Farley v. Eaton Incorporated
Filing
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Memorandum of Opinion and Order: This matter is before the Court upon petitioner's Motion to Vacate Arbitration Award (Doc. 7 ) and respondent's Motion for Confirmation of Arbitration Award and Entry of Final Judgment Thereon (Doc. 11 ). Petitioner's motion is DENIED and respondent's motion is GRANTED. Judge Patricia A. Gaughan on 7/6/16. (LC,S)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
In the Matter of the Arbitration
between William Farley,
Petitioner,
and
Eaton Corporation,
Respondent.
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CASE NO. 1:16 CV 690
JUDGE PATRICIA A. GAUGHAN
Memorandum of Opinion and Order
Introduction
This matter is before the Court upon petitioner’s Motion to Vacate Arbitration Award
(Doc. 7) and respondent’s Motion for Confirmation of Arbitration Award and Entry of Final
Judgment Thereon (Doc. 11). For the following reasons, petitioner’s motion is DENIED and
respondent’s motion is GRANTED.
Facts
Petitioner William Farley (hereafter, petitioner or Farley) filed this Complaint and
Motion to Vacate Arbitration Award Pursuant to 9 U.S.C. § 10 against respondent Eaton
Incorporated (hereafter, respondent or Eaton). Petitioner moves to vacate the Interim and
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Final Awards issued in the Arbitration between petitioner and respondent relating to a dispute
arising under a contract, the Amended and Restated Payment Procedures Agreement of
October 30, 1998 (the PPA) between the parties. Respondent has filed a Motion for
Confirmation of those awards.
The Court will summarize the underlying facts set forth by the Arbitrator which are
generally undisputed. Eaton acquired property in 1986 containing a manufacturing facility
located in Bethel, Connecticut. The property was formerly owned by Consolidated Controls
Corporation (CCC), a subsidiary of Condec Corporation (later known as VBQ), in which
Farley held a controlling interest. The property contained a lagoon where untreated waste
solvents had been deposited for years. In their 1986 Asset Purchase and Sale Agreement
(APSA), the parties included a provision whereby the seller would indemnify Eaton for the
costs of addressing the environmental contamination following the sale. In 1987, the
Connecticut Department of Environment Protection (DEP) issued a clean-up order and Eaton
began negotiating an appropriate clean-up remedy. Ultimately, a pump and treat system was
agreed upon and became operational in 1992. As early as 1991, Eaton began submitting
requests for reimbursement to Farley’s companies pursuant to the 1986 APSA. From that time
and through 2003, Farley or the companies he controlled paid Eaton over $2 million in 13
separate payments. Farley assumed personal liability for the indemnification obligations
pursuant to the 1998 PPA, the contract upon which the Arbitration arose.
The PPA provides in relevant part:
Eaton has the right to make claims... under this Agreement if: Eaton has incurred or
suffered losses, liabilities, damages, costs, or expenses (collectively ‘Environmental
Liabilities’) equal to the amount of the claim resulting from (1) the environmental
matters described on Exhibit A hereto.... (Doc. 7 Ex. 1, § 1.1, 1.1.1)
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Exhibit A states in relevant part:
Liabilities, obligations, fines, clean-up costs or penalties, with respect to the premises
and matters set forth below, resulting from non-compliance prior to August 8, 1986 by
CCC or VBQ, with any applicable laws, regulations, orders, or other requirements of
any governmental authorities existing on or before August 8, 1986:
Bethel Connecticut Plant: on-site and off-site soil and groundwater contamination
resulting from the use of on-site pits to treat and dispose of waste solvent. (Id. Ex. A)
Respondent explains how the current dispute arose. On November 19, 2010, Eaton
certified, pursuant to § 1.1.3 of the PPA, that it was “Entitled to Receive Payment” from
Farley for Facility environmental costs, including costs for the pump and treat groundwater
remediation system, incurred from 2003 through 2010 in the amount of $506,460.93 (the
2010 Claim). Farley failed to make payment of the 2010 Claim and did not timely invoke
dispute resolution in accordance with the PPA. Eaton later submitted the claim, as authorized
under the PPA, to the insurance company AIG which policy Farley had caused to issue to
insure his obligations under the agreements with Eaton. AIG then made two reimbursements
to Eaton in the approximate amounts of $440,000 and $53,000. On January 24, 2014, Eaton
again certified in accordance with the PPA that it was “Entitled to Receive Payment” from
Farley for Facility environmental costs, including costs for the pump and treat groundwater
remediation system, incurred from November 2010 through December 2013 in the amount of
$175,838.48 (the 2014 Claim), which Farley again failed to pay. On February 18, 2014,
Farley’s counsel timely issued a notice of dispute resolution under the PPA with respect to the
2014 Claim. Ultimately, the 2014 Claim proceeded to arbitration in Chicago, Illinois before
Arbitrator Michael Pope. Farley added a new claim challenging the 2010 Claim. Eaton filed a
Counterclaim. After a four-day hearing, the Arbitrator issued his Interim Award with
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supporting Opinion and a Final Award following briefing which are the subject of the
attempts to vacate and confirm now before the Court.
Standard of Review
The Federal Arbitration Act (FAA) has a strong presumption in favor of confirming an
arbitration award, so a court’s review of an arbitrator’s decision is exceedingly narrow, “one
of the narrowest standards of judicial review in all of American jurisprudence.” UHL v.
Komatsu Forklift Co., 512 F.3d 294, 305 (6th Cir. 2008) (quoting Lottimer-Stevens Co. v.
United Steelworkers, 913 F.2d 1166, 1169 (6th Cir. 1990)). “Because the parties have
contracted to have disputes settled by an arbitrator chosen by them rather than by a judge, it is
the arbitrator's view of the facts and of the meaning of the contract that they have agreed to
accept....[A]s long as 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 serious error
does not suffice to overturn his decision.” United Paperworkers Int'l Union, AFL CIO v.
Misco, Inc., 484 U.S. 29, 37-38 (1987); Stonebridge Equity v. China Auto. Sys., Inc., 520 F.
App'x 331, 337 (6th Cir. 2013)(citations and internal quotations omitted).(“So long as the
arbitrator was even arguably construing or applying the contract, the award cannot be
overturned.”) Consequently, courts are not authorized to reconsider the merits of an award
even though the parties may allege that the award rests on errors of fact or on
misinterpretation of the contract. United Paperworkers Int'l Union, AFL CIO, supra. Under
the FAA, once an arbitration award is made, any party to the arbitration may move to confirm
the award. 9 U.S.C. § 9. The court “must grant the motion unless the award is vacated,
modified, or corrected as prescribed in sections 10 and 11.” Id. A district court may make an
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order vacating the award where the arbitrators exceeded their powers. 9 U.S.C. § 10(a)(4).
These two sections provide the “exclusive regime[]” for federal court review of an arbitrator’s
award. Grain v. Trinity Health, Mercy Health Servs. Inc., 551 F.3d 374, 378 (6th Cir. 2008)
(quoting Hall St. Assocs. V. Mattel, Inc., 552 U.S. 576 (2008)). Review of an award under
Ohio law, Ohio Revised Code § 2711, is similarly narrow.
Discussion
Petitioner moves to vacate the Award on the basis that the Arbitrator exceeded his
powers because he ignored the PPA’s express limitations on Eaton’s entitlement to
indemnification from Farley. Respondent moves to confirm the Award because the Arbitrator
properly interpreted the express language of the PPA and petitioner sets forth no valid
grounds under the FAA for vacating it.
The Arbitrator’s Opinion found and concluded the following. The 1986 APSA
provided that petitioner’s company, Condec, would indemnify respondent for all required
remediation costs arising out of the preexisting lagoon contamination.1 In 1987, the DEP
issued the clean-up order and Eaton ultimately installed the pump and treat system which
became operational in 1992. Petitioner and his companies were kept informed of the
negotiations leading to the pump. From 1991 to 2003, petitioner or his companies made 13
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The sellers agreed to indemnify Eaton for “any liabilities, obligations, fines,
clean-up costs or penalties in excess of $135,000 in the aggregate resulting from
non-compliance prior to Closing by Sellers with respect to any premises related to
the CCC Business, with any applicable laws, regulations, orders or other
requirements of governmental authorities, relating to the control of surface or
groundwater pollution, hazardous substances or waste (or the disposal thereof), or
air quality and emission standards, or otherwise relating to the protection of the
environment.”
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payments to Eaton for reimbursement. There were several agreements between the parties
after the APSA whereby petitioner assumed personal responsibility for the indemnification
costs that respondent was incurring under the original agreement. Under the contract at issue,
the 1998 PPA, petitioner assumed personal liability for the indemnification obligations
“resulting from non-compliance prior to August 8, 1986 by CCC or VBQ, with any applicable
laws, regulations, orders, or other requirements of any governmental authorities existing on or
before August 8, 1986.” Petitioner argued that he is not responsible for clean-up costs at the
plant because as of August 8, 1986, there existed no valid order from a governmental
authority addressing the contamination.
The Arbitrator rejected petitioner’s argument and determined that the “noncompliance” pre-dating August 6, 1986 included “other requirements of any governmental
authorities” and there were pre-existing DEP requirements. In particular, the Arbitrator stated
that “the record reveals several instances before the sale where the DEP had visited the site
and recognized both the existence of the contamination and the need for remedial effects.”
Thus, in 1982, the DEP issued a Notice of Deficiency regarding solvents being dumped into
the lagoon and in 1984, the DEP issued a Notice of Violation requiring soil samples to be
collected because of deposit of paints and solvents in the lagoon. Subsequent sampling by
CCC’s consultant revealed high levels of contamination. The various notices resulted in the
1987 clean-up order which required remedial action be taken for groundwater, surface water,
and soil contaminants resulting from the lagoon. While there may not have been any
governmental clean-up order in place as of August 6, 1986, the PPA’s Exhibit A’s inclusion
of “other requirements” shows that the parties intended that something other than a specific
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order or regulation would be sufficient to trigger indemnification. As stated by the Arbitrator,
In attempting to construe the intent of the parties- all of whom were sophisticated
businesses- it is hard to accept that they intended the restrictive reading of the
language suggested by Farley. Why would a buyer agree to indemnification of a
known polluted site only if a government order had already been issued? And if that
restrictive interpretation was intended, how to explain the contemporaneous and later
conduct of the parties?
(Opinion at 6) The Arbitrator pointed to four such instances of conduct: 1) As part of the sale,
Condec had to comply with a Form III certification under Connecticut law but could not do so
due to the known contamination. Instead, in a document dated August 6, 1986, it undertook
in the future to “contain, remove or otherwise mitigate” the effects of the discharge or
seepage of hazardous waste at the site. 2) Petitioner and his companies admitted many times
that the clean-up costs at the site were covered by the indemnification obligations. These
included the 1986 sale documents, as well as October 1986, October 1998, and November
1990 similar documents. 3) The 1998 PPA and the AIG policy itself include similar
admissions, and the AIG policy defined its coverage for clean-up costs to include “the current
remediation at the Bethel site.” 4) Petitioner or his companies began paying respondent’s
reimbursement requests in 1991 and made a total of 13 payments over the next 12 years. This
shows that the parties understood that the money was required by the agreements to be paid
and petitioner’s testimony that he paid it because he “trusted” Eaton is unconvincing. AIG
paid most of the 2011 reimbursement request because it was bound to do so by the terms of
the policy of which Eaton was a named insured.
Accordingly, the Interim Award “found and declared”:
A. Eaton’s 2010 Claim and 2014 Claim costs were clean-up costs at the plant
“resulting from non-compliance prior to August 8, 1986 by CCC or VBQ, with any
applicable laws, regulations, orders, or other requirements of any governmental
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authorities existing on or before August 8, 1986, as set forth in Exhibit A of the
PPA.”;
B. Eaton is entitled to retain the funds received under the AIG Policy for its 2010
Claim; and
C. Eaton is entitled to reimbursement from Farley for its 2014 Claim in the amount
of $175,838.48, plus statutory interest of $10,265.18 under Ohio Rev. Code
§ 1343.03(A),4 for a total of $186,103.66
The Arbitrator’s Opinion also awarded reasonable attorney’s fees and costs. After
additional briefing thereon, the Final Award awarded $902,106.24 in attorney’s fees and costs
to respondent as the prevailing party.
Petitioner now seeks to vacate the Award arguing that the Arbitrator exceeded his
authority because the indemnification provision of the PPA was subject to restricting
conditions and the Arbitrator instead gave Eaton a blank check for the clean-up expenses.
Petitioner asserts that he is not responsible for the clean-up costs at issue because prior to
August 8, 1986 there were no “governmental requirements” requiring groundwater clean-up.
Petitioner points out that under Exhibit A of the PPA, respondent is not entitled to
reimbursement unless the clean-up expenses were “resulting from non-compliance prior to
August 8, 1986 by CCC or VBQ, with any applicable laws, regulations, orders, or other
requirements of any governmental authorities existing on or before August 8, 1986.”
Petitioner argues that there were no governmental requirements prior to August 8, 1986
regarding groundwater clean-up at the plant. Rather, the earliest “requirement” was the 1987
DEP order which was not within Exhibit A’s time restriction. On this basis, petitioner
contends that the Arbitrator exceeded his powers by misconstruing the PPA and ignoring its
unambiguous language. Instead, the Arbitrator substituted his own “interpretive thinking to
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support a different and more expansive intent” than what the contract intended. (Doc. 7 at 6)
And, the Arbitrator, by questioning why a buyer would agree to an indemnification of a
known polluted site only if a government order had already been issued, “questioned the
wisdom of the agreement from Eaton’s point of view.” (Id. at 7)
Petitioner contends that, contrary to the Arbitrator’s conclusion that there were preexisting DEP requirements, there were no applicable pre-August 8, 1986 government
requirements. While the Arbitrator stated that the DEP “visited the site” before 1986, he does
not point to any “government requirement” regarding the groundwater prior to the effective
date. The 1982 Notice of Deficiency and 1984 Notice of Violation did not impose any
groundwater clean up requirement. Petitioner asserts that the 1982 Notice did not address
groundwater requirements or remediation but rather the deficiencies had to do with
inspections, training, labeling, and contingency plans. Similarly, the 1984 Notice concerned
removal of empty containers for disposal at a local landfill, labeling containers, and possible
soil samples. In July 1987, the DEP verified that compliance with the 1984 Notice had been
achieved. Thus, these notices could not have been the basis for the ongoing costs for which
Eaton seeks reimbursement. Accordingly, petitioner asserts, the Arbitrator failed to interpret
the PPA but eviscerated its indemnification restrictions. In doing so, the Award “departs from
the essence of” the PPA which means that it must be vacated.
Respondent asserts that petitioner fails to demonstrate that the Arbitrator exceeded his
powers and merely seeks to re-litigate the same arguments he unsuccessfully advanced before
the Arbitrator.
For the following reasons, the Court agrees with respondent that the Award must be
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confirmed and there is no ground to vacate. As discussed above, “If an arbitrator is even
arguably construing or applying the contract and acting within the scope of his authority, the
fact that a court is convinced he committed serious error does not suffice to overturn his
decision.” Oakwood Healthcare v. Oakwood Hospital Employees, 615 Fed.Appx. 302 (6th
Cir. 2015). In asking whether the arbitrator “arguably construed a contract,” a court observes
whether the opinion “had the hallmarks of interpretation such as quoting from and analyzing
the pertinent provisions of the agreement.” Id. (internal quotations and citation omitted) And,
a court asks whether the arbitrator says “anything indicating that he was doing anything other
than trying to reach a good-faith interpretation of the contract.” Id.
Here, the Arbitrator quoted the applicable language of the contract and explained why
he did not accept petitioner’s argument as to why the provision did not require his
reimbursement. Thus, the Arbitrator did not “ignore” the PPA. While petitioner argues that
the Arbitrator ignored the PPA’s express restrictions, he also asserts that the Arbitrator should
not have interpreted the contract restrictions and improperly searched for the parties’ intent.
But, the Arbitrator was only referring to the intent reflected in the PPA contract language:
“While Farley’s argument that there must be a governmental order directing clean up in place
as of August 6, 1986, is intellectually honest, the language of Exhibit A does not require that
conclusion.” (Opinion at 6) Thus, based on the PPA’s language, the Arbitrator determined
that the parties intended “that something other than a specific order or regulation would be
sufficient.” Id. While the Arbitrator rejected petitioner’s “restrictive reading” of the PPA, he
did not ignore the contract’s language in doing so. Rather, he construed the PPA’s language
and concluded that petitioner’s reading made no sense in light of the parties’ actions. Because
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the Arbitrator’s contract interpretation is entitled to such great deference, petitioner fails to
demonstrate that he exceeded his powers in order to justify vacating the Award under the
FAA or Ohio law.
Petitioner argues that there were no pre-1986 groundwater remediation requirements.
Respondent counters that this issue was actually litigated before the Arbitrator who disagreed
and found that there were pre-existing DEP requirements. As this Court has previously
recognized, a party may not merely re-litigate issues resolved in arbitration under the guise of
a motion to vacate. Willacy v. Marotta, 2016 WL 278796 (N.D. Ohio Jan. 22, 2016)
(Plaintiff’s “current motion is simply a disguised effort to revive the arguments he raised
before the arbitrator.”) Moreover, respondent points out that petitioner’s attempt to re-litigate
the merits here is contrary to the PPA wherein the parties agreed to resolve the dispute
through arbitration. Furthermore, as noted by the Arbitrator, pre-hearing briefs were
submitted, the hearing lasted four days, seven witnesses testified, hundreds of exhibits were
admitted into evidence, and comprehensive briefs were submitted following the hearing.
Respondent summarizes the evidence presented at the arbitration hearing of the groundwater
remediation standards in effect in 1986. The Arbitrator’s rejection of petitioner’s argument
that there were no applicable groundwater requirements will not be disturbed.
Conclusion
For the foregoing reasons, petitioner’s Motion to Vacate Arbitration Award is denied
and respondent’s Motion for Confirmation of Arbitration Award and Entry of Final Judgment
Thereon is granted.
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IT IS SO ORDERED.
/s/ Patricia A. Gaughan
PATRICIA A. GAUGHAN
United States District Judge
Dated: 7/6/16
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