United States District Court, S.D. New York
April 29, 2004.
SEVENSON ENVIRONMENTAL SERVICES, INC., Petitioner,
SAPP BATTERY SITE GROUP, Respondent
The opinion of the court was delivered by: JOHN KEENAN, Senior District Judge
ORDER & OPINION
Presently before the Court are cross-petitions relating to a December,
2003 arbitration award. Petitioner Sevenson Environmental Services, Inc.
("Sevenson") seeks to have the award modified in part and the balance
vacated. Respondent Sapp Battery Site Group ("Sapp Group") has
cross-petitioned to have the award confirmed.
This action stems from a dispute over costs and fees related to the
cleanup and remediation of the Sapp Battery Site ("Site"). The Site,
located in Cottondale, Florida, was utilized to break apart batteries and
dispose of the battery casings and acids. Not surprisingly, the Site
became contaminated and the United States Environmental Protection Agency
("EPA") and the Florida Department of Environmental Protection ("DEP")
sought to have the Site remediated and to appropriate liability for the
remediation. The EPA designated several companies as Potentially
Responsible Parties ("PRPs") and charged them with the responsibility of
remediating the Site. The PRPs joined together to form the Sapp Group.
Once formed, the Sapp Group entered into a federal court ordered consent
decree with the EPA and DEP requiring the Sapp Group to clean the Site. The Sapp Group hired TriAD Environmental Services, Inc. ("TriAD") to
serve as the Supervising Contractor for the remediation project. To serve
as the Remediation Contractor, the Sapp Group hired Sevenson. Sevenson
and the Sapp Group's relationship was memorialized by a contract entered
into on September 15, 1998 ("Contract"). In essence, Sevenson was
responsible for the excavation of approximately 78,000 cubic yards of
contaminated soil, inclusive of ebonite and polypropylene battery
casings. In order to accomplish this task, Sevenson was to reduce the
size of the soil and battery casing materials and then treat the soil and
The Contract called for TriAD to test soil samples daily. If these
tests revealed a failure to properly treat the soil and materials, the
Sapp Group was empowered to issue a Stop Work Order ("SWO"). In February
of 1999, the Sapp Group issued such an SWO on the basis that Sevenson's
work was defective. As a result of the SWO, cleanup at the Site
temporarily stalled to a stop. Eventually, the EPA signed off on a
resumption of work, but required it be done at a slower rate.
As could be expected, the delay resulted in increased costs and a fee
dispute between the Sapp Group and Sevenson. Pursuant to the terms of
their Contract, the dispute was submitted to arbitration. A panel of
three mutually agreed upon experts (the "Panel") was selected to serve as
arbitrators. The Panel, whose expertise and qualification is not challenged by Sevenson, was
comprised of the President of the American Society of Civil Engineers and
two experienced environmental lawyers. The Panel held 18 days of
hearings, received testimony from 17 witnesses and reviewed more than 250
Ultimately, by a decision dated December 21, 2003 (the "Award"), the
Panel awarded Sevenson $61,339, plus interest, for sums due under the
contract and $513,332 in retainage withheld under the contract. Payment
of this retainage was made subject to the EPA certifying that the work at
the Site was complete and Sevenson demonstrating an absence of liens on
the property. Because these conditions were set and the payment was not
considered presently due, the Panel did not award interest on the
retainage. In addition, the Panel awarded the Sapp Group $424,373, plus
interest, for certain failures and deficiencies it attributed to
Sevenson would like the Court to remove the conditions precedent to
payment of the retainage enunciated in the Award. In addition, Sevenson
requests that it be awarded interest on the retainage fee. Finally,
Sevenson asks the Court to vacate the portion of the award inuring to the
Sapp Group's benefit. The Sapp Group opposes Sevenson's requests and
wants the Court to confirm the Award as is. Discussion
Standard of Review
This case is governed by the Federal Arbitration Act ("FAA"),
9 U.S.C. § 1-16 (1988), because federal subject matter jurisdiction exists and
the contract that contained the arbitration clause related to a
transaction involving interstate commerce. See
9 U.S.C. § 2; Barbier v. Shearson Lehman Hutton. Inc., 948 F.2d 117, 120
(2d Cir. 1991). Typically, under the FAA, confirmation of an award is a
ministerial act. See Sperry lnt'l Trade, Inc. v. Gov't of
Israel, 532 F. Supp. 901, 905 (S.D.N.Y. 1982). In order to prevent
the twin goals of arbitration efficient dispute resolution and
avoidance of long and costly litigation from being undermined,
judicial review of arbitration awards is severely limited and narrow in
scope. See Folkways Music Publishers. Inc. v. Weiss,
989 F.2d 108, 111 (2d Cir. 1993). As such, a party seeking to prevent an award
from being confirmed must clear a high bar and bears the burden of proof.
See Willemij in Houdstermaatschappij, BV v. Standard Microsystems
Corp., 103 F.3d 9, 12 (2d Cir. 1997).
Sections 10 and 11 of the FAA set forth the grounds on which an
arbitration award can be vacated, modified or corrected. Section 10
provides, in essence, four grounds for vacating an award: (1) fraud,
corruption or undue means in procuring the award; (2) partiality on the
part of the arbitrator; (3) misconduct by the arbitrator that prejudiced one of the parties;
and (4) where the arbitrator exceeds his powers. 9 U.S.C. § 10. In
order to have an award modified or corrected, the petitioner must
demonstrate that: (a) there was an evident material miscalculation of
figures or an evident material mistake in the description of any person,
thing, or property referred to in the award; (b) the arbitrators have
awarded upon a matter not submitted to them, unless it is a matter not
affecting the merits of the decision upon the matter submitted; or (c)
the award is imperfect in a matter of form not affecting the merits of
the controversy. 9 U.S.C. § 11.
In addition to these statutorily created bases for vacating or
otherwise altering an arbitration award, courts have created one other
ground on which to vacate an award. Courts may vacate an award when they
find the arbitrators to have acted in "manifest disregard" of the law.
See Wilko v. Swan, 346 U.S. 427, 436-37 (1953); Merrill
Lynch, Pierce. Fenner & Smith, Inc. v. Bobker, 808 F.2d 930, 933
(2d Cir. 1986). Under the doctrine of "manifest disregard" courts are
instructed to vacate awards when they find that the arbitrators knew of a
governing legal principle, yet either refused to apply it or simply
ignored it. See Folkways Music Publishers, Inc., 989 F.2d at
112. "The governing law alleged to have been ignored by the arbitrators
must be well defined, explicit, and clearly applicable. [Courts] are not at liberty to set aside an arbitration panel's award
because of an arguable difference regarding the meaning or applicability
of laws urged upon it." Merrill Lynch, 808 F.2d at 934.
Sevenson's Request to Modify the Award
Sevenson has requested that the Court modify the portion of the Award
that relates to payment of the retainage fee. Sevenson would like the
Court to strike from the Award the requirement that it provide EPA
certification that the cleanup is complete and proof that there are no
liens on the Site. It is Sevenson's contention that these preconditions
were set by the arbitrators, not the Contract, and based on "irrational
contract construction." Sevenson Mem. in Supp. of Petition, p. 2.
Sevenson adds that whether EPA certification and proof of no liens were
required were not issues submitted to the arbitrators for decision. Thus,
Sevenson believes the Court has the authority to modify the Award under
Section 11(b) of the FAA. Section 11(b) allows a court to modify an
award if "the arbitrators have awarded upon a matter not submitted to
them, unless it is a matter not affecting the merits of the decision upon
the matter submitted." 9 U.S.C. § 11(b).
Sevenson's rationale for removing the conditions is flawed. Claim Item
No. 2 of Sevenson's Demand for Arbitration was for unpaid retainage.
See McCall Decl., Ex.1, at Ex.3. The Sapp Group conceded that it had withheld $513,733, but asserted an
affirmative defense that the money was not yet due and owing. The Sapp
Group's defense was predicated in large part on the fact that the EPA had
yet to certify the Site as remediated and that Sevenson had yet to
demonstrate an absence of liens. Considering this affirmative defense, it
cannot be said that the arbitrators were passing judgment on an issue not
submitted to it. Even if Sevenson had not submitted the issue, which it
did by asserting a claim for retainage, the Sapp Group unquestionably
submitted the issue.
In light of the fact that the Panel's Award was based solely on issues
properly submitted to it, Sevenson's request for interest on the
retainage must be denied. Sevenson's request rests on the belief that the
failure to include interest represents the type of miscalculation section
11(a) of the FAA allows a court to correct. Because there is not a
legitimate reason for the Court to remove the preconditions, the
retainage is not yet due and owing. Until such time as the money is past
due, there is no basis on which to add interest to the amount owed. Thus,
the Panel is not guilty of a miscalculation.
Sevenson's Request to Vacate the Balance of the Award
Sevenson offers four bases for vacating the Award. According to
Sevenson the Court can vacate the Award pursuant to 9 U.S.C. § 10
(a)(4) because the Panel exceeded its authority by adding new provisions to the contract and considered matters
outside the scope of the contract. In addition, Sevenson believes the
Panel demonstrated manifest disregard for the law by not applying the
basic principles of contract law. Alternatively, Sevenson contends that
the alleged failure of the Panel to make a final determination as to
Claims 6 and 7 of its Demand for Arbitration provide a basis for vacating
the Award. Finally, Sevenson argues that the Award should be vacated as
inconsistent with the American Arbitration Association's ("AAA") rules.
There is, however, no merit to any of these arguments.
I. The Panel Did Not Exceed Its Authority
Sevenson claims the Panel exceeded its authority by finding a basis for
the SWO not provided for in the Contract; failing to consider Contract
provisions that provided for an alternative method of disposal of the
battery casings; and ignoring those Contract provisions it believes would
have prohibited an award to the Sapp Group. See Sevenson Mem.
in Supp. Petition, p.10. Section 10(a)(4) of the FAA provides that a
Court can, and should, vacate an award "where the arbitrators exceeded
their powers." Although Sevenson frames its claim in the guise of a
request for relief pursuant to 9 U.S.C. § 10 (a)(4), the actual
arguments it makes in support are nothing but an attempt to re-litigate
the contract issues decided during the arbitration. Sevenson simply
believes the Panel misinterpreted the Contract. The company takes exception to how the arbitrators deciphered the
Contract and believe they should have placed greater weight on certain
provisions and pieces of parol evidence than they did. Having reviewed
the Panel's Award, the Court finds that each of the Panel's decisions are
rooted firmly in its interpretation of the Contract and the evidence
related to the Contract submitted by the parties. Whether the Panel's
interpretation of the Contract or Sevenson's interpretation of it is
correct is immaterial. Courts do not have the power to review the merits
of arbitrators' contract interpretations. See United Steel Workers
of Am. v. Enter. Wheel & Car Corp., 363 U.S. 593, 598-99 (1960);
Amicizia Societa Navegazione v. Chilean Nitrate & Iodine Sales
Corp., 274 F.2d 805, 808 (2d Cir. 1960). Thus, the Panel did not
exceed its authority.
II. The Panel Did Not Demonstrate Manifest
Disregard of the Law
Citing the exact same reasons and support it cited in its claim that
the Panel exceeded its authority, Sevenson claims the Panel exhibited
manifest disregard of the law. As previously discussed, in order to find
that the Panel acted in manifest disregard of the law the Court must have
reason to believe the arbitrators knew of a governing legal principle and
chose to ignore it. See Folkways Music Publishers. Inc., 989
F.2d at 112. This is not the case in this instance. Again, Sevenson's claim is predicated on the belief that the Panel
chose to ignore certain Contract provisions. As with its argument in
support of finding the Panel to have exceeded its authority, this
argument is based on a difference in interpretation of the Contract
provisions and extrinsic evidence. Sevenson does not offer a legal
principle that it believes the Panel ignored. Rather, Sevenson offers
certain Contract provisions and pieces of extrinsic evidence it wishes
the Panel would have afforded greater weight.
So long as the Court can infer a basis for the Panel's decision and
cannot find an error so blatant that it would be obvious to the average
person qualified to serve as an arbitrator, the Court must confirm the
award. See Willemijin Houdstermaatschappij, 103 F.3d at 13. A
simple error or misunderstanding with respect to the law is not enough to
warrant vacating the Award. See Merrill Lynch, 808 F.2d at 933.
In fact, courts are instructed to confirm awards even in those instances
in which they disagree with the arbitrators on the merits, provided there
is even a colorable justification for their decision. See Landy
Michaels Realty Corp. v. Local 32B-32J, 954 F.2d 794, 797 (2d Cir.
As already stated, the Court finds that the Panel's decisions are based
on its interpretation of the Contract. Not only is the Court not inclined
to attempt to challenge the interpretations of an expert panel whose competence is
conceded by Sevenson that held 18 days of hearings and reviewed
in excess of 250 exhibits, it does not have the power to do so. Having
found that the Panel's decisions are based on the Contract and not having
found any governing legal principle ignored, the Court cannot infer that
the Panel exhibited manifest disregard of the law.
III. The Panel's Award is Not Incomplete
Sevenson argues that the Award should be vacated on the grounds that it
is not complete and definite. Section 10(a)(4) directs a court to vacate
an award when the arbitrators "so imperfectly executed [their powers]
that a mutual, final, and definite award upon the subject matter
submitted was not made." 9 U.S.C. § 10(a)(4). Courts in this circuit
have interpreted this portion of the statute to require the remand of
awards they deem to be incomplete or ambiguous. See LTI Int'l Inc.
v. MCI Telecomm. Corp., 18 F. Supp.2d 349, 352 (S.D.N.Y. 1998).
Sevenson contends the Award is incomplete because the Panel failed to
consider certain of its claims.
Sevenson takes particular exception to the Panel's treatment of Claim
Items 6 and 7 of its Demand for Arbitration. Claim Items 6 and 7 sought
compensation for extended field overhead and extended home office
overhead, respectively. In total, Sevenson requested slightly more than
$785,000 through these claims. The Panel, however, denied Sevenson's requests. The arbitrators wrote,
"Consistent with the Panel's ruling in Claim Item 4, the Panel does not
award Claimant damages for these claim items." Kannry Aff. Ex. 1, at p.7.
Rejecting a claim is far different than failing to address a claim. The
Award gives every indication that the Panel considered Claim Items 6 and
7 and simply determined that its ruling with respect to Claim Item 4
prevented awarding damages for extended field overhead and extended home
office overhead. Sevenson may disagree with the Panel's conclusion, but
that does not mean the Panel's award is incomplete or ambiguous. On the
contrary, the Award is definite, complete and final. It would not,
therefore, be appropriate to vacate the Award pursuant to
9 U.S.C. § 10 (a)(4).
Sevenson also contends that the Award is incomplete because the Panel
failed to consider the "alternative entitlement" of payment for the
treatment and disposal of the battery casings. For largely the same
reasons that apply to Sevenson's arguments regarding Claim Items 6 and 7,
there is no merit to this argument. The panel provided a clear and
concise rejection of Sevenson's claim for non-contractual battery casing
disposal. See Kannry Aff. Ex. 1, at p.7. The Panel's decision
not to give a lengthy explanation as to why it disagreed with Sevenson
and rejected its claim does not render the Award incomplete. IV. The Award Was Timely
In a last desperate attempt to have the Award vacated, Sevenson argues
that it was not timely issued. According to AAA rules, arbitrators are
expected to render their awards within thirty days of the close of the
hearing. See Kannry Aff. Ex. 40, at R.37, R.43. In this
instance the Award was not issued until 48 days after the hearing closed.
Sevenson contends that this delay serves as a basis on which to vacate
Courts have vacated awards that were not issued in a timely manner.
See, e.g., Rosario v. Carrasqillo, 451 N.Y.S.2d 776 (App. Div.
1982). In those instances, however, the party seeking to have the award
vacated had properly objected to the delay prior to the award being
rendered and was able to demonstrate some prejudice by the delay. Neither
of these factors are present in the instant case. Although Sevenson sent
a letter dated October 31, 2003, see Kannry Aff. Ex. 41, to the
Panel expressing its belief that the hearing was closed as of that date
and its understanding that it would receive a decision within thirty
days, Sevenson never objected when the thirty-day period passed without
an Award being issued. It was not until after the award was issued, in
the context of this petition to vacate, that Sevenson first objected to
the timeliness of the Award. Furthermore, when asked by the Court during
oral argument whether it had been in any way prejudiced by the
eighteen-day delay, Sevenson candidly and admirably conceded that it
had not been. As such, the delay does not warrant the setting aside of
Having found no basis on which to modify, correct or vacate the Award,
the Court is obligated to confirm it. See Ottley v.
Schwartzberg, 819 F.3d 373, 375 (2d Cir. 1987) (requiring district
courts to confirm arbitration awards unless they are modified, corrected
or vacated). Thus, Sevenson's petition to modify in part and vacate the
balance is hereby denied, and the Sapp Group's motion to confirm is
granted. The Award is confirmed as issued by the Panel on December 21,
2003. The Court orders this case closed and directs the Clerk of Court to
remove it from the Court's active docket.
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