September 23, 2019

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Third Circuit Affirms Arbitration Award for Employee’s Breach of Employment Agreement

Melody Shan was employed by Sabre GLBL. Shan entered into an employment agreement with Sabre, which prohibited Shan from disclosing confidential information and competing with Sabre for its employees, contractors, and customers, both during and after her employment. The employment agreement was governed by Texas law. Shan started a competing company while still employed by Sabre and solicited Sabre employees and customers. Shan thereafter resigned from Sabre and continued to work on her competing company. Sabre sued Shan in New Jersey state court, alleging that Shan breached the employment agreement by misusing confidential information, stealing employees, soliciting customers, and competing with Sabre. Shan removed the action to federal court and moved to compel arbitration pursuant to the employment agreement. The district court granted the motion, and Sabre initiated an arbitration before the Judicial Arbitration and Mediation Services (JAMS) in Dallas, Texas. The arbitrator found in favor of Sabre and awarded $200,000 in disgorgement-of-salary damages and $1,173,318 in “head start” damages based on Shan’s equity interest in the competing company. The district court affirmed the award, and Shan appealed.

The U.S. Court of Appeals for the Third Circuit affirmed the district court’s decision. The court explained that its review of an arbitration award is “extremely deferential” and can only be vacated in a select few instances. The court explained that the damages were not awarded in a “manifest disregard of the law” as Shan did not identify any clearly governing principle of Texas law that the arbitrator was aware of and chose to ignore in awarding these damages. The court further declared that the arbitrator did not exceed his powers in his damages award. The court explained that the arbitrator’s award, which fully explained his reasoning, was sufficient under the standard despite the arbitrator’s failure to address Shan’s mitigation defense. The court also found that the arbitrator was not guilty of “misbehavior by which the rights of any party have been prejudiced.” Even though Sabre did produce its expert report after the deadline, Shan was not prejudiced because the arbitrator permitted Shan to present expert rebuttal testimony at the hearing without a written expert report. Lastly, the court stated that the arbitrator did not act with partiality as Shan failed to show any bias.

Sabre GLBL, Inc. v. Shan, Nos. 18-2079, 18-2144 (3d Cir. July 3, 2019).

©2011-2019 Carlton Fields, P.A.

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Rachel Schwartz Insurance Attorney
Associate

Rachel J. Schwartz represents property and casualty insurance industry clients in litigation and counsels them on varied coverage matters, including coverage disputes arising under Commercial General Liability and Directors & Officer policies.

Rachel drafts pleadings, discovery requests and responses, and motions regarding declaratory judgment actions. She reviews insurance policies and conducts legal research on various insurance coverage topics, including late notice, policy exclusions, duty to defend, allocation, and NY Ins. L. 3420(d). She prepares tenders, carrier position...

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