‎“Man Bites Dog” in the Fourth Circuit: Court Reverses Arbitrator’s Award and Enforces ‎Release

There’s a famous aphorism in journalism: “When a dog bites a man, that is not news, because it happens so often. But if a man bites a dog, that is news.”

The same is true of arbitration awards.  When a federal court confirms an arbitration award, it isn’t newsworthy, because that’s what everyone expects will happen.  But when a court tosses an arbitrator’s decision, it creates headlines.

On October 28, the Fourth Circuit made news by vacating an arbitration award issued to a former employee of an accounting firm.  Kiran M. Dewan, C.P.A., P.A. v. Walia, No. 12-2175 (4th Cir. 2013).  The former employee (Walia) was a native of Canada on a work visa who joined the Dewan firm as an accountant.  When he was terminated, he signed a release in which he gave up any tort or contract claims he had against the company in exchange for a payment of $7,000.  Three months later, the firm filed an arbitration against Walia, alleging that he had violated noncompete and nonsolicitation provisions in his employment agreement.  Walia filed counterclaims alleging that the firm underpaid him in violation of visa regulations, breached his employment agreement, and fraudulently sought to withdraw its sponsorship of his visa.  The arbitrator found that Walia’s release was legally enforceable, but also found that Dewan (the president of the firm) brought baseless claims and purposely sought to injure Walia’s immigration interests.  As a result, the arbitrator awarded Walia over $450,000.

In the build-up to its decision, the Fourth Circuit recognized the dog-bites-man principles of confirming arbitration awards.  It wrote that under the Federal Arbitration Act, “the scope of judicial review for an arbitrator’s decision is among the narrowest known at law because to allow full scrutiny of such awards would frustrate the purpose of having arbitration at all—the quick resolution of disputes and the avoidance of the expense and delay associated with litigation.”   The Federal Arbitration Act and the common law only allow an arbitration award to be vacated when

• the award was “procured by corruption, fraud, or undue means”;
• there was “evident partiality or corruption” in the arbitrators, or either of them;
• the arbitrators “were guilty of misconduct”;
• 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”; or

• “an award fails to draw its essence from the contract, or the award evidences a manifest disregard of the law.”

In other words, to vacate an arbitration award, a party must show that the winning party bought the award; the arbitrators were crooked or obviously biased; the arbitrators botched the arbitration to such a degree that a final and definite award wasn’t even made; or the arbitrators didn’t follow the contract at issue and/or disregarded binding law.

The Fourth Circuit tossed Walia’s award on the last ground.  Despite finding that the release was binding, the arbitrator had ruled that the release only prohibited claims brought in state or federal court, and not claims brought in arbitration.  The Fourth Circuit found no support for that interpretation in the language of the release, which stated that it included

any and all claims, liabilities, causes of action, damages, losses, demands or obligations of every kind and nature, whether now known or unknown, suspected or unsuspected, which [Walia] ever had, now has, or hereafter can, shall or may have . . . including but not limited to matters dealing with [Walia’s] employment or termination of employment with [the accounting firm], or which relate in any way to injuries or damages suffered by [Walia] (knowingly or unknowingly). . . . [Walia] promises never to file a lawsuit or assist in or commence any action asserting any claims, losses, liabilities, demands, or obligations released hereunder.

Because of this language, “neither linguistic gymnastics, nor a selective reading of Maryland contract law, could support [the arbitrator’s] conclusion that the Release was enforceable but that Walia’s claims were arbitrable anyway.”

Judge Wynn dissented, stating that the arbitrator’s award “more than arguably applie[d] the contract.”  The release could have made clear that Walia “promised never to file a lawsuit, or assist in or commence any action or arbitration or any other form of dispute for adjudication in any forum whatsoever.”  Because the release did not include that language, the arbitrator’s reading was permissible and should have been upheld under the restrictive standards for reviewing an arbitration award.

As Judge Wynn’s dissent illustrates, the Dewan decision involved two strong and competing legal principles.  Arbitration awards, by rule, are almost impossible to overturn.  But it is also extremely difficult for employees to wriggle out of a release that they sign in exchange for a monetary payment when they are terminated, as we’ve previously discussed on this blog.  Perhaps the best lesson from Dewan is that parties should make sure to draft their general releases to cut out any wiggle room for the releasing party to pursue arbitration or other non-judicial relief.  If Walia’s release had included the language suggested by Judge Wynn, then the arbitrator might never have ruled in his favor; if she had, the Fourth Circuit would have unanimously vacated the award.

• Arbitration
• Arbitration and ADR
• Breach of Contract
• Releases
• Severance Agreements