Foundation Surgery Affiliate of Southwest Houston, LLC (“Southwest”), the owner of a surgical and imaging facility in Houston, entered into a purchase and sale agreement in 2008 with Rainier Capital Acquisitions, LP, which assigned its interest to Rainier DSC (together with the other related defendants-appellees, “Rainier”). Rainier DSC purchased the subject property and sold fractional tenant-in-common interests to Plaintiffs (the “Investors”), who each signed an agreement with Rainier DSC that contained an arbitration provision. After several years, Southwest ceased making certain payments required by the agreement. The Investors sued Southwest, Rainier and individual physician members of Southwest, among others, alleging various state law claims and violations of federal securities laws. After the suit was removed, Rainier moved to compel arbitration. The Investors ultimately agreed to arbitrate their claims against Rainier.
An arbitrator decided in favor of Rainier on all claims, and awarded Rainier over $500,000 in attorneys’ fees and expenses. A federal district court confirmed the award. The Investors then appealed to the U.S. Court of Appeals for the Fifth Circuit, arguing that the arbitration award should be vacated because: (1) the district court’s failure to stay the underlying litigation of the non-arbitrating parties was “misbehavior” that prejudiced the Investors’ right to a fair arbitration against Rainier; and (2) the arbitrator purportedly refused to hear pertinent and material evidence. Applying the standard set forth in Section 10 of the Federal Arbitration Act (“FAA”), the Fifth Circuit confirmed the arbitrator’s award. First, the circuit court found that the Investors’ argument pertaining to the arbitrator’s misconduct was premised on purported misbehavior by the district court, and thus outside the scope of Section 10(a)(3) of the FAA, which provides that misconduct by “arbitrators” provides a basis for vacatur. Second, the circuit court held that the arbitrator’s decision to admit into evidence the deposition testimony of certain witnesses who the arbitrator refused to subpoena to testify at the arbitration did not warrant vacatur of the award, as the Investors were allowed to depose the witnesses and had failed to provide the arbitrator with any basis as to why their testimony was required at the hearing. Rainier DSC 1, et al. v. Rainier Capital Management, L.P., et al., No. 15-20383 (5th Cir. July 7, 2016).