Opinion
Civil Action No. 3:98-CV-1108-M.
February 15, 2001.
MEMORANDUM OPINION AND ORDER
Before the court are Petitioners' Petition to Confirm Arbitrators' Final Decision and for Entry of Judgment ("Petition to Confirm"), filed on May 6, 1998; Respondents' Motion to Vacate Arbitrators' Award, or, in the Alternative, to Modify Arbitrators' Award, filed on July 2, 1998; Respondents' Supplemental Motions to Vacate Arbitrators' Award, or, in the Alternative, to Modify Arbitrators' Award, filed on April 18, 2000 and May 16, 2000; all briefs in support of these motions; and all responses and replies thereto.
I. Background Claims
Petitioner Columbia Medical Center of Lewisville ("the Hospital") is a private hospital in Lewisville, Denton County, Texas and is part of a group of hospitals in the Dallas/Fort Worth area owned by Columbia/HCA Corporation. Petitioner Raymond M. Dunning, Jr. is the Administrator and Chief Executive Officer of the Hospital. Respondents are all Certified Registered Nurse Anesthetists ("CRNAs"), who performed anesthesia services for patients at the Hospital. The CRNAs practiced at the Hospital until it decided to award an exclusive contract covering all patient anesthesia needs to Dr. Alan Carruth, M.D., P.A. ("Carruth"). The CRNAs, who are not part of Carruth's group, challenged the contract between Carruth and the Hospital, asserted various claims, and then agreed to settle the dispute through binding arbitration, to be administered by the American Arbitration Association under its Commercial Arbitration Rules. The arbitration panel then ruled against the CRNAs on each of their claims. Petitioners ask that this court confirm the arbitrators' final decision and enter a judgment in conformity with that decision. The CRNAs challenge the arbitrators' decision and ask that this court vacate the arbitrators' award or, in the alternative, modify the award.
II. Grounds for Review
The parties' intentions control the ultimate interpretation of an arbitration clause. Ford v. NYLCare Health Plans of the Gulf Coast, Inc., 141 F.3d 243, 247 (5th Cir. 1998) (citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985)). Here, the parties agreed that "[i]n rendering the award, the arbitrator shall determine the rights and obligations of the parties according to the substantive laws of the United States and substantive laws of the State of Texas." Their agreement further provided that "[t]he arbitrator shall have the authority to award any remedy or relief that a federal district court or civil district court of the State of Texas could order or grant." (Petition to Confirm, Ex. A.)
As both parties concede, this dispute involves a matter related to interstate commerce. (Motion to Vacate, p. 20; Response to Motion to Vacate, p. 3.) Although they did not expressly provide whether the Federal Arbitration Act ("FAA") or the Texas General Arbitration Act ("TGAA") applied, the court applies the FAA. Volt Info. Scis., Inc. v. Board of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 476 (1989) (contracts involving interstate commerce fall within the coverage of the FAA); 9 U.S.C. § 2.
The FAA provides for vacatur of an arbitrator's 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.
(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(a)(1)-(4). A court's review of an arbitration award under the FAA is highly deferential. Mantle v. Upper Deck Co., 956 F. Supp. 719, 726 (N.D. Tex. 1997). In fact, "[a] court may not vacate [an arbitrator's] award based on mere errors in interpretation or application of the law, or mistakes in factfinding." Id. Another court in this district and one panel of the Fifth Circuit has held that the FAA provides the only grounds upon which a reviewing court may vacate an arbitrator's award, to the exclusion of any "judge-made" grounds. Id. at 726-27; McIlroy v. PaineWebber, Inc., 989 F.2d 817, 820 (5th Cir. 1993) (per curiam) (citing R.M. Perez Assocs., Inc. v. Welch, 960 F.2d 534 (5th Cir. 1992)). However, a panel of the Fifth Circuit recently stated that "[p]anels of this circuit have recognized at least three . . . nonstatutory grounds for vacatur of arbitration awards in . . . FAA cases: (1) Award contrary to public policy. (2) Arbitrary and capricious award. (3) Award's failure to draw its essence from underlying contract." Williams v. Cigna Fin. Advisors Inc., 197 F.3d 752, 758 (5th Cir. 1999) (citations omitted), cert. denied, 120 S.Ct. 1833 (2000). The court in Williams further approved an additional nonstatutory ground for vacatur-application of the "manifest disregard of the law" standard in the review of arbitration awards asserting claims under the Age Discrimination in Employment Act ("ADEA"), and, based on the language of the opinion, in Title VII and other federal employment statutes as well. Id. at 758-61. In supplemental pleadings filed on May 16, 2000, based on Williams, the CRNAs assert that this court should vacate the arbitrators' award because the arbitrators acted with manifest disregard of the law.
The court concludes, however, that application of the TGAA would not yield a different result.
The CRNAs assert that this court's review of the arbitrators' award should be governed by Texas common law as well. Common law provides an "alternative" when statutory law is inapplicable. See L.H. Lacy Co. v. City of Lubbock, 559 S.W.2d 348, 351-52 (Tex. 1977). That alternative is inapplicable here. See Anzilotti v. Gene D. Liggin, Inc., 899 S.W.2d 264, 266 (Tex.App.-Houston [14th Dist.] 1995, no writ).
The court in Williams acknowledged that two panels of this circuit have declined to recognize the "manifest disregard of the law" standard in contexts unlike that in Williams, which involved employment claims. Id. at 758. In R.M. Perez Assocs., Inc. v. Welch, 960 F.2d 534 (5th Cir. 1992), the Fifth Circuit held that judicial review of a commercial arbitration award is limited to the grounds of review prescribed by applicable statute. Id. In McIlroy, supra, a client of a securities brokerage firm moved to modify or vacate an arbitration award, which had denied his claim that the firm failed to sell his stock as he had requested. The Fifth Circuit reaffirmed what it had held in R.M. Perez. McIlroy, 989 F.2d at 820 n. 2. However, after McIlroy, the Supreme Court of the United States decided First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995). In Williams, the Fifth Circuit described the decision in First Options as signaling "clear approval of the `manifest disregard' of the law standard in the review of arbitration awards under the FAA . . ." Williams, 197 F.3d at 759 (citing First Options, 514 U.S. at 942). Expressly taking its cue from First Options, in Williams the Fifth Circuit held that the "manifest disregard of the law" standard of review was appropriate in cases involving claims under the ADEA, Title VII and other federal employment statutes. Id. at 758-59. In determining that such a standard was appropriate in such cases, the court in Williams also relied on Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), which held that ADEA claims are appropriate for arbitration. In so concluding, the Supreme Court in Gilmer rejected the argument that because arbitration focuses on specific disputes between specific parties, it is not suited for claims under statutes like the ADEA, which are designed not only to address individual grievances but also to further important social policies. Gilmer, 500 U.S. at 27-28. In Gilmer, the Supreme Court noted that claims under federal statutes which advance important public policies, such as the Sherman Act, the Securities Exchange Act of 1934, RICO, and the Securities Act of 1933, had been held appropriate for arbitration. The Court held that the ADEA was similarly fit for such treatment. Id. at 28. Notably, however, the Fifth Circuit in Williams did not overrule R.M. Perez or McIlroy. In fact, in Williams, the court stated that "[t]his case involves a claim under the ADEA, but our decision will have implications for the review of arbitration claims under the FAA involving Title VII . . . and other federal employment rights statutes." Williams, 197 F.3d at 758. While this circuit might one day draw on similarities between the ADEA and the Sherman Act to further apply the manifest disregard standard, it has not yet done so. Thus, the general rule still applicable to non-employment cases, as articulated by the Fifth Circuit in R.M. Perez and reaffirmed in McIlroy, is that in this circuit the "manifest disregard of the law" standard does not apply. This court will therefore review the CRNAs' claims that the Hospital engaged in conduct prohibited by federal and state laws barring discrimination based on age or sex under a "manifest disregard of the law" standard, but will review other claims under the standards described in the FAA.
In the alternative, even if the "manifest disregard of the law" standard applies to all of the CRNAs' claims, including those brought under non-employment statutes, the court finds that the record establishes that the arbitrators did not act contrary to the applicable law.
In this case, the CRNAs challenge the arbitrators' decisions as reflecting "error" or "manifest error." As noted by this court at the oral argument on the pending motions, such references do not provide this court notice of the specific grounds on which the CRNAs move for vacatur. In the post-hearing briefs, filed at this court's request, the CRNAs provided limited further detail, but specifically asserted some non-statutory grounds for vacatur. However, they did not analyze how their claims of error fit within the statutory framework of the FAA. Therefore, when the CRNAs merely allege "error" or "manifest error," this Court will conduct its review of all but the employment claims under what it deems the most applicable sections of the FAA.
III. Analysis
"The showing required to avoid summary confirmation of an arbitration award is high, and a party moving to vacate the award has the burden of proof." Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp., 103 F.3d 9, 12 (2nd Cir. 1997) (citations omitted); see Kline v. O'Quinn, 874 S.W.2d 776, 790 (Tex.App.-Houston [14th Dist.] 1994, no writ), cert. denied, 515 U.S. 1142 (1995).
The CRNAs in the instant case allege that the arbitrators were wrong in virtually all of their substantive rulings, and that they made various erroneous evidentiary rulings. Except in connection with the evidentiary matters, the CRNAs merely aver "manifest error" and "manifest disregard," without analyzing the specific terms of the FAA. With respect to evidentiary rulings, the basis for vacatur is specified in the statute. 9 U.S.C. § 10(a)(3).
The CRNAs assert that the arbitrators erred when they did not admit into evidence five enumerated, allegedly relevant, exhibits. Specifically, the CRNAs complain that their proposed exhibits 41, 43, 85, 86 and 99 should have been admitted at the arbitration hearing. In fact, exhibits 85 and 86 were admitted, though for limited purposes. (Transcript Vol. II, pp. 172-173 and Vol. IV, p. 222.) In any case, "[e]very failure of an arbitrator to receive relevant evidence does not constitute misconduct requiring vacatur of an arbitrator's award." Hoteles Condado Beach, La Concha and Convention Ctr. v. Union De Tronquistas Local 901, 763 F.2d 34, 40 (1st Cir. 1985) (citing Newark Stereotypers' Union No. 18 v. Newark Morning Ledger Co., 397 F.2d 594, 599 (3rd Cir.), cert. denied, 393 U.S. 954 (1968)). In fact, the arbitrators' award should only be vacated if the arbitrators refused to hear evidence material to the controversy, which prejudices the rights of the parties. 9 U.S.C. § 10(a)(3); Hoteles Condado Beach, supra, 40. Here, the CRNAs summarily state that the enumerated proposed exhibits were material and that the arbitrators' refusal to admit the exhibits substantially prejudiced them. With these bald assertions alone, however, the CRNAs have not met their burden under the FAA to establish that proposed exhibits 41, 43, 85, 86, and 99 were material, or that their exclusion was prejudicial to them. This court has reviewed the proffered exhibits, and neither the materiality nor prejudice to the CRNAs is apparent.
As to proposed exhibits 41 and 43, which are copies of minutes of the Hospital's Medical Executive Committee meetings, the CRNAs lodge an additional complaint about the exclusion of these exhibits. Although the transcript does not reflect a ruling as to exhibit 41, and the CRNAs would have waived their objection if they failed to request a ruling, the court assumes exhibits 41 and 43 were excluded under the "hospital committee privilege," codified at TEX. HEALTH SAFETY CODE ANN. § 161.032 (Vernon Supp. 2001). The CRNAs assert that the arbitrators' exclusion of those exhibits contravenes public policy, in that state evidentiary privileges were employed to exclude evidence of the Hospital's violations of the Sherman Act. The CRNAs direct this court to a portion of one of the excluded documents which, they contend, evidences Sherman Act violations.
The court disagrees with the CRNAs' position on exhibits 41 and 43 for two reasons. First, the alleged relevancy of the proffered evidence does not establish a public policy violation arising from the applicability of a state privilege; clearly, the law of privileges contemplates that potentially relevant evidence will be excluded. See generally Trammel v. United States, 445 U.S. 40, 50-51 (1980); R.K. v. Ramirez, 887 S.W.2d 836, 842 (Tex. 1994). This court does not conclude that the exclusion of proposed hearing exhibits 41 and 43 contravenes public policy. Second, as stated above, the court has reviewed the exhibits and does not find them to be sufficiently material to conclude that the CRNAs were unfairly prejudiced by their exclusion.
The CRNAs next assert that the arbitrators engaged in misbehavior, as that term is used in 9 U.S.C. § 10(a)(3), when they admitted Petitioners' exhibits 17, 38, 39, 40, 52, 53, 56, 57 and 58. The FAA lists as a ground for vacatur the erroneous exclusion, rather than the erroneous admission, of evidence, but the court will analyze the objections assuming, without deciding, that the erroneous admission of material evidence is a statutory ground for vacatur under the FAA. Specifically, the CRNAs complain that these exhibits constituted hearsay and/or were part and parcel of compromise and settlement proposals, and since the arbitrators ruled that such documents were not properly the subject of discovery, the arbitrators erred when they allowed the documents into evidence and allegedly relied on them in ruling against the CRNAs. In so contending, the CRNAs purport to rely on Gulf Coast Indus. Workers Union v. Exxon Co., USA, 70 F.3d 847 (5th Cir. 1995) and Dover Elevator Sys., Inc. v. United Steel Workers of Am., No. 2:97CV101-B-B, 1998 WL 527290 (N.D. Miss. July 2, 1998).
In Gulf Coast, Exxon terminated an employee because he refused to submit to drug testing after a cigarette stub containing marijuana was found in his car. Gulf Coast, 70 F.3d at 849. The employee was a member of a union that had a collective bargaining agreement with Exxon. The union submitted to arbitration the issue of whether Exxon had just cause to terminate the employee. At the arbitration hearing, Exxon attempted to introduce as a business record a Substance Analysis Report ("SAR"), reflecting that the cigarette stub contained marijuana. The arbitrator advised Exxon that it did not have to establish the report as a business record because the report had already been otherwise admitted into evidence. However, in later ruling for the union and ordering Exxon to reinstate the employee, the arbitrator "found that Exxon did not prove that the substance found in [the employee's] vehicle was marijuana . . . [and] the SAR did not establish that the substance was marijuana because it was hearsay, and did not even have the status of a business record." Id. The district court vacated the arbitrator's award and the Fifth Circuit affirmed, stating that the arbitrator not only refused to consider the SAR, but he "prevented Exxon from presenting additional evidence by misleading it into believing that the SAR had been admitted as a business record." Id. at 850. Such misconduct, the court held, "falls squarely within the scope of Section 10, and is grounds for vacatur." Id. In Dover, the arbitrator considered evidence submitted with one party's post-hearing brief, although that evidence was not included with the copy of the brief sent to the other party. Dover, 1998 WL 527290, at *1. The arbitrator ruled for the party who submitted the new evidence only to the arbitrator. In vacating the arbitrator's decision, the district court stated that "it is fundamentally unfair to take on new evidence after the close of the hearing and not offer the opponent an opportunity for rebuttal." Id. at *2.
The parties here do not dispute that the arbitrators ruled that three settlement proposals submitted by the CRNAs to Petitioners were not properly the subject of discovery. However, Petitioners already possessed the settlement proposals and offered them into evidence at the arbitration hearing. After extensive argument on the admissibility of the documents, on the first day of the five day hearing, the arbitrators ruled they were admissible.
This case is distinguishable from the cases on which Respondents rely. In Gulf Coast, after the close of the hearing, and contrary to what the arbitrator said in response to Exxon's proffer, the arbitrator refused to consider the SAR because it was hearsay and had not been established to be a business record. At that point, Exxon could not offer any further evidence of what substance was in the cigarette. In finding misconduct, the court noted that the arbitrator had affirmatively led Exxon into believing that he would consider the SAR as a business record, and that, once the arbitrator finally ruled, Exxon was foreclosed from introducing evidence on the issue. Gulf Coast, 70 F.3d at 850. Here, the CRNAs claim they were unfairly surprised when the arbitrators admitted the settlement proposals into evidence after ruling, only a few days earlier, that the same evidence was not discoverable. Unlike the situation in Gulf Coast and unlike the non-receiving party in Dover, the CRNAs here had ample opportunity to argue the admissibility of the exhibits, and, after they lost the argument, to rebut them with other evidence. Furthermore, the CRNAs' claim of prejudice, based on the argument that the arbitrators' final decision "leaves no doubt" that they used the settlement proposals to establish liability, is unsupported; in fact, there is insufficient evidence to conclude that the admission of the settlement documents was prejudicial to the CRNAs.
Additionally, the parties agreed that the arbitration would be administered under the Commercial Arbitration Rules of the American Arbitration Association ("AAA"), which state that "[c]onformity to legal rules of evidence shall not be necessary." COMMERCIAL ARBITRATION RULES, Rule 31 (AAA, as amended and effective July 1, 1996). See Bowles Fin. Group, Inc. v. Stifel, Nicolaus Co., 22 F.3d 1010, 1013 (10th Cir. 1994). The AAA's Guide for Commercial Arbitrators states that "[a]n arbitrator might have to rule on an objection to evidence offered on the ground that it is `privileged' . . . [as] terms of settlement negotiations [and] . . . [i]n such instances, arbitrators must rule on the objection raised, bearing in mind that conformity to legal rules of evidence is not required in arbitration." A GUIDE FOR COMMERCIAL ARBITRATORS, 1998 WL 1527128, at *9 (AAA 1998). Thus, pursuant to the rules on which the parties agreed to proceed, the arbitrators had express discretion to make such a decision, and their exercise of that discretion cannot constitute misbehavior under 9 U.S.C. § 10(a)(3). For all of the reasons discussed above, this court concludes that the CRNAs have not proven a ground for vacatur under the FAA insofar as the arbitrators admitted exhibits 17, 38, 39, 40, 52, 53, 56, 57 and 58 into evidence.
The CRNAs next claim that the arbitrators erred when, during discovery, they refused to compel the production of certain hospital committee minutes, instead finding that the minutes were privileged. The court concludes that the CRNAs have not established a ground for vacatur under the FAA in connection with this issue. See 9 U.S.C. § 10(a)(3).
The CRNAs further assert that the "hospital committee privilege" exemption from discovery violates both the United States and Texas Constitution because it deprives them of due process and equal protection. As the Fourth Circuit found in Gallus Invs., L.P. v. Pudgie's Famous Chicken, Ltd., 134 F.3d 231, 234 (4th Cir. 1998), and this court agrees, the arbitrators "were not state actors for purposes of the Fifth or Fourteenth Amendments," and thus the CRNAs state no constitutional claims. Id. at 234.
In their briefing after argument in this court, the CRNAs objected to the arbitrators' finding that "there are 39 competitors for operating room and labor and delivery services in the relevant geographic market," and seek to have the court review that conclusion under the manifest disregard standard. They further challenge, on the same basis, the arbitrators' conclusion that "[i]t is important to note that the Hospital does not derive direct economic benefit from the provision of anesthesia services, which also invalidates the [CRNAs'] tying claim." This court finds that these conclusions are in the nature of factual findings, which do not provide a ground for vacatur. This court similarly construes the CRNAs' other objections in their Motion to Vacate as claims of "mere errors in interpretation or application of the law, or mistakes in factfinding," which are not grounds for vacating an arbitration award under the FAA. Mantle v. Upper Deck Co., 956 F. Supp. 719, 726 (N.D. Tex. 1997).
As to the employment claims, for which the court applies a manifest disregard analysis, pursuant to Williams, supra, the record reveals that the arbitrators did not act with manifest disregard for applicable law by ruling that the Hospital did not engage in conduct prohibited by federal and state laws barring age and sex discrimination. Further, the court notes that the arbitrators held that even if the CRNAs had such claims, they had not exhausted their administrative remedies with the Equal Employment Opportunity Commission or the Texas Commission on Human Rights. See Schroeder v. Texas Iron Works, Inc., 813 S.W.2d 483, 488 (Tex. 1991). The CRNAs point to nothing in the record establishing that such findings were in manifest disregard of the law.
Finally, the CRNAs contend that the arbitrators "erred" when they: 1) failed and refused to grant the CRNAs' Motion for New Hearing; 2) failed and refused to file findings of facts and conclusions of law; and 3) set forth the "Issues/Claims" in Paragraph II of their Final Decision, instead of reciting, verbatim, Paragraph 18 of the parties' Arbitration Agreement, entitled "Scope of Claims." None of these contentions, even if true, constitute grounds for vacatur under the FAA.
IV. Conclusion
For the reasons stated above, this court DENIES Respondents' Motion to Vacate Arbitrators' Award, or, in the Alternative, to Modify Arbitrators' Award and Respondents' Supplemental Motions to Vacate Arbitrators' Award, or, in the Alternative, to Modify Arbitrators' Award. The court GRANTS Petitioners' Petition to Confirm Arbitrators' Final Decision and thus confirms the Arbitrators' Final Decision, with costs of this proceeding taxed against Respondents Jeannean Heller, Harold Newsom, Joanne Lewis and Lola H. Wright. In connection with this decision, Petitioners are ORDERED to pay the above-named Respondents an additional ten dollars ($10) per hour for all "on-call" services rendered by them to the Hospital within the 120 day period beginning April 3, 1998, as set forth in the court's Judgment issued this same day.
SO ORDERED.