Arbitration
Following Dr. Abumasmah’s decision to return to Jordan to care for his ailing mother, BOA terminated his employment and sent him a separation agreement. Abumasmah disagreed with several of the agreement’s terms regarding payment of an incentive bonus. He sought arbitration of his claims against BOA. The first award and order issued by the arbitrator determined that Abumasmah was entitled to an incentive bonus for his third and final year of employment, but not on the same terms as the prior two years. The arbitrator ordered the parties to provide additional briefing on the method for calculating the third-year incentive bonus. In a second award and order, the arbitrator based the amount of the third-year incentive bonus on the fact the employment agreement granted the arbitrator “the right and duty to give appropriate equitable and legal relief.” In addition, the parties had agreed that West Virginia law—which recognizes the concept of unjust enrichment—governed the terms of the employment agreement. The arbitrator awarded Abumasmah $167,030 “to prevent the unjust enrichment of BOA.”
District Court Review of the Award
BOA sought to vacate the award. Abumasmah objected on the basis that the arbitration provision eliminated all right to judicial review. Reviewing the case law from other circuits, the district court held that the clause prohibiting judicial review of the award was unenforceable under the Federal Arbitration Act (FAA). The court confirmed the award, noting that nothing in the ruling suggested that the arbitrator had “refused to heed a clearly defined legal principle or deliberately disregarded the contract language.” Beckley Oncology Assocs., Inc. v. Abumasmah, No. 518-CV-01549 (S.D. W. Va. June 28, 2019). BOA filed an appeal.
The Fourth Circuit’s Concurrence with the Reasoning of the Tenth Circuit
The gateway issue was whether BOA had waived “any right of appeal” based on the language of the arbitration agreement. While a matter of first impression in the Fourth Circuit, the Tenth Circuit had addressed the issue in MACTEC, Inc. v. Gorelick, 427 F.3d 821 (2005). The relevant provision in Gorelick waived the right to an appeal but did not waive the right to judicial review by a district court. The Tenth Circuit opined that such a limited review waiver was a valid “compromise whereby the litigants trade the risk of protracted appellate review for a one-shot opportunity to seek district court review” under 9 U.S.C. § 10.
Concurring with the reasoning of the Tenth Circuit, the Fourth Circuit held that an appellate waiver in an arbitration agreement under the FAA is valid and enforceable. In reaching its decision, the court determined that the employment agreement covered the waiver of two separate matters—the right to judicial review and the right to appellate review of the award. The court noted that outside the arbitration context, courts routinely enforce appellate waivers in plea agreements, “where the stakes, namely years of lost liberty, are far higher than the monetary award at issue here.” Based on the agreement’s severability clause, the court found that the appeal waiver was still valid because it did not concern “the essence of the contract.”
Prior Decision by the Ninth Circuit
Addressing a key argument raised by BOA, the court concluded that the Ninth’s Circuit’s decision in In re Wal-Mart Wage & Hour Employment Practices Litigation, 737 F.3d 1262 (2013), was not to the contrary. In that case, the court held that permitting parties to “contractually eliminate all judicial review of arbitration awards would not only run counter to the text of the FAA, but would also frustrate Congress’s attempt to ensure a minimum level of due process for parties to an arbitration.” In the BOA v. Abumasmah case, the parties’ attempt to waive judicial review was indeed unenforceable, but that did not prevent enforcement of the parties’ agreement to waive appellate review of the district court’s decision confirming or vacating the award.
Non-Concurrence with the Second Circuit’s Decision
In a footnote, the Fourth Circuit addressed the Second Circuit’s decision in Hoeft v. MVL Group, Inc., 343 F.3d 57 (2003), abrogated by Hall St. Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008). In that case, the arbitration agreement stated that the arbitration award “shall not be subject to any type of review or appeal whatsoever.” The Second Circuit refused to enforce the waiver regarding judicial review by a district court. In addition, the Second Circuit “without further analysis” determined that the waiver of the right to appellate review was also unenforceable—a decision that the Fourth Circuit “with great respect for our sister circuit” choose not to follow.
Conclusion
As the Fourth Circuit noted, appealing arbitration awards “seems to be an increasingly common course,” resulting in “arbitration no longer being treated as an alternative to litigation, but as its precursor.” Allowing this to occur is “all the more lamentable when the parties have expressly waived that right.” Counsel who are drafting arbitration agreements should carefully analyze whether a client would want to engage in a protracted and expensive appeal. If the answer is no, the Tenth and Fourth Circuits have determined that while an arbitration provision cannot waive judicial review, it can waive appellate review.
