Galloway Construction, LLC v. Utilipath, LLC et al
Filing
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MEMORANDUM OPINION AND ORDER. The plaintiff's motion and amended motion for judgment based on the arbitration award, [R. 13 & 17], are DENIED; the defendants' motion to vacate the arbitration award, [R. 19], is GRANTED. Th e Court finds the defendants' motion to stay the confirmation proceeding, [R. 16], is moot. The arbitration award is vacated and the parties are ORDERED to once again submit their dispute to binding arbitration pursuant to their arbitration agreement. Signed by District Judge Pamela L Reeves on 8/13/14. (JBR)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
AT KNOXVILLE
Galloway Construction, LLC,
Plaintiff,
v.
Utilipath, LLC, and Liberty Mutual
Insurance Company,
Defendants.
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No.:
3:13-CV-161-PLR-CCS
Memorandum Opinion and Order
On May 24, 2013, the Court entered an order staying this action and referring the
proceedings to binding arbitration pursuant to an arbitration agreement between the parties. [R.
11]. In January 2014, the arbitration panel issued a decision finding in favor of the plaintiff and
awarding money damages. [R. 12-1]. Presently before the Court is the plaintiff’s motion for an
order confirming the arbitration panel’s award as a judgment of the Court, [R. 13]; the
defendants’ motion to stay confirmation, [R. 16]; the plaintiff’s response in opposition of the stay
and amended motion to confirm the arbitration panel’s decision, [R. 17]; and the defendants’
motion to vacate the arbitration award, [R. 19].
The defendants urge the Court to vacate the arbitration award for two reasons. First, they
contend the arbitration panel exceeded its powers by failing to fulfill its obligations under the
arbitration agreement between the parties. Specifically, the arbitration agreement required the
panel to “[a]nalyze the issues, claims, counterclaims, and defenses of the [p]arties submitted or
presented at the hearing” and to render a “reasoned” award.
The defendants contend the
arbitration panel failed to do so because the award fails to mention and analyze all of the
defendants’ counterclaims and defenses, fails to make a connection between the facts at issue
and the conclusions reached, and is otherwise unreasoned and perfunctory.
Second, the
defendants argue the arbitration panel acted in manifest disregard of state law by consciously
disregarding the relevant statutes dictating the conditions under which a contractor must release
retainage to a subcontractor.
I. Standard or Review
The standard of review in arbitration cases is “extremely narrow.” NCR Corp v. Sac-Co,
Inc., 43 F.3d 1076, 1079 (6th Cir. 1995). In fact, the arbitration awards under the Federal
Arbitration Act carry a presumption of validity. Andersons, Inv. v. Horton Farms, Inc. 166 F.3d
308, 328 (6th Cir. 1998). “When courts are called on to review an arbitrator's decision, the
review is very narrow; one of the narrowest standards of judicial review in all of American
jurisprudence.” Nationwide Mut. Ins. Co. v. Home Ins. Co., 278 F.3d 621, 625 (6th Cir. 2002)
(quoting Lattimer-Stevens Co. v. United Steelworkers, 913 F.2d 1166, 1169 (6th Cir. 1990)).
“[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 v. Misco, Inc., 484 U.S. 29,
38 (1987). Thus, “[a] federal court may vacate an arbitration award only in very limited
circumstances.” Nationwide Mut. Ins. Co. v. Home Ins. Co., 330 F.3d 843, 845 (6th Cir.2003).
“Those circumstances include ‘where the arbitrators exceeded their powers,’ 9 U.S.C. § 10(a)(4),
and where the arbitrators act with ‘manifest disregard for the law.’ ” Id. (quoting Dawahare v.
Spencer, 210 F.3d 666, 669 (6th Cir.2000)).
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II. Discussion
A. The arbitration panel did not provide a reasoned award
Generally, arbitrators are under no obligation to give their reasons for an award. United
Steelworkers of America v. Enterprise Wheel & Car Corp., 363 U.S. 593, 598 (1960). However,
the Federal Arbitration Act “requires courts to enforce privately negotiated agreements to
arbitrate, like other contracts, in accordance with their terms.” Volt Info. Scis. v. Leland Stanford
Jr. Univ., 489 U.S. 468, 478 (1989). An arbitration panel may exceed its powers when it fails to
meet its obligations to the parties in a manner specified by the contract. W. Employers Ins. Co. v.
Jefferies & Co., 958 F.2d 258, 262 (9th Cir. 1992).
In this case, the arbitration agreement required the arbitration panel to analyze the issues,
claims, counterclaims, and defenses of the parties and provide a “reasoned” award on the merits
of the parties’ claims and counterclaims.
[R. 20-1, ¶¶ 4-5].
The defendants contend the
arbitration panel exceeded its authority by issuing an unreasoned award. They claim the award
was not reasoned because it fails refer to, much less offer any basis for denying, two of the
defendants’ counterclaims.
Galloway cites Green v. Ameritech Corp., 200 F.3d 967 (6th Cir. 2000) for the
proposition that an arbitration award with even the barest of explanations is sufficient to satisfy
the requirement that the arbitration award be reasoned. In Green, the arbitration agreement at
issue required the arbitrator’s award be accompanied by an opinion explaining the arbitrator’s
decision. Id. at 970. The opinion of the arbitration panel in Green “provided a separate
discussion regarding each of the plaintiff’s theories and explained, albeit briefly, the reasons for
denying recovery on each one.” Id at 976. The Green court found this to be sufficient, and
opined that if the parties desired a more detailed arbitration opinion they should have clearly
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stated that requirement in their agreement. Id.
Green is distinguishable from the present case. Unlike the arbitration opinion in Green,
the arbitration panel in the present case did not specifically discuss or even mention all of the
defendants’ counterclaims. Galloway justifies the arbitration panel’s failure to address all of the
defendants’ counterclaims by stating:
While it may have been possible for the panel to actually state specifically in the
Award that all of Defendants’ counterclaims were without merit, such was not
required by the Agreement. Put simply, the parties did not engage the Panel to
engage in minute fact-finding within a dispute involving cross-claims and well
over 600 exhibits, as the cost of such endeavor was neither desired nor requested.
[R. 21, p. 8]. This argument is not persuasive. The defendants do not argue that the arbitration
panel was required to engage in some sort of Herculean fact finding task. Instead, the defendants
simply ask that any basis at all be given for the panel’s decision. The plain language of the
arbitration agreement clearly indicates the parties expected the arbitration panel provide reasoned
awards on the merits of the parties claims, counterclaims, and defenses.
A denial of the
defendants’ counterclaims cannot be “reasoned” when neither a basis for the denial is given, nor
the very existence of the counterclaim mentioned. For an award to be reasoned, at a bare
minimum, it must include a basic statement addressing why each claim, counterclaim, theory, or
defense was accepted or rejected by the panel.
B. Galloway does not dispute the arbitration panel manifestly disregarded the law
The defendants contend the arbitration panel manifestly disregarded the law by awarding
“retainage” damages to Galloway despite clear Tennessee and Kentucky law providing
contractors do not owe retainage to subcontractors until the contractor receives their own
retainage from the owner. See T.C.A. § 66-34-103(b); K.R.S. 371.410(2). According to the
defendants, Galloway offered no evidence the owner had paid Utilipath its retainage and could
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not do so because the projects were ongoing. Until the owner paid Utilipath, it contends, it
should be under no obligation to pay Galloway.
The Court need not consider the proper interpretation of Tennessee and Kentucky law on
the retainage issue because Galloway did not respond to these contentions. Galloway’s response
begins with a thorough discussion of the standard of review before discussing manifest disregard
of the law. [R. 21, p. 5]. Galloway correctly points states that arbitrators manifestly disregard
the law when (1) the applicable legal principle is clearly defined and not subject to reasonable
debate; and (2) the arbitrators refuse to heed that legal principle. Merrill Lynch, Pierce, Fenner
& Smith, Inc. v. Jones, 70 F.3d 418, 421 (6th Cir. 1995).
Galloway discusses the issues a court should consider when manifest disregard is alleged,
but it does not apply the law to the facts of the case. Galloway did not argue that the applicable
legal principles were ambiguous or subject to reasonable debate.
Galloway also does not
contend that the arbitration panel refused to heed those legal principles. Galloway’s discussion
of the law without any application of the law to the facts of this case cannot be considered a
meaningful response in opposition of the defendants’ argument.
The local rules of this Court provide that the failure to respond to a Motion is deemed to
be a waiver of any opposition to the relief sought. E.D. Tenn. LR 7.2. This waiver occurs both
where a party expressly concedes a point and where a party fails to respond to arguments made
by its opponent. Taylor v. Unumprovident Corp., 2005 WL 3448052, at *2 (E.D. Tenn. Dec. 14,
2005) (citing Guster v. Hamilton Cnty Dep’t of Ed., 2004 WL 1854181, at *7 (E.D. Tenn. March
2, 2004) (holding an argument not addressed in the responding party’s brief is deemed waived)).
Because Galloway did not respond to the defendants’ specific arguments regarding the
arbitration panel’s manifest disregard for the law, it has waived any opposition to the relief
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sought.
C. Vacatur is the remedy for manifest disregard of the law
In the event the Court finds the arbitration award ambiguous or in need of clarification,
Galloway urges the Court to remand the matter to the arbitration panel. See Green v. Ameritech
Corp., 200 F.3d at 977 (“Courts usually remand to the original arbitrator for clarification of an
ambiguous award when the award fails to address a contingency that later arises or when the
award is susceptible to more than one interpretation.”) (collecting cases). It is possible that
remand would be appropriate in this case if the only deficiency was the arbitration panel’s failure
to give any reasoning for its denial of the defendants’ counterclaims. The Court could remand
the case to the arbitrator for clarification as to the reasons it rejected the defendants’
counterclaims.
But this case undisputedly involves a manifest disregard for the law—the remedy for
which is vacatur. See, e.g. Coffee Beanery, Ltd. v. WW, L.L.C., 300 Fed. App’x. 415 (6th Cir.
2008) (vacating arbitration award because of manifest disregard for the law). Accordingly, the
arbitration award will be vacated.
III. Conclusion
For the foregoing reasons, the plaintiff’s motion and amended motion for judgment based
on the arbitration award, [R. 13 & 17], are DENIED; the defendants’ motion to vacate the
arbitration award, [R. 19], is GRANTED. The Court finds the defendants’ motion to stay the
confirmation proceeding, [R. 16], is moot. The arbitration award is vacated and the parties are
ORDERED to once again submit their dispute to binding arbitration pursuant to their arbitration
agreement.
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IT IS SO ORDERED.
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UNITED STATES DISTRICT JUDGE
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