Petition for Writ of Certiorari — Jefferson Randolph Corp. v. Progressive Data Systems, Inc.

Supreme Court, U.S.

4 FILED

02 9 48 DEC 1 62002

No. 02- OFPICE OF THE GLBRK

IN THE

Supreme Court of the United States

JEFFERSON RANDOLPH CORPORATION d/b/a

JRC TRUCKING, INC. and THURMAN CARPETS, INC.,

. Petitioners,

v.

PROGRESSIVE DATA SYSTEMS, INC.;

WILLIAM A.CROZIER and THOMAS G. TRAYLOR,

Respondents.

On PETITION FOR A WRIT OF CERTIORARI

TO THE SUPREME Court OF GEORGIA

PETITION FOR A WRIT OF CERTIORARI

MICHAEL ALAN DAILEY

ANDERSON DalLey LLP

The Prominence Building

3475 Piedmont Road N.E.

Suite 1820

Atlanta, GA 30305

(404) 442-1800

Counsel for Petitioners

177908 g

COUNSEL PRESS

(800) 274-3321 * (800) 359-6859

*

idl ete nate eee reat OE hein” bee

i

QUESTION PRESENTED

The question presented is whether state court jurists may

decline judicial review of an arbitration award on grounds

that the arbitrator “manifestly disregarded the law” when the

award was entered pursuant to an arbitration proceeding

explicitly called for and conducted pursuant to the Federal

Arbitration Act.

ii

STATEMENT PURSUANT TO RULE 29.6

Neither Petitioner has a parent company and no publicly

held company owns 10% or more of the stock of either

Petitioner.

iti

TABLE OF CONTENTS

Page

Question Presented ........--+eeeeeereeeeeees i

Statement Pursuant to Rule 29.6 ......-.-+++++: li

Table of Contents .........-- eee eee eee ee cece ili

Table of Cited Authorities ..........-50e eee eee Vv

Table of Appendices .........----eeeeeeeeeees X

Opinions Below ........----+seeeeeeresertees -]

Statement of Jurisdiction ..........-++e+eeeeee 1

Statutory and Arbitration Code Provisions Involved

in this Case .......... Papen enas ake ks 1

Statement of the Case .......---- ee ee eee eeeeee 3

Reasons for Granting the Petition ...........--- 11

1. Because Virtually Every Federal Circuit

Court Of Appeals Now Recognizes The

Nonstatutory Ground Of “Manifest Disregard

Of The Law” As A Valid Basis Of Judicial

Review For Arbitration Awards Decided

Pursuant To The Federal Arbitration Act,

This Court Should Make Clear That State

Court Jurists Cannot Decline To Vacate

Arbitration Awards On Such Ground When

The Federal Act Pertains. ..........--+:: ll

———

= ever pane ra ere tan tes narrator eters

iv

Contents

é Page

2. Because Arbitration Is An Increasingly

Pervasive Reality Of Modern Commercial

Life, This Court Should Act To Insure That

Important Substantive Rights Are Not Lost

Amidst The Move From Judicial To Arbitral

PS Gs Wieiae eapwaeaWabenens sed ene ss 16

SE Goh eV deei cGeeudineseeesntkes 19

Vv

TABLE OF CITED AUTHORITIES

Federal Cases:

Advest, Inc. v. McCarthy, 914 F.2d 6 (Ist Cir. 1990)

Alford v. Dean Witter Reynolds, Inc., 939 F.2d 229

(Sth Cir. 1991) 2.0... cece eee ee eee eee e eens

Austin v. Owens-Brockway Glass Container, Inc.,

~ 78 F.3d 875 (4th Cir. 1996), cert. denied, 519 US.

980, 117 S. Ct. 432, 136 L. Ed. 2d 330 (1996)

errr rat fon ee we Oe Ae Oe Re cee Oe

Barnes v. Logan, 122 F.3d 820 (9th Cir. 1997) ....

Bender v. A.G. Edwards & Sons, Inc., 971 F.2d 698

iwi We

Bowles Fin. Group, Inc. v. Stifel, Nicolaus & Co.,

22 F.3d 1010 (10th Cir. 1994) ........-----e-

Challenger Caribbean Corp. v. Union Gen.

De Trabajadores de Puerto Rico, 903 F.2d 857

(Ist Cir. 1990) ....... cece eee eee eee e eee eees

Circuit City v. Adams, 532 U.S. 105, 121 S. Ct. 1302,

149 L. Ed. 2d 234 (2001) ....... eee eee eeees

Cole v. Burns Int’! Sec. Servs., 105 F.3d 1465 (D.C.

CR TPSTE inves ccsrincsscacenones ecaeh eens

Page

17-18

14

17

11

12

18

17

vi

Cited Authorities

Page

Desiderio v. National Ass'n of Sec. Dealers, Inc., 191

F.3d 198 (2d Cir. 1999), cert. denied, 531 U.S.

1069, 121 S. Ct. 756, 148 L. Ed. 2d 659(2001) .. 17

First Options of Chicago v. Kaplan, 514 U.S. 938,

115 S. Ct. 1920, 131 L. Ed. 2d 985 (1985) ..... 18

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S.

20, 111 S. Ct. 1647, 114 L. Ed. 2d 26(1991) ... = 17

Halligan v. Piper Jaffray, Inc., 148 F.3d 197 (2d Cir.

1998), cert. denied, 526 U.S. 1034, 143 L. Ed. 2d

STO, UID SCR TAB CAG Ge vik ais he sic cncncisen 15

International Bhd. Of Firemen, Local 261 v. Great

N. Paper Co., 765 F.2d 295 (ist Cir. 1985) .... 12

Jenkins v. Prudential-Bache Sec., Inc., 847 F.2d 631 |

COGRR Cae. SURE: ss v's vninalks Maeda hs damicins 11,14

Koveleskie v. SBC Capital Markets., Inc., 167 F.3d

361 (7th Cir. 1999), cert. denied, 528 U.S. 811,

120 S. Ct. 44, 145 L. Ed. 2d 40 (1999) ........ 17

Lee v. Chica, 983 F.2d 883 (8th Cir.), cert. denied,

510 U.S. 906, 114 S. Ct. 287, 126 L. Ed. 2d 237

CRSRSD svackeecka telsaetepuebesecens Sawa 14

Mcllroy v. Paine Webber, Inc., 989 F.2d 817 (Sth Cir.

ROPPE. 5 viveaea recede veers eeisalae een 14-15

vii

Cited Authorities

Page

Merrill, Lynch, Pierce, Fenner & Smith, Inc. v.

Bobker, 808 F.2d 930 (2d Cir. 1986) .......--- 13, 14

Metz v. Merrill, Lynch, Pierce, Fenner & Smith, Inc.,

39 F.3d 1482 (10th Cir. 1994) .........-++5-- 18

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,

Inc., 473 U.S. 614, 105 S. Ct. 3346, 87 L. Ed. 2d

444 (1985) 20... cece eee ee eeeees 13, 16, 18

Montes v. Shearson Lehman Bros., Inc., 128 F.3d

1456 (11th Cir. 1997) ..........ee eee 8, 13, 14, 15

National Wrecking Co. v. International Broth. Of

Teamsters, Local 731, 990 F.2d 957 (7th Cir. 1993)

ide i ee eee eb ened eease's 14

O.R. Securities, Inc. v. Professional Planning

Associates, Inc., 857 F.2d 742 (11th Cir. 1988) ... 14

Patterson v. Tenet Healthcare, Inc., 113 F.3d 832 (8th

Cle 1O9T) iis cli eie edie ceccewesveccdssones 17

Prudential-Bache Sec., Inc. v. Tanner, 72 F.3d 234

(Ist Cir. 1995) 2... .. cece eee ee cece cence 14

Rodriguez de Quijas v. Shearson/Am. Express, 490

U.S. 477, 109 S. Ct. 1917, 104 L. Ed. 2d 526

(1989) co.cc wccccccccccnevcccccececeseeces 12

ee ener nae eg lp et i POEL EO eA A

viii

Cited Authorities

Rosenberg v. Merrill, Lynch, Pierce, Fenner & Smith,

Bac., UFO FSET CRG Cae BOGE) ose bee vcd veces

Rotfeld v. Boenning & Scattergood, Inc., et al., 1991

U.S. Dist. LEXIS 11618 (E.D. Pa. August 20,

eer errr ree ey Pe Bast eee

Seus v. John Nuveen & Co., 146 F.3d 175 (34 Cir.

1998), cert. denied, 525 U.S. 1139, 119 S. Ct.

1028, 143 L. Ed. 2d 38 (1999), abrogated on other

grounds, Blair v. Scott Specialty Gases, 283 F.3d

SOW GE GE ED eo hick snc eerste teieh

Shearson/American Express, Inc. v. McMahon, 482

U.S. 220, 102 S. Ct. 2332, 96 L. Ed. 2d 185 (1987)

SS ee 6Ce eee ese Cee ee oe Ce CeCe SSC een. Vee Veen es ee 62 ee Se 6

Stroh Container Co. v Delphi Industries, Inc., 783

F.2d 743 (8th Cir.), cert. denied, 476 U.S. 1141,

106 S. Ct. 2249, 90 L. Ed. 2d 695 (1986) ......

United Transp. Union Local 1589 v. Suburban

Transit Corp., 51 F.3d 376 (3d Cir. 1995) ......

Upshur Corp. v. Erwin Behr GmbH. & Co., KG,

re Ee ee rn

Willemijn Houdstermaatschappij, BV v. Standard

Microsystems Corp., 103 F.3d 9 (2d Cir. 1997) ...

Page

17

15

17

13

13

14

14

14

ix

Cited Authorities

Page

Williams v. Cigna Financial Advisors, 197 F.3d 752

(Sth Cir. 1999) ...... ccc eee eee eee eeeees 18

Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L. Ed.

1GB.CIDSS) . cvccccccevcccccccanescccvcees 12, 13

Willis v. Dean Witter Reynolds, Inc., 948 F.2d 305

(6th Cir. 1991) ....... cece cece cece ee eeeeees 18

Federal Statutes:

9 U.S.C. § 1, ef S€q. occ cece cece eer eeeeevees l

9 U.S.C. § 10(8) .. oc cccccccccccccccccscccces 11

Other Authorities:

American Heritage Dictionary ..........+++++++ 13

Black's Law Dictionary, 6th Edition 1990 ........ 13

O.C.G.A. § 9-9-1, ef SEG. 6. eee cece eee e ee eeee 2

O.C.G.A. § 9-9-13(D) oc cece cece cece eee eenees 2

O.C.G.A. § 11-2-718(1) «1... eee ee eee eee ee eee 3,6

Hayford, Stephen L., “Law In Disarray: Judicial

Standards For Vacatur Of Commercial Arbitration

Awards,” 30 Ga. L. Rev. 731, Spring 1996 ..... 11, 12

x

TABLE OFAPPENDICES

Appendix A — Order Of The Supreme Court Of

Georgia Denying Motion For Reconsideration

Dated September 16, 2002 .............0000.

Appendix B — Opinion Of The Supreme Court Of

Georgia Dated And Decided July 15, 2002 .....

Appendix C — Opinion Of The Court of Appeals Of

Georgia Dated And Decided July 31, 2001 .....

Appendix D — Order Confirming Arbitration Award

Of The Superior Court Of Gwinnett County, State

Of Georgia Dated February 9, 2001 And Filed

POE Sa OE Nicaea es PEN ERR eee

Appendix E — Final Judgment Of The Superior

Court Of Gwinnett County, State Of Georgia

Dated February 9, 2001 And Filed February 12,

5g EE FR OEE Pee i eo Pe a eed ger ee

_ Appéndix F — American Arbitration Association,

Arbitration Tribunal Dated August 18, 2000 ....

Page

la

2a

13a

_24a

28a

30a

1

Petitioners Jefferson Randolph Corporation and Thurman

Carpets, Inc. (“JRC/Thurman’”) respectfully petition for a writ

of certiorari to review the judgment of the Supreme Court of

Georgia in this case.

OPINIONS BELOW

The arbitration award dated August 18, 2000 is

unpublished. It is reprinted for purposes of this petition in

the Appendix (“App.”) at App. F. The judgment entered by

the trial court is reprinted at App. E. The opinion of the Court

of Appeals of Georgia is published at 251 Ga. App. 1 (2001)

and is reprinted at App. C. The opinion of the Supreme Court

of Georgia is published at 275 Ga. 420 (2002) and is reprinted

at App. B.

STATEMENT OF JURISDICTION

The decision of the Supreme Court of Georgia denying

Petitioner’s motion for reconsideration was entered on

September 16, 2002. (App. A).

The jurisdiction of this Court is invoked under 28 U.S.C.

§ 1257(a).

STATUTORY AND ARBITRATION CODE

PROVISIONS INVOLVED IN THIS CASE

(1) The United States Federal Arbitration Act, 9 U.S.C.

§ 1, et seq., specifically, § 10(a), provides,

In any of the following cases the United States

court in and for the district wherein the award was

made may make an order vacating the award upon

the application of any party to the arbitration —

steteabieninpigliniir ie dibiti ine cilcamee degt nga aatiincap sii etie

.

2

(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.

(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.

(4) Where the arbitrators exceeded their

powers, or so imperfectly executea them

that a mutual, final, and definite award

upon the subject matter submitted was

not made.

(2) The Georgia Arbitration Code, Official Code of

Georgia Annotated (“O.C.G.A.”) § 9-9-1, et seq.,

specifically, § 9-9-13(b), provides,

The award shall be vacated on the application

of a party who either participated in the arbitration

or was served with a demand for arbitration if the _

court finds that the rights of that party were

prejudiced by:

(1) Corruption, fraud or misconduct in

procuring the award;

3

(2) Partiality of an arbitrator appointed as

a neutral;

(3) An overstepping by the arbitrators of

their authority or such imperfect

execution of it that a final and definite

award upon the subject matter

submitted was not made; or

(4) A failure to follow the procedure of this

part, unless the party applying to vacate

the award continued with the arbitration |

with notice of this failure and without

objection.

(3) O.C.G.A. § 11-2-718(1) provides,

Damages for breach by either party may be

liquidated in the agreement but only at an amount

which is reasonable in light of the anticipated or

actual harm caused by the breach, the difficulties

of proof of loss, and the inconvenience or

nonfeasibility of otherwise obtaining an adequate

remedy. A term fixing unreasonably large

liquidated damages is void as a penalty.

STATEMENT OF THE CASE

On May 24, 1996, Petitioner Jefferson Randolph

Corporation (“JRC”) entered into an Equipment Sales,

Software License And Services Agreement with Progressive

Data Systems, Inc. (“PDS”) (the “Agreement”). The

Agreement called for the delivery of a computer hardware

and software system to be used in JRC’s business. JRC is

4

engaged primarily in the trucking business and, at the time

this dispute arose, hauled carpet inventory for a variety of

carpet manufacturers. It was also engaged in the sale of carpet

products. JRC sought a computer system to track the

movements of its trucks and inventory and to process the

Carpet transactions in which it was involved.

The Agreement specified a purchase price of

$167,935.26. (L-1). JRC paid this amount in full.

Among the features promised to JRC was a Distribution

Modification to PDS’s basic software deliverable.

This modification, which PDS explained would require

custom software work, was to encompass the distribution

functions of order entry, inventory and purchasing. It is JRC’s

contention that, as late as 15 months following contract

signing, PDS never delivered a completed Distribution

Modification. This delay caused JRC enormous productivity

costs as it struggled to use the inadequate system it had and

to work with PDS to bring the new system on line. In time,

JRC came to see PDS principals William A. Crozier, Jr.

(“Crozier”) and Thomas G. Traylor (“Traylor”) as having

delivered false and untrve representations concerning the

work that they would rerform. It was for that reason JRC

named the two men as co-defendants in a legal action filed

on April 22, 1999 in the Superior Court of Gwinnett County,

Georgia.

Prior to filing, JRC gave notice to PDS of its rescission

of the Agreement based on false and untrue statements of

performance by Messrs. Crozier and Traylor. Those

statements encompassed the men’s stated intention to provide

certain features as part of the PDS Distribution Modification,

their intention to provide them in a timely manner, and to

deliver other contract services.

. 5

With their responsive pleadings, PDS and its principals

filed a motion to add an indispensable party, Thurman

Carpets, Inc., (“Thurman”), a purported user of the PDS

System. PDS additionally moved to stay the proceedings and

to compel arbitration of the dispute pursuant to the Federal

Arbitration Act (“FAA”). (L-11 - L-29). On December 8, 1999

the trial court ordered the parties to proceed to arbitration

but made no ruling regarding the status of Thurman.

PDS thereafter filed a Demand For Arbitration with the

American Arbitration Association (“AAA”), naming JRC as

respondent. Through discussions with AAA case management

personnel, an agreement was reached to include Messrs.

Crozier and Traylor as additional claimants and Thurman as

an additional respondent.

In its Demand, PDS asserted breach of contract and

sought recovery of compensatory damages for accelerated

software license fees covering a period of 18 years and 3

months following JRC’s rescission. As to these fees, PDS

relied on an acceleration provision contained in the parties’

Agreement. PDS also asserted a breach of confidentiality as

well as fraud on JRC/Thurman’s part in attempting “to exploit

benefits . . . that were not part of the Agreement, ... .”

For their part, JRC/Thurman sought a ruling that JRC’s

rescission of the Agreement was proper. They also sought

recovery against PDS, Crozier and Traylor for damages

incurred in securing substitute computer systems.

The arbitration hearing was conducted on July 26 and

July 27, 2000. At the hearing, PDS and its principals sought

no compensatory damages of any kind other than unpaid

6

software license fees and “nominal” damages purportedly

due for breach of a confidentiality covenant. PDS’ damages

were itemized on its Joint Exhibit 125. (L-9). At the

conclusion of the hearing, PDS revised its itemization.

(L-10). The Revised Joint Exhibit 125 deleted PDS’ request

for “nominal” damages and maintained its prayer for

accelerated software license fees totaling $138,125, plus

interest thereon of $19,549.42. (/d.)

As to these license fees, JRC presented the arbitrator

with legal authority showing that, under Georgia law, such

accelerated fees constituted a “penalty” and were “void”

as a matter of law. O.C.G.A. § 11-2-718(1).

On August 18, 2000, the arbitrator entered an Award in

favor of PDS, Crozier and Traylor. (App. F). The Award

included compensatory damages of $81,540, attorneys’ fees

of $64,875, administrative fees and expenses of $2,487.01,

and an amount of $1,782.99 for the compensation and

expenses of the arbitrator. (/d.) The compensatory damages

awarded did not correspond to any damages identified or

requested by PDS at the hearing. Neither JRC/Thurman nor

PDS understood on what basis they had been calculated.

As for the specific damages that PDS had requested,

the arbitrator concluded that “[t]he acceleration clause on

the contract was a penalty and unreasonable before, during

and after the execution of the contract.” (App. E, p. 29a).

With his ruling, the arbitrator demonstrated on the face

of the record that he understood the applicability of the legal

authority rendering the Agreement’s accelerated damages

void. Yet, the arbitrator proceeded to award such damages

anyway, albeit less than what had been sought.

PDS and its principals filed an Application with

the trial court seeking to confirm the Award. (L-33).

7

This Application, like PDS’s earlier motion to compel

arbitration (L-11, at L-12), explicitly referenced the fact that

“The Federal Arbitration Act governs the arbitration

agreement between the parties to this transaction, as the

transaction involves interstate commerce.” (L-33, at L-35)

Those factors demonstrating interstate commerce in

connection with the making and performance of the parties’

Agreement were evidenced by an affidavit given by PDS

principal Thomas G. Traylor. (L-30) (see also L-40, at L-44,

wherein PDS and its principals affirmatively noted,

“Defendants have previously demonstrated that the contract

.. between the parties involved interstate commerce and as such

the FAA is the applicable source of law.”)

JRC and Thurman not only opposed confirmation of the

Award but formally asked the trial court to vacate and/or

modify it. JRC/Thurman contended that the Award

represented an overstepping by the arbitrator of his authority.

On February 12, 2001, the trial court entered an order

confirming the arbitration Award. (App. D). Simultaneously

therewith, the trial court entered a Final Judgment in favor

of PDS, Crozier and Traylor for all amounts specified in the

Award. (App. E).

JRC/Thurman appealed the trial court’s judgment to the

Court Of Appeals of Georgia. In their appeal, JRC/Thurman

contended, inter alia, the trial court had erred in confirming

the Award and in not vacating or modifying it by reason of

the fact the arbitrator had overstepped his authority and, in

so doing, had manifestly disregarded the law. Authorities

supporting this conclusion were presented under both the

FAA and the Georgia Arbitration Code (“GAC”).

8

The arbitrator had “manifestly disregarded the law,”

contended JRC/Thurman, by awarding compensatory

damages he had ruled to be an unreasonable penalty and

therefore “void.” (App. F). Indeed, the only compensatory

damages reflected on PDS’s final itemization of damages —

Revised Joint Exhibit 125 — were those pertaining

to acceierated software license fees. (L-10). The arbitrator’s

award of those illegal damages, albeit at a reduced amount,

constituted a manifest disregard of the law, contended JRC/

Thurman. E

On July 31, 2001, the Court Of Appeals reversed

the trial court’s judgment and order confirming the Award.

(App. C, p. 13a) The Court of Appeals agreed that the

arbitrator had overstepped his authority and “manifestly

disregarded the law, regarding penalties, which he expressly

recognized by identifying the damages as a penalty and not

liquidated damages; thus, he did not merely erroneously

interpret the law. See Montes v. Shearson Lehman Bros., Inc.,

128 F.3d 1456 (11th Cir. 1997).” (App. C, p. 20a)

PDS then filed a petition for certiorari to the Supreme Court

of Georgia. JRC/Thurman opposed the petition, presenting

authorities to demonstrate that the “manifest disregard of the

law” standard was a recognized nonstatutory ground of judicial

review under the FAA. (L-59, at L-80 - L-84). A writ of certiorari

was granted. In its order granting the writ, the Supreme Court

of Georgia announced that it was “particularly concerned [with]

... [w]hether a reviewing court may properly vacate an

arbitration award due to the arbitrator’s manifest disregard of

the law.”

9

Following briefing, in which PDS’s repeated insistence

that the FAA explicitly governed this matter was made

abundantly clear, (L-94, at L-120), the Supreme Court of

Georgia answered its question in the negative. It concluded

that a reviewing court could not properly vacate an arbitration

award due to the arbitrator’s manifest disregard of the law.

(App. B, p. 2a)

Because federal arbitration law closely mirrored the

statutory grounds set forth in the GAC, the Supreme Court

of Georgia elected to examine federal authorities in reaching

its decision. It noted that the “manifest disregard of the law”

principle was “widely recognized as being nothing more than

a non-statutory creation of the federal courts.” (Id., at p. 5a.).

Because Georgia’s legislature had set forth four statutory

grounds for vacating an arbitration award, and did not include

“manifest disregard of the law” among them, the Supreme

Court of Georgia concluded that, “whatever the merits of

the ‘manifest disregard of the law’ principle, we should not

be so bold as to judicially mandate its use as an additional

ground for vacatur. . . .” (emphasis is the Court’s) (/d.) The

Court offered no explanation for ruling as it did in light of

PDS’ repeated assertions before the trial court that the FAA,

not the GAC, governed the Award.

A forceful dissenting opinion was filed by Justice George

Carley, joined by Justice Carol Hunstein. The dissent

contended that a holding preventing courts from vacating

arbitration awards:

on the basis of the arbitrator’s “manifest disregard

of the law” has the effect of rendering judicial

review a meaningless exercise. If the majority is

correct, then an arbitrator is free to ignore the law

10

willfully, as the deliberate refusal to adhere to it

will not prevent enforcement of the admittedly

illegal award. Although judicial scrutiny of

arbitration awards necessarily is limited, I believe

that it nevertheless must be “ ‘sufficient to ensure

that arbitrators comply with the requirements of

the statute’ at issue. [Cit.]” Gilmer v. Interstate/

Johnson Lane Corp., 500 U.S. 20, 32, 114 L. Ed.

2d 26, 111 S. Ct. 1647(II)(B), fn. 4 (500 U.S. 20,

111 S. Ct. 1647, 114 L. Ed. 2d 26) (1991)

(applying federal law). The courts “are charged

with the obligation to exercise sufficient judicial

scrutiny to ensure that arbitrators comply with

their duties and requirements of the statutes.”

Williams v. Cigna Financial Advisors, 197 F.3d

752, 761(I1) (Sth Cir. 1999) (applying federal law).

Thus, based upon a reading of O.C.G.A. § 9-9-

13(b) as a whole, I submit that that statute

implicitly vests the judiciary with the authority

to vacate an arbitration award based upon an

arbitrator’s “manifest disregard of the law.” °

11

REASONS FOR GRANTING THE PETITION

1. Because Virtually Every Federal Circuit Court Of

Appeals Now Recognizes The Nonstatutory Ground

Of “Manifest Disregard Of The Law” As A Valid Basis

Of Judicial Review For Arbitration Awards Decided

Pursuant To The Federal Arbitration Act, This Court

Should Make Clear That State Court Jurists Cannot

Decline To Vacate Arbitration Awards On Such

Ground When The Federal Act Pertains.

While a general consensus has existed among the United

States Courts of Appeal that the scope of judicial review

concerning arbitration awards should be narrow, there has

previously existed disagreement among them whether the

statutory grounds for vacatur set out in Section 10(a) of the

FAA could be augmented by judicially fashioned standards

of review. See Hayford, Stephen L., “Law In Disarray:

Judicial Standards For Vacatur Of Commercial Arbitration

Awards,” 30 Ga. L. Rev. 731, Spring 1996. Today, however,

virtually all federal circuit courts refer to nonstatutory

grounds and do not limit their review of commercial

arbitration awards to a strict reading of section 10(a) of the

Federal Arbitration Act (“FAA”). See Bowles Fin. Group,

Inc. v. Stifel, Nicolaus & Co., 22 F.3d 1010 (10th Cir. 1994)

(“ ‘Federal courts have never limited their scope of review

[of arbitration awards] to a strict reading of 9 U.S.C. section

10].’ ” (alterations in original) (quoting Jenkins v. Prudential-

Bache Sec., Inc., 847 F.2d 631, 633 (10th Cir. 1988))).

Their view reflects the belief that although “considerable

deference” is due a commercial arbitrator’s decision

under section 10(a), such deference “does not grant carte

blanche approval to any decision that an arbitrator might

12

make.” International Bhd. Of Firemen, Local 261 v. Great

N. Paper Co., 765 F.2d 295, 296 (ist Cir. 1985) (labor

arbitration case), quoted in Challenger Caribbean Corp. v.

Union Gen. De Trabajadores de Puerto Rico, 903 F.2d 857,

861 (ist Cir. 1990) (labor arbitration case), and quoted in

Advest, Inc. v. McCarthy, 914 F.2d 6, 8 (1st Cir. 1990).

The seminal nonstatutory ground under the FAA is

“manifest disregard of the law.” Hayford, supra at 731. The

standard originates from dictum appearing in a United States

Supreme Court decision, Wilko v. Swan, 346 U.S. 427, 436,

74S. Ct. 182, 98 L. Ed. 168 (1953), overruled by Rodriguez

de Quijas v. Sheurson/Am. Express, 490 U.S. 477, 485 (Il),

109 S. Ct. 1917, 104 L. Ed. 2d 526 (1989). Relevant portions

of the full paragraph from which the dictum in Wilko v. Swan

is cited follows below:

While it may be true ... that a failure of the

arbitrators to decide in accordance with the

provisions of [applicable law] would “constitute

grounds for vacating the award pursuant to section

10 of the Federal Arbitration Act,” that failure

would need to be made clearly to appear... .

The interpretations of the law by the arbitrators,

in contrast to manifest disregard [of the law],

are not subject, in fhe federal courts, to judicial

review for error in interpretation.

Wilko v. Swan, 346 U.S. at 436. (Emphasis supplied).

This Court has not further discussed the meaning and

significance of this dictum in the 47 years following its

decision in Wilko. Indeed, since 1953, the Supreme Court

has made but three collateral references to the “manifest

13

disregard” of the law standard.-In a dissent published in

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,

473 U.S. 614, 105 S. Ct. 3346, 87 L. Ed. 2d 444 (1985),

Justice Stevens noted that “arbitration awards are reviewable

for manifest disregard of the law.” In a partially concurring

opinion in Shearson/American Express, Inc. vy. McMahon,

482 U.S. 220, 102 S. Ct. 2332, 96 L. Ed. 2d 185 (1987),

Justice Blackmun referred to the “manifest disregard”

standard of Wilko but provided no substantive discussion

of it. While Wilko was overruled in Rodriguez de Quijas v.

Shearson/American Express, supra, the Court did not in that

opinion address its “manifest disregard” dictum.

Courts that recognize the manifest disregard of law

standard define it as necessarily meaning “more than error

or misunderstanding with respect to law.” Merrill Lynch,

Pierce, Fenner & Smith, Inc. v. Bobker, 808 F.2d 930, 933

(2d Cir. 1986). Manifest disregard “may be found ‘when

arbitrators understand and correctly state the law, but proceed

to disregard the same.’” Stroh Container Co. v. Delphi

Industries, Inc., 783 F.2d 743 (8th Cir.), cert. denied,

476 U.S. 1141, 106 S. Ct. 2249, 90 L. Ed. 2d 695 (1986).

In the Eleventh Circuit, the word “manifest” means

“evident to the senses, especially to the sight, obvious to the

understanding, evident to the mind, not obscure or

hidden, and is synonymous with open, clear, visible,

unmistakable, indubitable, indisputable, evident, and self-

evident.” Black's Law Dictionary, 962 (6th ed. 1990),

cited with approval in Montes, supra. The word “disregard,”

alternatively, means “to treat as unworthy of regard or notice;

to take no notice of; to leave out of consideration; to ignore;

to overlook; to fail to observe.” Black's Law Dictionary at

472; see also American Heritage Dictionary at 381 (“To pay

no attention or heed to; fail to consider; ignore.”).

+

“If a court is to vacate an arbitration award on the basis

of a manifest disregard of the law, there must be some

showing in the record, other than the result obtained, that

the arbitrators knew the law and expressly disregarded it.”

O.R. Securities, Inc. v. Professional Planning Associates,

Inc., 857 F.2d 742 (11th Cir. 1988). “An arbitration panel

that incorrectly interprets the law has not manifestly

disregarded it. It has simply made a legal mistake.

To manifestly disregard the law, one must be conscious

of the law and deliberately ignore it.” Montes, 128 F.3d

at 1461, citing O.R. Sec., 857 F.2d at 747. The court must be

able to see that the arbitrator “appreciates the existence of a

clearly governing legal principle but decides to ignore or pay

no attention to it. [Cit.]” Merrill, Lynch, Pierce, Fenner

& Smith, Inc. v. Bobker, 808 F.2d 930, 933 (2d Cir.

1986). “We conclude that a manifest disregard for the

law, in contrast to a misinterpretation, misstatement or

misapplication of the law, can constitute grounds to vacate

an arbitration decision.” Montes, supra, at 1461-1462.

Today, virtually every circuit court of appeal recognizes

the “manifest disregard of the law” standard. See Prudential-

Bache Sec., Inc. v. Tanner, 72 F.3d 234 (1st Cir. 1995);

- Willemijn Houdstermaatschappij, BV v. Standard

Microsystems Corp., 103 F.3d 9 (2d Cir. 1997); United

Transp. Union Local 1589 v. Suburban Transit Corp.,

51 F.3d 376 (3d Cir. 1995); Upshur Corp. v. Erwin

Behr GmbH. & Co., KG, 87 F.3d 844 (6th Cir. 1996);

National Wrecking Co. v. International Broth. Of Teamsters,

Local 731, 990 F.2d 957 (7th Cir. 1993); Lee v. Chica,

983 F.2d 883 (8th Cir.), cert. denied, 510 U.S. 906, 114

S. Ct. 287, 126 L. Ed. 2d 237 (1993); Barnes v. Logan,

122 F.3d 820 (9th Cir. 1997); Jenkins v. Prudential-Bache

Sec., Inc., 847 F.2d 631 (10th Cir. 1988); Mcllroy v.

15

PaineWebber, Inc., 989 F.2d 817, 820 n.2 (5th Cir. 1993);

Montes v. Shearson Lehman Brothers, Inc., 128 F.3d 1456

(11th Cir. 1997).

Furthermore, the Second Circuit Court of Appeals has

held that “when a reviewing court is inclined to hold that an

arbitration panel manifestly disregarded the law, the failure

of the arbitrators to explain the award can be taken into

account.” Halligan v. Piper Jaffray, Inc., 148 F.3d 197, 204

(2d Cir. 1998), cert. denied, 526 U.S. 1034, 143 L. Ed. 2d

378, 119 S. Ct. 1286 (1999). In the case of Rotfeld v. Boenning

& Scattergood, Inc., et al., 1991 U.S. Dist. LEXIS 11618

(E.D. Pa. August 20, 1991), the United States District Court

for the Eastern District of Pennsylvania, in reviewing an

award under the Federal Act, held that “where an arbitrator’s

award was arrived at through a series of undisclosed

calculations, a court has discretion to inquire into the basis

of the award if the facts of the case fail to support it or if it

appears to be in manifest disregard of the law.” The

defendants in Rotfeld argued that it was beyond the court’s

scope of review to question the merits of an award. The

district court stated that it agreed with this contention but

went on to note that it was not beyond the court’s scope of

review to question the calculation of the award. As to the

defendants’ assertion that the arbitrator was free to arrive at

a compromise verdict, the district court found the defendants

to be relying improperly on case authority having to do with

claims for negligence, where compromise damage awards

are customary. Contract claims, said the district court, “rely

instead on objective mathematical calculation to insure that

the injured party is restored to the financial position he would

have been in had the breach never occurred.” For that reason,

and because the arbitrators had provided no explanation for

their award, the award was vacated by the district court.

———_—<————

[nai tibia dmimmmammas

; 16

The same situation pertains here. The arbitrator’s Award

was delivered without benefit of explanation. It not only is

incapable of being understood, it fails to restore the

supposedly injured party to the financial position that it would

have been in had no breach ever occurred. Respondents

instead have been unjustly enriched.

This Court should act to insure that state court jurists do

not decline review merely because the statutory schemes in

their respective jurisdictions do not explicitly recognize

“manifest disregard of the law” as a basis for judicial review.

Where, as here, interstate commerce is implicated, and where,

as here, the party seeking arbitration moves to compel such

proceedings pursuant to the FAA, state court jurists

must review arbitration awards subsequently entered in

conforinance with standards of judicial review explicitly

applicable to the FAA.

2. Because Arbitration Is An Increasingly Pervasive

Reality Of Modern Commercial Life, This Court

Should Act To Insure That Important Substantive

Rights Are Not Lost Amidst The Move From Judicial

To Arbitral Forums.

Arbitration is no longer the exclusive province of parties

engaged in arms length negotiations. Each day Americans

are required to “choose” arbitration if they wish to commence

or continue employment, open a securities brokerage account,

or do business with selected business vendors. Arbitration

agreements have now received near universal approval.

See, e.g., Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614, 626-27, 105 S. Ct. 3346, 3354,

87 L. Ed. 2d 444 (1985). As a consequence, employers,

17

brokerage houses and retailers are employing it to avoid the

cost and risks of litigation.

Fueling this movement are court decisions consistently

holding that claims arising under federal statutes may become

the subject of arbitration agreements. (/d. at 628). Arbitration

agreements encompassing claims brought under federal

employment discrimination statutes, for example, have

received near universal approval.

The Eleventh Circuit Court of Appeals, in keeping with

the reasoning of Gilmer v. Interstate/Johnson Lane Corp.,

500 U.S. 20, 111 S. Ct. 1647, 114 L. Ed. 2d 26 (1991),

has found that Title VII claims may also be subject to

compulsory arbitration. Bender v. A.G. Edwards & Sons, Inc.,

971 F.2d 698 (11th Cir. 1992). Almost every other circuit

concurs with the Eleventh Circuit’s decision in Bender that

Title VII does not prohibit mandatory arbitration for claims

arising under the statute. See, e.g., Desiderio v. National Ass'n

of Sec. Dealers, Inc., 191 F.3d 198, 204-06 (2d Cir. 1999),

cert. denied, 531 U.S. 1069, 121 S. Ct. 756, 148 L. Ed. 2d

659 (2001); Rosenberg v. Merrill, Lynch, Pierce, Fenner &

Smith, Inc., 170 F.3d 1, 7 (1st Cir. 1999); Koveleskie v. SBC

Capital Mrkts., Inc., 167 F.3d 361, 365 (7th Cir. 1999),

cert. denied, 528 U.S. 811, 120 S. Ct. 44, 145 L. Ed. 2d 40

(1999); Seus v. John Nuveen & Co., 146 F.3d 175, 182

(3d Cir. 1998), cert. denied, 525 U.S. 1139, 119 S. Ct. 1928,

143 L. Ed. 2d 38 (1999), abrogated on other grounds, Blair

v. Scott Specialty Gases, 283 F.3d 595 (3d Cir. 2002);

Patterson v. Tenet Healthcare, Inc., 113 F.3d 832, 837 (8th

Cir. 1997); Cole v. Burns Int’l Sec. Servs., 105 F.3d 1465,

1482-83 (D.C. Cir. 1997); Austin v. Owens-Brockway Glass

Container, Inc., 78 F.3d 875, 882 (4th Cir. 1996), cert. denied,

18

519 U.S. 980, 117 S. Ct. 432, 136 L. Ed. 2d 330 (1996);

Metz v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 39 F.3d

1482, 1487 (10th Cir. 1994); Willis v. Dean Witter Reynolds,

Inc., 948 F.2d 305, 307 (6th Cir. 1991); Alford v. Dean Witter

Reynolds, Inc., 939 F.2d 229, 230 (Sth Cir. 1991).

In Circuit City v. Adams, 532 U.S. 105, 121 S. Ct. 1302,

149 L. Ed. 2d 234 (2001), this Court ruled that the Federal

Arbitration Act is applicable to all contracts of employment

excepting only those involving transportation workers.

The expanding range and number of disputes to be

resolved through arbitration means that reviewing courts must

diligently insure that important substantive rights are not lost.

“By agreeing to arbitrate a statutory claim, a party does not

forgo the substantive rights afforded by the statute; it only

submits to their resolution in an arbitral, rather than a judicial,

forum.” Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,

Inc., supra at 628. This legal guarantee will become

increasingly uncertain should arbitrators understand they may

knowingly defy the law. In the absence of vigilant judicial

review, public respect and support for the arbitration process

will surely erode.

“Manifest disregard of the law” gives meaning to the

entire concept of judicial review. The principle is a necessary

component of the courts’ “obligation to exercise sufficient

judicial scrutiny to ensure that arbitrators comply with their

duties and the requirements of the statutes.” Williams v. Cigna

Financial Advisors, 197 F.3d 752, 761 (Sth Cir. 1999).

Its vitality is so essential that this Court was moved to declare,

in the case of First Options of Chicago v. Kaplan, 514 US.

938, 942 (I), 115 S. Ct. 1920, 131 L. Ed. 2d 985 (1985),

19

that “manifest disregard of the law” is one of the “very

unusual circumstances” giving rise to a vacatur of an

arbitration award by a federal court.

Broadly accepted by state and federal courts, eminently

compatible with our English and American common law

traditions, and resonating with what every man, woman and

child believes a /Jegal system is meant to guarantee, “manifest

disregard of the law” should never be refused by state court

jurists as a standard of review when proceedings brought

under the FAA are involved.

CONCLUSION

A writ of certiorari should issue to address the legal and

policy issues presented above.

Dated: December 16, 2002.

Respectfully submitted,

MICHAEL ALAN DAILEY

ANDERSON DalLey LLP

The Prominence Building

3475 Piedmont Road N.E.

Suite 1820

Atlanta, GA 30305

(404) 442-1800

Counsel for Petitioners

APPENDIX

la

APPENDIX A — ORDER OF THE SUPREME COURT

OF GEORGIA DENYING MOTION FOR RECONSID-

ERATION DATED SEPTEMBER 16, 2002

SUPREME COURT OF GEORGIA

Atlanta, September 16, 2002

Case No. S01G1765

The Honorable Supreme Court met pursuant to adjournment.

The following order was passed:

PROGRESSIVE DATA SYSTEMS, INC., et al.

V.

JEFFERSON RANDOLPH CORPORATION,

d/b/a JRC TRUCKING, INC., et al.

Upon consideration of the Motion for Reconsideration

filed in this case, it is ordered that it be hereby denied.

All the Justices concur, except Hunstein and Carley, JJ.,

who dissent.

2a

APPENDIX B — OPINION OF THE

SUPREME COURT OF GEORGIA

DATED AND DECIDED JULY 15, 2002

SUPREME COURT OF GEORGIA

S01G1765.

PROGRESSIVE DATA SYSTEMS, INC., et al.

v.

JEFFERSON RANDOLPH CORPORATION,

d/b/a JRC TRUCKING, INC., et al.

July 15, 2002, Decided

OPINION

THOMPSON, Justice.

We granted a writ of certiorari to the Court of Appeals

in Jefferson Randolph Corp. v. Progressive Data Systems,

251 Ga. App. 1 (553 S.E.2d 304) (2001), to determine whether

an arbitration award can be vacated because of the arbitrator’s

“manifest disregard of the law.” The answer is “no.”

Progressive Data Systems (“PDS”) sold computer equip-

ment and software to Jefferson Randolph Corp. (“JRC”).

After the equipment was delivered, JRC sued to rescind the

sales agreement and for fraud. PDS sought arbitration and

counterclaimed for unpaid software licensing fees and future

fees. The arbitrator entered an award on PDS’s counterclaim

for compensatory damages in the amount of $81,540, plus

attorney fees, administrative fees and expenses. The trial

3a

Appendix B

court confirmed the award and added “post-award pre-

judgment interest” and “additional attorney fees” to it. JRC

appealed and the Court of Appeals, reversed, holding, inter

alia, that the arbitrator manifestly disregarded the law

because, although he recognized that damages for future

license fees are to be treated as liquidated damages and an

unenforceable penalty, he awarded damages anyway.

In Greene v. Hundley, 266 Ga. 592 (468 S.E.2d 350)

(1996), this Court ruled that the four statutory grounds for

vacating an arbitration award are exclusive. That is to say

that to vacate an award of arbitration, the applying party must

show that its rights were prejudiced by: (1) Corruption, fraud,

or misconduct in procuring the award; (2) Partiality of an

arbitrator appointed as a neutral; (3) An overstepping of the

arbitrators of their authority or such imperfect execution of

it that a final and definite award upon the subject matter

submitted was not made; or (4) A failure to follow the

procedure of this [Code], unless the party applying to vacate

the award continued with the arbitration with notice of this

failure and without objection.

O.C.G.A. § 9-9-13(b).

Thus, under Greene, an arbitration award can be vacated

in only one of four statutory ways. See Ralston v. City of

Dahlonega, 236 Ga. App. 386 (512 S.E.2d 300) (1999)

(review must be confined to the four statutory grounds).

That is because the Georgia Arbitration Code is in derogation

of the common law and must be strictly construed. Greene,

supra at 594,

4a

Appendix B

Inasmuch as the Code does not list “manifest disregard

of the law” as a ground for vacating an arbitration award,

it cannot be used as an additional ground for vacatur. Nor

can it be said that a “manifest disregard of the law” fits within

the framework of the third statutory ground listed above —

overstepping of the arbitrator’s authority. That ground only

comes into play when an arbitrator determines matters beyond

the scope of the case. Threatt v. Forsyth County, 250 Ga.

App. 838, 841 (552 S.E.2d 123) (2001) (citing Haddon v.

Shaheen & Co., 231 Ga. App. 596 (499 S.E.2d 693) (1998)).

It is not applicable where, as here, the issue to be decided,

i.e., damages, is properly before the arbitrator.

Because the federal arbitration law closely mirrors the

statutory grounds set forth in our Arbitration Code, we examine

its provisions.' We note that the federal law provides several

statutory grounds for vacating an arbitration award and

that “manifest disregard of the law” is not one of them.

Nevertheless, the federal courts cite “manifest disregard of

the law” as a ground for vacatur. See, e.g., NCR Corp. v.

Sac-Co., 43 F.3d 1076, 1079 (6th Cir. 1995).

In the main, the federal courts do not rely upon the

provisions of the federal arbitration statute to justify using

the “manifest disregard of the law” principle. To the contrary,

1. The federal law allows a court to vacate an arbitration award

where the award was procured by “corruption” or “fraud”; where

the arbitrators demonstrated “partiality”; “where the arbitrators were

guilty of misconduct” or “other misbehavior” causing prejudice to

the rights of any party; “where the arbitrators exceeded their powers”

in such a way “that a mutual, final, and definite award upon the

subject matter submitted was not made.” 9 USCA § 10(a).

5a

Appendix B

that principle is widely recognized as being nothing more

than a non-statutory creation of the federal courts. See Carte

Blanche (Singapore) v. Carte Blanche (Intl.), 888 F.2d 260,

265 (2nd Cir. 1989) (“manifest disregard of the law” is a

judicially created ground for vacatur of an arbitration award;

it is not to be found in the federal arbitration law).

Our legislature set forth four statutory grounds for vacat-

ing an arbitration award. Significantly, it did not include

“manifest disregard of the law” as one of those grounds.

Whatever the merits of the “manifest disregard of the law”

principle, we shouid not be so bold as to judicially mandate

its use as an additional ground for vacatur, especially since,

as noted above, our Arbitration Code is in derogation of the

common law and must be strictly construed.

Judgment reversed. All the Justices concur, except Hunstein

and Carley, JJ., who dissent.

6a "

Appendix B

CARLEY, Justice, dissenting.

“{AJjn arbitration award may be vacated only if one or

more of the four statutory grounds set forth in [O.C.G.A.]

§ 9-9-13(b) is found to exist.” Greene v. Hundley, 266 Ga.

592 (468 S.E.2d 350) (1996). I strongly believe that the

grounds set forth in that statute implicitly incorporate the

concept of “manifest disregard of the law.” Moreover, even

if we were to construe O.C.G.A. § 9-9-13(b) as not including

that principle, I submit that “manifest disregard of the law”

still constitutes a valid basis for vacating an arbitration award

because, under such a construction, the holding in Greene

would be unduly restrictive. Therefore, I respectfully dissent.

1. While, the words “manifest disregard of the law” do

not appear in O.C.G.A. § 9-9-13(b), “a statute is to be read

as a whole, and the spirit and intent of the legislation prevails

over a literal reading of the language. [Cit.]” Kemp v. City

of Claxton, 269 Ga. 173, 175(1) (496 S.E.2d 712) (1998).

The phrase has a simple and well-defined meaning:

“To manifestly disregard the law, one must be conscious of

the law and deliberately ignore it. [Cit.]” Montes v. Shearson

Lehman Bros., 128 F.3d 1456, 1461 (11th Cir. 1997) (apply-

ing federal law). As thus construed, the ground is “is a narrow

one.” Montes v. Shearson Lehman Bros., supra at 1462.

There must be something beyond and different from mere

error in law or failure on the part of the arbitrators to

understand or apply the law; it must be demonstrated that

the majority of arbitrators deliberately disregarded what they

knew to be the law in order to reach the result they did. [Cits.]

7a

Appendix B

Health Services Management Corp. v. Hughes, 975 F.2d

1253, 1267(C) (7th Cir. 1992) (applying federal law).

Therefore, “[a]n arbitration board that incorrectly interprets

the law has not manifestly disregarded it.” Montes v. Shearson

Lehman Bros., supra at 1461. “[T]he term ‘disregard’ implies

that the arbitrator appreciates the existence of a clearly

governing legal principle but decides to ignore or pay no

attention to it. [Cit.]” Merrill Lynch, Pierce, Fenner &

Smith v. Bobker, 808 F.2d 930, 933 (2d Cir. 1986) (applying

federal law).

When faced with questions of law, an arbitration panel

does not act in manifest disregard of the law unless

(1) the applicable legal principle is clearly défined and not

subject to reasonable debate; and (2) the arbitrators refused

to heed that legal principle.

Merrill Lynch, Pierce, Fenner & Smith v. Jaros, 70 F.3d 418,

~ 421(IIT) (6th Cir. 1995) (applying federal law). Thus,

“manifest disregard of the law” is an applicable ground for

vacating an award only in the limited instance “where it is

clear from the record that the arbitrator recognized the

applicable law — and then ignored it. [Cits.]” Advest, Inc. v.

McCarthy, 914 F.2d 6, 9 (1st Cir. 1990) (applying federal

law).

Under O.C.G.A. § 9-9-13(b)(1), an arbitration award

can be vacated for “misconduct in procuring the award”

and, under subsection (b)(2), for the “[p]artiality of an

_arbitrator. . . .” In my opinion, in the very rare instance where

an arbitrator intentionally ignores a controlling legal

principle, he or she lacks the requisite impartiality and

engages in such misconduct as to authorize vacation of the

8a

Appendix B

award. See San Martine Compania De Navegacion v.

Saguenay Terminals Ltd., 293 F.2d 796, 801 (9th Cir. 1961)

(applying federal law). In addition, subsection (b)(3) of the

statute provides that “[a]n overstepping by the arbitrators of

their authority” is a ground for vacation of the award. I simply

do not believe that an arbitrator may refuse purposefully to

follow the applicable law. “When a claim arises under specific

laws, ... the arbitrators are bound to follow those laws

in the absence of a valid and legal agreement not to do so.”

(Emphasis supplied.) Montes v. Shearson Lehman Bros.,

supra at 1459. Therefore, an arbitrator who intentionally

elects not to be bound by controlling legal principles must

necessarily overstep his or her legitimate authority. See Metal

Products Workers Union, Local 1645 v. The Torrington Co.,

242 F.Supp. 813, 820 (D. Conn. 1965) (applying federal law),

aff'd, 358 F.2d 103 (2d Cir. 1966).

A holding that the courts cannot vacate an arbitration

award on the basis of the arbitrator’s “manifest disregard of

the law” has the effect of rendering judicial review a meaning-

less exercise. If the majority is correct, then an arbitrator is

free to ignore the law willfully, as the deliberate refusal to

adhere to it will not prevent enforcement of the admittedly

illegal award. Although judicial scrutiny of arbitration awards

necessarily is limited, I believe that it nevertheless must

be “ ‘sufficient to ensure that arbitrators comply with the

requirements of the statute’ at issue. [Cit.]” Gilmer v.

Interstate/Johnson Lane Corp., 500 U.S. 20, 32, 114 L. Ed.

2d 26, 111 S. Ct. 1647(II1)(B), fn. 4 (500 U.S. 20, 111 S. Ct.

1647, 114 L. Ed. 2d 26) (1991) (applying federal law). The

courts “are charged with the obligation to exercise sufficient

judicial scrutiny to ensure that arbitrators comply with their

9a

- Appendix B

duties and the requirements of the statutes.” Williams v. Cigna

Financial Advisors, 197 F.3d 752, 761(II) (Sth Cir. 1999)

(applying federal law). Thus, based upon a reading of

O.C.G.A. § 9-9-13(b) as whole, I submit that that statute

implicitly invests the judiciary with the authority to vacate

an arbitration award based upon an arbitrator’s “manifest

disregard of the law.”

2. However, even assuming that that principle is not

encompassed within O.C.G.A. § 9-9-13(b), I still believe that

the result the Court reaches today is incorrect. Greene did

not involve the “manifest disregard of the law” concept and

dealt only with the issue of whether the judiciary is authorized

to vacate an arbitration award due to a lack of evidentiary

support. This Court answered that question in the negative,

correctly concluding that arbitration is not “subject to

traditional rules of appellate review.” Greene v. Hundley,

supra at 597(3). This holding in Greene that a lack of

evidence is a traditional ground of judicial scrutiny which is

inapplicable to review of an arbitration award is entirely

consistent with the “reluctance [of the judiciary] to suggest

explicitly or implicitly that an arbitration board’s decision

can be reviewed on the basis that its conclusion or reasoning

is legally erroneous.” Montes v. Shearson Lehman Bros.,

supra at 1461. However, that reluctance should not extend

to a review based upon a “manifest disregard of the law,”

because “[t]he courts which have recognized the manifest

disregard of the law standard define it as necessarily meaning

“more than error or misunderstanding with respect to law.’

[Cit.]” O.R. Securities v. Professional Planning Assoc., 857

F.2d 742, 747 (11th Cir. 1988) (applying federal law). Yet,

the statement in Greene that the bases set forth in O.C.G.A.

10a

Appendix B

§ 9-9-13(b) are the exclusive grounds for vacating an

arbitration award seemingly forecloses any consideration of

the possibility that “manifest disregard of the law” is a valid

non-statutory ground. In my opinion, Greene's unqualified

restriction of the authority of the judiciary to review

arbitration awards was unnecessary. I believe that we should

have limited our holding in Greene to the rejection of the

lack of evidentiary support as a permissible ground, and left

the question of the validity of other non-statutory grounds,

such as “manifest disregard of-the law,” for a case in which

that issue was presented squarely. The present appeal is the

first case in which this Court has focused on the concept of

“manifest disregard of the law,” and I cannot concur in a

refusal to consider the viability of that ground based upon

the unnecessary statement in Greene that there are no

permissible non-statutory bases for vacating an arbitration

award.

The “manifest disregard of the law” principle stems from

the decision of the Supreme Court of the United States in

Wilko v. Swan, 346 U.S. 427, 436 (74 S. Ct. 182, 98 L. Ed.

168) (1953), overruled on other grounds, Kodriguez de Quijas

v. Shearson/American .Express, 490 U.S. 477, 485(III)

(109 S. Ct. 1917, 104 L. Ed. 2d 526) (1989), indicating that,

although the arbitrator’s erroneous interpretation of the law

would not subject an award to reversal, his or her clear disregard

of the law would. See also First Options of Chicago v.

Kaplan, 514 U.S. 938, 942(I1) (115 S.Ct. 1920, 131 L. Ed.

2d 985) (1995) (holding that “manifest disregard of the law”

is one of the “very unusual circumstances” in which a federal

court can set aside an arbitration award). Since then, it appears

that all of the “numbered federal circuit courts and the D.C.

lla

Appendix B

Circuit have recognized manifest disregard of the law as

either an implicit or nonstatutory ground for vacatur under

the FAA [(Federal Arbitration Act)]. [Cit.]” Williams v. Cigna

Financial Advisors, supra at 759(II). See also Montes v.

Shearson Lehman Bros., supra at 1460. Thus, today “most

state and federal courts recognize[ ] one or more nonstatutory

grounds warranting vacatur of an arbitral award, including

... the arbitrator’s manifest disregard of the law... .”

Williams v. Cigna Financial Advisors, supra at 757(II).

The rationale for this almost universal acceptance of the

“manifest disregard of the law” principle is that it is deemed

a necessary component of the courts’ “obligation to exercise

sufficient judicial scrutiny to ensure that arbitrators comply

with their duties and the requirements of the statutes.”

Williams v. Cigna Financial Advisors, supra at 761 (II). “A

primary advantage of arbitration is the expeditious and final

resolution of disputes by means that circumvent the time and

expense associated with civil litigation.” Greene v. Hundley,

supra at 597(3). However, that advantage is surely lost if the

judiciary permits arbitrators to circumvent the applicable law

wilfully. No reasonable potential litigant would select arbitration

in lieu of a lawsuit if there is a possibility that the dispute

will be resolved by a finai award issued by an arbitrator who

has judicial approval to ignore controlling legal principles.

Therefore, to the extent that Greene bars acceptance of a

“manifest disregard of the law” as a valid ground for vacating

an award, it discourages arbitration as an alternate method

of dispute resolution and places Georgia outside the mainstream

of persuasive authority. Accordingly, I would overrule the

holding in Greene that O.C.G.A. § 9-9-13(b) provides the

exclusive grounds for vacating an arbitration award, and

12a

Appendix B

adopt “manifest disregard of the law” as a viable basis for

doing so. Thus, the judgment of the Court of Appeals should

be affirmed.

I am authorized to state that Justice Hunstein joins in

this dissent.

13a

APPENDIX C — OPINION OF THE

COURT OF APPEALS OF GEORGIA

DATED AND DECIDED JULY 31, 2001

COURT OF APPEALS OF GEORGIA

A01A1590.

JEFFERSON RANDOLPH CORPORATION et al.

¥.

PROGRESSIVE DATA SYSTEMS, INC. et al.

July 31, 2001, Decided

OPINION

ELDRIDGE, Judge.

This is an appeal from the confirmation of an arbitration

award made by the American Arbitration Association

(“AAA”) against Jefferson Randolph Corporation d/b/a JRC

Trucking, Inc. and Thurman Carpets, Inc., plaintiffs, for

Progressive Data Systems, Inc., William A. Crozier, Jr., and

Thomas G. Taylor, defendants, based on their counterclaims.

Plaintiffs contend that the trial court erred in confirming an

award when the arbitrator overstepped his authority and

entered an award on issues not submitted to him, granted

0.C.G.A. § 9-15-14 attorney fees without identifying conduct

authorizing the award, awarded postjudgment interest at

18 percent on the entire principal, and awarded prejudgment

interest on the principal arbitrator’s award. We agree and

reverse.

14a

Appendix C

Jefferson Randolph Corporation d/b/a JRC Trucking

(“JRC”) is in the business of hauling carpet inventory

for carpet manufacturers but also sold carpet products through

its sister corporation Thurman Carpets (“Thurman”).

On May 24, 1996, under an Equipment Sales, Software

License, and Service Agreement, JRC bought computer

software and hardware from Progressive Data Systems

(“PDS”) for $167,935.26, which it paid in full, to track

the movement of its trucks with inventory and to process

the various carpet transactions in which Thurman was

involved. The basic software deliverable had a distribution

modification that required customization to perform order

entry, inventory, and purchasing; however, 15 months after

the Agreement was entered into, PDS had not delivered a

completed distribution modification under the contract.

JRC came to believe that Crozier and Taylor, principals

of PDS, had made false and untrue representations concerning

the work that they would perform as to timely performance,

contract services, and features. JRC gave notice of its rescind-

ing the Agreement.

On April 22, 1999, JRC sued to rescind the Agreement

and for fraud. The defendants answered, counterclaiined,

filed a motion to dismiss for failure to have an indispensable

party, Thurman, and moved to stay and compel arbitration

under the contract under the Federal Arbitration Act.

JRC added Thurman as an additional plaintiff.

Initially, JRC opposed arbitration, because Thurman,

Crozier, and Taylor were not parties to the Agreement requiring

arbitration and were not bound to arbitrate. Subsequently,

15a

Appendix C

JRC and the other parties agreed to arbitration, but the parties

could not agree upon the issues to submit to arbitration.

On December 8, 1999, the trial court ordered the parties to

proceed to arbitration “pursuant to the terms of the arbitration

provisions included in the contract between the parties.”

PDS initiated a demand for arbitration before the AAA.

On July 26 and 27, 2000, at the arbitration hearing, PDS

made claims only for the unpaid software license fees and

all future licensing fees as liquidated damages, prejudgment

interest at the rate of 1.5 percent per month on the accelerated

future licensing fees, and expenses of litigation. At the direction

of the arbitrator, PDS revised and sought additional damages.

JRC and Thurman sought rescission of the Agreement and

recovery of consequential damages. PDS never terminated

the Agreement nor sent JRC an invoice and demand for the

accelerated future invoice payments for eighteen years and

three months as liquidated damages.

On August 18, 2000, the arbitrator entered an award

against JRC and Thurman and for the defendants on their

counterclaims in the amount of $81,540 in compensatory

damages, which did not disclose what were consequential

damages and prejudgment interest; $64,875 in attorney fees;

$2,487 in administrative fees and expenses; and $1,782.99

in expenses and compensation of the arbitrator totaling

$150,685. The attorney fees were not differentiated as to what

was incurred to collect the future license fees, what had been

incurred in defense to plaintiffs’ case, and what was

reasonable for prosecuting the counter-claim.

—

16a

Appendix C

PDS moved for the trial court to confirm the award.

The plaintiffs moved to vacate or modify the award, because

the arbitrator exceeded his authority and made an award

as to issues not submitted to him. On February 12, 2001,

the trial court confirmed the award. On the same date,

the trial court entered a final judgment for such award and

further awarded the defendants on their counterclaim “post-

award prejudgment interest” in the amount of $12,261.22

on the gross sum of $150,685 and “additional attorney’s fees”

of $5,000 without any findings of fact or conclusions of law

or any hearing, and postjudgment interest on $150,685 at

18 percent per year.

1. Plaintiffs contend that the trial court erred in confirm-

ing the arbitrator’s award, because he “overstepped his

authority.” We agree.

Under Section 3.15 of the Agreement, PDS was entitled

to damages: ;

Upon the occurrence of an Event of Default,

Vendor may (1) terminate this Agreement and

invoke all rights Vendor possesses upon termi-

nation and (2) if Customer remains liable for any

monetary obligation created under this Agreement,

accelerate and declare all obligations of Customer

as a liquidated sum and proceed against Customer

in any lawful way for satisfaction of such sum, or

repossess as much of the System as remains in

Customer’s possession.

Prior to suit, PDS never terminated the Agreement, which

would have been a useless act, because JRC had already given

17a

Appendix C

notice of the rescission of the Agreement and ceased to use

the system. However, JRC had fully paid $167,935.26,

the cost of the system, as well as the $7,500 a year licensing

fee; on January 8, 1998, after termination of the Agreement,

JRC ceased to pay the annual fees owed under the contract

for eighteen years and three months, which PDS sought as

compensatory damages in its counterclaim. PDS never sent

JRC an invoice or demand to pay the accelerated future

license fees for eighteen years and three months prior to suit.

From the time of the termination notice until the time of the

arbitrator’s award, approximately 27 months of license fees

had been unpaid and 16 future years of license fees had not

accrued, absent an acceleration of the obligation as liquidated

damages. By PDS’ claim for damages, it sought $7,500 as

nominal damages under the breach of confidentiality provision.

The rest of PDS’ damages were claims for the liquidated

damages of $136,875, prejudgment interest of 1.5 percent per

‘ month, and attorney fees.

The arbitrator correctly found in his award that the

liquidated damages provision of Section 3.15 was a penalty

under O.C.G.A. § 11-2-718, regarding liquidated damages;

plaintiffs brought this Code section to the arbitrator’s

attention prior to the award. The $7,500 for breach of

confidentiality as nominal damages would have been

appropriate damages in the absence of consequential

damages. O.C.G.A. § 13-6-6; Crawford & Assoc. v. Groves-

Keen, Inc., 127 Ga. App. 646, 650(1) (194 S.E.2d 499) (1972).

However, nominal damages are not recoverabie when the

claimant seeks and recovers special damages, as well as

nominal damages. See Bennett v. Associated Food Stores,

118 Ga. App. 711, 716(2) (165 S.E.2d 581) (1968). The only

18a -

Appendix C

other contract damages that were owed at the time of the

award were license fees for the 27 months at $7,500 a year

plus prejudgment interest. Therefore, contract damages of

$81,540 are unsupported by any evidence and must be in

whole or in part attributable to liquidated damages for the

future licensing fees, as well as prejudgment interest on an

alleged commercial account that constituted accelerated

future lost income.

(a) In this case, the arbitrator, by denominating the

acceleration of future license fees as a penalty rather than

recoverable liquidated damages, correctly recognized that,

under Georgia law and public policy, liquidated damages are

a penalty to deter a breach of contract, where the liquidated

damages are unreasonable and there is no difficulty ascertain-

ing future damages. O.C.G.A. §§ 11-2-718(1); 13-6-7;

AFLAC, Inc. v. Williams, 264 Ga. 351, 354(2) (444 S.E.2d

314) (1994); Carter v. Tokai Financial Svcs., 231 Ga. App.

755, 758-759(2) (500 S.E.2d 638) (1998). For a liquidated

damages clause to be enforceable in Georgia, such damages

must demonstrate: (1) that the injury caused by the breach

must be difficult or impossible of estimation; (2) that the

parties must intend to provide for damages; and (3) that

the sum stipulated must be a reasonable pre-estimate of the

probable loss. Southeastern Land Fund v. Real Estate World,

237 Ga. 227, 230 (227 S.E.2d 340) (1976); Oasis Goodtime

Emporium I, Inc. v. Cambridge Capital Group, Inc., 234 Ga.

App. 641 (507 S.E.2d 823) (1998); Wehunt v. ITT Bus.

Communications Corp., 183 Ga. App. 560 (359 S.E.2d 383)

(1987). Where, as here, both liquidated and other damages

are recoverable under the Agreement, the liquidated damages

are an unenforceable penalty. Southeastern Land Fund v. Real

19a

Appendix C

Estate World, supra at 228. As in this case, where half of a

long-term retainer fee is treated as liquidated damages, such

provision is unenforceable as a penalty to deter termination.

AFLAC, Inc. v. Williams, supra at 354. Here, the liquidated

damages are all the future license fees without reduction for

expenses or for present cash value and interest imposed as if

it were a past due debt instead of accelerated future fees, not

yet earned. Future economic loss of earnings must be reduced

to present cash value, since the fees have not been earned.

See generally O.C.G.A. § 51-12-13; Chouinard v. City of East

Point, 237 Ga. App. 266, 270(5)(b) (514 S.E.2d 220) (1999);

Crosby v. Spencer, 207 Ga. App. 487, 488(2) (428 S.E.2d

607) (1993). If liquidated damages are recoverable, then the

parties cannot elect between liquidated and actual damages;

prejudgment interest would be actual damages. O.C.G.A.

§§ 7-4-16; 13-6-13; Southeastern cand Fund v. Real Estate

World, supra at 230. Where there is a loss of future business

earnings, this.is a recovery for lost future profits after the

projected expenses of earning the projected revenue has been

deducted and not the recovery of the gross revenue collected,

because the claimant is not permitted to recover expenses

never incurred, putting him in a better position than if the

contract had been performed. Pounds v. Hosp. Auth. of

Gwinnett County, 197 Ga. App. 598, 599(1) (399 S.E.2d 92)

(1990); City of Atlanta v. J.A. Jones Constr. Co., 195 Ga.

App. 72, 75(3) (392 S.E.2d 564) (1990), rev’d on other

grounds, 260 Ga. 658(1) (398 S.E.2d 369) (1990).

Interest on a commercial account cannot be recovered

absent an invoice and demand for payment prior to suit,

causing the sum to become due and payable, and the

opportunity to pay to avoid the imposition of such interest.

20a

Appendix C

“In the absence of a liquidated demand, O.C.G.A. § 7-4-16

is inapplicable.” Typo-Repro Svcs. v. Bishop, 188 Ga. App.

576, 579(2) (373 S.E.2d 758) (1988); see also Dalcor Mgmt.

v. Sewer Rooter, Inc., 205 Ga. App. 681, 682-683(4) (423 S.E.2d

419) (1992). Defendant never rendered an invoice for a

liquidated claim due by the plaintiff as a liquidated demand

prior to suit, but sued for breach of contract for future

damages, which it sought to accelerate under the Agreement

and which was contested. As such, the claim was not for a

commercial account, allowing prejudgment damages, but a

breach of contract action only. See O.C.G.A. § 7-4-16; Dalcor

Mgmt. v. Sewer Rooter, supra at 683; see also Trebor Corp.

v. Nutmeg Indus., 208 Ga. App. 697, 698(1) (431 S.E.2d 402)

(1993). As a breach of contract action only, PDS was entitled

to prejudgment interest only from the time of the award of

the arbitrator. See Southern Water Technologies v. Kile,

224 Ga. App. 717, 720(4) (481 S.E.2d 826) (1997); Hayden

v. Sigari, 220 Ga. App. 6, 11(8) (467 S.E.2d 590) (1996).

(b) In entering his award, the arbitrator manifestly

disregarded the law, regarding penalties, which he expressly

recognized by identifying the damages as a penalty and not

liquidated damages; thus, he did not merely erroneously

interpret the law. See Montes v. Shearson Lehman Bros.,

Inc., 128 F.3d 1456 (11th Cir. 1997). -

While PDS invoked arbitration under the Federal Arbitra-

tion Act, which the Agreement did not specify, all the parties

who were not bound by the Agreement subsequently agreed

in court to submit to this arbitration; thus, such agreement to

arbitration would appear to be under the Georgia Act rather

than the Federal Arbitration Act. O.C.G.A. § 9-9-1 et seq.;

2la

Appendix C

Greene v. Hundley, 266 Ga. 592, 594(1) (468 S.E.2d 350)

(1996); Cotton States Mut. Ins. Co. v. Nunnally Lumber

Co., 176 Ga. App. 232, 236-237(4) (335 S.E.2d 708) (1985).

However, we do not have to decide such issue, because

Georgia courts will not confirm an arbitration award that

constitutes a manifest disregard of the law applicable under

the Federal Arbitration Act. Ralston v. City of Dahlonega,

236 Ga. App. 386, 390-391(6) (512 S.E.2d 300) (1999);

Bartlett v. Dimension Designs, Ltd., 195 Ga. App. 845,

848 (395 S.E.2d 64) (1990), rev’d on other grounds, Pace

Construction Corp. v. Northpark Assn., 215 Ga. App. 438,

439 (450 S.E.2d 828) (1994).

Where an arbitration occurs under the Federal Arbitration

Act, if the arbitrator manifestly disregarded the law, i.e.,

that he was conscious of and deliberately ignored the law,

then Georgia courts will not confirm such arbitration awards.

Ralston v. City of Dahlonega, supra at 391.

(c) The trial court erred in confirming the award where

the arbitrator overstepped his authority by manifestly disregard-

ing the statute regarding penalties. O.C.G.A. § 9-9-13(b)(3);

Greene v. Hundley, supra at 596(3); Mid-American Elevator

Co., Inc., v. Gemco Elevator Co., Inc., 183 Ga. App. 88, 89

(357 S.E.2d 838) (1987).

2. The plaintiffs contend that the trial court erred in

confirming the arbitration award, because the arbitrator

entered an award on a matter that was not submitted to him.

Plaintiffs failed to reference the record or give citation of

authority, regarding this enumeration of error. Under Court

of Appeals Rule 27(c), such enumeration is deemed abandoned.

22a

Appendix C

3. Plaintiffs contend that the trial court erred in awarding

attorney fees incurred in responding to plaintiffs’ motion and

application to vacate and/or modify the arbitration award.

We agree.

While the trial court has broad discretion to award attorney

fees and expenses of litigation under O.C.G.A. § 9-15-14,

the trial court must include in its award findings of conduct

authorizing such award or the order must be vacated. Porter v.

Felker, 261 Ga. 421, 422(3) (405 S.E.2d 31) (1991); see also

City of Cumming v. Realty Dev. Corp., 268 Ga. 461, 463(2)

(491 S.E.2d 60) (1997); Coker v. Mosley, 259 Ga. 781,

782(2)(c) (387 S.E.2d 135) (1990). Thus, the award of

attorney fees by the trial court is vacated because no findings

as to conduct were made in the judgment.

4. Plaintiffs contend that the trial court erred in award-

ing postjudgment interest at 18 percent per annum on the

principal amount of the award. We agree.

Under Georgia law, 12 percent: is the rate of interest,

even on commercial accounts, unless the judgment is entered

on a written contract, providing for interest at a greater

specified rate. O.C.G.A. § 7-4-12; ADC Constr. Co. v. Hall,

202 Ga. App. 119, 120 (413 S.E.2d 522) (1991). While

Section 1.2 provides that “[e]quipment shall be shipped

freight collect or billed according to PDS’s standard rates

[and that] Customer will pay a late charge at 1.5% per month,

but not to exceed the lawful maximum interest rate, on the

unpaid balance,” such Agreement provision did not apply to

the accelerated future license fees as an exception to O.C.G.A.

§ 7-4-12. From its plain and unambiguous terms, this

23a

Appendix C

provision setting the rate of 1.5 percent per month applied

to the initial contract price only. Sellers v. Nodvin, 207 Ga.

App. 742, 747-748(4) (429 S.E.2d 138) (1993); Chilivis v.

Rogers Oil Co., 135 Ga. App. 176, 177(3) (217 S.E.2d 179)

(1975). The Agreement, under Section 1.2, only provides for

interest for unpaid equipment charges; therefore, since JRC

paid all equipment and software charges except 27 months

of license fees prior to the acceleration of all future fees, then

the Agreement provided no interest rate exception under these

facts and circumstances of this case. O.C.G.A. § 7-4-12.

Thus, the statutory rate controls, and the trial court erred in

using any other rate of interest. Further, since the arbitrator

returned a gross sum which was not differentiated by

consequential damages and interest, any interest awarded

would be interest upon interest.

5. Plaintiffs contend that the trial court erred in awarding

the defendants post-award prejudgment interest on the

principal amount of the award. We agree.

Defendants sought to recover interest on the accelerated

payment of future licensing fees as liquidated damages before

the arbitrator. The arbitrator’s award was a gross sum and

not separated into damages and prejudgment interest. Interest

cannot be recovered upon interest, as the trial court appears

to have granted. See State Hwy. Dept. v. Godfrey, 118 Ga.

App. 560, 561(2) (164 S.E.2d 340) (1968); see also Hubbard

v. McRae, 95 Ga. 705, 707, 22 S.E. 714 (1895).

Judgment affirmed in part and reversed in part.

Andrews, P.J., and Miller, J., concur.

24a

APPENDIX D— ORDER CONFIRMING ARBITRATION

AWARD OF THE SUPERIOR COURT OF GWINNETT

COUNTY, STATE OF GEORGIA DATED FEBRUARY 9,

2001 AND FILED FEBRUARY 12, 2001

IN THE SUPERIOR COURT OF GWINNETT COUNTY

STATE OF GEORGIA

CIVIL ACTION FILE NO. 99A-3362-4

JEFFERSON RANDOLPH CORPORATION

d/b/a JRC TRUCKING

Plaintiff,

VS.

PROGRESSIVE DATA SYSTEMS, INC.;

WILLIAM A. CROZIER, JR.; and THOMAS G. TRAYLOR,

Defendants,

VS.

JEFFERSON RANDOLPH CORPORATION

d/b/a JRC TRUCKING and THURMAN CARPETS, INC.,

Counterclaim Defendants,

ORDER CONFIRMING ARBITRATION AWARD

On December 8, 1999 this Court entered an order

granting Defendants’ motion to stay the above-styled action

to compel arbitration. The parties subsequently proceeded

25a

Appendix D

to arbitrate all disputes between them on July 26 and 27,

2000 with Defendants, Progressive Data Systems, Inc., William

Crozier, and Thomas Traylor, as claimants and Jefferson

Randolph Corporation d/b/a, JRC Trucking, and Thurman

Carpets, Inc., as respondents (hereinafter “Claimants” and

“Respondents” respectively).

After the hearing and submission of evidence and legal

memoranda the arbitrator issued his award on August 18,

2000. In the award, an original of which has been filed of

record, the arbitrator rejected all of Respondents’ claims and

found in favor of Claimants on their claim that respondents

breached the agreement between the parties. Claimants were

awarded $81,540.00 in damages, $64,875.00 in attorney’s

fees, $2,487.01 in administrative fees and expenses, and

$1,782.99 in compensation and expenses for the arbitrator.

The total amount of the award was $150,685.00. See Exhibit A,

a true and correct copy of the Arbitration Award.

On September 1, 2000 Claimants filed an Application

to Confirm Arbitration Award and for Final Judgment

pursuant to the Federal Arbitration Act. In this application

Claimants sought to confirm the award in the amount of

$150,685, plus post-award, pre-judgment interest at the

contractual and commercial liquidated account rate of 18%

per annum, and post-judgment interest at the contractual rate

of 18%.

On October 2, 2000 Respondents filed a response opposing

the requested confirmation of the award. They argued that

the Georgia Arbitration Code precluded confirmation. Claim-

ants replied that even assuming the Georgia Arbitration Act

were applicable the award was subject to confirmation.

26a

Appendix D

Subsequently, on October 12, 2000 Respondents filed a

motion and application to vacate and/or modify the arbitration

award. They sought to vacate or modify under both the

Federal Arbitration Act and the Georgia Arbitration Code,

arguing that the arbitrator overstepped his authority, exceeded

his authority, manifestly disregarded the law, and the award

was arbitrary and capricious and violated the public policy

of the State of Georgia.

Ciaimants responded to the motion to vacate/modify

contesting Respondents’ positions. On December 4, 2000 this

Court heard oral argument on Claimants’ motion to confirm

and Respondents’ motion to vacate or modify. The Court has

carefully considered the positions of the parties, including

the arguments and authorities provided in the supporting

briefs and memoranda of law. Based on all matters of record,

the Court finds and rules as follows:

1. Claimants’ Application for Order Confirming

Arbitration Award and for Final Judgment is

GRANTED; and

2. Respondents’ Motion and Application to Vacate and

Modify Commercial Arbitration Award is DENIED.

Therefore, IT IS HEREBY

ORDERED that the arbitrator’s award is confirmed

in its entirety, with Claimants being awarded jointly and

severally against Respondents $81,540.00 in damages,

$64,875.00 in attorney’s fees, $2,487.01 in administrative

fees and expenses, and $1,782.99 in compensation and

27a

Appendix D

expenses. for the arbitrator. The total amount of the award is

$150,685.00. This award shall bear post-award, pre-judgment

interest at the contractual and commercial liquidated rate of

18% per annum. The post-award, pre-judgment interest from

August 19, 2000 through January 30, 2001 is $12,261.22

($74.31/day for 165 days). The principal amount of the award,

$150,685.00 bears post-judgment interest at the contractual

rate of 18% per annum.

It is further ORDERED that Claimants’ request for

attorney’s fees for the post-arbitration confirmation request

and opposition to Respondents’ motion to vacate is

GRANTED, and Claimants are awarded attorney’s fees and

expenses of $5,000.00.

It is therefore ORDERED that Claimants have a final

judgment jointly and severally against Respondents in the

total amount of $167,946.22 ($150,685 plus $5,000.00 plus

$12,261.22 pre judgment interest), together with post judg-

ment interest at the rate of 18% per annum.

So ORDERED this 9th day of February, 2001.

s/ Michael C. Clark

Michael C. Clark

Judge Superior Court

Gwinnett Judicial Circuit

28a

APPENDIX E — FINAL JUDGMENT OF THE

SUPERIOR COURT OF GWINNETT COUNTY,

STATE OF GEORGIA DATED FEBRUARY 9, 2001

AND FILED FEBRUARY 12, 2001

IN THE SUPERIOR COURT OF GWINNETT COUNTY

STATE OF GEORGIA

CIVIL ACTION FILE NO. 99A-3362-4

JEFFERSON RANDOLPH CORPORATION

d/b/a IRC TRUCKING

Plaintiff,

VS.

PROGRESSIVE DATA SYSTEMS, INC.;

WILLIAM A. CROZIER, JR.;

and THOMAS G. TRAYLOR,

Defendants,

VS.

JEFFERSON RANDOLPH CORPORATION d/b/a

JRC TRUCKING and THURMAN CARPETS, INC.,

Counterclaim Defendants.

FINAL JUDGMENT

This Court has entered an Order Confirming Arbitration

Award providing that Progressive Data Systems, Inc., William

A. Crozier and Thomas G. Traylor have judgment jointly

and severally against Jefferson Randolph Corporation d/b/a

JRC Trucking and Thurman Carpets, Inc., in the total amount

of $167,946.22, with the principal amount of $150,685.00

bearing post-judgment interest at the rate of 18% per annum.

ee

29a

Appendix E

Therefore, it is hereby ORDERED, ADJUDGED and

DECREED that FINAL JUDGMENT be entered as follows:

All claims of Jefferson Randolph Corporation d/b/a JRC

Trucking and Thurman Carpets, Inc., are denied and are

dismissed with prejudice and Defendants recover all costs

of the action; and

Progressive Data Systems, Inc., William A. Crozier and

Thomas G. Traylor are awarded jointly and severally against

Plaintiff and Thurman Carpets, Inc., a final judgment of

$167,946.22 consisting of $150,685.00 awarded by the

arbitrator ($81,540.00 in damages, $64,875.00 in attorney’s

fees, $2,487.01 in administrative fees and expenses, and

$1,782.99 in compensation and expenses for the arbitrator),

$5,000.00 in additional attorney’s fees and $12,261.22 in

post-award, pre-judgment interest. The principal amount of

the award, $150,685.00 shall bear post-judgment interest at

the rate of 18% until paid.

So ORDERED this 9th day of February, 2001.

s/ Michael C. Clark

Judge Superior Court

Gwinnett Judicial Circuit

30a

APPENDIX F — AMERICAN ARBITRATION

ASSOCIATION, ARBITRATION TRIBUNAL

DATED AUGUST 18, 2000

AMERICAN ARBITRATION ASSOCIATION

Arbitration Tribunal

AWARD OF THE ARBITRATOR

In the Matter of the Arbitration between

PROGRESSIVE DATE SYSTEMS, INC.,

WILLIAM A. CROZIER, JR., AND THOMAS G. TRAYLOR

(Claimants)

-And-

JEFFERSON RANDOLPH CORPORATION, d/b/a

JRC TRUCKING INC., AND THURMAN CARPETS, INC.

(Respondents)

CASE NUMBER: 30 117 01110 99

I, THE UNDERSIGNED ARBITRATOR, having been desig-

nated in accordance with the Arbitration Agreement entered

into by the above named parties, and dated May 24, 1996

and having been duly sworn and having duly heard the proofs

and allegations of the parties, FIND as follows:

I find the following as a matter of fact:

a) The Claimants did not commit fraud;

b) The Claimants were not in breach of the contract;

and

c) The Respondents were in breach of the contract.

3la

Appendix F

I find the following as a matter of law:

a) Neither the contract nor the software was properly

rejected, rescinded or revocated.

b) The acceleration clause on the contract was a penalty

and unreasonable before, during and after the

execution of the contract.

Therefore, I Award as follows: The Respondents shall pay

to the Claimants the sum of EIGHTY-ONE THOUSAND

FIVE HUNDRED FORTY DOLLARS AND NO CENTS

($81,540.00) within thirty (30) days from the date of this

signed Award.

On the claim, the Respondents shall pay to the Claimants

the sum of SIXTY-FOUR THOUSAND EIGHT HUNDRED

SEVENTY-FIVE DOLLARS AND NO CENTS ($64,875.00)

for attorney fees.

The administrative fees and expenses of the American

Arbitration Association totaling TWO THOUSAND NINE

HUNDRED SEVENTY-FOUR DOLLARS AND ONE

CENT ($2,974.01) shall be borne entirely by the Respon-

dents. Therefore, the Respondents, shall pay to the Claimants

the sum of TWO THOUSAND FOUR HUNDRED

EIGHT Y-SEVEN DOLLARS AND ONE CENT ($2,487.01)

for that portion of the administrative fees and expenses

previously advanced by the Claimant to the Association.

32a

Appendix F

The compensation and expenses for the arbitrator totaling

FOUR THOUSAND FIVE HUNDRED SIXTY-TWO

DOLLARS AND NO CENTS (§ 4,562.00) shall be borne

entirely by the Respondents. Therefore, the Respondents shall

pay to the Claimants the sum of ONE THOUSAND SEVEN

HUNDRED EIGHTY-TWO DOLLARS AND NINETY-

NINE CENTS ($1,782.99) for that portion of compensation

and expenses for the arbitrator previously advanced by the

Claimant to the Association. The Respondents shall pay to

the American Arbitration Association the sum of NINE

HUNDRED NINETY-SIX DOLLARS AND ONE CENT

($996.01) for said compensation still due to the arbitrator.

This Award is in full settlement of all claims submitted

to this arbitration.

s/ Henry M. Abelman

Henry M. Abelman

DATE: 08/18/00