Appeals Court Upholds Arbitration Award of Spouses’ Business Entities
Husband and Wife had a Premarital Agreement that established their property division if they got divorced. They also agreed that any dispute involving their Premarital Agreement would be decided by binding arbitration.
At the time of their divorce, Husband and Wife jointly owned two closely held companies and an oil and gas limited partnership. The arbitrator awarded these business interests as provided in the Premarital Agreement. The arbitration decision also included some clarifications regarding how the parties’ interests in the businesses would be separated. For example, the arbitrator ordered that the capital account of one of the businesses be adjusted and that Husband pay Wife $200,000 based on improper charges to the capital account, corrections to account for Wife’s increased ownership of the business during marriage, and loans made using Wife’s interest without her agreement. The arbitrator also ordered that 20% of the limited partnership net mineral income be paid to Wife at least monthly and it ordered that Wife would not be liable to Husband for past or future business debts. And the arbitrator prohibited Husband from taking actions relating to the businesses that would be adverse to Wife’s interest.
Husband appealed the arbitration award. He claimed it exceeded the arbitrator’s power by directing the conduct of the business organizations, by deciding issues not provided in the Premarital Agreement’s arbitration clause and by granting Wife relief not provided in the Premarital Agreement. The Court of Appeals upheld the arbitrator’s rulings.
The appellate court acknowledged that the divorce case could not control the business entities themselves, which were not parties to the divorce case. But, the arbitrator’s award properly required Husband to perform acts involving his control of the business entities.
The appellate court also found that the arbitrator’s clarifications of the Premarital Agreement were a proper application of the agreement that Husband shall not dispose of or encumber Wife’s separate property. Neither federal nor state law allows a court to vacate an arbitrator’s award based on an argument that the arbitrator incorrectly interpreted a contract. Here, the parties’ Premarital Agreement plausibly supported the arbitrator’s interpretation of the agreement to preserve Wife’s interest in the businesses.
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