Opinion
04 Civ. 0670 (JFK).
April 29, 2004
BERMAN, PALEY, GOLDSTEIN KANNRY, LLP, New York, New York, Of Counsel: Jack S. Kannry, Esq., Paul A. Feeney, Esq., for Petitioner.
SWIDDLER BERLIN SHEREFF FRIEDMAN, LLP, New York, New York, Of Counsel: Thomas R. Lotterman, Esq., Duke K. McCall, III, Shari L. Steinberg, Esq., Rossiya B. Fajardo, Esq., for Respondent.
ORDER OPINION
Procedural Background
Presently before the Court are cross-petitions relating to a December, 2003 arbitration award. Petitioner Sevenson Environmental Services, Inc. ("Sevenson") seeks to have the award modified in part and the balance vacated. Respondent Sapp Battery Site Group ("Sapp Group") has cross-petitioned to have the award confirmed.
Facts
This action stems from a dispute over costs and fees related to the cleanup and remediation of the Sapp Battery Site ("Site"). The Site, located in Cottondale, Florida, was utilized to break apart batteries and dispose of the battery casings and acids. Not surprisingly, the Site became contaminated and the United States Environmental Protection Agency ("EPA") and the Florida Department of Environmental Protection ("DEP") sought to have the Site remediated and to appropriate liability for the remediation. The EPA designated several companies as Potentially Responsible Parties ("PRPs") and charged them with the responsibility of remediating the Site. The PRPs joined together to form the Sapp Group. Once formed, the Sapp Group entered into a federal court ordered consent decree with the EPA and DEP requiring the Sapp Group to clean the Site.
The Sapp Group hired TriAD Environmental Services, Inc. ("TriAD") to serve as the Supervising Contractor for the remediation project. To serve as the Remediation Contractor, the Sapp Group hired Sevenson. Sevenson and the Sapp Group's relationship was memorialized by a contract entered into on September 15, 1998 ("Contract"). In essence, Sevenson was responsible for the excavation of approximately 78,000 cubic yards of contaminated soil, inclusive of ebonite and polypropylene battery casings. In order to accomplish this task, Sevenson was to reduce the size of the soil and battery casing materials and then treat the soil and materials.
The Contract called for TriAD to test soil samples daily. If these tests revealed a failure to properly treat the soil and materials, the Sapp Group was empowered to issue a Stop Work Order ("SWO"). In February of 1999, the Sapp Group issued such an SWO on the basis that Sevenson's work was defective. As a result of the SWO, cleanup at the Site temporarily stalled to a stop. Eventually, the EPA signed off on a resumption of work, but required it be done at a slower rate.
As could be expected, the delay resulted in increased costs and a fee dispute between the Sapp Group and Sevenson. Pursuant to the terms of their Contract, the dispute was submitted to arbitration. A panel of three mutually agreed upon experts (the "Panel") was selected to serve as arbitrators. The Panel, whose expertise and qualification is not challenged by Sevenson, was comprised of the President of the American Society of Civil Engineers and two experienced environmental lawyers. The Panel held 18 days of hearings, received testimony from 17 witnesses and reviewed more than 250 exhibits.
Ultimately, by a decision dated December 21, 2003 (the "Award"), the Panel awarded Sevenson $61,339, plus interest, for sums due under the contract and $513,332 in retainage withheld under the contract. Payment of this retainage was made subject to the EPA certifying that the work at the Site was complete and Sevenson demonstrating an absence of liens on the property. Because these conditions were set and the payment was not considered presently due, the Panel did not award interest on the retainage. In addition, the Panel awarded the Sapp Group $424,373, plus interest, for certain failures and deficiencies it attributed to Sevenson.
Sevenson would like the Court to remove the conditions precedent to payment of the retainage enunciated in the Award. In addition, Sevenson requests that it be awarded interest on the retainage fee. Finally, Sevenson asks the Court to vacate the portion of the award inuring to the Sapp Group's benefit. The Sapp Group opposes Sevenson's requests and wants the Court to confirm the Award as is.
Discussion
Standard of ReviewThis case is governed by the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-16 (1988), because federal subject matter jurisdiction exists and the contract that contained the arbitration clause related to a transaction involving interstate commerce. See 9 U.S.C. § 2; Barbier v. Shearson Lehman Hutton, Inc., 948 F.2d 117, 120 (2d Cir. 1991). Typically, under the FAA, confirmation of an award is a ministerial act. See Sperry Int'l Trade, Inc. v. Gov't of Israel, 532 F. Supp. 901, 905 (S.D.N.Y. 1982). In order to prevent the twin goals of arbitration — efficient dispute resolution and avoidance of long and costly litigation — from being undermined, judicial review of arbitration awards is severely limited and narrow in scope. See Folkways Music Publishers, Inc. v. Weiss, 989 F.2d 108, 111 (2d Cir. 1993). As such, a party seeking to prevent an award from being confirmed must clear a high bar and bears the burden of proof. See Willemijin Houdstermaatschappij, BV v. Standard Microsystems Corp., 103 F.3d 9, 12 (2d Cir. 1997).
Sections 10 and 11 of the FAA set forth the grounds on which an arbitration award can be vacated, modified or corrected. Section 10 provides, in essence, four grounds for vacating an award: (1) fraud, corruption or undue means in procuring the award; (2) partiality on the part of the arbitrator; (3) misconduct by the arbitrator that prejudiced one of the parties; and (4) where the arbitrator exceeds his powers. 9 U.S.C. § 10. In order to have an award modified or corrected, the petitioner must demonstrate that: (a) there was an evident material miscalculation of figures or an evident material mistake in the description of any person, thing, or property referred to in the award; (b) the arbitrators have awarded upon a matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter submitted; or (c) the award is imperfect in a matter of form not affecting the merits of the controversy. 9 U.S.C. § 11.
In addition to these statutorily created bases for vacating or otherwise altering an arbitration award, courts have created one other ground on which to vacate an award. Courts may vacate an award when they find the arbitrators to have acted in "manifest disregard" of the law. See Wilko v. Swan, 346 U.S. 427, 436-37 (1953); Merrill Lynch, Pierce, Fenner Smith, Inc. v. Bobker, 808 F.2d 930, 933 (2d Cir. 1986). Under the doctrine of "manifest disregard" courts are instructed to vacate awards when they find that the arbitrators knew of a governing legal principle, yet either refused to apply it or simply ignored it.See Folkways Music Publishers, Inc., 989 F.2d at 112. "The governing law alleged to have been ignored by the arbitrators must be well defined, explicit, and clearly applicable. [Courts] are not at liberty to set aside an arbitration panel's award because of an arguable difference regarding the meaning or applicability of laws urged upon it." Merrill Lynch, 808 F.2d at 934.
Sevenson's Request to Modify the Award
Sevenson has requested that the Court modify the portion of the Award that relates to payment of the retainage fee. Sevenson would like the Court to strike from the Award the requirement that it provide EPA certification that the cleanup is complete and proof that there are no liens on the Site. It is Sevenson's contention that these preconditions were set by the arbitrators, not the Contract, and based on "irrational contract construction." Sevenson Mem. in Supp. of Petition, p. 2. Sevenson adds that whether EPA certification and proof of no liens were required were not issues submitted to the arbitrators for decision. Thus, Sevenson believes the Court has the authority to modify the Award under Section 11(b) of the FAA. Section 11(b) allows a court to modify an award if "the arbitrators have awarded upon a matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter submitted." 9 U.S.C. § 11(b).
Sevenson's rationale for removing the conditions is flawed. Claim Item No. 2 of Sevenson's Demand for Arbitration was for unpaid retainage. See McCall Decl., Ex.1, at Ex.3. The Sapp Group conceded that it had withheld $513,733, but asserted an affirmative defense that the money was not yet due and owing. The Sapp Group's defense was predicated in large part on the fact that the EPA had yet to certify the Site as remediated and that Sevenson had yet to demonstrate an absence of liens. Considering this affirmative defense, it cannot be said that the arbitrators were passing judgment on an issue not submitted to it. Even if Sevenson had not submitted the issue, which it did by asserting a claim for retainage, the Sapp Group unquestionably submitted the issue.
In light of the fact that the Panel's Award was based solely on issues properly submitted to it, Sevenson's request for interest on the retainage must be denied. Sevenson's request rests on the belief that the failure to include interest represents the type of miscalculation section 11(a) of the FAA allows a court to correct. Because there is not a legitimate reason for the Court to remove the preconditions, the retainage is not yet due and owing. Until such time as the money is past due, there is no basis on which to add interest to the amount owed. Thus, the Panel is not guilty of a miscalculation.
Sevenson's Request to Vacate the Balance of the Award
Sevenson offers four bases for vacating the Award. According to Sevenson the Court can vacate the Award pursuant to 9 U.S.C. § 10(a)(4) because the Panel exceeded its authority by adding new provisions to the contract and considered matters outside the scope of the contract. In addition, Sevenson believes the Panel demonstrated manifest disregard for the law by not applying the basic principles of contract law. Alternatively, Sevenson contends that the alleged failure of the Panel to make a final determination as to Claims 6 and 7 of its Demand for Arbitration provide a basis for vacating the Award. Finally, Sevenson argues that the Award should be vacated as inconsistent with the American Arbitration Association's ("AAA") rules. There is, however, no merit to any of these arguments.
I. The Panel Did Not Exceed Its Authority
Sevenson claims the Panel exceeded its authority by finding a basis for the SWO not provided for in the Contract; failing to consider Contract provisions that provided for an alternative method of disposal of the battery casings; and ignoring those Contract provisions it believes would have prohibited an award to the Sapp Group. See Sevenson Mem. in Supp. Petition, p. 10. Section 10(a)(4) of the FAA provides that a Court can, and should, vacate an award "where the arbitrators exceeded their powers." Although Sevenson frames its claim in the guise of a request for relief pursuant to 9 U.S.C. § 10(a)(4), the actual arguments it makes in support are nothing but an attempt to relitigate the contract issues decided during the arbitration. Sevenson simply believes the Panel misinterpreted the Contract. The company takes exception to how the arbitrators deciphered the Contract and believe they should have placed greater weight on certain provisions and pieces of parol evidence than they did. Having reviewed the Panel's Award, the Court finds that each of the Panel's decisions are rooted firmly in its interpretation of the Contract and the evidence related to the Contract submitted by the parties. Whether the Panel's interpretation of the Contract or Sevenson's interpretation of it is correct is immaterial. Courts do not have the power to review the merits of arbitrators' contract interpretations. See United Steel Workers of Am. v. Enter. Wheel Car Corp., 363 U.S. 593, 598-99 (1960); Amicizia Societa Navegazione v. Chilean Nitrate Iodine Sales Corp., 274 F.2d 805, 808 (2d Cir. 1960). Thus, the Panel did not exceed its authority.
II. The Panel Did Not Demonstrate Manifest Disregard of the Law
Citing the exact same reasons and support it cited in its claim that the Panel exceeded its authority, Sevenson claims the Panel exhibited manifest disregard of the law. As previously discussed, in order to find that the Panel acted in manifest disregard of the law the Court must have reason to believe the arbitrators knew of a governing legal principle and chose to ignore it. See Folkways Music Publishers, Inc., 989 F.2d at 112. This is not the case in this instance.
Again, Sevenson's claim is predicated on the belief that the Panel chose to ignore certain Contract provisions. As with its argument in support of finding the Panel to have exceeded its authority, this argument is based on a difference in interpretation of the Contract provisions and extrinsic evidence. Sevenson does not offer a legal principle that it believes the Panel ignored. Rather, Sevenson offers certain Contract provisions and pieces of extrinsic evidence it wishes the Panel would have afforded greater weight.
So long as the Court can infer a basis for the Panel's decision and cannot find an error so blatant that it would be obvious to the average person qualified to serve as an arbitrator, the Court must confirm the award. See Willemijin Houdstermaatschappij, 103 F.3d at 13. A simple error or misunderstanding with respect to the law is not enough to warrant vacating the Award. See Merrill Lynch, 808 F.2d at 933. In fact, courts are instructed to confirm awards even in those instances in which they disagree with the arbitrators on the merits, provided there is even a colorable justification for their decision. See Landy Michaels Realty Corp. v. Local 32B-32J, 954 F.2d 794, 797 (2d Cir. 1992).
As already stated, the Court finds that the Panel's decisions are based on its interpretation of the Contract. Not only is the Court not inclined to attempt to challenge the interpretations of an expert panel — whose competence is conceded by Sevenson — that held 18 days of hearings and reviewed in excess of 250 exhibits, it does not have the power to do so. Having found that the Panel's decisions are based on the Contract and not having found any governing legal principle ignored, the Court cannot infer that the Panel exhibited manifest disregard of the law.
III. The Panel's Award is Not Incomplete
Sevenson argues that the Award should be vacated on the grounds that it is not complete and definite. Section 10(a)(4) directs a court to vacate an award when the arbitrators "so imperfectly executed [their powers] that a mutual, final, and definite award upon the subject matter submitted was not made." 9 U.S.C. § 10(a)(4). Courts in this circuit have interpreted this portion of the statute to require the remand of awards they deem to be incomplete or ambiguous. See LTI Int'l Inc. v. MCI Telecomm.Corp., 18 F. Supp. 2d 349, 352 (S.D.N.Y. 1998). Sevenson contends the Award is incomplete because the Panel failed to consider certain of its claims.
Sevenson takes particular exception to the Panel's treatment of Claim Items 6 and 7 of its Demand for Arbitration. Claim Items 6 and 7 sought compensation for extended field overhead and extended home office overhead, respectively. In total, Sevenson requested slightly more than $785,000 through these claims. The Panel, however, denied Sevenson's requests. The arbitrators wrote, "Consistent with the Panel's ruling in Claim Item 4, the Panel does not award Claimant damages for these claim items." Kannry Aff. Ex. 1, at p. 7.
Rejecting a claim is far different than failing to address a claim. The Award gives every indication that the Panel considered Claim Items 6 and 7 and simply determined that its ruling with respect to Claim Item 4 prevented awarding damages for extended field overhead and extended home office overhead. Sevenson may disagree with the Panel's conclusion, but that does not mean the Panel's award is incomplete or ambiguous. On the contrary, the Award is definite, complete and final. It would not, therefore, be appropriate to vacate the Award pursuant to 9 U.S.C. § 10(a)(4).
Sevenson also contends that the Award is incomplete because the Panel failed to consider the "alternative entitlement" of payment for the treatment and disposal of the battery casings. For largely the same reasons that apply to Sevenson's arguments regarding Claim Items 6 and 7, there is no merit to this argument. The panel provided a clear and concise rejection of Sevenson's claim for non-contractual battery casing disposal.See Kannry Aff. Ex. 1, at p. 7. The Panel's decision not to give a lengthy explanation as to why it disagreed with Sevenson and rejected its claim does not render the Award incomplete.
IV. The Award Was Timely
In a last desperate attempt to have the Award vacated, Sevenson argues that it was not timely issued. According to AAA rules, arbitrators are expected to render their awards within thirty days of the close of the hearing. See Kannry Aff. Ex. 40, at R. 37, R. 43. In this instance the Award was not issued until 48 days after the hearing closed. Sevenson contends that this delay serves as a basis on which to vacate the Award.
Courts have vacated awards that were not issued in a timely manner. See, e.g., Rosario v. Carrasgillo, 451 N.Y.S.2d 776 (App.Div. 1982). In those instances, however, the party seeking to have the award vacated had properly objected to the delay prior to the award being rendered and was able to demonstrate some prejudice by the delay. Neither of these factors are present in the instant case. Although Sevenson sent a letter dated October 31, 2003, see Kannry Aff. Ex. 41, to the Panel expressing its belief that the hearing was closed as of that date and its understanding that it would receive a decision within thirty days, Sevenson never objected when the thirty-day period passed without an Award being issued. It was not until after the award was issued, in the context of this petition to vacate, that Sevenson first objected to the timeliness of the Award. Furthermore, when asked by the Court during oral argument whether it had been in any way prejudiced by the eighteen-day delay, Sevenson candidly — and admirably — conceded that it had not been. As such, the delay does not warrant the setting aside of the Award.
Conclusion
Having found no basis on which to modify, correct or vacate the Award, the Court is obligated to confirm it. See Ottley v. Schwartzberg, 819 F.3d 373, 375 (2d Cir. 1987) (requiring district courts to confirm arbitration awards unless they are modified, corrected or vacated). Thus, Sevenson's petition to modify in part and vacate the balance is hereby denied, and the Sapp Group's motion to confirm is granted. The Award is confirmed as issued by the Panel on December 21, 2003. The Court orders this case closed and directs the Clerk of Court to remove it from the Court's active docket.