Whether the liquidated damages provision is valid and enforceable or invalid as a penalty is a question of law.
Plaintiff Joseph C. Bird was an attorney licensed in the State of Michigan. Defendant Randy Z. Oram was the owner and president of Transit Advertising Group LLC (TAG). On Oct. 16, 2006, plaintiff and defendant entered into a two-year employment agreement in which plaintiff was to serve as executive corporate counsel for TAG. The employment agreement permitted defendant to terminate plaintiff immediately for material breach of the agreement. Pursuant to this provision, on Sept. 10, 2008, defendant wrote plaintiff a letter terminating plaintiff's employment as TAG's executive corporate counsel immediately. The termination letter asserted that plaintiff materially breached the employment agreement by threatening to withdraw and filing a motion to withdraw as counsel in the case of Oram v Oram in Oakland Circuit Court unless defendant paid him the $15,000 stay bonus, which was not yet payable under the employment agreement; ordering payroll to increase his annual salary without authorization; engaging in unprofessional behavior; refusing to follow defendant's directives; and engaging in outside legal practice without defendant's written consent. Plaintiff filed a claim for arbitration, asserting numerous claims, including a claim for breach of contract. Defendant counter-claimed, claiming, in part, that plaintiff breached the contract by withdrawing as counsel in Oram v Oram and conducting an outside legal practice. The arbitrator rejected all of plaintiff's claims and agreed with defendant that plaintiff breached the employment agreement by attempting to coerce defendant to pay him the stay bonus before it was due by threatening to withdraw and then actually withdrawing from his representation of defendant in the Oram v Oram case. The arbitrator ordered plaintiff to pay defendant breach of contract damages in the amount of $55,538.46, which included liquidated damages. The arbitrator also found that plaintiff breached the employment agreement by engaging in outside legal practice. Plaintiff filed both a motion and a complaint in California state court seeking to vacate the arbitration award on the basis of evident partiality based on the fact that the arbitrator previously represented a client in a retaliatory termination lawsuit against a law firm where plaintiff was employed at the time. Defendant, on the other hand, moved to confirm the award. The trial court noted that the arbitrator failed to disclose his representation of the client before the proceedings commenced, but rejected plaintiff's claim that the arbitrator demonstrated evident partiality. The trial court also ruled that the liquidated damages provision of the employment agreement did not constitute a penalty. Plaintiff appealed as of right, challenging the neutrality of the arbitrator and the enforcement of the liquidated damages provision.
Was the trial court's order denying plaintiff's motion to vacate the arbitrator's award proper?
The appellate court confirmed the decision of the trial court. The court held that the arbitrator's nondisclosure of his representation of the client would not reasonably lead to an impression or appearance of bias. To suggest that such a disagreement would result in bias against plaintiff in the present case was a stretch and purely speculative and uncertain. The court also affirmed enforcement of the liquidated damages clause. The court held that the trial court was merely enforcing what was found in the employment contract. It further noted that the amount of liquidated damages was not unconscionable or excessive.