Harsch v. Applejack Real Estate Holdings, LLC, No. 289-4-12 Rdcv (Teachout, J., Aug. 31, 2012)

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                                                STATE OF VERMONT

SUPERIOR COURT                                                                                   CIVIL DIVISION
Rutland Unit                                                                               Docket No. 289-4-12 Rdcv



PAUL A. HARSCH, III, et al.,
     Plaintiffs

           v.

APPLEJACK REAL ESTATE HOLDINGS, LLC,
     Defendant



  DECISION ON PLAINTIFFS’ MOTION FOR AN ORDER TO CONFIRM AND
         ENTER JUDGMENT UPON AN ARBITRATION AWARD &
                DEFENDANT’S MOTION TO VACATE


        In this action the Plaintiffs seek to confirm an arbitration award and have moved
for confirmation. The parties agreed to arbitrate claims relating to financial transactions
between them. Arbitration took place before Christopher D. Ekman, Esq., and his
decision issued on February 16, 2012, awarding Plaintiffs the sum of $47,530.05. On
March 27, 2012, Mr. Ekman denied requests by both Plaintiffs and Defendant to modify
the arbitration award.

       Plaintiffs filed the present Motion for an Order to Confirm and Enter Judgment
Upon an Arbitration Award on April 19, 2012. Defendant filed an Opposition to the
Motion to Confirm Arbitration Award and Motion to Vacate on June 20, 2012. Plaintiffs
had previously filed a reply on June 6, 2012. Plaintiffs are represented by Attorney
Donald W. Goodrich. Defendant is represented by Attorney Brian R. Teason.

         Defendant challenges two portions of the arbitration award. It argues that the
arbitrator erred in awarding Plaintiffs a commission fee under the brokerage agreement
and that the arbitrator awarded Plaintiffs an excessive amount of attorney’s fees. As an
initial matter, the parties disagree as to whether the Vermont Arbitration Act (“VAA”) or
the Federal Arbitration Act (“FAA”) governs the disposition of these motions. The Court,
however, does not need to resolve this issue because as applied to this case the standards
under both acts are essentially the same.

       Both the VAA and the FAA start from the presumption that a court ordinarily
should confirm an arbitration award. Compare Vt. Build, Inc. v. Krolick, 2008 VT 131, ¶
13, 185 Vt. 139 (holding that Vermont has a strong tradition of upholding arbitration
awards) with Wall Street Assocs., L.P. v. Becker Paribas, Inc., 27 F.3d 845, 849 (2d Cir.
1994) (holding that FAA contains a “strong presumption in favor of enforcing arbitration
awards”). Under both statutes, the party moving to vacate the arbitration award bears the
burden of proving a valid basis for vacatur. See Shahi v. Ascend Fin. Servs., Inc., 2006
VT 29, ¶ 7, 179 Vt. 434 (holding that under both the VAA and FAA the party
challenging arbitration award must show a valid basis to vacate the award). This high
burden is not easy for the challenging party to satisfy. Compare Krolick, 2008 VT 131, at
¶ 13 (holding that court’s review of arbitration award under the VAA is “very limited”)
with Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758, 1767 (2010) (holding
that party seeking vacatur under the FAA “must clear a high hurdle”).

        The two statutes contain virtually identical grounds for vacating an arbitration
award. See Krolick, 2008 VT 131, at ¶ 16 (noting that grounds for vacatur under the
VAA and the FAA are “identical in substance”). Defendant, however, seeks to rely on the
FAA because of its belief that the federal statute allows for non-statutory grounds for
vacatur, particularly for vacatur in the event of “manifest disregard of the law by the
arbitrator.” The VAA does not allow for review in the event of “manifest disregard of the
law.” Id. at ¶ 13 n. 2.

         Even under the FAA, the “manifest disregard of the law” basis is not clearly
available. The United States Supreme Court has held that the statutory text of the FAA,
which contains no reference to “manifest disregard of the law,” sets forth the “exclusive”
grounds for vacatur. Hall St. Assocs., LLC v. Mattel, Inc., 552 U.S. 576, 584 (2008). In
fact, it was the Hall Street Associates decision that compelled the Vermont Supreme
Court to conclude that review for “manifest disregard of the law” is not available under
the VAA. See Krolick, 2008 VT 131, at ¶ 13 n. 2 (characterizing Hall Street Associates as
holding that under the FAA a reviewing court “has no authority to review for an
arbitrator’s legal errors”).

        Nevertheless, the Second Circuit has subsequently held that the “manifest
disregard of the law” standard could survive as a judicial gloss upon the statutory text of
the FAA. Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 548 F.3d 85, 93 (2008), reversed
130 S. Ct. 1758 (2010). The U.S. Supreme Court reversed the Second Circuit’s decision
in Stolt-Nielsen but did not reach the question of whether “manifest disregard of the law”
survives after its decision in Hall Street Associates. See Stolt-Nielsen, 130 S. Ct. 1758,
1768 n. 3. Even presuming that the Second Circuit’s reasoning on this point was sound,
that court limited the applicability of the “manifest disregard of the law” standard. In
order to succeed under this basis, a party challenging an arbitration award must be able to
show that it actually identified the governing law to the arbitrator or that the legal error is
so obvious that would be instantly perceived by the average person qualified to serve as
an arbitrator. Stolt-Nielsen, 548 F.3d at 93.

         Turning to Defendant’s specific objections to the arbitration award, Defendant
first claims that the arbitrator “manifestly disregarded the law” in awarding Plaintiffs
commission fees under the brokerage agreement. Defendant has failed to meet its heavy
burden in asking this Court to vacate the arbitration award. Assuming without deciding



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that Defendant is correct that the arbitration award rests on faulty legal premises and that
“manifest disregard of the law” remains a valid grounds for vacator under the FAA,
Defendant still must show that the arbitrator was aware of the law that he subsequently
“manifestly disregarded” in making his arbitration award. Defendant cannot do that here
as it did not present that Vermont case law that it now claims supports its position to the
arbitrator until after he had already issued his decision. At this point, it was too late. The
arbitrator must necessarily make a determination based upon the evidence in front of him
at the time of the arbitration. Because Defendant failed, at that time, to highlight the law
it now argues the arbitrator manifestly disregarded, the Court concludes that Defendant is
not entitled to vacatur on this basis, even presuming both that this basis remains valid
under the FAA and that the FAA and not the VAA should govern this case.

        Defendant’s second objection regarding excessive attorney’s fees suffers from a
similar defect. Defendant again argues that the arbitration award manifestly disregarded
the law, but it fails to meet this high standard. The primary basis for Defendant’s
argument is that the arbitrator allowed for an unreasonable number of hours of work
when calculating the award of attorney’s fees under the “lodestar” analysis. Even
assuming that Defendant is correct, such a miscalculation would not rise to the level of a
manifest disregard of the law. In applying the lodestar analysis, the arbitrator
demonstrated that he was following the law. It is not the place of this Court, as a forum of
very limited review, to quibble with the result of his calculations. See, e.g., Vt. Build, Inc.
v. Krolick, 2008 VT 131, ¶ 24, 185 Vt. 139 (holding that it was improper for a reviewing
court to reach the merits of arbitrator’s decision as to the amount of attorney’s fees and
prejudgment interest). Presuming that the “manifest disregard of law” standard is valid
and applies here, the Court concludes that the arbitrator did not manifestly disregard the
law in the award of attorney’s fees.


                                              ORDER

       Plaintiff’s Motion for an Order to Confirm and Enter Judgment Upon an
Arbitration Award is granted.

       Defendant’s Motion to Vacate is denied.

       Plaintiffs’ Motion to Reconsider the denial of their motion for default judgment is
denied as moot.

       A hearing will be scheduled to determine attorneys’ fees.

       Dated at Rutland this 30th day of August, 2012.


                                                       ____________________________
                                                       Hon. Mary Miles Teachout
                                                       Superior Judge



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