Arbitration: Massachusetts High Court Restores Sanctions Award (Web)
April 3, 2006
In Superadio Ltd. Partnership v. Winstar Radio Productions LLC, SJC-09542, 2006 WL 762593 (Mass., Mar. 28, 2006)(available at the Opinions link at www.mass.gov/courts/courtsandjudges/courts/supremejudicialcourt), Superadio, a radio sales agency, commenced an action to vacate an arbitration award rendered in favor of the program's producer, Walt "Baby" Love Productions, Inc.
Winstar is the party named on appeal as the successor in interest to Baby Love.
An arbitration panel awarded Baby Love $271,000 as sanctions against Superadio for violating discovery orders during the course of the arbitration. The trial court denied Superadio's motion to vacate the award, and instead granted Baby Love's motion to confirm.
An appellate court, however, reversed and vacated the sanctions order. Subsequently, the state’s highest Court, the Supreme Judicial Court of Massachusetts, upon a grant of further appellate review, affirmed the district court's sanctions award in an opinion by Associate Justice John M. Greaney.
The opinion backs Baby Love on the two points before the Court: Superadio’s claim that its adversary’s attorney wasn’t qualified to practice in Massachusetts, and that the sanctions exceeded the arbitration panel’s authority.
Associate Justice Francis X. Spina, joined by Associate Justice Judith A. Cowin, concurred in the portion of the majority opinion regarding the local practice-of-law standards, but dissented from the part of the opinion that affirmed the grant of sanctions for discovery violations.
The Supreme Judicial Court granted further review in the case when Superadio sought vacatur on the following two grounds: (1) the attorney for Baby Love, although a licensed practitioner in New York State, was not licensed to practice in Massachusetts, and thus the award was procured by undue means based upon the unauthorized practice of law; and (2) the arbitration panel's award of monetary sanctions exceeded the panel's remedial authority.
As to Superadio's first argument, the Court looked to Rule 5.5 of the Massachusetts Rules of Professional Conduct, as well as language in the Massachusetts General Code on what constitutes “practice of law.” The Court noted that in the arbitration context, this was a question of first impression.
The opinion states that a state standing advisory committee on its professional conduct rules was considering adopting a recent American Bar Association Model Rule of Professional Conduct on multi-jurisdictional practice in arbitration. It declined to decide whether the Baby Love attorney’s representation in the Massachusetts arbitration was the unauthorized practice of law. “[P]rudence dictates that this question await the committee’s report and our action thereon,” Justice Greaney wrote.
Instead, the opinion states that “even assuming that the representation might constitute the unauthorized practice of law, the conduct would not provide a basis to vacate the award.”
The Court was unpersuaded that "either Baby Love or its New York attorney procured the award through 'undue means,' that is, in an underhanded, conniving, or unlawful manner similar to corruption or fraud as those terms are used in arbitration law and practice." (Citing Nat'l Cas. Co. v. First State Ins. Group, 430 F.3d 492, 499 (1st Cir. 2005 ).)
The Court also determined that the arbitration panel did not exceed its authority because the grant of relief did not go beyond the scope of the powers conferred to the panel pursuant to the arbitration agreement. The arbitration panel's authority was derived from the parties' agreement, which was governed by the American Arbitration Association's commercial arbitration rules.
Under Rule 45(a), the panel was granted expansive authority to issue any remedies "deemed just and equitable" with respect to arbitration proceeding and discovery. Id. at *5. Rule 23(c) further authorized the panel to resolve and issue concerning informational exchange between the parties. Thus, the Court determined that the panel had the authority to issue monetary sanctions for violating discovery orders.
Justice Spina's partial concurrence and partial dissent agreed with the majority's determination that the award was not procured via undue means based upon the unauthorized practice of law. But Justice Spina dissented with respect to the arbitral panel's sanctions against Superadio, and would have vacated that segment of the award as being rendered in excess of the panel's authority.
The dissent was concerned with the inability to ascertain whether the award was punitive or compensatory in nature, given that the majority explicitly notes that Superadio's violation of the discovery orders rendered the computation of compensatory damages impossible.
Concluding that the sanctions likely were punitive in nature, Justice Spina wrote that they were improperly awarded to Baby Love, a private party, where punitive damage awards are supposed to be paid to the Commonwealth.
–Russ Bleemer, Editor of Alternatives &
Julie Shaw, CPR Intern