A. Miner Contracting Incorporated v. Dana Kepner Company Incorporated et al

Filing 24

ORDER that A. Miner Contracting, Inc.'s 1 Petition to Vacate Arbitration Award and Award of Fees and Costs is DENIED. The Clerk of Court is directed to terminate this action. Signed by Judge G Murray Snow on 12/20/2012. (LFIG)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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A. Miner Contracting, Inc., an Arizona
corporation,

No. CV-12-08198-PHX-GMS
ORDER

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Plaintiff,

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v.

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Dana Kepner Company, Inc., a Delaware
Corporation; Does 1-50; Black & White
Companies; Limited Liability Companies or
Partnerships I-X,

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Defendant.

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Pending before the Court is Plaintiff A. Miner Contracting, Inc.’s (“Miner”)

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Petition to Vacate Arbitration Award and Award of Fees and Costs. (Doc. 1.) For the

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reasons discussed below, Miner’s Petition is denied.

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BACKGROUND

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In April 2010, Miner filed suit against Dana Kepner Company, Inc. (“Kepner”)

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alleging that (1) Kepner had sold Miner defective ductile pipe in connection with a

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municipal construction project on Prescott (the “Zone-39 Project”) and that (2) Kepner

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breached the parties’ contract by stopping deliveries to Miner on the Groom Creek

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Project. (Doc. 6 at 2.) Miner sought damages for tort and contract claims, as well as a

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declaration that the parties’ contract was invalid. (Id. at 2–3.) Miner’s claims regarding

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the Zone-39 Project center on a meeting held between the parties in March 2009, where

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Miner alleges that a Kepner representative either affirmatively misrepresented the quality

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of the pipe or concealed known defects with the pipe. (Doc. 1 at 4–5.) Miner’s claim

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regarding the Groom Creek Project involves Kepner’s cessation of shipping materials to

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Miner in 2007, in spite of a contract between the parties and Kepner’s alleged “custom

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and practice” of giving a customer two to three weeks before placing a credit hold on the

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customer’s account. (Id. at 6.) Kepner counterclaimed against Miner for its failure to pay

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for materials and filed third-party claims against Guarantee Company of North America

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(“GCNA”), Miner’s surety company. (Doc. 6 at 3.)

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In December 2011, the parties agreed to arbitrate the dispute. (Id. at 3.) The

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arbitration was held over three days in February 2012. (Id.) On April 3, 2012, the

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arbitrator issued a Preliminary Award rejecting all of Miner’s claims and finding in favor

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of Kepner’s counterclaims and third-party claims, awarding Kepner $201,100 in initial

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damages jointly and severally against Miner and GCNA. (Doc. 6 at 4; Doc. 1-D at 13–

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14.) The arbitrator then ordered the parties to brief the issue of attorney’s fees, interest,

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and costs. (Doc. 6 at 4.) On June 28, 2012, the arbitrator issued a Fee and Cost Award in

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favor of Kepner. (Id. at 5.) This Award incorporated the Preliminary Award and granted

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Kepner a total of $626,892.36 against Miner and GCNA, jointly and severally. (Id.)

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Miner paid the full amount of the award shortly thereafter. (Id.)

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Miner now brings suit contending that it is entitled to vacation of the arbitration

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award because the arbitrator failed to follow controlling legal authority and exceeded the

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scope of his authority. It argues four grounds for vacating the award: (1) the arbitrator

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ignored the law on the issue of Kepner’s waiver of timely performance, (2) the

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arbitrator’s findings on the tort claims were unsupported by the law, (3) the arbitrator’s

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decision on Miner’s negligent misrepresentation claim had no legal basis, and (4) the

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arbitrator exceeded his authority in granting Kepner fees and costs.
DISCUSSION

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I.

Legal Standard
The Federal Arbitration Act enumerates the limited grounds on which a federal
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court may vacate, modify, or correct an arbitration award. 9 U.S.C. §§ 9, 10. The statute

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permits vacation only if (1) corruption or fraud was involved, (2) the arbitrators were

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evidently partial or corrupt, (3) the arbitrators were guilty of misbehavior, or (4) the

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arbitrators exceeded their powers. Id. § 10. Thus, the statute requires confirmation of an

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award “even in the face of erroneous findings of fact or misinterpretations of law.”

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Kyocera Corp. v. Prudential-Bache Trade Svcs., Inc., 341 F.3d 987, 997 (9th Cir. 2003).

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In addition, the Ninth Circuit has “adopted a narrow ‘manifest disregard of the law’

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exception under which a procedurally proper arbitration award may be vacated.” Collins

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v. D.R. Horton, Inc., 505 F.3d 874, 879 (9th Cir. 2007).

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II.

Waiver of Timely Performance

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Miner asserts that the arbitrator manifestly disregarded the law on the issue of

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Kepner’s waiver of timely performance with regard to the Groom Creek Project. In order

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to obtain vacation of an arbitration award for manifest disregard of the law, the petitioner

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must show that “the arbitrators recognized the applicable law and then ignored it.”

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Collins, 505 F.3d at 879. Furthermore, the applicable law must have been “well defined,

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explicit, and clearly applicable.” Id. at 880. Thus, “mere allegations of error are

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insufficient.” Id. at 879.

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Miner concedes that it withheld $201,000 from Kepner “as its estimated damages”

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in connection with the Zone-39 Project. (Doc. 1 at 6.) Though the contract between the

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parties had a clause requiring payment within thirty days, Miner asserts that in the years

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that Miner and Kepner did business together, Kepner never enforced that clause. (Id. at

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8.) Thus, Miner claims, Kepner waived its right to timely payment and was required to

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notify Miner of its intent to enforce the clause before bringing suit on it. (Id.)

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The arbitrator found that there was “not sufficient evidence that Dana Kepner

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actually had a custom and practice contrary to its Standard Terms and Conditions for

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Sale.” (Doc. 1-D at 12.) Miner contends that the arbitrator “completely ignored the law”

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in finding that Kepner had not waived timely payment, but in making its argument

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objects primarily to the arbitrator’s failure to take into account certain evidence. (Doc. 1
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at 8.) Discounting evidence does not constitute manifest disregard of the law, and an

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arbitration award cannot be vacated “even in the face of erroneous findings of fact.”

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Kyocera, 341 F.3d at 997. Miner has not demonstrated that the arbitrator acted in a way

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that would justify this Court’s vacation of the arbitration award. Miner’s Petition is

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denied on this ground.

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III.

Miner’s Tort Claims

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Miner contends that the arbitrator’s finding against Miner on its claims of

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fraudulent misrepresentation are “unsupported by law.” (Doc. 1 at 9.) It points to Arizona

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case law setting out the definition of fraudulent concealment and argues that the

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arbitrator’s decision in Kepner’s favor “ignored case law and evidence” supporting

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Miner’s position. However, the Preliminary Order indicates that the arbitrator thoroughly

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analyzed Miner’s fraudulent misrepresentation claim and found that any statement or

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omission by Kepner’s representative would “not be a misrepresentation since [the

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representative] believed that the [problems with the pipe] were caused by that contractor,

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not ACIPCO’s pipe products.” (Doc. 1-D at 10.) There is no indication that the arbitrator

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deliberately ignored well-defined law. Miner appears to disagree with the evidence on

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which the arbitrator chose to rely in making his decision, but that is not grounds for

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vacating an arbitration award. Miner’s Petition on this ground is therefore denied.

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IV.

Miner’s Negligent Misrepresentation Claim

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Miner argues that the arbitrator was “analyzing the [negligent misrepresentation

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claim] on the wrong elements.” (Doc. 1 at 11.) Miner argues that the elements of

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negligent misrepresentation under Arizona law are “(1) supplying false information (2)

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for another’s guidance in its business transactions.” (Id.) Thus, Miner argues, the

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arbitrator was ignoring the law because he placed undue emphasis on the fact that the

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Kepner representative was not negligent in reaching his belief that the previous pipe

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problems were caused by contractor error. (Id.)

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In fact, the case that Miner cites states that one of the elements of negligent

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misrepresentation is that the defendant must “fail[] to exercise reasonable care or
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competence in obtaining or communicating the [false] information.” Sage v. Blagg

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Appraisal Co., Ltd., 221 Aris 33, 35, 209 P.3d 169, 171 (App. 2009). As such, the

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arbitrator’s finding that there was “no evidence in the record that [the representative] was

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negligent in reaching his belief that the . . . leaks were caused by contractor error” was

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entirely appropriate. Miner has pointed to no other evidence that the arbitrator manifestly

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disregarded clearly established law in deciding against Miner on the negligent

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misrepresentation claim. Thus, Miner’s Petition is denied on this ground.

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V.

Award of Fees and Costs

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Miner contends that the arbitrator exceeded the scope of his authority in awarding

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Kepner fees and costs. (Doc. 1 at 11.) In determining whether an arbitrator exceeded his

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power, “courts must not decide the rightness or wrongness of the arbitrator[‘s] contract

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interpretation” and “must accord considerable deference to the arbitrator’s judgment.”

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Pac. Reinsurance Mgmt. Corp. v. Ohio Reinsurance Corp., 935 F.2d 1019, 1024 (9th Cir.

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1991). A court may vacate an arbitration award on grounds of exceeding authority only

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“when the award is completely irrational.” Kyocera, 341 F.3d at 997 (internal quotations

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omitted).

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Here, Miner contends that the arbitrator should have applied A.R.S. § 12-

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341.01(A) and allowed Kepner to recover fees for “only claims arising out of contract.”

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(Doc. 1 at 11.) That statute states that “[i]n any contested action arising out of a contract,

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express or implied, the court may award the successful party reasonable attorney’s fees.”

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A.R.S. § 12-341.01(A). The arbitrator considered this argument and decided that “A.R.S.

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§ 12-341.01 is not applicable” because the parties agreed, in their Submission

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Agreement, that the arbitrator could determine attorneys’ fees and costs and that there

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would be no cap on the amount of the award. (Doc. 1-L at 3, 6.) Furthermore, the

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Submission Agreement stipulated that the arbitration would be conducted pursuant to the

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AAA Arbitration Rules, and those rules expressly authorize an award of fees. (Id. at 2, 6.)

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Under Arizona law, “when a contract has an attorney’s fees provision it controls to the

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exclusion of the statute.” Lisa v. Strom, 183 Ariz. 415, 418 n.2, 904 P.2d 1239, 1242 n.2
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(App. 1995). As such, the arbitrator did not manifestly disregard the law in determining

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that A.R.S. § 12-341.01 was inapplicable.

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Miner also claims that the arbitrator misinterpreted the terms of the contract. It

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asserts that Kepner’s Standard Terms and Conditions provide that Miner will “‘pay all

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reasonable costs of collection,’ not attorneys’ fees and costs incurred in litigation.” (Doc.

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1 at 12.) The arbitrator examined this argument and found that the Submission

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Agreement, providing for attorneys’ fees and costs to be awarded by the arbitrator, was

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controlling rather than Kepner’s Standard Terms and Conditions. (Doc. 1-6 at 3.)

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Moreover, as Miner later concedes, even Kepner’s Standard Terms and Conditions

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provided that the buyer would be responsible for “a reasonable sum for attorney fees.”

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(Doc. 22 at 7.) The arbitrator’s decision to apply the Submission Agreement, which was

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the governing document for the arbitration process, cannot be characterized as

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“completely irrational.” Kyocera, 341 F.3d at 997.

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Miner also argues that the arbitrator improperly relied on “the inconclusive email

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dialogue between the attorneys” to “govern the issuance of fees and costs.” (Id.) The

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arbitrator apparently relied on the email chain as evidence of the parties’ intent in

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interpreting the Submission Agreement. (Doc. 1-L at 3.) It did not, as Miner suggests,

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rely solely on the email chain to determine whether to award Kepner fees and costs. The

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arbitrator’s reliance on the email chain to determine the parties’ intent was not

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“completely irrational” and the Court does not find that he exceeded the scope of his

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powers in so doing.

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Miner further asserts that the arbitrator improperly found that the Submission

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Agreement contained a fee-shifting arrangement. It argues that the arbitrator “clearly

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exceeded his authority” “[b]y employing a straight ‘prevailing party’ analysis with no

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provision permitting such an expansive reading.” (Doc. 22 at 10.) The arbitrator

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considered Miner’s argument that there could be no fee-shifting because no express

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clause provided for it in the Submission Agreement. He found, however, that Miner

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should have limited the language of the Submission Agreement to allow only recovery of
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“the costs of collection” if it wanted to preserve its right to argue that the Agreement

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precluded fee-shifting. (Doc. 1-L at 4.) The language of the Submission agreement

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expressly provides that the arbitrator will determine “the amount of attorneys’ fees and

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costs (or costs of collection).” Given this language, the Court does not find the

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arbitrator’s determination that fee-shifting was permitted “completely irrational.” The

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arbitrator’s interpretation is entitled to a substantial amount of deference, and in this case

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his reading of the Agreement was reasonable. The Court therefore declines to vacate the

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arbitration award on the ground that the arbitrator exceeded the scope of his authority.

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Miner’s Petition to Vacate Arbitration Award is therefore denied.

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IT IS THEREFORE ORDERED that A. Miner Contracting, Inc.’s Petition to

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Vacate Arbitration Award and Award of Fees and Costs (Doc. 1) is DENIED. The Clerk

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of Court is directed to terminate this action.

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Dated this 20th day of December, 2012.

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