University of Notre Dame (USA) v. TJAC Waterloo, LLC , 861 F.3d 287 ( 2017 )

United States Court of Appeals
For the First Circuit
No. 16-1397
THE UNIVERSITY OF NOTRE DAME (USA) IN ENGLAND,
Plaintiff, Appellee,
v.
TJAC WATERLOO, LLC; ZVI CONSTRUCTION CO., LLC,
Defendants, Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Allison D. Burroughs, U.S. District Judge]
Before
Lynch, Circuit Judge,
Souter, Associate Justice,*
and Baldock, Circuit Judge.**
John W. DiNicola, II, with whom DiNicola, Seligson & Upton,
LLP was on brief, for appellant TJAC Waterloo, LLC.
Richard Briansky, with whom Amy B. Hackett and McCarter &
English, LLP were on brief, for appellant ZVI Construction Co.,
LLC.
John A. Tarantino, with whom Nicole J. Benjamin, Adler
Pollock & Sheehan P.C., Michael J. McMahon, and Cooley LLP were
on brief, for appellee.
* Hon. David H. Souter, Associate Justice (Ret.) of the
Supreme Court of the United States, sitting by designation.
**Hon. Bobby R. Baldock, Circuit Judge of the United States
Court of Appeals for the Tenth Circuit, sitting by designation.
June 28, 2017
SOUTER, Associate Justice. This is an appeal from the
district court's judicial recognition of an English arbitrator's
determination of joint contract liability against the seller and
the renovator of a building. As the parties had agreed, the
assessment of damages for the items of breach was postponed to a
subsequent stage of arbitration. Owing to that agreement to
bifurcate litigation of the liability and damages issues, the
district court treated the arbitrator's liability judgment as
final and thus entitled to judicial recognition, and it
specifically held the contractor for the renovation work bound
as a party to the agreement providing for arbitration of
disputes. In this review of the district court's determinations
of finality and party-status we affirm.
I.
The University of Notre Dame (USA) in England agreed
to buy an English building from TJAC Waterloo, LLC, for
$58,833,700, once the structure had been renovated and converted
into a student dormitory by TJAC's associated corporation, ZVI
Construction Co., LLC. The purchase and sale agreement between
Notre Dame and TJAC addressed both the conveyance and the
reconstruction to be performed by ZVI, there referred to as the
contractor, which also executed the P&S Agreement by the same
agent who signed for TJAC. So far as it concerns us here, the
P&S Agreement provided that in case the parties could not
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resolve any dispute that might arise (except over the meaning
and construction of the agreement itself), either buyer or
seller could refer the disagreement for adjudication by an
"expert," who in American usage would be called an arbitrator.
Despite a rosy projection of satisfaction by Notre Dame's own
consultant after the work was finished, Notre Dame subsequently
identified a number of inadequacies claimed to add up to
$8,500,000 in necessary remedial work.
Since the parties could not resolve their differences,
at Notre Dame's behest the breach of contract claims were
submitted to an arbitrator as provided in the P&S Agreement,
subject to a further agreement by the three parties to the P&S
Agreement to try the liability elements of the breach claims
first and separately litigate the issues of "quantum" or damages
for any items of breach the arbitrator might find at the
liability stage. The three parties proceeded to try the
liability claims, and in due course the arbitrator circulated a
report of his preliminary conclusions, which he invited the
parties to comment upon. After considering the responses, he
issued a "determination," or judgment, that TJAC and ZVI were
jointly liable to Notre Dame, based on findings of substantial
shortcomings in the required renovation.
After Notre Dame circulated its opening submission in
the subsequent damages phase, TJAC and ZVI asked for a
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postponement of litigation due to the ill health of someone
involved on their side. This led Notre Dame to ask for a
showing that the two corporations would be in a position to
satisfy the award of damages that the arbitrator would at some
point decree. The liable parties were not reassuring and
refused to confirm that the liability insurance required by the
P&S Agreement remained in effect. Notre Dame responded by
filing suit in a Massachusetts state court for an order
enjoining TJAC and ZVI from dissipating, encumbering, or
transferring assets that might be needed for payment of any
judgment for damages. After TJAC and ZVI removed the case to
the federal district court under the statute implementing the
United Nations Convention on the Recognition and Enforcement of
Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, 330
U.N.T.S. 38 (ratified by the United States on Sept. 30, 1970),
see 9 U.S.C. § 205, Notre Dame supplemented its claim for
judgment security by requesting judicial confirmation of the
arbitrator's determination on liability, for which the
Convention made provision, see 9 U.S.C. § 207; Convention arts.
III, V.
The district court granted confirmation under the
terms of the Convention and authorized attachment of property in
the amount of just over $7 million as security for the
anticipated award of damages. Univ. of Notre Dame (USA) in Eng.
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v. TJAC Waterloo, LLC, No. 16-cv-10150-ADB, 2016 WL 1384777 (D.
Mass. Apr. 17, 2016). In this ensuing appeal, TJAC and ZVI
claim that the arbitrator's judgment of liability in the
bifurcated arbitration proceeding lacks the finality required
for judicial confirmation of a foreign arbitral award under 9
U.S.C. § 207. And ZVI claims that in any event it is not
subject to that judgment because the P&S Agreement's arbitration
clause was a submission to arbitration by Notre Dame and TJAC
only.
II.
The issue of the eligibility of the arbitrator's
liability decree for judicial confirmation under the terms of
the Convention encompasses both legal and factual components:
the rule stating the necessary condition for judicial cognizance
and the sufficiency of the record to show that the standard is
satisfied by the arbitrator's liability judgment at this point
in the present case. So far as relevant here, the parties
address the legal standard at two levels of specificity, and at
the more general of the two, they have no apparent disagreement.
Although judicial construction of the Federal Arbitration Act
has produced the requirement for judicial recognition that a
decree be "final," see El Mundo Broad. Corp. v. United
Steelworkers of Am., AFL-CIO CLC, 116 F.3d 7, 9 (1st Cir. 1997),
and the Convention textually requires that it be "binding," see
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Convention art. V(1)(e), both parties treat these as
conceptually indistinguishable standards. In so assuming, they
are in harmony with cases from outside this circuit that have
addressed the Convention standard for judicial confirmation with
the domestic law vocabulary. See Ministry of Def. & Support for
the Armed Forces of the Islamic Republic of Iran v. Cubic Def.
Sys., Inc., 665 F.3d 1091, 1100 (9th Cir. 2011) ("Th[e not-
binding] defense [in the Convention's Article V(1)(e)] may be
invoked when an action to confirm or enforce an arbitration
award is filed before the award has become final."); Ecopetrol
S.A. v. Offshore Expl. & Prod. LLC, 46 F. Supp. 3d 327, 336
(S.D.N.Y. 2014) (referring interchangeably to the Convention's
condition that an award must be "binding" and a requirement that
the award be "final"); Daum Glob. Holdings Corp. v. Ybrant
Digital Ltd., No. 13 Civ. 03135 (AJN), 2014 WL 896716, at *2
(S.D.N.Y. Feb. 20, 2014) (citing as an "example" of a foreign
award that "is not binding on the parties" one "that is interim,
not final" (internal quotation marks omitted)). We see no
reason to doubt the parties' common understanding at this
general level and accordingly scrutinize the foreign
determination now before us by the familiar finality standard
that "[n]ormally, an arbitral award is deemed 'final' provided
it evidences the arbitrators' intention to resolve all claims
submitted in the demand for arbitration." Hart Surgical, Inc.
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v. Ultracision, Inc., 244 F.3d 231, 233 (1st Cir. 2001) (quoting
Fradella v. Petricca, 183 F.3d 17, 19 (1st Cir. 1999)).
The parties' harmony falters, however, when they
confront the need for a more specific corollary governing the
eligibility for confirmation of an arbitrator's decree
determining only one issue within a controversy that the parties
have agreed to bifurcate for separate arbitral proceedings. The
Appellants cite the Convention's provision for confirmation and
its "binding" requirement. Notre Dame, to the contrary, relies
on the rule in this circuit governing a bifurcated domestic
arbitration, which can be stated shortly. Hart Surgical holds
that a bifurcated liability judgment may qualify as final when
the arbitrating parties have formally agreed to litigate
liability and damages in separate, independent stages. Id. at
235-36. Providence Journal Co. v. Providence Newspaper Guild,
271 F.3d 16 (1st Cir. 2001), takes the further step of holding
that an informal agreement to that effect will suffice. Id. at
19-20. These cases, in turn, are supported by the Supreme
Court's position that the Federal Arbitration Act "lets parties
tailor some, even many, features of arbitration by contract,
including . . . procedure." Hall Street Assocs., L.L.C. v.
Mattel, Inc., 552 U.S. 576, 586 (2008) (internal citation
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omitted).1 The domestic law would, then, support the district
court's confirmation of the liability determination, there being
no question that the parties here did informally agree to
arbitrate liability separately before reconvening in a separate
stage of the proceeding to address "quantum," that is, damages.2
The only remaining question about the legal standard
is whether there is any reason against following the domestic
rule in construing the generally identical Convention
requirement, and we see none. No Convention case has been
brought to our attention addressing the significance of
bifurcation in addressing finality, and ZVI has given us no
reason to think that the rationale for Hart Surgical and
Providence Journal is any less apropos in applying the
Convention than in reading the domestic statute. On the
contrary, we agree with the view of the Seventh Circuit as
1 We reject Appellants' argument that Hall Street
effectively overruled Hart Surgical and Providence Journal. The
Supreme Court held in Hall Street that parties may not
contractually expand the bases for vacatur or modification of an
arbitrator's decision, as set out in the Federal Arbitration
Act. Hall Street, 552 U.S. at 578. It did not hold that the
Act's finality requirement precludes the judicial recognition of
a liability award prior to assessment of damages when the
parties have agreed to bifurcate arbitration of two issues into
separate proceedings. In fact, Hall Street, as noted,
recognized the Act's compatibility with contractual tailoring of
procedures. Id. at 586.
2 Indeed, counsel for TJAC and ZVI informed the expert
during the arbitration proceeding that her clients were "in
agreement with" the bifurcation of the proceeding "into two
stages," liability and damages, and the expert later
acknowledged that TJAC and ZVI "have agreed" to bifurcation.
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stated in Publicis Communication v. True North Communications,
Inc., 206 F.3d 725 (7th Cir. 2000), that the "Convention
supplements the Federal Arbitration Act, and the logic of
decisions applied to the latter may guide the interpretation of
the former." Id. at 729. We thus follow the lead of our own
Hart Surgical case, which cited the Publicis discussion in
generally addressing finality under the domestic statute,
thereby suggesting that the concern is comparable in each of the
legal regimes. See Hart Surgical, 244 F.3d at 233-34. In sum,
we hold that a final determination of liability but not damages
can satisfy the finality requirement of Article V(1)(e) of the
Convention when, as here, the parties have agreed to submit the
issue of liability to the arbitrator for a distinct
determination prior to a separate proceeding to assess damages.3
That leads to the factual issue, whether the
arbitrator's liability judgment was final in this instance.
TJAC and ZVI argue that it was not, based on the following
provision in the award:
None of the answers are the final answers. All and
any may now be commented upon in any way seen fit.
3
There is no merit to Appellants' suggestion that the
bifurcation agreement was inadequate for purposes of judicial
authority to confirm, which would require express agreement
authorizing judicial review after the liability phase but before
the damages litigation. Neither Hart Surgical nor Providence
Journal hints at such a requirement.
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The argument, though, is grasping for a straw that the record
shows is not there to be grasped. The same language occurred in
the first, clearly tentative, draft of proposed findings and
judgment, which bears the title, "A Document of Preliminary
Indications on Liability for Comment in Reply by the Parties."
That tentative draft proceeded to expand on its title:
The Issues are rehearsed below. They are not the
final Decisions on Liability. The parties may now
make a final comment. Thereupon liability will be
determined and published.
The parties did in fact comment upon the draft,4 which was then
superseded by the determination at issue here. In place of the
preliminary language of the draft circulated for comment, the
judgment subsequently issued begins with the descriptor, "An
Expert Determination on Liability." The arbitrator emphasized
the finality of the liability determination even further some
eight months later in rejecting ZVI's belated claim to be exempt
from the arbitrator's jurisdiction, as discussed below:
"Liability was decided via the 81-page Award . . . . The binding
Decision . . . cannot be changed." Given the legitimacy of
requesting bifurcation in foreign as well as domestic arbitral
determinations, there is no reason against accepting the
finality of the liability award as the arbitrator understood it:
4
Notre Dame, in its brief, states that "the parties,"
plural, submitted comments. The record before us shows comments
by TJAC and ZVI.
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the usual rule that "[n]ormally, an arbitral award is deemed
'final' provided it evidences the arbitrators' intention to
resolve all claims submitted in the demand for arbitration."
Fradella, 183 F.3d at 19.5 Given Hart Surgical's rule
recognizing finality in reviewing one issue of a bifurcated
arbitration, an arbitrator's understanding of finality on a
bifurcated component should likewise be respected. For that
matter, the manifest understanding of the parties was the same.
See Providence Journal, 271 F.3d at 19. None of them responded
with a note of disagreement with the arbitrator's description of
his conclusions as "binding," or with the judgment heading of
"Determination" in place of "Preliminary Indications," thus
indicating that the liability litigation was over. The
disagreement came only after Notre Dame went to court seeking
security for anticipated damages.
In sum, our de novo review, see Cytyc Corp. v. DEKA
Prods. Ltd. P'ship, 439 F.3d 27, 32 (1st Cir. 2006), shows that
the district court was surely correct in finding that the two
5 Appellants argue that this is not a normal case because
the arbitrator noted that several items of liability would
require further evidence at the damages stage to determine the
right approach to curing the defects. But these observations
are entirely consistent with the finality of the liability
determinations. In a garden-variety fender-bender case, a
dispute over the relative economy of installing a new fender or
hammering out the dent in the old one is separable from and
independent of the question of the defendant's liability for
causing the dent.
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sentences TJAC and ZVI rely on are nothing more than mistaken
leftovers from the earlier document, and there was no error in
its conclusion that the "binding" liability judgment qualified
as final and was thus a candidate for confirmation. Since the
objecting parties present no argument that the award should be
amended or vacated, we hold that federal jurisdiction was
properly exercised in confirming it as written.
III.
ZVI alone raises the remaining issue here, in its
claim that it could not be subjected to arbitration because it
never agreed to arbitrate as a party to the P&S Agreement's
arbitration clause. The evidence, however, adds up convincingly
to defeat the claim. The P&S Agreement referred to ZVI as one
of three parties, along with TJAC and Notre Dame. The subject
matter of the arbitration clause was described as "any dispute
arising between the parties hereto as to their respective
rights[,] duties and obligations hereunder or as to any matter
arising out of or in connection with the subject matter of this
agreement (other than any with regard to the meaning or
construction of this agreement)." ZVI executed the agreement
with this comprehensive language, by the signature of a
corporate officer who also signed for the related corporation,
TJAC.
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When the disputes over adequate performance evaded
settlement by agreement, ZVI acted in accord with a
straightforward reading of what it had signed. It made no
statement in the record that it would take part in the
arbitration merely as a witness or source of evidence, and its
actions bespoke an understanding that it was bound to arbitrate.
ZVI agreed with TJAC and Notre Dame in the selection of the
particular arbitrator who heard the case,6 and when the
proceeding began, ZVI participated without any objection for the
record or caveat that it had not agreed to arbitrate. It
asserted no such claim in response to the preliminary draft
concluding that it was liable jointly with TJAC for contractual
failures. Nor did it so protest when the arbitrator's final
liability judgment was issued against it, or at any time
thereafter before Notre Dame brought this action to assure
actual payment of anticipated damages and sought confirmation of
the arbitral determination of liability. In sum, ZVI's actions
confirm what the language of the P&S Agreement provides in so
many words, that ZVI along with the other signatories and the
arbitrator understood that it was a party whose obligations were
subject to the arbitration. ZVI's conduct thus provides the
conclusive premise for applying the rule that a party who does
6 Notre Dame represents in its brief that the three parties
agreed to the appointment of the expert. Appellants do not
dispute this characterization.
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"not reserve [an] issue" or contest the arbitrator's authority
to decide it, but rather submits the issue to arbitration,
"cannot complain that the arbitrator[] reached it." See JCI
Commc'ns, Inc. v. Int'l Bhd. of Elec. Workers, 324 F.3d 42, 49
(1st Cir. 2003).
ZVI's late attempts to counter the contract terms and
its own behavior as signatory and participant are unavailing.
First, it characterizes itself as a merely "nominal" party to
the P&S Agreement, claiming that its sole obligation under the
terms of the document was to employ a named individual to
oversee the work to be done. Although descriptions of that work
were set out in Schedule 1 of the agreement, ZVI emphasizes that
the terms provided merely that ZVI's services as contractor
would be "procure[d]" from it by TJAC, as was done through a
separate Building Contract between it and TJAC, the point being
that ZVI had no direct obligation under the P&S Agreement to
perform the renovation.
But this argument fails to immunize ZVI from its
apparent agreement to arbitrate over the adequacy of its
performance, for two independent reasons. Simply as a textual
matter, the "nominal party" contention ignores the description
of arbitral subjects contained in the arbitration clause
covering disputes "between the parties." As quoted above, those
subjects included not only any dispute over performance of the
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particular obligations under the P&S Agreement, but also those
"as to any matter arising out of or in connection with the
subject matter of [the P&S Agreement]." Given ZVI's
identification in the P&S Agreement as "Contractor," it makes
sense to read this reference to a "matter arising" as covering
those that would involve ZVI as contractor under the separate
agreement it made with TJAC to do the modification work on the
building. Moreover, the "arising out of or in connection with"
language is reasonably read to cover that very work, as it was
also addressed in a separate Duty of Care Agreement between ZVI
and Notre Dame. There, ZVI agreed to undertake a "Project
[that] will when completed satisfy any performance specification
or requirement included or referred to in the Building Contract"
between ZVI and TJAC. ZVI has given us no reason to doubt that
this language refers to the actual work whose demerits were the
subject of the arbitration in issue.
It is true that this is not the analysis given by the
arbitrator, but it is not the only analysis that supports the
district court's confirmation decree. Another possibility is to
refer again to Schedule 1 of the P&S Agreement listing items of
renovation work that the "Contractor" is to perform, once having
been "procure[d]" to do so by the Seller. While reading this
list as imposing a direct obligation on ZVI to renovate
accordingly may not be the better reading of the agreement, the
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arbitrator's conclusion that ZVI was obliged to perform
accordingly is entitled to judicial confirmation under the rule
of limited review, that courts will defer to arbitration awards
"as long as the arbitrators are 'even arguably construing or
applying the contract and acting within the scope of [their]
authority.'" Cytyc Corp., 439 F.3d at 32 (quoting United
Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 38
(1987)).
ZVI's second attempt to escape its facial agreement to
submit to arbitration relies on the provisions of the
arbitration clause that give the "Buyer" (Notre Dame) and
"Seller" (TJAC) the rights to call for arbitration and have
their "written submissions" considered, with no parallel
provision for the benefit of the "Contractor" (ZVI). From this,
ZVI would have us infer that the clause must be an agreement
between Buyer and Seller only. The plausibility of this
reasoning, however, is undercut by a further look at the
clause's text. Although the Buyer and Seller are given the
power to call for arbitration, the subject matter of that
arbitration is described as any dispute between the "parties,"
without limiting parties to the Buyer and Seller. While the
language giving the power to invoke arbitration to only two of
the three parties subject to it presumably carries some
significance, the limitation can make sense on the assumption
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that the two closely related companies, TJAC and ZVI, chose to
speak with one voice before making any call for arbitration,
with TJAC having the ultimate discretion.
ZVI proposes a different rationale for the absence of
a power on its part to initiate arbitration, which it finds in
its Duty of Care Agreement with Notre Dame, and particularly in
the provision that the contract "is subject to English law and
the jurisdiction of the English courts." From this ZVI would
have us understand that the arbitration clause may sensibly be
read as an agreement between Buyer and Seller only, because by
the terms of this Duty of Care Agreement any dispute that might
arise between ZVI and Notre Dame could only be litigated in a
judicial forum. There is more than one answer to this argument,
but it suffices to note that, once again, its force depends on
ignoring a provision from the same contract ZVI relies on. The
Duty of Care Agreement also provides that it "shall in no way
prejudice or affect any other rights or remedies of [Notre Dame]
against [ZVI] whether at common law or otherwise in respect of
the Project or other matters referred to herein." Whatever
power Notre Dame had to require arbitration is thus unaffected
by the Duty of Care Agreement, and the most that can be said
about the judicial forum selection clause may be that it gives
ZVI a forum to litigate against Notre Dame on an issue that
neither Notre Dame nor TJAC is willing to subject to arbitration
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under the terms of the P&S Agreement, or on an issue of contract
meaning that the P&S Agreement exempts from arbitration.
In any event, because the terms of the Duty of Care
Agreement (like those of the P&S Agreement itself) provide that
it is "subject to English law" in the English courts, we note
the judgment of the Technology and Construction Court, a
subdivision of the Queen's Bench Division of the High Court of
Justice, where ZVI filed an action attempting (as it does here)
to disencumber itself of the liability determined by the
arbitrator. We take judicial notice of the ensuing judgment as
an authoritative statement under English law of the arbitrator's
jurisdiction over ZVI. That court did not attempt to parse the
relationship of the terms of the two agreements on the
jurisdictional question here, but instead relied on ZVI's active
and unconditional participation in the arbitration. See ZVI
Const. Co. v. Univ. of Notre Dame (USA) in Eng. [2016] EWHC
(TCC) 1924 ¶ 52 (Eng.). This was the English court's premise
for concluding that ZVI "impliedly agreed" to the arbitral
jurisdiction and is "estopped" from claiming otherwise. Id. ¶¶
52, 64. Thus, the court applying English law reached a result
that confirms the arbitrator's authority, by a line of reasoning
comparable to this court's own rule, mentioned above, that where
a party submits an issue to arbitration, it "cannot complain
that the arbitrator[] reached it." JCI Commc'ns, 324 F.3d at
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49. That basis for judgment supports the result that is, of
course, entirely consistent with what we set out earlier as the
better reading of the contract documents.
IV.
The district court's judgment confirming the expert's
liability award is affirmed.
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