Balch v. Oracle Corporation

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MARYLAND

:

DAVID BALCH

:

v. : Civil Action No. DKC 19-1353

:

ORACLE CORPORATION

:

MEMORANDUM OPINION

Presently pending and ready for resolution in this employment

contract case are the petition to vacate arbitration filed by

Plaintiff David Balch (ECF No. 1), the cross motion to confirm

arbitration award filed by Defendant Oracle Corporation, (ECF No.

7), and the joint motion to seal filed by both parties, (ECF No.

4). The issues have been fully briefed, and the court now rules,

no hearing being deemed necessary. Local Rule 105.6. For the

following reasons, the petition to vacate will be denied, and the

motion to confirm will be granted, as will the motion to seal.

I. Factual and Procedural Background1

Plaintiff David Balch joined Oracle Corporation (“Oracle”) in

2005. (ECF No. 1-1, at 200). For the next ten years, he worked

in Oracle’s National Security Group as a Vice President of Software

1 Unless otherwise noted, these facts are drawn from the

undisputed facts included in the “Procedural History” section of

the arbitration award (ECF No. 1-1, at 200-226) issued by the

arbitrator.

Sales. (Id.). In 2014, Mr. Balch announced that he planned to

retire at the end of the year. (Id.). Mr. Balch’s boss, Glen

Dodson, requested that Mr. Balch stay on to close a large

government contract that would come to be known as the “Mega Deal.”

(Id., at 201). Mr. Balch agreed, and instead of retiring, signed

onto a new contract, known as the Fiscal Year 2015 Individualized

Compensation Plan (“the 2015 Compensation Plan”). (Id., at 203).

The terms of that contract — which form the basis of this dispute

– are discussed at length below. Mr. Balch ultimately closed the

Mega Deal, earning Oracle about $150 million in revenue. (Id., at

201).

Several months later, after following through on his plans to

retire, Mr. Balch received a bonus pursuant to the 2015

Compensation Plan. Oracle’s ultimate bonus payment for the Mega

Deal amounted to only $904,908, well shy of the $3,950,454 which

Mr. Balch believed he was owed. (Id., at 14). Pursuant to the

2015 Compensation Plan, Mr. Balch issued a Demand for Arbitration

to both Oracle and Mr. Dodson. (ECF No. 1-1, at 200).

Arbitration ensued before a single arbitrator (“The

arbitrator”). (Id., at 200). After a Motion to Dismiss Demand

for Arbitration, the arbitrator dismissed Mr. Dodson from the case,

and discovery – complete with several depositions – commenced.

(Id., at 203). Following discovery, both Mr. Balch and Oracle

filed motions pursuant to JAMS Rule 18, which the arbitrator

treated as motions for summary judgment under Fed. R. Civ. P. 56.

(Id.). An oral hearing was conducted.

The arbitrator ruled for Oracle on both the remaining counts

in Mr. Balch’s Demand. In so doing, The arbitrator determined

that 1) there were no material facts in dispute that would require

a hearing on the merits, 2) Oracle did not breach Mr. Balch’s 2015

Compensation Plan by its decision not to pay him a larger bonus,

and 3) Oracle did not violate the Maryland Wage Payment and

Collection Law (“MWPCL”) by breaching either the 2015 Compensation

Plan or by failing to pay Mr. Balch wages which were “due” to him.

(Id., at 203-04).

Mr. Balch filed a Petition to Vacate Arbitration Award in the

Circuit Court for Howard County, Maryland, which Oracle removed to

this court on May 8, 2019. (ECF No. 1). A week later, Oracle

filed its motion to Confirm Arbitration Award. (ECF No. 7).

II. The Award

Primarily at issue in the award was the interpretation of the

2015 Compensation Plan. This contract was made up of two

documents: the “Fiscal Year 2015 Incentive Compensation Plan”

(“the Incentive Plan”), (ECF No. 3, at 98) and the “FY15 Incentive

Compensation Terms & Conditions” (“the Terms and Conditions”),

(Id., at 112-207). The former purported to contain an

individualized means of calculating Mr. Balch’s bonus payments,

while the latter described “the generally applicable provisions”

of Oracle’s compensation plans which would also apply to Mr. Balch.

The text of Mr. Balch’s 2015 Compensation Plan contained one

significant difference from his plan for 2014: in 2014, Mr. Balch’s

Incentive Plan capped Mr. Balch’s bonus at 250% of a measure

referred to as Mr. Balch’s “Annual Target Variable” – essentially

a target for the revenue Mr. Balch was expected to generate. (ECF

No. 1-1, at 206). The 2015 Incentive Plan had no such cap, arguably

suggesting – at least in Mr. Balch’s reading – that he would be

owed a potentially far greater bonus were he to exceed his Annual

Target Variable of $301,636. (Id., at 211). In his Demand, and

in his subsequent motion for summary judgment, Mr. Balch contended

that the removal of the cap – and the likely subsequent receipt of

a far greater bonus as a result of the Mega Deal – induced him to

stay on in 2015. (Id., at 35-36).

The arbitrator determined that Mr. Balch was wrong for two

reasons. First, he determined that “[t]here [was] no evidence

that Oracle intentionally singled out Mr. Balch to receive an

uncapped FY 2015 Compensation Plan. One might speculate that the

company uncapped his plan as a reward for postponing his

retirement. Such a theory would be mere speculation[.]” (Id., at

215). The arbitrator determined this by reference to virtually

every piece of evidence in the arbitral record, including the

deposition testimony of numerous Oracle executives. (Id., at 212-

18).

Second, the arbitrator carefully parsed the language of the

contract to determine 1) that provisions in those documents

“authorized Oracle to impose a cap on Mr. Balch’s FY 2015 bonus

plan when correcting an Administrative Error,” and 2) that the

failure to include a bonus cap constituted an “Administrative

Error” under the contractual definition of that term. (Id., at

211-12). In both cases, he cited liberally and accurately from

the contract, referencing virtually every relevant clause of the

contract in the process.

As to the MWPCL claim, the arbitrator devoted eight pages to

a thoughtful analysis of relevant Maryland law. (Id., at 218-26).

In so doing, he discussed the handful of precedents the parties

had raised, ultimately concluding that a few were apposite, a few

were not, and one, Hausfeld v. Love Funding Co., 131 F.Supp.3d 443

(D. Md. 2015), “is wrong” and “misse[d] the point that” the other

cases had raised regarding similar compensation language. The

arbitrator concluded that the language in the 2015 Compensation

Plan comported with the contractual language analyzed in a line of

Maryland cases “that deal[] with plan documents that authorize the

employer to modify a bonus plan at any time before the bonus is

paid,” and thus that Mr. Balch’s bonus was not a “wage.” (ECF No.

1-1, at 218, 225).

III. Standard of Review

Review of an arbitrator’s award is severely circumscribed;

indeed, the scope of review is among the narrowest known at law

because to allow full scrutiny of such awards would frustrate the

purpose of having arbitrations at all – i.e., the quick resolution

of disputes and the avoidance of the expense and delay associated

with litigation. See Apex Plumbing Supply, Inc. v. U.S. Supply

Co., Inc., 142 F.3d 188, 193 (4th Cir. 1998). If there is a valid

contract between the parties providing for arbitration, and if the

dispute resolved in the arbitration was within the scope of the

arbitration clause, then the substantive review is limited to those

grounds set out in § 10 of the Federal Arbitration Act (“FAA”), (9

U.S.C. § 10(a)).

Section 10 allows for vacating an award 1) where the award

was procured by corruption, fraud, or undue means; 2) where there

was evident partiality or misconduct on the part of the arbitrator;

or 3) where the arbitrator exceeded his or her powers, or so

imperfectly executed them that a mutual, final and definite award

upon the subject matter submitted was not made. Id. In addition,

a court may overturn a legal interpretation of an arbitrator if it

is “in manifest disregard of the law.” Apex Plumbing, 142 F.3d at

193 (“Federal courts may vacate an arbitration award only upon a

showing of one of the grounds listed in the [FAA], or if the

arbitrator acted in manifest disregard of the law.”); Upshur Coals

Corp. v. United Mine Workers of Am., Dist. 31, 933 F.2d 225, 229

(4th Cir. 1991). Mere misinterpretation of a contract or an error

of law does not suffice to overturn an award. See Upshur, 933

F.2d at 229. The burden is on the party challenging an award to

prove the existence of one of the grounds for vacating the award.

IV. Analysis

In his Petition to Vacate, Mr. Balch advances three arguments

in favor of vacatur: 1) “The Award ignores the essence of the

parties’ agreement for Oracle to pay Balch Sales Compensation”

(ECF No. 1-1, at 17); 2) “The Arbitrator deprived Balch a

fundamentally fair hearing” (Id. at 22-25); and 3) “The Award

manifestly disregards the Maryland Wage Law” (Id., at 25-30). In

its Motion to Confirm, Oracle disputes all three. (ECF No. 7-1).

A. Essence of the Contract

Mr. Balch argues that where an award “fails to draw its

essence” from the parties’ contract, a petitioner is entitled to

vacatur. (ECF No. 1-1, at 16-17). An award does not “draw its

essence” from the contract when the result “is not rationally

inferable from the contract.” Patten v. Signator Ins. Agency,

Inc., 441 F.3d 230, 235 (4th Cir. 2006). “In other words, a court

may question the arbitrator’s interpretation, but it may not vacate

the award unless that interpretation is so misguided as to be

irrational.” Sinai Hosp. of Balt., Inc. v. 1199 SEIE United

Healthcare Workers E., 65 F.Supp.3d 440, 445 (D. Md. 2014). A

court may only vacate on these grounds if 1) the contract is

unambiguous and 2) the arbitrator has disregarded or modified the

unambiguous provisions “or based an award upon his own personal

notions of right and wrong[.]” Three S Delaware, Inc. v. DataQuick

Information Systems, Inc., 492 F.3d 520, 528 (4th Cir. 2007).

Mr. Balch’s argument misconstrues this standard. He suggests

that the arbitrator did not use the contract in making his

decision, but rather a “modification of the 2015 Compensation Plan

to transform an uncapped compensation structure” which “ignores

the essence of Balch’s employment contract.” (ECF No. 1-1, at

20). Mr. Balch seems to believe that 1) Oracle was contractually

obligated to pay him an uncapped bonus which aligned to the penny

with the formula in his 2015 Compensation Plan, 2) Oracle’s payment

of a 300% bonus violated the contract because it was “arbitrary

and capricious”, and 3) the payment of a 300% bonus proved that

Oracle never intended to cap his bonus at 250%. (Id., at 19-21).

These arguments, and not the arbitrator’s Award, ignore the terms

of the contract.

While the 2015 Compensation Plan does contain an (uncapped)

formula for calculating Mr. Balch’s bonus, it also includes the

following language:

I understand that I do not earn Commission or

Bonuses until the Company makes any and all

final determinations and adjustments,

modifications or changes described in Section

IV F of the FY 15 Terms and Conditions. . . I

agree that any such adjustments, modifications

or changes will constitute an application of

the terms of the Plan as opposed to a

unilateral change by Oracle, and I accept that

they will be fully binding.

(ECF No. 3, at 98).

Likewise, the 2015 Terms and Conditions state the following,

which the arbitrator quoted and analyzed at length:

Sales activities and the sales process at

Oracle can be and often are extremely complex.

Oracle, sales management, and Employees

themselves may encounter unforeseen

situations and have to adapt to unique sales

situations and constantly changing markets and

technologies which can produce circumstances

in which fairness and equity require

management of sales compensation more

appropriately tailored to particular

circumstances than is possible under a single

written document.

Accordingly, for those reasons, and not to

impose arbitrary and capricious treatment on

employees, the Company reserves the right in

its sole discretion to adjust, modify or

change the Individualized Compensation Plan

and/or these FY 15 Incentive Compensation

Terms and Conditions, during or after close of

the fiscal year, including but not limited to

making such adjustment, modification or change

for the purposes of addressing Administrative

Errors, Unanticipated Circumstances, the

impact of Acquisitions, inaccurate Sales

Targets (i.e., quotas) and for the purposes of

addressing payments or potential payments

which are either beyond those reasonably

contemplated by the Company and/or which fail

to reflect a reasonable valuation of the

Employee’s contribution toward a transaction

or group of transactions. (emphasis added)

On the same basis as the Company retains

discretion to modify individualized

Compensation Plans and the FY 15 Incentive

Compensation Plan Terms and Conditions,

adjustments, modifications and changes may be

made at any time to Sales Credits, Commission

Rates, Commissions, Sale Targets, Bonuses,

terms of a Bonus Plan funding formulas, or any

other applicable terms and conditions, which

may result in a decrease or increase in

compensation including but not limited to the

imposition of a Maximum Commission on total

earnings for a single transaction, group of

transactions or for the entire fiscal year.

The modifications provided for in this section

are valid only if approved by a President, and

Executive Vice President (EVP or EVP

equivalent or his/her designee and Global

Incentive Compensation (CIC) through the

approval process. (emphasis added)

A new Individualized Compensation Plan need

not be issued to the Employee in order for the

modification described herein to be effective.

. . [T]he Company retains the right to make

the modifications at any time during the

fiscal year and until final year-ending

closing and reconciliation of Employee

Individualized Compensation Plans. (emphasis

added)

Employees do not earn Commissions or Bonuses

until the Company makes any and all final

determinations and adjustments,

modifications, or changes described above and

in Section 4 IV.

(ECF No. 1-1, at 209-10).

While quoting at length and devoting a significant word count

to interpretation does not guarantee that the arbitrator has

followed “the essence of the contract,” there is nothing to suggest

that the arbitrator disregarded, modified, or even misinterpreted

the contract. Tellingly, Mr. Balch relies less on the words of

the contract than on his argument that “[t]here was no evidence,

and the Arbitrator did not cite any, that any purported

‘Administrative Error’ was anything but a unilateral mistake by

Oracle.” (ECF No. 1-1, at 18).

The arbitrator explicitly addressed the contractual

definition of an “administrative error,” correctly interpreted the

contract to confer “sweeping” powers on Oracle “[w]hen it is

correcting an Administrative Error,” and devoted the better part

of seven pages – all laden with deposition testimony – to the

proposition that “[t]here is no evidence that Oracle intentionally

singled out Mr. Balch to receive an uncapped FY 2015 Compensation

Plan.” (ECF No. 1-1, at 211-18). In other words, the arbitrator

did cite considerable evidence that the failure to insert a cap

was an “Administrative Error” as that term was defined in the

contract. Because the arbitrator’s Award comported with the

essence of the contract, the court will not vacate on these

grounds.

B. Fair Hearing

Mr. Balch’s next argument is that “the Arbitrator deprived

Balch of a fair hearing as to whether a cap ‘should have been there

all along.’” (ECF No. 1-1, at 22). Mr. Balch suggests that

deposition testimony, coupled with the language of the contract,

rendered the record so full of “material disputes of fact” that it

“required a full evidentiary hearing to resolve.” (Id.).

As an initial matter, the fact that Mr. Balch moved for

summary judgment does not in and of itself render his argument

contradictory. To argue at this stage that the arbitrator was

wrong to find “no material disputes of fact” because the record

was uncontroverted that Oracle’s interpretation of events was

correct does not contradict his argument at an earlier stage that

there were “no material disputes of fact” because the record was

uncontroverted that Mr. Balch’s interpretation of events was

correct.

“[A]rbitrators have broad discretion to set applicable

procedure.” Wachovia Securities, LLC v. Brand, 671 F.3d 472, 480

(4th Cir. 2012). Mr. Balch relies on a single, decades old,

unreported decision from the United States District Court for the

District of Columbia holding that “[b]y deciding [an arbitration]

on summary judgment, the arbitrators denied [a party’s] rights to

present its case in full and to test [the opposing party’s] case

through cross-examination.” Chem-Met Co. v. Metaland Intern.,

Co., 1998 WL 35272368, at *4 (D.D.C., March 25, 1998). Chem-Met,

however, does not categorically bar summary judgment in

arbitration. Nor is Chem-Met exactly on point: that decision

relied in large part (albeit without much explanation) on an

interpretation of AAA arbitration rules; this arbitration was

conducted under JAMS rules. (Id., at *4).

More recent, published decisions contradict the sweeping

significance Mr. Balch assigns to Chem-Met. See, e.g., ARMA,

S.R.O. v. BAE Systems Overseas, Inc. 961 F.Supp.2d 245, 264-64

(D.D.C. 2013) (“a number of other courts have found that the use

of summary judgment procedures in arbitration is not fundamentally

unfair . . . even when the arbitrator has decided to dispense with

oral hearings altogether.”). While courts in this circuit have not

squarely addressed summary judgment in arbitration, the court in

ARMA correctly noted that other federal courts have overwhelmingly

concluded that arbitrators’ broad discretion includes a free-hand

to decide cases on summary judgment. See, e.g., Sheldon v.

Vermonty, 269 F.3d 1202 (10th Cir. 2001); Campbell v. American

Family Life Assur. Co. of Columbus, Inc., 613 F.Supp.2d 1114, 1118-

19 (D. Minn. 2009); TIG Ins. Co. v. Global Intern. Reinsurance

Co., Ltd., 640 F.Supp.2d 519, 523 (S.D.N.Y. 2009); Matter of

Arbitration between InterCarbon Bermuda, Ltd. And Caltex Trading

and Transport Corp., 146 F.R.D. 64, 72-73 (S.D.N.Y. 1993).

The proposition that summary judgment can be appropriate in

arbitration is, as far as the court can tell, uncontradicted. But

even assuming that in some cases, use of summary judgment could

constitute a denial of a fair hearing, that is not the case here.

Just as the Fourth Circuit has been unequivocal in enforcing the

broad procedural discretion of arbitrators, so too has it been

crystal clear that “not every failure of an arbitrator to receive

relevant evidence constitutes misconduct requiring vacatur of an

arbitrator’s award.” e.Spire Communications, Inc. v. CNS

Communications, 39 Fed.Appx. 905, 910 (4th Cir. 2002); see also

Three S Delaware, 492 F.3d at 531-32.

In fact, Mr. Balch does not so much argue that the arbitrator

failed to hear evidence as he argues that he misinterpreted that

evidence and made faulty decisions on witness “credibility.” (ECF

No. 1-1, at 24). Section 10 of the FAA does not include

misinterpretation of evidence as a ground for vacatur. The

“fundamentally fair hearing” standard applies to an arbitrator’s

“refusing to hear evidence pertinent and material to the

controversy[.]” e.Spire Communications, Inc., 39 Fed. Appx. at

910 (“a federal court may vacate an arbitrator’s award only if the

arbitrator’s refusal to hear pertinent and materials evidence

deprives a person of a ‘fundamentally fair hearing’”) (citing UMWA

v. Marrowbone Dev. Co., 232 F.3d 383, 385, 388 (4th Cir. 2000)).

Because the arbitrator had full discretion to determine the

case on summary judgment, because petitioner can point to no

failure to hear evidence, and because the arbitrator otherwise

afforded Mr. Balch a full and fair hearing through extensive

briefing and discovery, the court will not vacate the Award on

these grounds.

C. Manifest Disregard

Finally, Mr. Balch argues that “[t]he Award manifestly

disregards the Maryland Wage Law.” (ECF No. 11, at 7). Mr.

Balch’s real argument is that the arbitrator misapplied the MWPCL,

not that he disregarded it. Again, Mr. Balch misconstrues both

the language of the Award and the exacting standard for manifest

disregard.

As the Second Circuit has put it, an arbitration award should

not be deemed in “manifest disregard” of the law where there is

even a “barely colorable justification” for the award. Duferco

Int’l Steel Trading v. T Klaverness Shipping A/S, 333 F.3d 383,

391 (2d Cir. 2003). Courts in this circuit have uniformly agreed,

noting that “mere errors of law[,]” do not constitute manifest

disregard and that where an arbitrator “diligently and

conscientiously considered [] affirmative defense and contract

interpretation contentions, identified the correct principles of

controlling Maryland law which informed its decision, and reached

well-considered, though disparate, legal conclusions,” a court

should not vacate an award for manifest disregard of law. Md.

Transit Admin. v. Nat’l R.R. Passenger Corp., 372 F.Supp.2d 478,

484-85 (D.Md. 2005). See also, Frye v. Wild Bird Ctrs. of America,

Inc., 237 F.Supp.3d 302, 307 (D.Md. 2017) (“faulty legal reasoning,

or an erroneous legal conclusion does not suffice to overturn an

award”) (citing Upshur Coals Corp., 933 F.2d at 229).

Federal courts conduct a two-part inquiry to determine

whether an arbitrator has acted in manifest disregard of law: 1)

is the applicable legal principle clearly defined and not subject

to reasonable debate? And 2) did the arbitrator refuse to heed

that legal principle? UBS Fin. Servs., Inc. v. Padussis, 127

F.Supp.3d 483, 498 (D.Md. 2015) (citing Wachovia Securities, LLC,

671 F.3d at 483). In the Award, the arbitrator determined, through

well-reasoned analysis, that there is a contradiction in Maryland

courts’ application of the MWPCL. (ECF No. 1-1, at 224). It is

not this court’s place to pass on the merits of the arbitrator’s

contention that Hausfield v. Love Funding Co., 131 F.Supp.3d 443

(D.Md. 2015) is at odds with Varghese v. Honeywell Int’l Inc., 424

F.3d 411 (4th Cir. 2005) and Sorensen v. Westec Interactive

Security, Inc., 2008 WL 11367535 (D.Md. Sept. 2, 2008). This

court’s job is merely to determine whether this contention is

subject to “reasonable debate.” It is.

As to the second part of the inquiry, Mr. Balch argues that

“the Arbitrator fundamentally failed to apply the Wage Law, because

he failed to determine whether Balch’s 2015 Incentive Compensation

‘was exchanged for Balch’s work, and therefore was a wage.’” (ECF

No. 11, at 7). He argues that the arbitrator failed to heed the

controlling legal principle. This is plainly untrue: the

arbitrator’s analysis specifically addressed whether the 2015

Compensation Plan aligned with a line of Maryland cases dealing

with “plan documents that authorize the employer to modify a bonus

plan at any time before the bonus is paid,” the import being that

in such cases, no bonus is “promised” and that an “unpromised”

bonus falls without the definition of a “wage” under Maryland law.

(ECF No. 1-1, at 218-25).

As the arbitrator put it, “the documents that define Mr.

Balch’s employment and compensation relationship state clearly and

at length that his bonus is unpromised, and, therefore, unearned

until Oracle has exercised its discretion to correct

Administrative Errors.” (Id. at 23). The arbitrator then applied

the correct controlling principle of law: the MWPCL “protects the

proper expectation of promised renumeration. Where there is no

promise, there can be no proper expectation. Defining ‘wage’ as

the Maryland courts have done advances this goal.” (Id.) (citing

Varghese, 424 F.3d at 420). Contrary to Mr. Balch’s assertions,

then, the arbitrator concluded, in no uncertain terms, that Mr.

Balch’s bonus was not a “wage.”

Because the arbitrator identified the controlling principles

of the MWPCL, reasonably determined that an ambiguity existed in

the application of the law to apposite cases, and heeded the legal

principles laid out in the cases he perceived to be correct and on

point, the court cannot find that the arbitrator acted in manifest

disregard of the MWPCL. Accordingly, the court will not vacate

the award on these grounds.

V. The Motion to Seal

The motion to seal certain exhibits to and redact certain

content in Plaintiff’s petition to vacate will be granted for the

reasons asserted. The parties have already redacted the

appropriate material in the copy that was electronically filed and

have filed both complete and redacted versions.

VI. Conclusion

For the foregoing reasons, the petition to vacate will be

denied and motion to confirm arbitration award will be granted, as

will the joint motion to seal. A separate order will follow.

/s/

DEBORAH K. CHASANOW

United States District Judge