Uretek, ICR Midatlantic, Inc. v. Adams Robinson Enterprises, Inc. et al

Filing 33

MEMORANDUM OPINION. Signed by District Judge Glen E. Conrad on 12/14/2017. (ssm)

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JULIA C. DUDLEY, CLERK

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DEC 14-2017

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IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
CHARLOTTESVILLE DIVISION
URETEK, ICR MIDATLANTIC, INC.,
Plaintiff/Counterclaim Defendant,
v.
-ADAMS ROBINSON ENTERPRISES,
INC.,
Defendant/Counterclaim Plaintiff,
and
LIBERTY MUTUAL INSURANCE
COMPANY,
Defendant.

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Civil Action No. 3:16CV00004
MEMORANDUM OPINION
By: Hon. Glen E. Conrad
Senior United States District Judge

In this contract dispute, the parties agreed to stay litigation in this court pending
arbitration. On March 20, 2017, an arbitration panel issued an award in favor ofplaintiffUretek,
ICR Midatlantic, Inc. ("Uretek") against defendant Adams Robinson Enterprises, Inc. ("Adams
Robinson"). The matter is currently before the court on Uretek's motion to lift the stay and
confirm the arbitration award against Adams Robinson and its surety, defendant Liberty Mutual
Insurance Company ("Liberty Mutual").

For the reasons stated below, the court will grant

Uretek' s motion.

Background
Adams Robinson, a Kentucky corporation with its principal place of business in Ohio,
and Uretek, a North Carolina corporation, entered into a subcontract (the "Subcontract"), under
which Uretek agreed to perform certain work for a construction project in Charlottesville,

Virginia. Adams Robinson also secured a payment bond from Liberty Mutual, a Massachusetts
corporation.
As relevant here, the Subcontract provided that:
[I]f [Uretek] fails to supply enough properly skilled workmen or proper materials
or refuses to prosecute the work or any part thereof with promptness and
diligence, or otherwise violates the terms of this subcontract, then [Adams
Robinson] may, after giving [Uretek] forty-eight (48) hours written notice, declare
[Uretek] in default of contract, terminate the employment of [Uretek], and take
possession of [Uretek's] materials on the Job Site and employ or contract with
any other person or persons and to buy any material necessary to complete all
work required by this Subcontract. In case [Adams Robinson] shall so take
possession of said work or employ or contract with any other person or persons to
finish the same, [Uretek] shall not be entitled to receive any further payment
under this Subcontract until the said work shall be wholly finished, at which time,
if the unpaid balance of the amount to be paid on this Subcontract shall exceed the
expenses incurred by [Adams Robinson] in finishing the work, such unpaid
balance, after deducting any loss or damage by reason of the premises, including
damages for delays and attorney fees, shall be paid to [Uretek] by [Adams
Robinson]. In case the cost and expense of such work, including attorney fees,
exceeds the unpaid balance, [Uretek] and its surety shall forthwith pay the amount
of such excess to [Adams Robinson.]
Subcontract

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3A, Docket No. 18-1.

The parties agreed that Ohio law would govern the

Subcontract and that they would submit any dispute arising under the Subcontract to arbitration.
Id.

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25.
On December 19, 2014, in reliance on Subcontract

Robinson terminated Uretek's Subcontract for default.

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3A, as set forth above, Adams

In December 2015, Uretek filed a

complaint in state court against Adams Robinson and Liberty Mutual to recover payments for its
work under the Subcontract. Adams Robinson removed the action to this court.
In February 2016, Adams Robinson and Liberty Mutual, with Uretek's consent, filed a
motion to stay the proceedings in this court, pending arbitration. The court granted the motion,
and the arbitration proceeded from February 21, 2017 to February 24, 2017 in Dayton, Ohio,

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before three arbitrators, including two non-lawyers from the construction industry.

Liberty

Mutual did not participate in the arbitration.
On March 20, 2017, the arbitration panel issued a standard award in Uretek's favor. As a
standard, and not a reasoned, award, the arbitrators cautioned that they did not include all of their
analysis in the award. See Arbitration Award 5, Docket No. 18-2. However, they did explain
that they believed Adams Robinson had properly terminated the Subcontract. ld. at 5. Despite
-that finding, the arbitrators declined to award Adams Robinson its costs to complete the work
under the Subcontract because the balance of good faith between the parties weighed in Uretek's
favor. ld. While the parties did not raise Uretek's good faith as a substantial issue during the
hearing, the arbitrators found that Uretek employees "put forth a good faith effort to complete
their work as designers and builders albeit not adequately or efficiently enough for th[ e] panel in
fairness to approve [Uretek's] collection of lost profits." Id. As to Adams Robinson, however,
the arbitrators found several indications of bad faith, including that Adams Robinson had failed
to appropriately notify Uretek of soil issues, withheld payment on at least five properly
submitted and approved Uretek pay applications, and inadequately mitigated its damages after
terminating the Subcontract. ld. at 5-6.
After addressing all the claims presented by the parties, the arbitrators awarded Adams
Robinson $44,538.77 for engineering fees and costs and materials not paid by Uretek and
$1,750.00 for arbitration expenses. Id. at 2, 9. The arbitrators expressly declined to award
Adams Robinson any amount for its claimed completion costs. ld. at 3. As to Uretek, the
arbitrators declined to award lost profits because Uretek did not adequately or efficiently
complete its work under the Subcontract, but awarded $305,257.39 for withheld payments and
change order requests. ld. at 2, 5, 8.

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Adams Robinson sought to vacate the award by filing an action in the Southern District
of Ohio. Uretek then moved in this court to lift the stay, confirm the arbitration award, and enter
judgment against Adams Robinson and Liberty Mutual.

Adams Robinson moved to strike

Uretek's motion to confirm the arbitration award or to transfer venue to the Southern District of
Ohio. The court denied the motion, and on October 11, 2017, the Southern District of Ohio
transferred Adams Robinson's motion to vacate the arbitration award to this court.
The parties appeared before the court for a hearing on Uretek's motion to confirm the
award on November 13,2017. The defendants conceded at the hearing that ifthe court confirms
the arbitration award, it will be enforceable against both Adams Robinson and Liberty Mutual. 1
The matter is now fully briefed and ripe for review.
Discussion

The court's authority to review an arbitration award is "severely circumscribed" because
"full scrutiny of such awards would frustrate the purpose of having arbitration at all - the quick
resolution of disputes and the avoidance of the expense and delay associated with litigation."
Apex Plumbing Supply, Inc. v. U.S. Supply Co., 142 F.3d 188, 193 (4th Cir. 1998).
Accordingly, a court will only vacate an arbitration award based on "one of the grounds specified
in the Federal Arbitration Act (the "FAA") or one of certain limited common law grounds."
MCI Constructors, LLC v. City of Greensboro, 610 F.3d 849, 857 (4th Cir. 2010). The FAA
provides four grounds upon which an arbitration award may be vacated. As pertinent here, one
ground is that "the arbitrators exceeded their powers, or so imperfectly executed them that a

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This result is supported by United States ex rel. MP A Construction, Inc. v. XL Specialtv Insurance Company,
which recognizes the rule that "a judgment against a principal" - even one resulting from an arbitration decision "conclusively establishes the liability of a surety, as long as the surety had notice of the proceedings against the
principal." 349 F. Supp. 2d 934, 942 (D. Md. 2004) (internal quotation marks omitted).

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mutual, final, and definite award upon the subject matter submitted was not made." 9 U.S.C.
§ 10(a)(4).
The "permissible common law grounds for vacating [an arbitration] award include those
circumstances where an award fails to draw its essence from the contract, or the award evidences
a manifest disregard of the law."2 MCI Constructors, LLC, 610 F.3d at 857 (internal quotation
marks omitted). An award fails to draw its essence from the contract "when an arbitrator has
disregarded or modified unambiguous contract provisions or based an award on his own personal
notions of right and wrong." ThreeS Delaware, Inc. v. DataOuick Info. Sys., Inc., 492 F.3d 520,
528 (4th Cir. 2007). "As long as the arbitrator is even arguably construing or applying the
contract a court may not vacate the arbitrator's judgment." Upshur Coals Corp. v. United Mine
Workers of America, Dist. 31, 933 F.2d 225, 229 (4th Cir. 1991) (emphasis added) (internal
quotation marks omitted). An arbitration award exhibits a manifest disregard for the law when:
"(1) the applicable legal principle is clearly defined and not subject to reasonable debate; and (2)

the arbitrator refused to heed that legal principle." Wachovia Sec., LLC v. Brand, 671 F.3d 472,
483 (4th Cir. 2012) (alteration and internal quotations marks omitted).
In this case, the defendants request vacatur of the arbitration award because the
arbitrators did not award Adams Robinson its excess costs of completion after finding that
Adams Robinson had properly terminated the Subcontract for default.

However, after

reviewing the record and the parties' arguments, the court concludes that the defendants have
not established any grounds for vacating the arbitration .award.
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Specifically, the court

In light of the Supreme Court's decision in Hall Street Associates, LLC v. Mattei, Inc., 552 U.S. 576 (2008), the
United States Court of Appeals for the Fourth Circuit has recognized that considerable uncertainty exists "as to
the continuing viability of extra-statutory grounds for vacating arbitration awards." Raymond James Fin.
Servs., Inc. v. Bishop, 596 F.3d 183, 193 n.I3 (4th Cir. 2010). Nevertheless, the Fourth Circuit has recognized
that "manifest disregard continues to exist" as a basis for vacating an arbitration award, "either as an
independent ground for review or as a judicial gloss on the enumerated grounds for vacatur set forth" in the
FAA. Wachovia Sec., LLC, 671 F.3d at 483 (internal quotation marks omitted).

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·concludes that the arbitrators did not exceed their authority, that the award did not fail to draw
its essence from the Subcontract, and that the arbitrators did not manifestly disregard
controlling law.
1. Whether the Arbitrators Exceeded their Authority

The court first considers whether the arbitrators exceeded the scope of their authority in
declining to award any amount to Adams Robinson for its excess costs of completion.

The

defendants do not dispute that the issue of completion costs was properly before the arbitration
panel. Instead, the defendants' argument amounts to a claim that the arbitrators impermissibly
"look[ed] beyond the express provisions [of the Subcontract] in order to interpret, and give
meaning to, the [Subcontract]." W. Sugar Coop. v. Int'l Bhd. of Teamsters Local Union 190,
(

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193 F. Supp. 3d 1149, 1155 (D. Mont. 2016). Such a claim does not raise the "question of
whether the arbitrator[s] exceeded [their] boundaries." Id. Moreover, the United States Court
of Appeals for the Fourth Circuit has recognized that arbitrators do not exceed their authority
in failing to base an arbitration award on the express terms of a contract because such an error
is one of misinterpretation and does not justify vacatur. Apex Plumbing Supply, Inc., 142 F.3d
at 193-94.
2. Whether the Award Fails to Draw its Essence from the Subcontract

The court next determines whether the arbitration award must be vacated because it
fails to draw its essence from the parties' agreement.
Subcontract~

According to the defendants,

3A required the payment of Adams Robinson's excess completion costs upon

proper termination of the Subcontract because the language concerning completion costs was
express and mandatory, thereby barring application of the implied duty of good faith and fair
dealing.

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However, "merely because an arbitrator's decision is not based on an agreement's
express terms does not mean that it is not properly derived from the agreement; neither
misapplication of principles of contractual interpretation nor erroneous interpretation of the
agreement in question constitutes grounds for vacating· an award." Apex Plumbing Supply,
Inc., 142 F.3d at 194. In Apex, the Fourth Circuit confirmed an arbitration award even though
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arbitrator had valued certain inventory items that the parties' agreement expressly stated

had no value. Id. at 190, 193-94. The Court recognized that the arbitrator had not acted
"irrationally," but had relied on evidence in the record that supported his inventory valuation.
Id. at 194.
Here too, the arbitrators did not act irrationally, but relied on evidence in the record of
Adams Robinson's bad faith. Although the duty of good faith and fair dealing is not an
express term in the Subcontract, it is implied into every contract under Ohio law. Littlejohn v.
Parrish, 839 N.E.2d 49, 54 (Ohio App. 2005). To the extent the defendants argue that such a
duty conflicts with the Subcontract's provisions on excess completion costs and interest, they
are merely claiming that the arbitrators 1llisinterpreted the agreement or misapplied the duty, a
claim that does not justify the vacatur of an arbitration award. See id.
Defendants, however, argue that the freedom afforded to arbitrators m interpreting
contract provisions has a limit. In support of this argument, the defendants cite two cases:
Clinchfield Coal Company v. District 28, United Mine Workers of America, 720 F.2d 1365 (4th
Cir. 1983) and Choice Hotels International, Inc. v. SM Property Management, LLC, 519 F.3d
200 (4th Cir. 2008). Both cases are distinguishable.
In Clinchfield, the Fourth Circuit stated that an "award cannot be considered to draw its
essence from the contract" if "the arbitrator fail[ed] to discuss critical. contract terminology,

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which terminology might reasonably require an opposite result." Clinchfield Coal Co., 720 F.2d
at 1369. In Clinchfield, the Court was deciding between two categories, which required opposite
results. Id. at 1368-69. A similar choice was not posed in this case. Moreover, the arbitrators
used the Subcontract's terminology of termination and completion costs in making their award.
Thus, Clinchfield does not govern this case.
The defendants' reliance on Choice Hotels fares no better. In that case, the Fourth
Circuit affirmed the vacatur of an arbitration award made against franchisees who had not ·
received notice of the franchisor's arbitration demand in accordance with the parties'
agreement. 519 F.3d at 207. The Fourth Circuit emphasized that there was no evidence in the
record that the franchisor informed the arbitrator of the notice provision in the parties'
agreement or that the arbitrator investigated the issue of notice, and the evidence that was
submitted showed that the franchisor knew how to properly notify the franchisees. Id. at 20809. Here, however, the record shows that the parties presented the issue of completion costs to .
the arbitrators, and the arbitrators expressly ruled on that issue.· ·
The defendants' arguments, at best, amount to a claim that the arbitrators misconstrued
the Subcontract or inappropriately relied on the implied duty of good faith and fair dealing to
deny all excess completion costs. "Such an error, however, even if extant, provides no basis for
overturning the panel's decision." Henry M. Jackson Found. for the Advancement of Military
Med., Inc. v. Norwell, Inc., 596 Fed. App'x 200, 202 (4th Cir. 2015) (citing Long John Silver's
Rests., Inc. v. Cole, 514 F.3d 345, 349 (4th Cir. 2008)). Because the court believes that the
arbitrators were at least arguably construing the Subcontract, both express and implied terms, the
court declines to vacate the award for failing to draw its essence from the parties' agreement.

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3. Whether the Arbitrators Manifestly Disregarded the Law

Finally, the court considers the argument that the arbitrators manifestly disregarded the
law. The defendants contend that the arbitrators disregarded the legal principle that a contractor
who has properly terminated a contract is entitled to recoup its excess completion costs as set
forth in the parties' agreement. However, "an error of law" does not "constitute[] a ground on
which an award can be vacated." Apex Plumbing Supply, Inc., 142 F.3d at 193-94 (internal
quotation marks omitted). The defendants have not argued, as generally required, that the
arbitrators "correctly state[d] the law, but proceed[ed] to disregard the same." Upshur Coals
Corp., 933 F.3d at 229 (internal quotation marks omitted); see also ThreeS Delaware, Inc., 492
F .3d at 529 (ruling that arbitrator did not manifestly disregard the law where the record lacked
any evidence that the arbitrator was made aware of the relevant legal principles). Instead, the
defendants' brief is devoid of any claim that the arbitrators were aware of the legal principles
raised in the opposition brief. Indeed, the defendants emphasize that two of the arbitrators
lacked legal training, a fact that suggests that the arbitrators would not have known the legal
principles cited by the defendants without being made aware of them during the arbitration.
Furthermore, courts have found no manifest disregard of the law where arbitrators have
implied obligations from the duty of good

fa~th

and fair dealing. TiVo, Inc. v. Goldwasser, 560

F. App'x 15, 18-19 (2d Cir. 2014); see also In re WorldCom, Inc., 340 B.R. 719 (S.D.N.Y. 2006)
(rejecting argument that arbitrators manifestly disregarded the law in applying principles like the
implied duty of good faith and fair dealing because the movant merely alleged an error of law,
which is not a ground for vacating an arbitration award). Accordipgly, the court concludes that
the arbitrators did not evidence a manifest disregard of the law.

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Conclusion

CLERK'S OFFI~'-l.J ~. n·~T. C')L!~i
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For the reasons stated, the court will grant the plaintiffs motion to lift the stay and
confirm the arbitration award, which requires the defendants to pay the plaintiff the net amount
of$258,968.62 plus interest, to be paid in accordance with the terms of the arbitration award.
The Clerk is directed to send copies of this order to all counsel of record.
DATED:

Thislif~ay ofDecember, 2017.

Senior United States District Judge

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