Eastern Seaboard Construction Co. v. Gray Construction, Inc. , 553 F.3d 1 ( 2008 )

United States Court of Appeals
For the First Circuit
No. 08-1679
EASTERN SEABOARD CONSTRUCTION CO., INC.
Plaintiff, Appellant,
v.
GRAY CONSTRUCTION, INC.; TRAVELERS CASUALTY AND INSURANCE COMPANY
OF AMERICA,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. George Z. Singal, U.S. District Judge]
Before
Lynch, Chief Judge,
Boudin and Stahl, Circuit Judges.
Gavin G. McCarthy with whom Michael P. Murphy, Pierce Atwood
LLP, and Regnante, Sterio & Osborne LLP were on brief for
appellant.
John A. Hobson with whom Perkins Thompson, P.A. was on brief
for appellees.
December 31, 2008
STAHL, Circuit Judge. Eastern Seaboard Concrete
Construction Company ("Eastern") appeals the district court
decision vacating an amended arbitration award and denying Eastern
prejudgment interest on its award.
I.
The background facts of this case are thoroughly
discussed in the magistrate judge's Recommended Decision, see E.
Seaboard Concrete Constr. Co. v. Gray Constr. Inc., 2008 WL 1803781(D. Me. 2008). For our purposes, Gray Construction ("Gray"), the
prime contractor on a construction project at the Portsmouth Naval
Shipyard in Kittery, Maine, contracted with Eastern to perform the
site work at the project. A dispute arose when Eastern encountered
unexpected conditions that increased the project's scope and as a
result, put the job behind schedule. When the Navy refused to pay
Gray for the extra work and Gray in turn refused to pay Eastern,
Eastern left the job, returned briefly, and ultimately was
terminated by Gray. Gray then hired replacement subcontractors and
suppliers to complete Eastern's scope of the work.
Eastern filed a complaint premised on the Miller Act, 40
U.S.C. § 3131 et seq., which requires surety bonds on federal
construction projects, against Gray in federal district court in
Maine. Gray counterclaimed and simultaneously motioned to stay the
proceedings because Eastern had not exhausted the parties'
contractual and administrative remedies pursuant to the parties'
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subcontract. The parties then agreed to submit the case to
arbitration pursuant to the arbitration clause in their contract
and later voluntarily dismissed the court action to permit the
arbitration to proceed on a more extended basis. Eastern and Gray
agreed that the American Arbitration Association's Construction
Industry Arbitration Rules and Mediation Procedures ("AAA Rules")
would apply to the proceeding.
Following the arbitration proceedings in May 2007, the
arbitrator issued a nine-page arbitration award on September 21,
2007. Noting that "[t]o the extent that an issue or claim is not
explicitly discussed and resolved, it is denied," the arbitrator
awarded Eastern recovery on all but one of its claims, and he also
determined that Eastern breached its contract by abandoning its
work and awarded Gray $77,000 for the completion of the contract,
"to be deducted from the award paid to Eastern Seaboard." The
arbitrator rejected Eastern's contention that it was entitled to
interest under a Federal Prompt Payment Act interest penalty, 31
U.S.C. §§ 3901-3907, or its implementing regulations.
Eastern then filed an Application for Clarification of
the Arbitration Award and sought to have the $77,000 award to Gray
reduced by $66,613.89, the amount remaining on the parties'
subcontract. Eastern previously had alerted the arbitrator to this
amount in its Post-Trial Brief in which it observed, "The Parties
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do not dispute that there was $66,613.81 remaining under the base
contract."
Gray, in its Post-Hearing Arbitration Brief, had
contended that it was not in breach of contract for non-payment.
Gray made three independent arguments in its defense. First, it
noted the pay-when-paid clause of the contract. Second, it stated
that Eastern "had effectively already been paid the sums in
question by virtue of Gray's overpayment on the base contract."
Finally, Gray suggested that even if Eastern had not been paid for
the work, the contract permitted Gray to withhold payment "when
there is reasonable doubt that [Eastern] could complete the Work on
time, was satisfactorily prosecuting the Work, or that the Work
could be completed for the unpaid balance of the subcontract
price." While the arbitrator's initial award disposed of Gray's
first defense, finding that the pay-when-paid clause was
unenforceable under the Miller Act, it did not address Gray's other
arguments.
On November 4, 2007, acknowledging that "[t]he award
could have been clearer," the arbitrator issued an amended
arbitration award and adopted Eastern's request, noting that "Gray
does not seriously dispute the $66,613.89 figure." He also cited
Section 11.2 of the contract which required that any unpaid
contract balance owed to the subcontractor be offset by the cost of
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completing the subcontractor's work, "which is precisely what is
being awarded here."
Gray moved to vacate the award, and Eastern filed a
cross-motion to confirm the award and requested the court award
prejudgment interest. On April 18, 2008, the magistrate judge
recommended a decision granting Gray's motion to vacate, finding
that AAA Rule R-47 ("Rule 47") prohibited the substantive
modifications in the amended award. She also determined that
Eastern was not entitled to interest before the date of the award.
On May 23, 2008, the district court affirmed the magistrate's
decision after de novo review. Eastern now appeals the decision.
II.
We review the district court's decision to vacate the
arbitral award de novo. UMass Mem'l Med. Ctr., Inc. v. United Food
& Commercial Workers Union, 527 F.3d 1, 5 (1st Cir. 2008). Our
consideration of the award is "extremely narrow and exceedingly
deferential," Wheelabrator Envirotech Operating Servs. Inc. v.
Mass. Laborers Dist. Council Local 1144, 88 F.3d 40, 43 (1st Cir.
1996) (citations omitted), such that our de novo review is "among
the narrowest known in the law," Me. Cent. R. Co. v. Bhd. of
Maint. of Way Employees, 873 F.2d 425, 428 (1st Cir. 1989)
(citations omitted). Indeed, we have recognized that "[a]rbitral
awards are nearly impervious to judicial oversight." Teamsters
Local Union No. 42 v. Supervalu, Inc., 212 F.3d 59, 61 (1st Cir.
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2000) (citations omitted). Thus, "[a] court's review of an
arbitration award is highly deferential because the parties 'have
contracted to have disputes settled by an arbitrator' and thus, 'it
is the arbitrator's view of the facts and of the meaning of the
contract that they have agreed to accept.'" Bull HN Info. Sys.,
Inc. v. Hutson, 229 F.3d 321, 330 (1st Cir. 2000) (quoting United
Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 37-38
(1987)).
"Courts must accord substantial deference to the
decisions of arbitrators. Nevertheless, there are limits to that
deference." Kashner Davidson Sec. Corp. v. Mscisz, 531 F.3d 68, 70
(1st Cir. 2008). Section 10 of the Federal Arbitration Act ("FAA")
permits courts to vacate arbitrators' awards "[w]here the
arbitrators exceeded their powers." 9 U.S.C. § 10(a)(4). Because
"arbitration is simply a matter of contract between the parties,"
First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995),
we look to the parties' contract to determine the powers the
parties intended to bestow upon the arbitrator. "Arbitration under
the [FAA] is a matter of consent, not coercion, and parties are
generally free to structure their arbitration agreements as they
see fit." Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S.
52, 57 (1999). A court may reverse an arbitrator's award on
contractual grounds only "where an award is contrary to the plain
language of the [contract]" and in "instances where it is clear
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from the record that the arbitrator recognized the applicable law
-- and then ignored it." Advest, Inc. v. McCarthy, 914 F.2d 6, 9
(1st Cir. 1990) (citations omitted). We thus proceed to determine
whether the arbitrator exceeded his authority in the instant case.
Eastern and Gray agreed that the AAA Rules would govern
the arbitration process.1 Hence, the AAA Rules "became part and
parcel of the arbitration contract." Mscisz, 531 F.3d at 77
(citing 11 Richard A. Lord, Williston on Contracts § 30:25 (4th ed.
2008)). AAA Rule 47 reads as follows:
Within twenty calendar days after the transmittal of an
award, the arbitrator on his or her initiative, or any
party, upon notice to the other parties, may request that
the arbitrator correct any clerical, typographical,
technical or computational errors in the award. The
arbitrator is not empowered to redetermine the merits of
any claim already decided.
Gray argues that Rule 47 precluded the arbitrator from revisiting
his initial award and reducing Gray's award by $66,613.89. We
disagree.
While previously we have not had occasion to consider the
application of Rule 47, we have discussed more generally the
functus officio doctrine2 and an arbitrator's ability to revisit an
1
Notwithstanding Eastern's argument to the contrary, the AAA
Rules and the FAA govern the scope of the arbitrator's authority to
amend the award. Mastrobuono, 514 U.S. at 58, 63-64. See
also Volt Info. Sci., Inc. v. Bd. of Trs. of Leland Stanford Jr.
Univ., 489 U.S. 468, 478-79 (1989).
2
This common law doctrine refers to the exhaustion of the
arbitrator's powers which precludes him "from vacating, modifying,
supplementing, or correcting his award." Courier-Citizen Co. v.
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award, recently noting that "the question whether and when an
arbitrator may reverse or substantially alter his ruling is perhaps
an open one." Local 2322, Int'l Bhd. v. Verizon New England, Inc.,
464 F.3d 93, 97-98 (1st Cir. 2006) (citations omitted).
See also Glass, Molders, Pottery, Plastics, and Allied Workers
Int'l Union v. Excelsior Foundry Co., 56 F.3d 844, 846 (7th Cir.
1995) (noting that the functus officio doctrine "[t]oday, [is]
riddled with exceptions . . . [and] is hanging on by its
fingernails"). Our cases still tend to differentiate between a
second award which is "fundamentally inconsistent with the first
award" and one which "simply flesh[es] out the remedy announced
initially." Courier-Citizen Co., 702 F.2d at 279; Verizon, 464
F.3d at 98 (distinguishing between "clarify" and "alter"). Thus,
we have permitted an arbitrator to clarify whether an award to make
whole an employee includes a back pay remedy. Verizon, 464 F.3d at
100; Locals 2222 v. New England Telephone and Telegraph Co., 628
F.2d 644, 649 (1st Cir. 1980). See also Fradella v. Petricca, 183
F.3d 17, 19 (1st Cir. 1999) (finding an amendment to the award
ministerial where the arbitrator first incorrectly listed New York
law as governing the arbitration and then revised the award to
delete the New York references and replace with Massachusetts).
Boston Electrotypers Union No. 11, 702 F.2d 273, 278 (1st Cir.
1983).
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We find in our sister circuits further evidence of "how
limited the doctrine of functus officio has become." Excelsior, 56
F.3d at 849. For example, in La Vale Plaza, Inc. v. R.S. Noonan,
Inc., 378 F.2d 569, 570 (3d Cir. 1967), a case not unlike our own,
the arbitrators proceeded according to the AAA Rules and awarded
Noonan $30,861.64 "in full settlement of all claims submitted to
this arbitration one against the other." The arbitrators did not,
however, discuss $56,429.66 that La Vale had delivered to Noonan in
anticipation of the arbitration, and La Vale brought an action to
recover $25,568.02, the difference between the award and its
deposit. Id. The Third Circuit, after discussing the functus
officio doctrine, held that the arbitrators should "remove the
cloud of doubt as to whether they considered the payment of
$56,429.66 in making their award" as it "will in no way reopen the
merits of the controversy." Id. at 573. The court explained,
"Where the award, though seemingly complete, leaves doubt whether
the submission has been fully executed, an ambiguity arises which
the arbitrator is entitled to clarify." Id. See also Excelsior,
56 F.3d at 847-49 (holding that neither the AAA Rules nor functus
officio barred an arbitrator from clarifying his award to explain
which party was responsible for the costs of a rehabilitative
program); Kennecott Utah Cooper Corp. v. Becker, 186 F.3d 1261,
1271-72 (10th Cir. 1999) (permitting arbitrator to explain whether
he intended to include back pay in the award); Int'l Bhd. of
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Teamsters, Chauffeurs, Warehousemen, and Helpers of Am. v. Silver
State Disposal Serv., Inc., 109 F.3d 1409, 1411 (9th Cir. 1997)
(same); Chase v. Cohen, 519 F. Supp. 2d 267, 280-81 (D. Conn. 2007)
(citing Rule 47 to permit the arbitrator to add the first names of
the parties to the award to clarify joint and several liability).
In the present case, the arbitrator issued what appeared
to be a complete award. But as the Seventh Circuit observed,
arbitrators can "leave much to implication and assumption,"
Excelsior, 56 F.3d at 847, and the arbitrator, as he acknowledged
in his amended award, failed to make clear that his award to
Eastern included the $66,613.89 still owed for work performed on
the contract. In its Post-Trial Brief, before the arbitrator
issued his initial award, Eastern noted that "[t]he parties do not
dispute that there was $66,613.89 remaining under the base
contract." After Eastern moved to clarify the award, the
arbitrator in his amended arbitration award observed that "Gray
does not seriously dispute" the $66,613.89 figure and that failure
to offset the $77,000 would result in a "windfall" to Gray.
We acknowledge that whether this amended award exceeded
the arbitrator's authority under Rule 47 and therefore justified
the district court's decision to vacate the award is a close
question. The arbitration record before us is sparse. We do not
know what arguments were made before the arbitrator during the
hearings nor can we review the exhibits submitted for his
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consideration to ascertain whether the $66,613.89 was discussed.
But good evidence as to whether the $66,613.89 was discussed during
the arbitration can be found in Gray's own representations to this
court in which it did not take issue with Eastern's claim that the
contract balance of $66,613.89 was undisputed. Instead, Gray
primarily argued that the arbitrator's initial award was not
ambiguous and therefore did not require clarification. As the case
law reveals, this kind of assertion belies the reality that even
seemingly complete awards may omit information or overlook
contingencies, failures that AAA Rule 47 would allow the arbitrator
to remedy.
"Judicial intrusion is restricted to extraordinary
situations indicating abuse of arbitral power." Raytheon Co. v.
Computer Distrib., Inc., 632 F. Supp. 553, 557 (D. Mass. 1986)
(citing Mobil Oil v. Oil, Chem. and Atomic Workers Int'l Union, 600
F.3d 322, 326 (1st Cir. 1979)). If the arbitrator is "even
arguably construing or applying the contract and acting within the
scope of his authority, that a court is convinced he committed a
serious error does not suffice to overturn his decision." Misco,
484 U.S. at 38. In the amended arbitration award, the arbitrator
expressly confirmed Eastern's assertion that Gray did not dispute
the $66,613.89 contract balance during arbitration. Given our
deferential review of arbitration awards, it is not within the
purview of this court to question such an assertion. Instead, we
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think the arbitrator's statement provides evidence adequate to show
that he did not exceed his authority under Rule 47. Assuming the
veracity of his statement, as we must, and given the lack of
evidence to the contrary, we believe the arbitrator's omission of
the $66,613.89 contract balance in the initial award, rather than
a redetermination of the merits, was the type of "clerical,
typographical, technical or computational error[]" which AAA Rule
47 permitted him to amend or clarify. The amendment did not reopen
the merits of the case. Rather, it clarified a latent ambiguity.
See La Vale, 378 F.2d at 573.
III.
Eastern also requests that we vacate the arbitrator's
award insofar as it denied prejudgment interest. We summarily can
address this claim. AAA Rule R-44(d), which, as discussed above,
governed this arbitration, dictates that "the arbitrator may
include interest at such a rate and from such a date as the
arbitrator may deem appropriate." The parties contracted to
provide the arbitrator with this discretionary power. Eastern did
not within three months request modification of the award with
respect to the denial of prejudgment interest, see 9 U.S.C. § 12,
and therefore, it is bound by the award. The district court
therefore rightly declined to upset the arbitrator's decision
regarding prejudgment interest.
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IV.
For the foregoing reasons, the district court's decision
is affirmed in part and reversed in part, and this case is remanded
for entry of an order affirming the amended arbitration award in
its entirety.
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