Pfeifle v. Chemoil Corp

* Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
United States Court of Appeals
Fifth Circuit
F I L E D
August 22, 2003
Charles R. Fulbruge III
Clerk
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 03-20047
MICHAEL M. PFEIFLE,
Plaintiff-Appellant,
versus
CHEMOIL CORPORATION,
Defendant-Appellee.
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Appeal from the United States District Court
for the Southern District of Texas
(H-02-CV-101)
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Before WIENER, CLEMENT, and PRADO, Circuit Judges.
PER CURIAM:*
Plaintiff-Appellant Michael M. Pfeifle appeals the district
court’s order confirming an arbitration award in favor of
Defendant-Appellee Chemoil Corporation. Pfeifle contends that the
arbitrators exceeded their contractual authority by awarding
Chemoil damages that Pfeifle classifies as consequential and thus
violative of the arbitration agreement’s proscription of awarding
“indirect” damages. Based largely on the highly deferential and

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narrowly limited standard by which federal courts review the
actions of arbitrators, we affirm.
As indicated, the primary question presented in this appeal is
whether the arbitrators exceeded their jurisdiction and improperly
awarded “indirect” or consequential damages to Chemoil. Pfeifle
does not challenge the arbitrators’ conclusion that he breached his
contract by engaging in unauthorized transactions and subjecting
Chemoil to increased margin calls and financial loss. Rather, he
challenges only the arbitrators’ damage award, arguing that any
award of damages based on his unauthorized transactions must be
consequential damages, which fall within the arbitration clause’s
prohibition of awarding “lost profits and indirect damages.”
Pfeifle relies heavily on the Texas Supreme Court’s recent opinion
in Miga v. Jensen, 96 S.W.3d 207 (Tex. 2002), reiterating that the
“rule in Texas has long been that contract damages are measured at
the time of breach, and not by the bargained-for-goods’ market gain
as of the time of trial.” Miga, 96 S.W.3d at 214.
We review a district court’s confirmation of an arbitration
award de novo. Executone Info. Sys., Inc. v. Davis, 26 F.3d 1314,
1320 (5th Cir. 1994). Our review of the underlying arbitration
award is “very deferential.” Id.; see also Baravati v. Josephthal,
Lyon & Ross, Inc., 28 F.3d 704, 706 (7th Cir. 1994). An
arbitrator’s decision must be affirmed “if it is rationally
inferable from the letter or the purpose of the underlying
agreement,” regardless of any alleged error of fact or law.

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Executone, 26 F.3d at 1320. In determining whether an arbitrator
exceeded his jurisdiction, all doubts must be resolved in favor of
arbitration. Valentine Sugars, Inc. v. Donau Corp., 981 F.2d 210,
213 (5th Cir. 1993).
Pfeifle presents a compelling argument under Miga that,
because the parties excluded indirect damages, all that remains are
general damages which must be calculated as of the date of the
breach. Under this reasoning, no subsequent trading losses are
recoverable, even if they are the proximate result of the breach.
Pfeifle reasons that, just as the subsequent gains at issue in Miga
were not recoverable as general damages, the losses Chemoil
incurred are not compensable in this case.
As we are not reviewing a merits judgment from a federal
district court, but an order confirming an arbitration award,
Pfeifle must establish that his claim falls within one of the
highly circumscribed grounds for vacatur of an arbitration award.
Pfeifle advances only one such ground as the basis for vacatur,
that the arbitrators “exceeded their powers” in awarding
consequential damages. We conclude that he has not established
that vacatur is warranted in this case.
As a threshold matter, Pfeifle’s claim is difficult if not
impossible to evaluate in light of the necessarily sparse record on
appeal in arbitration cases. In this particular case, the
arbitrators’ award is largely devoid of explanation or analysis.
Regarding damages, the arbitrators stated only that “[a]s to the

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breach of the Contract for opening new positions which required new
margin on and after October 12, 2000, Chemoil is entitled to
damages” and concluded that “[b]ased on the evidence presented at
the hearings, the amount of those damages is found to be
$1,000,000.” In light of these bald findings, Pfeifle’s theory
that the damages necessarily account for consequential trading
losses is conjectural at best.
Further, Pfeifle’s legal argument, that general damages
account only for difference-in-value damages and must be calculated
as of the instant of breach, has never been applied to the type of
breach at issue in this case, i.e., the violation of a direct order
to refrain from trading. In Miga and other cases that Pfeifle
cites, the general difference-in-value damages were easy to
calculate: The “goods” promised were the options at the price
fixed in the employment agreement; the breach occurred when the
employer failed to deliver the promised goods on the date the
employee sought to exercise the options. Both the amount of
general damages and the time for calculating those damages were
readily determinable. These cases are not truly analogous to the
situation presented in the instant case, however.
According to the arbitrators, Pfeifle breached the agreement
when he engaged in risky, unauthorized trades that resulted in
substantial margin calls, allegedly causing some $9 million in
losses to Chemoil. Yet the arbitrators awarded only $1 million in

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damages. Stated simply, we cannot determine from the arbitrators’
decision what, if any, rationale produced their award.
Although the arbitrators were without authority to award
indirect damages, they were not required to justify, explain, or
otherwise give reasons for the damages that they did award. See,
e.g., Valentine Sugars, Inc., 981 F.2d at 214 (“Arbitrators need
not provide reasons for their award.”); Anderman/Smith Operating
Co. v. Tennessee Gas Pipeline Co., 918 F.2d 1215, 1219 n.3 (5th
Cir. 1990)(“[A]rbitrators are generally not even required to
disclose or explain the reasons that underlie their decision.”)
Unlike the arbitrator in Delta Queen Steamboat Co. v. District 2
Marine Engineers Beneficial Ass’n, 889 F.2d 599 (5th Cir. 1989),
the panel here did not expressly award damages for lost profits or
trading losses in violation of the arbitration agreement. Even
though Pfeifle speculates that, in his case, the arbitrators must
have awarded trading losses, there is nothing in their decision
akin to the finding of “carelessness” in Delta Queen to support his
deduction. Delta Queen Steamboat Co., 889 F.2d at 604. Given the
“extraordinary deference” owed to decisions of arbitrators and the
rule that any doubts must be resolved in favor of arbitration,
Pfeifle’s argument fails.
Finally, and perhaps most importantly, even if the arbitrators
incorrectly calculated the damage award, an arbitrator’s erroneous
interpretation of law or facts is not a basis for vacatur of an
award. See El Dorado Sch. Dist. No. 15 v. Cont’l. Cas. Co., 247

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F.3d 843, 847 (8th Cir. 2001)(“Our disagreement with an
arbitrator’s interpretation of the law or determination of facts is
an insufficient basis for setting aside his award.”); Widell v.
Wolf, 43 F.3d 1150, 1151 (7th Cir. 1994)(“Over and over we have
held that arbitrators’ errors —— even clear or gross errors —— do
not authorize courts to annul awards.”)(internal citation omitted).
Courts consistently emphasize the narrowness of judicial review of
arbitration awards, describing it as “among the narrowest known to
the law,” ARW Exploration Corp. v. Aguirre, 45 F.3d 1455, 1462
(10th Cir. 1995)(quotations omitted), and caution that “when they
contract for arbitration, parties should be aware that they get
what they bargain for and that arbitration is far different from
adjudication.” El Dorado, 247 F.3d at 847 (internal quotations
omitted). Even if Pfeifle’s interpretation of Texas contract law
is correct, he has not explained how this warrants vacatur.
“Courts . . . do not sit to hear claims of factual or legal error
by an arbitrator as an appellate court does in reviewing decisions
of lower courts.” United Paperworkers Int’l Union v. Misco, Inc.,
484 U.S. 29, 38 (1987).
Given our standard of review and the fact that the
arbitrators’ decision does not expressly recognize or account for
consequential damages, their award is “rationally inferable.”
Therefore, the order of the district court confirming the
arbitration award in favor of Chemoil Corporation is, in all
respects,

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AFFIRMED.

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