Priority One Services, Inc. v. W & T Travel Services, LLC

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

PRIORITY ONE SERVICES, INC.,

Petitioner,

v. Civil Action No. 10-1873 (BAH)
Judge Beryl A. Howell
W&T TRAVEL SERVICES, LLC,

Respondent.

MEMORANDUM OPINION

Pending before the Court is Priority One Services, Inc.’s (hereinafter “Priority One”)

petition to confirm an arbitration award, and respondent W&T Travel Services, LLC’s

(hereinafter “W&T”) motion to vacate, modify, and correct this award. Priority One alleges that

W&T materially breached and improperly terminated a contract between the parties. As agreed

to under the terms of the contract, the parties’ dispute was presented to the American Arbitration

Association, and a panel of three arbitrators (hereinafter “the Panel”) entered an award in favor

of Priority One. W&T now seeks to vacate, modify, and correct the Panel’s decision, arguing

that the Panel exceeded its power, manifestly disregarded the law, and, in any event,

miscalculated the damages awarded to Priority One. 1 As explained below, the Court denies in

part and grants in part the respondent’s motion, correcting only the period of prejudgment

interest awarded to Priority One. In all other respects, the petitioner’s request to confirm the

Panel’s award is granted. 2

1
W&T also requests a hearing on its motion. Resp’t Mot. Vacate, at 3. This request is denied.
2
Under the Federal Arbitration Act (hereinafter “FAA”), within one year after an arbitration award “any party to the
arbitration may apply to the court so specified for an order confirming the award.” 9 U.S.C. § 9. This provision does
1
I. BACKGROUND

Respondent W&T is a Maryland limited liability company that maintains its principal

place of business in Maryland. Pet’r Mem. Supp. Pet. Confirm Arbitration Award (hereinafter

“Pet’r Mem. Confirm”), ECF No. 1, at 2. On August 20, 2008, the National Institutes of Health

(hereinafter “NIH”) awarded W&T a contract (hereinafter “the Prime Contract”) to operate

shuttle buses for NIH employees and patients between the NIH campus in Bethesda, Maryland

and other NIH locations, including those in Washington, D.C. and Virginia. 3 Statement P. & A.

Supp. Resp’t Mot. Vacate, Modify & Correct Arbitration Award (hereinafter “Resp’t Mot.

Vacate”), ECF No. 6, at 6-7. The Prime Contract provided for one base year of services, and

was renewable by NIH for four additional one-year terms. Id. at 7. Including all option years,

this contract was valued at approximately $34 million. Id.

At about the same time that NIH awarded W&T the Prime Contract, W&T entered into

an agreement (hereinafter “the Subcontract”), on August 27, 2008, with Priority One, a Virginia

corporation with its principal place of business in Virginia, under which Priority One would be

responsible for managing the NIH patient shuttle bus services. Id. at 9; Pet’r Mem. Confirm, at

2. W&T retained responsibility under the Prime Contract for managing the NIH employee

shuttle buses. Resp’t Mot. Vacate, at 7.

not “itself bestow[] jurisdiction on the federal district courts.” Karsner v. Lothian, 532 F.3d 876, 882 (D.C. Cir.
2008) (quoting Kasap v. Folger Nolan Fleming & Douglas, Inc., 166 F.3d 1243, 1245-46 (D.C. Cir. 1999)); see also
Southland Corp. v. Keating, 465 U.S. 1, 16 n.9 (1984) (The FAA “creates federal substantive law requiring the
parties to honor arbitration agreements, [but] it does not create any independent federal-question jurisdiction under
28 U.S.C. § 1331 (1976) or otherwise.”). The Court has diversity jurisdiction over this matter, pursuant to 28 U.S.C.
§ 1332, because the amount in controversy exceeds the requisite jurisdictional threshold and the parties have
complete diversity of citizenship. Venue is proper because the arbitration award was rendered in this district. 9
U.S.C. § 9 (“If no court is specified in the agreement of the parties, then [an application to confirm an arbitration
award] may be made to the United States court in and for the district within which such award was made.”).
3
Although W&T states that it was awarded the Prime Contract on August 20, 2008, the contract itself states that the
contract was award on September 1, 2008. Resp’t Mot. Vacate, at 6; see Resp’t Mot. Vacate, ECF No. 6, Ex. A,
Prime Contract. This discrepancy is immaterial to resolution of the pending motions.
2
 Like the Prime Contract, the Subcontract provided for one year of services, but stated that

the contract was automatically renewed if NIH renewed the Prime Contract for the option years.

Pet. Confirm Arbitration Award, ECF No. 1, Ex. 1, Subcontract between W&T and Priority One

(hereinafter “Subcontract”), at 2. The Subcontract additionally stated that “[a]ll claims, disputes

and matters in question arising out of, or relating to, this Subcontract Agreement or the breach

thereof . . . shall be decided by arbitration.” Id. § 12. The agreement contained a termination

clause that, in relevant part, read:

This Agreement may be terminated by Contractor upon a material breach by the
Subcontractor to perform its obligation hereunder in accordance with the terms and
conditions set forth in this Agreement. Upon giving the Subcontractor written notice of
such breach, the Subcontractor will have ten (10) days to cure such breach. Termination
of this Agreement shall be effective after ten (10) days, only if the breach is not cured.

Id. at § 9. Furthermore, in addition to its own terms, the Subcontract “incorporated by reference”

the Prime Contract between W&T and NIH. Id. at § 11.

Under the Prime Contract, NIH had the option of requiring W&T to install NextBus (or

similar) technology on employee shuttle buses. Resp’t Mot. Vacate, at 7. This technology

electronically tracks the buses on which it is installed and relays arrival and departure times to

waiting passengers. Id. If NIH requested this technology, in addition to Priority One’s other

responsibilities under the Subcontract, Priority One was responsible for installing the NextBus

technology on W&T’s employee shuttle buses. Id.

On January 5, 2009, NIH exercised the NextBus technology option and allegedly gave

W&T until September 30, 2009 to get it installed. 4 Id. at 9. W&T then informed Priority One

that it needed to comply with the September 30, 2009 deadline to install the technology. Id.

4
With regard to the September 30, 2009 deadline, the Panel stated that “in an internal NIH document, the NIH
official claimed by [W&T] to have established that deadline denied having done so, and expressed the belief that
[W&T’s] CEO, Darnell Lee, had set that date.” Pet. Confirm Arbitration Award, Ex. 3, Award of Arbitrators
3
 On September 22, 2009, eight days before NIH’s deadline, W&T alleges that the

NextBus technology was not fully installed on all employee shuttle buses. Id. Pursuant to the

Subcontract, on that date W&T sent Priority One a notice to cure. Id. Ten days later, after the

NIH deadline had passed, W&T states that the NextBus Technology was still not completely

installed in the employee shuttle buses. Id. W&T considered this a material breach of the

Subcontract, and, on October 6, 2009, sent Priority One a letter notifying it that W&T was

terminating the agreement as of November 30, 2009. 5 Id. at 9-10. W&T directed Priority One to

stop immediately work on the NextBus Technology, and gave Priority One “until November 30,

2009 to phase out the rest of its activities” under the Subcontract. Id.; see also Resp’t Mot.

Vacate, Ex. D, Notice of Termination of Subcontract. According to W&T, Priority One was paid

for all work up to the contract termination date of November 30, 2009. Resp’t Mot. Vacate, at

10.

On December 15, 2009, Priority One filed a demand for arbitration with the American

Arbitration Association (hereinafter “AAA”), arguing that W&T’s termination of the

Subcontract was improper and a material breach of the contract terms. Pet’r Opp’n Mot. Vacate,

ECF No. 7, at 2. As compensation for breach of contract, Priority One sought “damages for the

nine months remaining in option year one and the additional three option years.” Id.

(hereinafter “Award of Arbitrators”), ¶ 7.
5
The Panel found that, by the purported NIH deadline of September 30, 2009, NextBus was working properly on 13
of 14 operating employee shuttle buses and “only minor problems needed to be worked out for full operation of the
technology, and that these minor problems did not constitute a material breach of the contract.” Award of
Arbitrators, ¶ 8.

4
 From August 10 to August 12, 2010, the parties presented their claims to a panel of three

arbitrators in Washington, D.C. Id. at 2-3. 6 In lieu of a final oral argument, the parties agreed to

submit written post-trial briefs. Id. at 3; Resp’t Mot. Vacate, at 10. The Panel requested that the

parties focus their briefs on, inter alia, the applicability of Maryland law and the issue of

damages. 7 Resp’t Mot. Vacate, at 10.

After receiving the parties’ post-hearing briefs, on October 18, 2010, the Panel

unanimously entered an award in favor of Priority One, determining that Priority One did not

materially breach the subcontract because “NIH did not view the [September 30, 2009] deadline

as significant,” the NextBus technology was operating properly on 13 of 14 employee shuttle

6
The three arbitrators on the Panel were selected from candidates, who were reviewed and ranked in order of
preference by the parties. The Panel was composed of three law firm partners, each of whom had over 25 years of
experience in contract and commercial law, and significant experience in arbitrating commercial disputes. Pet’r
Opp’n Mot. Vacate, ECF No. 7, at 2-3; see also Pet’r Opp’n Mot. Vacate, ECF No. 7, Ex. 6, Letter from D. Brazier
to M. Klisch and R. Thomas dated Feb. 23, 2010 Regarding Appointment of Arbitrators; Ex. 7, Arbitrators’
Qualifications. W&T’s complaint that the Panel did not indicate experience “in government contracts law and, most
specifically, federal procurement regulatory law,” Resp’t Reply, ECF No. 8, at 8-9 (emphasis in original), does not
mean they lacked such experience and, in any event, amounts to the proverbial “crying over spilt milk,” considering
that the respondent “assured the AAA at the time the Panel was seated that W&T Travel would not challenge the
qualifications of any of the arbitrators at any subsequent time.” Id. at 8.
7
W&T intimates that the Panel favored Priority One by allowing it to provide a “specially-allowed” post-hearing
brief to counter W&T’s arguments. Resp’t Mot. Vacate, at 13. Specifically, W&T claims that “[r]ather than
deciding the case on the written post trial briefs, the Arbitration Panel gave claimant yet another two weeks to
respond to Respondent’s argument,” id. at 11, because “the Panel was unable to rebut [W&T’s] argument and
wanted to lift whatever words [Priority One] presented into its own decision.” Id. at 21. This contention is
unsupported and meritless. The Panel invited the parties to submit post-hearing briefs on a specific set of issues. Id.
at 10. W&T used the opportunity to raise new defenses. Id. at 10-11. Accordingly, the Panel appropriately allowed
Priority One to submit a supplemental response. Id. at 13. In Priority One’s supplemental response, it requested the
Panel to impose sanctions on W&T for raising new defenses after the Panel’s hearing and after full briefing on the
dispute. Id. The Panel then invited W&T to reply to the request for sanctions, but W&T’s reply, according to the
Panel, included more than the “single issue it was invited to brief” and “reargue[d] subjects addressed in the parties’
prior briefing.” Id. at 15. The Panel therefore informed W&T that it would “review only the portion of the
Respondent’s . . . brief that addresses the fee/sanctions request of [Priority One]” and that “additional portions of the
brief [would] not be considered.” Id. W&T now states that the “Panel exceeded its power in consciously choosing
not to consider Respondent’s rebuttal arguments.” Resp’t Reply, at 10. W&T does not assert that there was “evident
partiality” or corruption on part of the Panel, see 9 U.S.C. § 10(a)(2) (allowing the court to vacate or modify an
arbitration award where the arbitration Panel displayed evident partiality or corruption), but instead “invites the
court to make whatever inferences it chooses to make based on the facts.” Resp’t Mot. Vacate, at 29; Resp’t Reply,
at 17 (“[W&T] never in its Motion accused or suggested that the Panel was ‘corrupt.’”). Based on the facts and
current record, the Court finds no basis to question the Panel’s management of the arbitration process, which appears
to have afforded the parties ample opportunity to present their legal and factual positions.
5
buses on the deadline date, and W&T’s “unreasonable conduct” prevented Priority One from

completing installation and correcting any malfunctions. Pet. Confirm Arbitration Award, Ex.

3, Award of Arbitrators (hereinafter “Award of Arbitrators”), ¶¶ 7-8, 11-12. The Panel awarded

Priority One lost profit in the amount of $546,839 for the last nine months of the first option

year, plus 6% per annum prejudgment interest beginning October 7, 2009. Id. at 7. The Panel

further awarded Priority One lost profit in the amount of $588,181, plus 6% per annum interest

beginning thirty days after the date of the Panel’s decision, for the entire second option year after

concluding that, because NIH had renewed the Prime Contract for the second option year on

September 1, 2010 before the alleged breach, Priority One was entitled to the profits that it

would have realized for year two as well. Id. ¶ 21. The Panel did not award Priority One lost

profits for the third and fourth option years. Id. ¶ 28.

On November 3, 2010, pursuant to 9 U.S.C. § 9, 8 Priority One filed a petition in this

Court to confirm the Panel’s arbitration award. Pet. Confirm Arbitration Award, ECF No. 1.

Two days later, W&T filed a notice that it would contest the petition. Resp’t Notice Vacate,

Modify & Correct Arbitration Award, ECF No. 4. On January 18, 2011, W&T moved to vacate,

modify, and correct the arbitration Panel’s award, arguing that the Panel exceeded its power,

manifestly disregarded the law, and, in any event, made a material miscalculation when

calculating the damages award. Resp’t Mot. Vacate, at 1-2; see 9 U.S.C. § 10(a)(4) (authorizing

the Court to vacate an arbitration award “where the arbitrators exceeded their powers, or so

imperfectly executed them that a mutual, final, and definite award upon the subject matter

8
In relevant part, 9 U.S.C. § 9 states: “If the parties in their agreement have agreed that a judgment of the court shall
be entered upon the award made pursuant to the arbitration, and shall specify the court, then at any time within one
year after the award is made any party to the arbitration may apply to the court so specified 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. If no court is specified in the agreement of the parties, then such
application may be made to the United States court in and for the district within which such award was made.”
6
submitted was not made.”); 9 U.S.C. § 11(a) (authorizing the Court to modify or correct an

arbitration award “[w]here there was an evident material miscalculation of figures or an evident

material mistake in the description of any person, thing, or property referred to in the award.”).

Both Priority One’s petition to confirm the arbitration award and W&T’s motion to

vacate, modify, and correct the award are pending before the Court. 9 For the following reasons,

W&T’s motion to vacate, modify, and correct the Panel’s award is granted in part and denied in

part. The Court concludes that there is no basis to vacate the award, but concludes that the Panel

miscalculated the prejudgment interest. In all other respects, Priority One’s petition to confirm

the award is granted.

II. STANDARD OF REVIEW FOR MODIFYING, VACATING OR CORRECTING
AN ARBITRATION AWARD

“Judicial review of arbitral awards is extremely limited,” Kurke v. Oscar Gruss & Son,

Inc., 454 F.3d 350, 354, (D.C. Cir. 2006) (quoting Teamsters Local Union No. 61 v. United

Parcel Serv., Inc., 272 F.3d 600, 604 (D.C. Cir. 2001)), and the court “must confirm an

arbitration award where some colorable support for the award can be gleaned from the record.”

LaPrade v. Kidder, Peabody & Co., Inc., 94 F. Supp. 2d 2, 4 (D.D.C. 2000). A proceeding to

confirm an arbitration award is “intended to be summary.” Adkins v. Teseo, 180 F. Supp. 2d 15,

9
In its Reply brief, W&T claims that its Motion to Vacate, Modify and Correct the Arbitration Award was
“conceded due to the fact that [Priority One’s] Opposition was filed more than 14 days after the date of service of
[W&T’s] motion in violation of [Local] Rule 7(b).” Resp’t Reply, at 1. Local Rule 7(b) states “[w]ithin 14 days of
the date of service or at such other time as the Court may direct, an opposing party shall serve and file a
memorandum of points and authorities in opposition to the motion. If such a memorandum is not filed within the
prescribed time, the Court may treat the motion as conceded.” LCvR 7(b). However, Federal Rule of Civil
Procedure 6(d) adds three days in addition to the 14-day period listed in LCvR 7(b) if service is made electronically,
as it was here. See also Whitney v. United States, 251 F.R.D. 1, 2 n.3 (D.D.C. 2008). Priority One filed its
Opposition 17 days after W&T’s motion was served electronically, and was thus clearly timely filed. Faced with
W&T’s argument that its opposition was untimely filed, Priority One sought leave to file a sur-reply to clarify the
timeliness of its opposition filing and to request costs, including reasonable attorney’s fees, associated with the sur-
reply. Pet’r Mot. Leave File Sur-Reply Br., ECF No. 9. Priority One’s motion for leave to file a sur-reply was
granted by this Court. Minute Order dated Aug. 18, 2011 (Howell, J.). Priority One’s request for an award of the
costs associated with the filing of its motion seeking leave to file a sur-reply and the sur-reply itself is GRANTED.
7
18 (D.D.C. 2001) (quoting Taylor v. Nelson, 788 F.2d 220, 225 (4th Cir. 1986)). The party

challenging the award faces a “high hurdle.” Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130

S. Ct. 1758, 1767 (2010). Courts “do not sit to hear claims of factual or legal error by an

arbitrator” as they would “in reviewing decisions of lower courts.” Kurke, 454 F.3d at 354

(internal citations and quotations omitted).

Pursuant to the Federal Arbitration Act (hereinafter “FAA”), the court must confirm an

arbitration award unless there are statutory grounds to vacate, modify, or correct the arbitrators’

decision. 9 U.S.C. § 9 (the court must grant an order to confirm an arbitration award “unless the

award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title”). “[T]he

grounds for vacating an arbitration award are limited to ‘extreme arbitral conduct’ as defined in

Sections 10 and 11 of the FAA.” Contech Constr. Prods., Inc. v. Heierli, 764 F. Supp. 2d 96, 108

(D.D.C. 2011) (quoting Hall St. Assocs. v. Mattel, Inc., 552 U.S. 576, 586 (2008)). The party

objecting to the award bears the burden of demonstrating that one of the statutory grounds set

forth in the FAA exists. Affinity Fin. Corp. v. AARP Fin., Inc., No. 10-cv-2055, 2011 WL

2582876, at *2 (D.D.C. July 1, 2011) (citing Al-Harbi v. Citibank, N.A., 85 F.3d 680, 682 (D.C.

Cir. 1996)).

Section 10 of the FAA lists four grounds upon which an arbitration may be vacated: “(1)

where the award was procured by corruption, fraud, or undue means; (2) where there was evident

partiality or corruption in the arbitrators, or either of them; (3) where the arbitrators were guilty

of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to

hear evidence pertinent and material to the controversy; or of any other misbehavior by which

the rights of any party have been prejudiced; or (4) where the arbitrators exceeded their powers,

or so imperfectly executed them that a mutual, final, and definite award upon the subject matter

8
submitted was not made.” 9 U.S.C. § 10(a). Additionally, Section 11 of the FAA provides that a

district court may, upon application by any party, modify or correct an arbitration award where

there is “an evident material miscalculation of figures or an evident material mistake in the

description of any person, thing, or property referred to in the award.” 9 U.S.C. § 11(a). 10

In addition to the statutory grounds to vacate or modify arbitration awards set forth in

Sections 10 and 11 of the FAA, courts previously have also vacated an arbitrator’s decision upon

finding that the decision was made “in manifest disregard of the law.” Kurke, 454 F.3d at 354

(“In addition to the statutory grounds, ‘arbitration awards can be vacated . . . if they are in

manifest disregard of the law,’” quoting LaPrade v. Kidder, Peabody & Co., Inc., 246 F.3d 702,

706 (D.C. Cir. 2001)). Whether an arbitrator’s manifest disregard for law remains a valid basis

for vacating an arbitration decision is unclear after the Supreme Court’s decision in Hall St.

Associates v. Mattel, Inc., 552 U.S. 576 (2008), which stated that “[9 U.S.C.] §§ 10 and 11 . . .

provide the FAA’s exclusive grounds for expedited vacatur and modification.” Id. at 584.

Since Hall St. Associates, neither the Supreme Court nor the D.C. Circuit has determined

whether a manifest disregard for law may still provide a basis for vacating an arbitration

decision. Stolt-Nielsen, 130 S. Ct. at 1768 n.3 (“We do not decide whether ‘manifest disregard’

survives our decision in Hall Street Associates . . .”); see generally Regnery Publ’g, Inc. v.

Miniter, 368 F. App’x 148, 149 (D.C. Cir. 2010) (per curiam) (affirming district court decision

by “[a]ssuming without deciding that the ‘manifest disregard of the law’ standard survives Hall

Street Associates. . . .”). The Court need not resolve this issue of whether a manifest disregard

for the law continues to provide an independent basis for vacating arbitration awards because,

10
Section 11 also authorizes the Court to modify an arbitration award “where the arbitrators have awarded upon a
matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter submitted”
or “where the award is imperfect in matter of form not affecting the merits of the controversy.” 9 U.S.C. § 11(b)-(c).
9
even assuming arguendo that this standard exists, the Court finds no basis to vacate the Panel’s

judgment.

III. DISCUSSION

W&T urges the Court to vacate, modify, or correct the arbitration award pursuant to 9

U.S.C. § 10(a) because the Panel allegedly exceeded and imperfectly executed its powers when it

(1) “chose not to apply federal law to the dispute even though it was clearly required to do so by

the plain language of the Subcontract,” and (2) “award[ed] more damages for lost profits than the

law allows.” Resp’t Mot. Vacate, at 1-2. In the alternative, W&T argues that the Court should

modify and correct the arbitration award pursuant to 9 U.S.C. § 11 because the Panel

miscalculated interest damages. There is no basis to vacate the Panel’s decision, but the Court

agrees that the Panel miscalculated interest damages. Accordingly, that provision of the Panel’s

judgment is corrected.

A. The Panel Did Not Exceed Its Powers Or Manifestly Disregard The Law

Section 10(a)(4) of the FAA authorizes the Court to vacate an arbitration award “where

the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and

definite award upon the subject matter submitted was not made.” 9 U.S.C. § 10(a)(4). To

succeed in vacating an award under § 10(a)(4), a party must demonstrate that the “arbitrator

strayed from interpretation and application of the agreement and effectively ‘dispense[d] his own

brand of industrial justice.’” Stolt-Nielsen, 130 S. Ct. at 1767 (quoting Major League Baseball

Players Ass’n v. Garvey, 532 U.S. 504, 509 (2001). “[I]t is particularly necessary to accord the

‘narrowest of readings’ to the excess-of-authority provision of section 10(d). That provision

does not, it must be stressed, confer on courts a general equitable power to substitute a judicial

resolution of a dispute for an arbitral one.” Kanuth v. Prescott, Ball & Turben, Inc., 949 F.2d

10
1175, 1180 (D.C. Cir. 1991). If an arbitrator “was ‘arguably construing or applying the

contract,’ a court must defer to the arbitrator’s judgment.” Madison Hotel v. Hotel & Restaurant

Emps., Local 25 AFL-CIO, 144 F.3d 855, 859 (D.C. Cir. 1998) (quoting United Paperworkers

Int’l Union v. Misco, Inc., 484 U.S. 29, 38 (1987)). This deference applies, even if the Court is

convinced that the arbitrator “committed serious error.” See Garvey, 532 U.S. at 509.

Additionally, arbitrators are not required to explain the basis for their award when the grounds

can be gleaned from the record. Lessin v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 481 F.3d

813, 820 (D.C. Cir. 2007) (citing Sargent v. Paine Webber Jackson & Curtis, Inc., 882 F.2d 529,

532 (D.C. Cir. 1989)).

To the extent that W&T argues that the Panel manifestly disregarded the law, the Court’s

review under this standard is “extremely narrow.” Kurke, 454 F.3d at 354. To vacate an award

for manifest disregard of the law, the court “must find that (1) the arbitrators knew of a

governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored

by the arbitrators was well defined, explicit, and clearly applicable to the case.” Id. (quoting

LaPrade, 246 F.3d at 706). If an “explanation for an award is deficient . . . [a court] will confirm

it if a justifiable ground for the decision can be inferred from the facts of the case.” Id. (quoting

Duferco Int’l Steel Trading v. T. Klaveness Shipping A/S, 333 F.3d 383, 390 (2d Cir. 2003)).

Even “[w]hen the arbitrators give no explanation for their decision, as commonly occurs in

arbitration . . . [a court] must confirm the award if any justification can be gleaned from the

record.” Id. (internal and citations quotations omitted). “In order to obtain a vacatur of an

arbitration award on ‘manifest disregard’ grounds, a party must make a specific showing that an

arbitrator knowingly disregarded the applicable law.” Williams Fund Private Equity Grp., Inc. v.

Engel, 519 F. Supp. 2d 100, 103 (D.D.C. 2007) (citing Alston v. UBS Fin. Servs., Inc., No. 04-

11
cv-01798, 2006 WL 20516, at *3 (D.D.C. Jan. 2, 2006) (“[Petitioners] fail to allege that the

arbitrators undertook to correctly state the law and then proceeded to disregard their own

pronouncement.”)).

1. The Panel Did Not Exceed Its Power Or Manifestly Disregard The Law
When It Applied Maryland Law To The Dispute

W&T argues that the Panel exceeded its power when it “consciously refused to apply”

Federal Procurement Law despite W&T “convincingly [making] the Panel aware that [Federal

law] applied to [the] matter.” Resp’t Mot. Vacate, at 25. According to W&T, the Panel “knew

of the relevant legal principle, appreciated that this principle controlled the outcome of the

disputed issue, and nonetheless willfully flouted the governing law by refusing to apply it.” Id.

at 26 (quoting Stolt-Nielsen, 130 S. Ct. at 1768 n.3). Consequently, W&T declares that the

Panel’s decision to apply Maryland law was “a direct move on the part of the Panel to employ its

own version of justice.” Id. at 25. The Court, however, finds this assertion erroneous, and

further concludes that the Panel did not exceed its powers nor did it manifestly disregard the law

when it chose to apply Maryland law to resolve the parties’ dispute.

The Subcontract provides that:

“[t]he Subcontractor agrees that where a [Federal Acquisition Regulation]
provision or clause . . . is incorporated in, or applicable to the Subcontract or work
being performed under it, Federal law shall govern the interpretation and
application thereof. Where no Federal law is applicable, this Agreement shall be
governed by the appropriate law of the State of Maryland.”

Subcontract, § 21.1.

W&T argues that Federal law is applicable to this dispute because the Prime Contract

was incorporated by reference into the Subcontract, and the Prime Contract “incorporates by

reference FAR 52-212-4 which permits the government, and thus, [W&T] as the Prime

12
Contractor, to terminate [Priority One] for convenience as well as terminate the Subcontract for

default.” Resp’t Mot. Vacate, at 14. Thus, pursuant to the allegedly incorporated FAR

provision, W&T argues that the Panel “had no basis whatsoever not to apply federal procurement

regulatory law” and that under federal law its termination of the Subcontract was proper. Id. at

26. Two consequences would apparently flow if W&T’s contract construction had been adopted

by the Panel: first, W&T would have broader grounds for termination of the Subcontract with

Priority One, even absent a material breach by Priority One; and, second, under federal

procurement regulatory law, “in contrast with damages stemming from breach of contract, the

sum due a contractor after a termination for convenience is significantly circumscribed . . . [and

Priority One] would not be due anticipatory profits and consequential damages pursuant to its

Subcontract with [W&T].” Id. at 20.

Despite W&T’s assertions, the Panel did not exceed its power when it declined to apply

federal law both to the determination of the legality of W&T’s termination of the Subcontract

and to the calculation of damages. In its decision, the Panel stated that “despite the actual

termination having been for material breach,” W&T argued for the first time in a post-hearing

brief that its termination action should be regarded as a ‘termination for convenience’ or a

‘termination for default’ and that “both these termination clauses in the [] Prime Contract with

NIH were incorporated by reference into the Subcontract.” Award of Arbitrators, ¶ 13. The

Panel found this argument to be “seriously flawed” because the Subcontract “expressly limits the

Respondent’s right to terminate under the termination for convenience clause to a situation in

which NIH has first terminated the prime contract either for default or inconvenience” and it was

“undisputed that no such termination occurred by NIH.” Id. ¶ 14. Moreover, the Panel

concluded that incorporation by reference of the FAR provision, which allows the government to

13
terminate its contract with W&T for convenience or for default, did not “confer[] on the

Respondent exactly the same rights with respect to the Claimant as NIH had with [W&T].” Id. ¶

15.

In making this decision, the Panel did not “choose to institute its own brand of justice.”

The Panel interpreted the contract, concluded that federal law did not directly govern the dispute,

and, thus, in accordance with the Subcontract, applied Maryland Law. Id. ¶¶ 15-16; see also

Subcontract § 21.1 (“Where no Federal law is applicable, this Agreement shall be governed by

the appropriate law of the State of Maryland.”). The Panel was “arguably construing or applying

the contract” when it applied Maryland law and therefore did not “exceed its power” when

making that decision. See United Paperworkers Int’l Union, 484 U.S. at 38 (“[A]s long as 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 serious error does not suffice to overturn his

decision.”).

To the extent that W&T argues that the Panel’s decision to apply Maryland law

represented a manifest disregard for the law, the Court disagrees. W&T’s claim that the Panel

knew the relevant legal principle, appreciated this principle controlled and nonetheless refused to

apply it, is erroneous. Although W&T cited cases that arguably supported incorporating the

termination by convenience and default clauses in FAR 52-212-4 into the Subcontract, Priority

One presented the Panel with cases to support the opposite conclusion. See Hartford Accident &

Indem. Co. v. Scarlett Harbor Assoc., Ltd. P’ship, 674 A.2d 106, 142-43 (Md. Ct. Spec. App.

1996) (“When an earlier document is ‘incorporated by reference’ into a subsequent contract, it

simply means that the earlier document is made a part of the second document, as if the earlier

document were fully set forth therein. Absent an indication of a contrary intention, the

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incorporation of one contract into another contract involving different parties does not

automatically transform the incorporated document into an agreement between the parties to the

second contract.”) (internal citations omitted); United States for Use of Yonker Constr. Co. v.

Western Contracting Corp., 935 F.2d 936, 939 (8th Cir. 1991) (stating that the court was “not

convinced” that a subcontract incorporated provisions of the general contract when the general

contract’s provisions applied to the government). The Panel chose the position contrary to the

one advocated by W&T. That decision, however, was not in manifest disregard to the applicable

law. See Kurke, 454 F.3d at 354 (Courts “do not sit to hear claims of factual or legal error by an

arbitrator” as they would “in reviewing decisions of lower courts.”).

2. The Panel Did Not Exceed Its Powers Or Manifestly Disregard The Law
When Calculating Damages

W&T also claims that the Panel exceeded its powers in its award of damages, claiming

that the Panel (1) did not adequately explain its method for calculating damages and chose “a

damage figure for lost profits totally unsupported by the relevant caselaw or any kind of law;”

(2) improperly awarded Priority One speculative lost profits for option year 2; and (3)

improperly imposed punitive damages by awarding prejudgment interest. The Court finds no

basis for these arguments.

a. The Panel Did Not Exceed Its Powers In Calculating Lost Profits

W&T states that the Panel exceeded its powers when calculating the damage award

because there was “no basis for its irrational calculation of lost profits damages.” Resp’t Mot.

Vacate, at 27. The fact that the Panel did not provide a full explanation for its damages

calculation, according to W&T, supports the conclusion that the Panel exceeded its power or

manifestly disregarded the law. See id. at 27-28.

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 According to W&T, the Prime Contract is a Fixed-Price Incentive contract with a firm

profit margin of 4.5% “built into the ceiling price of the contract.” Id. at 22. W&T states that

with the “assistance and full knowledge of [Priority One], [W&T] drafted and submitted its

cost/price proposal to NIH with a profit margin of 4.5% for the entire contract.” Id. Thus, “there

is no need for speculation or estimation as to [Priority One’s] lost profits. Such number would

be equivalent of 4.5% of the amount [Priority One] would have been paid for the remaining nine

months of Option Year One . . . roughly $85,000 [and for] Option Year 2 . . . about $113,328.”

Id.

When calculating damages, the Panel did not apply a fixed 4.5% profit margin, but

instead accepted Priority One’s damage analysis, awarding Priority One $546,839 for the

remaining nine months of option year one, and $588,181 for option year 2. Award of

Arbitrators, at 7. W&T claims that Priority One “used the wrong methodology for calculating

profit in assessing its damages” and that the Panel should have used the built-in profit margin on

the contract. Resp’t Mot. Vacate, at 12, 22.

As a preliminary matter, W&T relies on Tinaway v. Merrill Lynch & Co., Inc., 658 F.

Supp. 576 (S.D.N.Y. 1987), and Halligan v. Piper Jaffray, Inc., 148 F.3d 197 (2d Cir. 1998), to

argue that the Panel’s failure to more fully explain its calculation method demonstrates that the

Panel exceeded its power or manifestly disregarded the law. See Resp’t Mot. Vacate, at 21, 29-

30 (“There is no reasoned discussion in the Panel’s decision of the method used to calculate the

lost profits awarded.”). W&T’s reading of those cases is incorrect.

In Tinaway, the court stated that “arbitrators were under no obligation to give reasons for

their decision, and the courts are instructed that where a ground for the arbitrator’s decision can

be inferred from the facts of the case, the award should be confirmed.” 658 F. Supp. at 579

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(internal citations omitted). The reason the Court vacated the arbitration decision in that case

was because the court was unable to infer the basis for the arbitration decision from the record

and, as the court stated, the “reduction of the amount of the award by ninety-five percent can

only represent ‘evident partiality.’” Id. Absent such glaring deficiencies, Tinaway confirmed

that when arbitrators’ rationale can be gleaned from the record, a detailed explanation is not

needed or required. Id.; see also Lessin v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 481 F.3d

813, 820 (D.C. Cir. 2007) (citing Sargent v. Paine Webber Jackson & Curtis, Inc., 882 F.2d 529,

532 (D.C. Cir. 1989)).

Here, the arbitrators’ method for calculating lost profits is clearly discernable from the

record before the Court. In its briefs to the Panel, Priority One argued that its lost profits should

be calculated by subtracting its cost of performing the contract from the total contract price.

These figures amounted to “$586,839 in lost profits for the unperformed portion of option year

one” and “$748,181 in lost profits for option year two.” Pet’r Opp’n Mot. Vacate, ECF No. 7,

Ex. 10, Claimant’s Pre-Hearing Brief, at 10. 11 The Panel awarded Priority One “the exact

amount of damages that Priority One testified it suffered for that option year,” 12 and $588,181

for year two, which Priority One states “is significantly less than the $748,181 Priority One

testified it would lose for that option year [but was awarded] perhaps because the Panel

discounted these future damages to present value.” Pet’r Opp’n Mot. Vacate, at 11. Although the

Panel did not memorialize its exact calculation method, it appears clear from the record that the

Panel awarded lost profits by subtracting Priority One’s costs of performing the contract from the
11
Priority One also stated that it incurred lost profits of $731,889 for option year three and $751,906 for option year
four. Pet’r Opp’n Mot. Vacate, ECF No. 7, Ex. 10, Claimant’s Pre-Hearing Brief, at 10.
12
Priority One states that the Panel awarded it “the exact figure” it requested for lost profits in damage year one.
Priority One’s pre-hearing brief to the Panel stated that lost profits for year one amounted to $586,839. The Panel,
however, awarded $546,839. It is unclear whether Priority One’s pre-hearing brief contained a typographical error,
or if Priority One argued for a reduced amount later in the arbitration proceedings.
17
base contract price. See Kanuth, 949 F.2d at 1179 (affirming arbitration award even though, “[i]n

typical fashion, the panel did not explain how it derived the particular numbers associated with

each element of the total damage award” and stating that “[o]f course, the panel is not required to

give an explanation . . . “).

W&T also relies on Halligan for the contention that the Panel’s failure to fully explain its

method for calculating damages should be seen as indicative of the Panel’s wrongdoing. In

Halligan, however, the court was already inclined to find that the arbitrators manifestly

disregarded the law based on other facts in the case, and explicitly stated that it “want[ed] to

make clear that [it was] not holding that arbitrators should write opinions in every case or even in

most cases.” 148 F.3d at 204. Rather, the court “merely observe[d] that where a reviewing court

is inclined to find that arbitrators manifestly disregarded the law or the evidence and that an

explanation, if given, would have strained credulity, the absence of explanation may reinforce

the reviewing court’s confidence that the arbitrators engaged in manifest disregard.” Id.; see

also Kanuth, 949 F.2d at 1179 (“[C]ourts will not generally inquire into the basis of a lump-sum

award unless they believe that the arbitrators rendered it in ‘manifest disregard’ of the law or

unless the facts of the case fail to support it.”) (internal quotations and citations omitted).

In the present situation, the Court is not inclined to find that the arbitrators manifestly

disregarded the law. The Panel stated that it applied Maryland law, which allows lost profits that

can be proved by “reasonable certainty.” Award of Arbitrators, ¶ 20 (quoting Sloan, Inc. v.

Stanley G. House & Assocs., Inc., 311 Md. 36, 42 (1987)); see also Hoang v. Hewitt Ave. Assoc.,

LLC, 936 A.2d 915, 934 (Md. 2007) (“In a breach of contract action, upon proof of liability, the

non-breaching party may recover damages for 1) the losses proximately caused by the breach, 2)

that were reasonably foreseeable, and 3) that have been proven with reasonable certainty.”).

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Although W&T states that “there was no need for speculation or estimation as to [Priority One’s]

lost profits,” the Panel chose not to accept the 4.5% profit margin as the proper estimation. The

Panel instead subtracted Priority One’s projected costs, which it deemed “easily capable of

calculation,” from the amount that Priority One would have received from the contract. Award

of Arbitrators, ¶ 21.

Moreover, there is no basis for the argument that the Panel exceeded its powers when

calculating lost profits. As Priority One notes, the “[b]road arbitration clause . . . empowered the

Panel to resolve ‘all claims, disputes and matters in question arising out of, relating to, this

Subcontract.’” Pet’r Opp’n Mot. Vacate, at 12 (quoting Subcontract, § 12). The Panel was given

the responsibility of determining whether W&T breached the Subcontract, and the damage

Priority One suffered as a result of the alleged breach. Although W&T does not agree with the

result, the Panel fulfilled the responsibility with which it was tasked when it calculated the

damages it believed Priority One suffered. See Kanuth, 949 F.2d at 1180-81 (holding that an

arbitration panel did not exceed its powers when “[t]he parties explicitly requested the panel to

award monetary damages to the injured party, and that is precisely what it did.”).

b. The Panel Did Not Exceed Its Powers When It Awarded Lost Profits for Option
Year 2

W&T claims that the Panel exceeded its power and manifestly disregarded the law by

awarding Priority One lost profits for option year 2, “an option year which was awarded when

[Priority One] was not even a subcontractor to W&T.” Resp’t Mot. Vacate, at 28. W&T

contends that damages for option year 2 are speculative “because there is no guarantee that an

option year will be exercised” and that the contract with NIH “may not have been renewed

because [Priority One] was in fact the subcontractor.” Resp’t Reply, at 15-16. According to

19
W&T, the Panel “accurately states the controlling case(s) . . . but then goes beyond the dictates

of the cases with no explanation whatsoever.” Resp’t Mot. Vacate, at 28-29.

In its decision, the Panel stated that “[w]here, as here, a contract is renewable solely at

the discretion of the government, the government is under no obligation to exercise the option.”

Award of Arbitrators, ¶ 25 (citing Gov. Sys. Advisors, Inc. v. United States, 847 F.2d 811, 813

(Fed. Cir. 1988). The Panel, however, found that “at time of the breach of the subcontract, the

unrebutted evidence was that NIH had already orally indicated that the prime contract would be

renewed and in fact, the prime contract was renewed for option year 2.” Id. ¶ 21. Given these

facts, the Panel concluded that Priority One’s would have realized lost profits for year two but

for W&T’s breach of the Subcontract.

Although W&T argues that the Panel did not explain its decision, the Panel’s reasoning is

clear. Based on the evidence before it, the Panel found that if W&T did not terminate the

Subcontract, Priority One would likely still be the subcontractor in option year 2, which the

government had exercised prior to the alleged breach. The Panel determined that Priority One’s

lost profits for year 2 was not speculative and could be calculated with reasonable certainty. The

Panel did not exceed its power or manifestly disregarded law in making this decision.

c. The Panel Did Not Exceed Its Powers or Manifestly Disregard the Law When It
Awarded Prejudgment Interest

W&T claims that the Panel had no authority to award prejudgment interest because it “is

a form of punitive damages” and “private punishment is against public policy.” Resp’t Mot.

Vacate, at 30. The Panel applied Maryland law, which allows prejudgment interest. See Pulte

Home Corp. v. Parex, Inc., 923 A.2d 971, 1022 (Md. Ct. Spec. App. 2007) (“Whether a party is

20
entitled to prejudgment interest . . . is left to the discretion of the fact finder.”) (internal citations

and quotations omitted). W&T’s contention on this issue is meritless.

B. The Panel Erred When Calculating Prejudgment Interest

The Court finds no basis to vacate the Panel’s ruling, but W&T is correct that the Panel

erred when calculating prejudgment interest.

After concluding that W&T breached the Subcontract, the Panel awarded Priority One

lost profits of $546,839 for the remaining 9 months of option year 1, plus six percent interest per

annum “from October 7, 2009, until paid,” and lost profits of $588,181 for option year 2, plus six

percent interest per annum from “30 days after the date of this Award [November 17, 2010] until

paid.” Award of Arbitrators, at 7. W&T claims that the Panel “imposed prejudgment interest on

monies that [W&T] had already paid” for option year 1, and that the “prejudgment interest

required on [an] amount already paid to [Priority One] should be vacated and then corrected.”

Resp’t Mot. Vacate, at 30. The Court agrees.

The Court may modify or correct an arbitral award if the movant can demonstrate that

“there was an evident material miscalculation of figures.” 9 U.S.C. § 11(a). “When an

arbitration award orders a party to pay damages that have already been paid or which are

included elsewhere in the award, a court may modify the award.” Eljer Mfg. v. Kowin Dev.

Corp., 14 F.3d 1250, 1254 (7th Cir. 1994); accord Consol. Biscuit Co. v. Karpen, No. 3:00-cv-

7703, 2001 WL 1142001, at *6 (N.D. Ohio Aug. 28, 2001) (“If a panel awards damages that

have already been paid, a court has authority to modify the award.”). “Double recovery

constitutes a materially unjust miscalculation which may be modified under section 11 of the

Federal Arbitration Act.” Eljer Mfg., 14 F.3d at 1254.

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 On October 6, 2009, W&T provided Priority One notice that it was terminating the

Subcontract, but gave Priority One until “until November 30, 2009 to phase out the rest of its

activities” under the Subcontract and paid Priority One through that date. Resp’t Mot. Vacate, at

9-10. The Panel, however, awarded Priority One prejudgment interest from October 7, 2009, the

date notice was provided, not the date the Subcontract was terminated, and thereby included in

the award almost two months for which Priority One had been fully paid.

Under Maryland law, the purpose of prejudgment interest “is to compensate the

aggrieved party for the loss of the use of the principal liquidated sum found due it and the loss of

income from such funds.” Pulte Home Corp., 923 A.2d at 1022 (citations omitted); see also

Buxton v. Buxton, 770 A.2d 152, 165 (2001) (“Pre-judgment interest is allowable as a matter of

right when the obligation to pay and the amount due had become certain, definite, and liquidated

by a specific date prior to judgment so that the effect of the debtor’s withholding payment was to

deprive the creditor of the use of a fixed amount as of a known date.”). Priority One was paid for

its services through November 30, 2009, and therefore suffered no loss of income due to W&T’s

breach prior to that time. The Panel’s award of prejudgment interest for beginning on October 7,

2009, instead of December 1, 2009, was an evident material miscalculation, which requires

correction. The Court therefore modifies the Panel’s award to set prejudgment interest on

Priority One’s lost profits for option year 1 to run beginning December 1, 2009, the effective

termination date of the Subcontract.

IV. CONCLUSION

For the foregoing reasons, W&T’s motion to vacate, modify, and correct the arbitration

award is denied in part and granted in part. The Court denies W&T’s motion to vacate or modify

the Panel’s award, but grants W&T’s request to correct the Panel’s prejudgment interest

22
calculation. Aside from this correction, Priority One’s petition to confirm the arbitration award

is granted. An Order consistent with this Memorandum Opinion will be entered.

DATED: AUGUST 23, 2011
/s/ Beryl A. Howell
BERYL A. HOWELL
United States District Judge

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