Davis v. Chevy Chase Financial Ltd., 80-1297

• Decision Date: 15 October 1981
• Docket Number: No. 80-1297,80-1297
• Citation: 667 F.2d 160,215 U.S. App. D.C. 117
• Parties: Winthrop F. DAVIS, Appellant, v. CHEVY CHASE FINANCIAL LIMITED and B. Francis Saul.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 160

667 F.2d 160

215 U.S.App.D.C. 117

Winthrop F. DAVIS, Appellant, v. CHEVY CHASE FINANCIAL LIMITED and B. Francis Saul.

No. 80-1297.

United States Court of Appeals District of Columbia Circuit.

Argued April 10, 1981.

Decided Oct. 15, 1981.

Robert H. Hishon, Atlanta, Ga., for appellant.

Leslie A. Nicholson, Jr., Washington, D.C., with whom Robert B. Robbins, Washington, D.C., was on the brief, for appellees.

Before McGOWAN, Senior Circuit Judge, and TAMM and WALD, Circuit Judges.

Opinion for the court filed by Circuit Judge TAMM.

TAMM, Circuit Judge:

In this case appellant Winthrop F. Davis challenges the district court's grant of summary judgment on both counts of a complaint filed against his former corporate employer and one of its officers. At stake in the litigation is the right of ownership of 4,960 shares of stock in appellee Chevy Chase Financial Limited (CCFL or Company) purchased by Davis during his tenure as an employee. An arbitrator construing the written agreement governing the stock transaction ruled that Davis was contractually obliged to tender the shares to CCFL upon termination of his employment. Following the adverse ruling, Davis filed this suit seeking vacatur of the arbitration award and equitable relief under provisions of the federal arbitration and securities laws. The district court granted summary judgment for appellees on both counts of Davis' complaint and upheld the arbitration award, prompting this appeal. Although mindful of the deference properly accorded arbitration decisions, we find that the arbitrator exceeded his authority and therefore vacate much of his ruling. We also conclude that the entry of summary judgment against appellant was erroneous and accordingly reverse and remand for appropriate proceedings.

I. BACKGROUND

In August of 1973 appellant Davis began his employment with CCFL, a Bermuda corporation with its principal office in this country. At the commencement of his employment, Davis and CCFL executed a Stock Purchase Agreement ("Agreement") under which Davis became the owner of 4,960 shares of stock in the Company. The Agreement contained provisions restricting Davis' right to alienate his minority interest in CCFL and obligating the Company to purchase the shares if Davis wished to dispose of them. The regime governing the subsequent transfer of the shares distinguished between dispositions taking place during the first five years of Davis' employment and those taking place after five years of his service to CCFL had elapsed.

On January 12, 1979, slightly more than five years after joining the Company, Davis left its employ. Purporting to rely on the terms of the Agreement, CCFL demanded that Davis tender his shares back to the Company. When Davis refused, CCFL invoked the Agreement's arbitration clause and submitted the dispute to an arbitrator. Although Davis denied that the matter was one subject to arbitration and accordingly protested the submission, he participated fully in the ensuing proceeding. Upon briefing and oral argument, the arbitrator rejected the contention that Davis was under no contractual obligation to resell the shares to CCFL and ordered their conveyance for $31,793.60, or $6.41 per share.

Following the arbitrator's decision, Davis commenced this litigation by filing a two-count complaint in the United States District Court for the District of Columbia. In Count I Davis sought vacatur or modification of the arbitration award under the relevant provisions of the United States Arbitration Act, 9 U.S.C. §§ 10(d), 11(b) (1976). ¹ He alleged that the arbitrator had jurisdiction to determine only the value of shares that Davis voluntarily wished to alienate, and thereby exceeded his authority in ruling that Davis was obliged to offer the shares to CCFL. In his alternative Count II, Davis charged that appellees CCFL and B. Francis Saul, II, one of its officers, ² violated the antifraud provisions of the federal securities laws, 15 U.S.C. § 78j (1976), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5 (1981), in connection with the initial sale of the CCFL stock. The gravamen of this count is that the appellees, in demanding that Davis transfer the CCFL shares, attempted to enforce the Agreement in a manner contrary to oral representations made contemporaneously with its execution. Davis alleged that CCFL officials had stated when he signed the Agreement that if he remained in the employ of the Company for five years, he could retain ownership of the shares indefinitely, regardless of his subsequent employment status. Davis sought declaratory and injunctive relief that would permit him to remain the owner of the stock.

Prior to trial appellees filed for summary judgment on both counts, and Davis offered a cross-motion for summary judgment on the first count. In a brief memorandum order the district court granted appellees' motion on both claims. Davis v. Chevy Chase Financial Ltd., No. 79-3244 (D.D.C. Feb. 15, 1980), Memorandum Order (M.O.); Joint Appendix (J.A.) at 127-29. The trial judge concluded that the arbitrator was empowered under the Agreement to determine whether Davis was contractually obliged to tender the shares to CCFL. M.O. at 2; J.A. at 128. As an independent, alternative ground for summary judgment on Count I, the district court examined the Agreement and found that it unambiguously bound Davis to offer the CCFL shares to the Company at the time his employment was terminated. Davis' termination was, the court found, an "Event of Sale" ³ under the Agreement that imposed an unconditional obligation to tender the shares to CCFL, and not a mere right of first refusal in the Company as Davis had claimed. Id. As for Count II, the district judge concluded that, as "no evidence before the Court (indicates) that the Securities Act or SEC Rules were violated," summary judgment in favor of appellees was appropriate. ⁴ Id. This appeal ensued.

II. DISCUSSION

Davis raises three issues in this appeal. First, he renews his objection to the arbitration award, arguing that the arbitrator exceeded his authority in ruling on Davis' obligations under the Agreement. Second, he challenges the district court's independent construction of the Agreement. Finally, he contends that summary judgment on the federal securities claims was inappropriate, as there existed a genuine issue of material fact regarding the alleged oral misrepresentations.

A. The Arbitrator's Authority.

Federal courts are empowered under section 10 ⁵ of the United States Arbitration Act to vacate arbitration awards if any of several specified conditions are met. The only condition relevant in the current context is contained in section 10(d) of the Act, which provides in pertinent part that an award may be vacated where the arbitrator "exceeded (his) powers." ⁶ Appellant contends that the Agreement unambiguously limited the authority of the arbitrator to the determination of a single issue, the fair market value of any CCFL shares of which Davis wished to dispose. Davis argues that, as he had no desire at any time to alienate any of the CCFL shares and was not under any obligation to sell them, no dispute subject to arbitration under the Agreement existed. In appellant's view, therefore, the entire award must be treated as a nullity. ⁷

Before turning to the details of these contentions, we note at the outset the limited review function properly performed by a federal court in scrutinizing an arbitration award. There is a strong federal policy that favors the submission of civil disputes to arbitration as an alternative to the "complications of litigation." Wilko v. Swan, 346 U.S. 427, 431, 74 S.Ct. 182, 184, 98 L.Ed. 168 (1953); Scherk v. Alberto-Culver Co., 417 U.S. 506, 511, 94 S.Ct. 2449, 2453, 41 L.Ed.2d 270 (1974). Where parties have selected arbitration as a means of dispute resolution, they presumably have done so in recognition of the speed and inexpensiveness of the arbitral process; federal courts ill serve these aims and that of the facilitation of commercial intercourse by engaging in any more rigorous review than is necessary to ensure compliance with statutory standards. It is particularly necessary to accord the "narrowest of readings" to the excess-of-authority provision of section 10(d). Andros Compania Maritima v. Marc Rich & Co., 579 F.2d 691, 703 (2d Cir. 1978). That provision does not, it must be stressed, confer on courts a general equitable power to substitute a judicial resolution of a dispute for an arbitral one; rather, where the interpretation of a contract is at issue, "(i) t is the arbitrator's construction which was bargained for," and not that of the courts. United Steelworkers of America v. Enterprise Wheel & Car Corp., 363 U.S. 593, 599, 80 S.Ct. 1358, 1362, 4 L.Ed.2d 1424 (1960).

Arbitration is, however, a matter of contract, and the contours of the arbitrator's authority in a given case are determined by reference to the arbitral agreement. Parties to such an agreement cannot be required to submit to arbitration any matter that they did not agree would be subject to that manner of dispute resolution. United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 1352, 4 L.Ed.2d 1409 (1960). A party who consents to the inclusion in a contract of a limited arbitration clause does not thereby waive his right to a judicial hearing on the merits of a dispute not encompassed within the ambit of the clause. In sum, the genesis of arbitral authority is the contract, and arbitrators are permitted to decide only those issues that lie within the contractual mandate. By necessary implication, an arbitral award regarding a matter not within the scope of the governing arbitration clause is one made in excess of authority, and a court is precluded from giving effect to such an award. Enterprise Wheel, 363 U.S. at 597, 80 S.Ct. at 1361; J. P. Greathouse Steel Erectors, Inc. v. Blount...