American Laser Vision v. Laser Vision Institute

• Citation: 487 F.3d 255
• Decision Date: 16 May 2007
• Docket Number: No. 06-10260.,06-10260.
• Parties: AMERICAN LASER VISION, P.A., Plaintiff-Counter Defendant-Appellee, v. THE LASER VISION INSTITUTE, L.L.C. a/k/a The Lasik Vision Institute, Defendant-Counter Claimant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

487 F.3d 255

AMERICAN LASER VISION, P.A., Plaintiff-Counter Defendant-Appellee, v. THE LASER VISION INSTITUTE, L.L.C. a/k/a The Lasik Vision Institute, Defendant-Counter Claimant-Appellant.

No. 06-10260.

United States Court of Appeals, Fifth Circuit.

May 16, 2007.

Randy J. McClanahan, Scott M. Clearman, Robert Espey (argued), Brian Dean

Walsh, McClanahan & Clearman, Houston, TX, for American Laser Vision.

David John Schenck (argued), David Lawrence Horan, Jones Day, Dallas, TX, Lisa D. MacClugage, Paul O. Lopez, Tripp Scott, Ft. Lauderdale, FL, for Laser Vision Institute.

Appeals from the United States District Court for the Northern District of Texas.

Before JONES, Chief Judge, and HIGGINBOTHAM and CLEMENT, Circuit Judges.

PER CURIAM:

An ophthalmology company, once consisting of two doctors but eventually only one, arbitrated a complaint against a service company which helped run its clinics. The arbitrator awarded damages to the ophthalmology company, and the district court affirmed the award. Mindful of the uncertainty of the legal relationships in this case and the wide latitude given to arbitrators, we decline to vacate the award and affirm.

I

In 2000, ophthalmologists Lewis Frazee and Robert Selkin formed American Laser Vision, which opened laser vision correction centers in Texas and Oklahoma. Frazee and Selkin were each fifty-percent shareholders of ALV, with Selkin serving as President and primary administrator.

In early 2002, ALV signed a series of contracts with The Laser Vision Institute. Under those contracts, LVI would operate the eye centers by providing management, non-medical staff, and equipment, and ALV would provide the surgeons—Drs. Frazee and Selkin. According to the agreements, LVI was to pay ALV a fee for each surgery performed. In practice, however, LVI paid Frazee and Selkin individually for the surgeries each doctor performed. ALV and LVI also agreed to share equally the profits from the sale of ocular tear plugs¹ at the centers, regardless of which surgeon installed the plugs. The contracts specifically prohibited LVI from interfering with the surgeons' professional judgment and care of patients. ALV and LVI also entered into subleases whereby LVI would pay rent to ALV for the offices, make equipment payments to vendors, and fulfill other obligations relating to the subleased office space. The agreements required ALV to provide notice of any complaints about LVI's performance and provide LVI a chance to cure. Finally, the agreements provided that any disputes would be settled by arbitration.

Drs. Frazee and Selkin performed surgeries from February through May. In June, Selkin stopped performing surgeries at the LVI centers. In a series of letters to LVI, Selkin claimed that he left because LVI staff were interfering with the treatment of patients and his professional judgment by: giving patients instructions that conflicted with his orders; using an improper solution to clean surgical supplies; changing post-operative prescriptions without his knowledge; instructing employees not to perform maintenance duties that Selkin requested; switching patients to Frazee if Selkin felt they were bad candidates for surgery; and misrepresenting to patients the risks and benefits of surgery. In letters to LVI, Selkin wrote that he would like to return to work at the LVI centers if his concerns were addressed, but he never met with LVI or discussed how LVI might address his complaints. Meanwhile, Selkin worked at similar centers in North Carolina and Tennessee earning substantial fees. Selkin eventually complained that, following his withdrawal, LVI also failed to remit some professional and ocular plug revenues, improperly removed and damaged ALV equipment, and failed to pay vendors, in violation of the subleases.

ALV did not hire a replacement for Selkin, although the contract called for both Selkin and Frazee to work a certain number of hours each week. Frazee and LVI reached an agreement and Frazee continued to perform surgeries at the LVI centers.

In December 2002, ALV and LVI terminated their agreements, and Frazee contracted directly with LVI to continue working at the centers. Selkin then bought out Frazee's interest in ALV and pursued a breach of contract claim by ALV against LVI, seeking an arbitral award of $4,031,241.55 for damages from 2002-2005. ALV sought $3,524,966.67 for lost surgery and tear plug revenue due to Selkin's departure, $34,226.84 for surgeries allegedly performed but not yet paid, and less than $500,000 for the sublease and equipment claims.

The arbitrator stated that although the contract was between LVI and ALV, he would treat the contract as if it were between LVI and Selkin because LVI paid Selkin and Frazee directly. He also "sustained" LVI's objection to Selkin's figures for fees for 2004-2005, agreeing that they were unduly speculative. After a three-day hearing, the arbitrator issued an award concluding that LVI breached the professional service and sublease agreements and awarding ALV $1,842,220.39 in damages, plus interest, attorneys' fees, and costs. Although the parties had agreed that the arbitrator need not file findings or otherwise explain his decision, LVI asked the arbitrator to explain the award. The arbitrator declined, and the parties turned to the district court, which granted ALV's motion for judgment and denied LVI's request to vacate the award.

II

This court reviews a district court's confirmation of an arbitration award de novo, using the same standards as the district court.² Judicial review of an arbitration award is "exceedingly deferential."³ Vacatur is available "only on very narrow grounds,"⁴ and federal courts must "defer to the arbitrator's decision when possible."⁵ An award must be upheld as long as it "is rationally inferable from the letter or purpose of the underlying agreement."⁶ Even "the failure of an arbitrator to correctly apply the law is not a basis for setting aside an arbitrator's award."⁷ "It is only when the arbitrator strays from interpretation and application of the agreement and effectively `dispense[s] his own brand of industrial justice' that his decision may be unenforceable."⁸ Moreover, "the arbitrator's selection of a particular remedy is given even more deference than his reading of the underlying contract," and "the remedy lies beyond the arbitrator's jurisdiction only if there is no rational way to explain the remedy ... as a logical means of furthering the aims of the contract."⁹

LVI attacks the arbitration award on two grounds: that the arbitrator manifestly disregarded the law and that the award does not draw its essence from the contracts. Vacatur based on an arbitrator's manifest disregard of the law is a judicially created ground of relief.¹⁰ It is extremely narrow, insisting on "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."¹¹ The arbitrator must "appreciate[] the existence of a clearly governing principle but decide[ ] to ignore or pay no attention to it."¹² Moreover, once a manifest disregard is established, the court also "must find that the award resulted in a `significant injustice'" in order to grant relief.¹³

That the award does not draw its essence from the contract is a statutory ground for vacatur, derived from 9 U.S.C. § 10(a)(4), which permits vacatur when the arbitrator exceeds his powers.¹⁴ The test is "whether the award, however arrived at, is rationally inferable from the contract."¹⁵ "`[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.'"¹⁶

LVI argues both grounds. We give the award great deference, looking to both whether the arbitrator "manifestly disregarded the law" and whether the award drew its essence from the contract.

III

LVI argues first that the arbitrator disregarded the plain meaning of the contracts by construing them as between Selkin and LVI, not ALV and LVI, and considering the losses of Selkin personally, not those of ALV. We are not persuaded. The...