Prostyakov v. Masco Corp.

• Decision Date: 22 January 2008
• Docket Number: No. 06-3928.,06-3928.
• Parties: Peter A. PROSTYAKOV, Plaintiff-Appellee, v. MASCO CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

513 F.3d 716

Peter A. PROSTYAKOV, Plaintiff-Appellee, v. MASCO CORPORATION, Defendant-Appellant.

No. 06-3928.

United States Court of Appeals, Seventh Circuit.

Argued September 25, 2007.

Decided January 22, 2008.

Stephen E. Plopper (argued), Plopper Associates, Indianapolis, IN, for Plaintiff-Appellee.

Michael A. Wukmer (argued), Ice Miller, Indianapolis, IN, for Defendant-Appellant.

Before EASTERBROOK, Chief Judge, and BAUER and KANNE, Circuit Judges.

KANNE, Circuit Judge.

The district court granted Peter Prostyakov's petition to confirm his arbitral award against Masco Corporation and, in so doing, denied Masco's application to vacate the award on the ground that the arbitrator exceeded his authority when fashioning it. See 9 U.S.C. § 10(a)(4). Masco appeals, arguing that the district court erred by confirming the award. Prostyakov, in turn, asserts that Masco's appeal is frivolous, and asks us to sanction Masco by ordering it to pay for his attorneys' fees and costs. We affirm the district court's judgment, but deny Prostyakov's motion.

I. HISTORY

The origins of this arbitration action can be traced back sixteen years to the dissolution of the Soviet Union. Shortly after the Soviet Empire fell in late 1991, the State of Indiana and the Moscow Oblast province co-founded a trade consortium that coordinated American businesses' efforts to establish a market presence in the newly capitalistic Russian economy. Masco, a Michigan-based corporation that specializes in building, plumbing, and cabinetry products, joined the consortium in 1992 with the aspiration of developing a sales and distribution network throughout the nascent Russian Federation. One of the men that Masco hired to achieve this goal was Prostyakov, who, all parties agree, played a central role in developing the company's Russian presence. In December 1995, Masco rewarded Prostyakov for his efforts by appointing him Managing Director and Agent of its Moscow-based office.

For a while Masco and Prostyakov's business relationship went swimmingly, but then things quickly went south. As often is the case in these situations, both Masco and Prostyakov blamed each other for their deteriorating relationship. The parties' respective accusations are not important for the purpose of this appeal, but what is important is that on April 9, 1996, Masco President and CEO Richard Manoogian issued a company directive addressed to "the appropriate officials of the Russian Republic," stating that Prostyakov was "removed" from his position with Masco. Although Prostyakov never received the Manoogian-authored directive—or any other written confirmation of his "removal" from his position with Masco—he and Masco began to negotiate the end of their business relationship; these negotiations culminated with the parties entering into a Settlement Agreement on June 18, 1996. As relevant here, Masco and Prostyakov mutually agreed to release all claims that either party could bring against the other based on acts that occurred before the Agreement took effect. Masco and Prostyakov further agreed that: (1) Indiana law would govern the interpretation of the Agreement; (2) any future disputes between them would be settled by "private" arbitration; (3) the rules of the American Arbitration Association (AAA) would apply and govern the conduct of the arbitration; and (4) neither party would seek to enforce the Agreement through legal action.

Moreover, the parties agreed that the end of their business relationship was "amicable," and would be communicated to interested third parties as such. As part of the "amicable" separation, Masco agreed to announce publicly that it and Prostyakov had been "working for the past couple of months to disengage from their previous business relationship" because Prostyakov "decided to seek other business opportunities for himself"; that disengagement, the announcement stated, "was finally accomplished on June 18, 1996." Masco and Prostyakov then went their own ways.

His separation from Masco complete, Prostyakov sought an executive position with the Federal Industrial Bank in Moscow. Prostyakov's overtures were successful, and he entered into an employment contract to join the bank as Deputy Chairman of the Board of Directors on July 31, 1996. Prostyakov was required under the contract to submit by his start date all documents necessary to formalize his employment under the Russian labor code, including his Labor Book. As we will see, Prostyakov encountered some problems with his Labor Book that are central to this appeal. But before we recount those problems we must first explain the Russian Labor Book.

For those not familiar with Russian labor law, the Labor Book is a creation of the Soviet-era labor code that survived the collapse of the Soviet Union. See W.E. Butler, Soviet Law 230 (2d ed.1988); Amy J. Bliss, Comment, Proletariat to Perestroika: A Comparison of Labor Law in the Soviet Union and the Russian Federation, 18 Comp. Lab. L. 264, 297-98, 301-06 (1997); John Knab, Complying with Russia's Labor Code, Bus. Info. Service for Newly Indep. States (Dec. 1997/Jan.1998), http://perrnanent.access.gpo.gov/lps1733/9801code.htm. The Labor Book's purpose, though arguably antiquated, is quite simple: it is a Russian citizen's record of his employment history. See Butler, supra, at 230; Bliss, supra, at 305; Knab, supra. Every Russian citizen entering the workforce is issued a Labor Book, which the citizen must submit to his employer once his employment begins. See Butler, supra, at 230; Bliss, supra, at 305-06; Knab, supra. The employer retains the Labor Book throughout the period of employment and records in it the employee's work experience. See Butler, supra, at 230; Knab, supra. If the employee is dismissed, the employer must, at the time of dismissal, record in the Labor Book the specific reason for dismissal by citing the provision of the labor code under which the dismissal was carried out; if the employment relationship was terminated by mutual agreement, the employer likewise must state so. See Butler, supra, at 230; Knab, supra. The employer must then immediately return the Labor Book to the employee. Butler, supra, at 230; Knab, supra.

Prostyakov submitted his Labor Book to Masco when the company hired him, and Masco retained the Labor Book throughout the period of his employment. But Masco did not immediately return Prostyakov's Labor Book to him once his employment ended. In fact, after the parties entered into the Settlement Agreement on June 18, 1996, Masco ignored Prostyakov's repeated requests for his Labor Book. Masco's stonewalling, in turn, made it impossible for Prostyakov to submit his Labor Book to the Federal Industrial Bank by his first day, which forced him to renegotiate his start date so he could have additional time to recover the Labor Book.

Prostyakov finally recovered his Labor Book in late August 1996; it was then that he saw, for the first time, Masco's entry regarding his employment history with the company. Simply put, Masco wrote that on April 12, 1996, Prostyakov was fired, or, as the entry put it exactly, "[d]ismissed by the decree of the Directors' Council of Masco Corporation USA from Moscow Representation of Masco Corporation USA." Although Prostyakov knew the entry was incorrect, he immediately delivered the Labor Book to the Federal Industrial Bank to fulfill his obligation under the employment contract The next day, though, the bank returned Prostyakov's Labor Book to him along with a letter terminating their employment contract; in the letter the bank stated that it could not "hire a new employee for a supervisory position if this potential employee had been fired by a corporate management from the place of his latest employment because of unclear reasons."

Shortly after the Federal Industrial Bank cancelled the employment contract, Prostyakov's former co-worker at Masco, Inna Kalinina, informed him that Masco's Labor Book entry had been intentionally falsified. Specifically, Kalinina stated that, immediately before Masco was to return the Labor Book to Prostyakov in August 1996, Prostyakov's successor at the company ordered her to backdate an entry stating that Prostyakov had been fired on April 12, 1996, contradicting the Settlement Agreement's provision that Prostyakov left under "amicable" circumstances. Prostyakov accordingly asked Masco to correct the Labor Book entry, but when his requests fell on deaf ears he asked Masco to resolve the dispute through arbitration. Masco, however, simply ignored Prostyakov's arbitration requests, a fact that Masco's general counsel would later readily admit.¹

Seeing no other course of redress, Prostyakov turned to the Russian judicial system in January 1997. He filed a complaint in the Noginsk City Court, alleging that Masco violated the Russian labor code with its backdated and falsified Labor Book entry. After years of navigating the Russian legal system, Prostyakov finally obtained a default judgment against Masco in March 2002, declaring that Masco did, indeed, violate the labor code with its Labor Book entry.

Armed with the Russian court judgment, in February 2003 Prostyakov filed with the AAA a demand for arbitration. Prostyakov claimed that Masco breached the Settlement Agreement by authoring the "fraudulent" Labor Book entry. He therefore requested an award of both monetary damages stemming from the loss of his employment with the Federal Industrial Bank, and equitable relief in the form of an Executive Order from Manoogian, correcting the Labor Book entry.

Masco responded to Prostyakov's demand for arbitration by arguing that the AAA lacked "jurisdiction" over the dispute—which, in this context, meant that the parties did not agree to have the AAA arbitrate the claims. Instead, Masco asserted, the Settlement Agreement stipulated only that arbitration would be "conducted privately," meaning without AAA assistance. Masco's objections to...