UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 97-60748
R.J. REED and KAREN REED,
Plaintiffs-Appellees,
VERSUS
NATIONAL HOME INSURANCE COMPANY
(A Risk Retention Group),
Defendant-Appellant.
Appeal from the United States District Court
For the Southern District of Mississippi
(3:97-CV-11-L-N)
December 17, 1998
Before REYNALDO G. GARZA, STEWART, and PARKER, Circuit Judges.
PER CURIAM:*
I. Background and Procedural History
This case arises out of the plaintiffs' (“the Reeds'”)
purchase of a new home in Brandon, Mississippi. As part of the
purchase, the builder enrolled the house in a 10-year structural
*
Pursuant to 5TH C IR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
1
warranty program which was underwritten by the defendant, National
Home Insurance Company (“NHIC”). Later, while still under the
warranty period, the Reeds' foundation began to crack, causing
resulting damage to certain walls, doors, and windows. Pursuant to
the warranty, the Reeds filed a claim with NHIC, which was denied
after an initial investigation. As agreed upon in the warranty,
the Reeds then submitted the disputed claim to arbitration. The
Reeds were sent a copy of the National Academy of Conciliators'
(“the NAC”) “Rules and Procedures for the Conciliation and
Arbitration of Home Warranty Disputes,” which were agreed to govern
this arbitration proceeding.
The initial arbitration hearing was held on June 13, 1996 at
the Reeds' home. The arbitrator assigned to the case, E.R.
Butterworth, independently inspected the home and was also provided
with NHIC's engineering report. At the time of the hearing,
however, the Reeds had been unable to secure a report from their
engineer despite repeated efforts to get one. Because of this,
although disputed among the parties, the Reeds contend that
Butterworth granted them until June 20, 1996 to provide him with
their engineer's report. The Reeds assert that Butterworth was
aware that although an initial, summary report would be forwarded
to him as soon as possible, an additional, more detailed report
would also be forthcoming prior to June 20. In accordance with
that understanding, they faxed the first report to the arbitrator
immediately after the hearing. However, without awaiting receipt
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of the Reeds' more detailed report, Butterworth issued his ruling
the following day holding that the Reeds were not entitled to
relief. Despite notification by the Reeds that the additional
report was outstanding, Butterworth declined to reconsider his
ruling.2
The Reeds then filed an appeal of Butterworth's decision and
were informed that although an appellate arbitrator would review
their appeal, no new evidence would be considered. The appellate
arbitrator affirmed Butterworth's award on August 29, 1996, without
considering the Reeds' detailed report which had, by that time,
been completed. On December 5, 1996, the Reeds filed suit in
federal district court alleging that the arbitrators were guilty of
misconduct in their failure to honor the parties' agreement as to
the submission of evidence. Despite the fact that the Reeds never
filed a motion pursuant to the Federal Arbitration Act (“the FAA”),
9 U.S.C. § 12 to vacate the arbitration awards, the district court
sua sponte reviewed the proceedings for compliance with FAA § 10.3
After determining that the arbitrators failed to comply with FAA §
10, the district court vacated the award and remanded the case for
2
Upon a request for clarification of the award by the Reeds,
Butterworth reported that he was unaware that additional evidence
was to be forwarded to him, and that he considered the initial
report irrelevant because it contained no opinion as to the cause
of the foundation cracks.
3
Without considering the interesting question of whether a
district court has the discretion to review an award for compliance
with the FAA without a motion to vacate before it, we decide the
merits of this appeal on other grounds.
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further arbitration before a new arbitrator. This appeal followed.
II. Discussion
A. APPELLATE JURISDICTION
The Reeds first contest this court's appellate jurisdiction,
arguing that the district court's vacatur and remand to a different
arbitrator compel further arbitration and therefore constitute an
unappealable interlocutory order. We disagree.
While the general rule is that a final judgment is required
before a party can resort to an appellate court, there are
important exceptions to this rule. This case falls into such an
exception. “Where the district court has vacated an award and
ordered new arbitration by a different panel, its vacatur becomes
reviewable pursuant to 9 U.S.C. § 15(a)(1)(E).”4 Forsythe Intern.,
S.A. v. Gibbs Oil Co., 915 F.2d 1017, 1020 (5th Cir.1990).
Accordingly, this court has appellate jurisdiction.
B. STANDARD OF REVIEW
In reviewing a district court's vacatur of an arbitration
award under FAA § 10, we review the district court's conclusions de
novo to reconsider whether the arbitration proceedings were
fundamentally unfair. See Forsythe, 915 F.2d at 1020-21 (holding
that de novo review enables this court to assess whether the
district court accorded sufficient deference to the arbitration
4
Prior 9 U.S.C. § 15 is now codified at 9 U.S.C. § 16.
5
proceeding in the first instance). Therefore, we now consider
whether the arbitration proceedings complained of in the district
court were sufficiently unfair as defined in FAA § 10 to justify
vacating the awards in favor of NHIC.
C. THE MERITS OF THE VACATUR
“Judicial review of an arbitration award is extraordinarily
narrow.” Antwine v. Prudential Bache Sec., Inc., 899 F.2d 410, 413
(5th Cir.1990); see also Forsythe, 915 F.2d at 1022 (noting that
district courts should resist the temptation to condemn imperfect
proceedings out of deference to the informal nature of
arbitration). Specifically, judicial review of a commercial
arbitration award is limited to Sections 10 and 11 of the FAA. See
Forsythe, 915 F.2d at 1020. In this case, the district court
relied on FAA § 10(a)(3) to conclude that the arbitration award
should be set aside because “the arbitrators were guilty of
misconduct which prejudiced the rights of one of the parties.” See
9 U.S.C. § 10(a)(3). More specifically, the district court
concluded that the arbitrators' failure to hear evidence pertinent
and material to the controversy so affected the Reeds' rights that
they were deprived of a fair hearing. See Memorandum Opinion and
Order, Oct. 16, 1997; see generally Forsythe, 915 F.2d at 1023.
However, in our de novo review of the arbitration proceedings,
we conclude that the Reeds were not deprived of a fair hearing
based upon any misconduct by the arbitrators. As the district
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court correctly cited in its opinion, “an arbitrator is not bound
to hear all of the evidence tendered by the parties, [although] he
must give each of the parties to the dispute an adequate
opportunity to present its evidence and arguments.” Forsythe at
1023. In light of the national policy favoring arbitration as a
speedy and informal alternative to litigation, as long as an
arbitrator has given the parties an adequate opportunity to present
their evidence, we cannot say that the proceedings were
fundamentally unfair.
1. The Initial Arbitration
At the initial arbitration proceeding, the Reeds were given
adequate opportunities to present their evidence and arguments.
First, both the arbitration rules agreed to by the Reeds and the
letter from the arbitration service expressly notified the Reeds
that their evidence needed to be presented at the proceeding which
would decide the dispute. None of the parties have suggested that
Butterworth would not have considered the Reeds' report had it been
properly presented at the hearing. Second, the rules specifically
allowed for a postponement of the hearing if one of the parties was
unable to proceed for good cause. See NAC R. 9. This option,
however, was never pursued by the Reeds. Third, the mere fact that
Butterworth had discretionary authority under the rules also to
consider evidence “as directed by the arbitrator,” does not excuse
the Reeds from not complying with the terms set out by the
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arbitrator.5 See NAC R. 14. Fourth, and most importantly, even
if Butterworth had waited until June 20, 1996 to render a decision,
the final report still had not been prepared. In no way could we
conclude that Butterworth was guilty of misconduct in not allowing
the Reeds an opportunity to present their evidence, when the final
report was not even ready until August 20, 1996 (approximately 68
days after the hearing).
2. The Appellate Arbitration
Next, we consider if the appellate arbitrator were guilty of
misconduct in limiting his review to the evidence before
Butterworth in the initial arbitration proceeding. NAC Rule 23
governs the appeal of an arbitration award by an initial
arbitrator. See NAC R. 23. Section (f) specifically states that
“[t]he appellate hearing is not a new hearing and the appellate
arbitrator may not hear any new claims or evidence not produced at
the initial hearing.” NAC R. 23(f). Because the appellate
arbitrator was bound to follow the NAC rules, it is clear that he
committed no misconduct in refusing to consider new evidence at the
5
Although Butterworth allegedly granted the Reeds an extension
of time to get their evidence into him, upon the Reeds' request for
clarification, Butterworth apparently either disagreed that the
Reeds had been granted an extension or declined to grant the Reeds
a further extension, as the final report had still not been
completed at that time (over a month after the initial hearing).
This decision was within his discretion. See NAC R. 13, 15
(providing that the arbitrator is charged with interpreting the
rules as they relate to the admission and relevance of evidence, as
well as determining when the record is complete so that the
hearings can be closed).
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second hearing. The appellate arbitration proceeding was not
fundamentally unfair such as to justify disturbing the award.
III. Conclusion
Therefore, because the Reeds had adequate opportunities to
present their evidence and arguments, but simply failed to take
advantage of them in a diligent manner, we hold that the
arbitration proceedings were not fundamentally unfair.
Consequently, due to the substantial deference owed by the courts
to arbitrators, we find no adequate basis for disturbing the
arbitration award. We therefore REVERSE the district court's
vacatur and REINSTATE the arbitration award in favor of NHIC.
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