Cotton Creek Circles v. San Luis Water Co.

PRESENT: Hassell, C.J., Keenan, Koontz, Kinser, Lemons, and
Millette, JJ., and Carrico, S.J.

COTTON CREEK CIRCLES, LLC, ET AL.

v. Record No. 090283 OPINION BY
JUSTICE BARBARA MILANO KEENAN
February 25, 2010
SAN LUIS VALLEY WATER CO., ET AL.

FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
Beverly W. Snukals, Judge

In this appeal, we consider whether the circuit court erred

in confirming an arbitration award in a contract dispute

involving the members of a limited liability company.

Cotton Creek Circles, LLC, was formed to develop and sell

water rights to certain Colorado municipalities (the Project).

This limited liability company has three members, one of which

is co-owned by Gary C. Boyce. Boyce also owns Boyce Land &

Cattle Company, a cattle ranching company.

The other two members of Cotton Creek Circles, LLC, are

James River Capital Corporation and Deepwater Development, LLC.

They are joined as parties with Cotton Creek Circles, LLC, in

this appeal, and we will refer to these three parties

collectively as the “Cotton Creek plaintiffs.”

Under the “Cotton Creek Circles, LLC Limited Liability

Company Agreement” (the Operating Agreement), the members’
business activities are limited by the following provision (the

non-compete clause):

[I]f [Cotton Creek Circles, LLC] has not
abandoned in writing the pursuit of the Project,
then for such period of time as any of the
[members] is involved in the potential or actual
purchase, development or sale of any water
project within 100 miles of the boundaries of
either the Cotton Creek Ranch or Rancho Rosado
(the “Protected Water Project Area”), in no event
shall any of the any [sic] Boyce Entities pursue
the acquisition or development of water projects
or any property relating thereto within the
Protected Water Project Area without the prior
written consent of [James River Capital
Corporation].

(Emphasis added.)

In 2005, Boyce Land & Cattle Company leased land, known as

Cherry Creek Ranch, for the purpose of grazing cattle. Under

the lease agreement, Boyce Land & Cattle also obtained an option

to purchase Cherry Creek Ranch (the Option). It is undisputed

that Cherry Creek Ranch lies within the “Protected Water Project

Area” designated by the non-compete clause, and that Cherry

Creek Ranch could provide water for the Project.

A dispute arose among the parties regarding the Option, and

the Cotton Creek plaintiffs filed a demand for arbitration under

the following provision of the Operating Agreement:

THE MEMBERS AGREE THAT IN THE EVENT OF ANY
DISPUTE WITH RESPECT TO THIS AGREEMENT, THEIR
RESPECTIVE OBLIGATIONS HEREUNDER, OR ANY OTHER
MATTER RELATING TO [COTTON CREEK CIRCLES, LLC]
WHATSOEVER, SUCH DISPUTE SHALL BE SETTLED BY
ARBITRATION . . . IN ACCORDANCE WITH THE

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 COMMERCIAL ARBITRATION RULES OF THE AMERICAN
ARBITRATION ASSOCIATION.

(Emphasis added.)

At a hearing before a panel of arbitrators (the Panel), the

Cotton Creek plaintiffs asserted that Boyce had breached the

non-compete clause by attempting to exercise the Option in favor

of Boyce Land & Cattle. Boyce conceded that he intended to

exercise the Option for Boyce Land & Cattle but stated that he

would provide a water rights easement to Cotton Creek Circles,

LLC.

The Panel ruled that Boyce Land & Cattle owned the Option

subject to an obligation to provide to Cotton Creek Circles, LLC

an easement for the water rights to Cherry Creek Ranch. The

Cotton Creek plaintiffs filed a motion in the circuit court to

vacate the arbitration award, arguing that the Panel exceeded

its powers by disregarding the unambiguous terms of the non-

compete clause. The circuit court denied the motion to vacate

and confirmed the arbitration award.

On appeal, the Cotton Creek plaintiffs argue that the

circuit court should have vacated the Panel’s award under

section 10(a)(4) of the Federal Arbitration Act, 9 U.S.C. §§ 1

through 16 (2006 & Supp. II 2008) (the Act), which permits a

court to vacate an award if the arbitrators exceed their powers.

The Cotton Creek plaintiffs contend that the Panel’s award,

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which grants the option of title to Cherry Creek Ranch to Boyce

Land & Cattle, ignores the plain language of the Operating

Agreement by permitting Boyce Land & Cattle to acquire title to

Cherry Creek Ranch without the consent of the members of Cotton

Creek Circles, LLC. Thus, the Cotton Creek plaintiffs argue

that the Panel exceeded its powers by fashioning a remedy that

contravenes the unambiguous terms of the Operating Agreement’s

non-compete clause.

In response, Boyce argues that this Court’s review of the

arbitration award under section 10(a)(4) of the Act is limited

to a determination whether the parties granted to the Panel the

authority to resolve the present dispute. Boyce contends that

under the terms of the Operating Agreement, the task of

interpreting the non-compete clause fell squarely within the

Panel’s authority to settle “any dispute” regarding that

agreement. Boyce further argues that the Panel did not ignore

the non-compete clause but rather applied a particular

interpretation of the disputed language. Therefore, Boyce

asserts, the circuit court properly rejected the Cotton Creek

plaintiffs’ motion.

In resolving this issue, we consider de novo the circuit

court’s denial of the motion to vacate the Panel’s award. See

First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947-48

(1995); Patten v. Signator Ins. Agency, Inc., 441 F.3d 230, 234

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(4th Cir. 2006); Apex Plumbing Supply, Inc. v. U.S. Supply Co.,

Inc., 142 F.3d 188, 191 n. 1 (4th Cir. 1998). We conduct our

review mindful of the principle that judicial review of an

arbitration award under the Act is “among the narrowest known to

the law.” Long John Silver’s Restaurants, Inc. v. Cole, 514

F.3d 345, 349 (4th Cir. 2008) (quoting U.S. Postal Serv. v. Am.

Postal Workers Union, AFL-CIO, 204 F.3d 523, 527 (4th Cir.

2000)).

The parties agree that the scope of our review is defined

by the Act’s very limited vacatur authority. See Choice Hotels

Int’l, Inc. v. SM Prop. Mgmt., LLC, 519 F.3d 200, 207 (4th Cir.

2008); Long John Silver’s, 514 F.3d at 349; Patten, 441 F.3d at

234. Under that authority, a party seeking to vacate an

arbitration award bears the burden of demonstrating one of the

exclusive grounds set forth in section 10 of the Act. See Hall

Street Assocs., LLC v. Mattel, Inc., 552 U.S. 576, 584 (2008);

Choice Hotels, 519 F.3d at 207; Citigroup Global Markets, Inc.

v. Bacon, 562 F.3d 349, 358 (5th Cir. 2009).

In the present dispute, the parties have confined their

argument to only one of those specific grounds for vacatur,

namely, whether the Panel exceeded its powers as stated in

section 10(a)(4) of the Act. Under that provision, a court may

vacate an arbitration award if “the arbitrators exceeded their

powers, or so imperfectly executed them that a mutual, final,

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and definite award upon the subject matter submitted was not

made.” 9 U.S.C. § 10(a)(4).

Under the Act, arbitrators do not exceed their powers if

they misinterpret a contract or make errors of law. Apex

Plumbing, 142 F.3d at 193-94; Richmond, Fredericksburg & Potomac

R.R. Co. v. Transportation Commc’ns Int’l Union, 973 F.2d 276,

281 (4th Cir. 1992). Even serious errors of interpretation are

not sufficient to overturn an arbitration award. See Long John

Silver’s, 514 F.3d at 349. Instead, for arbitrators to exceed

their powers within the meaning of section 10(a)(4) of the Act,

the arbitrators must egregiously depart from the authority

conferred by the parties in their arbitration contract. See

Hall Street Assocs., 552 U.S. at 586.

Applying these principles, we conclude that the parties’

Operating Agreement granted the Panel the authority to settle

the present dispute. The broad arbitration agreement, which

conferred on the arbitrators the power to resolve “any dispute

with respect to [the Operating Agreement],” necessarily included

the authority to settle a dispute over the proper interpretation

and application of the non-compete clause.

The Cotton Creek plaintiffs argue, nevertheless, that the

Panel exceeded its powers by “ignoring” the language of the non-

compete clause. We conclude that there is no merit in this

contention.

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 The Panel’s interim award expressly refers to the non-

compete clause and, in reaching its decision, the Panel

effectively interpreted the term “water projects” in the non-

compete clause as referring to undertakings other than “the

Project” referenced in that same clause. Thus, the Panel

plainly applied the language of the non-compete clause by

fashioning a remedy that prohibits Boyce from retaining all

water rights in Cherry Creek Ranch, located within the Protected

Water Project Area, to the exclusion of Cotton Creek Circles,

LLC.

In reaching this conclusion, we emphasize that the grounds

for vacatur provided in the Act, including the present challenge

to the arbitrators’ exercise of their powers, do not permit a

court to overturn an arbitration award based merely on a party’s

disagreement with the arbitrators’ decision. Remmey v.

PaineWebber, Inc., 32 F.3d 143, 146 (4th Cir. 1994). “[P]arties

may not seek a ‘second bite at the apple’ simply because they

desire a different outcome.” Id. In effect, that is what the

Cotton Creek plaintiffs have requested in this appeal.

In addition, we observe that even if the Panel erred in its

interpretation of the non-compete clause, that error does not

provide a basis for vacating the Panel’s award pursuant to

section 10 of the Act. As stated above, arbitrators do not

exceed their powers, within the meaning of section 10(a)(4) of

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the Act, by misinterpreting a contract. Apex Plumbing, 142 F.3d

at 193-94; Richmond, Fredericksburg & Potomac R.R., 973 F.2d at

281. Accordingly, we hold that the Panel did not exceed its

powers in resolving the parties’ dispute concerning the proper

application of the non-compete clause and that, therefore, the

circuit court did not err in confirming the arbitration award.

For these reasons, we will affirm the circuit court’s

judgment confirming the arbitration award.

Affirmed.

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