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JONES v. DANCEL, NO. 14-2160

Decided: July 6, 2015  

The Fourth Circuit held that the district court was correct in declining to vacate challenged aspects of an arbitration award. The arbitrator only awarded punitive damages for violations of the Credit Repair Organizations Act (CROA), and the arbitrator determined the amount of attorneys’ fees and costs requested by the plaintiffs was unreasonable. The plaintiffs argue that by reaching these terms, the arbitrator disregarded the law and exceeded his scope of authority under the Federal Arbitration Act (FAA).

Between 1998 and 2003, the plaintiffs entered into several contracts to participate in a debt management program with Genus Credit Management Corporation (Genus). Genus contracted with Amerix Corporation and its affiliates to perform certain functions for Genus. The relevant contracts included an arbitration clause. Even though Genus represented itself to be a non-profit corporation providing debt relief free of charge, Genus accepted many “voluntary contributions” from the plaintiffs and participating creditors.  In 2004, the plaintiffs filed a class action suit against Genus and other defendants alleging a conspiracy to violate state and federal law. The District Court for the District of Maryland dismissed the case, holding that the arbitration provision required the plaintiffs to arbitrate their claims. During the arbitration, the plaintiffs’ claims included alleged violations of the CROA, the Racketeer Influenced and Corrupt Organizations Act (RICO), and the Maryland Consumer Protections Act (MCPA). Some of the original defendants entered into class-wide settlements with the plaintiffs. The arbitrator approved these settlements and awarded $2.6 million in attorneys’ fees. After the settlement, the only remaining defendants included Amerix, its affiliates, and Dancel (Amerix’s founder).

Following extensive hearings, the arbitrator issued a final arbitration award granting the plaintiffs only partial relief of their claims. The arbitrator concluded that the defendants were “credit repair organizations” under the CROA and had failed to make certain disclosures to consumers required under the Act. In determining the amount of compensatory damages to award the plaintiffs, the plaintiffs sought compensation for certain class members under the CROA’s actual damage provision. Under the CROA, actual damages include “any amount paid by the person to the credit repair organization.” 15 U.S.C. § 1679g(a)(1)(B). The arbitrator concluded that the voluntary contributions of the plaintiffs were not “amounts paid” because a large amount of these class members did not make any voluntary contributions in exchange for credit repair services; therefore, the arbitrator declined to award actual damages. The arbitrator did award punitive damages to the plaintiffs because the plaintiffs should have received certain disclosures. Finally, the arbitrator determined the request for more money in attorneys’ fees was unreasonable due to deficiencies in the attorneys’ billing process. The district court concluded that the arbitrator’s decisions were proper.

Under the FAA, an arbitration award can be set aside when: (1) there was corruption in procuring the award; (2) there was partiality or corruption on the part of the arbitrator; (3) the arbitrator was guilty of misconduct in refusing to postpone a hearing; or (4) the arbitrator exceeded his or her powers that a mutual, final, and definite award upon the subject matter submitted was not made. 9 U.S.C. § 10. Judicial review of an arbitration award in federal court is extremely limited and should not be overturned just because the district court believes the arbitrators misinterpreted the law. The plaintiffs argue that these principles do not govern the present case because the arbitrator considered the remedies created by statute, rather than the rights established by contract. The Fourth Circuit determined that this argument had no merit and proceeded to review the case under its extremely limited power.

The plaintiffs argue that the district court erred by refusing to vacate the arbitration award because the arbitrator manifestly disregarded the law. The manifest disregard standard requires that a plaintiff show that: (1) the legal principle in dispute is clearly defined and not subject to reasonable debate and (2) the arbitrator refused to apply that legal principle. Wachovia Sec., LLC v. Brand, 671 F.3d 472, 483 (4th Cir. 2012). The Fourth Circuit concluded that the plaintiffs failed to satisfy their burden of proving the arbitrator manifestly disregarded the law when determining not to award actual damages. The plaintiff’s argument does nothing more than challenges the arbitrator’s interpretation of the applicable law. At no point did the arbitrator’s interpretation fall beyond the point of reasonable debate. Additionally, the Fourth Circuit determined that the arbitrator correctly observed the deficiencies in the attorneys’ billing methods, and he had the authority to disallow the fee in its entirety. Finally, the Fourth Circuit held that the arbitrator did not exceed the scope of his contractually delegated authority under the FAA. Therefore, the judgment of the district court was affirmed.

Full Opinion

Austin T. Reed