United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT May 16, 2007
Charles R. Fulbruge III
Clerk
No. 06-10260
AMERICAN LASER VISION, P.A.,
Plaintiff-Counter Defendant-Appellee,
versus
THE LASER VISION INSTITUTE, L.L.C. a/k/a THE LASIK VISION
INSTITUTE,
Defendant-Counter Claimant-Appellant.
______________________
Appeal from the United States District Court
for the Northern District of Texas
______________________
Before JONES, Chief Judge, and HIGGINBOTHAM and CLEMENT, Circuit
Judges.
PER CURIAM:
An ophthalmology company, once consisting of two doctors but
eventually only one, arbitrated a complaint against a service
company which helped run its clinics. The arbitrator awarded
damages to the ophthalmology company, and the district court
affirmed the award. Mindful of the uncertainty of the legal
relationships in this case and the wide latitude given to
arbitrators, we decline to vacate the award and affirm.
I
In 2000, ophthalmologists Lewis Frazee and Robert Selkin
formed American Laser Vision, which opened laser vision correction
centers in Texas and Oklahoma. Frazee and Selkin were each fifty-
percent shareholders of ALV, with Selkin serving as President and
primary administrator.
In early 2002, ALV signed a series of contracts with The Laser
Vision Institute. Under those contracts, LVI would operate the eye
centers by providing management, non-medical staff, and equipment,
and ALV would provide the surgeons - Drs. Frazee and Selkin.
According to the agreements, LVI was to pay ALV a fee for each
surgery performed. In practice, however, LVI paid Frazee and
Selkin individually for the surgeries each doctor performed. ALV
and LVI also agreed to share equally the profits from the sale of
ocular tear plugs1 at the centers, regardless of which surgeon
installed the plugs. The contracts specifically prohibited LVI
from interfering with the surgeons’ professional judgment and care
of patients. ALV and LVI also entered into subleases whereby LVI
would pay rent to ALV for the offices, make equipment payments to
vendors, and fulfill other obligations relating to the subleased
office space. The agreements required ALV to provide notice of any
complaints about LVI’s performance and provide LVI a chance to
cure. Finally, the agreements provided that any disputes would be
settled by arbitration.
Drs. Frazee and Selkin performed surgeries from February
1
Ocular tear plugs are small devices placed into the tear ducts which
facilitate lubrication and, hence, healing.
2
through May. In June, Selkin stopped performing surgeries at the
LVI centers. In a series of letters to LVI, Selkin claimed that he
left because LVI staff were interfering with the treatment of
patients and his professional judgment by: giving patients
instructions that conflicted with his orders; using an improper
solution to clean surgical supplies; changing post-operative
prescriptions without his knowledge; instructing employees not to
perform maintenance duties that Selkin requested; switching
patients to Frazee if Selkin felt they were bad candidates for
surgery; and misrepresenting to patients the risks and benefits of
surgery. In letters to LVI, Selkin wrote that he would like to
return to work at the LVI centers if his concerns were addressed,
but he never met with LVI or discussed how LVI might address his
complaints. Meanwhile, Selkin worked at similar centers in North
Carolina and Tennessee earning substantial fees. Selkin eventually
complained that, following his withdrawal, LVI also failed to remit
some professional and ocular plug revenues, improperly removed and
damaged ALV equipment, and failed to pay vendors, in violation of
the subleases.
ALV did not hire a replacement for Selkin, although the
contract called for both Selkin and Frazee to work a certain number
of hours each week. Frazee and LVI reached an agreement and Frazee
continued to perform surgeries at the LVI centers.
In December 2002, ALV and LVI terminated their agreements, and
Frazee contracted directly with LVI to continue working at the
3
centers. Selkin then bought out Frazee’s interest in ALV and
pursued a breach of contract claim by ALV against LVI, seeking an
arbitral award of $4,031,241.55 for damages from 2002-2005. ALV
sought $3,524,966.67 for lost surgery and tear plug revenue due to
Selkin’s departure, $34,226.84 for surgeries allegedly performed
but not yet paid, and less than $500,000 for the sublease and
equipment claims.
The arbitrator stated that although the contract was between
LVI and ALV, he would treat the contract as if it were between LVI
and Selkin because LVI paid Selkin and Frazee directly. He also
“sustained” LVI’s objection to Selkin’s figures for fees for 2004-
2005, agreeing that they were unduly speculative. After a three-
day hearing, the arbitrator issued an award concluding that LVI
breached the professional service and sublease agreements and
awarding ALV $1,842,220.39 in damages, plus interest, attorneys’
fees, and costs. Although the parties had agreed that the
arbitrator need not file findings or otherwise explain his
decision, LVI asked the arbitrator to explain the award. The
arbitrator declined, and the parties turned to the district court,
which granted ALV’s motion for judgment and denied LVI’s request to
vacate the award.
II
This court reviews a district court’s confirmation of an
arbitration award de novo, using the same standards as the district
4
court.2 Judicial review of an arbitration award is “exceedingly
deferential.”3 Vacatur is available “only on very narrow grounds,”4
and federal courts must “defer to the arbitrator’s decision when
possible.”5 An award must be upheld as long as it “is rationally
inferable from the letter or purpose of the underlying agreement.”6
Even “the failure of an arbitrator to correctly apply the law is
not a basis for setting aside an arbitrator’s award.”7 “It is only
when the arbitrator strays from interpretation and application of
the agreement and effectively ‘dispense[s] his own brand of
industrial justice’ that his decision may be unenforceable.”8
Moreover, “the arbitrator’s selection of a particular remedy is
given even more deference than his reading of the underlying
contract,” and “the remedy lies beyond the arbitrator’s
jurisdiction only if there is no rational way to explain the
remedy...as a logical means of furthering the aims of the
2
Brown v. Witco Corp., 340 F.3d 209, 216 (5th Cir. 2003).
3
Kergosien v. Ocean Energy, Inc., 390 F.3d 346, 352 (5th Cir. 2004).
4
Brabham v. A.G. Edwards & Sons Inc., 376 F.3d 377, 380 (5th Cir. 2004).
5
Antwine v. Prudential Bache Sec., Inc., 899 F.2d 410, 413 (5th Cir.
1990).
6
Nauru Phosphate Royalties, Inc. v. Drago Daic Interests, Inc., 138 F.3d
160, 164-65 (5th Cir. 1998)(internal quotation marks omitted).
7
Kergosien, 390 F.3d at 356.
8
Major League Baseball Players Assoc. v. Garvey, 532 U.S. 504, 509
(2001)(quoting Steelworkers v. Enter. Wheel & Car Corp., 363 U.S. 593, 597, 80
S. Ct. 1358, 1361 (1960)).
5
contract.”9
LVI attacks the arbitration award on two grounds: that the
arbitrator manifestly disregarded the law and that the award does
not draw its essence from the contracts. Vacatur based on an
arbitrator’s manifest disregard of the law is a judicially created
ground of relief.10 It is extremely narrow, insisting on “more than
error or misunderstanding with respect to the law. The error must
have been obvious and capable of being readily and instantly
perceived by the average person qualified to serve as an
arbitrator.”11 The arbitrator must “appreciate[] the existence of
a clearly governing principle but decide[] to ignore or pay no
attention to it.”12 Moreover, once a manifest disregard is
established, the court also “must find that the award resulted in
a ‘significant injustice’” in order to grant relief.13
That the award does not draw its essence from the contract is
a statutory ground for vacatur, derived from 9 U.S.C. § 10(a)(4),
which permits vacatur when the arbitrator exceeds his powers.14 The
9
Executone Info. Sys., Inc. v. Davis, 26 F.3d 1314, 1325 (5th Cir. 1994)
(internal quotation marks omitted).
10
Prestige Ford v. Ford Dealer Computer Servs., Inc., 324 F.3d 391, 395-96
(5th Cir. 2003).
11
Id. at 395.
12
Id.
13
Kergosien, 390 F.3d at 355.
14
See id. at 353.
6
test is “whether the award, however arrived at, is rationally
inferable from the contract.”15 “‘[A]ny doubts concerning the scope
of arbitrable issues should be resolved in favor of arbitration.’”16
LVI argues both grounds. We give the award great deference,
looking to both whether the arbitrator “manifestly disregarded the
law” and whether the award drew its essence from the contract.
III
LVI argues first that the arbitrator disregarded the plain
meaning of the contracts by construing them as between Selkin and
LVI, not ALV and LVI, and considering the losses of Selkin
personally, not those of ALV. We are not persuaded. The record
shows that the arbitrator was quite aware of the factual nuances of
the case, the identities of the parties, and the flow of money.
LVI next argues that, if the arbitrator correctly analyzed
only the losses accruing to ALV, then he completely ignored the
notice and cure provisions because Selkin never attempted to
provide notice and accept cure and, more importantly, ALV through
Frazee provided notice and accepted cure of whatever problems may
have existed. As the district court recognized, however, Frazee
alone could not bind ALV when Selkin was still the President and
co-owner. And the arbitrator heard evidence about Selkin’s
attempts to provide notice and accept cure - which, if one
15
Id. at 353-54 (internal quotation marks omitted).
16
Id. at 355 (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp.,
460 U.S. 1, 24-25, 103 S. Ct. 927, 941 (1983)).
7
considers Frazee to have implicitly consented to such acts because
he was aware of them, means ALV was attempting to provide notice
and accept cure - and there is evidence that those attempts were
rebuffed, or at a minimum not satisfied by LVI. In any event, the
arbitrator could have found that LVI had notice of the problems
forming the basis of this entire dispute.
Third, LVI challenges the actual amount of the award. It
argues that even if ALV might legitimately recover damages for the
sublease breaches, and even if ALV recovered all such damages that
it requested, the arbitrator also must have awarded about $1.3
million in lost income damages for 2002-2003. First, LVI contends,
this represents damages to Selkin, not ALV. As we have noted,
however, the arbitrator understood the distinction. Second, it
contends, either ALV failed to mitigate its damages by not hiring
another doctor or Selkin fully mitigated all damages flowing to ALV
with his high earnings in North Carolina and Tennessee. The first
argument ignores the nature of LVI’s breach - Selkin refused to
continue working because LVI was allegedly interfering in his
practice, and it wasn’t unreasonable for the arbitrator to conclude
that, under those facts, ALV was not obligated to hire another
surgeon until LVI addressed its allegedly substandard performance.
The second argument fails because the arbitrator did not award ALV
the full amount of lost income damages it sought. Moreover, he
heard testimony regarding the possibility that Selkin could have
performed surgeries in North Carolina and Tennessee while also
8
performing them for ALV in Texas. Indeed, the record reveals that
the arbitrator dealt extensively with this possibility and
recognized its difficulties.
IV
LVI also urges that, at a minimum, we should remand for the
arbitrator to clarify the nature of his award. Remand is rare,
appropriate only “when an award is patently ambiguous, when the
issues submitted were not fully resolved, or when the language of
the award has generated a collateral dispute.”17 None of those
situations is present here. Although, as explained above, the
exact basis for the award is unclear, the parties agreed that the
arbitrator need not state his reasons.
V
We will not second-guess multiple, implicit findings and
conclusions underpinning the award. We do not decide if the award
was free from error. We decide only that it is not the kind of
extraordinary award that ineluctably leads to the conclusion that
the arbitrator was “dispensing his own brand of industrial
justice.” There are advantages and disadvantages in contracting
for private resolution of a dispute announced without explanation
of reason. When a party does so and loses, federal courts cannot
rewrite the contract and offer review the party contracted away.
AFFIRMED.
17
See Oil, Chem., & Atomic Workers Int’l Union v. Rohm & Haas, Tex., Inc.,
677 F.2d 492, 495 (5th Cir. 1982).
9
10