Foster Wheeler Environmental Corporation v. Energx TN, L.L.C. et al

Filing 16

OPINION AND ORDER. For the reasons in this Opinion and Order, Foster Wheeler's petition to confirm the Final Award is granted and Respondents' cross-petition to vacate or modify the Final Award is denied. The Clerk of Court is respectfully directed to close the motion at docket number 4 and to close the case. re: 4 FIRST MOTION to Vacate Arbitration Award filed by Energx, L.L.C., Energx TN, L.L.C. (Signed by Judge Ronnie Abrams on 3/13/2014) (rjm)

(Id. ¶¶ 4-6.) ETN, a limited liability company of which EnergX is the sole member, also
performed work on the project under a subcontract. (Id. ¶¶ 7-8.)
On January 15, 2008, pursuant to a purchase agreement (“the Purchase Agreement”),
EnergX purchased Foster Wheeler’s “right, title and interest in the . . . TN Contract.” (Id. ¶¶ 1011.) ETN thus formally replaced Foster Wheeler on the TN Contract. (Id. ¶ 17.) Among other
things, the Purchase Agreement provided that if “EnergX is awarded any subsequent contracts
with DOE in whole or in part for the operation of the [transuranic waste processing center],”
EnergX must make a lump-sum payment of $250,000 to Foster Wheeler. (Purchase Agreement
§ 1.1(b).)
On April 2, 2008, in anticipation of the completion of the TN Contract, DOE issued a
Request for Proposal for a new contract to operate the transuranic waste processing center (“the
Prime Contract”). (Parties’ Statement of Stipulated Facts ¶¶ 18-19.) Because the Prime Contract
was restricted to small businesses, EnergX was ineligible to bid on it.

(Id. ¶¶ 20-21.)

Accordingly, on April 16, 2008, EnergX entered into a Teaming Agreement with Wastren
Advantage, Inc. (“WAI”), pursuant to which WAI submitted a proposal featuring itself as the
prime contractor and EnergX as a subcontractor. (Id. ¶¶ 22-23; Dkt. 14-4 at 7.) WAI was
awarded the Prime Contract on October 17, 2009, and it assumed operational control of the
facility on January 17, 2010. (Id. ¶¶ 24-25.) On March 29, 2010, WAI and EnergX executed a
subcontract to perform technical and administrative work at the facility (“the Subcontract”).
(Resps.’ Statement of Undisputed Facts ¶ 19.) The Subcontract has been amended over time.
(Id.)
Following the award of the Subcontract to EnergX, Foster Wheeler made a demand for
payment of the $250,000 which Respondents refused to pay. (Pet’r’s Mem. of Law 7.) The
parties submitted their dispute to arbitration, where Foster Wheeler claimed that the Subcontract
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triggered Respondents’ obligation to make the lump-sum payment provided for in the Purchase
Agreement. (Final Award 1; Pet’r’s Mot. for Summ. J. 2.) The arbitrator issued a Final Award
on December 6, 2012, concluding that “the subcontract between EnergX and WAI triggers the
payment Provision of section 1.1(b)” and awarding $250,000 to Foster Wheeler. (Id. at 7.) He
also awarded prejudgment interest from October 17, 2009 until the date of the Final Award,
totaling $70,607. (Id.)
II.

Applicable Legal Standard

“Normally, confirmation of an arbitration award is a summary proceeding that merely
makes what is already a final arbitration award a judgment of the court.” D.H. Blair & Co., Inc.
v. Gottdiener, 462 F.3d 95, 110 (2d Cir. 2006) (internal quotation marks omitted). A party
seeking to vacate an arbitration award “must clear a high hurdle. It is not enough . . . to show
that the [arbitrator] committed an error—or even a serious error.”

Stolt-Nielsen S.A. v.

AnimalFeeds Int’l Corp., 559 U.S. 662, 671 (2010). “It is only when [an] arbitrator strays from
interpretation and application of the agreement and effectively dispense[s] his own brand of
industrial justice that his decision may be unenforceable.” Id. (alterations in original) (internal
quotation marks omitted).
“With respect to contract interpretation, this standard essentially bars review of whether
an arbitrator misconstrued a contract.” T.Co Metals, LLC v. Dempsey Pipe & Supply, Inc., 592
F.3d 329, 339 (2d Cir. 2010). Thus, “as long as the arbitrator is even arguably construing or
applying the contract and acting within the scope of his authority, a court’s conviction that the
arbitrator has committed serious error in resolving the disputed issue does not suffice to overturn
his decision.” ReliaStar Life Ins. Co. of N.Y. v. EMC Nat. Life. Co., 564 F.3d 81, 86 (2d Cir.
2009) (internal quotation marks omitted); see also Companhia de Navegacao Maritima Netumar
v. Armada Parcel Serv., Ltd., No. 96 Civ. 6441 (PKL), 2000 WL 60200, at *6 (S.D.N.Y. Jan. 25,
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2000) (“[I]n almost every instance where a court has been asked to review an arbitration award,
the arbitrator’s final decision has been left undisturbed.”). “[T]he court’s function in confirming
or vacating an arbitration award is severely limited. If it were otherwise, the ostensible purpose
for resort to arbitration, i.e., avoidance of litigation, would be frustrated.” Amicizia Societa
Navegazione v. Chilean Nitrate & Iodine Sales Corp., 274 F.2d 805, 808 (2d Cir. 1960).
III.

Discussion
A.

Manifest Disregard of the Law and the Contract

Respondents argue that the arbitrator acted in manifest disregard of the law and the
Purchase Agreement. (Resps.’ Mem. of Law 8-11.) They assert that, under the clear and
unambiguous meaning of the contract, the lump-sum payment is only triggered by the award of a
contract to which DOE and EnergX are both parties. (Id. at 9-10.) The lump-sum payment, they
contend, was thus not triggered by the Subcontract between EnergX and WAI.

(Id.)

Respondents bear the burden of demonstrating that the arbitrator manifestly disregarded the law
or the contract. See Folkways Music Publishers, Inc. v. Weiss, 989 F.2d 108, 111 (2d Cir. 1993)
(“[T]he party challenging the award[] bears a heavy burden of proof.”).
“[A]n arbitral decision may be vacated when an arbitrator has exhibited a ‘manifest
disregard of the law.’” Westerbeke Corp. v. Daihatsu Motor Co., Ltd., 304 F.3d 200, 208 (2d
Cir. 2002) (Sotomayor, J.). Manifest disregard of the law requires “something beyond and
different from a mere error in the law or failure on the part of the arbitrators to understand or
apply the law.” Id. (quoting Saxis S.S. Co. v. Multifacs Int’l Traders, Inc., 375 F.2d 577, 582
(2d Cir. 1967)). In this Circuit there is a two-prong test to determine whether an arbitrator
manifestly disregarded the law. “[A] court must find both that (1) the arbitrators knew of a
governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored
by the arbitrators was well defined, explicit, and clearly applicable to the case.” Halligan v.
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Piper Jaffray, Inc., 148 F.3d 197, 202 (2d Cir. 1998). The same standard governs a claim that an
arbitrator manifestly disregarded the contract terms. See Yusuf Ahmed Alghanim & Sons v.
Toys “R” Us, Inc., 126 F.3d 15, 25 (2d Cir. 1997). The arbitrator in this case did not manifestly
disregard the law or the contract.
The contract provision at issue reads as follows:
[I]f and to the extent EnergX is awarded any subsequent contracts
with DOE in whole or in part for operation of the [transuranic
waste processing center] beyond the TN Contract (an “Additional
Contract”), then EnergX shall pay $250,000 to [Foster Wheeler] in
a lump sum payment within 20 days of the execution of such
Additional Contract.
(Purchase Agreement § 1.1(b).)

The question of contract interpretation presented to the

arbitrator was thus whether EnergX had been “awarded any subsequent contracts with DOE in
whole or in part.” (Id.; Pet’r’s Mot. for Summ. J. 8; Resps.’ Mot. Summ. J. 6) He concluded
that “[a] contract with DOE means one that DOE is associated with” and that the phrase “in part”
covers subcontracts as well as prime contracts. (Final Award 6-7.) Accordingly, the arbitrator
found that “the subcontract between EnergX and WAI triggers the payment Provision of section
1.1(b).” (Id. at 7.)
As noted above, it is not this Court’s role to determine whether it agrees with that
interpretation. Instead, the Court asks only “if there is a barely colorable justification for the
outcome reached.” Banco de Seguros del Estado v. Mut. Marine Office, Inc., 344 F.3d 255, 260
(2d Cir. 2003) (internal quotation marks omitted). The arbitrator’s interpretation in this case
meets that standard.
As an initial matter, the arbitrator gave effect to the phrase “in whole or in part” by
interpreting it to mean that the provision covers subcontracts, as well as prime contracts. (Final
Award 6-7.)

“Under New York law an interpretation of a contract that has the effect of

rendering at least one clause superfluous or meaningless . . . is not preferred and will be avoided
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if possible. Rather, an interpretation that gives a reasonable and effective meaning to all terms of
a contract is generally preferred to one that leaves a part unreasonable or of no effect.” Galli v.
Metz, 973 F.2d 145, 149 (2d Cir. 1992) (alteration in original) (citation and internal quotation
marks omitted); see also Loctite VSI, Inc. v. Chemfab N.Y., Inc., 701 N.Y.S.2d 723, 725 (App.
Div. 2000) (“[C]ourts should adopt an interpretation of a contract which gives meaning to every
provision of the contract, with no provision left without force and effect.”); Browning-Ferris
Indus. v. Cnty. of Monroe, 478 N.Y.S.2d 428, 430 (App. Div. 1984) (“[A] contract should be
interpreted to give meaning and effect to every provision.”); DBT Gmbh v. J.L. Min. Co., 544 F.
Supp. 2d 364, 377 (S.D.N.Y. 2008) (under New York law there is a “fundamental rule that a
contract should be interpreted in a manner that gives meaning to every provision”). Although
Respondents argued in the arbitration proceedings that the phrase “in whole or in part” extends
coverage of the provision to contracts that DOE divides into pieces (Final Award 6), the
arbitrator’s interpretation of the language provides a reasonable alternative interpretation. See
Yusuf, 126 F.3d at 25 (“Interpretation of [a] contract term[] is within the province of the
arbitrator and will not be overruled simply because we disagree with that interpretation.”).
In addition, contrary to Respondents’ contention, the arbitrator’s interpretation does not
manifestly disregard the plain meaning of the phrase “with DOE.” “Under New York law,
‘words and phrases [of a contract] . . . should be given their plain meaning.’” Progress Bulk
Carriers v. Am. S.S. Owners Mut. Prot. & Indem. Ass’n, Inc., 939 F. Supp. 2d 422, 428
(S.D.N.Y. 2013) (alterations in original) (quoting ReliaStar, 564 F.3d at 88).

It does not

manifestly disregard the plain meaning of the contractual language to say that EnergX was
“awarded [a] subsequent contract[] with DOE,” considering that EnergX’s role on the
Subcontract it was awarded required it to perform work at a facility owned by DOE. At the very
least, that constitutes a “barely colorable justification.” See Banco de Seguros, 344 F.3d at 260.
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Finally, the arbitrator appropriately considered the circumstances at the time of contract
formation and the parties’ expectations.

Under New York law, “the essence of contract

interpretation . . . is to enforce a contract in accordance with the true expectations of the parties
in light of the circumstances existing at the time of the formation of the contract.” VTech
Holdings Ltd. v. Lucent Techs., Inc., 172 F. Supp. 2d 435, 441 (S.D.N.Y. 2001) (quoting Reiss
v. Fin. Performance Corp., 715 N.Y.S.2d 29, 34 (App. Div. 2000)). To determine the parties’
intent, the Court should consider “the reasonable expectation and purpose of the ordinary
businessperson in the factual context in which the terms of art and understanding are used.”
Eastman Kodak Co. v. STWB, Inc., 232 F. Supp. 2d 74, 91 (S.D.N.Y. 2002) (quoting Uribe v.
Merchants Bank of N.Y., 693 N.E.2d 740, 743 (N.Y. 1998)).
The arbitrator concluded that “the parties intended that if EnergX, then the incumbent,
could use that position to get another contract, [Foster Wheeler] should share by receiving an
additional $250,000.” (Final Award 6.) Although he recognized that the parties had failed to
anticipate that DOE would limit the Prime Contract to small businesses, he also found that
EnergX, nonetheless, “used its position as incumbent to team with WAI and thus to enable itself
to reap substantial economic benefit.” (Id.) The arbitrator further noted that the estimated value
of the Prime Contract awarded to WAI was approximately $65 million, and EnergX earned
approximately $12 million to $15 million as a subcontractor on the project.

(Id. at 5.)

Accordingly, he found that Respondents were required to compensate Foster Wheeler.
In sum, because the arbitrator was plainly attempting to “constru[e] or apply[] the
contract,” he neither manifestly disregarded the law nor the contract at issue. See ReliaStar, 564
F.3d at 86; I/S Stavborg v. Nat’l Metal Converters, Inc., 500 F.2d 424, 432 (2d Cir. 1974)
(confirming arbitration award despite the fact that it was “based on a clearly erroneous
interpretation of the contract”).
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B.

Scope of Arbitrator’s Authority

Respondents also argue that the Final Award should be vacated under 9 U.S.C. § 10(a)(4)
because the arbitrator “imperfectly executed his role by administering his own brand of justice.”
(Resps.’ Mem. of Law 6, 11-12.) In doing so, however, they misinterpret the meaning of that
statutory provision. In applying § 10(a)(4), the Court “focuses on whether the arbitrator[] had
the power, based on the parties’ submissions or the arbitration agreement, to reach a certain
issue, not whether the arbitrators correctly decided that issue.” Westerbeke, 304 F.3d at 220
(quoting DiRussa v. Dean Witter Reynolds Inc., 121 F.3d 818, 824 (2d Cir. 1997)). “[O]nce we
determine that the parties intended for the arbitration panel to decide a given issue, it follows that
the arbitration panel did not exceed its authority in deciding that issue—irrespective of whether it
decided the issue correctly.” T.Co Metals, LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329,
346 (2d Cir. 2010) (internal quotation marks omitted); see also Jock v. Sterling Jewelers Inc.,
646 F.3d 113, 122-23 (2d Cir. 2011).
Respondents have not argued—either to this Court or to the arbitrator—that interpretation
of the contract fell outside the bounds of what the parties agreed to arbitrate. (See generally
Resps.’ Mem. of Law; Resps.’ Mot. for Summ. J.)

Moreover, given that the Purchase

Agreement required arbitration of “[a]ll disputes arising out of this Agreement,” such an
argument would have been meritless. (Purchase Agreement § 10.7.) In McDonnell Douglas
Finance Corp. v. Pa. Power & Light Co., 858 F.2d 825, 832 (2d Cir. 1988), the Second Circuit
recognized a distinction “between ‘broad’ [arbitration] clauses that purport to refer all disputes
arising out of a contract to arbitration and ‘narrow’ clauses that limit arbitration to specific types
of disputes.” It held that if, as is the case here, the “clause is a broad one, then . . . any
subsequent construction of the contract and of the parties’ rights and obligations under it are
within the jurisdiction of the arbitrator.” Id. Accordingly, the arbitrator did not exceed the scope
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of his authority when he interpreted the contract.
C.

Award of Prejudgment Interest

Respondents assert, in the alternative, that the Court must modify or correct the award of
prejudgment interest pursuant to 9 U.S.C. § 11(a), because it contains “an evident material
mistake.” (Resps.’ Mem. of Law 13.) The arbitrator awarded interest starting the day the Prime
Contract was awarded to WAI, but Respondents claim the interest should run from the day that
EnergX officially became a subcontractor to WAI. (Id.) 1
Section 11(a) authorizes a district court to modify or correct an arbitration award
“[w]here there was . . . an evident material mistake in the description of any person, thing, or
property referred to in the award.” This authority, however, is “strictly limited.” T.Co Metals,
592 F.3d at 345; see also Hyle v. Doctor’s Assocs., Inc., 198 F.3d 368, 370 (2d Cir. 1999). The
mistake must be one “that is apparent on the face of the record and would have been corrected
had the arbitrator known [of it] at the time.” 4 Thomas H. Oemke with Joan M. Brovins,
Commercial Arbitration § 132:4 (3d ed. 2013); see also AIG Baker Sterling Heights, LLC v.
Am. Multi-Cinema, Inc., 508 F.3d 995, 999 (11th Cir. 2007) (holding that under § 11(a) “[t]o
make a ‘mistake’ is to ‘understand wrongly’ or to ‘recognize or identify incorrectly.’”). Any
mistake must be “evident” and must “appear[] in a description ‘in the award.’” AIG Baker, 508
F.3d at 999; cf. Al-Azhari v. Merit Capital Assocs., Inc., No. 99 Civ. 9795 (LAK), 2000 WL
151914, at *2 (S.D.N.Y. Feb. 14, 2000) (“In relevant part, the Federal Arbitration Act permits
modification of an arbitration award only where there was an ‘evident material miscalculation of
figures’ that is clear on the face of the award or can be clearly inferred therefrom.”).
Furthermore, § 11 does not authorize the Court to correct a mistake if such correction would alter
1

Although Section 1.1(b) of the Purchase Agreement provides that “EnergX shall pay $250,000 . . . within 20 days
of the execution of such Additional Contract,” Respondents have not argued that interest should have run from
twenty days after the subsequent contract was awarded, rather than from the award date itself.

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the substantive disposition. See Fellus v. Sterne, Agee & Leach, Inc., 783 F. Supp. 2d 612, 619
(S.D.N.Y. 2011) (“Section 11(a) does not permit modification where the award is ‘not the result
of some careless or obvious mathematical mistake, but rather the disposition of a substantive
dispute that lays at the heart of the arbitration.’”); see also Companhia de Navegacao Maritima
Netumar v. Armada Parcel Serv., Ltd., No. 96 Civ. 6441 (PKL), 2000 WL 60200, at *6-7
(S.D.N.Y. Jan. 25, 2000).
It is simply not clear from the face of the Final Award that the arbitrator used the date of
the Prime Contract, rather than the Subcontract, because of a careless mistake. Rather, it is quite
possible that the arbitrator relied on the Prime Contract award date because of the way he
interpreted the contractual provisions. He may have believed that the Teaming Agreement
between EnergX and WAI entitled EnergX to receive the Subcontract once WAI had received
the Prime Contract. 2

Based on such a view, the arbitrator might have concluded that

prejudgment interest should run from the date the Prime Contract was awarded because, as a
practical matter, that is when EnergX secured the Subcontract. See Fed. Commerce & Nav. Co.
v. Kanematsu-Gosho, Ltd., 457 F.2d 387, 389-90 (2d Cir. 1972) (“Overly technical judicial
review of arbitration awards” is not appropriate, in part, because “judicial intervention into
arbitration substitutes the rule of a court for that of ‘[persons] familiar with the practical
intricacies of their type of relationship and disposed to give weight to nonlegal factors like
business ethics.’”).
Whether the Court agrees with that interpretation is not at issue, because § 11(a) does not

2

The April 16, 2008 Teaming Agreement between EnergX and WAI provides that, “[i]n the event the Prime
Contract is awarded to WAI by the Customer, WAI and EnergX . . . shall commence immediate good-faith
negotiations to execute a mutually acceptable Subcontract . . . .” (Teaming Agreement Art. IX § 9.1, Rosen Decl.
Ex. 3-2.) It also provides that, “[i]n consideration of subcontracting the above areas to EnergX, EnergX agrees to
support WAI’s bid efforts by providing additional past performance as may be identified prior to submission of the
proposal to ensure the most likely team win.” (Id. § 9.2.) Based on the latter provision, the arbitrator could have
inferred that, by the time the Prime Contract was awarded, EnergX had already provided the consideration for
receiving the Subcontract by assisting WAI prepare the successful proposal.

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