Eastern Seaboard Construction Co. v. Gray Construction, Inc.

United States Court of Appeals
For the First Circuit

No. 08-1679

EASTERN SEABOARD CONSTRUCTION CO., INC.

Plaintiff, Appellant,

v.

GRAY CONSTRUCTION, INC.; TRAVELERS CASUALTY AND INSURANCE COMPANY
OF AMERICA,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE

[Hon. George Z. Singal, U.S. District Judge]

Before

Lynch, Chief Judge,
Boudin and Stahl, Circuit Judges.

Gavin G. McCarthy with whom Michael P. Murphy, Pierce Atwood
LLP, and Regnante, Sterio & Osborne LLP were on brief for
appellant.
John A. Hobson with whom Perkins Thompson, P.A. was on brief
for appellees.

December 31, 2008
 STAHL, Circuit Judge. Eastern Seaboard Concrete

Construction Company ("Eastern") appeals the district court

decision vacating an amended arbitration award and denying Eastern

prejudgment interest on its award.

I.

The background facts of this case are thoroughly

discussed in the magistrate judge's Recommended Decision, see E.

Seaboard Concrete Constr. Co. v. Gray Constr. Inc., 2008 WL 1803781

(D. Me. 2008). For our purposes, Gray Construction ("Gray"), the

prime contractor on a construction project at the Portsmouth Naval

Shipyard in Kittery, Maine, contracted with Eastern to perform the

site work at the project. A dispute arose when Eastern encountered

unexpected conditions that increased the project's scope and as a

result, put the job behind schedule. When the Navy refused to pay

Gray for the extra work and Gray in turn refused to pay Eastern,

Eastern left the job, returned briefly, and ultimately was

terminated by Gray. Gray then hired replacement subcontractors and

suppliers to complete Eastern's scope of the work.

Eastern filed a complaint premised on the Miller Act, 40

U.S.C. § 3131 et seq., which requires surety bonds on federal

construction projects, against Gray in federal district court in

Maine. Gray counterclaimed and simultaneously motioned to stay the

proceedings because Eastern had not exhausted the parties'

contractual and administrative remedies pursuant to the parties'

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subcontract. The parties then agreed to submit the case to

arbitration pursuant to the arbitration clause in their contract

and later voluntarily dismissed the court action to permit the

arbitration to proceed on a more extended basis. Eastern and Gray

agreed that the American Arbitration Association's Construction

Industry Arbitration Rules and Mediation Procedures ("AAA Rules")

would apply to the proceeding.

Following the arbitration proceedings in May 2007, the

arbitrator issued a nine-page arbitration award on September 21,

2007. Noting that "[t]o the extent that an issue or claim is not

explicitly discussed and resolved, it is denied," the arbitrator

awarded Eastern recovery on all but one of its claims, and he also

determined that Eastern breached its contract by abandoning its

work and awarded Gray $77,000 for the completion of the contract,

"to be deducted from the award paid to Eastern Seaboard." The

arbitrator rejected Eastern's contention that it was entitled to

interest under a Federal Prompt Payment Act interest penalty, 31

U.S.C. §§ 3901-3907, or its implementing regulations.

Eastern then filed an Application for Clarification of

the Arbitration Award and sought to have the $77,000 award to Gray

reduced by $66,613.89, the amount remaining on the parties'

subcontract. Eastern previously had alerted the arbitrator to this

amount in its Post-Trial Brief in which it observed, "The Parties

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do not dispute that there was $66,613.81 remaining under the base

contract."

Gray, in its Post-Hearing Arbitration Brief, had

contended that it was not in breach of contract for non-payment.

Gray made three independent arguments in its defense. First, it

noted the pay-when-paid clause of the contract. Second, it stated

that Eastern "had effectively already been paid the sums in

question by virtue of Gray's overpayment on the base contract."

Finally, Gray suggested that even if Eastern had not been paid for

the work, the contract permitted Gray to withhold payment "when

there is reasonable doubt that [Eastern] could complete the Work on

time, was satisfactorily prosecuting the Work, or that the Work

could be completed for the unpaid balance of the subcontract

price." While the arbitrator's initial award disposed of Gray's

first defense, finding that the pay-when-paid clause was

unenforceable under the Miller Act, it did not address Gray's other

arguments.

On November 4, 2007, acknowledging that "[t]he award

could have been clearer," the arbitrator issued an amended

arbitration award and adopted Eastern's request, noting that "Gray

does not seriously dispute the $66,613.89 figure." He also cited

Section 11.2 of the contract which required that any unpaid

contract balance owed to the subcontractor be offset by the cost of

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completing the subcontractor's work, "which is precisely what is

being awarded here."

Gray moved to vacate the award, and Eastern filed a

cross-motion to confirm the award and requested the court award

prejudgment interest. On April 18, 2008, the magistrate judge

recommended a decision granting Gray's motion to vacate, finding

that AAA Rule R-47 ("Rule 47") prohibited the substantive

modifications in the amended award. She also determined that

Eastern was not entitled to interest before the date of the award.

On May 23, 2008, the district court affirmed the magistrate's

decision after de novo review. Eastern now appeals the decision.

II.

We review the district court's decision to vacate the

arbitral award de novo. UMass Mem'l Med. Ctr., Inc. v. United Food

& Commercial Workers Union, 527 F.3d 1, 5 (1st Cir. 2008). Our

consideration of the award is "extremely narrow and exceedingly

deferential," Wheelabrator Envirotech Operating Servs. Inc. v.

Mass. Laborers Dist. Council Local 1144, 88 F.3d 40, 43 (1st Cir.

1996) (citations omitted), such that our de novo review is "among

the narrowest known in the law," Me. Cent. R. Co. v. Bhd. of

Maint. of Way Employees, 873 F.2d 425, 428 (1st Cir. 1989)

(citations omitted). Indeed, we have recognized that "[a]rbitral

awards are nearly impervious to judicial oversight." Teamsters

Local Union No. 42 v. Supervalu, Inc., 212 F.3d 59, 61 (1st Cir.

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2000) (citations omitted). Thus, "[a] court's review of an

arbitration award is highly deferential because the parties 'have

contracted to have disputes settled by an arbitrator' and thus, 'it

is the arbitrator's view of the facts and of the meaning of the

contract that they have agreed to accept.'" Bull HN Info. Sys.,

Inc. v. Hutson, 229 F.3d 321, 330 (1st Cir. 2000) (quoting United

Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 37-38

(1987)).

"Courts must accord substantial deference to the

decisions of arbitrators. Nevertheless, there are limits to that

deference." Kashner Davidson Sec. Corp. v. Mscisz, 531 F.3d 68, 70

(1st Cir. 2008). Section 10 of the Federal Arbitration Act ("FAA")

permits courts to vacate arbitrators' awards "[w]here the

arbitrators exceeded their powers." 9 U.S.C. § 10(a)(4). Because

"arbitration is simply a matter of contract between the parties,"

First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995),

we look to the parties' contract to determine the powers the

parties intended to bestow upon the arbitrator. "Arbitration under

the [FAA] is a matter of consent, not coercion, and parties are

generally free to structure their arbitration agreements as they

see fit." Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S.

52, 57 (1999). A court may reverse an arbitrator's award on

contractual grounds only "where an award is contrary to the plain

language of the [contract]" and in "instances where it is clear

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from the record that the arbitrator recognized the applicable law

-- and then ignored it." Advest, Inc. v. McCarthy, 914 F.2d 6, 9

(1st Cir. 1990) (citations omitted). We thus proceed to determine

whether the arbitrator exceeded his authority in the instant case.

Eastern and Gray agreed that the AAA Rules would govern

the arbitration process.1 Hence, the AAA Rules "became part and

parcel of the arbitration contract." Mscisz, 531 F.3d at 77

(citing 11 Richard A. Lord, Williston on Contracts § 30:25 (4th ed.

2008)). AAA Rule 47 reads as follows:

Within twenty calendar days after the transmittal of an
award, the arbitrator on his or her initiative, or any
party, upon notice to the other parties, may request that
the arbitrator correct any clerical, typographical,
technical or computational errors in the award. The
arbitrator is not empowered to redetermine the merits of
any claim already decided.

Gray argues that Rule 47 precluded the arbitrator from revisiting

his initial award and reducing Gray's award by $66,613.89. We

disagree.

While previously we have not had occasion to consider the

application of Rule 47, we have discussed more generally the

functus officio doctrine2 and an arbitrator's ability to revisit an

1
Notwithstanding Eastern's argument to the contrary, the AAA
Rules and the FAA govern the scope of the arbitrator's authority to
amend the award. Mastrobuono, 514 U.S. at 58, 63-64. See
also Volt Info. Sci., Inc. v. Bd. of Trs. of Leland Stanford Jr.
Univ., 489 U.S. 468, 478-79 (1989).
2
This common law doctrine refers to the exhaustion of the
arbitrator's powers which precludes him "from vacating, modifying,
supplementing, or correcting his award." Courier-Citizen Co. v.

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award, recently noting that "the question whether and when an

arbitrator may reverse or substantially alter his ruling is perhaps

an open one." Local 2322, Int'l Bhd. v. Verizon New England, Inc.,

464 F.3d 93, 97-98 (1st Cir. 2006) (citations omitted).

See also Glass, Molders, Pottery, Plastics, and Allied Workers

Int'l Union v. Excelsior Foundry Co., 56 F.3d 844, 846 (7th Cir.

1995) (noting that the functus officio doctrine "[t]oday, [is]

riddled with exceptions . . . [and] is hanging on by its

fingernails"). Our cases still tend to differentiate between a

second award which is "fundamentally inconsistent with the first

award" and one which "simply flesh[es] out the remedy announced

initially." Courier-Citizen Co., 702 F.2d at 279; Verizon, 464

F.3d at 98 (distinguishing between "clarify" and "alter"). Thus,

we have permitted an arbitrator to clarify whether an award to make

whole an employee includes a back pay remedy. Verizon, 464 F.3d at

100; Locals 2222 v. New England Telephone and Telegraph Co., 628

F.2d 644, 649 (1st Cir. 1980). See also Fradella v. Petricca, 183

F.3d 17, 19 (1st Cir. 1999) (finding an amendment to the award

ministerial where the arbitrator first incorrectly listed New York

law as governing the arbitration and then revised the award to

delete the New York references and replace with Massachusetts).

Boston Electrotypers Union No. 11, 702 F.2d 273, 278 (1st Cir.
1983).

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 We find in our sister circuits further evidence of "how

limited the doctrine of functus officio has become." Excelsior, 56

F.3d at 849. For example, in La Vale Plaza, Inc. v. R.S. Noonan,

Inc., 378 F.2d 569, 570 (3d Cir. 1967), a case not unlike our own,

the arbitrators proceeded according to the AAA Rules and awarded

Noonan $30,861.64 "in full settlement of all claims submitted to

this arbitration one against the other." The arbitrators did not,

however, discuss $56,429.66 that La Vale had delivered to Noonan in

anticipation of the arbitration, and La Vale brought an action to

recover $25,568.02, the difference between the award and its

deposit. Id. The Third Circuit, after discussing the functus

officio doctrine, held that the arbitrators should "remove the

cloud of doubt as to whether they considered the payment of

$56,429.66 in making their award" as it "will in no way reopen the

merits of the controversy." Id. at 573. The court explained,

"Where the award, though seemingly complete, leaves doubt whether

the submission has been fully executed, an ambiguity arises which

the arbitrator is entitled to clarify." Id. See also Excelsior,

56 F.3d at 847-49 (holding that neither the AAA Rules nor functus

officio barred an arbitrator from clarifying his award to explain

which party was responsible for the costs of a rehabilitative

program); Kennecott Utah Cooper Corp. v. Becker, 186 F.3d 1261,

1271-72 (10th Cir. 1999) (permitting arbitrator to explain whether

he intended to include back pay in the award); Int'l Bhd. of

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Teamsters, Chauffeurs, Warehousemen, and Helpers of Am. v. Silver

State Disposal Serv., Inc., 109 F.3d 1409, 1411 (9th Cir. 1997)

(same); Chase v. Cohen, 519 F. Supp. 2d 267, 280-81 (D. Conn. 2007)

(citing Rule 47 to permit the arbitrator to add the first names of

the parties to the award to clarify joint and several liability).

In the present case, the arbitrator issued what appeared

to be a complete award. But as the Seventh Circuit observed,

arbitrators can "leave much to implication and assumption,"

Excelsior, 56 F.3d at 847, and the arbitrator, as he acknowledged

in his amended award, failed to make clear that his award to

Eastern included the $66,613.89 still owed for work performed on

the contract. In its Post-Trial Brief, before the arbitrator

issued his initial award, Eastern noted that "[t]he parties do not

dispute that there was $66,613.89 remaining under the base

contract." After Eastern moved to clarify the award, the

arbitrator in his amended arbitration award observed that "Gray

does not seriously dispute" the $66,613.89 figure and that failure

to offset the $77,000 would result in a "windfall" to Gray.

We acknowledge that whether this amended award exceeded

the arbitrator's authority under Rule 47 and therefore justified

the district court's decision to vacate the award is a close

question. The arbitration record before us is sparse. We do not

know what arguments were made before the arbitrator during the

hearings nor can we review the exhibits submitted for his

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consideration to ascertain whether the $66,613.89 was discussed.

But good evidence as to whether the $66,613.89 was discussed during

the arbitration can be found in Gray's own representations to this

court in which it did not take issue with Eastern's claim that the

contract balance of $66,613.89 was undisputed. Instead, Gray

primarily argued that the arbitrator's initial award was not

ambiguous and therefore did not require clarification. As the case

law reveals, this kind of assertion belies the reality that even

seemingly complete awards may omit information or overlook

contingencies, failures that AAA Rule 47 would allow the arbitrator

to remedy.

"Judicial intrusion is restricted to extraordinary

situations indicating abuse of arbitral power." Raytheon Co. v.

Computer Distrib., Inc., 632 F. Supp. 553, 557 (D. Mass. 1986)

(citing Mobil Oil v. Oil, Chem. and Atomic Workers Int'l Union, 600

F.3d 322, 326 (1st Cir. 1979)). If the arbitrator is "even

arguably construing or applying the contract and acting within the

scope of his authority, that a court is convinced he committed a

serious error does not suffice to overturn his decision." Misco,

484 U.S. at 38. In the amended arbitration award, the arbitrator

expressly confirmed Eastern's assertion that Gray did not dispute

the $66,613.89 contract balance during arbitration. Given our

deferential review of arbitration awards, it is not within the

purview of this court to question such an assertion. Instead, we

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think the arbitrator's statement provides evidence adequate to show

that he did not exceed his authority under Rule 47. Assuming the

veracity of his statement, as we must, and given the lack of

evidence to the contrary, we believe the arbitrator's omission of

the $66,613.89 contract balance in the initial award, rather than

a redetermination of the merits, was the type of "clerical,

typographical, technical or computational error[]" which AAA Rule

47 permitted him to amend or clarify. The amendment did not reopen

the merits of the case. Rather, it clarified a latent ambiguity.

See La Vale, 378 F.2d at 573.

III.

Eastern also requests that we vacate the arbitrator's

award insofar as it denied prejudgment interest. We summarily can

address this claim. AAA Rule R-44(d), which, as discussed above,

governed this arbitration, dictates that "the arbitrator may

include interest at such a rate and from such a date as the

arbitrator may deem appropriate." The parties contracted to

provide the arbitrator with this discretionary power. Eastern did

not within three months request modification of the award with

respect to the denial of prejudgment interest, see 9 U.S.C. § 12,

and therefore, it is bound by the award. The district court

therefore rightly declined to upset the arbitrator's decision

regarding prejudgment interest.

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 IV.

For the foregoing reasons, the district court's decision

is affirmed in part and reversed in part, and this case is remanded

for entry of an order affirming the amended arbitration award in

its entirety.

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