Opinion
No. C 01-2280 WHA
September 26, 2001
ORDER DISMISSING PETITION TO MODIFY, CORRECT AND OTHERWISE CONFIRM ARBITRATION AWARD
INTRODUCTION
In this diversity case, petitioner seeks to modify, correct, and otherwise confirm an arbitration award. This order DISMISSES petitioner's action as untimely under the Federal Arbitration Act.
STATEMENT
Petitioner Daniel Calabria was employed as president of Templeton Funds Management Inc., from June 1986 to November 1992 (Fedor Exh. C at 1). On June 2, 1993, petitioner sign a severance agreement with his former employer. This agreement provided, inter alia, that in exchange for releasing any claims he might have against Templeton, petitioner would receive benefits worth $1,175,458.80 (Fedor Exh. A at 2; C at 1-3).
The severance agreement also contained several other provision of importance to this action. First, it stated that it would be governed by and construed in accordance with Florida law (Fedor Exh. C at 5). It further provided that any "claim for money damages arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the National Association of Securities Dealers" (Fedor Exh. C at 6). It also allowed a prevailing party in an action enforcing the agreement or declaring rights thereunder to recover attorney's fees and costs from the other party (ibid).
Petitioner later concluded that respondents had owed him almost two million dollars in pre-existing employee benefits when he signed the severance agreement, and that in signing the agreement he handed approximately $800,000 back to his former employer. On May 28, 1999, petitioner filed an arbitration claim with the NASD. He contended that the severance agreement had been obtained through misrepresentation and the fraudulent concealment of his pre-existing rights (Fedor Exh. A).
After a hearing, the arbitration panel reached a decision on March 8 and 9, 2001. It found respondents liable for $458,208 in compensatory damages, plus interest at the statutory rate, plus filing fees (Fedor Exh. B at 4). The panel denied all of the parties' other claims with prejudice. The arbitration award also provided that "other than the Forum Fees noted below, the parties shall each bear all other costs and expenses incurred by them in connection with this proceeding, including but not limited to attorneys (sic) fees" (ibid).
This award was faxed to and received by respondents and petitioner, through their respective attorneys, on March 15, 2001 (Fedor Exh. B). The award also was mailed to the parties on March 20, 2001. On June 11, 2001, petitioner, suing in diversity, filed a motion to modify, correct and otherwise confirm the arbitration award with this Court (Opp. 4). This motion was served on respondents on June 18, 2001 (Rukin Exh. A).
In his motion, petitioner claims that the issue of attorney's fees was never submitted to the arbitration panel, and that the panel acted outside its jurisdiction in ruling upon the matter. He seeks relief under the Federal Arbitration Act. Petitioner asks that this Court modify the award to provide for several hundred thousand dollars in attorney's fees. This motion is now before the Court.
ANALYSIS
Under the FAA, a federal court may modify or correct an arbitration award upon the application of any party to the arbitration where the arbitrators have awarded upon a matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter. 9 U.S.C. § 11 (b).
Respondents argue that petitioner's alleged failure to act within the limitations period set forth in the FAA for seeking judicial modification of an arbitration award should bar the present action. Petitioner, meanwhile, contends that the Florida Arbitration Code's more lenient limitations provision, Florida Statutes Chapter 682.14, should control. This dispute implicates two issues: (1) Does the FAA's or the Florida Arbitration Code's limitations period apply to the present controversy?; and (2) If the FAA's terms apply, what constitutes an acceptable method of delivery under the Act?
1. Federal Arbitration Act/Florida Arbitration Code.
The first issue is whether the choice-of-law clause in the severance agreement incorporated the limitations period for seeking modification of an arbitration award under the Florida Arbitration Code, or whether the limitations period of the FAA applies. In this diversity case, it is first noted that California courts generally enforce choice-of-law provisions such as that found in the severance agreement. See Nedlloyd Lines B.V. v. Superior Court, 3 Cal.4th 459, 464-65 (1992). A generic choice-of-law clause in an agreement providing for arbitration, like that involved here, incorporates substantive provisions of state law, but not procedural rules that concern the allocation of power between alternative tribunals or limit the authority of arbitrators. See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 63-64 (1995); Wolsey, Ltd. v. Foodmaker,; Inc., 144 F.3d 1205, 1212 (9th Cir. 1998); Des Brisay v. Goldfield Corp., 637 F.2d 680, 682 (9th Cir. 1981). The question then remains whether Chapter 682.14 is substantive, or a procedural rule affecting the allocation of power among tribunals.
The answer is clear. The right to seek judicial modification of an award limits the final authority of the arbitration panel that issued it. See Jeereddi A. Prasad, M.D., Inc., Ret. Plan Trust Profit Sharing Plan v. Investors Assocs., Inc., 82 F. Supp.2d 365, 369-70 (D.N.J. 2000). The differences between the Florida time limitation and the FAA's parallel provision are small. But this very case demonstrates how the Florida statute can undermine the finality of an arbitrator's decision, where the FAA would not. Also, the severance agreement expressly provided that an alternative set of procedural rules, the NASD's, would apply to any action brought under it. The fact that the parties did not adopt such clear language in dealing with Florida law further suggests an intent not to incorporate Chapter 682.14. The FAA's time limit therefore governs the present dispute.
The NASD rules do not include guidelines for modifying an arbitration award. See Jeereddi, 82 F. Supp. at 368.
Petitioner, in asserting that Florida law should apply, relies upon Ekstrom v. Value Health, Inc., 68 F.3d 1391 (D.C. Cir. 1995). In Ekstrom, the Court of Appeals for the District of Columbia Circuit was faced with a similar situation to that involved here, except that the arbitration agreement specified application of Connecticut law in its generic choice-of-law clause. Ekstrom recognized that such clauses are generally not regarded as incorporating state procedural rules, such as statutes of limitations. But since Connecticut courts regarded statutes of limitation as substantive, not procedural, Ekstrom interpreted the choice-of-law clause as incorporating the state's limitations period for modifying an arbitration award and applied Connecticut law instead of the FAA. Id. at 1395.
This Court understands Mastrobuono and Wolsey, not Ekstrom, as controlling authority. Both Mastrobuono and Wolsey stand for the proposition that generic choice-of-law clauses do not incorporate state laws affecting the balance of power between arbitral and judicial tribunals. Ekstrom did not consider this issue. Even if Ekstrom were to apply, Florida courts regard statutes of limitation as procedural. Allie v. Ionata, 503 So.2d 1237, 1240 (Fla. 1987); cf. Moser v. Barron Chase Secs., Inc., 783 So.2d 231, 235 (Fla. 2001) ("The Florida Arbitration Code provides little guidance as to the contents of an award but, instead, focuses on the procedural framework within which the parties may seek to confirm, vacate, or modify an award."). See also In re Hill, 811 F.2d 484, 486-87 (9th Cir. 1987) ("The application of virtually any procedural rule can result in the denial of a `substantive' right, yet this does not transform the procedural rule into a substantive rule."). Even under Ekstrom's reasoning, therefore, the Florida time limit would not be incorporated into the choice-of-law clause.
Despite having been decided only months after Mastrobuono, Ekstrom neither cited nor referred to the Supreme Court's decision. Ekstrom also relied heavily upon a case that Mastrobuono overruled. See Jeereddi, 82 F. Supp.2d at 370, fn. 8; Int'l Tech. Integration, Inc. v. Palestine liberation Org., 66 F. Supp.2d 3, 9 fn. 5 (D.D.C. 1999).
2. Faxing as `Delivery' Under the FAA.
The next question, then, is whether faxing the award was an acceptable means of "delivery" under the FAA. Under the FAA, notice of a motion to modify or correct an arbitration award must be served on the adverse party or his attorney within three months of when the award is "filed or delivered." 9 U.S.C. § 12. In the present case, if faxing was an appropriate method of delivering the award, then respondents were served in an untimely manner. If delivery by mail was necessary, on the other hand, petitioner's service was timely.
Neither party contends that issuance of the award constitutes "delivery," a position also rejected by the lone court known to have directly considered the issue. See Eagle Energy, Inc., v. District 17, United Mine Workers of America, 177 F.R.D. 357, 358 (S.D. W. Va. 1998).
The FAA has been interpreted as encouraging parties to "specify by contract the rules under which [their] arbitration will be conducted." Volt Info. Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989). Here, the parties explicitly contracted for arbitration under NASD rules. When petitioner brought his claim to the arbitration panel (as well as when the award was rendered), the rules provided as follows:
10330. Awards
* * *
(c) The director will serve a copy of the award on each party, or the representative of the party. The Director will serve the award by using any method available and convenient to the parties and the Director, and that is reasonably expected to cause the award to be delivered to all parties, or their counsel, on the same day. Methods the Director may use include, but are not limited to, registered or certified mail, hand delivery, and facsimile or other electronic transmission.
NASD Code of Arbitration Procedure, at http://www.nasdadr.com/arb_code2asp (emphasis added). In an August 1997 order approving the delivery of NASD awards via fax, the Securities and Exchange Commission noted that:
The [NASD's Office of Dispute Resolution] frequently is asked to provide arbitration awards to parties by facsimile. Because the (NASD's arbitration) Code does not provide for this method of service, the Office serves the award by facsimile and also duplicate service by one of the other methods specified in the Code. In addition, the Office may be asked to provide arbitration awards by methods other than registered, facsimile, or personal service. By amending the Code to permit facsimile service, the Office will not be required to serve duplicates by another approved method.62 Fed. Reg. 43568, 43569 (Aug. 14, 1997). And so, by the time the parties went to arbitration, faxing was an approved method of service under the NASD arbitration rules. Such fax service offends neither the letter nor the spirit of the FAA, the "primary purpose" of which is to ensure that "private agreements to arbitrate are enforced according to their terms." Volt, 489 U.S. at 479.
The above analysis inexorably leads to the conclusion that petitioner's action is time-barred. The arbitration panel's award was faxed to the parties on March 15, 2001. Respondents were served with this motion on June 18, 2001. Under the FAA, this service came three days too late.
CONCLUSION
This action to modify, correct and otherwise confirm an arbitration award is DISMISSED with prejudice.
IT IS SO ORDERED.
JUDGMENT
For the reasons stated in this Court's order of September 26, 2001, dismissing petitioner's action as untimely under the Federal Arbitration Act, judgment is hereby entered in favor of RESPONDENTS.