Case of the Day: Katz, Nannis & Solomon v. Levine

The case of the day is Katz, Nannis & Solomon, P.C. v. Levine (Mass. 2016). The case involved a dispute among the shareholders of a small accounting firm formerly known as Levine, Katz, Nannis & Solomon, P.C. Katz, Nannis, and Solomon voted to require Levine to withdraw as a director and stockholder. Levine disputed their action, and the parties arbitrated the matter. Their agreement provided that it was “subject to and governed by the laws of the Commonwealth of Massachusetts pertaining to agreements executed in and to be performed in the Commonwealth of Massachusetts.” It also contained an agreement to arbitrate that read as follows:

In the event of any dispute concerning any aspect of this Agreement, the parties agree to submit the matter to binding arbitration before a single arbitrator appointed by the American Arbitration Association.…The decision of the arbitrator shall be final; provided, however, solely in the event of a material, gross and flagrant error by the arbitrator, such decision shall be subject to review in court.… [T]he party against which final, adverse judgment is entered [shall be] responsible for (in addition to its own) the other party’s(ies’) costs and expenses, including reasonable attorneys’ fees.

The arbitrator entered a final award in favor of Katz, Nannis, and Solomon, which included an award of more than $1.7 million plus interest. KN&S moved to confirm the award in the Superior Court. The judge granted the motion and denied Levine’s motions for post-judgment relief. Levine appealed, and the Supreme Judicial Court granted his application for direct appellate review (a procedure a bit analogous to seeking certiorari before judgment in the federal court system, but much more routine).

The court ultimately affirmed the judgment confirming the award. The interesting question was the scope of review. The agreement to arbitrate was governed by the UAA as enacted in Massachusetts. The UAA provides very limited grounds for vacatur, and the SJC has previously held that unless the arbitrator exceeds her powers or the award is procured by corruption, fraud, etc., erroneous findings of fact or conclusions of law are not grounds for vacating an award. But the parties had tried to contract around the statutory limitation on judicial review. Did they have the power to affect the standard of review the court should apply?

We know from Hall Street v. Matell that parties cannot expand the scope of review under the FAA by contract, but Hall Street left open the question whether state arbitration law might be more flexible.1

In Massachusetts, at least, we now know that the answer is “no.” The court was persuaded by the close parallels between the FAA and the UAA as well as the mandatory language of § 11 of the UAA (“the court shall confirm …), which contrasts with optional, default language in other parts of the statute, e.g., the statue governing methods of appointing an arbitrator in default of an agreement between the parties. And of the court the court focused on the policy of the statute, which is to avoid undermining the predictability, certainty, and effectiveness of arbitration.

  1. Of course, this raises the question of how to know whether an arbitration is governed by state or federal law, which is a complicated question that the decision doesn’t address. One way—the carefullest way—is to address the point in the arbitration agreement itself.

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