McKool Smith PC v. Curtis Intenational LTD
Filing
46
Memorandum Opinion and Order (REDACTED) Denies 30 Counter MOTION to Vacate Arbitration Award. (Ordered by Judge Barbara M.G. Lynn on 10/14/2015) (ndt)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
McKOOL SMITH, P.C.,
§
§
§
§
§
§
§
§
Petitioner and Counter-Respondent,
v.
CURTIS INTERNATIONAL, LTD.,
Respondent and Counter-Petitioner.
No. 3:15-cv-01685-M
MEMORANDUM OPINION AND ORDER
Before the Court is Petitioner’s Application for Order Confirming Arbitration Award
[Docket Entry #1] and Respondent’s Counter-Motion to Vacate Arbitration Award [Docket
Entry #30]. Having considered the Application and Motion, the Court finds that the Petitioner’s
Application should be GRANTED, and the Respondent’s Counter-Motion should be DENIED.
PROCEDURAL HISTORY
McKool Smith, P.C. (“McKool Smith”) instituted arbitration against Curtis International,
Ltd. (“Curtis”) on April 30, 2014. On May 13, 2015, following an arbitration proceeding before
the International Centre for Dispute Resolution International Arbitration Tribunal of the
American Arbitration Association, Richard C. Levin (“the Arbitrator”) entered a Final Award in
favor of McKool Smith. On the same date, McKool Smith filed an Application for an Order
Confirming the Arbitration Award in this Court. In response, on July 21, 2015, Curtis filed a
Counter-Motion to Vacate the Arbitration Award.
BACKGROUND
Curtis is a Canadian entity involved in the importation and sale of electronics and
appliances. McKool Smith is a law firm based in Dallas, Texas. In June and July of 2013, two
1
patent infringement lawsuits—the “Zenith case” and the “Mitsubishi case”—were brought
against Curtis in the U.S. District Court for the Southern District of Florida. On September 10,
2013, Curtis retained McKool Smith as counsel for these lawsuits and the parties entered into a
standard engagement agreement (the “Agreement”).1 Pursuant to the Agreement, McKool Smith
represented Curtis in both lawsuits for approximately four months, from September, 2013, to
January, 2014.
On January 14, 2014, Curtis reached a settlement in the patent cases.
Following the settlement, a dispute arose between the parties regarding the unpaid
invoices for legal services and services provided by expert witnesses. According to the terms of
1
The parties filed the Agreement under seal. Because the Court determines that there is no reason for all of its
terms to remain confidential, this Opinion describes and quotes from the Agreement as appropriate.
2
their Agreement, disputes between the parties first must be referred to non-binding mediation,
and, if the parties cannot agree on a mediator or are unwilling to abide by the mediator’s
recommendation, disputes must be resolved by binding arbitration conducted by the American
Arbitration Association (AAA), in accordance with its Commercial Arbitration Rules, with each
party bearing its attorney fees and an equal share of arbitration costs.2 Since McKool Smith and
Curtis were unable to agree on a mediator, McKool Smith initiated arbitration on April 30, 2014
for breach of the Agreement.3 In arbitration, McKool Smith sought to recover unpaid legal fees
in the amount of $1,309,992.16 and expert witness fees in the amount of $92,149.40,4 as well as
pre- and post-award interest. Curtis disputed the amount billed, contending that McKool Smith
could not prove its fees were reasonable and that McKool Smith performed unauthorized tasks,
including the unapproved retention of expert witnesses.
The dispute went to arbitration in July, 2014, and, after a hearing on the merits, the
Arbitrator issued a Final Award, ordering Curtis to pay McKool Smith the total amount of all
unpaid invoices: $1,402,141.56.5 The Final Award also ordered payment of five percent interest
2
The Agreement states: “All claims, disputes, or other differences between Client and the Firm or any of its
attorneys related to the . . . litigation, our engagement or services related thereto, or this agreement shall first be
referred to a business person selected jointly by [Client] and the Firm. . . . If the parties are unable to agree on a
business person, or if, at least, one of the parties is unwilling to accept and abide by the non-binding
recommendation of the business person, then any and all such claims, disputes, or differences shall be exclusively
resolved by binding arbitration pursuant to the Federal Arbitration Act and the Commercial Arbitration Rules of the
American Arbitration Association (“AAA”), with arbitration to occur at Dallas, Texas. The arbitration shall be
before a single arbitrator selected from the complex business or commercial cases panel of the AAA, and each party
shall bear its own attorney[s’] fees and costs in connection with the arbitration, including the costs of the AAA and
the arbitrator, which shall be equally divided.” Appl. Order Confirming Arbitration Award [Docket Entry #1], Ex. 1
[the Agreement], at 3–4.
3
The Billing Practices and Procedures section of the Agreement details that “billings are due within thirty days of
when you receive them. Moreover, if, during the course of our representation, billing disputes arise which remain
unresolved or if timely payment is not made, we reserve the right to withdraw from further representation after
appropriate notice in accordance with ethical standards and court requirements.” Agreement at 2.
4
The two expert witnesses have assigned their claims to McKool Smith. Appl. Order Confirming Arbitration Award
[Docket Entry #1], Ex. 3 [the Final Award], at 26.
5
The Final Award was filed under seal. The Court has redacted portions of this Opinion to preserve the Final
Award’s confidentiality as appropriate.
3
per annum beginning April 30, 2014, the day that the arbitration was initiated, and continuing
after the date of the award. In addition, the Final Award ordered Curtis to reimburse McKool
Smith the sum of $5,725.00 for arbitration fees and expenses incurred by McKool Smith in
excess of the apportioned costs.
Here, McKool Smith seeks to have the Final Award confirmed. Curtis moves to vacate
the Final Award for three reasons: 1) the award violates public policy; 2) the arbitrator exceeded
his powers; and 3) the award is in manifest disregard of the law. The Court finds Curtis’s claims
are without merit, and confirms the Final Award in its entirety.
LEGAL STANDARD
Under the Federal Arbitration Act (FAA), federal courts are limited to a narrow review of
arbitration awards. See Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 584 (2008);
Hamstein Cumberland Music Grp. v. Williams, 532 F. App’x 538, 542 (5th Cir. 2013). In order
to promote arbitration as an expeditious and cost-effective alternative to litigation, judicial
review of arbitration awards is “exceedingly deferential” McVay v. Halliburton Energy Servs.,
Inc., 608 F. App’x 222, 224 (5th Cir. 2015) (citing Petrofac, Inc. v. DynMcDermott Petroleum
Ops. Co., 687 F.3d 671, 674 (5th Cir. 2012)); Dealer Computer Servs., Inc. v. Michael Motor
Co., 485 F. App’x 724, 727 (5th Cir. 2012). When parties have agreed to arbitrate, the court
must confirm the award “unless the award is vacated, modified, or corrected.” 9 U.S.C. § 9. In
accordance with the Supreme Court’s decision in Hall Street Associates, the four grounds listed
in Section 10 of the FAA are the exclusive means by which a party can vacate an arbitration
award. Citigroup Global Mkts. Inc. v. Bacon, 562 F.3d 349, 358 (5th Cir. 2009).
According to Section 10 of the FAA, an award can be vacated:
(1) where the award was procured by corruption, fraud, or undue
means;
4
(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
(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.
Thus, in considering motions to vacate, courts give great deference to the arbitrator’s
decision and may vacate awards “only on very narrow grounds.” Am. Laser Vision, P.A. v. Laser
Vision Inst., L.L.C., 487 F.3d 255, 258 (5th Cir. 2007), abrogated on other grounds by Hamstein
Cumberland Music Grp., 532 F. App’x at 542. If an award “is rationally inferable from the letter
or purpose of the underlying agreement,” then the award should be upheld by the court. Id.
(citation omitted). When a party has agreed to arbitrate, the award will be set aside only in “very
unusual circumstances.” Morgan Keegan & Co. v. Garrett, 495 F. App’x 443, 448 (5th Cir.
2012) (quoting First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 942 (1995)). Even a
misapplication of law or a misinterpretation of fact is not a sufficient basis for setting aside the
final award of an arbitrator. Am. Laser Vision, 487 F.3d at 258; Laws v. Morgan Stanley Dean
Witter, 452 F.3d 398, 399 (5th Cir. 2006); Grp. 32 Dev. & Eng’g, Inc. v. GC Barnes Grp., LLC,
2015 WL 144082, at *2 (N.D. Tex. Jan. 9, 2015) (Boyle, J.).
ANALYSIS
A.
Whether the Award Violates Public Policy
First, Curtis argues that the Final Award must be vacated because it is contrary to public
policy. Specifically, Curtis contends that the Final Award conflicts with several provisions of
5
the Texas Disciplinary Rules of Professional Conduct (“TDR”), including provisions prohibiting
law firms from charging or collecting unconscionable fees, requiring lawyers to abide by clients’
decisions concerning representation, and requiring firms to withdrawal as counsel when their
interests conflict with the interests of their clients. The merits of Curtis’s allegations are outside
this Court’s “extraordinarily narrow” scope of review. See Glover v. IBP, Inc., 334 F.3d 471,
473–74 (5th Cir.2003). The Fifth Circuit has foreclosed the use of non-statutory grounds for
vacatur, including public policy grounds. Citigroup Global Mkts., 562 F.3d at 358 (holding that
common law grounds are not a grounds for vacatur); Saipem Am. v. Wellington Underwriting
Agencies Ltd., 335 F. App’x 377, 380 (5th Cir. 2009) (holding that a court “may vacate the
arbitration award . . . only if a statutory ground supports the vacatur”); Householder Grp. v.
Caughran, 354 F. App’x 848, 850 (5th Cir. 2009) (same); see also, Am. Postal Workers Union,
AFL-CIO v. U.S. Postal Serv., 2010 WL 1962676, at *2 (N.D. Tex. May 14, 2010) (Boyle, J.)
(holding that public policy, specifically, is not grounds for vacatur of an arbitration award based
on the Fifth Circuit’s interpretation of Hall Street Associates). The Court therefore will not
consider Curtis’s public policy claims on the merits and will not vacate the Final Award on the
grounds that it violates public policy.
B.
Whether the Arbitrator Exceeded His Power
Next, Curtis contends that the award must be vacated because the Arbitrator exceeded his
power, in violation of FAA § 10(a)(4). Under the FAA, an award may be vacated “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(a)(4). An
arbitrator derives his power from the underlying agreement between the parties. BNSF R. Co. v.
Alstom Transp., Inc., 777 F.3d 785, 788 (5th Cir. 2015). The extent of an arbitrator’s authority is
6
determined by “the provisions under which the [arbitrator was] appointed.” Id. Thus, an
arbitrator’s power is not unlimited. An award will be vacated where “the contract creates a plain
limitation on the authority of the arbitrator” and the award “ignores the limitation.” Why Nada
Cruz, L.L.C., v. Ace Am. Ins. Co., 569 F. App’x 339, 342 (5th Cir. 2014). However, all doubts
must be resolved in favor of arbitration because “district courts’ review of arbitrators awards
under § 10(a)(4) is limited to the sole question of whether the arbitrator (even arguably)
interpreted the parties’ contract.” BNSF R. Co., 777 F.3d at 788 (internal quotation marks
omitted).
Here, Curtis contends that the Arbitrator exceeded his power by: 1) awarding expert fees,
in violation of the Agreement; 2) “contort[ing] the essence of the contract” by failing to read it in
light of Texas’s disciplinary rules for attorneys and by awarding non-legal fees and pre-judgment
interest; and 3) relying on his own experiences and practice and applying his own notion of
economic justice.
Curtis argues that the Agreement did not give the Arbitrator authority to resolve claims
for expert fees. However, the Agreement makes clear that the litigation may require expert
witnesses and unambiguously states that Curtis “will be ultimately responsible” for any amounts
billed by retained experts. Although the Agreement says that McKool Smith will “normally”
discuss retention of experts with Curtis before retaining them, it does not require such
consultation. Additionally, the Arbitrator found that McKool Smith did discuss with Curtis
retaining experts and did not act against Curtis’s clear instructions in retaining experts. Thus,
resolving all doubts in favor of arbitration, the Court concludes the Arbitrator did not ignore a
“plain limitation” on his authority by awarding expert fees.
Even if the Arbitrator did not have authority under the contract to award expert fees to
7
McKool Smith, Curtis waived its objection by submitting the issue to the Arbitrator. “[B]y their
actions, the parties may agree to arbitrate disputes that they were not otherwise contractually
bound to arbitrate.” OMG, L.P. v. Heritage Auctions, Inc., __ Fed. App’x __, 2015 WL
2151779, at *3 (5th Cir. May 8, 2015). A party cannot assert § 10(a)(4) to challenge the
arbitrator’s decision as outside his authority after awaiting an unfavorable arbitration decision on
an issue clearly under consideration. Id. at 5; McVay, 608 F. App’x at 225. When a party
“voluntarily and unreservedly submits an issue to arbitration, he cannot later argue that the
arbitrator has no authority to resolve it.” McVay, 608 F. App’x at 225. Therefore, based on the
language in the Agreement regarding experts and the submission of the issue to the Arbitrator,
the Court finds that the Arbitrator was acting within his authority in awarding expert fees.
Curtis also contends that the Arbitrator exceeded his power under § 10(a)(4) by awarding
one hundred percent of McKool Smith’s fees and prejudgment interest. Specifically, Curtis
argues that the Agreement incorporates the Texas disciplinary rules for attorneys, which, Curtis
alleges, require McKool Smith to affirmatively show that each task it billed for was approved by
Curtis and that the amount billed was reasonable and cost-effective, which it failed to do.
Additionally, Curtis argues that the Arbitrator awarded McKool Smith fees for non-legal,
administrative tasks, in violation of the Agreement. The Arbitrator considered these arguments
and found that McKool Smith’s bills were sufficiently specific, that each item billed for was
covered under the Agreement,
. Final Award at 22–25. The Arbitrator also found that all tasks were
properly charged for. Final Award at 25. Even if the Arbitrator erred in his factual findings, the
Court may not set aside an award on that basis. The Court may not overturn the Arbitrator’s
8
decision “based on the merits of a party’s claim,” as the Court does “not have authority to
conduct a review of an arbitrator’s decision on the merits.” Householder Grp., 354 F. App’x at
851; see also Citigroup Global Markets, Inc., 562 F.3d at 351 (stating that awards are upheld
“even if based upon error in law or fact”).
Curtis also argues that the award of prejudgment interest violated the Agreement, because
the Agreement allowed Curtis to decline to agree to mediation, and the Arbitrator thus could not
penalize Curtis for refusing to mediate. The parties agreed that arbitration would be conducted
under the AAA Commercial Arbitration Rules and thus “incorporated into their Agreement the
AAA’s Commercial Arbitration Rules.” Grp. 32 Dev. & Eng'g, Inc., 2015 WL 144082, at *4.
Under Commercial Arbitration Rule 47(d)(i), an arbitrator’s award may include “interest at such
rate and from such date as the arbitrator(s) may deem appropriate.” The Court lacks authority to
engage in a freewheeling review of the Arbitrator’s decision to award such interest, as Curtis
asks it to do. See Woods v. P.A.M. Transp. Inc.-L.U., 440 F. App’x 265, 268 (5th Cir. 2011)
(finding that a district court erred by modifying an arbitrator’s award of pre-judgment interest).
Finally, Curtis argues the Arbitrator exceeded his authority because the Arbitrator relied
on his own experiences and practice, rather than the underlying Agreement, and that the Award
reflects the Arbitrator’s own sense of economic justice. A party seeking to vacate an arbitration
award on such grounds “must carry a heavy burden.” BNSF R. Co., 777 F.3d at 788 (internal
quotation marks omitted). A district court should consult the arbitration award and determine if
the award is rationally inferable from the underlying agreement.6 See id. The Fifth Circuit has
6
The Court will not address the parties’ dispute about whether the Court may rely on an unofficial and incomplete
transcript of the arbitration hearings to determine whether the Arbitrator exceeded his authority, because “[t]he
award . . . on its face” suggests “that the arbitrator was arguably interpreting the contract,” and the Fifth Circuit has
instructed that, “in determining whether the arbitrator exceeded [his] authority, district courts should consult the
arbitrator’s award itself.” BNSF R. Co., 777 F.3d at 788.
9
outlined several factors that indicate whether an arbitrator was arguably interpreting the
underlying contract: “(1) whether the arbitrator identifies [his] task as interpreting the contract;
(2) whether [the Arbitrator] cites and analyzes the text of the contract; and (3) whether [the
Arbitrator’s] conclusions are framed in terms of the contract’s meaning.” Id. All three factors
are present here. See Final Award at 20 (“[T]he claim is for breach of contract to recover legal
fees owing under the retention contract . . . . Claimant proved the elements to show a breach of
contract, a valid contract, performance, breach, and damages.”); id. at 4–5 (discussing the terms
of the Agreement).
To the extent that the Arbitrator mentioned items not expressly in the Agreement, it was
at Curtis’s request. See id. at 21 (responding to Curtis’s argument that the Agreement
incorporated Texas’s disciplinary rules, and thus required fees to be reasonable and in
accordance with Curtis’s instructions, by saying “the Arbitrator also finds that Claimant proved
the fees it invoiced were reasonable” and “the evidence is clear . . . that Claimant . . . performed
the representation commendably and in accordance with the instructions of [Curtis].”). The
Court thus cannot conclude that the Arbitrator acted solely based on his own sense of economic
justice or exceeded his powers by relying on his own experiences and practice in drawing
conclusions. Resolving all doubts in favor of the arbitration award, the Court concludes the
Arbitrator interpreted the Agreement. Therefore, the Court holds that the Arbitrator did not
exceed his power under § 10(a)(4) of the FAA.
C.
Whether the Award is in Manifest Disregard of the Law
Finally, Curtis claims that the Final Award is in manifest disregard of the law. As
discussed above, although the Fifth Circuit previously recognized manifest disregard of the law
as a ground for vacatur, see, e.g., Sarofim v. Trust Co. of the West, 440 F.3d 213, 216 (5th Cir.
10
2006), the Fifth Circuit no longer recognizes non-statutory bases for vacatur. Citigroup Global
Mkts., 562 F.3d at 358 (5th Cir. 2009). Indeed, the Fifth Circuit has explicitly held that manifest
disregard of the law is no longer a valid ground for vacatur. Id. Therefore, this Court will not
review the Award on that basis. The Court therefore must defer to the judgment of the
Arbitrator, and confirm the Final Award in its entirety.
CONCLUSION
For the reasons stated above, the Court DENIES Curtis’s Counter-Motion to Vacate the
Arbitration Award, and finds that McKool Smith’s Motion to Confirm the Arbitration Award
should be GRANTED. The Court will do so by separate judgment.
SO ORDERED.
October 14, 2015.
_________________________________
BARBARA M. G. LYNN
UNITED STATES DISTRICT JUDGE
NORTHERN DISTRICT OF TEXAS
11
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?