Mustafa v. Amore St. John, LLC

MEMORANDUM OPINION

(March 4, 2013)

Plaintiff filed a Complaint on August 31, 2012, seeking to vacate a July 24,2012, arbitrator’s award. Defendant answered and filed a counterclaim on September 14, 2012, seeking enforcement of the arbitration award.1 For the following reasons, Plaintiff’s Complaint will be dismissed with prejudice and the arbitration award will be confirmed.

FACTUAL AND PROCEDURAL HISTORY

The original arbitration arose out of a dispute under two lease agreements signed by Plaintiff Hussein Mustafa, the tenant and sole proprietor of a retail store Fashion Palace Department Store located on the leased premises, and Defendant Amore St. John, LLC, the landlord. Defendant sought to recover rent unpaid between the months of April 2006 to May 2012 and remove Plaintiff from the premises for his alleged default under the leasing agreements. Plaintiff counterclaimed alleging Defendant’s failure to repair the premises caused Plaintiff damages to his merchandise, reputation, and sales. Plaintiff further alleged Defendant attempted to “constructively evict” Plaintiff.

*78The arbitrator found for Defendant and awarded Defendant Forty-seven thousand six hundred dollars ($47,600.00) in unpaid rent2 through My 2012 for alleged default under the two leases;3 ordered Plaintiff to quit the premises by August 31, 2012; awarded Defendant Nine thousand seven hundred fifty dollars ($9,750.00) in attorney’s fees; and ordered Plaintiff to pay for all the administrative and arbitrator’s fees in the total amount of Ten thousand seven hundred twenty dollars ($10,720.00).

STANDARD

The applicable standard for determining a motion to vacate an arbitration award is far from clear in the Virgin Islands considering the United States Supreme Court’s recent holding in Hall Street Associates v. Mattel4 and presents this Court with what appears to be an issue of first impression. On the one hand, under the statutory authority of Section 10(a) of the Federal Arbitration Act (FAA), which is clearly applicable to the Virgin Islands,5 a motion to vacate an arbitrator’s award may only be granted under the following limited circumstances:6

(1) where the award was procured by corruption, fraud, or undue means;

(2) where there was evident partiality or corruption in the arbitrators, or either of them;

*79(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or

(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.7

Prior to the Hall Street decision, the Third Circuit interpreted Section 10(a)8 to mean that an arbitrator’s award should be vacated only “where the arbitrator’s decision evidences manifest disregard for the law rather than an erroneous interpretation of the law.”9 Thus, while “a trial court is not to simply ‘rubber stamp’ an arbitrator’s decision,”10 the decision may only be *80vacated under the “manifest disregard of the law” standard where the moving party demonstrates the following three-part test: “the arbitrator (1) knew of the relevant legal principle, (2) appreciated that this principle controlled the outcome of the disputed issues, and (3) nonetheless willfully flouted the governing law by refusing to apply it.”11

However, Hall Street held that the Section 10(a) is the “exclusive basis” upon which to vacate an award under the FAA, and therefore some lower courts have held that “manifest disregard for the law” is no longer a viable standard under the FAA.12 Most recently, the Court of Appeals for the Third Circuit, in Sutter v. Oxford Health Plans, LLC, suggested instead that an arbitrator exceeds his power under the FAA’s Section 10(a)(4) only “when he decides an issue not submitted to him, grants relief in a form that cannot be rationally derived from the parties’ agreement and submissions, or issues an award that is so completely irrational that it lacks support altogether.”13 The Sutter Court did not discuss “manifest disregard of the law,” and rather focused on the scope *81of an arbitrator’s authority based on the contractual agreement between the parties and “rationality” of the award.14

On the other hand, in dicta the Supreme Court in Hall Street also noted that the FAA is not necessarily the exclusive remedy for parties seeking to vacate or modify an arbitration award, and courts “may contemplate enforcement under state statutory or common law . . . where judicial review of different scope is arguable.”15 The Supreme Court of the Virgin Islands in Government of the Virgin Islands v. United Industrial did not reach the issue of whether the FAA Section 10(a) is the exclusive remedy for parties seeking to vacate an arbitration award or if Virgin Island’s common law may be applied.16

*82In view of Hall Street's dicta, in addition to the “manifest disregard of the law” standard, Virgin Islands precedent has held that an arbitration award may also be vacated if the award violates established “public policy.”17 An arbitration award violates public policy only when it “explicitly conflicts with well-defined, dominant public policy . . .”18 “as ascertained by reference to positive law and not from general considerations of supposed public interests.”19 Thus, this Court will assume, without deciding, that the common law standards, including “manifest disregard of the law” and “public policy” survive Hall Street.20

Despite this uncertainty of the applicability of the Virgin Islands common law standards, the standards of review under either application of the statutory or common law standards are intended to be “exceedingly *83narrow” and deferential to the arbitrator’s award in order to encourage the arbitration of disputes.21

DISCUSSION

While Plaintiff generally argues under every possible statutory and common law standard of review in his motion to vacate and subsequent briefs, his basic argument rests upon the assertion that the arbitrator exceeded his authority because he erred in both his factual and legal determinations. As a result, Plaintiff asserts the resulting arbitration award was outside of the scope of the contract provisions and was “illogical.”22 Specifically, Plaintiff contends that the arbitrator exceeded his authority by (1) failing to find that Defendant, in an attempt to constructively evict Plaintiff, did not abide by the implied warranty of habitability, and that Plaintiff was thereby entitled to withhold rent after proper notice to Defendant; and (2) “by ordering the immediate reentry by Defendant onto Plaintiff’s leased premises,” the arbitrator violated protections afforded lessees under 28 V.I.C § 292.23 In the alternative, Plaintiff seeks a declaratory judgment that Plaintiff is entitled to resume the leases for the remainder of the their terms in accordance with the provisions of 28 V.I.C. §292.

The Court will address each of Plaintiffs arguments in turn under the various standards of review. Generally, Plaintiff’s arguments fail because Plaintiff does not articulate any adequate legal or factual basis for the Court to vacate the award.

I. Manifest Disregard of the Law

Plaintiff does not meet his burden under the “manifest disregard of the law” standard of review because there is no evidence that the arbitrator “willfully flouted the governing law.”24

*84A. The arbitrator did not “willfully flout” or even erroneously interpret Virgin Islands law governing the implied warranty of habitability of leased premises and a tenant’s right to withhold rent.

Applying the “manifest disregard of the law” three-part test, the arbitrator was clearly “aware of’ and “appreciated” the law governing landlord-tenant relations in the Virgin Islands, including the implied warranty of habitability, because he cited appropriate provisions of the Restatement (Second) of Property (Landlord and Tenant).25 Specifically, the arbitrator referred to § 5.4 regarding remedies available to parties when an unsuitable condition arises after the tenant takes possession of the property and § 11.3 regarding the ability of the tenant to withhold rent.26 The arbitrator found that “at no time did . . . [Defendant’s] construction project. . . ever make it unsuitable for use as two separate retail stores, [and] . . . [a]s such, no rent withholding is warranted.”27

However, Plaintiff has failed to satisfy the third prong of the three-part test, because the arbitrator clearly did not “willfully [flout] the governing law by refusing to apply it.”28 By applying the applicable legal standard, the arbitrator determined that Plaintiff did not comply with § 11.3 because he did not give proper notice to Defendant nor did Plaintiff placed the withheld rent in escrow.29 In fact, Plaintiff has provided no evidence which shows that the arbitrator even erroneously applied the law, and instead, merely attempts to challenge the arbitrator’s factual determinations rather than legal conclusions.

B. The arbitrator did not “willfully flout” the application of 28 V.I.C. § 292.

Again applying the “manifest disregard of the law” three-part test, the arbitrator was “aware of’ and “appreciated” 28 V.I.C § 292. Specifically, *85while the arbitrator’s award makes no reference to 28 V.I.C. § 292, both parties agree that the arbitrator considered Plaintiff’s argument under 28 V.I.C § 292 and ultimately rejected it.30 However, Plaintiff has again failed to satisfy the third prong of the three-part test because Plaintiff has provided no evidence that the arbitrator “willfully flouted the governing law.” Instead, Plaintiff simply contends that the arbitrator’s ultimate decision to reject Plaintiff’s argument under 28 V.I.C § 292 was an erroneous application of the law, rather than an intentional disregard of the governing law. Further, as is discussed in Section III(C) of this Memorandum Opinion under the Sutter standard of review, Plaintiff even fails to show that the arbitrator’s application and interpretation of 28 V.I.C § 292 was illogical.

II. Public Policy

Plaintiff argues that the arbitrator’s award violates public policy because the arbitrator ordered the “immediate reentry by Defendant onto Plaintiff’s leased premises notwithstanding that Plaintiff’s lease terms are ongoing and that Plaintiff tendered or proposed to tender the outstanding rent amounts”31 in accordance with 28 V.I.C § 292 32 28 V.I.C § 292 provides that

[i]f at any time before judgment... [in an action by a landlord against a tenant for nonpayment of rent] the lessee... pays to the [landlord]... or brings into court the amount of rent then in arrears, with interest, and the costs of the action, and performs the other covenants or agreements on the part of the lessee, he shall be entitled to continue in the possession according to the terms of the lease.

Specifically, Plaintiff argues that the arbitrator’s award violates the well-*86defined, dominant public policy of the Virgin Islands which disfavors “self-help” and “extra-judicial eviction.”33

Assuming arguendo that 28 V.I.C § 292 is applicable to this case,34 while the Court agrees that 28 V.I.C § 281 et seq., supports a well-defined, dominant public policy against self-help in the Virgin Islands,35 the Plaintiff has failed to show that the arbitrator’s award violates that public policy. Specifically, as recognized by Isidor Paiewonsky Associates v. Sharp Properties, Inc., 28 V.I.C § 281 et seq. “does not establish such actions as the exclusive means for regaining rights to property possession. The use of arbitration toward that end, therefore, is permissible.”36 In other words, a judicial process, such as an FED action, is not the only remedy available to a party where the parties mutually agreed to arbitration.37 Here, the parties mutually agreed to *87engage in arbitration outside of the judicial “action” set forth in 28 V.I.C § 281 et seq. to resolve all disputes arising out of the lease agreement. This contractual arrangement in no way violates the Virgin Islands public policy against self-help, and, in fact, instead discourages self-help.38 Further, setting a date for reentry in the arbitration award also does not violate the Virgin Islands’ public policy against self-help because, after an arbitrator has properly considered of the parties’ submissions, setting a date for reentry is not the equivalent of a forcible entry by a landlord, as Plaintiff contends.

III. The arbitrator did not exceed his powers within the meaning of the Federal Arbitration Act as interpreted by Sutter:

Plaintiff further alleges that the “[arbitrator grossly exceed [sic] his authority and made pronouncements about disputed facts that are not confined to the four-comers of the contract... ,”39 Even without applying the pre-Hall Street standards of manifest disregard for the law and violation of public policy, the arbitrator did not exceed his authority applying Sutter.40

A. The arbitrator did not venture beyond the issues submitted to him for arbitration based on a reasonable interpretation of the leasing agreement.

Under paragraph 36 of both lease agreements, the parties clearly agreed to arbitration on “all claims, disputes, and other matters in question between the parties to [the] . . . Lease, arising out of, or relating *88to this Lease or its breach . . . .”41 The parties further agreed under paragraph 38 of the lease agreements that the arbitration “award rendered by the arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law. . . .”42

However, Plaintiff claims that the arbitrator ventured beyond the issues submitted to him to “interpret and enforce the contract” when he ordered Plaintiff to vacate the premises. The Court disagrees. Under Paragraphs 24 and 23(1) of both lease agreements, the arbitrator had the authority to determine whether Plaintiff defaulted under the terms of the lease and set a date for the Landlord to reenter and resume possession of the premises. As previously found in this Memorandum Opinion, setting a date for a Landlord to reenter after an arbitrator’s full consideration of the party’s submissions is not the equivalent of self-help, as Plaintiff contends.43

Plaintiff also asserts that the arbitrator ventured beyond the issues submitted to him when he ordered Plaintiff to vacate the premises and allow the “immediate reentry” because the Court has the sole authority to enforce the award.44 Under FAA Section 9,

at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 ...

Thus, while Plaintiff is correct that the FAA guarantees that the Court may review and ultimately enforce the arbitrator’s award, the Court’s review is “exceedingly narrow.”45 Otherwise, absent a motion to vacate, modify, or correct the award, the Court must confirm the award upon application. Under FAA Section 12, “notice of a motion to vacate, modify, or correct an *89award must be served upon the adverse party or his attorney within three months after the award is filed or delivered.”46

Here, while Plaintiff characterizes the arbitrator’s July 24, 2012, decision as an order for “immediate reentry,” the arbitrator gave Plaintiff until August 31, 2012, over a month from the date of the arbitration award, to vacate the premises. While a shorter time period may constitute an order for “immediate reentry,” a month allowed ample time for Plaintiff to submit the current motion to vacate to the Court. Thus, the arbitration award does not, as Plaintiff contends, hinder the Court’s review of the arbitration award under the limited provisions of the FAA or violate this jurisdiction’s entirely separate statutory procedures for eviction absent an arbitration agreement. Even, assuming arguendo, that the arbitrator did exceed his authority47 in ordering Plaintiff to vacate within one month, the question is now moot because the parties agreed to allow Plaintiff to remain on the premises until the resolution of the present matter. The arbitrator’s award is simply subject to confirmation by this Court, absent a motion to vacate, modify, or correct the award, and the Defendant may seek enforcement of the award through the courts through a Writ of Assistance.

B. The arbitrator’s award is rationally derived from the parties’ agreement and submissions.

Plaintiff makes general sweeping claims that the arbitrator’s award is completely “illogical” as a whole. Based on a complete reading of the arbitration award, including the arbitrator’s detailed analysis on Plaintiff’s claims that he had a right to withhold rent based on Defendant’s breach of the implied warranty of habitability, the Court finds no indication that the arbitration award as a whole is contradictory or illogical either in its factual or legal determinations. In fact, the arbitrator’s factual findings were clearly rationally derived from the parties’ submissions as demonstrated by the detailed level of the arbitrator’s award.

*90Specifically, in his July 24,2012, arbitration award, the arbitrator found that: (1) Defendant had “promptly responded [and] corrected” flooding in December 2011; (2) Defendant never “made the premises unsuitable for use as two separate retail stores;” (3) Defendant assisted Plaintiff in remedying water damage to the property in August 2011 and December 2011; (4) Plaintiff did not give proper notice of withholding rent or establish an escrow account with the withheld rent; (5) Plaintiff provided no “evidence concerning loss of sale, business volume or injury to business reputation;” (6) Plaintiff’s claimed problems with his air conditioning units were not solely a result of Defendant’s conduct; and (7) Defendant adequately serviced the air conditioning units.48 The arbitrator also found that “substantial amounts of rent due and rent increases not implemented were forgiven by the [Defendant] ... in consideration of losses and inconvenience to [Plaintiff] . . . relative to Landlord’s construction, road construction and general unfavorable economic conditions.”49 Further, despite lack of evidence, the arbitrator awarded Plaintiff Three Thousand Four Hundred ($3,400.00) for alleged “losses of inventory.”50

C. The arbitrator’s denial of Plaintiff’s claim under 28 V.I.C § 292 was not “so completely illogical that it lacks support altogether.”51

Plaintiff contends that the arbitrator’s denial of Plaintiff claim under 28 V.I.C § 292 was illogical. However, as Defendant aptly points out, and Plaintiff does not refute,

[t]he arbitrator considered the arguments of Plaintiff.... [the arbitrator] was holding thousands of dollars that Plaintiff paid into the Arbitrator’s escrow account. The Arbitrator awarded damages far in excess of that amount and denied Plaintiff’s claim for relief under section 292.52

*91In other words, the arbitrator was clearly aware of Plaintiff ’ s claim and even held Thirty-Four Thousand Dollars (34,000.00) in escrow in this regard. However, it was the arbitrator’s ultimate determination on July 24,2012, the date of the issuance of the arbitrator’s award, that Plaintiff either was not entitled to the protections of 28 V.I.C § 292 or did not fulfill the requirements of 28 V.I.C § 292 because the arbitrator did not grant Plaintiff continued possession of the premises. Thus, considering the rather ambiguous application of 28 V.I.C § 292 in this case, as well as the fact that the arbitrator’s award exceeded the amount Plaintiff placed in escrow, the Court finds that Plaintiff did not meet his burden to show that the arbitrator’s ultimate denial of Plaintiff claim under 28 V.I.C § 292 was “so completely illogical that it lacks support altogether.”53

IV. Plaintiff is not entitled to cure his default at any time prior to confirmation of the award by this Court.

In the alternative, Plaintiff argues that the arbitration award is not a final “judgment” under 28 V.I.C § 292, and, therefore, he may cure his default up until the date the arbitration award is confirmed by the Court. First, considering that the Court must confirm an arbitrator’s award only absent a motion to vacate, modify, or correct the award pursuant to the FAA, an arbitrator’s award is otherwise final.54 Second, as Paiewonsky points out, arbitration agreements were not necessarily contemplated at the time 28 V.I.C § 292 was enacted. Thus, to read 28 V.I.C § 292 as providing a perpetual opportunity to redeem prior to confirmation of an arbitration award would be illogical, particularly considering that the parties specifically agreed in both lease agreements that “[t]he award rendered by the arbitrators shall be final.”55

Thus, since a motion to vacate is not an opportunity to simply re-litigate the factual and legal conclusions of the arbitrator absent a clear demonstration by the moving party that the arbitrator demonstrated a “manifest disregard of the law,” “exceeded his power,” or violated a *92well-defined public policy of the Virgin Islands, Plaintiff’s Complaint will be dismissed with prejudice. Accordingly, Defendant’s Counterclaim to confirm the July 24, 2012, arbitrator’s award shall be granted.

An Order consistent with this Memorandum Opinion shall issue.