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Williams Fund Private Equity Group, Inc. v. Engel

November 8, 2007

WILLIAMS FUND PRIVATE EQUITY GROUP, INC., PETITIONER,
v.
DAVID ENGEL, RESPONDENT.



The opinion of the court was delivered by: Henry H. Kennedy, Jr. United States District Judge

MEMORANDUM OPINION

Williams Fund Private Equity Group ("Williams Fund") petitions to vacate an arbitration award to David Engel ("Engel"). Engel cross-petitions to confirm the award. Having considered the submissions of the parties, the court concludes that Williams Fund's petition must be denied and that the arbitration award must be confirmed.

I. BACKGROUND

This action arises out of a dispute regarding a stock purchase. In September 2005, Williams Fund and Engel entered into a stock purchase agreement ("stock agreement") whereby Williams Fund purchased Engel's stock in the Engel Corporation ("the Corporation"). Williams Fund and Engel also executed a security agreement whereby Williams Fund pledged the Corporation's assets and stock as collateral for the purchase. Engel claims that Williams Fund later defaulted under the stock agreement, and Engel scheduled a foreclosure sale on the Corporation's assets and stock.

Immediately before the scheduled sale, Williams Fund filed an arbitration demand. Williams Fund claimed that Engel breached the stock and security agreements by, inter alia, improperly seizing the stock and attempting to foreclose on the Corporation's stock and assets. Engel counterclaimed that Williams Fund fraudulently induced him to enter into the stock agreement. Engel sought damages and rescission of the stock agreement.

After a two-day hearing, the arbitrator rejected Williams Fund's claims. He found that the stock agreement was void under Virginia law and that Engel was entitled to rescission. He awarded $204,758.42 to Engel and did not award any damages to Williams Fund.

II. ANALYSIS

Courts have long recognized that judicial review of an arbitration award is extremely limited. United Paperworkers Int'l. Union v. Misco, Inc., 484 U.S. 29, 37-38 (1987); Kanuth v. Prescott, Ball & Turben, Inc., 949 F.2d 1175, 1178 (D.C. Cir. 1991). A court may vacate an arbitration award only if there is a showing that the arbitrator acted in manifest disregard of the law or if one of the limited circumstances enumerated in the Federal Arbitration Act ("FAA") is present.*fn1 LaPrade v. Kidder, Peabody & Co., 246 F.3d 702, 706 (D.C. Cir. 2001). A party seeking to vacate an arbitration award bears a "heavy burden" of showing that vacatur is appropriate. Al-Harbi v. Citibank, N.A., 85 F.3d 680, 683 (D.C. Cir. 1996).

Williams Fund seeks to vacate the arbitration award on the grounds that the arbitrator manifestly disregarded the law and was biased in favor of Engel. Each ground that Williams Fund asserts in support of its position that the arbitration award should be vacated shall be addressed in turn.

A. Manifest Disregard of the Law

Williams Fund argues that the arbitrator manifestly disregarded the law because while he determined that rescission of the stock agreement was an appropriate remedy, he did not, as Virginia law requires, restore the parties to the position each held just prior to their agreement.*fn2

In order to accomplish such a restoration, Williams Fund argues, the arbitrator was required to order the return of the amount it paid, $263,544.12, for the stock. Instead, the arbitrator only awarded damages to Engel. Williams Fund's argument is without merit.

"Manifest disregard" means "more than error or misunderstanding with respect to the law." LaPrade, 246 F.3d at 706. A party seeking to have an arbitration award vacated on the ground that an arbitrator acted in "manifest disregard of the law" must establish that (1) the arbitrator knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrator was well defined, explicit, and clearly applicable to the case. Id. (citation source omitted).

Williams Fund offers nothing in support of its assertion that the arbitrator disregarded a principle of law pertinent to Virginia's rescission law. At most, rather than disregard the law regarding rescission, the arbitrator erred in his application of the law. An arbitrator's error in the application of a legal principle, however, is not the same as an arbitrator's disregard of a legal principle. Williams Fund's speculation that the arbitrator must have disregarded Virginia's rescission law because he failed to award Williams Fund any damages is simply insufficient to show manifest disregard. See The Matter of Baird and Anthony, 939 F.Supp. 15, 17 (D.D.C. 1996)(an assertion that the arbitrator was "so far off the mark that he must have acted in manifest disregard of the law" does not suffice). In order to obtain a vacatur of an arbitration award on the ground of "manifest disregard," a party must make a specific showing that an arbitrator knowingly disregarded the applicable law. See Alston v. UBS Financial ...


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