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Click here for the full text of this decision FACTS:In 1995, Seagull Energy implemented a management stability plan providing that employees involuntarily terminated within two years of a change in management would be entitled to specific severance benefits. Though characterized as an ERISA plan, the management plan also included an arbitration provision, and it directed any future arbitrator who reviewed decisions regarding benefits to apply the same standards as would be used in federal court. In November 1998, Seagull announced its merger with Ocean Energy to conduct its surveying work. At the same time, Seagull met with Buckeye Pipeline to discuss the possible separate acquisition of the operations and construction group. The transfer of any contracts held by the group required customer consent. Because employees in the group were essential to securing customer consent, Seagull’s chief financial officer sent a memo to employees in the group in January 1999 assuring them of their job security after the change in control. The memo iterated that the management plan was in effect. Shortly after the memo went out, the company filed an amendment to the management plan. Made retroactive to Jan. 1, it provided for payment of severance benefits in the event of the Seagull/Ocean merger. The sale of the operations and construction group to Buckeye occurred on Feb. 22, 1999, and the group employees set out to gain customer consent to allow the assignment of contracts. On March 29, the night before the Seagull/Ocean merger took place, the company adopted another amendment to the management plan. The amendment changed the definition of “involuntary termination.” The employees in the group were terminated from Seagull the day of the merger and went to work the next day for Buckeye. When these employees applied for severance benefits, they were denied. Twenty-three employees in the group filed suit, saying that the March amendment necessitated that members of the group would still be required to work, even though they were no longer a part of the Seagull/Ocean merger, and not be paid severance benefits. The district court ordered the case to arbitration. Considering several cases from the 5th U.S. Circuit Court of Appeals, the arbitrator issued a 42-page opinion awarding the group employees $1.5 million in benefits under the plan, plus attorneys’ fees and interest. Ocean (the company’s name after the merger) filed a motion to vacate the award with the district court without filing a transcript from the arbitration or any exhibits. Ocean filed only the legal briefs filed with the arbitrator and the arbitrator’s opinion. The employees filed a response that raised the issues of the last two amendments to the management plan, as well as the decisions to deny benefits. Finding the arbitrator had “exceeded his powers, misunderstood the law, and misread the contract,” the district court vacated the award. The district court added that the arbitrator had exceeded his power by applying the wrong standard for reviewing the benefit denial decisions. The employees now appeal. HOLDING:Reversed and remanded to reinstate the arbitration award. “By electing to send this case to arbitration, and then appealing the arbitrator’s decision to federal court, [Ocean] has presented this Court with the responsibility of reviewing, under firmly established arbitration law, a decision of an arbitrator who had the responsibility of interpreting an ERISA plan under federal ERISA law.” The court first considers whether it was appropriate for the district court to apply what amounted to a de novo review of the arbitrator’s award. The court points out that under the Federal Arbitration Act, there are only four occasions when an arbitration award can be vacated by a reviewing court, and only two more occasions are recognized by case law: 1. where the award was procured by corruption, fraud or undue means; 2. where there is evidence of partiality or corruption in the arbitrators, or either of them; 3. where the arbitrators were guilty of misconduct or any other misbehavior by which the rights of any party have been prejudiced; 4. where the arbitrators exceeded their powers; 5. where there has been manifest disregard of the law; and 6. where the award is contrary to public policy. Of the three grounds advanced by the district court for vacating the award that the arbitrator exceeded his powers, misunderstood the law and misread the contract only one is recognized by the 5th Circuit: that the arbitrator exceeded his powers. The court then points out that the district court found that the arbitrator exceeded his powers because his ruling was contrary to law, thus mixing a recognized ground for vacatur with a non-recognized ground. Furthermore, the district court did not appropriately consider circuit precedent with that one recognized ground or the recognized ground of manifest disregard of the law. The court thus turns to decide if the arbitrator exceeded his powers. The court notes that the plan doesn’t limit the scope of issues to be arbitrated, and the only limit on the arbitrator’s power is that he review the matter as a federal court would. “Based upon Fifth Circuit precedent . . . , the plaintiffs’ Statement of Claim submitted to the arbitrator, and without the record from the arbitration hearing being filed before the district court, and without any other limitation on the issues to be arbitrated, the district court could not have found that the arbitrator exceeded his powers. Hence, any arguments that the arbitrator exceeded his powers by deciding issues not properly before him or that the award is not rationally inferable from the contract are without merit.” The court then turns to decide if the arbitrator manifestly disregarded the law. The court first finds, though, that even if the arbitrator did manifestly disregard the law, a second step of the analysis requires that before an arbitrator’s award can be vacated, the court must find that the award resulted in a “significant injustice.” That requires an examination of whether the benefits decision was justified under the plan. The arbitrator, too, went outside the administrative record to make this determination, the court finds. Though it’s true that federal courts are generally prevented from going outside the administrative record in reviewing plan fiduciary decisions, here the parties were not in federal court. They were involved in mandatory arbitration invoked by Ocean. While the plan called for the arbitrator to review benefits decision as a federal court would, this court has previously held that conflict of interest is a factor to be weighed in determining how much deference is given to an administrator’s decision. The court finds support in circuit precedent for the way in which the arbitrator reached his conclusion that the decisions were not justified under the plan. One might disagree with his conclusions or even his methodology, the court adds, “but that does not reduce the deference that decision is due by the reviewing court.” The court rules that the district court improperly substituted its judgment for that of the arbitrator. “The parties bargained for arbitration. When one bargains for arbitration, he bargains for the process as well as the results. If Ocean had wanted to have the rigors of a federal court proceeding, it could have had them. Instead, it compelled arbitration and now, dissatisfied with the result, seeks a different outcome.” OPINION:Pickering, J.; King, Barksdale and Pickering, JJ.

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