Weirton Medical Center, Inc. v. QHR Intensive Resources, LLC

Filing 53

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFFS MOTION TO VACATE ARBITRATION AWARD, DENYING PLAINTIFF'S SUPPLEMENTAL MOTION TO VACATE ARBITRATION AWARD, DENYING PLAINTIFF'S RENEWED MOTION TO VACATE ARBITRATION AWARD, DENYING PLAINTIFF' S MOTION TO SUPPLEMENT THE RECORD AND TO TAKE DISCOVERY, DENYING PLAINTIFF'S MOTION TO DISQUALIFY COUNSEL AND GRANTING DEFENDANT'S MOTION TO CONFIRM ARBITRATION AWARD: Denying 35 Motion To Supplement the Record; Denying 3 Motion to Vacate ; Denying 40 Motion to Vacate ; Granting 41 Motion To Confirm Arbitration Award ; Denying 5 Motion to Vacate ; Denying 12 Motion to Vacate ; Denying 25 Motion to Disqualify Counsel. Clerk to enter Judgment in favor of defendant and against Plaintiff in the amount of $1,486,903.11 plus pre-judgment interest. Signed by Senior Judge Frederick P. Stamp, Jr on 5/12/16. (soa)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
WEIRTON MEDICAL CENTER, INC.,
Plaintiff,
v.

Civil Action No. 5:15CV131
(STAMP)

QHR INTENSIVE RESOURCES, LLC,
Defendant.
MEMORANDUM OPINION AND ORDER
DENYING PLAINTIFF’S MOTION TO
VACATE ARBITRATION AWARD,
DENYING PLAINTIFF’S SUPPLEMENTAL
MOTION TO VACATE ARBITRATION AWARD,
DENYING PLAINTIFF’S RENEWED MOTION
TO VACATE ARBITRATION AWARD,
DENYING PLAINTIFF’S MOTION TO SUPPLEMENT
THE RECORD AND TO TAKE DISCOVERY,
DENYING PLAINTIFF’S MOTION TO
DISQUALIFY COUNSEL AND
GRANTING DEFENDANT’S MOTION TO
CONFIRM ARBITRATION AWARD
The plaintiff, Weirton Medical Center, Inc. (“WMC”), asks this
Court to vacate an arbitration award issued against it after years
of discovery and a full evidentiary hearing before the arbitrator.
The defendant, QHR Intensive Resources, LLC (“QIR”), seeks to
confirm that award.

WMC has also filed a motion to supplement the

record and take limited discovery, and a motion to disqualify QIR’s
counsel, Ellis R. Lesemann.

For the following reasons, WMC’s

motions are denied and the arbitration award is confirmed.

I.

Background

Weirton Medical Center is a hospital in Weirton, West Virginia
that

fell

on

hard

financial

times.

WMC

began

discussing

a

relationship with QIR in the Fall of 2009. Eventually, the parties
entered

into

an

agreement

in

which

QIR

provided

administrative services (“the Turnaround Agreement”).

hospital

Among other

things, the Turnaround Agreement provided that: (1) QIR would
provide an interim Chief Financial Officer (“CFO”) and an interim
Chief Operating Officer (“COO”); (2) QIR would provide a revenue
cycle assessment; (3) QIR would conduct an information technology
assessment and produce a strategic plan for implementing certain
information

technology

systems;

(4)

QIR

would

guide

the

renegotiation of managed care contracts with health insurance
companies; and (5) QIR would provide a medical staff development
assessment.
After continued lackluster financial performance, but before
the engagement term was to end, WMC terminated the parties’
agreement and refused to pay QIR’s invoices.

QIR then forced

arbitration in accordance with the parties’ arbitration agreement
contained in the Turnaround Agreement, alleging that WMC breached
the Turnaround Agreement by failing to pay the invoices.

WMC

argued that it was not obligated to pay the invoices because QIR
materially

breached

the

Turnaround

Agreement.

WMC

filed

counterclaims for breach of various provisions of the agreement,

2

negligence, breach of fiduciary duties, and corporate waste. After
three years of discovery and a full evidentiary hearing, the
arbitrator entered an award in favor of QIR.
WMC filed this civil action to vacate the arbitration award
under 9 U.S.C. § 10.

ECF Nos. 3, 5.

QIR then filed a motion with

the arbitrator for attorneys’ fees and costs as provided in the
arbitration agreement. After discovering that QIR had compensation
arrangements with certain witnesses, WMC filed a supplemental
motion to vacate the arbitration award to argue that the award was
obtained by “corruption, fraud, or undue means.”

ECF No. 12.

The

arbitrator denied QIR’s motion for attorneys’ fees and costs and
issued a final award, concluding that the provision for attorneys’
fees and costs was unconscionable.

QIR then filed a motion to

confirm the award, ECF No. 41, and WMC filed a renewed motion to
vacate the final award.

ECF No. 40.

WMC argues that the award should be vacated because: (1) the
arbitrator exceeded his powers or so imperfectly executed them as
to make the award unjust; (2) the award is in manifest disregard of
the law; and (3) the award was procured by corruption, fraud, or
undue means.

WMC also filed a motion to supplement the record and

take limited discovery, ECF No. 35, and a motion to disqualify

3

QIR’s counsel,

Ellis R. Lesemann (“Lesemann”), in order that WMC

may take his deposition.

ECF No. 25.1
II.

A.

Discussion

WMC’s Motion to Vacate the Arbitration Award
Under the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-16,

an arbitration award may be vacated on four grounds: “(1) when the
award was procured by corruption, fraud, or undue means; (2) when
there was evident partiality or corruption on the part of an
arbitrator; (3) when an arbitrator was 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 any other misbehavior causing prejudice to the
rights of any party; or (4) when an 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.”
Jones v. Dancel, 792 F.3d 395, 401 (4th Cir. 2015); see also
9 U.S.C. § 10.

While the Supreme Court’s decision in Hall Street

Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008), states
that § 10(a) “provide[s] the FAA’s exclusive grounds for expedited

1

This Court notes that the parties have exceeded the page
limits for their memoranda several times.
While Local Rule of
Civil Procedure 7.02 does not expressly require the parties to seek
the Court’s prior approval before filing excessively lengthy
memoranda, the better practice is for the parties to file a motion
for leave to file excess pages before or contemporaneous with their
memorandum.
Because of the number and complexity of issues
involved in this civil action, this Court finds good cause for
considering the parties’ excessively lengthy memoranda.
4

vacatur,” id. at 584, the United States Court of Appeals for the
Fourth Circuit has since confirmed that an award may also be
vacated “when the arbitrator ‘manifestly disregards’ the law.” Id.
Generally, “judicial review of an arbitration award in federal
court is severely circumscribed and among the narrowest known at
law.”

Jones, 792 F.3d at 401 (internal quotation marks omitted).

A court “may not overturn an arbitration award ‘just because it
believes, however strongly, that the arbitrator[] misinterpreted
the applicable law.’”

Id.

Further, “a court must confirm an

arbitration award unless a party to the arbitration demonstrates
that the award should be vacated under one of the above . . .
enumerated

grounds.”

Id.

(internal

quotation

marks

omitted)

(citing Hall St. Assocs., LLC v. Mattel, Inc., 552 U.S. 576, 582
(2008)); see also 9 U.S.C. § 9.
WMC argues that the award should be vacated because the
arbitrator exceeded his powers, because the award is in manifest
disregard of the law, and because the award was procured by
corruption, fraud, or undue means.
1.

Whether the Arbitrator Exceeded His Powers

“By its terms, Section 10(a)(4) allows courts to vacate
arbitration awards only when arbitrators ‘exceeded their powers, or
so imperfectly executed them that a mutual, final, and definite
award upon the subject matter submitted was not made.’” Jones, 792
F.3d at 405 (quoting 9 U.S.C. § 10(a)(4)).

5

“[A] plaintiff seeking

relief under this provision bears the ‘heavy burden’ of showing
that the arbitrator acted outside the scope of the authority
granted by the parties in their contract, by ‘issuing an award that
simply reflects his own notions of economic justice.’”

Id.

(quoting Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064, 2068
(2013)).
WMC argues that the arbitrator exceeded his powers by adopting
verbatim QIR’s proposed findings of fact and conclusions of law and
by ignoring some of WMC’s claims and defenses.
a.

Adoption of the Proposed Award

WMC argues that the arbitrator exceeded his powers by adopting
as his own QIR’s proposed findings of fact and conclusions of law.
After the arbitration hearing, the arbitrator ordered the parties
to each submit post-hearing briefs and “that the parties would each
submit . . . their proposed draft findings of fact and conclusions
of law and award(s) for the Arbitrator’s consideration.”
22-5 at 2.

ECF No.

Both parties actually did submit proposed awards with

proposed findings of fact and conclusions of law.

ECF Nos. 4-30,

26-16. However, WMC argues that the parties did not agree that the
arbitrator would adopt either party’s proposed award. Essentially,
WMC argues that the arbitrator failed to provide a written,
reasoned award as required under the arbitration agreement because
he simply adopted QIR’s proposed award.

6

WMC argues that the

arbitration agreement obligated the arbitrator to literally write
his own award.
It is well settled that an arbitrator has jurisdiction to
“adopt such procedures as are necessary to give effect to the
parties’ agreement” and that “‘procedural’ questions which grow out
of the dispute and bear on its final disposition are presumptively
. . . for an arbitrator[] to decide.”

Stolt-Nielsen S.A. v.

AnimalFeeds Int’l Corp., 559 U.S. 662, 685-86 (2010) (internal
quotation marks omitted); see also Dockser v. Schwartzberg, 433
F.3d 421, 426-27 (4th Cir. 2006) (concluding that the arbitrators
had jurisdiction to determine the number of arbitrators that would
hear the parties’ dispute).

The questions of whether the parties

should submit proposed awards and whether the arbitrator could
adopt one of those proposed awards is a quintessential procedural
question.

The arbitrator was empowered to make a determination on

this issue, and this Court will not question that determination so
long as it has some reasonable basis in the parties’ agreement.
See Upshur Coals Corp. v. United Mine Workers of Am., Dist. 31, 933
F.2d 225, 229 (4th Cir. 1991) (“As long as the arbitrator is even
arguably construing or applying the contract a court may not vacate
the arbitrator’s judgment.”).
The

arbitration

agreement

required

the

arbitrator

to

“accompany the award with a written explanation of the reasons for
the award.”

ECF No. 36-5 at 16-17.

7

WMC argues that the only

possible interpretation of the arbitration agreement is that the
arbitrator was required to literally write his own award and that
he could not adopt either party’s proposed award.

However, by the

plain language of the agreement, the arbitrator’s adoption of QIR’s
proposed award is “a written explanation of the reasons for the
award.”

The

arbitration

arbitrator’s

agreement

implicit

permitted

him

determination
to

adopt

that

either

the

party’s

proposed award as his own is, therefore, reasonably based in the
parties’ arbitration agreement.

Thus, the agreement did not

preclude the arbitrator from adopting QIR’s proposed findings of
fact and conclusions of law.
Further, the arbitrator did not exceed or abdicate his power
by adopting QIR’s proposed award.
the

Supreme

Court

has

In the context of litigation,

“criticized

courts

for

their

verbatim

adoption of findings of fact prepared by prevailing parties,
particularly when those findings have taken the form of conclusory
statements unsupported by citation to the record.”

Anderson v.

City of Bessemer City, N.C., 470 U.S. 564, 572 (1985) (emphasis
added).

However, the Court has concluded that those findings may

be reversed only for clear error.

Id.

But, if the circumstances

indicate that the district court failed to exercise impartiality in
weighing

the

evidence,

increased scrutiny.

the

court’s

findings

are

subject

to

Id.; see also Aiken Cnty. v. BSP Div. of

Envirotech Corp., 866 F.2d 661, 677 (4th Cir. 1989) (applying the

8

Supreme Court’s decision in Anderson as a four factor “standard,”
and concluding that a district court’s adopted findings met that
standard).

Similarly, the West Virginia Supreme Court of Appeals

has concluded that it was not per se error for a trial court to
adopt verbatim the prevailing party’s proposed order, including
factual findings and legal conclusions, granting summary judgment.
Taylor v. W. Va. Dep’t of Health and Human Res., __ S.E.2d __, No.
14-0679, slip op. at 10-11 (W. Va. Apr. 14, 2016).

Thus, if a

district court’s seemingly biased adoption of a prevailing party’s
proposed findings and conclusions is not reversible as per se error
but is subject to only increased scrutiny on appellate review, it
stands to reason that an arbitrator’s adoption of a proposed award
is not subject to vacatur under the FAA, as “judicial review of an
arbitration award in federal court is severely circumscribed and
among the narrowest known at law.”

Jones, 792 F.3d at 401

(internal quotation marks omitted).
Moreover, there is no indication that the arbitrator did not
exercise impartiality in weighing the evidence.

Based on the

parties extensive briefing in this civil action, it is clear that
the parties presented conflicting evidence on many factual issues
and that there was sufficient evidence to support the arbitrator’s
findings and conclusions as adopted from QIR’s proposed award.
This Court also finds it significant that WMC presented its own

9

proposed

findings

of

fact

and

conclusions

of

law,

and

the

arbitrator reviewed and rejected them.
b.

Ignored Claims and Defenses

WMC argues that the arbitrator exceeded his powers in issuing
an award that did not consider the parties’ entire dispute because
the arbitrator ignored various of WMC’s claims and defenses.
Namely,

WMC

counterclaim

alleges
and

that:

(1)

affirmative

the

defense

arbitrator

ignored

for

of

breach

its

contract

regarding QIR’s obligation to conduct an analysis of WMC’s revenue
cycle based on its alleged obligation to provide strategic pricing
services; (2) the arbitrator failed to consider WMC’s allegations
that QIR fraudulently induced it to enter into the Turnaround
Agreement; and (3) the arbitrator failed to address whether QIR
breached its alleged obligation to implement an electronic records
system.
Contrary to WMC’s arguments, the award considered and rejected
each of WMC’s claims and defenses.

First, the arbitrator found

that the agreement did not require QIR to provide strategic pricing
services as part of its obligation to conduct an assessment of the
functional

areas

of

WMC’s

revenue

cycle.

The

arbitrator

interpreted the phrase “functional area[] in [WMC’s] revenue cycle
process” used in the Turnaround Agreement to not include strategic
pricing services.
arbitrator

ECF Nos. 22-2 at 29; 2-1 at 9-12.

considered

and

rejected

10

WMC’s

claim

Second, the
that

it

was

fraudulently induced into the Turnaround Agreement. ECF No. 1-2 at
41-42.

Third, the award found that the Turnaround Agreement did

not require QIR to implement an electronic records system.
13-14.

Id. at

Thus, the arbitrator did not ignore any of WMC’s claims or

defenses.
2.

Whether the Arbitrator Manifestly Disregarded the Law

The

parties’

arbitration

agreement

provides

Virginia’s substantive law applied to the arbitration.

that

West

WMC argues

that the arbitrator manifestly disregarded West Virginia law by:
(1) misapplying contract interpretation principles; (2) misapplying
the parol evidence rule; (3) misapplying the gist of the action
doctrine; (4) stating that West Virginia does not recognize causes
of action for breach of the duty of loyalty and corporate waste;
(5) misapplying the borrowed employee standard; (6) concluding that
a limitation of liability clause as applied to intentional torts is
enforceable under West Virginia law; and (7) in allowing QIR to
present waived defenses.

However, WMC misunderstands the manifest

disregard standard.
“A court may vacate an arbitration award under the manifest
disregard standard only when a plaintiff has shown that: (1) the
disputed legal principle is clearly defined and is not subject to
reasonable debate; and (2) the arbitrator refused to apply that
legal principle.”

Jones, 792 F.3d at 402.

This “is not an

invitation to review the merits of the underlying arbitration or to

11

establish that the arbitrator misconstrued or misinterpreted the
applicable law.”

Id. (internal quotation marks omitted) (citation

omitted). Rather, an arbitrator manifestly disregards the law when
he was “aware of the law, understood it correctly, found it
applicable to the case before [him], and yet chose to ignore it in
propounding [his] decision.”

Remmey v. PaineWebber, Inc., 32 F.3d

143, 149-50 (4th Cir. 1994).
First, WMC argues that the arbitrator manifestly disregarded
West Virginia contract interpretation principles by concluding that
strategic pricing services were not a “functional area[] in [WMC’s]
revenue cycle process” as that phrase was used in the Turnaround
Agreement. ECF No. 22-2 at 29. Specifically, WMC argues that this
phrase should have been interpreted in light of the parties’ course
of performance, and that QIR provided strategic pricing services
when it conducted an accounting analysis on WMC’s chargemaster and
service

provider

agreements

using

a

program

called

“QRATE.”

However, the award makes clear that the arbitrator found in light
of

all

of

the

evidence,

including

the

parties’

course

of

performance, that the Turnaround Agreement did not require QIR to
provide strategic pricing services as part of its revenue cycle
assessment.

ECF No. 1-2 at 11-12.

Further, the arbitrator

specifically noted that “the QRATE was separate from the Revenue
Cycle Assessment” that QIR was required to conduct under the
Turnaround Agreement.

Id. at 12.

12

Thus, the arbitrator did not

fail to apply West Virginia contract interpretation principles.
Rather, WMC simply disagreed with the arbitrator’s interpretation
of the contract.
Second, WMC argues that the arbitrator manifestly disregarded
the law by excluding certain parol evidence.

Specifically, the

arbitrator excluded statements made by QIR’s representatives during
negotiations for the Turnaround Agreement that WMC argues show it
was

fraudulently

Agreement.

induced

However,

into

the

entering

arbitrator

applied the parol evidence rule.

into

expressly

the

Turnaround

recognized

ECF No. 1-2 at 26-27.

and
The

arbitrator also applied the applicable standard for a claim of
fraudulent inducement under West Virginia law.

Id. at 41-42.

Thus, even if the arbitrator misapplied these rules of law, he did
not manifestly disregard them.
Third, WMC argues that the arbitrator manifestly disregarded
the law in applying the gist of the action doctrine to exclude its
negligence

claim.

WMC

claims

that

QIR

negligently

provided

strategic pricing services when it conducted the QRATE analysis,
and because the arbitrator found that the Turnaround Agreement did
not require QIR to provide such services, the negligence claim was
outside the contract and not barred by the gist of the action
doctrine.

Assuming WMC’s analysis is correct, this does not

constitute manifest disregard of the law.

13

The arbitrator applied,

correctly or incorrectly, the gist of the action doctrine. ECF No.
1-2 at 33-37.
Fourth, WMC argues that the arbitrator manifestly disregarded
West Virginia law by concluding that West Virginia does not
recognize causes of action for breach of the duty of loyalty or for
corporate waste. Indeed, it does not appear that the West Virginia
Supreme Court of Appeals recognizes a cause of action for corporate
waste.

Further, while the West Virginia Supreme Court of Appeals

does recognize a cause of action for breach of a fiduciary duty,
which includes a duty of loyalty, Smith v. First Cmty. Bancshares,
Inc., 575 S.E.2d 419, 430-31 (W. Va. 2002), the arbitrator fully
considered

WMC’s

breach

of

fiduciary

duty

claims

even

while

concluding that the West Virginia Supreme Court of Appeals has not
recognized a cause of action specifically for the breach of the
duty of loyalty.

ECF No. 1-2 at 37-41.

Thus, the arbitrator did

not manifestly disregard West Virginia law regarding breaches of
fiduciary duties.
Fifth, WMC argues that the arbitrator manifestly disregarded
West Virginia law in concluding that interim corporate officers
provided to WMC under the Turnaround Agreement were “borrowed
employees” rather than QIR’s employees such that QIR would be
liable for those employees’ alleged torts.

Specifically, WMC

argues that the arbitrator failed to consider the level of control

14

QIR exerted over these employees in determining whether they were
borrowed employees.
Under West Virginia law, “in determining the employment status
of a worker, . . . it is necessary to consider the entire
circumstances of the relationship, the right to exercise control
and supervision is . . . the determinative element.”

Bowens v.

Allied Warehousing Servs., Inc., 729 S.E.2d 845, 856 (W. Va. 2012).
The

arbitrator

concluded

that

these

employees

were

borrowed

employees because the Turnaround Agreement conclusively stated so,
and he did not inquire into the level of control QIR or WMC exerted
over them.

ECF No. 1-2 at 5.

However, WMC fails to show that had

the arbitrator considered the level of control and supervision QIR
exercised over these employees, West Virginia law would dictate
that

those

employees

were

agents

of

QIR.

Regardless,

the

arbitrator concluded that WMC’s tort-based counterclaims were
meritless.
Sixth, WMC argues that the arbitrator manifestly disregarded
the law by concluding that § 6.5 of the Turnaround Agreement was
enforceable.

That provision provides that

Neither Party . . . shall have any liability to the Party
for any indirect, consequential, incidental, exemplary,
special or punitive damages or costs, including, without
limitation, lost profits, loss of good will or loss of
tax-empt status for [WMC] or [WMC’s] financing, even if
such Party has been advised, knew or should have known,
of the possibility thereof.

15

ECF

No.

22-2

at

14.

WMC

argued

that

the

unenforceable as to its intentional tort claims.

provision

was

The arbitrator

concluded that he was “unaware of any reported case decided under
West Virginia [law] invalidating a limitation of liability clause
for this reason.”

ECF No. 1-2 at 49.

WMC now argues that the

arbitrator manifestly disregarded West Virginia law in concluding
that the provision was enforceable as to the intentional tort
claims.
Under West Virginia law “a general clause in a pre-injury
exculpatory agreement or anticipatory release purporting to exempt
a defendant from all liability for any future loss or damage will
not be construed to include the loss or damage resulting from the
defendant’s intentional or reckless misconduct or gross negligence,
unless

the

circumstances

plaintiff’s intention.”

clearly

indicate

that

such

was

the

Murphy v. N. Am. River Runners, Inc., 412

S.E.2d 504, 510 (W. Va. 1991).

It is not entirely clear whether

§ 6.5 of the Turnaround Agreement is enforceable under this
precedent.

Thus, WMC fails to show that “the disputed legal

principle is clearly defined and is not subject to reasonable
debate.”

Jones, 792 F.3d at 402.

Further, based on the award, the

arbitrator was unaware of this precedent.

The manifest disregard

standard requires only that the arbitrator not knowingly disregard
a rule of law he recognizes as applicable.
50.

Remmey, 32 F.3d at 149-

The arbitrator here concluded that there was no applicable

16

West Virginia law invalidating such limited liability clauses.
Thus, he did not knowingly disregard an applicable rule of law
invalidating such provisions.

Regardless, his failure to apply

potentially applicable precedent did not result in the award itself
being issued in manifest disregard of the law, as the arbitrator
also found WMC’s intentional tort claims to be without merit.
Thus, his conclusion that § 6.5 was enforceable has no bearing on
whether the arbitrator would find that WMC was entitled to damages
on its intentional tort claims.
WMC also argues that the arbitrator’s failure to invalidate
the limited liability provision is a violation of West Virginia
public policy against such provisions.

It is unclear whether

courts may vacate an arbitration award that violates public policy
after the Supreme Court’s decision in Hall Street,2 however, under
pre-Hall Street precedent, an award may be vacated on this ground
only where: (1) the public policy is “well defined and dominant, as
ascertained by reference to the laws and legal precedents and not
from general considerations of supposed public interests”; and (2)
the award itself clearly violates that public policy.

W.R. Grace

& Co. v. Local Union 759, Int’l Union of the United Rubber, Cork,
Linoleum & Plastic Workers, 461 U.S. 757, 766 (1983).

2

In Hall Street, the Supreme Court concluded that § 10(a)
“provide[s] the FAA’s exclusive grounds for expedited vacatur.”
552 U.S. at 584. The Fourth Circuit has not yet determined whether
the common law public policy ground for vacatur is still viable
after Hall Street.
17

As discussed above, the laws and legal precedents of West
Virginia do not clearly define a public policy against such
provisions.
recognize

Further, WMC argues that the arbitrator failed to

and

enforce

West

Virginia’s

asserted

public

policy

against limited liability provisions, not that the award itself
violates that public policy.

Regardless, the arbitrator also

concluded that WMC failed to establish its intentional tort claims.
Thus, even if the public policy ground is still viable after Hall
Street, it is unavailable to WMC because the award itself does not
violate West Virginia public policy.
Seventh, WMC argues that the arbitrator manifestly disregarded
West Virginia Rule of Civil Procedure 8(c) by allowing QIR to
assert an affirmative defense of illegality that it did not allege
in its initial pleadings in the arbitration. However, as discussed
above, the arbitrator was empowered to decide procedural issues,
and this Court may not vacate the award based on procedural
determinations reasonably based in the parties’ agreement.

See

Stolt-Nielsen, 559 U.S. at 685-86. It is unclear from the parties’
arbitration

agreement

whether

Arbitration

Association’s

West

rules

of

Virginia
procedure

or

the

applied

American
to

the

arbitration, and this Court finds no basis in the agreement to
vacate the award based on the arbitrator’s procedural ruling.3

3

Section 8.1 of the Turnaround Agreement provides that the
arbitration be conducted
18

This Court also notes that the award does not rely on or even
mention QIR’s affirmative defense of illegality.

Further, even if

West Virginia Rule of Civil Procedure 8(c) applied, that rule does
not completely prohibit adding affirmative defenses after pleadings
have closed.

Clements v. Stephens, 211 S.E.2d 110, 113 (W. Va.

1975) (concluding that a court has discretion to permit a party to
amend its pleadings to add an affirmative defense after pleadings
have

closed).

Thus,

the

arbitrator’s

determination

on

this

procedural issue was not in manifest disregard of the law.
3.

Whether the Award was Procured by Fraud, Corruption, or

Undue Means
WMC argues that QIR obtained the award by fraud, corruption,
or undue means because QIR paid four fact witnesses for time spent
traveling to and preparing for their testimony at the arbitration
hearing.

These witnesses were Michael Rolph (“Rolph”), Robert

Lovell (“Lovell”), Stephen Miller (“Miller”), and Rhonda Duncan
(“Duncan”), who worked at WMC during the contract period as interim
CFO,

interim

respectively.

COO,

interim

CFO,

and

Chief

Nursing

Officer

QIR did not disclose these agreements until after

in accordance with the provisions of [the arbitration
agreement] and the arbitration rules of the American
Arbitration Association (“AAA”) in effect on the date of
this agreement . . . . The arbitration shall be governed
by the substantive and procedural laws of the state of
West Virginia applicable to contracts made and to be
performed therein.
ECF No. 22-2 at 17-18.
19

the arbitration hearing when it filed a motion with the arbitrator
for an award of attorneys’ fees and costs.
A court may vacate an arbitration award if “the award was
procured

by

corruption,

fraud,

or

undue

means.”

9

U.S.C.

§ 10(a)(1). “The term ‘undue means’ has generally been interpreted
to mean something like fraud or corruption.” MCI Constructors, LLC
v. City of Greensboro, 610 F.3d 849, 858 (4th Cir. 2010) (internal
quotation marks omitted).

Further, “no court has ever suggested

that the term ‘undue means’ should be interpreted to apply to
actions of counsel that are merely legally objectionable.” Id. To
prove that an award was procured by corruption, fraud, or undue
means, the party seeking vacatur “must show that the fraud[,]
[corruption, or undue means] . . . (1) [was] not discoverable upon
the exercise of due diligence prior to the arbitration, (2) [was]
materially related to an issue in the arbitration, and (3) [is]
established by clear and convincing evidence.” Id. (alterations in
original).
a.

Whether

the

Witness

Compensation

Arrangements

Constitute Corruption, Fraud, or Undue Means
WMC must establish by clear and convincing evidence that the
witness compensation arrangements constitute fraud, corruption, or
undue means.

Id.

These arrangements would clearly constitute

corruption, fraud, or undue means if QIR paid the witnesses for, or

20

otherwise dictated, the content of their testimony.

In that

regard, WMC argues that it has evidence of quid pro quo payments.
First, WMC argues that Rolph changed his testimony between his
pre-hearing deposition and the arbitration hearing.

During his

pre-hearing deposition, Rolph testified that he thought strategic
pricing services were part of a revenue cycle assessment in
general. After that deposition but before the arbitration hearing,
Rolph

reviewed

the

Turnaround

Agreement,

other

witnesses’

depositions, and documents related to the case, and spoke with
QIR’s counsel.

Then, at the arbitration hearing, Rolph testified

that he did not think the contract term “functional areas in
[WMC’s] revenue cycle process” included strategic pricing services.
ECF No. 22-2 at 29.

WMC asked Rolph if he had discussed his pre-

hearing deposition testimony on this issue with anyone between the
time of his first deposition and the hearing, and Rolph said he had
not done so.

WMC argues that Rolph spoke with QIR’s counsel,

Lesemann, on the phone for hours between the time of his prehearing deposition and the arbitration hearing.
This Court is not convinced that QIR or Lesemann induced Rolph
to change his testimony.

WMC has not demonstrated that Rolph

actually changed his testimony in any way, as his pre-hearing
deposition testimony stated his belief that strategic pricing
services are part of a generalized revenue cycle assessment, while
at the arbitration hearing he testified that he did not believe the

21

Turnaround Agreement required strategic pricing services as part of
QIR’s obligation to provide a revenue cycle assessment.4

But, even

if WMC is correct in alleging that Rolph changed his testimony (a
generous inference), this hardly constitutes clear and convincing
evidence of witness tampering or that QIR’s counsel paid Rolph for
the content of his testimony, especially where Rolph denied such an
arrangement in his post-hearing deposition.
Second, WMC argues that this Court may infer the witnesses
were

paid

for

the

content

of

their

testimony

because

the

compensation was far in excess of West Virginia statutory witness
fees. See W. Va. Code § 59-1-16. However, exceeding the statutory
witness fees does not provide clear and convincing evidence of
witness tampering.
WMC has not shown by clear and convincing evidence that the
witnesses

were

Nevertheless,

paid

WMC

for

argues

the
that

content
the

of

their

compensation

testimony.
arrangements

themselves were improper and that this constitutes undue means.
First, WMC argues that the term “consulting” as used in the
witnesses’ invoices shows that they were paid to assist QIR’s
counsel in arbitrating the case.

However, Rolph testified in his

post-hearing deposition that he simply spoke with QIR’s counsel

4

This Court also
specifically enumerated
in the revenue cycle
specifically state that
part of that analysis.

notes that the Turnaround Agreement
what analysis was required to be included
assessment, and the agreement did not
strategic pricing services were a required
See ECF No. 22-2 at 29.
22

about the arbitration but did not provide any advice or expertise
as a consultant.

ECF No. 35-1 at 48-51.

Thus, there is no

evidence that Rolph, or any other compensated witness, was a paid
member of QIR’s legal team.
Second, WMC argues that Lovell, Rolph, Miller, and Duncan
breached fiduciary duties they owed to WMC by cooperating with
QIR’s counsel in the arbitration.

Because they were former

officers of WMC, WMC argues that the witnesses owed continuing
fiduciary duties to WMC after leaving their positions there.
Regardless of whether the witnesses owed continuing duties to WMC,
a breach of any such duty clearly does not constitute “fraud,
corruption, or undue means” under the FAA.
Third, WMC argues that the witness compensation agreements
constitute undue means because QIR’s counsel acted unethically in
compensating the witnesses in that way. However, this Court is not
convinced that the payments violate any potentially applicable
rules of professional conduct. The practice of compensating a fact
witness for time spent preparing for his or her testimony may be
disfavored, but it is not per se unethical behavior.5

See Pa.

Ethics Op. 95-126A (1995) (providing that Pennsylvania law does not

5

This Court notes that Pennsylvania’s Rules of Professional
Conduct likely would apply to counsels’ actions in the arbitration.
See W. Va. Rule of Professional Conduct 8.5(b) (providing that the
rules of professional conduct applying to “conduct in connection
with a matter pending before a tribunal, [are] the rules of the
jurisdiction in which the tribunal sits”).
23

expressly prohibit, but may disfavor, “compensation to nonexpert
witnesses for the time invested in preparing for testimony”); Am.
Bar

Ass’n

Formal

Ethics

Op.

96-402

(1996)

(concluding

that

compensation to a witness for “time the witness has lost in order
to give testimony” does not violate the Model Rules “[a]s long as
it is made clear to the witness that the payment is not being made
for the substance or efficacy of the witness’s testimony”).

At

best, the witness compensation arrangements here may expose QIR’s
counsel to disciplinary action, see Pa. Ethics Op. 95-126A (1995)
(noting that “compensating a nonexpert witnesses for preparation
time is not without risk of disciplinary enforcement action”), but
that does not amount to clear and convincing evidence of fraud,
corruption, or undue means.
b.

WMC’s

Opportunity

to

Discover

the

Compensation

Arrangements
Even if the witness compensation arrangements did constitute
fraud, corruption, or undue means, WMC had an opportunity to
discover them before the arbitration award became final.

In fact,

WMC was aware of the arrangements before the arbitrator issued the
final award.

After the arbitrator issued his findings of fact and

conclusions of law, QIR filed a motion for attorneys’ fees and
costs as provided in the parties’ arbitration agreement.

Part of

QIR’s requested costs included the witnesses’ compensation.

The

arbitrator even allowed WMC to depose Rolph, Miller, and Duncan

24

regarding the time they spent in preparing for their testimony at
the arbitration hearing, including the bases for their compensation
and the content of discussions they had with QIR’s counsel.

WMC

had the opportunity to ask these witnesses, under oath, whether
they were offered compensation for the content of their testimony
at the arbitration hearing.

WMC did not do so.

Thus, WMC knew of

the witness compensation arrangements before the arbitration was
completed and WMC could have discovered through exercise of due
diligence any corruption, fraud, or undue means involved in the
witness compensation agreements.
c.

Whether the Compensation Arrangements Materially

Affected the Award
Even if Lovell, Rolph, Miller, or Duncan’s testimony was in
some way tainted by their compensation arrangements, there is no
evidence that the taint materially influenced the outcome of the
arbitration. In fact, in the arbitrator’s findings and conclusions
consisting of forty-nine pages, seventy-seven paragraphs of factual
findings, and ninety-eight paragraphs of legal conclusions, the
arbitrator mentions the compensated witnesses’ testimony only
twenty-one times.

Further, the award relies on the deposition and

hearing testimony of other fact witnesses for even the portion of
Rolph’s testimony that WMC argues changed. Thus, WMC fails to show
that the award was procured by corruption, fraud, or undue means.

25

B.

WMC’s Motion to Supplement the Record and Take Discovery
WMC seeks to take discovery on the issue of QIR’s payments to

Lovell,

Rolph,

Duncan,

and

Miller,

and

on

QIR’s

counsel’s

representations that the parties met and conferred before the
arbitration hearing and stipulated to the submission of proposed
awards for the arbitrator to adopt.

Specifically, WMC seeks to

depose QIR’s counsel, Lesemann, regarding the witness compensation
arrangements, his conversations with those witnesses, and whether
he directed them to change their testimony.
Generally, discovery is unwarranted in post-arbitration review
proceedings, as those proceedings are intended to be summary in
nature.

Taylor v. Nelson, 788 F.2d 220, 225 (4th Cir. 1986);

Lyeth v. Chrysler Corp., 929 F.2d 891, 898 (2d Cir. 1991).

Courts

have broad discretion in determining whether and to what extent
discovery should be permitted in such proceedings.

See Lyeth, 929

F.2d at 898 (“The district court has discretion to deny discovery
in a proceeding to confirm an arbitral award.”).
Discovery regarding the witness compensation arrangements is
unnecessary.

QIR provided WMC and the arbitrator with copies of

those witnesses’ invoices, detailing the amounts and purposes of
each witnesses’ compensation.

WMC deposed Rolph, Miller, and

Duncan regarding their compensation arrangements.

WMC could have

asked those witnesses whether they were paid for the content of
their testimony, but did not do so.

26

Because WMC was able to depose

the

witnesses

about

the

compensation

arrangements,

it

is

unnecessary for WMC to depose QIR’s counsel. Further, as discussed
above,

WMC’s

allegations

that

those

witnesses’

testimony

was

tainted are speculative, and there is no evidence that any alleged
taint materially affected the outcome of the arbitration.
Discovery on the issue of whether the parties stipulated to
the

arbitrator’s

unnecessary.

adoption

of

their

proposed

awards

is

also

As discussed above, this Court finds that the

arbitrator’s adoption of QIR’s proposed award is not a viable
ground for vacating the award.

Discovery regarding whether both

parties understood that their proposed awards might be adopted in
full by the arbitrator is irrelevant to whether the award may be
vacated under the FAA. Accordingly, WMC’s motion to take discovery
is denied.
C.

WMC’s Motion to Disqualify Counsel
WMC seeks to disqualify Lesemann as counsel for QIR because it

seeks to depose him regarding the witness compensation agreements.
Because this Court denies WMC’s motion for limited discovery, WMC’s
motion to disqualify Lesemann must also be denied.
III.

Conclusion

This Court finds that there are no grounds to vacate the
arbitration award, and that it must be confirmed. Accordingly, the
plaintiff’s motion to vacate the arbitration award (ECF Nos. 3, 5)
is DENIED, the plaintiff’s supplemental motion to vacate (ECF No.

27

12) is DENIED, the plaintiff’s renewed motion to vacate (ECF No.
40) is DENIED, the plaintiff’s motion to supplement the record and
take discovery (ECF No. 35) is DENIED, and the plaintiff’s motion
to disqualify counsel (ECF No. 25) is DENIED.

The defendant’s

motion to confirm the arbitration award (ECF No. 41) is GRANTED.
Pursuant to 9 U.S.C. § 9, it is ORDERED that a judgment be
entered in favor of the defendant against the plaintiff in the
amount of $1,486,903.11 plus prejudgment interest accruing from
January 21, 2016, the date of the final award, to the date of the
entry of this order.
Further, it is ORDERED that this civil action be DISMISSED and
STRICKEN from the active docket of this Court.
IT IS SO ORDERED.
The Clerk is DIRECTED to transmit a copy of this memorandum
opinion and order to counsel of record herein. Pursuant to Federal
Rule of Civil Procedure 58, the Clerk is DIRECTED to enter judgment
on this matter.
DATED:

May 12, 2016

/s/ Frederick P. Stamp, Jr.
FREDERICK P. STAMP, JR.
UNITED STATES DISTRICT JUDGE

28