Don’t Mess with Texas: 5th Circuit takes Litigators Back to Law School

 In the recent decision of Sayers Construction, L.L.C.v. Timberline Construction, Inc. and High Voltage, Inc., the Fifth Circuit affirmed a federal district court’s determination that it did not have jurisdiction to vacate an arbitration award in Florida. 976 F.3d 570 (5^th Cir. 2020). The court reminded us that jurisdiction really is power, just like lawyers everywhere learned in their very first civil procedure class in law school. After walking us through the trodden legal framework of Pennoyer, International Shoe, World-Wide Volkswagen, and Burger King, and hinting at the liberal policy of promoting arbitration, the court concluded, “this is Florida’s problem. Not Texas’s.” Sayers Construction, 976 F.3d at 574.

The case serves a friendly reminder of the importance of jurisdiction, especially in the context of arbitration. In this case, the Texas-based general contractor sought to vacate a Florida court’s enforcement of a Florida-based arbitration award. See id. at 572. Step one of the court’s analysis highlighted the most well-known limitation of the Due Process Clause when it comes to jurisdiction of out-of-state defendants: that of “minimum contacts.” See id. at 573. The court pressed that we must always ask whether our counterparts “purposefully avail[ed] [themselves] of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.” See id. (citing World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297-98 (1980)). Here, the general contractor defendant pressed that this was a standard breach of contract dispute where “minimum contacts” existed because (1) subcontractors solicited a business relationship with the general contractor in Texas, (2) the subcontractors contracted with the general contractor, which has an office in Texas, (3) subcontractors mailed invoices to general contractor’s office in Texas, and (4) the parties’ contract has a Texas choice-of-law clause. Id. The court found that none of these facts established “minimum contacts.” Importantly, in response to facts (3) and (4), the Fifth Circuit held that, mailing payments, especially when all of the work is performed outside the state, is insufficient to establish “minimum contacts” and choice-of-law clauses are probative, but not dispositive, of purposeful availment. See id. at 574.

With its terse ‘this is not our problem’ ending, the court emphasized that any doubts as to the legitimacy of arbitration should be put to bed. Case law, in conjunction with the Federal Arbitration Act (“FAA”), makes clear that there exists a liberal policy of promoting arbitration, thus making arbitration agreements “valid, irrevocable, and enforceable.” 9 USC § 2. As we all know, arbitration is favored amongst many construction clients due to its privacy, speed, and finality. But with every decision comes a cost. In agreeing to arbitrate, the cost to parties is the relinquishment of much of their right to a court’s decision. Parties may still seek court review of an arbitrator’s decision, but the courts will set that decision aside only in very unusual circumstances. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995). In fact, grounds for vacating arbitral awards are few and far between[1] – and if you’re still not convinced of just how rigorously courts enforce arbitral awards, consider the fact that the Manifest Disregard of Law Doctrine remains one of the few proper grounds of vacatur of an arbitral award and there exists a circuit split as to whether even that is proper. See Philip D. O’Neill, Jr., International Commercial Arbitration 459 (2012).

In conclusion, the case of Sayers Construction, 976 F.3d at 574, is a reminder to experienced lawyers not to lose sight of either the legal frameworks of personal jurisdiction or the FAA. And, of course, litigators everywhere beware: don’t mess with Texas.

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[1] Per the New York Convention on the Enforcement of Foreign Arbitral Awards of 1958 (the “New York Convention”) and the Federal Arbitration Act (“FAA”), courts are directed to confirm arbitral awards unless it is found that there exist grounds for refusal or deferral of recognition. Those grounds include 1(a): incapacity of a party; invalidity under the law to which the parties subjected their agreement, or invalid under the law of the country where the agreement was made; (b) lack of proper notice; an inability by a party to present their case; (c) exceeding the scope of the arbitral agreement; (d) composition of the arbitral authority or process was not as the parties agreed; (e) set aside by a competent authority or in accordance with the law of the arbitral seat; (2)(a) the subject matter may not be lawfully resolved under the law of the place of enforcement; or (b) contrary to the public policy of that jurisdiction. In short, the legal framework and the New York Convention (Article V) provides that the decision to decline to enforce an award is a matter of stringent discretion, for “recognition and enforcement of the award may be refused,” but only very limited circumstances. See Philip D. O’Neill, Jr., International Commercial Arbitration 405-06 (2012).

Author Lexie R. Pereira is a third year J.D./M.B.A. candidate at Boston College Law School and Carroll School of Management, studying to become a litigator, with a specialty in construction law. Currently, she works as a Law Clerk at Consigli Construction Co., Inc., serves on the Editorial Team of the ABA’s Forum on Construction Law’s Dispute Resolver blog, and acts as the 2020 Student Liaison of the ABA's Forum on Construction Law. At school, Lexie is the President of the Real Estate Law Society and the President of the Eagle-to-Eagle Mentoring Program. Lexie grew up in the construction industry and has spent time working as an estimator, field engineer, laborer, and, of course, in the legal capacity at Consigli and formerly Hinckley Allen as a Summer Associate. 

Contact Lexie: pereirle@bc.edu | https://www.linkedin.com/in/lexie-pereira/

R.I. Supreme Court Overturns Arbitration Award - Manifest Disregard Lives On

It is a rare event for a court to vacate an arbitration award, but the Rhode Island Supreme Court in the recently decided opinion Nappa Construction Management, LLC v. Flynn, No. 2015-211-Appeal, --- A.3d--- (R.I. Jan. 23, 2017) held that vacatur was warranted. In reaching this outcome, the Court was divided 3 justices to 2 with a filed dissent.

The underlying case concerned the construction of automobile repair shop that did not proceed smoothly.  The focal issue was the cement floor and foundation. The owner was displeased with the installation and ordered the contractor to stop work.  Nonetheless, the contractor submitted a pay application for the floor work, which went unpaid by the owner.  The contractor, claiming material breach for non-payment, terminated for cause. The owner sued the contractor for wrongful termination. The case ultimately ended up in arbitration with the contractor claiming it was owed for work performed.  There, the arbitrator held that both parties were at fault and therefore the contractor could not terminate for cause. Instead, the arbitrator held that the contractor terminated for convenience by the contractor. As such, the arbitrator awarded the contractor its fair and reasonable value of the work performed.

The parties next applied to superior court with the owner moving to vacate the award while the general contractor moved to confirm.  The superior court confirmed and the owner appealed arguing that the arbitrator "manifestly disregarded a contractual provision by holding that the contract was terminated for convenience" by the contractor.

The majority of the Court agreed with the owner.  The three justices acknowledged that "judicial review of arbitration awards is extremely limited," but held that the case met the threshold for vacatur under the R.I. General Laws.  The Court explained that where "the arbitration award fails to ‘draw its essence from the agreement, if it was not based upon a passably plausible interpretation thereof, if it manifestly disregarded a contractual provision, or if it reached an irrational result" the Court must vacate the award.  Here, the majority concluded that the arbitrator exceeded his authority by "manifestly disregard[ing] a contractual term or ignor[ing] 'clear-cut contractual language.'” In sum, because the AIA contract's termination for convenience clause could only be exercised the owner completely in the owner's discretion, the arbitrator had ignored and manifestly disregarded that distinction by applying the clause in favor of the contractor.  Accordingly, the Court ordered the award vacated.

As for the dissent, the two justices focused on the great deference the Court affords to an arbitrator's decision and that "review of the contract as a whole reveal[ed] that the arbitrator's award did not exceed the language of the agreement." In essence, because the clause was present in the contract and the arbitrator did not create the contractual basis out of whole cloth, the dissent was satisfied that arbitrator could interpret and apply the contract as such.  And at the least, the dissent concluded, this Court was not empowered to second guess that interpretation.

Putting aside that this case was decided under state law, it is important to note that in the federal sphere, under the Federal Arbitration Act 9 U.S.C. §§ 10 & 11, the "manifest disregard" rationale for vacating an arbitration award has more limited applicability and not all Circuits recognize the standard.
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The author, Katharine Kohm, is a committee member for The Dispute Resolver. Katharine practices construction law and commercial litigation in Rhode Island and Massachusetts. She is an associate at Pierce Atwood, LLP in Providence, Rhode Island. She may be contacted at 401-490-3407 or kkohm@PierceAtwood.com.

Contract Cannot Eliminate Right to Vacate or Modify Arbitration Award

We have a guest post today from Atlanta lawyer Mark V. Hanrahan of the firm Autry, Hanrahan, Hall & Cook, LLP. In his article, he discusses the recent Georgia case of Atlanta Flooring Design Centers, Inc. v. R. G. Williams Construction, Inc., a case involving the Georgia Arbitration Code and whether parties to a contract could agree to eliminate the statutory right to move to vacate or modify a validly entered arbitration award.

The text of the case can be found here.


In Atlanta Flooring Design Centers, Inc. v. R.G. Williams Construction, Inc., a general contractor and subcontractor entered into a written subcontract which provided for arbitration of disputes. The arbitration provisions provided that any arbitration award shall be final and binding on the parties and that the parties “expressly agree not to challenge the validity of the arbitration or the award.” 

The parties submitted a dispute to arbitration and after the arbitrator rendered an award, the subcontractor filed a motion pursuant to O.C.G.A. § 9-9-13(a) of the Georgia Arbitration Code (“GAC”) alleging its rights had been prejudiced in the arbitration proceedings and seeking an order vacating the award on the statutory grounds set forth in O.C.G.A. § 9-9-13(b). The general contractor moved to dismiss on the basis that by their agreement to arbitrate, the parties agreed not to challenge the validity of the arbitration or award. 

The trial court found that the parties’ agreement not to challenge the arbitration or award was enforceable and granted the general contractor’s motion. The Court of Appeals reversed, finding that the parties’ agreement was unenforceable because it contravened Georgia public policy as expressed in the GAC. 

In reaching its conclusion, the court noted that in Brookfield Country Club, Inc. v. St. James-Brookfield,LLC, the Supreme Court of Georgia held as unenforceable contract language that purported to alter the GAC by expanding the scope of judicial review. Drawing analogy to Brookfield Country Club, the court found that the GAC does not permit parties to waive or eliminate, by contractual provisions, a party’s right to apply to vacate or modify an award on grounds permitted by the GAC. In this connection, the court also drew on decisions by the federal courts which concluded that the statutory grounds for vacatur under the Federal Arbitration Act may not be waived or eliminated by contract. The court noted that these federal decisions found that to rule otherwise would frustrate Congress’s intent to provide for a minimum level of due process for parties to an arbitration. 

The takeaway from this case is that parties cannot, by their contract, limit or expand their rights to judicial review of an arbitration award beyond the rights set forth in the GAC. 


This case squib was provided with the express permission of the author. It appeared initially in the Winter 2016 Newsletter of the Construction Section of the Atlanta Bar Association.

Appeal of Arbitration -- answers to many "what if" scenarios will be provided

As part of the first day in at the Forum's #ADRSummit in Austin, John Bulman and Ben Wheatley are offering a practical (and hopefully interactive) workshop on the intersection between arbitration and appeals.  Both Ben and John are experienced construction attorneys and American Arbitration Association (AAA) arbitrators.  John was also a Board Member of the AAA for twelve years, is currently a member of the Board of Governors of the American College of Construction Lawyers (ACCL), and a fellow of the College of Commercial Arbitrators (CCA) -- all co-sponsors of the #ADRSummit.

During their hour discussion, Ben and John will consider many of the burning “what if” questions that can arise in the context of appellate arbitration and appealing an arbitrator’s decision to a court.  Some of the highlights include “what if the institutional provider appoints an arbitrator that lacks necessary industry experience in the subject of the claims?” and “what if a court stays your litigation pending arbitration but applies the blue pencil approach to rewrite your arbitration agreement?”  John and Ben also will touch upon the “hidden appeal,” the availability of discovery in a vacatur action, and whether manifest disregard is still viable or past its prime.  

If you haven't registered for the Fall Meeting yet, #FCLAustin, do so before August 31st to take advantage of the early bird pricing. Register here: http://bit.ly/1TodsIK.  

What Should the Remedy be when an Arbitrator Exceeds His Authority? Remand for Clarification or Vacate and Require a New Arbitration?

In an opinion issued on March 2, 2015, The United States District Court for the Southern District of New York joined other courts by ruling that an arbitrator who issues an improper form of award has in fact exceeded his power.  In the case of Tully Construction Company/AJ Pegno Construction Company, J.V. v. Canam Steel Corporation, No. 1:2013cv03037 - Document 27 (S.D.N.Y. 2015), the court ruled that an arbitrator who did not issue the “reasoned award” required by the Arbitration Agreement had exceeded his power, and the proper remedy is to remand the award back to the arbitrator for clarifications and a true “reasoned award”.

The dispute arises out of a project awarded to Tully Construction Company/AJ Pegno Construction Company, J.V (Tully) by the State of New York to replace a portion of the Whitestone Bridge.  Tully contracted with Eastern Bridge LLC (Eastern) for several million dollars to fabricate and deliver structural steel to the project.  In July of 2007, Canam Steel Corporation (Canam) entered into an Asset Purchase Agreement (APA) with Eastern and acquired the project contract. 

Steel fabrication and delivery disputes plagued the project in 2007 and 2008.  Tully and Eastern entered into a revised fabrication schedule and agreement in May of 2007.  The agreement stipulated that any disputes would be settled with binding arbitration in accordance with the rules of the AAA.  Tully filed a Demand for Arbitration with the AAA on December 30, 2009 seeking damages in excess of $20 million for breach of contract and intentional and negligent misrepresentation. Canam counterclaimed for nearly $5.25 million in damages for delays caused by Tully. 

Tully and Canam entered into an ad-hoc, private arbitration in November of 2012 governed by the AAA rules.  The arbitrator heard seventeen days of testimony from nine fact and two expert witnesses along with more than 800 exhibits of evidence.  The arbitrator released his two page final award with monetary awards for Tully in nine individual line items and one grand total in the amount of $6,883,936.00. Canam’s award was identified in seven individual line items with one grand total in the amount of $366,914.00.  There was no language expressly giving the rationale behind the awards.  Two days after the award, Canam requested that the arbitrator withdraw his final award and issue a final award in accordance with the Arbitration Agreement’s “reasoned award” requirement.  The arbitrator responded to Canam that his final award was a “reasoned award” and Tully moved to confirm the award. Canam filed an opposition to Tully’s petition and cross-moved to vacate the award. 

 The court examined Canam’s claim that the arbitrator failed to issue a “reasoned award”.  It found that a “reasoned award” was required as part of the private Arbitration Agreement citing Rule 44 and L-6 of the AAA Arbitration Rules for Complex Construction Cases. The court also found that all parties expected a “reasoned award”, not a line item award as issued.

The court examined what constitutes a “reasoned award” and settled upon the definition offered in Cat Charter, LLC v. Schurtengerger, 646 F.3d 836, 844 (11^th Cir. 2011), that “a reasoned award is an award that is provided with or marked by the detailed listing or mention of expressions or statements offered as a justification…[for] the decision of the [arbitrator].”  The court further cited Rain CII Carbron v. ConocoPhillips Co., 674 F.3d 469 (5^th Cir 2012) and the Fifth Circuit’s decision that the award in that controversy was “reasoned” because in the, “eight page [award], the arbitrator laid out the facts, described the contentions of the parties, and decided which of the two proposals should prevail.” The court found that the arbitrator’s line item award did not satisfy either of those criteria and therefore was an improper award.

The Second Circuit has not addressed whether an improper award constitutes an arbitrator exceeding his authority.  Therefore, the court looked to rulings of the Third, Fifth, Sixth, and Ninth Circuits to determine that an improper award does exceed an arbitrator’s authority.  The multiple circuit court cases the court examined framed the issue of an improper award within a contractual framework. The parties private Arbitration Agreement stipulated that the AAA Arbitration Rules for Complex Construction Cases would govern.  Those rules required a “reasoned award”.  The arbitrator’s line item award did not comply with the agreement and therefore the authority granted to the arbitrator in the agreement was exceeded, and accordingly, the award cannot stand. 

Tully presented the argument that if the line item award was found to be improper, the proper remedy would be to remand it back to the arbitrator for an actual “reasoned award”.  The court presented the view from two district courts that a remand to the same arbitrator would be improper due to functus officio. Citing T.Co. Metals, LLC v. Dempsey Pipe & Supply, Inc. 592 F.3d 329, 342 (2d Cir. 2010), the court defined, functus officio as a “doctrine [which] dictates that, once arbitrators have fully exercised their authority to adjudicate the issues submitted to them, ‘their authority over those questions is ended,’ and ‘the arbitrators have no further authority, absent agreements by the parties, to redetermine th[ose] issues.’”  The court also presented three exceptions to the doctrine, the third and most relevant stated an exemption exists in order, “to clarify an ambiguity in an otherwise seemingly complete award.” Cat Charter, 691 F. Supp. 2d at 1345

Looking to the circuit courts, the court found that functus officio has been rejected in similar circumstances of an improper award.  The circuit courts pointed to the third exception to functus officio stating, “the purpose of this exception is to permit the arbitrator to complete and assigned task…”Green v. Ameritech Corp., 12 F. Supp. 2d 662, 666. The court further found that the circuit courts require remand back to an arbitrator in order for the arbitrator to explain his award so that it can be effectively enforced. Functus officio is not applicable because the duty charged to the arbitrator has not been completed and remand “serves to give the parties what they bargained for – a clear decision from the arbitrator.” Galt v. Libbey-Owens-Ford Glass Co., 397 F.2d 439, 442 (7^th Cir. 1968).

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This case summary was written by Brendan Carter, former Law School Liaison to the ABA Forum on Construction Law.  Brendan is a recent graduate from the University of Massachusetts, Dartmouth School of Law.  He has worked in the construction industry for many years, most recently for a general contracting company in Massachusetts.  

Partial Disclosure of a Source of Potential Bias Justifies Vacating an Arbitration Award in Texas

When compared with traditional litigation judgments, it is much harder to vacate arbitration awards after they are issued. The Texas Supreme Court recently addressed the standard by which an award can be vacated due to inadequate disclosures by the arbitrator.  In particular, the Court had to evaluate whether an award should be vacated due to an arbitrator’s partial disclosure of a source of potential bias or conflict. Tenaska Energy, Inc. v. Ponderosa Pine Energy, LLC, 57 Tex. Sup. J. 617 (Tex. 2014).

The AAA Commercial Arbitration Rules require that “any person appointed or to be appointed as an arbitrator shall disclose…any circumstance likely to give rise to justifiable doubt as to the arbitrator’s impartiality or independence, including any bias or any financial or personal interest in the result of the arbitration or any past or present relationship with the parties or their representatives.” 

The underlying arbitration proceedings were based on a contract dispute between Tenaska and Ponderosa.  The parties’ arbitration agreement provided for a panel of several arbitrators. Lawyers from Nixon Peabody represented Ponderosa and selected Samuel Stern as their arbitrator.  After his selection Stern disclosed the following information to the parties regarding his relationship with Ponderosa and Nixon Peabody: (1) Nixon Peabody had designated him as an arbitrator in three other proceedings, (2) Stern, on behalf of a company named LexSite, had discussions with Nixon Peabody about outsourcing litigation discovery tasks to LexSite, and (3) “Nixon Peabody and LexSite have done no business, and it is not clear that Nixon Peabody would ever have any business to give LexSite.”  Stern, as part of a divided panel, eventually awarded $125 million to Ponderosa.

Tenaska moved to vacate the award in state court, arguing Stern was neither impartial nor free from bias.  The parties conducted extensive discovery on the issue prior to the hearings on the opposing motions. Ultimately, the trial court vacated the arbitration award based on Stern’s failure to disclose that his only contacts at Nixon Peabody were the two lawyers representing Ponderosa, he owned stock in the litigation services company that was pursuing business from Nixon Peabody, he served as president of the company’s U.S. subsidiary, he conducted significant marketing for the company, he had additional meetings and contact with the Nixon Peabody lawyers to solicit business from the firm, and he allowed one of the Nixon Peabody lawyers to edit his disclosures to downplay the relationship with the firm. The court of appeals reversed, holding that Stern’s disclosures were sufficient to put Tenaska on notice of a potential conflict. 

The Texas Supreme Court ultimately upheld the trial court’s vacation of the arbitration award, reasoning that Stern’s failure to disclose the extent of his relationship with LexSite and his attempts to solicit business from Nixon Peabody demonstrated evident partiality and supported vacating the award.  The Federal Arbitration Act allows a court to set aside an arbitration award “where there was evident partiality.” 9 U.S.C. § 10(a)(2).  The U.S. Supreme Court has interpreted the statute to impose a requirement on arbitrators to “disclose to the parties any dealings that might create an impression of possible bias.”  Commonwealth Coatings Corp. v. Cont’l Cas. Co., 393 U.S. 145, 147 (1968). Moreover, the Texas Supreme Court had previously held that “if the arbitrator does not disclose facts which might, to an objective observer, create a reasonable impression of the arbitrator’s partiality,” then the arbitrator exhibits evident partiality. 

Based upon these cases, the Texas Supreme Court held an arbitration award can be vacated if an arbitrator fails to disclose facts which might, to an objective observer, create a reasonable impression of the arbitrator’s partiality. However, information that is trivial will not rise to this level and need not be disclosed.  Looking at the facts regarding Stern’s business relationship, his potential financial gain from procuring Nixon Peabody’s business, and his decision to allow Ponderosa’s attorneys to downplay their relationship, the Court held that the information was not trivial and might have conveyed an impression of partiality toward Nixon Peabody’s client to a reasonable person. Accordingly, the failure to disclose the information demonstrated evident partiality, and the trial court properly vacated the award. 

While this case was decided under Texas law, the Texas Supreme Court’s interpretation of the Federal Arbitration Act suggests that its reasoning could be applied more broadly to cases across the country. In particular, the Court’s decision to evaluate the extent to which a partial disclosure could be misleading could give rise to more challenges to arbitration awards based on disclosure issues.

Thanks to J.P. Neyland at Griffith Davison & Shurtleff, P.C. for assistance with preparing this post.