Case: 05-51666 Document: 00512238268 Page: 1 Date Filed: 05/10/2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
May 10, 2013
Nos. 05-51666 Lyle W. Cayce
Clerk
HAMSTEIN CUMBERLAND MUSIC GROUP; HOWLIN’ HITS MUSIC INC;
HAMSTEIN CUMBERLAND MUSIC CO; BH ASSOCIATES INC, d/b/a
Hamstein Music Co; BILL HAM
Plaintiffs - Appellees-Cross-Appellants
v.
JERRY LYNN WILLIAMS, individually and d/b/a Urge Music and His Majest
Jerr Music
Defendant
ROBERT S FARRIS, in his capacity as personal representative of the Estate
of Jerry Lynn Williams
Defendant - Appellant-Cross-Appellee
Appeals from the United States District Court
for the Western District of Texas
Before BARKSDALE, DENNIS, and GRAVES, Circuit Judges.
PER CURIAM:*
This appeal arises from the arbitration of a royalty dispute between
Hamstein Cumberland Music Group (“Hamstein”), a manager, administrator,
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.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.
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and publisher of songwriters and recording artists, and the estate of Jerry Lynn
Williams (“Williams”), a songwriter, composer, recording artist, and performer
who died on November 25, 2005. At issue was the amount of money Williams
owed Hamstein for certain royalties Williams received for songs that previously
had been administered by Hamstein. The arbitrator chosen by the parties
decided in favor of Hamstein, awarding it $1,149,140.19, and Hamstein applied
to the district court for an order confirming the award. The district court,
however, concluded that the arbitrator was not authorized to issue parts of the
award and consequently reduced it to $564,162.51.
As relevant here, § 10 of the Federal Arbitration Act (“FAA”) permits a
district court to vacate an arbitration award if “the arbitrator[] w[as] guilty of
misconduct in refusing to . . . hear evidence pertinent and material to the
controversy” or “the arbitrator[] exceeded [his] powers.” 9 U.S.C. § 10(a)(3),
(a)(4). We conclude that Williams, as the party resisting confirmation, failed to
show why modification or vacatur was warranted based on one of the limited
grounds enumerated in the FAA. Accordingly, the district court erred in
refusing to confirm the award in its entirety. We therefore VACATE the district
court’s judgment and REMAND the case to it with the instruction to confirm the
arbitrator’s award in its entirety.
BACKGROUND
Williams was a songwriter of some notoriety having written songs for a
number of notable artists including Eric Clapton, Bonnie Raitt, and B.B. King.1
Hamstein operated a music-publishing business that handled up to 10,000
1
Much of the factual detail regarding Hamstein and William’s business relationship
comes from Hamstein Cumberland Music Group v. Estate of Williams, in which Hamstein
brought suit against Williams’s ex-wife, Lorelei Williams (“Lorelei”), alleging that Williams,
as part of his divorce settlement, fraudulently transferred assets to Lorelei in order to shield
those assets from Hamstein and the arbitration proceeding. See No. 06-cv-GKF-PJC, 2011 WL
4628089, at *1-11 (N.D. Okla. Sept. 30, 2011).
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copyrights between the late 1980s and December 2001. Effective January 1,
1989, Hamstein and Williams entered into a co-publishing agreement under
which Hamstein, as administrator, collected royalties on Williams’s songs and
accounted to Williams for his share of the revenues generated.2 The agreement
terminated by its own terms at the end of 1993, but the parties entered into
another co-publishing agreement, dated January 1, 1994, which was effective
until December 1998.
By 1998, the relationship between Hamstein and Williams had “seriously
deteriorated,” and Hamstein ultimately brought suit, alleging breach of the 1994
agreement, in the U.S. District Court for the Western District of Texas. The
parties agreed to mediate their dispute and, as a result of the mediation process,
executed a Final Settlement Agreement and Mutual Release (“the Settlement”)
effective March 31, 2000, under which Hamstein paid Williams $2,100,000,
which represented the share of royalties Williams claimed he was owed, and
conveyed “all Hamstein’s rights, title and interest in and to each and every
composition delivered by, conveyed, sold or transferred by Williams to Hamstein
from January 1, 1989 to [March 31, 2000].” However, the Settlement also
provided that Williams “waive[d] any and all rights or claims of ownership to
any and all royalties generated prior to [March 31, 2000] . . . which [were]
received at any time by . . . Williams” and assigned to Hamstein all rights to
Williams’s foreign royalties generated prior to January 1, 1999. Thus, although
Williams’s intellectual-property rights were fully restored to him pursuant to the
Settlement, any royalties he received after the Settlement’s effective date for
songs that had previously been administered by Hamstein would be paid to
2
“Music publishing involves ‘exploiting’ a composition to the extent it produces as much
revenue as possible, for example by getting a song recorded by a major recording artist. An
element of the music publishing business is ‘administration,’ the function focused on collecting
royalties and accounting and paying to songwriters their share of the revenues generated by
the compositions.” Estate of Williams, 2011 WL 4628089, at *2.
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Hamstein. Accordingly, the Settlement provided that Williams would account
for and pay to Hamstein any of the royalties owed to Hamstein and authorized
Hamstein to audit Williams’s books for certain periods.
Ultimately, Hamstein determined that Williams failed to comply with his
obligations under the Settlement and so initiated arbitration, pursuant to the
Settlement’s arbitration clause, by serving a demand for arbitration on Williams.
Williams refused to participate in the arbitration and instead filed a countersuit
in Oklahoma state court, seeking to enjoin the arbitration and declare the
arbitration clause void.3 On March 11, 2003, however, Hamstein filed a
complaint to compel arbitration against Williams in the U.S. District Court for
the Western District of Texas, and on August 14, 2003 the district court
compelled Williams to arbitrate and enjoined him from prosecuting the
Oklahoma suit.
Williams participated in the arbitration through counsel but consistently
failed to respond to discovery ordered by the arbitrator, which included refusing
to produce documents, which, Hamstein said, would show royalties that
Williams had received following the Settlement’s effective date but that should
have been paid to Hamstein and which, because of the nature of Hamstein’s
claim, only Williams possessed. Consequently, Hamstein, in 2004, moved for
sanctions against Williams for failure to respond to multiple written requests for
information and documents first sent three years earlier, in November 2001. In
response, Williams cross-moved for sanctions against Hamstein on precisely the
same basis, namely claiming that Williams had requested discovery from
Hamstein to which Hamstein had failed to respond. In fact, Williams argued
that Hamstein’s failure to respond to his discovery requests warranted “death
3
The Oklahoma suit was eventually removed to federal court and dismissed.
4
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penalty” sanctions against Hamstein, in other words granting judgment to
Williams on his claims against Hamstein and awarding Williams attorneys’ fees.
On December 28, 2004, the arbitrator, agreeing with Hamstein that
Williams had consistently and without justification failed to respond to ordered
discovery, awarded Hamstein $500,000 in sanctions against Williams. Further,
the arbitrator ordered Williams to respond to all interrogatories by January 15,
2005 and to produce all responsive documents by January 22, 2005 and warned:
“If [Williams] fails to provide all discovery responses ordered herein, [Hamstein]
may present evidence of estimated royalties on or before February 4, 2005 at
9:00 a.m. before the arbitrator . . . and [Williams] may not present evidence
controverting such estimate.” In other words, the arbitrator warned Williams
that if he failed to comply with the arbitrator’s discovery orders, Williams would
not be permitted to present evidence that was not properly disclosed during
discovery, which would effectively permit Hamstein to base its damages claim
on estimates of the royalties Williams was said to owe Hamstein and would
disallow Williams from rebutting these estimates with his own records unless
they were previously produced.
At the arbitration hearing, Hamstein presented an expert witness, Ali
Adawiya (“Adawiya”), the head and partner of a royalty-auditing firm, who
testified, based on estimates, that Williams owed Hamstein $634,641.44 worth
of royalties, including prejudgment interest. In particular, Adawiya testified
that a complete audit of the royalties Williams owed to Hamstein could not be
completed and instead estimated the amount of royalties Williams owed to
Hamstein by reference to “past royalty accounting.” Williams was permitted to
cross-examine Adawiya and present the testimony of his own expert. Williams,
however, was barred from introducing evidence of the royalties he had in fact
received based on his failure to comply with the arbitrator’s discovery orders.
The arbitrator evidently credited Hamstein’s expert over Williams’s and
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subsequently issued an award in favor of Hamstein, in the amount of
$1,149,140.19.
On receipt of the award, Hamstein moved in the district court to confirm
the award. In response, Williams moved to dismiss the case for lack of subject-
matter jurisdiction but did not explicitly move the court to vacate or modify the
arbitrator’s award. The district court sua sponte reduced the award and entered
final judgment in favor of Hamstein in the amount of $564,162.51. The district
court reasoned that although the Settlement authorized the award of attorneys’
fees, the arbitrator had no authority to award sanctions. Therefore, the district
court declined to confirm the $500,000 awarded for sanctions and attorneys’ fees
as well as $76,301.43 that the district court felt represented prejudgment
interest on the sanctions award and arbitration costs. Although Williams
subsequently filed an objection to the award and, for the first time, asked the
district court to modify or vacate the award, the district court denied Williams’s
objection as moot.
Both parties timely appealed. On appeal, Williams challenges
confirmation of the award in the amount of $564,162.51, and Hamstein
challenges the district court’s refusal to confirm the award in its entirety.
JURISDICTION
On December 13, 2003, Hamstein initiated arbitration proceedings,
pursuant to the terms of the Settlement, by serving a demand for arbitration on
Williams. Williams, however, generally refused to participate and instead filed
the Oklahoma suit to enjoin the arbitration and declare the Settlement’s
arbitration clause void. Accordingly, on March 11, 2002, Hamstein filed a
complaint to compel arbitration against Williams in the district court. The
district court properly exercised subject-matter jurisdiction because complete
diversity exists and 28 U.S.C. § 1332(a)’s amount-in-controversy requirement is
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satisfied. See 28 U.S.C. § 1332(a). After confirmation of the final award, we
exercised jurisdiction under 28 U.S.C. § 1291. See 28 U.S.C. § 1291.
Williams’s challenge to the district court’s exercise of subject-matter
jurisdiction is meritless. Williams asserts that FAA § 9—which requires that the
parties agree “that a judgment of the court shall be entered upon the
award”—somehow deprived the district court of the subject-matter jurisdiction
it possessed under 28 U.S.C. § 1332(a). However, it is undisputed that “the FAA
is not an independent grant of federal jurisdiction.” Smith v. Rush Retail Ctrs.,
Inc., 360 F.3d 504, 505 (5th Cir. 2004). Given that the parties do not dispute
that § 1332(a)’s requirements are met, it is unclear how FAA § 9 would divest
the district court of the subject-matter jurisdiction it already possessed. We
therefore reject Williams’s argument that the district court lacked subject-
matter jurisdiction over the case.
STANDARD OF REVIEW
We “review[] a district court’s confirmation of an arbitration award de
novo, using the same standards as the district court.” Am. Laser Vision, P.A. v.
Laser Vision Inst., L.L.C., 487 F.3d 255, 258 (5th Cir. 2007), overruled on other
grounds by Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 584-86 (2008).
Those “same standards” are derived from the text of the FAA. However, “review
of the underlying award is exceedingly deferential.” Apache Bohai Corp. LDC v.
Texaco China BV, 480 F.3d 397, 401 (5th Cir. 2007) (internal quotation marks
omitted), overruled on other grounds by Hall St., 552 U.S. at 584-86. In fact, a
federal court may modify or vacate an arbitration award only if one of the
grounds enumerated in FAA §§ 10 or 11 is satisfied. See 9 U.S.C. §§ 9, 10; Hall
St., 552 U.S. at 582-84.
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DISCUSSION
A.
Williams argues that the arbitrator was not empowered to issue sanctions
and therefore exceeded his authority within the meaning of FAA § 10(a)(4).4 We
disagree. First, arbitrators enjoy inherent authority to police the arbitration
process and fashion appropriate remedies to effectuate this authority, including
with respect to conducting discovery and sanctioning failure to abide by ordered
disclosures. See Forsythe Int’l, S.A. v. Gibbs Oil Co., 915 F.2d 1017, 1023 n.8
(5th Cir. 1990). Second, Williams ignores his own conduct, namely cross-moving
for sanctions against Hamstein in response to Hamstein’s motion for sanctions
against Williams and for the exact same reason that Hamstein moved for
sanctions in the first place—Williams claimed that Hamstein had failed to
respond to discovery that he had requested of Hamstein. The scope of an
arbitrator’s authority is a function of both the arbitration agreement and the
parties’ submissions, which include both formal, written submission agreements
and merely asking the arbitrator to decide an issue. See Executone Info. Sys. Inc.
v. Davis, 26 F.3d 1314, 1323 (5th Cir. 1994); Piggly Wiggly Operators’
Warehouse, Inc. v. Piggly Wiggly Operators’ Warehouse Indep. Truck Drivers
Union, 611 F.2d 580, 583-84 (5th Cir. 1980). If the parties are permitted to
modify the scope of their contractual agreement by submitting additional issues
to the arbitrator, then surely the parties may, jointly, empower the arbitrator to
issue certain sanctions. Therefore, even assuming that the arbitrator lacked the
authority to issue sanctions based solely on the Settlement and his inherent
authority to police the arbitration process, the parties’ decision to move for
4
In his reply brief, Williams raised a second argument—that by refusing to hear
evidence material to his case, the arbitrator denied him a fundamentally fair hearing in
contravention of FAA § 10(a)(3). Because Williams’s fundamental-fairness argument was
raised for the first time in his reply brief, it is waived. See Medina Cnty. Envtl. Action Ass’n
v. Surface Transp. Bd., 602 F.3d 687, 702 (5th Cir. 2010).
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sanctions against one another—in fact, Williams reasoned that he was entitled
to “death penalty” sanctions because of Hamstein’s failure to respond to
requested discovery—reveals that both parties sought to confer that power on
the arbitrator. Accordingly, we conclude that the arbitrator did not exceed his
authority in sanctioning Williams.
B.
Finally, Hamstein complains that the district court erred by refusing to
confirm the award in its entirety. We agree. The Supreme Court has noted that
FAA § 9’s “provision for judicial confirmation carries no hint of flexibility.” Hall
St., 552 U.S. at 587. Thus,
[o]n application for an order confirming the arbitration award, the
court “must grant” the order “unless the award is vacated, modified,
or corrected as prescribed in sections 10 and 11 of this title.” There
is nothing malleable about “must grant,” which unequivocally tells
courts to grant confirmation in all cases, except when one of the
“prescribed” exceptions applies.
Id. Given that §§ 10 and 11 of the FAA provide the exclusive means to modify
or vacate an arbitration award, id. at 578, the district court, faced with
Hamstein’s motion to confirm the award, was required to grant an order of
confirmation absent recourse to one of the seven, narrow grounds for
modification or vacatur found in §§ 10 and 11.
Williams argued that the arbitrator exceeded his authority within the
meaning of § 10(a)(4) both by imposing monetary sanctions and by prohibiting
Williams from establishing damages based on evidence not produced during
discovery. The district court decreed that the arbitrator exceeded his authority
in awarding $500,000 to Hamstein for sanctions, costs, and attorneys’ fees as
well as $76,301.43 that the district court found represented prejudgment
interest on the sanctions award and arbitration costs. The district court rejected
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Williams’s arguments for further revisions of the award and confirmed a final
award of $564,162.51 to Hamstein.
Given our conclusion that the arbitrator did not exceed his authority in
sanctioning Williams for noncompliance with his discovery obligations, we
conclude that Williams has not demonstrated that the arbitrator exceeded his
authority in any respect as required by FAA § 10; that the arbitrator’s award
must be confirmed in its entirety; that the district court’s judgment is vacated;
and that the case is remanded with our instruction to the district court to render
judgment confirming the arbitrator’s award in its entirety with post-judgment
interest from the date of that court’s original judgment herein.
It is so ordered.
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