                  NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                             File Name: 12a0951n.06
                                                                                          FILED
                                           No. 11-1778
                                                                                     Aug 27, 2012
                             UNITED STATES COURT OF APPEALS                    LEONARD GREEN, Clerk
                                  FOR THE SIXTH CIRCUIT

BARRICK ENTERPRISES, INC.,                             )
                                                       )
       Plaintiff-Appellee,                             )   ON APPEAL FROM THE UNITED
                                                       )   STATES DISTRICT COURT FOR
v.                                                     )   THE EASTERN DISTRICT OF
                                                       )   MICHIGAN
CRESCENT PETROLEUM, INC., et al.,                      )
                                                       )
       Defendants-Appellants.                          )


Before:        KEITH, GIBBONS, and DONALD, Circuit Judges.

       PER CURIAM. Appellants Crescent Petroleum Inc., Mohammed El-Bathy, and Bassel El-

Bathy (collectively, “Crescent”) appeal the district court’s affirmation of an arbitration award in

Appellee Barrick Enterprises, Inc.’s (“Barrick”) favor. For the following reasons, we affirm the

district court’s judgment.

                                        BACKGROUND

       This appeal involves disputes arising under a petroleum supply agreement. Under the

agreement, Barrick, a petroleum supplier, agreed to provide Crescent, a gas station, with gasoline

at its Madison Heights, Michigan, location. Approximately two and a half years into the agreement,

Barrick filed suit against Crescent in state court, alleging that Crescent had breached the sales

agreement by failing to pay for delivered gasoline. Crescent removed the action to federal court and

asserted counter-claims alleging that Barrick had violated the Petroleum Marketing Practices Act.

15 U.S.C. § 2801 et seq. The parties eventually agreed to dismiss some of their claims and resolve
No. 11-1778
Barrick Enterprises, Inc. v. Crescent Petroleum, Inc., et al.

the rest by arbitration. To that end, they negotiated and agreed upon the guidelines and rules for the

arbitration, and the district court adopted them in an arbitration order (“the Order”). Under the

Order, the parties agreed to submit their claims to a Certified Public Accountant at the accounting

firm of UHY Advisors, MI, Inc. (“the Arbitrator”) to render an opinion using “generally accepted

accounting principles” as to the amount of money owed or, in the alternative, the amount of money

overpaid, between the parties. The Order also provided, in relevant part, that “[t]he Arbitrator shall

be free to direct questions and request documents or records from the parties as may be needed to

evaluate and render a final determination of the Account Balance so long as any such questions or

requests, and the subsequent disclosures thereto, are disclosed to the opposing party.”

       Pertinent to this appeal, the Arbitrator at one point spoke with a Barrick employee, Vickie

Morton (“Morton”), without counsel present. Emails indicate that counsel for both Barrick and

Crescent were made aware of and agreed to this “ex parte” communication. Ultimately, the

Arbitrator found that Crescent owed Barrick $379,239.60 for unpaid deliveries of fuel, and that

Barrick had overcharged Crescent for some of the fuel it delivered, making it liable to Crescent for

$97,505.53. Accordingly, the Arbitrator awarded Barrick net damages of $281,734.07, to be paid

by Crescent. On April 8, 2010, Crescent timely filed a Motion to Vacate and/or Modify Arbitration

Award. The district court denied the motion without oral argument on July 28, 2010, and issued a

judgment affirming the arbitration award on March 23, 2011. Crescent then filed a Motion to

Amend/Correct Judgment, which the district court also denied. Crescent timely appealed.

                                           DISCUSSION



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Barrick Enterprises, Inc. v. Crescent Petroleum, Inc., et al.

        Crescent raises two arguments. First, Crescent argues that the district court erred in affirming

the arbitration award because the Arbitrator conducted ex parte proceedings, thus prejudicing

Crescent and exceeding its powers under the Order. Second, it argues that the district court erred

in affirming the award because the Arbitrator applied the wrong evidentiary standard. We address

these arguments in turn.

        “We review the confirmation of an arbitration award for clear error on findings of fact and

de novo on questions of law.” Dawahare v. Spencer, 210 F.3d 666, 669 (6th Cir. 2000). Our review

of an arbitration award “is one of the narrowest standards of judicial review in all of American

jurisprudence.” Way Bakery v. Truck Drivers Local No. 164, 363 F.3d 590, 593 (6th Cir. 2004)

(internal quotation and citation omitted); Fed. Dep’t Stores, Inc. v. J.V.B. Indus., Inc., 894 F.2d 862,

866 (6th Cir. 1990) (describing this court’s role as “extremely limited” ). Indeed, “[a]s long as the

arbitrator’s award draws its essence from [an agreement], and is not merely [the arbitrator’s] own

brand of . . . justice, the award is legitimate.” United Paperworkers Int’l Union v. Misco, Inc., 484

U.S. 29, 36 (1987) (internal quotation and citation omitted); cf. Merrill Lynch, Pierce, Fenner &

Smith v. Jaros, 70 F.3d 418, 421 (6th Cir. 1995) (“If a court can find any line of argument that is

legally plausible and supports the award then it must be confirmed. Only where no judge or group

of judges could conceivably come to the same determination as the arbitrators must the award be set

aside.”).

I. The communications with Morton




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Barrick Enterprises, Inc. v. Crescent Petroleum, Inc., et al.

    Crescent alleges that the Arbitrator’s “ex parte” communications with Morton (a Barrick

employee) prejudiced Crescent and was in excess of its powers. As such, it argues, the district court

should have vacated the award pursuant to the Federal Arbitration Act. See 9 U.S.C. §10(a).

       The Federal Arbitration Act, which governs the parties’ rights in arbitration, provides that

a court may only vacate an arbitration award in the following instances:

       (1) where the award was procured by corruption, fraud, or other means;
       (2) where there was evident partiality or corruption in the arbitrators, or either of
       them;
       (3) where the arbitrators were guilty of misconduct in refusing to postpone the
       hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and
       material to the controversy; or of any other misbehavior by which the rights of any
       party have been prejudiced; or
       (4) where the arbitrators exceeded their powers, or so imperfectly executed them that
       a mutual, final, and definite award upon the subject matter submitted was not made.

9 U.S.C. §10(a) (emphasis added). Additionally, in Wilko v. Swan, 346 U.S. 427, 436-37 (1953),

overruled on other grounds, Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477

(1989), the Supreme Court recognized nonstatutory grounds for reversal where the Arbitrator acts

with manifest disregard for the law. We have “emphasized that manifest disregard of the law is a

very narrow standard of review.” Jaros, 70 F.3d at 421. (internal citation omitted). “A mere error

in interpretation or application of the law is insufficient. Rather, the decision must fly in the face

of clearly established legal precedent.” Id. (internal citation omitted).

A. Prejudice

       On May 11, 2009, the Arbitrator communicated with Morton outside the presence of counsel.

Crescent argues that it was “severely prejudiced” by this communication because it had “no idea

what [Morton] testified to, and had no opportunity to cross-examine her.” It further argues that

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Barrick Enterprises, Inc. v. Crescent Petroleum, Inc., et al.

Morton’s testimony is “presumably biased in favor of her employer,” Barrick. Crescent points out

that “some courts have . . . held that arbitrators cannot conduct ex parte hearings or receive evidence

unless it is done in the presence of the other arbitrators and the parties.” See Jones v. St. Louis-San

Francisco Ry. Co., 728 F.2d 257, 263 (6th Cir. 1984). At first blush, this principle and the Order’s

language potentially appear to provide Crescent with cause for complaint. Ultimately, however,

Crescent’s arguments are unconvincing.

       As an initial matter, Crescent’s reliance on Jones is misplaced. The Jones principle is an

observation, not a rule, and references decisions that do not control this court. See Jones, 728 F.2d

at 263 (referring to decisions from other jurisdictions, e.g., Totem Marine Tug & Barge v. North Am.

Towing, 607 F.2d 649, 653 (5th Cir. 1979)1 and Katz v. Uvegi, 187 N.Y.S.2d 511, 518 (N.Y. Sup.

Ct. 1959)).    Jones is also factually distinguishable. In that case, we considered whether an

arbitration award was proper where an arbitration board rendered its decision after some members



       1
          To be sure, our sister circuit’s opinion in Totem Marine vacated an arbitrator’s award where
the arbitrator received information ex parte. But the arbitrator’s behavior in that case went far
beyond what occurred here. In Totem Marine, while post-arbitration deliberations were taking place,
the arbitrators realized that their notes included inconsistent earnings figures. Id. at 650. To resolve
this inconsistency, they phoned one party’s counsel; obtained a figure that they deemed definitive
even though it did not match any of the figures in their notes; used that figure to complete their
computations; and neither notified the other party of the communication nor gave it an opportunity
to respond to the figure. Id. at 650-52. On appeal, the Fifth Circuit found not only that the
arbitrators should not have considered the earnings figure to begin with, id. at 651-52, but that, not
surprisingly, the method by which they obtained the figure was improper, id. at 652. In so doing,
the court observed that “arbitrators cannot conduct ex parte hearings or receive evidence excect in
the presence of each other and of the parties, unless otherwise stipulated.” Id. (quotation and citation
omitted) (emphasis added). Even if this decision were controlling, it would be distinguishable. The
facts are different, and, as we will discuss below, the Arbitrator’s conversation with Morton was, we
conclude, “otherwise stipulated.”

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Barrick Enterprises, Inc. v. Crescent Petroleum, Inc., et al.

resigned, and neither of the two substitute arbitrators attended the hearing or heard all the evidence

presented. See Jones, 728 F.2d at 264. “Thus, a majority of the board did not fully consider

appellant’s claims.” Id. We concluded that the board failed to afford the litigants “complete

fairness” as required by the Railway Labor Act, 45 U.S.C. § 153. Id. at 263-64. Those factors

simply are not present in the instant case, and merely acknowledging the law in other jurisdictions

does not constitute a holding that binds this court.

        But even if Jones were helpful to Crescent, Crescent’s interpretation of the Order and its

complaint of prejudice would still be unavailing. To be sure, the provision of the Order that Crescent

cites is arguably subject to multiple interpretations: “The Arbitrator shall be free to direct questions

and request documents or records from the parties as may be needed to evaluate and render a final

determination of the Account Balance so long as any such questions or requests, and the subsequent

disclosures thereto, are disclosed to the opposing party.” (emphasis added). According to Crescent,

this means that when the Arbitrator directed questions at Morton, he was required to disclose the

actual questions and subjects covered to Crescent.

        Courts give contract language “its ordinary and natural meaning.” See Royal Ins. Co. of Am.

v. Orient Overseas Container Line Ltd., 525 F.3d 409, 421 (6th Cir. 2008) (internal citation and

quotation omitted). “Disclose” means “to make known,” or to “divulge.” Webster’s Third New

International Dictionary 645 (8th ed. 1986). Nevertheless, it is unclear whether, under the Order,

the Arbitrator simply must alert the parties that questioning will occur and cover certain subjects

(which, as discussed below, the Arbitrator did), or must disclose the actual questions asked (which



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the Arbitrator did not). If “disclose” means the latter, Crescent may, indeed, have been prejudiced

by the Arbitrator’s departure from the agreed-upon procedure.

        But there are two problems with Crescent’s argument. The first is that the contract is only

arguably ambiguous, and even if “disclose” means to divulge questions with exacting specificity, we

review the Arbitrator’s different interpretation with great deference. As we have said, as long as the

Arbitrator is “even arguably construing . . . the contract and acting within the scope of his authority,

that a court is convinced he committed serious error does not suffice to overturn his decision.”

J.V.B. Indus., 894 F.2d at 866 (citing Misco, 484 U.S. at 38); cf. Jaros, 70 F.3d at 421 (“If a court

can find any line of argument that is legally plausible and supports the award then it must be

confirmed. Only where no judge or group of judges could conceivably come to the same

determination as the arbitrators must the award be set aside.”). In light of the foregoing, we decline

to disturb the award based on the Arbitrator’s interpretation of the disclosure requirement.

        Second, Crescent agreed to the procedure by which Morton was questioned, i.e., without

counsel and without full and specific disclosure of the items discussed and questions asked. A series

of emails between the Arbitrator, Barrick’s counsel, and Crescent’s counsel demonstrates Crescent’s

acquiescence.

        On May 7, 2009, the Arbitrator sent the following email to counsel for both Barrick and

Crescent:

        At this time we would like to invite Barrick’s controller [Morton] to our offices to
        assist us in understanding certain data entry processes of the business. . . . Please
        advise.



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Barrick Enterprises, Inc. v. Crescent Petroleum, Inc., et al.

In response to Barrick’s counsel asking to be present at the meeting, the Arbitrator responded as

follows (also on May 7, 2009):

        I would not think so. That would add pressure to her that is not warranted for what
        we are seeking to understand at this time. Having been through the data we desire to
        understand more about the customer payment cycle Barrick employs. It is nothing
        that she will have to ‘prep’ for or that she should feel stressed/nervous about.
        Anticipating both your desires to be at any meeting, I confirm to you that we will not
        be sharing any form of balance information with her, such that one side would feel
        at an advantage over the other.

Counsel for Crescent was copied on that email. Crescent neither asked to be present nor objected

to the proceedings, and they took place on May 11, 2009. One day later, the Arbitrator extended a

similar invitation to Crescent’s counsel, inviting gas station owner Mohammed El-Bathy to “come

to our offices to assist us in understand[ing] the procedures employed by Crescent and the materials

presented to us.” The Arbitrator noted that “[a]ttorney presence is not required.” Counsel for

Crescent responded, “I think your approach is wise. I will have my client contact you to meet. I will

not be present, as I assume [counsel for Barrick] will not be either.” (emphasis added).

        Crescent’s acquiescence is fatal to its argument. In Order of Ry. Conductors and Brakemen

v. Clinchfield R. Co., 407 F.2d 985, 988 (6th Cir. 1969), we stated that parties in arbitration waive

their right to complain about defects in the arbitration process if such objections are not raised at that

time:

        It is also well settled that defects in proceedings prior to or during arbitration may be
        waived by a party’s acquiescence in the arbitration with knowledge of the defect.
        Moreover, if the impeaching party’s own action contributes to a variance from the
        prescribed procedure, such party may be estopped to complain of the variance.




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Barrick Enterprises, Inc. v. Crescent Petroleum, Inc., et al.

In that case, the arbitration board was composed of five members despite the statutory requirement

that it be composed of either three or six. This court held that “the unions waived their right to

object to the statutory departure by participating in the arbitration proceedings without objection on

this point.” Id. at 989.2

        Counsel for Crescent was copied on all emails sent by the Arbitrator regarding his desire to

meet and speak ex parte with Morton, yet did not raise an objection despite language in the Order

which may have precluded the arrangement. Counsel for Crescent also explicitly agreed to follow

a similar course of conduct with his own client, stating to the Arbitrator, “I think your approach is

wise.” On these facts, Crescent has waived any objection it may have had to the ex parte

communications, whether or not they constituted a departure from the Order’s prescriptions.

        In light of the foregoing facts and the extremely narrow standard of review, we conclude that

the ex parte meeting does not constitute grounds for relief.

B. The Arbitrator’s Powers

        Crescent next argues that the district court should have vacated the award because, in

conducting the ex parte proceeding, the Arbitrator failed to “adhere to the terms” of the Order, and

thus exceeded its powers. See 9 U.S.C. § 10(a)(4) (permitting a court to vacate an arbitration award

“where the arbitrators exceeded their powers”). This court has instructed that arbitrators “do not

exceed their authority unless ‘they display a manifest disregard of the law,’ which ‘means more than



        2
        Though Clinchfield was decided over forty years ago, we still rely upon it. See Armco
Emples. Indep. Fedn., Inc. v. AK Steel Corp., 149 F. App’x 347, 352 (6th Cir. 2005); Nationwide
Mut. Ins. Co. v. Home Ins. Co., 330 F.3d 843, 846 (6th Cir. 2003).

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Barrick Enterprises, Inc. v. Crescent Petroleum, Inc., et al.

mere error in interpretation or application of the law.’” Appalachian Reg’l Healthcare, Inc. v. Beyt,

Rish, Robbins Grp., Architects, No. 91-6063, 1992 U.S. App. LEXIS 12100, *11 (6th Cir. May 19,

1992) (citing J.V.B. Indust., 894 F.2d at 866). Rather, “the decision must fly in the face of clearly

established legal precedent.” Jaros, 70 F.3d at 421. (internal citation omitted). As long as the

arbitrator is “even arguably construing or applying the contract and acting within the scope of his

authority, that a court is convinced he committed serious error does not suffice to overturn his

decision.” J.V.B. Indus., 894 F.2d at 866 (citing Misco, 484 U.S. at 38).

       Though the contract is perhaps ambiguous regarding the disclosure requirement, it would be

all but impossible to say that the Arbitrator was not “arguably construing or applying the contract

and acting within the scope of his authority.” Id. And we know of no cases that would indicate that

the Arbitrator’s ex parte meeting with Morton flies in the face of clearly established precedent.

Finally, Crescent lodged no objection to the proceedings, and “defects in proceedings prior to or

during arbitration may be waived by a party’s acquiescence in the arbitration with knowledge of the

defect.” Clinchfield R.R. Co., 407 F.2d at 988. For the foregoing reasons, we conclude that

Crescent’s arguments are without merit.

II. Evidentiary Standards

       Crescent next asserts that the arbitrator engaged in an “improper application of evidentiary

procedures.” Crescent argues that the Arbitrator relied on considerations like temperature, fuel/water

tank content, evaporation, leakage, and other elements of geology and petroleum engineering when

he lacked the expertise to do so, and that he did not give Crescent the opportunity to present expert

testimony on the same subjects. Crescent also argues that the Arbitrator erroneously used an “all or

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Barrick Enterprises, Inc. v. Crescent Petroleum, Inc., et al.

nothing” approach, i.e., “unilaterally adopted the liability standard that Barrick had to be 100%

responsible for any fuel shortages before liability could be attached to them,” and then stated that

“the evidence was insufficient to deem Barrick 100% liable for Crescent’s fuel shortage.” This,

Crescent argues, shows a “manifest disregard of the law,” and the award must accordingly be

vacated. But the record does not bear this out.

        To begin with, “[a]rbitrators are not bound by formal rules of procedure and evidence.”

Nat’l Post Office Mailhandlers v. United States Postal Serv., 751 F.2d 834, 841 (6th Cir. 1985).

Furthermore, we note that this court and others have recognized a presumption in favor of an

arbitration award’s validity. See, e.g., Kroger Co. v. Intern. Broth. of Teamsters, etc., 380 F.2d 728,

730 (6th Cir. 1967) (“It is axiomatic that a court will not review the merits of an arbitration award.”)

(citation omitted); Telephone Workers Union of New Jersey, Local 827, Intern. Broth. of Elec.

Workers, AFL-CIO v. New Jersey Bell Tel. Co., 450 F. Supp. 284, 291) (D. N. J. 1977) (“There is

a presumption in favor of the award’s validity.”). These specific principles, taken together with the

general principles guiding our review, mean that Crescent has a high bar to clear before we will find

fault with the Arbitrator’s evidentiary decisions. But even if we could review Crescent’s claims

without deference, the record simply does not support them.

        First, the Arbitrator did not rely on temperature, fuel/water tank content, etc. Rather, he

merely opined that any number of factors other than an intentional short-changing by Barrick could

account for discrepancies. Nowhere in the award does he engage in a geological analysis or an

analysis based on petroleum engineering expertise, real or purported. In fact, he concludes that the

discrepancies were attributable to Crescent’s accounting practices—a conclusion well within the

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Arbitrator’s expertise under the Order, which required him to use generally accepted accounting

principles.3

        Second, the Arbitrator did not unilaterally adopt an “all or nothing” liability standard. The

award contains a single statement that “the evidence provided [was] insufficient to conclude that

[Barrick] alone could have been the cause of the volume discrepancy”; but that is simply another way

to phrase his finding that “any volume discrepancies that may exist are not readily attributable to the

actions of [Barrick].” This does not amount to an impermissible evidentiary standard under which,

as it alleges, Crescent was required to prove that Barrick was completely and solely responsible for

the shortages before any liability could attach to Barrick. Nor does it amount to a manifest disregard

of clearly established law. We thus reject Crescent’s evidentiary arguments.

                                            CONCLUSION


        3
            The Arbitrator’s final award states:

        [Arbitrator] notes several instances in which the discrepancies revolve around
        deliveries made at the very end of or beginning of a particular month. These are
        often termed cut-off issues as the data may not have been received by [Crescent]
        from [Barrick] at the time [month-end] record keeping activities occur. Typically
        these are self correcting in that the following month will include the data missed from
        the prior month and thus in total they are reconciled. In the instant case, [Arbitrator]
        believes that it has observed cut-off issues in [Crescent’s] reporting practices that
        were not properly accounted for in the subsequent month. . . . Finally, [Arbitrator]
        believes that in certain instances [Crescent] failed to account for deliveries made in
        its reporting as noted and supported by shippers. The analysis performed strongly
        suggests that [Barrick’s] delivery records . . . are accurate and reconcilable to
        [Crescent’s] own records with rational explanations. Given the evidence provided
        and the analysis conducted, [Arbitrator] finds that any volume discrepancies that may
        exist are not readily attributable to the actions of [Barrick].

(emphasis in original removed).

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         For the foregoing reasons, we AFFIRM the district court’s decision to affirm the arbitration

award.




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