Arbitrator Manifestly Disregards the Law-Fourth Circuit Vacates Arbitration Award

By Wolpert, Ira C. | Dispute Resolution Journal, February-April 2014 | Go to article overview

Arbitrator Manifestly Disregards the Law-Fourth Circuit Vacates Arbitration Award


Wolpert, Ira C., Dispute Resolution Journal


In a recent issue of this publication (Vol. 68 No. 2, 2013), this writer discussed two recent cases regarding the "heavy burden" imposed upon a party seeking to set aside an arbitration award. Those cases opined that the award is unenforceable only when the arbitrator strays from interpretation and application of the agreement, when the award reflects the arbitrators "notion of economic justice or his own concept of sound policy" rather than the essence of the contract, or manifests a disregard of the law.

Those concepts were recently applied by the Fourth Circuit Court of Appeals in a twenty-five page unpublished opinion (unpublished opinions are not binding precedents in that court) which vacated an arbitration award because the arbitrator engaged in "linguistic gymnastics" when interpreting a Release between the parties. There was a dissent. Dewan, C.P.A, P.A. v. Walia, 2013 WL 5781207, October 28, 2013.

A Petition for Writ of Certiorari to the United States Supreme Court was filed and denied. See, Further Proceedings discussed below.

I. BACKGROUND AND PROCEEDINGS BELOW

The Plaintiffs-Appellants were a Maryland Close Corporation as well as an individual citizen of Maryland. The Defendant-Appellee was a non-resident alien and a citizen of Canada.

Mr. Walia was employed by the Plaintiffs as an accountant on an employment visa. The relationship ended with a broadly worded Release Agreement, set forth in full in the opinion, in which the Plaintiffs agreed to pay Mr. Walia $7,000, and Mr. Walia was restricted by a noncompete and nonsolicitation agreement. The Release required that should a dispute arise concerning the Release or its performance, the parties were to engage in binding arbitration. It also stated that it should be governed by and construed according the laws of the State of Maryland applicable to agreements to be wholly performed in Maryland.

Subsequently, Appellants filed a demand for arbitration against Walia, alleging breach of the noncompetition/nonsolicitation provisions. Walia asserted numerous counterclaims, including that he had been underpaid during his employment, and that Dewan, the president of the company, fraudulently sought to withdraw Walia's employment authorization.

The arbitrator found that the Release was valid and enforceable, but although the expansive and encompassing language of the Release extinguished Walia's common law and state and federal claims if they were brought in state or federal court, decided that such a limitation did not apply in an arbitration proceeding.

She awarded Walia $387,108.20 in compensatory damages and $70,000 in punitive damages on his counterclaim, and found that the Plaintiffs were jointly and severally liable for the combined $457,108.20.

Appellants did not first file a petition to vacate the award, but instead filed a civil complaint pursuant to the Maryland Uniform Arbitration Act, raising numerous allegations of improper conduct of the arbitrator and in the proceedings. They later filed an amended complaint challenging the final award. Mr. Walia filed a petition to confirm the award.

The district court denied the petition to vacate the award, noting its severely circumscribed role in reviewing an arbitration award, the limited grounds for vacating an arbitration award, and that the plaintiffs did not meet the "heavy burden of proof with respect to any and the applicable grounds to vacate an arbitration award" under Maryland law.

Appellants filed a motion for reconsideration, which was denied.

The Maryland district court confirmed the award to Walia, and granted Walia's motion for attorney's fees and costs of $14,473.75. Plaintiffs had argued that no such award should be made because the agreement between the parties authorized an award of fees to the party prevailing in any action brought to enforce the agreement, and the action before the court was one to vacate the award, not to enforce it The district court held, however, that Plaintiffs' action rested upon the agreement itself, and therefore Walia was the prevailing party entitled to fees. …

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