COURTHOUSE REPORTER SERIES: Louisiana Strikes a Blow Against Judicial Review of Arbitral Error

Continuing with the theme of last week’s post, the Louisiana First Circuit Court of Appeal recently upheld a trial court’s confirmation of an arbitration award of over $500,000, even though the award contained two errors of undisputed fact that the dissenting opinion argued, if corrected, would have resulted in an award in favor of the non-prevailing party. Coastal Indus., LLC v. Arkel Constructors, LLC, 2021-0906 (La.App. 1 Cir. 9/1/22); 350 So.3d 912, writ denied sub nom. Coastal Indus., LLC v. Arkle Constructors, LLC, 2022-01489 (La. 11/22/22), 350 So.3d 500.

The Coastal Industries case involved an arbitration between a subcontractor and the general contractor on a project to construct a building at a petroleum refinery. The subcontractor brought a claim to recover for amounts it contended it was due under its subcontract. The general contractor asserted a counterclaim seeking to recover for, among other things, the excess cost of completing the subcontract because of the subcontractor’s alleged abandonment of the project prior to completion. 

After a nine-day arbitration hearing, the arbitrator issued an award in favor of the general contractor. In rendering the award, the arbitrator found that the general contractor was entitled to recover $44,755.98 on its counterclaim.

The arbitrator calculated the award by taking the subcontract amount and subtracting therefrom the amounts the arbitrator determined the general contractor was due for excess completion costs and back charges, as well as the amounts previously paid to the subcontractor, resulting in what the arbitrator determined to be an overpayment of $44,755.98 to the subcontractor.

The arbitrator also awarded the general contractor its attorneys’ fees of $408,772.46 and various costs, for a total award of $530,574.02. The trial court confirmed the arbitrator’s award. 

On appeal, the subcontractor contended that the award should have been vacated because the arbitrator improperly calculated the award on the counterclaim by including back charges that were withdrawn by the general contractor and excess completion costs that the general contractor acknowledged should not have been included in its claim. 

In affirming the trial court’s confirmation of the arbitration award, the majority opinion held that errors in factual or legal conclusions will not invalidate an otherwise fair and honest arbitration award: 

This was a complicated case, with considerable evidence submitted by both parties. Upon review of that evidence, this Court may have reached different conclusions as to the interpretation of the Subcontract or the amount of damages. However, a court may not substitute its conclusions for those of the arbitrator. 

The court then went on to conclude that “the arbitrator's ‘improvident, even silly, factfinding’ does not provide a basis for a reviewing court to refuse to enforce the award.” 

However, the dissent in the case agreed with the subcontractor and found the arbitrator had made two mistakes of undisputed fact in rendering the award by including: 

• $19,507.50 in excess completion costs, despite the fact that the general contractor acknowledged in its post-hearing brief that amount should not have been included in its claim; and
• $44,906.67 in back charges that were withdrawn, as shown by the general contractor’s damages summary.

The dissent noted that had those two errors of undisputed fact not been part of the arbitrator’s calculation, the subcontractor would have been the prevailing party and awarded $14,781.31. The dissent went on to note that the arbitrator’s award of attorneys’ fees to the general contractor was founded on the erroneous determination that the general contractor was the prevailing party. 

The dissent found that based on state and federal case law, the arbitration award should have been vacated because of the errors of undisputed fact: "where the record that was before the arbitrator demonstrates an unambiguous and undisputed mistake of fact and the record demonstrates strong reliance on that mistake by the arbitrator in making his award, it can fairly be said that the arbitrator ‘exceeded his powers, or so imperfectly executed them’ that vacation may be proper.” 

Notwithstanding the dissenting view, the Supreme Court of Louisiana has denied the subcontractor’s application for writ of certiorari, meaning any judicial relief from the arbitral errors will not be forthcoming.

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Author and Editor Stu Richeson is an attorney in the litigation section of Phelps Dunbar’s New Orleans office, primarily focusing on commercial litigation with an emphasis on construction matters, intellectual property issues and insurance.