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The Florida District Court of Appeal upheld an arbitration award in favor of an individual shareholder who brought a derivative action against the corporation, thus rejecting the argument that the arbitrator exceeded his powers by awarding relief to the shareholder rather than the corporation.
In Regalado v. Cabezas, Nos. 3D06-1569, 3D06-1160, 2007 WL 1062974 (Fla. Dist. Ct. App. Apr. 11, 2007), Cabezas, a shareholder in CareMed (a healthcare management firm), filed two lawsuits against fellow shareholder and CareMed Director Regalado: a "Distribution Case," seeking a declaration and distribution of profits, and a shareholders' "Derivative Case," alleging improper diversion and distribution of funds.
The parties agreed to resolve the two cases in arbitration. The arbitrator found for Cabezas, awarding him nearly $130,000, including over $76,000 in the derivative case alone.
In seeking to have the award vacated, Regalado claimed that the "Distribution Case" award had been procured by fraud and that the arbitrator exceeded his powers in the "Derivative Case." The Court disagreed on both counts.
Regarding the "Distribution Case," the Court found that Regalado had failed to make a prima facie case that the award was procured by fraud. Accordingly, there was no need for the trial court to hold an evidentiary hearing on those allegations. In fact, the law precluded the trial court from "combing through the record" for errors.
As for the "Derivative Case," the Court agreed that a court presiding over a derivative case ordinarily awards relief to the corporate entity rather than the individual shareholder. However, "the fact that the relief granted [by an arbitrator] is such that it could not…be granted by a court of law" was not a legitimate statutory ground for vacating or modifying the award.
Though a concurring opinion described the evidentiary support for the award "as flimsy as rice paper" and "as stable as the flickering of a butterfly," the Court nevertheless upheld the award because Regalado failed to prove any basis for vacatur.
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