Eleventh Circuit Affirms Order Vacating Arbitration Award Due to Fraud During Remote Proceedings

The United States Court of Appeals for the Eleventh Circuit has affirmed an order vacating an arbitration award after equitably tolling the statutory deadline to challenge it enumerated in 9 U.S.C. § 12 due to fraud.  In NuVasive, Inc. v. Absolute Medical, LLC, et al., No. 22-10214 (June 21, 2023), a medical products and equipment company, NuVasive, sued a distributor, Absolute Medical, along with the company’s owner, Soufleris, and two sales representatives, Hawley and Miller (collectively, “Absolute Medical”), in the Middle District of Florida.  NuVasive accused Absolute Medical of breach of contract, violating the noncompete provision included in the parties’ exclusive distribution agreement, and a variety of other claims after Soufleris dissolved Absolute Medical before immediately creating a similar company, which sold products distributed by NuVasive’s competitor.

After two years of litigation, the district court ordered the parties’ breach of contract claim to arbitration.  The proceedings took place remotely before a panel of arbitrators.  The arbitration panel ultimately found that Absolute Medical breached the parties’ agreement, but denied NuVasive’s claims for damages related to the company’s lost profits because NuVasive failed to prove causation.

Following arbitration, litigation resumed to resolve NuVasive’s remaining claims.  During discovery, however, Absolute Medical produced text messages demonstrating that Soufleris instructed Hawley how to respond to various questions in real-time during the remote proceedings.  Based on the text messages, NuVasive filed a motion to vacate the arbitration panel’s award due to fraud under 9 U.S.C. § 10(a)(1).  Absolute Medical countered that the arbitration award could not be vacated because the statutory three-month period to challenge it had already passed.  The Middle District of Florida chose to equitably toll the deadline and vacated the arbitral award.

Next, Absolute Medical appealed the district court’s decision to the Eleventh Circuit.  On appeal, Absolute Medical argued the trial court committed error when it vacated the arbitration award because equitable tolling is not available under the Federal Arbitration Act.  The company argued the Middle District of Florida abused its discretion as well.

After examining the facts of the case, the Eleventh Circuit held “the three-month window in § 12 may be equitably tolled in the appropriate circumstances,” before turning to whether such tolling was appropriate in the case before it.  According to the Court of Appeals, NuVasive “satisfied both the ‘extraordinary circumstances’ and ’diligence’ prongs of the equitable-tolling test.”

The appellate court next found the Middle District of Florida did not commit error when it vacated the arbitration award nor did the lower court abuse its discretion when it refused to direct a rehearing by the arbitral panel.

The Eleventh Circuit stated:

The FAA provides that “[i]f an award is vacated . . . the court may, in its discretion, direct a rehearing by the arbitrators.” 9 U.S.C. § 10(b) (emphasis added). We agree with the district court that the FAA granted it “complete discretion about how to proceed” with the case after the Final Award was vacated. Doc. 371 at 20. Tellingly, the defendants cite no authority to the contrary. And the district court did not abuse the discretion the FAA afforded it. The court carefully considered how to proceed upon vacating the arbitration award, taking into account the facts leading to the vacatur; the defendants’ past misconduct throughout the litigation, including intentional destruction of “vast amounts of evidence,” Doc. 371 at 21, by defendants and their counsel which led to spoliation sanctions; and finally, the unlikelihood that a remand to the arbitration panel could cure the harm from the defendants’ misconduct. We also reject the defendants’ prejudice argument; we are unconvinced that NuVasive’s voluntary participation in the Agreement’s dispute resolution clause required the district court to compel re-arbitration. NuVasive’s objection was not to arbitration generally, but to re-arbitration after the defendant’s brazen, serious misconduct. We therefore cannot say that the court abused its discretion when it decided to retain control over the entire case after vacating the Final Award.

Finally, the United States Court of Appeals for the Eleventh Circuit affirmed the lower court’s order vacating the arbitration award.  This case serves as a stark reminder to always act ethically when engaging in arbitration proceedings, whether in-person or remote.

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