Shah v. Devasthali, 34,096.

• Docket Nº: No. S-1-SC-35869.
• Citation: 371 P.3d 1080
• Case Date: March 30, 2016
• Court: Court of Appeals of New Mexico

371 P.3d 1080

Biren SHAH, M.D., Plaintiff–Appellant,
v.
Ramakrishna DEVASTHALI, M.D., Puneet Ghei, M.D., Las Cruces Imaging, LLC, Las Cruces Radiology Associates, Inc., and Dags Enterprises, LLC, Defendants–Appellees.

No. 34,096.
No. S-1-SC-35869.

Court of Appeals of New Mexico.

March 30, 2016.
Certiorari Denied, May 19, 2016

371 P.3d 1082

Business Law Southwest LLC, Donald F. Kochersberger III, Alicia M. LaPado, Albuquerque, NM, for Appellant.

Kemp Smith LLP, CaraLyn Banks, Ken Slavin, Las Cruces, NM, for Appellees.

OPINION

BUSTAMANTE, Judge.

{1} After an arbitrator awarded Appellant Dr. Biren Shah $1,465,876, Defendants moved for—and were granted—a modification of the award. The district court reduced the award to $150,000. Discerning no basis for the reduction, we reverse the district court's modification and remand for confirmation of the arbitration award.

BACKGROUND

{2} Appellant Dr. Biren Shah (Shah) and Defendants Dr. Ramakrishna Devasthali and Dr. Puneet Ghei are radiologists. In or around 2004, Shah joined the other doctors¹ as an employee, director, and stockholder of Las Cruces Radiology Associates, Inc. (LCRA). LCRA was governed by its bylaws (the Bylaws). Together, Shah, Devasthali, Ghei, and Alvi also formed two limited liability companies, Las Cruces Imaging, LLC (LC Imaging) and DAGS, LLC (DAGS). LC Imaging leased the radiology equipment used by the radiologists and DAGS owned the property in which they operated. LC Imaging and DAGS were governed by separate operating agreements (the Operating Agreements).

{3} In 2010 Shah's employment with LCRA was “terminated for cause,” which resulted in termination of his stockholder status with LCRA and expulsion as a member from LC Imaging and DAGS. In early 2011 Shah filed a complaint in district court against Defendants for breach of contract, wrongful termination, breach of the duty of good faith and fair dealing, equitable estoppel, and unjust enrichment. He also requested an accounting, dissolution, and declaratory judgment. Defendants filed a motion to dismiss and to compel arbitration pursuant to an arbitration provision included in the Operating Agreements. After a hearing, the district court entered sixty-seven findings of fact and granted the motion to compel arbitration. The findings of fact are discussed in more detail as part of our analysis of the parties' arguments. We refer to this order as the Arbitration Order.

{4} A five-day arbitration took place before an arbitrator appointed by the American Arbitration Association. Without articulating the basis for his decision, the arbitrator ordered Defendants to pay Shah $1,465,876. After Shah moved to confirm the arbitration award, Defendants filed a motion to modify or correct the arbitration award. The district court granted Defendants' motion to modify the arbitration award on the ground that the arbitrator had exceeded his authority because the award was inconsistent with the parties' agreements. We call this order the Modification Order. In the Modification Order, the district court reduced the amount

371 P.3d 1083

of the award from $1,465,876 to $150,000. Shah appeals the Modification Order.

DISCUSSION

{5} The question on appeal is whether the district court was correct in its conclusion that “[t]he [a]rbitrator exceeded the scope of his authority when he awarded an amount beyond what was required under the contracts.” We conclude that the district court erred in its interpretation of the Bylaws, in its factual findings, and by reconsidering its original findings after arbitration was complete.

{6} We begin by setting out the standard of review of the district court's modification of an arbitration award. Next, we discuss the relevant provisions of the agreements between the parties. Finally, we assess the district court's Modification Order.

Standard of Review

{7} Arbitration provisions permit parties to “submit their disputes to an impartial private tribunal for a final and binding decision based upon the parties' presentation of arguments and evidence. This process allows for the informal, speedy, and inexpensive final disposition of disputes, and also aids in relieving the judiciary's heavily burdened caseload[.]” Fernandez v. Farmers Ins. Co. of Ariz., 1993–NMSC–035, ¶ 8, 115 N.M. 622, 857 P.2d 22 (citations omitted). The modification of arbitration awards by district courts is governed by Section 44–7A–25 of the Uniform Arbitration Act. NMSA 1978, §§ 44–7A–1 to –32 (2001). Section 44–7A–25 provides that

the court shall modify or correct the award if: (1) there was an evident mathematical miscalculation or an evident mistake in the description of a person, thing or property referred to in the award; (2) the arbitrator has made an award on a claim not submitted to the arbitrator and the award may be corrected without affecting the merits of the decision upon the claims submitted; or (3) the award is imperfect in a matter of form not affecting the merits of the decision on the claims submitted.

{8} This provision sharply limits the district court's discretion to modify an arbitration award. Our Supreme Court has observed that “[t]he [Uniform] Arbitration Act neither empowers the district court to review an arbitration award on the merits of the controversy, nor grants the district court the authority to review an award for errors of law or fact.” In re Arbitration Between Town of Silver City & Silver City Police Officers Ass'n (Silver City ), 1993–NMSC–037, ¶ 7, 115 N.M. 628, 857 P.2d 28 ; see Foster v. Turley, 808 F.2d 38, 42 (10th Cir.1986) (“Because a primary purpose behind arbitration agreements is to avoid the expense and delay of court proceedings, it is well settled that judicial review of an arbitration award is very narrowly limited [.]” (citation omitted)).

{9} In addition, the purposes of the Uniform Arbitration Act depend on finality in arbitration awards. Consequently, “[o]nce an arbitration award is entered, the finality that courts should afford the arbitration process weighs heavily in favor of the award.” State ex rel. Hooten Constr. Co. v. Borsberry Constr. Co., 1989–NMSC–007, ¶ 4, 108 N.M. 192, 769 P.2d 726. In the interest of finality, district courts should “exercis[e] great caution when asked to set aside an arbitration award, which is the product of the theoretically informal, speedy and inexpensive process of arbitration, freely chosen by the parties.” Id. Consistent with these principles, “[i]t is not the function of the court to hear the case de novo and consider the evidence presented to the arbitrators, but rather to conduct an evidentiary hearing and enter findings of fact and conclusions of law upon each issue raised in the application to vacate or modify the award.” Melton v. Lyon, 1989–NMSC–027, ¶ 7, 108 N.M. 420, 773 P.2d 732 ; cf. Silver City, 1993–NMSC–037, ¶ 7, 115 N.M. 628, 857 P.2d 28 (“De novo review of the merits of arbitration awards by the district court would only serve to frustrate the purpose of arbitration, which seeks to further judicial economy by providing a quick, informal, and less costly alternative to judicial resolution of disputes.”).

{10} In the context of appeals from orders modifying arbitration awards, our primary task is to determine de novo whether the district court adhered to the structure

371 P.3d 1084

described above. In addition, on appeal, this Court “determine[s] whether substantial evidence in the record supports the district court's findings of fact, and whether the court correctly applied the law to the facts when making its conclusions of law[.]” Silver City, 1993–NMSC–037, ¶ 8, 115 N.M. 628, 857 P.2d 28 (citation omitted). To the extent the latter question depends on interpretation of a contract, we review the contract terms de novo. Nearburg v. Yates Petroleum Corp., 1997–NMCA–069, ¶ 8, 123 N.M. 526, 943 P.2d 560 (“Since resolution of the issue on appeal depends upon interpretation of documentary evidence, we are in as good a position as the district court to interpret the operating agreement.”). “The contract will be considered and construed as a whole, with meaning and significance given to each part in its proper context, so as to ascertain the parties' intentions.” Segura v. Kaiser Steel Corp., 1984–NMCA–046, ¶ 12, 102 N.M. 535, 697 P.2d 954.

{11} In this case, the parties did not provide any testimony or other evidence concerning their individual understanding of the agreements or the course of negotiation, if any, leading to the operative versions of the agreements. Nor do the parties argue that the agreements are ambiguous. Given that the parties have not provided any evidence outside the documents themselves, our task is limited to construing the documents on their face. Cf. C.R. Anthony Co. v. Loretto Mall Partners, 1991–NMSC–070, ¶ 15, 112 N.M. 504, 817 P.2d 238 (holding that the court may consider collateral evidence of the circumstances surrounding the execution of agreements in determining whether the language of the agreement is unclear).

The Bylaws and Operating Agreements

{12} We turn next to the operative provisions...