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Third Circuit Affirms Arbitration Award for Employee’s Breach of Employment Agreement

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Melody Shan was employed by Sabre GLBL. Shan entered into an employment agreement with Sabre, which prohibited Shan from disclosing confidential information and competing with Sabre for its employees, contractors, and customers, both during and after her employment. The employment agreement was governed by Texas law. Shan started a competing company while still employed by Sabre and solicited Sabre employees and customers. Shan thereafter resigned from Sabre and continued to work on her competing company. Sabre sued Shan in New Jersey state court, alleging that Shan breached the employment agreement by misusing confidential information, stealing employees, soliciting customers, and competing with Sabre. Shan removed the action to federal court and moved to compel arbitration pursuant to the employment agreement. The district court granted the motion, and Sabre initiated an arbitration before the Judicial Arbitration and Mediation Services (JAMS) in Dallas, Texas. The arbitrator found in favor of Sabre and awarded $200,000 in disgorgement-of-salary damages and $1,173,318 in “head start” damages based on Shan’s equity interest in the competing company. The district court affirmed the award, and Shan appealed.

The U.S. Court of Appeals for the Third Circuit affirmed the district court’s decision. The court explained that its review of an arbitration award is “extremely deferential” and can only be vacated in a select few instances. The court explained that the damages were not awarded in a “manifest disregard of the law” as Shan did not identify any clearly governing principle of Texas law that the arbitrator was aware of and chose to ignore in awarding these damages. The court further declared that the arbitrator did not exceed his powers in his damages award. The court explained that the arbitrator’s award, which fully explained his reasoning, was sufficient under the standard despite the arbitrator’s failure to address Shan’s mitigation defense. The court also found that the arbitrator was not guilty of “misbehavior by which the rights of any party have been prejudiced.” Even though Sabre did produce its expert report after the deadline, Shan was not prejudiced because the arbitrator permitted Shan to present expert rebuttal testimony at the hearing without a written expert report. Lastly, the court stated that the arbitrator did not act with partiality as Shan failed to show any bias.

Sabre GLBL, Inc. v. Shan, Nos. 18-2079, 18-2144 (3d Cir. July 3, 2019).

Court Holds Prior Compliance Is Not a Ground to Refuse Confirmation of an Arbitration Award

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Tracey Schusterman and Rosa Mazzone jointly owned a financial services group. Pursuant to their agreement, they were bound to arbitrate any disputes regarding the financial services group before the Financial Industry Regulatory Authority Inc. Schusterman initiated an arbitration against Mazzone alleging that she attempted to solicit clients in violation of their agreement. The arbitration panel found that Mazzone breached the agreement and issued an award in favor of Schusterman. Schusterman then filed an action to confirm the award. Shortly thereafter, Mazzone made a payment to Schusterman in the full amount of the award and filed a motion to dismiss the petition asserting that the motion was not ripe, and the claims now moot based on her payment, along with a request for sanctions. The court confirmed the award and denied the motion to dismiss. The court explained that prior compliance “does not negate the right of the prevailing party … to seek judicial confirmation of the arbitral decision.” The court further held that sanctions were not appropriate. The court explained that Mazzone did not follow the proper procedures in filing the sanctions motion and further that Schusterman did not act with “objective unreasonableness” as she had the right under the FAA to petition to confirm an arbitration award.

Schusterman v. Mazzone, No. 1:19-cv-00212 (S.D.N.Y. June 19, 2019)

Fifth Circuit Holds Parties Did Not Enter Into Arbitration Agreement Under the FAA

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Estella Trammell was an at-will employee of AccentCare. She challenged the district court’s order requiring her to arbitrate a pay dispute with AccentCare. The district court held that there was an enforceable arbitration agreement under the mailbox rule. AccentCare mailed the arbitration agreement to Trammell’s home, but Trammell asserted that she did not receive or sign the arbitration agreement and therefore should not be bound to arbitration. Trammell asserted that she notified AccentCare that she was having difficulty receiving and sending mail at her address. She further asserted that she reported to AccentCare that she had not received timesheets mailed to her address, and she had also mailed timesheets to AccentCare and the company did not receive them. Further, AccentCare admitted that it could not produce a signed copy of the arbitration agreement. The court held that under the FAA the parties did not enter into an arbitration agreement. In Texas, the mailbox rule holds that a letter property addressed, stamped, and mailed may be presumed to have been received by the addressee in the due course of the mail. However, the court explained that Trammell overcame this presumption and created a genuine issue of material fact regarding whether an arbitration agreement was formed.

Trammell v. AccentCare, Inc., No. 18-50872 (5th Cir. June 7, 2019)

Court of Appeals Finds District Court Did Not Err in Lifting Stay Ordered to Refer Case to Arbitration

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Lawren Freeman entered into a contract with SmartPay Leasing LLC to lease a smartphone. The contract included an arbitration clause. Freeman filed suit in the federal district court against SmartPay. Shortly after, the parties filed a joint motion to stay to refer the case to arbitration, which was granted on July 12, 2017. After that referral, a dispute arose between SmartPay and the arbitrator regarding the parties’ respective obligations to pay the arbitration fee. On October 19, the arbitrator closed the arbitration file due to nonpayment of the fee. In November 2017, Freeman filed a motion in the district court to lift the stay in the civil action due to SmartPay’s nonpayment of the fee. In January 2018, the district court granted an order lifting the stay. SmartPay filed an appeal of the district court’s order. As an initial matter, the court of appeals held that it had jurisdiction over the appeal pursuant to the Federal Arbitration Act (FAA). Section 16 of the FAA governs appeals as of right from the district court’s arbitration decision, and it permits immediate appeal from an order “refusing a stay.” On the merits, the court of appeals held that SmartPay acted inconsistently with its contractual right to arbitrate when it refused to pay the initial fee as expressly required by the arbitration agreement and, therefore, it waived its right to arbitration. Further, the court of appeals held that any alleged conflict between the arbitration agreement and the JAMS’s Consumer Minimum Standards was reconcilable, and therefore when SmartPay would not comply with the JAMS’s Consumer Minimum Standards it waived its right to arbitration. Lastly, the court of appeals found that it was appropriate to lift the stay on the civil action because the arbitration underlying the stay had been in accordance with the terms of the agreement, and SmartPay was in default by failing to pay the fee.

Freeman v. SmartPay Leasing, LLC, No. 18-10380 (11th Cir. May 3, 2019)

SNDY Clears the Air, Finds Arbitrators Applied UAE Law in Determining Award in Aircraft Lease Agreement Dispute

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Cessna Finance Corp. entered into contracts with Al Ghaith Holding Co. PJSC for purposes of guaranteeing aircraft lease agreements. Cessna filed a request for arbitration against Al Ghaith seeking payment under the guaranty agreements. Al Ghaith argued that the guaranty agreements were unenforceable because the vice president who signed the agreement did not have authority to do so. The arbitrators issued an award in favor of Cessna holding the guarantee agreements were valid under both Kansas and Dubai law. Cessna moved to confirm the award. The U.S. District Court for the Southern District of New York confirmed the award. The court explained that arbitration awards will only be vacated under limited circumstances, one being “manifest disregard” of the law. An award will be in “manifest disregard” of the law where: (1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it; and (2) the law ignored by the arbitrators was well-defined, explicit, and clearly applicable to the case. Al Ghaith argued that the award was in violation of a UAE law. However, the court explained that the arbitrators explicitly applied UAE law in confirming the award, and Al Ghaith did not meet its heavy burden to demonstrate the arbitrators acted in “manifest disregard” of the law.

Cessna Finance Corp. v. Al Ghaith Holding Co. PJSC, No. 1:15-cv-09857 (S.D.N.Y. May 7, 2019)