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11th Circuit Supports Tolling of Federal Arbitration Act Timeframes in Certain Circumstances
7/11/23
By: Arielle E. Katz
On June 21, 2023, the 11th Circuit determined an issue of first impression – whether Section 12 of the Federal Arbitration Act (“FAA”), which provides that notice of a motion to vacate a Final Award in arbitration must be served upon the adverse party within three months after the award is filed, could be tolled. Ultimately, in NuVasive Inc. v. Absolute Medical LLC et al., the court determined that it could be, but it is up to litigants to demonstrate their cases warrant such an “extraordinary remedy.”
In this case, Florida companies NuVasive, Inc. and Absolute Medical, LLC, entered into a 5-year exclusive distribution agreement (“Agreement”), by which Absolute Medical was to sell NuVasive products to doctors and medical practices in the region. One year into the Agreement, Absolute Medical’s owner, defendant Greg Soufleris, left and started Absolute Medical Systems, LLC (“AMS”). Several Absolute Medical employees, including defendant Dave Hawley, began working for AMS, and began selling products for one of NuVasive’s competitors.
NuVasive sued, alleging, among other claims, breach of contract. The parties were ordered to arbitrate the breach of contract claim, and the arbitration occurred via video conference. On March 4, 2021, the arbitration panel entered a Final Award denying the breach of contract claim.
The parties then resumed the litigation related to NuVasive’s remaining claims. During discovery, NuVasive learned that during the arbitration, Hawley was coached by Soufleris via text messages, causing Hawley to change his testimony. NuVasive immediately filed for leave to vacate the Final Award, arguing that the Final Award was “procured” through “corruption, fraud, or undue means.” In opposition, the defendants argued that the motion was filed more than three months after the Final Award – outside the time allowed by § 12 of the FAA.
The district court granted the motion to vacate the Final Award. The court, noting that it had not “yet addressed whether the FAA’s time limitations may be equitably tolled,” adopted the 9th Circuit’s reasoning that tolling is permitted in certain circumstances. Specifically, equitable tolling was appropriate because NuVasive demonstrated that “the defendants’ conduct amounted to extraordinary circumstances” – NuVasive could not have learned of the fraud until discovery commenced in the litigation. The defendants appealed to the 11th Circuit.
The Circuit Court, agreeing with the court below, held that the three-month window in § 12 could be equitably tolled in the appropriate circumstances. But it is still up to litigants to demonstrate that their respective cases present “circumstances warranting this extraordinary remedy.” The Court then turned to whether NuVasive had demonstrated such circumstances, and in holding that it had, found that there was “shocking conduct” on the part of defendants. Not only did Hawley revise his testimony after receiving text messages, but it was “clear that Defendants were intentionally attempting to run out the clock on Plaintiff’s time to file a motion to vacate by failing to produce the documents that could show misconduct during the arbitration.” Such a cover-up constitutes the requisite extraordinary circumstances.
This ruling has potentially far-reaching implications and demonstrates how litigants can be held accountable for fraudulent conduct, particularly in the context of sworn testimony, during an arbitration proceeding. Such inappropriate conduct further illustrates the critical importance of proper witness preparation.
For more information, please contact Arielle E. Katz at arielle.katz@fmglaw.com or your local FMG attorney.
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