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Arbitration Agreement Which Barred Judicial or Appellate Review of Arbitration Decision is Enforceable Under FAA

 

Beckley Oncology Associates, Inc. v. Abumasmah - Fourth Circuit Court of Appeals


Facts:  After several months of negotiations, Beckley Oncology Associates, Inc. (“BOA”) recruited Dr. Rami Abumasmah (“Abumasmah”) to work for the company.  Upon being hired, BOA required Abumasmah to sign an employment agreement that included an arbitration provision required the parties to arbitrate “all disputes, controversies, and disagreements” in regard to the employment relationship.  The parties further agreed that any arbitration decision would be final and not subject to appeal.

After a few years working at BOA, Abumasmah notified the company that he was needing to leave the country to care for his mother who lived in Jordan.  Prior to leaving, Abumasmah informed BOA that he did not expect to be paid while he was out of the country and offered to resign.  However, BOA proceeded to terminate Abumasmah on his last day.  Afterward, Abumasmah disputed his bonus payments from BOA and sought to arbitrate these issues.  The arbitrator ultimately ruled in Abumasmah’s favor and BOA filed a complaint in federal court to vacate the arbitrator’s award.  

The district court granted Abumasmah’s motion to dismiss and affirmed the arbitrator’s award.  While the district court noted the arbitration provision’s clause that prohibited judicial review was unenforceable under Federal Arbitration Act (“FAA”), the district court upheld the arbitrator’s award on the grounds that he properly followed legal principle and did not deliberately disregard the employment contract’s language.  BOA subsequently appealed to the Fourth Circuit.

Holding:  The Fourth Circuit Court of Appeals began its analysis of the case with a recognition that while this situation was a matter of first impression in this circuit, the Tenth Circuit had previously found a similar waiver to be enforceable.  In this instance, the Court noted that a party’s right to seek appellate review of an arbitrator’s decision was a creature of statute.  As a result, nothing prevented a party from waiving appellate review of an arbitrator’s decision.

Going one step further, the Court recognized that BOA had received a “minimum level of due process” before the district court.  In fact, the Court held that the arbitration provision’s clause furthered the FAA’s objectives (which largely prohibit judicial review of an arbitrator’s decision.)

Judgment:  The Fourth Circuit Court of Appeals upheld the district court’s finding that an employment agreement which contained an arbitration clause that prohibited judicial or appellate review of an arbitrator’s decision was enforceable and therefore no party to the employment agreement could appeal an arbitrator’s decision.

The Takeaway:  As the saying goes, be careful what you wish for.  Many employers choose to incorporate arbitration provisions in their employment agreements for a myriad of reasons, whether it be to make it more expensive for an employee to contest an employment issue or because employers believe arbitration is more likely to lead to a favorable ruling compared to a jury’s decision.  As this case goes to show, having these arbitration provisions in an employment agreement does not always lead to a “win” for employers...especially where there is a prohibition on any judicial or appellate review of an arbitrator’s decision.  Granted, had BOA gotten an award in its favor at arbitration and had Abumasmah tried to appeal, the Court would have reached the same decision.  Unfortunately for BOA in this matter, they were on the wrong side of the coin following arbitration.

Majority Opinion Judge:  Judge Diaz

Date:  April 8, 2021

Opinion:  https://cases.justia.com/federal/appellate-courts/ca4/19-1751/19-1751-2021-04-08.pdf?ts=1617906621

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