## Facts

- Hyatt (franchisor) and Shen Zhen (hotel owner/operator) entered a 2012 agreement for renovation and operation of a Los Angeles hotel under Hyatt trademarks and methods.
- The agreement contained an integration clause making the written contract the complete agreement and limiting use of negotiation history to interpret it.
- A lawyer who represented Shen Zhen in negotiations ended that work in 2012 and later joined DLA Piper in 2015; DLA Piper represented Hyatt in a later arbitration.
- After a dispute about performance, an arbitrator awarded Hyatt about $7.7 million in damages plus about $1.3 million in attorneys’ fees and costs.
- During arbitration, Shen Zhen sought (1) a subpoena to depose the former negotiation lawyer and (2) disqualification of DLA Piper based on the lawyer’s prior representation and firm move.
- The arbitrator denied the deposition request as immaterial and declined disqualification, finding an adequate ethics screen.
- Hyatt obtained district court confirmation of the award; Shen Zhen appealed seeking vacatur or modification under FAA §§ 10(a)(3) and 10(a)(4).

## Issues

1. Whether the arbitrator’s refusal to allow a discovery deposition and refusal to disqualify opposing counsel constituted “misconduct” or “misbehavior” prejudicing Shen Zhen’s rights under FAA § 10(a)(3).
2. Whether the arbitrator “exceeded [his] powers” under FAA § 10(a)(4) by allegedly disregarding federal and state franchise law.

## Decision

- The Seventh Circuit affirmed the judgment confirming the arbitration award.
- Denying a discovery deposition did not constitute refusing to hear pertinent and material evidence under FAA § 10(a)(3), and the requested testimony was reasonably deemed immaterial.
- Declining to disqualify counsel, given an ethics screen and lack of proof of taint, was a procedural decision within the arbitrator’s discretion and not misconduct under § 10(a)(3).
- Alleged legal error in applying franchise law did not show the arbitrator exceeded his powers under § 10(a)(4) where the arbitrator issued a final, definite award within the submission.

## Legal Principles

- FAA § 10(a)(3) targets unfairness in the conduct of the hearing; it does not require arbitrators to permit discovery, and denial of discovery does not by itself establish “refusing to hear evidence.”
- An arbitrator may limit evidence to material matters; where a contract includes an integration clause, negotiation history may be treated as immaterial to interpretation and breach issues.
- Procedural rulings in arbitration (including subpoenas and counsel-disqualification requests) receive substantial deference and rarely justify vacatur absent concrete prejudice.
- FAA § 10(a)(4) does not authorize vacatur for ordinary legal error; arbitrators exceed their powers only when they act outside the authority conferred or fail to render a mutual, final, and definite award on the submitted dispute.

## Conclusion

The court upheld confirmation of the arbitration award because the challenged discovery and disqualification rulings did not amount to FAA misconduct, and disagreement with the arbitrator’s legal analysis did not establish that the arbitrator exceeded his powers.


Hyatt Franchising, L.L.C. v. Shen Zhen New World I, LLC, 876 F.3d 900 (7th Cir. 2017)