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Foster Wheeler Environmental Corp. v. Energx Tn, LLC

United States District Court, S.D. New York

March 13, 2014

ENERGX TN, LLC, and ENERGX, LLC, Respondents.


RONNIE ABRAMS, District Judge.

This is an action pursuant to the Federal Arbitration Act, 9 U.S.C. § 1 et seq., to confirm a Final Arbitration Award ("Final Award") dated December 6, 2012. Before the Court are the petition of Foster Wheeler Environmental Corporation to confirm the Final Award and the cross-petition of EnergX TN, LLC ("ETN"), and EnergX, LLC ("EnergX"), (collectively "Respondents"), to vacate or, in the alternative, modify the Final Award. The underlying contract dispute relates to an agreement pursuant to which EnergX purchased a United States Department of Energy ("DOE") contract from Foster Wheeler. The arbitrator determined that Respondents are required by that agreement to pay Foster Wheeler $250, 000 plus prejudgment interest. For the reasons that follow, the Court grants Foster Wheeler's petition, denies Respondents' cross-petition, and confirms the Final Award.

I. Background

In 1998, DOE awarded Foster Wheeler a contract ("the TN Contract") to construct and operate a transuranic waste processing center in Oak Ridge, Tennessee. (Parties' Statement of Stipulated Facts ¶ 2.) Between 2002 and 2006, EnergX supplied key personnel to the project, and, in April 2006, Foster Wheeler designated EnergX the managing contractor of the project. (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. ¶¶ 10-11.) 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 business, 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 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, 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. Piper Jaffray, Inc., 148 F.3d 197, 202 (2d Cir. 1998). The same standard governs a ...

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