A federal appellate court held that contract terms waiving appeals of arbitrator decisions are enforceable under the Federal Arbitration Act (FAA). Distinguishing between waiving all judicial review and waiving appellate review, the court concluded that due process is satisfied by district court review of arbitrator decisions and that the enforcement of appeal waivers furthers the FAA’s policy objectives of reducing litigation costs with a more efficient dispute resolution forum. ABA Litigation Section leaders believe this decision aligns with the goal of the FAA to provide efficient dispute resolution.
At issue in Beckley Oncology Associates, Inc. v. Abumasmah was whether Beckley Oncology Associates, Inc., owed its former employee, Dr. Rami Abumasmah, an incentive bonus for his final year of employment and, if so, how much. The parties negotiated the doctor’s employment contract for several months before he started working for the practice in July 2012.
The parties agreed to arbitration for all disputes arising from the employment relationship, and specified that the arbitrator’s decision “shall be final and conclusive and enforceable in any court of competent jurisdiction without any right of judicial review or appeal.” As the employment contract contained a severability clause, the invalidity of a provision of the agreement would not necessarily invalidate the appeal waiver.
In his third year of employment, the doctor informed the practice that he planned to leave the United States for at least six months so he could care for his mother in Jordan. He did not expect to be paid during his leave and offered to resign. The practice decided to terminate the doctor’s employment on his last day and gave him a separation agreement.
The doctor did not agree with several terms of the separation agreement, most notably the amount of his incentive bonus for his third year of service, which was $72,994 and markedly lower than his previous bonuses. His incentive bonuses for his first and second year were $141,000 and $242,000, respectively, and his collections increased steadily through his third year. The doctor calculated his incentive bonus for his third year to be $328,070.57.
The doctor demanded arbitration of his claims against his former employer. The arbitrator found in favor of the doctor on an unjust enrichment claim and calculated his incentive bonus with the same “methodology utilized by [the employer] for its employee physicians.” The arbitrator calculated the defendant’s incentive bonus to be $167,030.
The employer filed a complaint seeking to vacate the arbitration award in the U.S. District Court for the Southern District of West Virginia. The trial court granted the doctor’s motion to dismiss and confirmed the award. The court held that the waiver of judicial review was unenforceable, but ultimately upheld the arbitrator’s award because “[n]othing in the Arbitrator’s rulings suggest[ed] that he refused to heed a clearly defined legal principle or deliberately disregarded the contract language.”
The employer appealed the district court’s decision to the U.S. Court of Appeals for the Fourth Circuit. Without addressing the merits, the appellate court dismissed the appeal, enforcing the parties’ appeal waiver.
In this case of first impression in the Fourth Circuit, the appellate court relied on the U.S. Court of Appeals for the Tenth Circuit’s analysis in MACTEC, Inc. v. Gorelick. In MACTEC, the clause at issue stated that the arbitrator’s judgment is “final and nonappealable.” The Tenth Circuit described the provision as “a compromise whereby the litigants trade the risk of protracted appellate review for a one-shot opportunity before the district court.” It further explained that such waivers are consistent with the policy underlying the FAA: reducing litigation costs in a more efficient forum.
Adopting the Tenth Circuit’s reasoning, the Fourth Circuit concluded that appellate review of a district court’s confirmation of an arbitral award was created by statute, pursuant to 9 U.S.C. § 16(a)(1)(D), and could be waived. The Fourth Circuit pointed out that appellate waivers are permitted in criminal plea agreements where “the stakes, namely years of lost liberty, are far higher than the monetary award at issue here.” The appellate court reasoned that enforcing the appeal waiver did not foreclose all judicial review, and the medical practice “received a ‘minimum level of due process’ before the district court.”
Litigation Section leaders were neither surprised nor troubled by the decision. “Limiting the scope of review is consistent with the FAA’s goal of a speedy and cost-efficient dispute resolution,” explains Jerry M. Cutler, New York, NY cochair of the Section’s Employment & Labor Relations Law Committee. “Arbitration appeals are the narrowest and most circumscribed level of appeal. You do not give up much by waiving appellate review,” contends Mitchell L. Marinello, Chicago, IL, former cochair of the Section’s Alternative Dispute Resolution Committee and current Web Editor of the Committee’s website.
However unexceptional the decision, Marinello found the Beckley parties to be interesting. “The employer drafted the employment agreement, yet it was the party asking the court to invalidate it,” he remarks. “Most parties do not look very carefully at arbitration clauses, but you would expect the party who drafted it to know what it means.”
