. (Interim Op. at 1 [ECF No. 1-8]). On July 29,
2009, Isolatek asserted counterclaims for breach of contract, breach of duty of
loyalty, and breach of the restrictive covenant based on contacts between
Santomeno and a competitor. (Id. at 1, 12-17). Rolando Torres, Esq., of the AAA
Employment Arbitration Tribunal was appointed as arbitrator. (Isolatek Br. at 2
[ECF No. 4-1]).
Isolatek moved for partial summary judgment, arguing that Santomeno’s
fr 2Q
flkd tid Qf thQnyar.1imitaUPn
period, which started on June 17, 2008, one year prior to Santomeno’s filing.
(Interim Op. at 2 [ECF No. 1-8]). The arbitrator granted the motion, limiting
Santomeno’s bonus claims to those occurring on or after June 17, 2008.
(Decision on Motion for Summary Judgment at 6 [ECF No. 1-7]). The arbitrator
heard testimony over eight days between September 21, 2009 and December 9,
2009. (Interim Op. at 2 [ECF No. 1-8]). Both Santomeno and Isolatek presented
numerous witnesses, introduced evidence, and gave closing arguments. (Id.).
Arbitrator Torres then issued an interim decision.
D. The Interim Opinion and Award
After reviewing documentary and testimonial evidence, the arbitrator
issued an Interim Opinion and Award, dated February 16, 2012, which found
that Santomeno breached the Employment Agreement. (Id. at 19-22).
Consequently, he was not entitled to a bonus, and Isolatak was entitled to
recoupment of Santomeno’s salary, benefits, and bonuses from 2008 and 2009.
(Id.). Specifically, the arbitrator made the following findings:
•

Bonus Claims: The Employment Agreement stated that Santomeno
would be entitled to an annual bonus two times the highest paid

Prior to Santomeno’s filing his arbitration grievance, Isolatek sought an
injunction to enforce the non-compete provisions of the Employment
Agreement in the Superior Court of New Jersey, Chancery Division, Morris
County, entitled United States Mineral Products d/b/a Isolatek International v.
Charles Santomeno and Flame Seal Products, Inc., No. MRS-C-70-09. (Interim
Op. at 1 [ECF No. 1-8]; Isolatek Br. at 2 [ECF No. 4-1]). With the consent of the
parties, the judge ordered the matter referred to arbitration. (Id.).
4

bonus paid to any current employee. (Empi. Agr. ¶ 2(c) [ECF No. 1-41).
Santomeno argued that this provision entitled him to a bonus double
that of the CEO. (Interim Op. at 7 [ECF No. 1-8]). The arbitrator
interpreted the provision to mean an employee subordinate to
Santomeno because (1) Santomeno did not submit evidence that
supported his contention and (2) awarding a subordinate double the
bonus of the CEO would be counterproductive because of the CEO’s
greater responsibility. (Id.). The arbitrator also rejected Isolatek’s
argument that Santomeno orally waived his bonus because the
Employment Agreement required any modifications to be made in
writing. (Id. at 6). As to whether Santomeno was owed any annual
bonuses, Arbitrator Torres found that he was not because he
breached the Employment Agreement, as described below. (Id. at 21).
•

Restrictive Covenant: The Employment Agreement contained a
restrictive covenant, which included confidentiality and noncompetition/non-solicitation clauses. (Empi. Agr. ¶ 5 [ECF No. 1-4]).
Santomeno was further required to provide advance, written notice of
engaging in any conduct that could reasonably be construed as
violating those provisions. (Id. ¶ 5(i)). The arbitrator first found that
the restrictive covenant was enforceable under New Jersey law
because it was reasonable and the result of voluntary negotiations
between represented parties with valid consideration exchanged.
(Interim Op. at 10 [ECF No. 1-8]).
o

Duty of Loyalty: The arbitrator then noted that Santomeno owed
a duty of loyalty to Isolatek because, by virtue of his executive
responsibilities, he was in a fiduciary relationship with Isolatek.
(Id. at 11). Arbitrator Torres found that Santomeno breached
this duty of loyalty by, beginning in September 2007, repeatedly
meeting with representatives of a competitor, Flame Seal,
during his administrative leave without notifying Isolatek. (Id. at
11-12, 19).

o

Non-Competition! Non-Solicitation
and
Confidentiality
Provisions: The Employment Agreement prohibited Santomeno
from usurping business opportunities for his or a competitor’s
benefit. (Empi. Agr. ¶ 5 [ECF No. 1-4]). The arbitrator first found
that Flame Seal was a competitor of Isolatek for a particular fire
5

5
retardant product on which Santomeno advised Flame Seal.
(Interim Op. at 15 [ECF No. 1-8]). The arbitrator also found that
Santomeno had specific knowledge of Isolatek’s version of the
product. (Id. at 16). Based on (1) testimony describing multiple
meetings at which Santomeno and Flame Seal executives
discussed marketing strategies for Flame Seal’s competing
product and (2) emails from Santomeno that provided an
“elaborate market breakdown of the ‘North American Spray
Foam Industry” and sought greater information about the
product to improve its marketing, the arbitrator found that
Santomeno violated the confidentiality, non-compete, and non—
solicit provisions of his agreement. (Id. at 16-17) (emphasis in
original).
Arbitrator Torres then had d dtermIñ the dámajes to whiàh Isolàtek
was entitled based on Santomeno’s breach. (Id. at 20). He reviewed New Jersey
case law as it pertained to recoupment of wages by a disloyal employee,
including Cameco, Inc. v. Gedicke, 157 N.J. 504, 724 A.2d 783 (1999). (Interim
Op. at 20 [ECF No. 1-8]). Arbitrator Torres outlined the factors that Cameco
highlighted:
1) Were there contractual provisions addressing the issue?
2) Whether the employer knew of or agreed to its employee’s
secondary profit seeking activities?
3) The employee’s status and his or her relationship to the
employer, i.e. officer, director, or key executive?
4) The nature of the second income and its effect on the employer.
(Id. at 20-21). The arbitrator found that all of these factors fell in Isolatek’s
favor. First, he stated that the Employment Agreement had a non-compete
provision. (Id. at 21). Second, he noted that Santomeno did not notify Isolatek
about his desire to work with Flame Seal until March 9, 2009. (Id.). Third, he
observed that Santomeno was an executive and therefore had a higher duty to
Isolatek. (Id.). Fourth, Arbitrator Torres pointed out that Isolatek compensated

two products were Isolatek’s CAFCO Spray Film TB- 15 and Flame
Seal’s FX 100; “[b]oth products were designated for use as an intumescent fire
retardant barrier to be utilized over foam.” (Id. at 14).
6

Santomeno but did not receive the benefit of the bargain under the
Employment Agreement because Santomeno failed to honor it. (Id.).
Based on these findings, the arbitrator determined that Isolatek was
entitled to recoupment of Santomeno’s wages, benefits, and bonuses for 2008
and 2009. (Id. at 22). He rejected Santomeno’s argument that Isolatek suffered
no economic loss from his actions because, while the competitive advantage he
conferred on Flame Seal was difficult to calculate, Isolatek was not pursuing a
claim against Flame Seal in tort. Rather, it was seeking recoupment of the
precise amount it had paid Santomeno, an equitable remedy that fell within the
Employment Agreement’s very broad grant of authority to the arbitrator. (Id. at
21). The arbitrator then requested that the parties submit a post-hearing brief
on whether Santomeno was entitled to a “Stay Bonus” provided for in the
Employment Agreement. (Id.at 22).
E. Santomeno’s Post-Hearing Brief
In his February 24, 2012 post-hearing filing, Santomeno also argued that
he was entitled to keep the stay bonus because he received it prior to any
contact with Flame Seal, and beyond the one year limitations period. (Id.). He
did not, however, confine himself to the “stay bonus” issue, but instead raised
arguments against the recoupment award.
First, he argued that the Employment Agreement’s one year limitations
period should limit the period for which Isolatek could recoup money it paid to
Santomeno. Santomeno argued that, because the arbitrator ruled that
Santomeno could not pursue any bonus claims arising prior to June 17, 2008,
Isolatek likewise could “not recoup any monies paid to [Santomeno] prior to the
one year of the filing of their arbitration claim.” (Santomeno Ltr. to Arbitrator at
2 [ECF No. 1-10]).
Second, Santomeno highlighted the New Jersey Supreme Court’s
interpretation of the Second Restatement of Agency in Cameco, supra. Cameco
stated that an employer could recoup compensation from a periodically paid,
disloyal employee for the period during which the employee committed acts of
disloyalty. (Id.). From February 10, 2008 through February 1, 2009,
Santomeno claimed, he and Flame Seal did not communicate regarding Flame
Seal’s competing product; and the same is true for the period after April 17,
2009. (Id. at 2-3). Combining the one year limitations period with the absence

7

of disloyalty during these periods, Santomeno reasoned, would limit Isolatek’s
recoupment to February 1, 2009 through April 16, 2009. (Id. at 3).6
F. The Final Arbitration Decision and Award
On May 11, 2012, Arbitrator Torres issued a Final Decision and Award,
which responded to Santomeno’s post-hearing arguments.
Regarding the limitations period, the arbitrator stated:
With regard to the applicable period for measuring damages,
[Santomeno] raises the issue whether Isolatek’s claims
dating back to September 2007 were time barred based on
the one year statute of limitations period recited within the
employment contract. In this instance, [Santomeno] asserts
hth d1ôé üIë”1iit Töiãk’ ëëOVë tO
dating back to July 29, 2008, one year prior to their counter
claim being filed with the American Arbitration Association.
Furthermore, [Santomeno] asserts that Isolatek had
knowledge of [his] breach dating back to December of 2007,
when [he] met with Kurt Neff[, Isolatek’s Vice President of
Marketing,] and he revealed to Neff that he was going to meet
with another company in the industry. Based on the
testimony adduced at the arbitration, I find that the
information conveyed to Kurt Neff was not sufficiently
specific to alert him to a breach of Santomeno’s employment
agreement.
Accordingly, I find that [Santomeno]’s behavior prior to the
filing of Isolatek’s claims was geared to prevent the company
from ascertaining his overtures and involvement with Flame
Seal. Furthermore, the doctrine of equitable tolling is
applicable here as Isolatek has met its burden of
demonstrating that Santomeno’s misconduct led to the
Santomeno
6 also argued that recoupment of his wages was not legally or
equitably proportionate to any harm inflicted, because the amount of money he
received from Isolatek far outpaced the $100,000 of gross sales of TB-15, the
Isolatek product at issue. (Id.). He does not revive this dubious argument in his
Motion to Vacate the Award.

8

expiration of the “applicable limitations period.” Bernoski v.
Zarinski, 383 N.J. Super 127, 136 (App. Div. 2006)
(Final Decision and Award at 2 [ECF No. 1-9 at 5]).
Arbitrator Torres also rejected Santomeno’s
Isolatek was not entitled to recoupment for periods
committing disloyal acts, and his third argument
recouped was inequitable compared to the gross sales

second argument that
when he refrained from
that the amount to be
of the product:

The Appellate Division in Simulation Systems Technologies
v. Oldham, infra, denied the recovery of damages for a
disloyal employee where the record was “devoid of evidence
which pinpoints the pay period in which each disloyal act
wascommitted and the evidence shows the amount of
compensation apportioned to that period.” 269 N.J. Super.
107, 112 (App. Div. 1993). Here, Isolatek has clearly
identified the periods of disloyalty and Santomeno’s conduct
demonstrated a continuum of disloyalty both preceding
February 2008 and subsequent to February 2009. It would
clearly be unjust enrichment if Santomeno were to retain the
compensation paid by Isolatek for the period from February
2008 to 2009.
(Id. at 2-3 [ECF No. 1-9 at 5-6]).

Finally, the arbitrator found that Santomeno was entitled to keep the
“stay bonus” because Santomeno had fulfilled the requirements for the bonus
(remaining with Isolatek after a certain date) and because he had in any event
received that bonus payment outside the limitations period, over a year before
the arbitration claim was filed. (Id. at 3 [ECF No. 1-9 at 6]). Therefore, the
arbitrator permitted him to retain the stay bonus, even as it barred him from
receiving any further bonus payments. (Id.).
Arbitrator Torres then calculated the award due to Isolatek. The salary
and benefits, excluding taxes, that Santomeno received from Isolatek totaled
$323,752.00 in 2008 and $301,778.00 in 2009 for a total recoupment of
$625,530.00. (Id. at 4 [ECF No. 1-9 at 7]). Pursuant to the Employment
Agreement, the arbitrator awarded Isolatek $165,019.00 in attorney’s fees and
$7,187.50 in costs. (Id. at 4-5 [ECF No. 1-9 at 7-8]). The sum of the award to
Isolatek was $797,736.50.

9

On June 20, 2012, Santomeno timely filed his Motion to Vacate the
Arbitration Award pursuant to section 10 of the Federal Arbitration Act (the
“FAA”), 9 U.S.C. § 10. On July 2, 2012, Isolatek filed its opposition to
Santomeno’s Motion to Vacate and a Cross-Motion to Confirm the Arbitration
Award.
The parties’ Motions are properly before this Court pursuant to the FAA,
9 U.S.C. § 1 et seq., and 28 U.S.C. § 1331. Venue is proper in the District of
New Jersey pursuant to § 9 of the FAA, 9 U.S.C. § 9, and 28 U.S.C. § 1391.
II.

LEGAL STANDARD

The FAA evinces a strong presumption in favor of enforcing arbitration
awards. Brentwood Medical Assocs. v. United Mine Workers of Am., 396 F.3d
Cir. 20Q5)...Section9 of the EM. mte, Lri relevant part:
237, 241
If the parties in their agreement have agreed that a judgment
of the court shall be entered upon the award made pursuant
to the arbitration, and shall specify the court, then at any
time within one year after the award is made any party to the
arbitration may apply to the court so specified for an order
confirming the award, and thereupon the court must grant
such an order unless the award is vacated, modified, or
corrected as prescribed in sections 10 and 11 of this title.
9 U.S.C. § 9. In short, unless the arbitration award is vacated pursuant to § 10
or modified or corrected under § 11 of the FAA, the award “must” be confirmed.
Section 10(a) provides the grounds upon which a district court may vacate an
arbitration award:
(1) where the award was procured by corruption, fraud, or
undue means;
(2) where there was evident partiality or corruption in the
arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in
refusing to postpone the hearing, upon sufficient cause
shown, or in refusing to hear evidence pertinent and
material to the controversy; or of any other misbehavior by
which the rights of any party have been prejudiced; or

10

(4) where the arbitrators exceeded their powers, or so
imperfectly executed them that a mutual, final, and definite
award upon the subject matter submitted was not made.
9 U.S.C. § 10. Further, an arbitration “award is presumed valid unless it is
affirmatively shown to be otherwise.. . .“ Brentwood Med. Assocs., 396 F.3d at
241.

“The Supreme court has held that ‘the courts play only a limited role
when asked to review the decision of an arbitrator.”’ Wilkes Barre Hosp. Co. v.
Wyo. Valley Nurses Ass’n Pasnap, 453 Fed. App’x 258, 260 (3d Cir. 2011)
(quoting United Paperworkers Int’l Union, AFL-CIO v. Misco, Inc., 484 U.S. 29,
36 (1987)). “The courts are not authorized to reconsider the merits of an award
even though the parties may allege that the award rests on errors of fact or on
rntsinterpretation of the contract . As long-as the arbitiator’s award.-- ‘drawsits essence from the collective bargaining agreement,’ and is not merely ‘his
own brand of industrial justice,’ the award is legitimate.” Misco, 484 U.S. at 36
(quoting Steelworkers v. Enter. Wheel & Car Corp., 363 U.S. 593, 597 (1960)).
This is because “arbitration is a matter of contract,” United Steelworkers of Am.
v. Warrior & Gz4f Navigation Co., 363 U.S. 574, 582 (1960), so if an “arbitrator
is even arguably construing or applying the contract and acting within the
scope of his authority,’ the fact that ‘a court is convinced he committed serious
error does not suffice to overturn his decision.”’ Eastern Associated Coal Corp.
v. United Mine Workers of Am., Dist. 17, 531 U.S. 57, 62 (2000) (quoting Misco,
484 U.S. at 38). “When an arbitrator is commissioned to interpret and apply
the collective bargaining agreement, he is to bring his informed judgment to
bear in order to reach a fair solution of a problem.” Enter. Wheel & Car, 363
U.S. at 597.
These standards give a district court little leeway in reviewing an
arbitration award associated with a collective bargaining agreement. United
Transp. Union Local 1589 v. Suburban Transit Corp., 51 F.3d 376, 379 (3d Cir.
1995) (“District courts have very little authority to upset arbitrator’s awards.”).
If the award “draws its essence” from that agreement, the court must confirm
it. Brentwood Med. Assocs., 396 F.3d 237 at 240 (citation and internal
quotation marks omitted). “An arbitrator’s award draws its essence from a
collective bargaining agreement if its interpretation can in any rational way be
derived from the agreement, viewed in light of its language, its context, and any
other indicia of the parties’ intention.” Id. at 241 (emphasis in original) (internal
citation omitted); see News Am. Publ’ns, Inc. Daily Racing Form Div. v. Newark
Typographical Union, Local 103, 918 F.2d 21, 24 (3d Cir. 1990) (A court “may
11

-•

not overrule an arbitrator simply because it disagrees with the arbitrator’s
construction of the contract,” but must enforce the award so long as “the
arbitrator has arguably construed or applied the contract, regardless of
a court is convinced that [the] arbitrator has committed a serious
[whether]
error.” (emphasis in original)).
.

.

.

“[W]e must enforce an arbitration award if it was based on an arguable
interpretation and/or application of the collective bargaining agreement, and
may only vacate it if there is no support in the record for its determination or if
it reflects manifest disregard of the agreement, totally unsupported by
principles of contract construction.” Brentwood Med. Assocs., 396 F.3d at 241
(internal citation omitted). A court’s role is not “to correct factual or legal errors
made by an arbitrator.” Id. at 240 (internal citation omitted). Thus, a court will
not vacate an arbitration award even if the court thinks the basis for it is
disareés iIth{1J the ärbifrät6f áonãlüsibhs Uhd
ambiguous or th
the law, id. at 241, (2) the arbitrator’s assessment of the credibility of
witnesses, or (3) the weight the arbitrator has given to testimony. News Am.
Publ’ns, Inc., 918 F.2d at 24. An award may be overturned, however, if the
arbitrator ignored the plain language of a contract, or essentially rewrote
material terms of the contract. Exxon Shipping Co. v. Exxon Seamen’s Union,
788 F. Supp. 829, 835 (D.N.J. 1992); PMA Capital Ins. Co. v. Platinum
Underwriters, 400 Fed. App’x 654 (3d Cir. 2010).
In addition to § 10(a) of the FAA, the Third Circuit has recognized three
common law grounds that justify vacating an arbitration award: (1) its findings
cannot “be rationally derived either from the agreement between the parties or
from the parties’ submissions to the arbitrators” and the terms of the award
are “completely irrational,” Mut. Fire, Marine & Inland Ins. Co. v. Norad Reins.
Co., 868 F.2d 52, 56 (3d Cir. 1989) (quotations omitted); (2) the arbitrator has
shown manifest disregard for the law. See, e.g., Tanoma Mm. Co., Inc. v. Local
Union 1269, United Mine Workers of Am., 896 F.2d 745, 749 (3d Cir. 1990).
Manifest disregard means that the arbitrator was or must have been “fully
aware of the existence of a clearly defined governing legal principle, but refused
to apply it, in effect, ignoring it.” Westra Constr., Inc. v. U.S. Fid. & Guar. Co.,
Civ. No. 1:03-0833, 2007 WL 1031438 at *2 (M.D. Pa. Mar. 29, 2007) (quoting
Black Box Corp. v. Markham, No. 03-39 10, 2005 WL 546649 at *2 (3d Cir. Mar.
29, 2005)); and (3) the award violates well-defined and dominant public policy
as “ascertained by reference to the laws and legal precedents and not from
general considerations of supposed public interests.” Eastern Associated Coal
Corp. v. United Mine Workers of Am., 531 U.S. 57, 62—63 (2000); see also Arco
12

Enters. v. Operative Plasterers’ & Cement Masons Int’l Ass’n, Local No. 31, 124
Fed. App’x 710 (3d Cir. 2005) (not precedential) (arbitration awards may be
vacated if in conflict with clear and dominant public policy)
.

“[T]he test used to probe the validity of an arbitrator’s decision is a
singularly undemanding one.” Ario v. Underwriting Members of Syndicate 53 at
Lloyds for 1998 Year of Account, 618 F.3d 277, 295-96 (3d Cir. 2010) (internal
quotation and citation omitted). Consequently, the party moving to vacate an
award “faces a steep uphill battle.” Id.
ANALYSIS

III.

Santomeno argues that the petition should be partially vacated because
the arbitrator exceeded his authority by granting Isolatek recoupment for the
Third Circuit has noted that the common law exceptions may not
survive the Supreme Court’s holding in Hall St. Assocs., LLC v. Mattel, Inc., 552
U.S. 576 (2008), but it declined to weigh in on whether the exceptions are still
valid. Rite Aid of N.J. v. United Food Commercial Workers Union, Local 360, 449
F. App’x 126, 129, 129 n. 3 (3d Cir. 2011) (not precedential) (questioning the
continued vitality of such claims in light of Hall Street); see also Stolt—Nielsen
S.A. v. Animafeeds Int’l Corp., 130 S. Ct. 1758, 1768 n. 3 (2010) (reserving
issue of whether “manifest disregard” standard survives Hall Street). Hall Street
held that parties cannot contractually modify the FAA’s confirmation, vacatur,
and modification standards, 9 U.S.C. § 9-11, which are the exclusive avenues
for judicial review. Hall St., 552 U.S. at 588.
7

The Third Circuit has indicated that the “completely irrational” and
“manifest error in law” tests may survive as a judicial gloss on 9 U.S.C. §
10(a)(4). See Sutterv. Oxford HealthPlans LLC, 675 F.3d 215, 220, 220 n. 2 (3d
Cir. 2012). Because Hall Street did not squarely address the issue and the
Third Circuit declined to rule on Hall Street’s impact on these common law
grounds for review, I will assume that they survive. See CD & L Realty LLC v.
Owens-illinois, Inc., 1 1-CV-7248, 2012 WL 4463878 (D.N.J. Sept. 25, 2012)
(“Because Hall Street only directly answered the narrow question of whether
parties could, through contract, supplement the statutory grounds to vacate an
arbitration award, and because the Third Circuit has declined to weigh in on
this issue, the Court will assume that these common law exceptions survive
Hall Street.” (citing Rite Aid, 449 F. App’x at 129 (assuming, without deciding,
that manifest error and public policy grounds remain viable))). They do not
alter the result here.
13

entirety of 2008, when the Employment Agreement’s limitations period
prohibited the award of any damages prior to July 29, 2008, one year prior to
the date Isolatek filed its counterclaims. (Santomeno Br. at 5-7 [ECF No. 1-1]).
In waiting to file until then, Santomeno reasons, Isolatek had “waived its right”
to recover damages for that period. (Id. (emphasis in original)).
Isolatek replies that the arbitrator considered this argument and rejected
it in the Final Decision and Award (excerpted supra in Section II.F). (Isolatek
Br. at 12-13 [ECF No. 4-1]). What Santomeno is really doing, Isolatek surmises,
is “assert[ing] a claim of legal and factual errors by the arbitrator, which are
not reviewable.” (Id. at 13 (citing Major League Umpire’s Ass’n v. American
League of Professional Baseball Clubs, 357 F.3d 272, 279 (3d Cir. 2004))).
I find that the arbitrator’s decision to award recoupment for 2008 and
2009 draws its e sehe froth The EirO n&ntAgi nPt, and thefore it ffluxst
be confirmed.
In analyzing the appropriate period for which Isolatek should receive
recoupment, the arbitrator acknowledged that the Employment Agreement
provided for a one year limitations period to file arbitration claims and further
stated that a failure to file within that period would constitute a waiver of those
claims. However, Arbitrator Torres applied the well-established New Jersey
discovery rule and doctrine of equitable tolling. E.g., Bemoskie v. Zarinsky, 383
N.J. Super. 127, 135, 890 A.2d 1013, 1018 (App. Div. 2006) (“[a] statute of
limitations may be equitably tolled if the wrongdoer has concealed his identity,
thereby preventing the injured party from bringing suit within the limitations
period.”) (citing cases); see also R.A.C. v. P.J.S., Jr., 192 N.J. 81, 100, 927 A.2d
97, 107 (stating that equitable tolling of limitations is applied only in narrowlydefined circumstances, including “where one party has engaged in overt
trickery that induced plaintiff to forgo timely filing of complaint” (referring to
Freeman v. State, 347 N.J. Super. 11, 31, 788 A.2d 867 (App. Div.), certf
denied, 172 N.J. 178, 796 A.2d 895 (2002))). The arbitrator’s finding that
Santomeno had concealed his disloyal acts, thus tolling the limitations period,
had a sufficient basis.
In so finding, the arbitrator acted within the authority that the
Employment Agreement granted him: “all of the power of a court of law and
equity, including the power to order discovery, in the arbitrator’s discretion, as
is available under the current Federal Rules of Civil Procedure, and to grant
legal and equitable remedies.” (Empl. Agr. ¶ 6(g) [ECF No. 1-4]). A judge has the
power to equitably toll a period of limitations in a situation such as the one
14

here. Therefore, Arbitrator Torres’s
Employment Agreement.

award

drew

its

essence

from

the

Arbitrator Torres perhaps could have imposed recoupment back to
September 2007, when Santomeno first engaged in discussions with Flame
Seal. He did not explicitly explain why recoupment should only begin in 2008.
But it is not my role to probe this line-drawing, which operated in Santomeno’s
favor, because the award construes and applies the Employment Agreement.
Eastern Associated Coal Corp. v. United Mine Workers of Am., Dist. 17, 531 U.S.
57, 62 (2000); see Brentwood Medical Assocs. v. United Mine Workers of Am.,
396 F.3d 237, 240 (3d Cir. 2005) (stating that a court’s task is not “to correct
factual or legal errors made by an arbitrator” (internal citation omitted)); News
Am. Publ’ns, Inc. Daily Racing Form Div. v. Newark Typographical Union, Local
1990) (a court’s disagreement with the
iO3 918 F.2d 21, 24 (3d Ci
arbitrator’s conclusions under the law does not provide grounds to vacate an
arbitration award).
Santomeno argues that the partial summary judgment, applying the one
year limitations period to his bonus claims, requires a symmetrical ruling
limiting Isolatek’s recoupment claims. It does not or rather I cannot find that
the arbitrator was compelled to apply the Agreement in this way because the
situations were not parallel. The difference lay in the application of equitable
tolling based on Santomeno’s concealment of the nature and scope of his
contacts with the competitor.
—

—

In addition, I note that Santomeno has not moved to vacate the rest of
the award. I find that the balance of the award likewise draws its essence from
the Employment Agreement.
In short, Arbitrator Torres did not exceed his powers; he rendered a
reasoned opinion that addressed the parties’ claims. Therefore, I must, and
will, confirm his award.

15

IV.

CONCLUSION

For the reasons stated above, Santomeno’s Motion to Vacate the Award is
DENIED and Isolatek’s Motion to Confirm the Award is GRANTED. An
appropriate order follows.

/L
KEVIN MCNULTY, U.
Dated: January 7, 2013

16

.J.