St. John's Mercy Medical Center v. Delfino

• Decision Date: 12 July 2005
• Docket Number: No. 04-1672.,No. 04-1745.,04-1672.,04-1745.
• Citation: 414 F.3d 882
• Parties: ST. JOHN'S MERCY MEDICAL CENTER, Plaintiff-Appellee/Cross Appellant, v. John DELFINO, M.D., Defendant-Appellant/Cross Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 882

414 F.3d 882

ST. JOHN'S MERCY MEDICAL CENTER, Plaintiff-Appellee/Cross Appellant, v. John DELFINO, M.D., Defendant-Appellant/Cross Appellee.

No. 04-1672.

No. 04-1745.

United States Court of Appeals, Eighth Circuit.

Submitted: January 12, 2005.

Filed: July 12, 2005.

William H. Webster, argued, Washington, D.C., for appellant.

David M. Harris, argued, St. Louis, Missouri, for appellee.

Before LOKEN, Chief Judge, HANSEN and MURPHY, Circuit Judges.

LOKEN, Chief Judge.

Oral surgeon John Delfino appeals the portion of a judgment that partially vacates a favorable arbitration award. St. John's Mercy Medical Center ("St.John's") cross-appeals the portion that confirms the remainder of the award. The issue in both appeals is whether the arbitrator's decision evidences manifest disregard for law. Applying the deferential standard of review mandated by the Federal Arbitration Act, 9 U.S.C. § 10, we confirm the arbitrator's award in its entirety.

I.

An employment agreement between St. John's and Delfino provided that St. John's would indemnify Delfino for "defense costs... arising out of ... professional services and obligations... described in this Agreement." Another St. John's physician, Arthur Misischia, served as Delfino's assistant director. Delfino and Misischia entered into a separate agreement relating to their private practice. In 1993, St. John's terminated Misischia, and Delfino terminated the separate agreement. Misischia sued St. John's, Delfino, and Delfino's personal corporation, Delfino, P.C., alleging various tort claims, including a claim of fraud against Delfino and Delfino, P.C. relating to the separate agreement.

In October 1995, St. John's General Counsel wrote a letter "to reflect the understandings" reached at a meeting between St. John's and Delfino: St. John's accepted Delfino's tender of his defense; St. John's agreed to indemnify Delfino (but not Delfino, P.C.) for all of Misischia's claims except the fraud claim; St. John's would control the defense and retain counsel to represent Delfino; and Delfino would cooperate in the defense. St. John's retained a law firm to represent Delfino; Delfino retained the law firm of Lewis, Rice & Fingersh, L.C. ("Lewis, Rice") to separately represent Delfino and Delfino, P.C. on the unindemnified claims. Two years later, when Delfino and St. John's parted company, they entered into an Employment Separation and Release Agreement providing that St. John's would defend and indemnify Delfino in the pending Misischia case in accordance with the General Counsel's letter. The Agreement provided that it was governed by Missouri law and that all disputes "shall be settled exclusively by binding arbitration" under the arbitration rules of the American Health Lawyers Association.

The state trial court dismissed all of Misischia's claims against St. John's on the eve of trial. St. John's informed Delfino that it would not pay Delfino's legal expenses in defending the remaining claims because he was now "unindemnified." Delfino retained Lewis, Rice to defend Delfino and Delfino, P.C. at trial. The jury found in favor of Misischia on the fraud claim. Delfino demanded that St. John's pay nearly $1,500,000 in sundry fees and expenses, including all of Lewis, Rice's fees for its defense of Delfino and Delfino P.C. St. John's refused to pay, and the matter proceeded to arbitration. The arbitrator concluded that St. John's breached its duty to defend by refusing to reimburse Delfino for defense costs incurred after St. John's was dismissed one month before trial. The arbitrator awarded Delfino $215,480.82 for fees paid to Lewis, Rice for services prior to the breach, and $359,861.55 for fees paid for Lewis, Rice services after the breach. The latter amount reflected a 25% discount to account for post-breach work performed exclusively on the unindemnified fraud claim. Thus, the total award was $575,342.37.

St. John's urged the arbitrator to reduce the award by $215,480.82, arguing that reimbursing Delfino for legal services prior to St. John's breach was inconsistent with the arbitrator's ruling that Delfino was not entitled to reimbursement for his defense of unindemnified claims. The arbitrator refused to modify the award, explaining:

[St. John's] makes an excellent point.... [St. John's] must take responsibility, however, for its termination of its indemnification approximately one month before the scheduled trial date.... Had Lewis, Rice not been engaged and involved in the litigation previously it would have been necessary for that firm to go back and relearn all of the events which had transpired previously in the lawsuit.

St. John's then petitioned the district court to vacate the award under the Federal Arbitration Act. Delfino moved to confirm. St. John's argued that the arbitrator manifestly disregarded the law by awarding damages for expenses incurred prior to the breach. Applying Missouri law, the district court agreed, concluding that the arbitrator had violated "one of the most bedrock principles of contract law," namely, that the purpose of contract damages "is to restore the plaintiff to the position he would have enjoyed had the defendant not breached the contract." Therefore, the district court vacated that portion of the award. However, the court rejected St. John's contention that the arbitrator manifestly disregarded the law by awarding Delfino damages for post-breach expenses paid by Delfino, P.C. and confirmed the award of $359,861.55 for Lewis, Rice's post-breach services. Both parties appeal.

II.

Our review of an arbitration award under the Federal Arbitration Act is...