Monday, December 21, 2015

Arbitrator’s About-Face: “Perhaps a bit unusual” but not subject to vacatur


Photo Credit: New York State Thruway Authority.

Long awaited construction on the $4 billion project to replace the Tappan Zee Bridge commenced in the Spring of 2015.  Just north of New York City, the new cable-stayed bridge will span the Hudson River offering eight lanes of regular traffic plus dedicated mass transit lanes. (Read more about the project here.) The work obviously is a huge undertaking and disputes have arisen.  Recently, in United Bhd. of Carpenters & Joiners of Am. v. Tappan Zee Constructors, LLC, 804 F.3d 270 (2d Cir. 2015), the Second Circuit considered a unique question concerning vacatur of an arbitrator’s award based upon on manifest disregard.

Underlying the dispute was the delegation of bridge-pilings work. Tappan Zee Constructors, LLC (“TZC”), the project’s design-builder, assigned a small part of the formwork for the bridge piles to Dockbuilders Local 1556 (“Dockbuilders”) and a larger part of the formwork to the Carpenters Local 279 (“Carpenters”).  The Dockbuilders disputed the assignment challenging why so much of the formwork was in the province of the Carpenters.  Through negotiation, however, the two unions reached an agreement and directed TZC to assign the disputed formwork to the Dockbuilders. Because the Dockbuilders’ hourly rate was much greater than the Carpenters, to the tune of $7.3 million total, TZC refused to alter the assignment and demanded arbitration.

The single arbitrator, pursuant to the parties’ Project Labor Agreement (“PLA”), was required to consider specific criteria in deciding which union would be awarded the work. Then to issue the award, the PLA required the arbitrator to “render a short-form decision within 5 days of the hearing based upon the evidence submitted at the hearing, with a written decision to follow within 30 days of the close of the hearing.”  

The arbitrator first issued the "Award" assigning the work to the Dockbuilders. Then, a short time later, the arbitrator issued an "Opinion and Award" in direct contradiction.  He decided instead that the Carpenters would do the formwork, which outcome resulted in multimillion-dollar cost savings for TZC.  To explain his decision flip, the arbitrator stated that his “Award” was “not fully considered” and was “hasty, as further review of the evidentiary record revealed.”

The unions and TZC filed cross motions to confirm their respective decisions. The district court sided with TZC. At the Second Circuit, the court likewise affirmed. 

The Second Circuit focused on whether the arbitrator’s interpretation of the PLA, which apparently allowed him to change his mind between the short-form and the written decision, was in manifest disregard of the contract provisions.  In the Second Circuit (in contrast to others) manifest disregard is an available basis to vacate an arbitration award.  Manifest disregard is appropriate if the arbitral award is contrary to “express and unambiguous term of the contract or if the award so far departs from the terms of the agreement that it is not even arguably derived from the contract.”  United Bhd. of Carpenters, 804 F.3d at 272 (citing Westerbeke Corp. v. Daihatsu Motor Co., 304 F.3d 200, 222 (2d Cir. 2002)).

Here, the PLA
required two, separate decisions—a “short-form decision” and “written decision.” Because the PLA did not define “short-form decision,” the Second Circuit reasoned that the arbitrator could interpret that contract term.  By issuing a “written decision” that deviated from the initially rendered “short-form decision,” the court observed that “[w]hile the ultimate result was perhaps a bit unusual” the arbitrator did not exceed his authority.  He could read the contract as permitting the “written decision” to be inconsistent with the “short-form decision.”  Likewise, the court was not persuaded that the arbitrator was acting “functus officio” by changing his mind in the second-issued decision.  The parties agreed that there would be two separate decisions and this arbitrator “fashion[ed] the second decision as he saw fit.” 

The result is another example of the deference afforded to arbitrators and the unlikelihood of vacating an arbitration award.
---------------------------------------
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.

No comments:

Post a Comment