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Court Upholds Award on Restrictive Covenant

Deborah Elkins//September 16, 2011

Court Upholds Award on Restrictive Covenant

Deborah Elkins//September 16, 2011//

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In this suit involving a therapy contractor’s claims that nine defendant facilities terminated their contracts and then hired 57 of the contractor’s former employees in violation of a restrictive covenant, a Lynchburg U.S. District Court affirms an arbitrator’s award that held defendant health care company jointly and severally liable for a damage award for the breach.

The health care company negotiated certain therapy service agreements at issue in this case. This court determined the defendant facilities were liable for breaching the restrictive covenant, but that plaintiff had not shown good reason to pierce the corporate veil and hold the health care company liable for the breach. In contrast, the arbitrator determined the health care company should be jointly and severally liable for damages arising out of the payment dispute.

Defendants seek modification of the arbitrator’s award pursuant to § 11 of the Federal Arbitration Act, but their claim does not appear to fit within any of the narrow statutory categories that allow an award to be overturned. Nor does it appear the arbitrator acted with “manifest disregard of the law.” It is well established the corporate form must be respected. Defendants are likely correct that the agreements do not, by themselves, provide any reason to hold the health care company liable for the default of the facilities. However, the arbitrator’s decision concerned not only the agreements, but also the parties’ settlement.

Because the health care company was not a party to any of the agreements, the arbitrator was only half correct to conclude that it was “clearly bound by the terms of the Settlement Agreement and the Agreements.”

The company was not bound by the agreements, but since it was clearly bound by the settlement, and the arbitrator’s award drew directly from its provisions, any error in analysis was immaterial and the award should be confirmed.

The arbitrator’s award is affirmed.

ProTherapy Associates LLC v. AFS of Bastian Inc.
(Moon) No. 6:10cv00017, July 27, 2011; USDC at Lynchburg, Va. VLW 011-3-447, 4 pp.

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