When litigants attempt to vacate arbitration awards, they usually don’t get much help from the 5th U.S. Circuit Court of Appeals. Yet the court recently ruled that two defendant corporate officers were not individually bound by arbitration agreements and overturned the awards against them.

The Aug. 4 decision in DK Joint Venture 1, et al. v. Richard W. Weyand, et al. is a departure for the appeals court, which has been hostile to arbitration vacatur attempts in the past. For example, in 2009′s Citigroup Global Markets Inc. v. Bacon , the court ruled that arbitrators’ manifest disregard of the law was not a ground for vacatur. And in 2007′s Positive Software Solutions Inc. v. New Century Mortgage Corp., et al., the 5th Circuit, sitting en banc, reversed a three-judge panel decision that had affirmed a U.S. District Court ruling vacating an arbitration award. The en banc court found that the “mere appearance” of an arbitrator’s bias was not a sufficient reason for vacatur.

According to the 5th Circuit’s opinion, the background in Joint Venture 1 is as follows: The plaintiffs sued Weyand, Peter Thiessen and 15 corporations controlled by them in state court over a business dispute. Weyand is the chief executive officer and Thiessen is the chief financial officer of the defendant companies. The plaintiffs and the defendant corporations had entered into contracts called “subscription agreements” that contained arbitration agreements. The plaintiffs moved to compel all the defendants to arbitrate the state court litigation. [See the court's opinion.]

The defendants removed the case to a U.S. District Court for the Northern District of Texas. While Weyand and Thiessen protested that they had not agreed to arbitrate anything, the District Court ruled that all of the defendants including Weyand and Thiessen were bound by the arbitration agreements, the 5th Circuit wrote.

Specifically, U.S. District Judge Ed Kinkeade of Dallas ruled in a Jan. 29, 2008, order that because Weyand and Thiessen conducted the day-to-day business affairs of the corporate defendants, they met the definition of “affiliate” in the subscription agreements, even though they didn’t sign them. “Moreover, under Texas law, where contracting parties agree to arbitrate all disputes ‘under or with respect to’ a contract, they generally intend to include disputes about their agents’ actions,” Kinkeade wrote in the order.On April 1, 2009, a panel of three American Arbitration Association arbitrators awarded the plaintiffs $13,317,381 in damages against Weyand and $311,329 in damages against Thiessen, the 5th Circuit wrote. After the District Court confirmed the award, both men appealed. [See the judge's order.]

In a May 24, 2010, brief to the 5th Circuit, the plaintiffs argued that the question of whether Weyand and Thiessen agreed to arbitration was delegated exclusively to the arbitration panel and “no court has the power to decide that issue.” The plaintiffs also maintained that Weyand’s and Thiessen’s arguments were “without merit, without justification, and legally frivolous.”

But the 5th Circuit disagreed. “Weyand and Thiessen, as CEO and CFO of the defendant corporations, were the corporations’ agents. Under general principles of contract and agency law, the fact that the defendant corporations entered into the Subscription Agreements did not cause their agents, Weyand and Thiessen, who acted only as officers on behalf of the corporations, to be personally bound by those agreements,” wrote 5th Circuit Judge James Dennis in an opinion joined by Judges Eugene Davis and Jacques Wiener. The panel reversed the trial court’s order confirming the award and remanded it back for further hearings.

Donovan Campbell Jr., a partner in Dallas’ Rader & Campbell who represents the plaintiffs in DK Joint Venture 1 , did not return a telephone call seeking comment.

Jeff Boggess, a Frisco solo who represents Weyand and Thiessen, is pleased with the decision — especially given the 5th Circuit’s reputation for rejecting attempts to vacate arbitration awards.

“The 5th Circuit’s decision is a beacon to wayward federal district judges and others who misinterpret Texas state decisions that decide which agents of contracting principals can be bound by the principals’ arbitration agreements and under what circumstance,” Boggess says. “The 5th Circuit’s decision reaffirms and applies the general rule that no one is bound by another party’s contract. . . .”