United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
November 2, 2004
FIFTH CIRCUIT
_______________________
Charles R. Fulbruge III
Clerk
No. 03-20953
_______________________
HAROLD A. KERGOSIEN, JOSEPH J. HLAVINKA;
RAFAEL J. COLACO; HANK O. AUSTIN; VANCE
W. MEISCHEN; SAMUEL W. BAXTER; PATRICK E.
PRYOR; JASON K. BUTLER; PAUL L. SCIVALLY;
KEVIN W. CAMPBELL; BRUCE L. SINER; F. DALE
CORBELLO; TERRY L. SOWELL; ALAN G. DANIELS;
DANIEL J. THOMAS; CLAY W. EDMONDS; KATHY G.
THOMPSON; JOHN C. JUAREZ; ROY T. VAN VACTOR,
JR.; A. ROBERT MAY, JR.; STEVEN C. WEAVER;
DARYL W. MORRIS; KYLE E. WITHERSPOON,
Plaintiffs-Appellants,
versus
OCEAN ENERGY, INC.,
Defendant-Appellee.
______________________________________________________________________________
Appeal from United States District Court
for the Southern District of Texas
______________________________________________________________________________
Before KING, Chief Judge, BARKSDALE, and PICKERING, Circuit Judges.
PICKERING, Circuit Judge.
This is an appeal from the district court’s vacatur of an arbitration award. Finding that the
district court improperly vacated the award, we reverse and remand with instructions to reinstate
the arbitration award in favor of the Plaintiffs-Appellants.
FACTUAL BACKGROUND
Plaintiffs-Appellants are twenty-three individuals who were employees of Seagull Energy.
The Plaintiffs comprised virtually all of the employees of the Operations and Construction Group
(“O&C Group”), a division of Seagull. This division provided maintenance, repair, regulatory
support and other services connected with operating pipelines for various client chemical
companies of Seagull. Seagull had adopted a Management Stability Plan (the “Plan”) in 1995
which provided that employees involuntarily terminated within two years after a “change in
control,” such as a merger, would receive specified severance benefits. All parties agree that the
Plan is an ERISA plan. However, this ERISA plan had a somewhat different twist. It provided
that disputes under the Plan should be submitted to arbitration, but the arbitrator’s standard of
review of the Committee’s decision on benefits would be “the standard of review which would be
used by a Federal court in reviewing such decision under the provisions of ERISA.”
Federal law on arbitration is firmly and clearly established. ERISA, a newer federal law,
that preempts much state law, is likewise firmly established in a number of areas. Both the plan
administrator under ERISA and the arbitrator under the Federal Arbitration Act (“FAA”) are
generally entitled to considerable deference in their decision making. By electing to send this case
to arbitration, and then appealing the arbitrator’s decision to federal court, defendant has
presented this Court with the responsibility of reviewing, under firmly established arbitration law,
a decision of an arbitrator who had the responsibility of interpreting an ERISA plan under federal
ERISA law.
In the Fall of 1998, Seagull officials began talking openly to its employees (including
Plaintiffs) about the possibility of layoffs in connection with a company downsizing as well as
possible mergers. Then, on November 24, 1998, Seagull announced a merger with Ocean
Energy, Inc., with Ocean being the surviving entity. Shortly after this announcement, Seagull
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principals began meeting with Buckeye Pipeline (“Buckeye”) to discuss the possibility of a
separate acquisition of the O&C Group by Buckeye rather than to take the O&C business into the
merger with Ocean. Seagull ultimately made the decision to sell the O&C Group to Buckeye.
Plaintiffs argue that the O&C employees were an important consideration in the sale
because the assignment of any O&C contracts to Buckeye required the consent of the customers.
Plaintiffs assert that the customers were interested in and had purchased the services that O&C
personnel could provide with little concern for the hard assets utilized in completing the work.
Therefore, ensuring that the O&C employees were “on board” for any sale of the O&C Group
was critical in completing the sale.
In an effort to reassure O&C personnel as to their job security, and to keep these
employees working for Seagull while Seagull obtained the necessary consents from its customers,
on January 5, 1999, Seagull’s CFO, William L. Transier, sent a memo to the O&C personnel
stating that as to any employee terminated prior to the merger in a reduction in force and any
employee terminated after the merger, Plan benefits would be available. The memo also stated
that the merger would constitute a “change in control” which would trigger the payment of Plan
severance benefits. The memo concluded, “we will continue to communicate with you regarding
decisions affecting you and the future of your position at Seagull.” (Emphasis added.) There
was a Summary Plan Description attached to the memo which further provided:
. . . if you obtain new employment while you are receiving benefit payments under the
Plan, your severance benefits will not be reduced by your compensation or benefits earned with
your new employer.
(Emphasis added.)
3
The January 5 Transier memo was followed up by a Fourth Amendment to the Plan.1 This
Amendment provided for payment of severance benefits in the event the Seagull/Ocean merger
was consummated. It was enacted on January 29, 1999, retroactive to January 1 and provided, in
pertinent part:
Other than with respect to the transactions contemplated by the Agreement and
Plan of Merger between Seagull Energy Corporation and Ocean Energy, Inc.
(dated as of November 24, 1998), which if consummated, shall constitute a
“Change in Control” for all purposes under the Plan, following which severance
benefits shall be payable as provided herein, the Plan shall be, and is hereby,
terminated.
On or about February 22, 1999, Seagull and Buckeye signed the Purchase and Sale
Contract to sell the O&C Group to Buckeye for $5.75 million. The Plaintiffs then spent the
month of March securing the necessary customer consents to allow the assignment of the O&C
contracts to Buckeye.
The Seagull/Ocean merger was set to close on March 30, 1999. On the evening of March
29, the Seagull Board adopted a Fifth Amendment to the Plan. It provided, in pertinent part:
. . . that the term ‘Involuntary Termination’ shall not include a Termination for Cause, a
termination of a Covered employee’s employment occurring as a result of or in connection
with the sale or other divestiture by the Employer of a division, subsidiary, or other
business segment . . . if such covered employee is offered continued employment by the
acquirer of such business segment immediately upon such sale or divestiture . . ..
Plaintiffs assert that in spite of the January 5 assurances of CFO Transier, Seagull had
surreptitiously developed a scheme to keep the O&C personnel working for Seagull during the
merger process, but to exclude them from severance benefits under the Plan. In order to
accomplish this, they contend that the Company enacted the aforementioned Amendments Four
1
The first three Amendments to the Plan occurred prior to 1999 and have no effect on the issues raised
herein.
4
and Five to the Plan, the Fourth Amendment to keep the employees working and affirm the
benefits in question and the Fifth Amendment to take away the same benefits. Plaintiffs assert
that the Fifth Amendment was specifically designed to prevent them from being entitled to Plan
severance benefits by its redefinition of “involuntary termination.” In fact, James Hackett, CEO
of Seagull admitted that but for the Fifth Amendment, the Plaintiffs would have been entitled to
severance benefits under the Plan. Seagull and Ocean officially merged on March 30. On March
31, the Plaintiffs were terminated from Seagull/Ocean and they went to work for Buckeye on
April 1.
When the Plaintiffs did not timely receive severance benefits pursuant to the terms of the
Plan, they each filed a claim with the Ocean Organization and Compensation Committee (the
“Committee”). The primary task of the Committee was to decide executive pay. However, it was
also the named fiduciary with the power to administer the Plan and to review claims. It was
primarily composed of outside Directors and Senior Ocean executives.
This was the first time the Committee had been called upon to make a decision regarding
Plan benefits. The arbitrator’s opinion recites that testimony at the arbitration hearing indicated
that a packet of information was provided to the members of the Committee, at a called meeting,
at which the claims of the twenty-three Plaintiffs were considered. A part of the packet was a
denial letter previously drafted by General Counsel, Richard Reeves, who was also the recording
secretary for the Committee. The Committee met for one hour and considered twelve items.
Plaintiffs’ claims were the last item on the agenda and the Committee spent less than five minutes
on that item. A denial letter was sent to each Plaintiff and thereafter each exercised his appeal
rights under the Plan.
5
The Committee was also designated as the appeals forum. When the appeal of the denial
of benefits was brought before the Committee, Reeves was again present and had a prepared
response and denial letter which the Committee adopted with little consideration and no changes.
Also present was Mr. Ivey, who was ultimately defendant’s trial Counsel through the course of
this litigation.
Feeling aggrieved, the Plaintiffs filed suit in Texas state district court. Ocean removed to
federal court and then moved the district court to compel arbitration. The district court ordered
“plaintiffs’ claims” to be arbitrated. The parties agreed on an arbitrator and submitted the case.
The arbitrator entered a forty-two page opinion awarding the Plaintiffs benefits under the Plan
totaling some $1.5 million plus $75,000 attorney fees and 6% pre-award interest and 10% post-
award interest.
Ocean then filed an Application to Vacate the award in the district court. Ocean did not
file a transcript of the arbitration proceedings nor any of the exhibits submitted to the arbitrator as
part of the record for review by the district court. Accordingly, even if it was appropriate to do
so, the district court could not have reviewed the factual basis of the arbitrator’s findings. The
only documents filed supporting the Application to Vacate the arbitrator’s award were the Plan,
the legal briefs filed with the arbitrator, and the arbitrator’s opinion. The only other document
found in the record is Exhibit “C” to Plaintiffs’ Response to Ocean’s Application to Vacate
Arbitration Award which is Plaintiffs’ Statement of Claim submitted to the arbitrator. This
document calls into issue the entire decision making process concerning the fourth and fifth
amendments to the Plan as well as the decision to deny benefits. Plaintiffs’ Statement of Claim
clearly presented to the arbitrator all of the issues decided by the arbitrator. There is no
6
indication, before the court, that defendant objected to any of the issues submitted to arbitration
by plaintiffs, until after the arbitrator decided against defendant.
The district court vacated the award, finding that the arbitrator had “exceeded his powers,
misunderstood the law, and misread the contract.” The district court further wrote “[t]he
arbitrator exceeded his power by applying the wrong standard for reviewing the compensation
committee’s decision.”
THE ISSUES
Plaintiffs have appealed, asserting that the district court improperly applied a de novo
standard of review ignoring the considerable deference due arbitration awards. Ocean contends
here and contended in its Application to Vacate in district court that the arbitrator wrongly took
up the breach of fiduciary claim. Ocean also argues that the arbitrator exceeded his powers by
reviewing the merits of the Plan and its amendments. Plaintiffs contended that Ocean never
disputed the jurisdiction of the arbitrator to resolve all disputes between the parties arising from
the Plan until the Application to Vacate was filed. Plaintiffs also point out that it was Ocean that
moved to compel arbitration and that it was not until the arbitrator ruled against Ocean that
Ocean was heard to complain of the arbitrator’s jurisdiction. Ocean contends that the arbitrator
both (1) exceeded his power and (2) acted in manifest disregard of the law by not applying, or in
misapplying, the correct standard of review, a contention that the district court, at least implicitly,
agreed with.
STANDARD OF REVIEW
This court reviews the district court’s decision to vacate an arbitration award under a de
7
novo standard, Prestige Ford v. Ford Dealer Computer Services, Inc., 324 F.3d 391, 393 (5th Cir.
2003), with an “exceedingly deferential” view of the arbitrator’s award. See Brabham v. A.G.
Edwards & Sons, Inc., 376 F.3d 377, 380 (5th Cir. 2004) (citing Glover v. IBP, Inc., 334 F.3d
471, 473 (5th Cir 2003)).
“[A] district court’s review of an arbitration award is extraordinarily narrow.” Prestige
Ford, 324 F.3d at 393 (quoting Gateway Technologies, Inc. v. MCI Telecommunications Corp.,
64 F.3d 993, 996 (5th Cir. 1995)). In United Steelworkers of America v. Enterprise Wheel & Car
Corp., 363 U.S. 593, 598-99, 80 S.Ct. 1358, 1360, 4 L.Ed. 2d 1424 (1960),2 the Supreme Court
held:
Respondent’s major argument seems to be that by applying correct principles of
law to the interpretation of the Collective Bargaining Agreement it can be
determined that the agreement did not so provide, that therefore the arbitrator’s
decision was not based upon the contract. The acceptance of this view would
require courts even under the standard arbitration clause to review the merits of
every construction of the contract. This plenary review by a court on the merits
would make meaningless the provisions that the arbitrator’s decision is final, for in
reality it would almost never be final. This underlines the fundamental error which
we have alluded to in United Steel Workers of America v. American
Manufacturing Co., 363 U.S. 564, 80 S.Ct. 1343. As we there emphasized, the
question of interpretation of the collective bargaining agreement is a question for
the arbitrator. It is the arbitrator’s construction which was bargained for; and so
far as the arbitrator’s decision concerns construction of the contract, the courts
have no business overruling him because their interpretation of the contract is
different than his.
(Emphasis added.) If an award is rationally inferable from the facts before the arbitrator, the
award must be affirmed. See Antwine v. Prudential Bache Securities, Inc., 899 F.2d 410, 412 (5th
2
That case involved §301 of the Labor Relations Management Act, 1947, 29 U.S.C.A. §185(a) and the
case before this court involves the FAA, 9 U.S.C.A. §1, et seq. Nevertheless the courts, in interpreting LRMA
cases, have cited to FAA cases and the courts interpreting FAA cases have cited to LMRA cases. Although there
are some distinctions between cases under these two different statutes, none of these distinctions are applicable in
the case at hand.
8
Cir. 1990).
This court has held that “whatever indignation a reviewing court may experience in
examining the record, it must resist the temptation to condemn imperfect proceedings without a
sound statutory basis for doing so.” Prestige Ford, 324 F.3d at 394 (quoting Forsythe Intern.,
S.A. v. Gibbs Oil Co. of Texas, 915 F.2d 1017, 1022 (5th Cir. 1990)). The statutory bases for
vacating an arbitration award are set forth in the Federal Arbitration Act at 9 U.S.C.A. §10(a)
which provides that an award may be vacated:
(1) where the award was procured by corruption, fraud or undue means;
(2) where there is evidence of partiality or corruption in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct . . . or any other misbehavior by
which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers . . . .
Besides the four statutory grounds, manifest disregard of the law and contrary to public
policy are the only nonstatutory bases recognized by this circuit for vacatur of an arbitration
award. See Prestige Ford, 324 F.3d at 395, 96, Brabham, 376 F.3d at 381-82. See also,
Williams v. CIGNA Financial Advisors, Inc., 197 F.3d 752, 762 (5th Cir. 1999), cert. denied, 529
U.S. 1099 , 120 S.Ct. 1833 , 146 L.Ed.2d 777 (2000). This court has specifically disavowed
arbitrary and capricious as a ground for vacatur. See Brabham 376 F.3d at 381-82 . The
Brabham court also clarified that the “essence test” (the award failed to draw its essence from the
contract) is not a separate nonstatutory ground for vacatur but is part and parcel of 9 U.S.C.A.
§10(a)(4) of the FAA (the arbitrator exceeded his powers). Brabham at 384, n. 8.
This court has referred to the so called “essence test” as “rather metaphysical.” Executone
Information Systems, Inc. v. Davis, 26 F.3d 1314, 1324 (5th Cir. 1994). To draw its essence from
the contract, “the award must, in some logical way, be derived from the wording or purpose of
9
the contract.” Id., at 325, (quoting Brotherhood of R.R. Trainmen v. Central of Georgia Ry.,
415 F.2d 403, 412 (5th Cir. 1969), cert denied, 396 U.S. 1008, 90 S.Ct. 564, 24 L.Ed.2d 500
(1970). Under the essence analysis, “[t]he single question is whether the award, however arrived
at, is rationally inferable from the contract.” Anderman/Smith Operating Co. v. Tennessee Gas
Pipeline Co., 918 F.2d 1215, 1219, n. 3 (5th Cir. 1990).
The district court vacated the arbitration award on the grounds that the arbitrator (1)
exceeded his powers, (2) misunderstood the law, and (3) misread the contract. The only one of
these three grounds that is recognized by Fifth Circuit law is that the arbitrator exceeded his
powers. It should be observed that the district court concluded that the arbitrator had exceeded
his powers because his ruling was contrary to law. The district court seems to have mixed a
statutory basis for vacatur (exceeded his powers) with a nonstatutory basis, not recognized by the
Fifth Circuit, that is, the arbitrator failed to follow the law. The district court did not
appropriately consider Fifth Circuit precedent as to either of these grounds and showed only
passing deference to the arbitrator’s decision.
Ocean incorrectly asserts that this Circuit recognizes three nonstatutory grounds for
vacatur of an arbitration award. Those being, (1) the arbitrator acted in manifest disregard of the
law, (2) the award failed to draw its essence from the contract, and (3) the award was arbitrary
and capricious. As previously stated, only one of these nonstatutory grounds is recognized by the
Fifth Circuit, manifest disregard of the law. Thus the only issues to be considered by this
appellate court are did the arbitrator (1) exceed his powers or (2) was his award in manifest
disregard of the law? We will address Fifth Circuit law as to these two grounds for the vacatur of
an arbitration award.
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DID THE ARBITRATOR EXCEED HIS POWERS?
It is well-settled that the arbitrator’s jurisdiction is defined by both the contract
containing the arbitration clause and the submission agreement. If the parties go
beyond their promise to arbitrate and actually submit an issue to the arbitrator, we
look both to the contract and the scope of the submissions to the arbitrator to
determine the arbitrator’s authority.
Executone, 26 F.3d at 1323. (citations omitted) (Emphasis in original.)
Here, the contract containing the arbitration clause is the Plan itself, which contains
nothing describing the scope of the issues to be arbitrated. It only provides that one having a
dispute with the administration of the Plan may submit the matter to mandatory and binding
arbitration. Its only limiting factor is that the arbitrator must employ the same standard of review
as a federal court considering ERISA.
The district court order granting the motion to compel arbitration provided that “[o]n
Ocean Energy’s oral motion to compel arbitration, the plaintiffs’ claims will be arbitrated under
the American Arbitration Association’s labor rules.” (Emphasis added.) The court placed no
limitation on the arbitrator. The court order itself was a submission to the arbitrator.
Additionally, we know that plaintiffs submitted a Statement of Claim which was broad. Because
defendant did not file any of the record before the arbitrator we do not know if defendant
submitted any issues to the arbitrator or if defendant objected to any of the issues submitted by
the plaintiffs.
In Valentine Sugars Inc. v. Donau Corp., 981 F.2d 210, 213 (5th Cir. 1993), cert denied,
509 U.S. 923, 113 S. Ct. 3039, 125 L.Ed.2d 725 (1993), we concluded that language in the
demand for arbitration which “asked the panel to arbitrate a dispute concerning a commercial
11
matter involving several contracts . . . gave the arbitrator the power to do whatever was necessary
to resolve any disputed matter arising out of the joint venture.” Because the defendant failed to
submit the record before the arbitrator to the district court, it is impossible for this reviewing
court to determine if the arbitrator exceeded his jurisdiction by deciding issues not submitted to
him.
Additionally, in deciding whether the arbitrator exceeded his jurisdiction, “any doubts
concerning the scope of arbitrable issues should be resolved in favor of arbitration.” See Moses
H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74
L.Ed.2d 765 (1983). In Waverly Mineral Products Co. v. United Steel Workers of America,
AFL-CIO, Local No. 8290, 633 F.2d 682 (5th Cir. 1980), the district court determined that the
issue before the arbitrator was not amenable to arbitration. This court reversed and held that the
district court had “ignored the strong presumption favoring arbitrability. . . .” Id., at 684. We
analyzed previous Fifth Circuit case law and held that arbitration should not be denied “‘unless it
may be said with positive assurance that the arbitration clause is not susceptible of an
interpretation that covers the asserted dispute.’” Id., (citation omitted) (Emphasis added.) We
held that the decision as to whether or not an issue is arbitrable is for the arbitrator to decide “‘if
the subject matter of the dispute is arguably arbitrable,’” Id., (citation omitted), and that courts
have no business overruling an arbitrator “‘because their interpretation of the contract is different
from his.’” Id., (citation omitted).
Based upon Fifth Circuit precedent discussed above, the plaintiffs’ Statement of Claim
submitted to the arbitrator, and without the record from the arbitration hearing being filed before
the district court, and without any other limitation on the issues to be arbitrated, the district court
12
could not have found that the arbitrator exceeded his powers. Hence, any arguments that the
arbitrator exceeded his powers by deciding issues not properly before him or that the award is not
rationally inferable from the contract are without merit.
DID THE ARBITRATOR MANIFESTLY DISREGARD THE LAW?
In recognizing manifest disregard of the law as a basis for a vacatur, this court cited the
Second Circuit case of Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bobker, 808 F.2d 930 (2d
Cir. 1986) with approval. Prestige Ford, 324 F.3d at 395. Under that formulation, manifest
disregard for the law “means 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. Moreover, the term ‘disregard’ implies that the
arbitrator appreciates the existence of a clearly governing principle but decides to ignore or pay
no attention to it.” Id.
Even if the arbitrator did manifestly disregard the law, a second step of the manifest
disregard analysis requires that before an arbitrator’s award can be vacated, the court must find
that the award resulted in a “significant injustice.” See Williams, 197 F.3d at 762. Since we
conclude that the arbitrator did not show a manifest disregard for the law, it is unnecessary that
we address this issue.
The district court concluded that the arbitrator had exceeded his power and
misunderstood or failed to follow the law because the arbitrator found that the Committee
decision to deny severance benefits to the Plaintiffs was entitled to little or no deference. Again,
this is where the district court mixed a statutory basis for vacatur (exceeded his powers) with a
13
nonstatutory basis, not recognized by the Fifth Circuit as a basis for vacatur. In finding contrary
to the arbitrator, the court, in essence, held that the arbitrator had exceeded his powers by failing
to follow the law. This court has never affirmed such a holding, but has repeatedly held that the
failure of an arbitrator to correctly apply the law is not a basis for setting aside an arbitrator’s
award. Specifically, we have rejected even arbitrary and capricious as a basis for vacating an
arbitration award. See Brabham, supra.
The district court agreed with the arbitrator that the Committee was “never independent”
but then held that neither the workers nor the arbitrator could “use the compensation committee’s
dependence and management-affiliation to question the decision to eliminate one class of fired
workers from the severance plan.” It is true that in the typical ERISA case, where the fiduciary is
given discretion to decide benefit claims, such decisions are reviewed to determine whether they
are arbitrary and capricious under an abuse of discretion standard. See Martinez v.
Schlumberger, Ltd., 338 F.3d 407 (5th Cir. 2003). But the arbitrator clearly recognized this
principle and stated specifically that he was employing it.
The arbitrator, but not the district court, recognized that when there is an apparent conflict
of interest between the Committee’s fiduciary obligations to the Plan participants and the profit
motive of the Company, the deference due the decision may be reduced in proportion to the
conflict. See Vega v. National Life Ins. Services, Inc., 188 F.3d 287, 297 (5th Cir. 1999) (en
banc) (“The existence of a conflict is a factor to be considered in determining whether the
administrator abused his discretion in denying a claim.”). This was the point on which the
14
arbitrator received both testimony and deposition evidence outside of the administrative record.3
Ocean argues that it was error for the arbitrator to go outside the administrative record and allow
any additional evidence.
It is true that federal courts are generally prevented from going outside the administrative
record in reviewing plan fiduciary decisions. Vega, 188 F.3d at 289. Here, however, the parties
were not in federal court. They were involved in mandatory arbitration invoked by Ocean. While
it is true that the Plan called for the arbitrator to review the Committee decision as a federal court
would, we have clearly held that conflict of interest is a factor to be weighed in determining how
much deference is given to an administrator’s decision. See Vega, supra. There is no practical
way for the extent of the administrator’s conflict of interest to be determined without the
arbitrator going beyond the record of the administrator.
In addition to holding that the conflict of interest, if any, of the plan administrator is to be
taken into consideration, this court has also held “that an employer, if it chooses to communicate
about the future of a participant’s plan benefits, has a fiduciary duty to refrain from
misrepresentations.” Martinez, 338 F.3d at 424. Further, “[w]hen an employer speaks to the
future of a plan, employees are justified in concluding that it is backed by the authority of a plan
administrator, and should therefore be entitled to trust in those representations.” Id., at 425,
(Emphasis added.) Even though Martinez was decided subsequent to the arbitrator’s award, it is
3
The arbitrator’s opinion summarizing the testimony contains a paragraph regarding a stipulation by
Counsel for Ocean that the record before the Committee included “whatever personal information these fellows had
. . . .” The arbitrator found that the administrative record presented did not reflect what that personal knowledge
was or how it played into the decision to deny benefits. The arbitrator obviously concluded that developing a
record as to the personal knowledge the Committee members had regarding the Plan and its requirements was
important in reaching a decision on the extent of the conflict, if any.
15
based on Supreme Court precedent argued to and reviewed by the arbitrator. See Varity Corp. v.
Howe, 516 U.S. 489, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996).
The arbitrator concluded that the employer exercised “discretionary authority” in
administering the Plan by virtue of the January 5, 1999, communication to the employees and that
this triggered a fiduciary obligation to keep the employees informed about future changes to the
Plan. R. at 331. Such an exercise of discretionary authority in the administration of the Plan is a
fiduciary function specifically enumerated under ERISA. See Martinez, 338 F.3d at 425.
That fiduciary duty required that the Committee refrain from “knowingly and significantly”
deceiving the beneficiaries in order to save the employer money. Id., (quoting Varity Corp., 516
U.S. at 506). The arbitrator reviewed a number of cases, including Varity4, concerning the
fiduciary duty of Ocean and concluded that Ocean had breached that duty. Certainly, this does
not evidence a manifest disregard for the law.
The arbitrator perused through more than forty cases and voluminous post-hearing briefs
in an attempt to apply the correct ERISA standard of review to the Committee’s decision to deny
severance benefits to the Plaintiffs. The arbitrator found that there was a conflict of interest by
Committee members who were also Directors of the company because if the Plan administrator
(Committee), had told the employees of the change in the Plan, it could have affected the sale to
Buckeye and adversely affected the financial interests of Seagull. The arbitrator also found that
the Plan administrator had made a representation to the employees that it would keep them
advised, and had failed to do so, and therefore the employer had breached its fiduciary obligation
to keep the employees informed of Plan changes. See Varity, 516 U.S. at 506, and Martinez, 338
4
The parties agree that the arbitrator considered Varity.
16
F.3d at 425.
The arbitrator went on to conclude that because of the conflict of interest created by
Ocean and the way the Committee was set up, the Committee’s denial of the Plaintiffs’ claims was
entitled to little or no deference. Clearly, the arbitrator was neither ignoring the applicable law
nor refusing to apply a settled principal of law. He reviewed the voluminous cases presented by
the parties and thoroughly reasoned their application to the facts presented. One might disagree
with his conclusions and even his methodology, but that does not reduce the deference that
decision is due by the reviewing court. It is obvious that the district court reviewed the
arbitrator’s award de novo rather than under the exceedingly deferential review which it was due.
The district court improperly substituted its judgment for that of the arbitrator. “Courts
are not authorized to review the arbitrator’s decision on the merits despite allegations that the
decision rests on factual errors or misinterprets the parties’ agreement.” Major League Baseball
Players Ass’n v. Garvey, 532 U.S. 504, 509, 532 U.S. 1015, 121 S.Ct. 1724, 149 L.Ed.2d 740
(2001) (citing United Paperworkers Intern. Union, AFL-CIO v. Misco, Inc., 484 U.S. 29, 36 108
S.Ct. 364, 98 L.Ed.2d 286 (1987)). “If ‘an arbitrator is even arguably construing or applying the
contract and acting within the scope of his authority,’ the fact that ‘a court is convinced he
committed serious error does not suffice to overturn his decision.’” Id., (quoting Misco at 38).
“[E]ven ‘serious error’ on the arbitrator’s part does not justify overturning his decision, where, . .
. he is construing a contract and acting within the scope of his authority.” Id., at 510 (quoting
Misco at 38). “Established law ordinarily precludes a court from resolving the merits of the
parties’ dispute on the basis of its own factual determinations, no matter how erroneous the
arbitrator’s decision.” Id., (citing Misco at 40, n. 10). “When an arbitrator resolves disputes
17
regarding the application of a contract, and no dishonesty is alleged, the arbitrator’s ‘improvident,
even silly, factfinding’ does not provide a basis for a reviewing court to refuse to enforce the
award.” Id., (quoting Misco at 39). “‘[C]ourts . . . have no business weighing the merits of the
grievance [or] considering whether there is equity in a particular claim.’” Id., (quoting Misco at
37).
The arbitrator’s award in this case is rationally inferable from the Plan. Both parties agree
that the Plan anticipated paying benefits to persons involuntarily terminated prior to the last
minute adoption of the Fifth Amendment. The arbitrator found that the Company had violated its
fiduciary duty to the Plaintiffs in denying their claims. This was within the province of the
arbitrator as fact finder and may not be reviewed by the district court simply because the district
court disagreed with the arbitrator, but must be reviewed consistent with Fifth Circuit precedent.
The parties bargained for arbitration. When one bargains for arbitration, he bargains for the
process as well as the results. If Ocean had wanted to have the rigors of a federal court
proceeding, it could have had them. Instead, it compelled arbitration and now, dissatisfied with
the result, seeks a different outcome.
The lower court erred in vacating this arbitration award, consequently, it is unnecessary
to review the remand to another arbitrator.
The district court’s order of vacatur is REVERSED and this matter is REMANDED to
the district court with instructions to REINSTATE the arbitration award in favor of the Plaintiffs.
18
Kergosien v. Ocean Energy, Inc.
Court: Court of Appeals for the Fifth Circuit
Date filed: 2004-11-02
Citations: 390 F.3d 346
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