Painter v. Regions Ins., Inc.

• Decision Date: 08 October 2015
• Docket Number: No. 2014–CA–00883–SCT.,2014–CA–00883–SCT.
• Parties: William L. PAINTER and John A. Chalk, Jr. v. REGIONS INSURANCE, INC., d/b/a Regions Insurance of Mississippi.
• Court: Mississippi Supreme Court

181 So.3d 970

William L. PAINTER and John A. Chalk, Jr.

v.REGIONS INSURANCE, INC., d/b/a Regions Insurance of Mississippi.

No. 2014–CA–00883–SCT.

Supreme Court of Mississippi.

Oct. 8, 2015.

Rehearing Denied Jan. 21, 2016.

Michael B. Wallace, Jackson, Rebecca L. Hawkins, Linda Faye Cooper, Jackson, Douglas L. McCoy, Katie Hammett Hassell, attorney for appellants.

R. David Kaufman, Stephen J. Carmody, Lauren Oaks Lawhorn, Jackson, attorney for appellee.

Before RANDOLPH, P.J., LAMAR and KITCHENS, JJ.

LAMAR, Justice, for The Court:

¶ 1. Regions Insurance sued two former employees for violating their employment agreements. Most of the claims were arbitrated and the arbitrator found in favor of Regions. The employees moved the circuit court to vacate the award, claiming the arbitrator exceeded his authority and engaged in "undue means," "misconduct," or "misbehavior" that prejudiced their rights. The circuit court denied the motion and confirmed the award. The employees appeal. Finding no merit to their claims, we affirm.

FACTS AND PROCEDURAL HISTORY

¶ 2. William Painter and John Chalk both began working for Regions Insurance in 2007. In their employment contracts with Regions, Painter and Chalk agreed that they would not compete with or solicit customers or employees from Regions for two years following the end of their employment. They also agreed not to share any of Regions' confidential information with anyone. In Paragraph 6 of their contracts, they agreed that if they breached the restrictive covenants, they would be liable to Regions for, among other things, liquidated damages equal to twice any commissions they earned servicing former Regions customers for the two-year period following the end of their employment with Regions.

¶ 3. On July 15, 2013, Painter and Chalk both resigned from Regions and immediately began working at Alliant Insurance Service. Regions sued Painter and Chalk three days later in Madison County Circuit Court, claiming that the two had breached their employment agreements and seeking to enjoin them from further breaching those agreements.¹ In the complaint, Regions claimed, among other things, that "Painter and Chalk agreed to a liquidated damages provision" in their respective employment agreements, under which they agreed to pay double the amount of any compensation for which they were "a procuring cause."

¶ 4. After a hearing, the trial court partially granted Regions' request for injunctive relief by prohibiting Painter and Chalk from soliciting, accepting, or servicing customers they had serviced in the prior two years while working for Regions. After a later modification, the injunction did not apply to customers who already had switched from Regions to Alliant. The trial court did not enforce a clause in the agreement which would have prevented Painter and Chalk from selling insurance anywhere in Mississippi or in several other cities where Regions operates.

¶ 5. The parties agreed to submit the remaining claims to binding arbitration, pursuant to a clause in the employment agreement that provided that "[a]ll disputes arising under this Agreement (other than claims in equity) shall be resolved by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association." Painter and Chalk selected William Larry Latham as the arbitrator. The arbitration took place from February 11 to February 14, 2014.

¶ 6. At arbitration, there was no dispute about the underlying facts, that Painter and Chalk had resigned from Regions and had begun working at Alliant. The arbitrator rejected a duress defense mounted by Painter and found that the employment agreements were enforceable and that Painter and Chalk had breached them. Specifically, the arbitrator found that "Painter and Chalk accepted and serviced Regions customers, competed with Regions and, improperly used Regions' proprietary and confidential information, all in violation of their Agreement. It is this breach for which they must answer."

¶ 7. During the arbitration, Regions' counsel asked Painter if he had sought legal advice before signing the employment agreement:

Q. It is true, is it not, that prior to signing your agreements you shared those agreements with your personal lawyer, Mark Herbert?

A. Yes, sir.

Q. And you sought his advice about those agreements. Correct?

A. Yes, sir. I sought everybody's advise [sic] I could find about the agreement.

¶ 8. After the arbitration closed, but before the arbitration award issued, Latham telephoned Mark Herbert. According to Herbert's affidavit, Latham asked how long Herbert had been practicing and whether that practice had involved employment matters, specifically noncompete clauses. Latham next asked about taking judicial notice, as an arbitrator, of Herbert's expertise. Herbert asked Latham if his questions were related to the Regions arbitration and Latham said they were. Then Herbert explained that he had told Painter he could not advise on the employment agreement because he had a conflict with Regions. Herbert told Painter about Latham's phone call. Painter then told his arbitration counsel, who emailed Latham, requesting that he immediately resign as arbitrator without issuing the award. Latham declined and later filed an affidavit explaining the phone call.

¶ 9. The arbitrator issued the award on March 24, 2014. He awarded punitive damages because he found that "Painter and Chalk weighed their options and willfully, with calculated intent, violated their Agreement." He also ordered Painter and Chalk to pay Regions' attorney's fees and arbitration costs.

¶ 10. In addition, the arbitrator awarded damages based on the formula the parties had agreed to in Paragraph 6 of their employment contracts, and he put in place a method whereby Regions could collect from Painter and Chalk. Tracking the language of the contract, the arbitrator ordered that any time Painter or Chalk was "a procuring cause, directly or indirectly, for any commission or other compensation," either to them or a company they work for, they would have to pay Regions "an amount equal to two (2) times such commission or compensation," if the compensation came from any customer Painter or Chalk had serviced during the two-year period before their resignation from Regions.

¶ 11. After Regions moved the trial court to confirm the arbitration award, Painter and Chalk moved to vacate the award based on two arguments. The first was that the Paragraph 6 damages award and the method by which it was to be enforced amounted to specific performance, and such an equitable remedy was outside the scope of arbitration. The second was that Latham's ex parte phone call to Herbert was "undue means" or "misbehavior" within the meaning of Mississippi's arbitration statute. Painter and Chalk also moved the trial court to strike Latham's affidavit, claiming that the arbitration rules disallowed such evidence and that it was incompetent evidence that the trial court could not consider when deciding whether the ex parte phone call warranted vacating the award.

¶ 12. The trial court confirmed the award, denying the motion to vacate and the motion to strike Latham's affidavit. Painter and Chalk appeal, raising two issues:

1. Whether the arbitrator exceeded his powers, within the meaning of Mississippi Code Section 11–15–23(d) (Rev.2004), when he ordered specific performance of a paragraph of an employment agreement even though the arbitration clause of that agreement reserved "claims in equity" for decision by the Court.

2. Whether the arbitrator employed undue means, within the meaning of Mississippi Code Section 11–15–23(c) (Rev.2004), when, after the reception of all evidence and arguments and without notice to the parties, he contacted a potential witness mentioned in the testimony who had previously served as counsel to one of the defendants, thereby depriving defendants of procedural rights guaranteed by their contracts.

STANDARD OF REVIEW

¶ 13. "The level of review afforded to the decision of an arbitrator is quite narrow and provided by statute." Robinson v. Henne, 115 So.3d 797, 799 (Miss.2013). That statute, Mississippi Code Section 11–15–23, provides "the only bases for refusal to enforce an arbitration award...." Wilson v. Greyhound Bus Lines, Inc., 830 So.2d 1151, 1156 (Miss.2002). "Articles of agreement to arbitrate, and awards thereon are to be liberally construed so as to encourage the settlement of disputes and the prevention of litigation, and every reasonable presumption will be indulged in favor of the validity of arbitration proceedings." Hutto v. Jordan, 204 Miss. 30, 36 So.2d 809, 812 (Miss.1948). Furthermore, "[i]f there be any type of arbitration award we should be loathe to disturb, it should be that between private contracting parties respecting a matter of interest only to themselves and their respective pocket books." Craig v. Barber, 524 So.2d 974, 977 (Miss.1988). As for the trial court's conclusions of law, we review those de novo. Smith v. Express Check Advance of Mississippi, LLC, 153 So.3d 601, 606 (Miss.2014) (citing Virginia Coll., LLC v. Blackmon, 109 So.3d 1050, 1053 (Miss.2013) ).

ANALYSIS

¶ 14. Painter and Chalk frame the arbitrator's damages award and phone call as violations of our arbitration statute, which provides the following as the only grounds for vacating an arbitrator's award:

(a) That such award was procured by corruption, fraud, or undue means;

(b) That there was evident partiality or corruption on the part of the arbitrators, or any one of them;

(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent or material to the controversy, or other misbehavior by which the rights of the party shall have been prejudiced;

(d) That the arbitrators exceeded their powers, or that they so imperfectly executed them that a mutual, final, and definite award on the subject matter was not made.

Miss.Code Ann. §...