Hofer Builders, Inc. v. Capstone Building Corporation
Filing
12
ORDER AND REASONS denying MOTION 1 to Vacate Arbitration Award filed by Hofer Builders, Inc. Signed by Chief Judge Sarah S. Vance on 11/20/12.(jjs, )
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
HOFER BUILDERS, INC
CIVIL ACTION
VERSUS
NO: 12-1367
CAPSTONE BUILDING CORPORATION
SECTION: R
ORDER AND REASONS
Before the Court is the motion of Hofer Builders, Inc. to
vacate an arbitration decision. Because the Court does not have
the statutory authority to vacate the arbitration panel’s denial
of Hofer’s motion for summary judgment, the Court DENIES the
motion.
I.
BACKGROUND
This dispute arises out of a construction project to build
school dormitories in Hammond, Louisiana, a project owned by
University Facilities, Inc. (“UFI”). Capstone Development
Corporation was the developer and Capstone Building Corporation
the general contractor (“CBC”).1 CBC entered into two subcontract
agreements with Hofer Builders, Inc. for Hofer to assist with the
building project.2 In May 2009, UFI filed suit against Capstone
Development Corporation and after initiating arbitration, added
CBC to the arbitration proceedings in January 2010. CBC then
1
R. Doc. 1-5.
2
Id.
filed an arbitration demand asserting third-party claims against
Hofer in February 2010.3
The contracts between CBC and Hofer established that any
disputes between them would be resolved by binding arbitration
and that the law of the state in which the project at issue was
performed would govern.4 Hofer filed for summary judgment on the
ground that CBC’s indemnity claim against it had not yet accrued.
The arbitration panel denied Hofer’s motion. Hofer then filed a
motion to vacate the panel’s decision in this Court. Hofer
contends that although the arbitrators’ decision does not
constitute a final award, the Court nevertheless may review it
and that the arbitrators’ manifest disregard of the law requires
vacatur of the denial of summary judgment.
II.
STANDARD
Judicial review of an arbitration award is extremely
limited. See Anderman/Smith Operating Co. v. Tennessee Gas
Pipeline Co., 918 F.2d 1215, 1218 (5th Cir. 1990). Courts must
defer to the decision of the arbitrator. See id. The Fifth
Circuit consistently has held that “arbitrators are not required
to disclose or explain the reasons underlying an award.” See
Antwine v. Prudential Bache Securities, 899 F.2d 410, 412 (5th
Cir. 1990); see also The Houston Lighting & Power Co. v. Int'l
3
R. Doc. 1-5.
4
R. Doc. 1-2 at 27, 39.
2
Brotherhood of Elec. Workers, 71 F.3d 179, 186 (5th Cir. 1995)
(“Indeed, arbitrators are generally not even required to disclose
or explain the reasons that underlie their decision.”). If the
basis for the award can be rationally inferred from the
underlying contract, the reviewing court must confirm the award.
See Anderman, 918 F.2d at 1218.
In a few circumstances, however, vacating an arbitration
award may be appropriate. Title 9, United States Code, Section 10
sets forth the following grounds for vacating an award under the
Federal Arbitration Act (FAA):
(1) Where the award was procured by corruption, fraud, or
undue means.
(2) Where there was evident partiality or corruption in the
arbitrators, or either of them.
(3) Where the arbitrators were guilty of misconduct in
refusing to postpone the hearing, upon sufficient cause
shown, or in refusing to hear evidence pertinent and
material to the controversy; or of any other misbehavior by
which the rights of any party have been prejudiced.
(4) Where the arbitrators exceeded their powers, or so
imperfectly executed them that a mutual, final, and definite
award upon the subject matter submitted was not made.
9 U.S.C. § 10(a). In Hall Street Associates, L.L.C. v. Mattel,
the Supreme Court held that § 10 provides the exclusive regime
for vacatur of an arbitration award under the FAA. 128 S.Ct.
1396, 1404 (2008).
III. DISCUSSION
CBC contends that the Court may not review the arbitration
panel’s denial of summary judgment, because its decision does not
3
constitute a final award. The Fifth Circuit Court of Appeals has
stated, “By its own terms, § 10 authorizes court action only
after a final award is made by the arbitrator.” Folse v. Richard
Wolf Med. Instruments Corp., 56 F.3d 603 (5th Cir. 1995) (citing
Michaels v. Mariforum Shipping, S.A., 624 F.2d 411, 414 (2d Cir.
1980)). In Michaels, the court held that an award was final when
“intended by the arbitrators to be their complete determination
of all claims submitted to them.” 624 F.2d at 413. Hofer asserts
that pursuant to the Supreme Court’s recent holding in StoltNielsen S.A. v. AnimalFeeds, a court may review a decision made
by an arbitration panel that is not a final award. 130 S.Ct. 1758
(2010).
In Stolt-Nielsen, the parties submitted to an arbitration
panel the question of whether their arbitration clause allowed
for class arbitration, and the award at issue was the arbitration
panel’s decision to impose class arbitration. Id. The Supreme
Court determined that the arbitration panel imposed its own view
of sound policy rather than interpreting the parties’ arbitration
agreement and stated that “an arbitration decision may be vacated
under § 10(a)(4) of the FAA on the ground that the arbitrator
‘exceeded [his] powers.’” 130 S.Ct. at 1767. As to ripeness, the
Court found the issue ripe for judicial decision because if
petitioners were correct, they would be compelled to submit to
arbitration by arbitrators who had no authority to order them to
4
do so. Stolt-Nielsen, 130 S.Ct. at 1767 n.2 (citing Nat’l Park
Hospitality Assn v. Dep’t of Interior, 538 U.S. 803 (2003)). In
addition, they would be subject to hardship if the Court withheld
consideration because their only alternative was to refuse to
arbitrate and become subject to a compulsion order. Id.
Hofer’s claim that the Court’s holding in Stolt-Nielsen
broadly established the availability of vacatur under § 10(a)(4)
for interlocutory rulings is not supported by the Court’s
decision. The Court did not announce a new rule or make clear the
extent to which its holding applies outside of the context of
arbitration decisions involving class action suits or arbitration
clause construction.
The Fifth Circuit has described the Stolt-
Nielsen decision as indicating that interlocutory appeals from
arbitration tribunals may be allowed in “certain limited
circumstances.” Louisiana Heath Service Indem. Co. v. DVA Renal
Healthcare, Inc., 422 Fed. Appx. 313, *1 n.2 (5th Cir. 2011)
(class action suit in which the court dismissed an appeal from an
arbitration panel without a decision and thus did not analyze
whether jurisdiction would exist). Further, Hofer has not
demonstrated that the denial of summary judgment, in which no
findings were made against Hofer other than its obligation to
participate in the arbitration proceedings,5 has caused any
particular hardship or that the determination is especially fit
5
R. Doc. 1-5.
5
for judicial review. Therefore, the arbitration panel’s decision
to deny summary judgment is not the type of interlocutory
decision for which judicial review has been sanctioned by StoltNielsen.
Moreover, even if the Court may review the arbitration
panel’s decision under § 10(a)(4), Hofer has not demonstrated
that the arbitrators “exceeded their powers, or so imperfectly
executed them that a mutual, final, and definite award upon the
subject matter submitted was not made.” 9 U.S.C. § 10(a)(4).
Hofer argues that the applicable standard is manifest disregard
of the law and cites the Supreme Court’s statement in StoltNielsen that it has not decided whether “manifest disregard”
survives its decision in Hall Street that § 10 contains the
exclusive grounds for vacatur under the FAA. 130 S.Ct. at 1768
n.3. But, the respondent in Stolt-Nielsen characterized “manifest
disregard” as willful flouting of the governing law, id., a
standard that Hofer has not shown to be satisfied here. Further,
the Fifth Circuit interpreted Hall Street as holding that
arbitrators’ manifest disregard of the law does not constitute a
separate basis for vacating awards under the FAA. Citigroup
Global Markets, Inc. v. Bacon, 562 F.3d 349 (5th Cir. 2009). The
court noted that other courts of appeals have interpreted
manifest disregard as shorthand for the statutory provisions of §
10, but it held that “the term itself, as a term of legal art, is
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no longer useful in actions to vacate arbitration awards.” Id. at
358. Because the Supreme Court did not clarify the role that the
standard of manifest disregard may play within the provisions of
§ 10, the Court is bound by the holding of the Fifth Circuit and
must adhere to the statutory language of § 10(a)(4).6
In vacating awards under § 10(a)(4) because arbitrators
exceeded their powers, courts have generally found that
arbitrators acted “contrary to express contractual provisions.”
Rain CII Carbon, LLC v. ConocoPhillips Co., 674 F.3d 469, 472
(5th Cir. 2012). Hofer does not contest that it agreed to
arbitrate its disputes with CBC; indeed, the contracts between
the two companies state that “all disputes shall be resolved by
binding arbitration.”7 Cf. Reed v. Florida Metropolitan
University, Inc., 681 F.3d 630 (5th Cir. 2012) (arbitrator
exceeded power in forcing parties into class arbitration without
contractual basis for his decision). Nor does Hofer assert that
the arbitrators turned a blind eye to the terms of the
arbitration contract by ignoring an explicit choice of law
provision. See Rent-A-Center, Inc. v. Barker, 633 F. Supp. 2d
6
Hofer cites state court precedent in support of its
position that both “manifest disregard” and “contrary to public
policy” are viable grounds on which to vacate an arbitration
award. But, because Hofer filed its motion to vacate pursuant to
the FAA, the standards set forth in § 10(a), rather than any
state law grounds for vacatur, govern the Court’s review of the
panel’s decision.
7
R. Doc. 1-2 at 27, 39.
7
245, 253-54 (W.D. La. 2009) (contrasting arbitrator’s application
of relevant law with case in which arbitrator did not attempt to
apply substantive law of Wisconsin, as required by parties’
contract). Here, the contracts between the parties established
that the contracts would be governed by the law of the state in
which the work was performed,8 which the parties agree is
Louisiana. Although Hofer disputes the arbitrators’
interpretation of Louisiana substantive and procedural law, there
is no evidence that the panel ignored the relevant law entirely.
Rather, Hofer contends that the arbitration panel’s denial
of summary judgment should be vacated because the arbitrators
misapplied the Louisiana Supreme Court’s holding in Ebinger v.
Venus Construction Corporation. In Ebinger, the court discussed
the time at which a third party claim for indemnity accrues. 65
So.3d 1279 (La. 2011). The panel’s ruling cited Ebinger, and its
interpretation of Louisiana state law represents the type of
arbitration decision deferred to by courts. “[A] court may not
decline to enforce an award simply because it disagrees with the
arbitrator’s legal reasoning.” Reed, 681 F.3d at 630. Even if the
arbitration panel misapplied the law, precedent clearly
establishes that this does not demonstrate that the panel
exceeded its powers or provide grounds for vacatur. See, e.g.,
Rent-A-Center, Inc. 633 F. Supp. 2d at 257 (“[M]isapplication of
8
R. Doc. 1-2 at 27, 39.
8
the law is not grounds for vacating an arbitration award under
the FAA. . . . ‘Our review is restricted to determining whether
the procedure was fundamentally unfair.’”) (quoting Teamsters,
Chauffeurs, Warehousemen, Helpers and Food Processors, Local
Union 657 v. Stanley Structures, Inc., 735 F.2d 903 (5th Cir.
1984)). Although Hofer implies that the arbitration panel’s
decision that Hofer must participate in arbitration is akin to
the award vacated in Stolt-Nielsen, there, the arbitrators
compelled arbitration in a circumstance in which the parties had
not agreed to arbitrate. Here, the arbitration panel’s decision
concerns whether CBC may bring a claim against Hofer at all. This
issue falls squarely within the scope of the parties’ agreement
that all disputes shall be settled by arbitration. Thus, the
arbitrators’ determination as to CBC’s cause of action against
Hofer does not result from the panel’s exceeding its powers by
the terms of § 10(a)(4). See, e.g., Hamel-Schwulst v. Country
Place Mortg. Ltd., 406 F. App'x 906, 914 (5th Cir. 2010) (“It has
been the rule for some time that courts do not vacate an
arbitration award based on the merits of a party's claim.”).
The
Court therefore finds that Hofer has not demonstrated that the
arbitration panel’s denial of summary judgment constitutes the
type of arbitration decision that the Court may vacate.9
9
Hofer does not contend that the second element of §
10(a)(4) is applicable, that the arbitrators imperfectly executed
their powers and thus precluded the issuance of a final award. In
9
IV.
CONCLUSION
For the foregoing reasons, the Court DENIES Hofer’s motion
to vacate the arbitration panel’s denial of summary judgment.
New Orleans, Louisiana, this 20th day of November, 2012.
__
_________________________________
SARAH S. VANCE
UNITED STATES DISTRICT JUDGE
any event, this grounds for vacatur has been invoked in instances
in which arbitrators issued a vague or confusing award that
precluded a final resolution, which is not the case here. See,
e.g., Lummus Global Amazonas S.A. v. Aguaytia Energy del Reru
S.R. Ltda, 256 F. Supp. 2d 594, 641 (S.D. Tex. 2002) (citing
Americas Ins. Co. v. Seagull Compania Naviera, S.A., 774 F.2d 64
(2d Cir. 1985)).
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