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Tully Construction Co. v. Canam Steel Corporation

United States District Court, S.D. New York

March 2, 2015

TULLY CONSTRUCTION COMPANY/A.J. PEGNO CONSTRUCTION COMPANY, J. V. Petitioner,
v.
CANAM STEEL CORPORATION, Respondent.

MEMORANDUM OPINION & ORDER

PAUL G. GARDEPHE, District Judge.

Petitioner Tully Construction Company/A.J. Pegno Construction Company, J.V. ("Tully") seeks confirmation of an April 24, 2013 arbitration award against Respondent Canam Steel Corporation ("Canam"). Respondent opposes the petition and cross-moves to vacate the award on the grounds that the arbitrator manifestly disregarded the law, committed prejudicial misconduct, and exceeded his authority. For the reasons set forth below, both motions will be denied and this matter will be remanded to the arbitrator for clarification.

BACKGROUND[1]

The underlying arbitration award arises out of a long-running dispute concerning a contract to supply steel components for the renovation of the Whitestone Expressway. In 2002, the State of New York hired Petitioner to replace a portion of the Whitestone Bridge, a suspension bridge that spans the East River and connects the Bronx and Queens via Interstate 678 (the "Project" or "Whitestone Bridge Project"). (Pet. (Dkt. No. 1) ¶ 1; Corey Decl. (Dkt. No. 17) ¶¶ 4-5) Petitioner engaged Eastern Bridge LLC ("Eastern Bridge"), a steel fabricator and non-party to this action, to produce and deliver several million dollars worth of structural steel for the Project. (Rogers Decl. (Dkt. No. 8) ¶ 4 & Ex. 2 ("Purchase Order"))

After disputes arose concerning Eastern Bridge's compliance with the terms of the Purchase Order, the parties entered into a May 15, 2007 "Completion Agreement." (Id., Ex. 3) Under the terms of the Completion Agreement, Eastern Bridge promised to deliver the remaining steel components in accordance with a revised delivery schedule. (Id., Ex. 3 Attach. ("Schedule of Delivery and Payment")) The Completion Agreement also includes an arbitration clause, pursuant to which the parties agreed to submit any disputes to binding arbitration, conducted under the rules of the American Arbitration Association ("AAA"). (Id., Ex. 3 ¶ 11 (the "Arbitration Clause"))

In addition to agreeing to modify the delivery schedule for the remaining steel shipments, Petitioner and Eastern Bridge agreed to release and waive all claims against each other that pre-dated the Completion Agreement. (Id., Ex. 3 ¶ 14 (the "Release Clause")) However, the Completion Agreement further provides that

[i]n the event that the delivery dates as noted in the Schedule [of Delivery and Payment] are missed by three (3) weeks or more, [the Release Clause] is considered void, and the parties are free to seek Arbitration as described in [this agreement] for any and all claims from the inception of the work.

(Id., Ex. 3 ¶ 15)

In July 2007, Respondent Canam entered into an Asset Purchase Agreement ("APA") with Eastern Bridge, whereby it acquired, inter alia, the contract for the Whitestone Bridge Project (the "Whitestone Contract"). (Corey Decl. (Dkt. No. 17), Ex. 2 (APA)) As of the date of the APA, Eastern Bridge had not defaulted on any of its delivery obligations under the Completion Agreement. (Corey Decl. (Dkt. No. 17) ¶ 7)

Disputes between Tully and Canam soon arose over the latter's compliance with the Completion Agreement, and in April 2008, Tully served Canam with a Demand for Arbitration. (Rogers Decl. (Dkt. No. 8) ¶ 13) The parties subsequently opted to forego arbitration at that time, however, and instead entered into an October 2008 "Delivery Agreement." (Id. ¶ 11) The Delivery Agreement states, in relevant part:

Canam and Tully desire to enter into this Delivery Agreement... for the purpose of completing all deliveries remaining on the Project, and making payments therefor, pursuant to a new Schedule of Delivery and Payment while retaining all pre-existing rights, claims and defenses to be determined in mediation or arbitration as provided in the parties' May 15, 2007 Agreement and any written modifications thereto which have been signed by both Tully and Canam including this Delivery Agreement.

(Id., Ex. 10 at 1 (emphasis added))[2] The Delivery Agreement further states:

Tully agrees to stay and hold the Tully Arbitration in abeyance until such time that the Mediation has been concluded and all remaining steel has been delivered and all payments due under this agreement have been made into Escrow. However, should Canam fail to deliver the steel or Tully fail to make payments in accordance with this Delivery Agreement, either party may commence arbitration or other proceedings to enforce the terms of this Delivery Agreement and any prior agreement, subject to all rights and defenses as may exist. The venue for the Tully Arbitration shall be New York.

(Id., Ex. 10 at 4-5 (emphasis added)) Under the terms of the Delivery Agreement, all remaining steel shipments are to be delivered by June 1, 2009. (Id., Ex. 10 Attach. ("New Schedule of Delivery and Payment")) Canam did not make its final steel delivery until September 17, 2009, however. (Rogers Decl. (Dkt. No. 8) ¶ 12)

On December 30, 2009, Tully filed a Demand for Arbitration with the AAA, seeking damages for breach of contract as well intentional and negligent misrepresentation. (Id., Ex. 15) Canam filed an answer and counterclaim in which it denied liability and demanded reimbursement for additional costs it purportedly incurred due to delays caused by Tully. (Id., Ex. 16 at 1, 3, 12) Tully's claims totaled more than $20 million (id., Ex. 15), while Canam's claims amounted to nearly $5.25 million. (Id., Ex. 16 at 15)

On April 23, 2012, Tully and Canam agreed to dispense with the AAA-administered arbitration, and instead entered into a private Arbitration Agreement. (Id., Ex. 17 (the "Arbitration Agreement")) The parties selected Canam's nominee, John J.P. Krol, to serve as arbitrator. (Corey Decl. (Dkt. No. 17) ¶ 19) The arbitration hearing began on November 6, 2012, and concluded on January 30, 2013. (Rogers Decl. (Dkt. No. 8) ¶¶ 26 & 31) The arbitrator heard seventeen days of testimony from nine fact and two expert witnesses, and admitted more than 800 exhibits into evidence. (Id. ¶ 31)

Post-hearing briefing was completed on April 16, 2013 (Rogers Decl. (Dkt. No. 8) ¶ 32), and the arbitrator issued his award on April 24, 2013. (Id., Ex. 1 (Final Award of Arbitrator)) Because the critical issue here relates to the content of the award, the entire two-page award is reproduced verbatim below:

FINAL AWARD OF ARBITRATOR

I, THE UNDERSIGNED ARBITRATOR, having been designated in accordance with the Arbitration Agreement (Parties-1)[3]entered into between the parties and dated April 23, 2012, and having duly heard the proofs and allegations of the Parties, do hereby, FIND, as follows:
This dispute arises out of agreements between the parties, Tully Construction Company, Inc./ A.J. Pegno Construction Corp., J.V. (hereinafter "Claimant") and Canam Steel Corporation (hereinafter "Respondent") made subsequent to the July 16, 2007 Asset Purchase Agreement (R-29, Tab D) and the dispute is in connection with construction of certain portions of the Whitestone Expressway, Queens County, New York.
This FINAL AWARD OF ARBITRATOR is limited pursuant to the terms of the Arbitration Agreement (Parties-1) to those claims of Claimant, Tully Construction Company, Inc./ A.J. Pegno Construction Corp., J.V. solely against Respondent, Canam Steel Corporation; and Respondent's counterclaims.

Accordingly, I AWARD as follows:

Within thirty (30) days from the date of transmittal of this Award to the Parties, RESPONDENT shall pay to CLAIMANT, the "initial award" (C-536, TPJV 000 25888) sum of SIX MILLION, FIVE HUNDRED SEVENTEEN THOUSAND, TWENTY-TWO DOLLARS AND NO CENTS ($6, 517, 022.00)[, ] less the amount that Claimant may now reimburse itself from escrow (approximately $961, 100.00), with interest on the remaining amount; i.e., $6, 517, 022.00 - approximately $961, 100.00, at 9% per annum, without compounding, from September 19, 2008 (R-20, pg. 17, fn. 12; Canam Post Hearing Memorandum, pg. 14), until payment.

The Attorney's Fees and Expenses of each party shall be borne as incurred.

The compensation and expenses of the arbitrator shall be borne equally.

The Parties are to arrange to obtain all drawings or exhibits in the possession of the Arbitrator by August 12, 2013, after which date said documents shall be destroyed.
If any provision of this Final Award or the application of any such provision to any person or circumstance is held invalid, the remainder of this interim award, and the application of such provision other than the extent to which it is held invalid, will not be invalidated or affected thereby.
This Final Award is after full and complete consideration and in full and complete settlement of all claims, offsets, or counterclaims which were submitted or which could have been submitted in this Arbitration. All claims or counterclaims between the parties not expressly granted herein are hereby denied.
This Final Award shall be enforceable under the provisions of New York State law, CPLR Article 75; the Federal Arbitration Act, 9 USC Section 1 et seq.; and the United Nations Convention on Contracts for the Internal Sale of Goods as applicable.
An electronically transmitted version of this document is deemed an original.

(Id., Ex. 1 at 1-2)

On April 26, 2013, Canam requested that the arbitrator withdraw his April 24, 2013 award and instead issue a "reasoned award." Canam argued that both the parties' Arbitration Agreement and a pre-arbitration scheduling order issued by the arbitrator require a "reasoned award." (Rogers Decl. (Dkt. No. 8), Ex. 26) Tully opposed Canam's request, stating that it "view[ed] the award issued as both a line item award [and an award] with reasons provided so as to satisfy the Scheduling Order." (Corey Decl. (Dkt. No. 17), Ex. 8, at 1) In an email dated May 3, 2013, Arbitrator Krol denied Respondent's request to withdraw the award, stating,

The FINAL AWARD OF ARBITRATOR dated 24 April 2013 is a "reasoned award" under all applicable rules, statutes, and case law. As counsel are aware, the progression of award types, from least to most complex, is acknowledged by the arbitration community to be: 1) Standard (or "Bare") Award; 2) Reasoned Award; and 3) Findings of Fact and Conclusions of Law.
The FINAL A WARD OF ARBITRATOR dated 24 April 2013 sufficiently and specifically incorporates all credible evidence adduced during the hearings, detailing the liability for each item of claim and counterclaim, and, as such, is a "reasoned award". In its two page form, the FINAL A WARD does not differ substantially, except for the allocation of liability, from the proposed two and one-half page award submitted by Respondent's Counsel on April 17, 2013.

(Id., Ex. 15)

On May 6, 2013, Tully moved to confirm the award. (Dkt. No. 1) Canam filed an opposition to Tully's petition and cross-moved to vacate the award. (Dkt. No. 7)

DISCUSSION

I. LEGAL STANDARD FOR VACATUR AND CONFIRMATION

"Following issuance of an arbitration award, § 9 of the Federal Arbitration Act (FAA') provides that a party may apply to a district court for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title.'" STMicroelectronics, N. V. v. Credit Suisse Sec. (USA) LLC, 648 F.3d 68, 74 (2d Cir. 2011) (quoting 9 U.S.C. § 9).[4] "Arbitration awards are subject to very limited review in order to avoid undermining the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation." Folkways Music Publishers v. Weiss, 989 F.2d 108, 111 (2d Cir. 1993).

The Second Circuit has explained that,

[n]ormally, confirmation of an arbitration award is "a summary proceeding that merely makes what is already a final arbitration award a judgment of the court, " Florasynth, Inc. v. Pickholz, 750 F.2d 171, 176 (2d Cir. 1984), and the court "must grant" the award "unless the award is vacated, modified, or corrected." 9 U.S.C. § 9. The arbitrator's rationale for an award need not be explained, and the award should be confirmed "if a ground for the arbitrator's decision can be inferred from the facts of the case, '" Barbier v. Shearson Lehman Hutton, Inc., 948 F.2d 117, 121 (2d Cir. 1991) (quoting Sobel v. Hertz, Warner & Co., 469 F.2d 1211, 1216 (2d Cir. 1972)). Only "a barely colorable justification for the outcome reached" by the arbitrators is necessary to confirm the award. Landy Michaels Realty Corp. v. Local 32B-32J, Service Employees Int'l Union, 954 F.2d 794, 797 (2d Cir. 1992). A party moving to vacate an arbitration award has the burden of proof, and the showing required to avoid confirmation is very high. Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp., 103 F.3d 9, 12 (2d Cir. 1997).

D.H. Blair & Co., Inc. v. Gottdiener, 462 F.3d 95, 110 ...


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