MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 2016 ME 111
Docket: Cum-15-377
Argued: April 7, 2016
Decided: July 14, 2016
Panel: SAUFLEY, C.J., and ALEXANDER, MEAD, GORMAN, JABAR, HJELM, and
HUMPHREY, JJ.
XPRESS NATURAL GAS, LLC
v.
CATE STREET CAPITAL, INC., et al.
SAUFLEY, C.J.
[¶1] Cate Street Capital, Inc., appeals from a judgment in which the
Superior Court (Cumberland County, Warren, J.) granted an application to confirm
an arbitration award and denied a competing motion to vacate that award. In the
award that Cate Street challenges on appeal, the arbitrator determined that Cate
Street was responsible on its agreement to guarantee $1,500,000 in payments owed
to Xpress Natural Gas, LLC, by Cate Street’s subsidiary, GNP Parent, LLC—
formerly known as Great Northern Paper Company, LLC—for the installation of
equipment and the delivery of compressed natural gas to the Great Northern Paper
Mill in East Millinocket. Because the arbitrator’s interpretation “was rationally
derived from the agreement,” Dep’t of Corr. v. AFSCME, Council 93, 2000 ME
2
51, ¶ 9, 747 A.2d 592 (quotation marks omitted), we affirm the judgment
confirming the arbitration award.
I. BACKGROUND
[¶2] Although the arbitrator did not make extensive findings of fact and
additional findings were not requested, the sequence of events in this case is not in
dispute. GNP, the owner of the Great Northern Paper Mill, entered into a sales
agreement1 on September 18, 2012, to purchase compressed natural gas from
Xpress as fuel for the mill. By the sales agreement’s terms, the conversion of
equipment to use natural gas at the mill was to occur in time for gas delivery to
commence on March 31, 2013.
[¶3] Also on September 18, 2012, Cate Street, the corporate owner of GNP,
executed a guarantee of the amounts payable by GNP on transactions provided for
in the sales agreement, up to $1,500,000. The guarantee contains the following
provision relevant to the issue in this appeal:
1. Guarantee. In consideration of [Xpress Natural Gas, LLC]
from time to time entering into natural gas transactions under that
certain Contract for the Sale of Compressed Natural Gas (the
“Agreement”), with Great Northern Paper Company LLC . . . , an
wholly owned subsidiary of [Cate Street Capital, Inc.], [Cate Street]
irrevocably and unconditionally guarantees to [Xpress], its successors
and assigns, the prompt payment when due, subject to any applicable
grace period under the Agreement, of all present and future amounts
1
The agreement itself was not presented to the Superior Court and therefore is not part of the record
on appeal. We discern the nature of the agreement from the statement of claim presented to the arbitrator.
3
payable by [GNP] to [Xpress] under the Agreement (even if such
payments are deemed to be damages) not to exceed ONE MILLION
FIVE HUNDRED THOUSAND US dollars ($1,500,000.00) (the
“Obligations”). [Xpress] may make written demand of [Cate Street]
for any Obligation not paid by [GNP] when due, subject to applicable
grace periods, and [Cate Street] shall pay such Obligations within five
(5) business days of receipt of such demand. Notwithstanding any
other provision hereof to the contrary, (a) [Cate Street] may terminate
its obligations hereunder upon 30 days’ prior written notice to
[Xpress] with respect to transactions as defined in the Agreement (the
“Transaction”) entered into after the expiration of such 30 day period,
and (b) to the extent not earlier terminated pursuant to clause (a), this
Guarantee shall automatically terminate on October 1, 2013.
However, in either case of termination, no such termination shall
affect Guarantor’s liability with respect to any Transaction entered
into prior to the time the termination is effective, which Transaction
shall remain guaranteed pursuant to the terms of this Guarantee.
(Emphasis added.)
[¶4] GNP was ultimately not able to prepare the mill property for the
installation of equipment and delivery of the gas by March 31, 2013. Additional
agreements were reached before the guarantee’s automatic termination date of
October 1, 2013, to extend the deadline for the conversion of equipment and initial
delivery of gas, and to establish new terms for GNP to finance the conversion
through a loan from Xpress, also guaranteed by Cate Street, with payments to
Xpress scheduled through fall 2013. After GNP failed to make the required
payments for natural gas and defaulted on the conversion-related loan, the parties
proceeded, pursuant to the terms of their agreements, to private arbitration.
4
[¶5] In Xpress’s statement of claim submitted to the arbitrator, it sought
damages from GNP for breach of the sales agreement and default on the loan, and
from Cate Street for breach of its guarantees, and it requested the return of its
personal property located at the mill site. After receiving an answer, with
counterclaims and defenses, from GNP and Cate Street, and after holding a hearing
and receiving briefs from the parties, the arbitrator entered an award finding GNP
and Cate Street liable to Xpress. In addition to other determinations of liability,
the arbitrator found Cate Street liable to Xpress for $1,500,000 on the guarantee at
issue in this appeal.
[¶6] Xpress applied to the Superior Court to confirm the arbitration award.
See 14 M.R.S. § 5937 (2015). Cate Street and GNP moved to vacate the award in
part, on the ground that the arbitrator had exceeded his authority in awarding
Xpress $1,500,000 in damages on the guarantee of payments because, they argued,
the guarantee had automatically terminated, by its terms, on October 1, 2013. See
14 M.R.S. § 5938 (2015). After receiving memoranda from the parties, the court
entered a judgment granting Xpress’s application to confirm the award and
denying Cate Street and GNP’s motion to vacate the award. Cate Street and GNP
timely appealed. See 14 M.R.S. § 1851 (2015); M.R. App. P. 2.
5
II. DISCUSSION
[¶7] Cate Street and GNP argue that the arbitrator exceeded his authority by
interpreting the guarantee in a way that shows a manifest disregard for the contract.
Specifically, they argue that there is no guarantee of payment on transactions that
were to be effectuated after October 1, 2013.2
[¶8] Our review of the decision of an arbitrator is much more limited than a
review of a court decision; the award of an arbitrator “will not be vacated even
when there is an error of law or fact, unless the challenger demonstrates that the
arbitration violated one of the grounds to vacate an award stated in 14 M.R.S. §
5938(1).” Leete & Lemieux, P.A. v. Horowitz, 2012 ME 115, ¶ 12, 53 A.3d 1106.
Relevant here, section 5938(1) authorizes courts to vacate arbitration awards if
“arbitrators exceeded their powers.” 14 M.R.S. § 5938(1)(C). An arbitrator has
exceeded his or her powers if no rational construction of the agreement could
support the award. See Stanley, 2015 ME 21, ¶ 26, 111 A.3d 663. “The burden of
demonstrating that an arbitrator exceeded his or her authority lies with the party
seeking to vacate the award.” Id. ¶ 23.
2
Although Xpress also argues that Cate Street and GNP waived any defense based on the expiration
language by failing to plead it as an affirmative defense or otherwise raise it before or during the
arbitration hearing, Cate Street and GNP argue only a narrow legal issue on appeal—an argument that
they did present to the arbitrator in their post-hearing brief. Because no factual disputes have been raised,
it is immaterial to the appeal whether Cate Street and GNP bore the burden of proof on any pertinent
factual disputes that could arise from an ambiguity in the language of the guarantee. See Westbrook Sch.
Comm. v. Westbrook Teachers Ass’n, 404 A.2d 204, 211-12 (Me. 1979). Accordingly, we do not decide
here whether the defense had to be pleaded or proved by Cate Street and GNP as an affirmative defense.
6
[¶9] “The standard for determining whether an award exceeds an
arbitrator’s power is an extremely narrow one.” AFSCME, Council 93 v. City of
Portland, 675 A.2d 100, 102 (Me. 1996). “It is, after all, the arbitrator’s
construction of the contract that was bargained for and only when there is manifest
disregard of the contract will we disturb the award.” Bureau of Me. State Police v.
Pratt, 568 A.2d 501, 505 (Me. 1989). We afford arbitrators a high degree of
deference, “with all doubts generally resolved in favor of the arbitrator’s
authority.” Dep’t of Corr., 2000 ME 51, ¶ 9, 747 A.2d 592. “[A]n arbitrator does
not exceed his authority if the arbitrator’s interpretation, even if erroneous,
nevertheless was rationally derived from the agreement.” Id. (quotation marks
omitted) (alteration in original). The arbitrator’s interpretation will be upheld “if
any rational construction of the agreement could support” that interpretation.
Stanley, 2015 ME 21, ¶ 26, 111 A.3d 663 (quotation marks omitted).
[¶10] Although the Superior Court’s reasoning upon review of an
arbitration award is helpful to us and to the parties, we review the award of an
arbitrator directly with respect to legal questions such as whether the arbitrator
exceeded the scope of his or her authority. See Stanley v. Liberty, 2015 ME 21, ¶
23, 111 A.3d 663; Randall v. Conley, 2010 ME 68, ¶ 21, 2 A.3d 328. When an
arbitrator has acted within his or her authority, we will uphold an award based on
the arbitrator’s interpretation of a contract unless we conclude that the Superior
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Court “was compelled to vacate it” for other reasons, such as fraud or corruption.
Stanley, 2015 ME 21, ¶ 23, 111 A.3d 663; Randall, 2010 ME 68, ¶ 11, 2 A.3d 328.
This standard differs from the usual de novo review of a trial court’s interpretation
of an unambiguous contract. Cf. CitiMortgage, Inc. v. Chartier, 2015 ME 17, ¶ 7,
111 A.3d 39 (“We review the meaning of a contract de novo and interpret an
unambiguous provision according to the plain meaning of its terms.” (quotation
marks omitted)).
[¶11] There are, however, limits to an arbitrator’s authority in interpreting a
contract. “In reaching a conclusion . . . arbitrators may not travel outside the
agreement” and base the award “on their own individual concept of justice in the
particular area involved.” AFSCME, Council 93, 675 A.2d at 102. “An arbitrator
does not have unfettered discretion and may not fashion a remedy that directly
contradicts the language of the agreement.” Id.
[¶12] Applying these standards, we have concluded that arbitrators did not
“exceed[] their powers” when their awards were based on rational constructions of
the contracts submitted for interpretation, even if those contracts could have been
interpreted differently. 14 M.R.S. § 5938(1)(C); see, e.g., Dep’t of Transp. v. Me.
State Emps. Ass’n, 610 A.2d 750, 752-53 (Me. 1992) (affirming an award
interpreting “just cause” for reprimand as distinct from “just cause” for discharge);
Augusta Uniformed Firefighters Ass’n, Local 1650 v. City of Augusta, 600 A.2d
8
403, 404 (Me. 1991) (affirming an award interpreting “just cause” to allow the
termination of employment based on an employee’s off-duty conduct); City of
Westbrook v. Teamsters Local No. 48, 578 A.2d 716, 720-21 (Me. 1990)
(affirming an award in which the word “and” was interpreted in the disjunctive to
give effect to the parties’ intent in executing the agreement); Westbrook Sch.
Comm. v. Westbrook Teachers Ass’n, 404 A.2d 204, 211-12 (Me. 1979) (affirming
an award interpreting a requirement of “just cause” to apply “to extracurricular as
well as regular teaching contracts”).
[¶13] In contrast, we have held that an arbitrator exceeded the powers
conferred on the arbitrator when the arbitrator applied a contract to a person whose
employment was not governed by the contract’s terms, see Dep’t of Transp. v. Me.
State Emps. Ass’n, SEIU Local 1989, 1999 ME 7, ¶¶ 8-14, 727 A.2d 896; the
arbitrator determined a matter that was not subject to arbitration, see Sch. Admin.
Dist. No. 58 v. Mount Abram Teachers Ass’n, 1997 ME 219, ¶¶ 5-8, 704 A.2d 349;
Superintending Sch. Comm. v. Portland Teachers’ Ass’n, 338 A.2d 155, 157-58
(Me. 1975); and the arbitrator effectively rewrote the contract, see Caribou Bd. of
Educ. v. Caribou Teachers Ass’n, 404 A.2d 212, 215 (Me. 1979).
[¶14] The arbitrator did not exceed his authority here. The arbitrator did
what was asked of him: he interpreted the guarantee to determine which parties
would be liable and for how much. The relevant language in the guarantee
9
provided that no termination of the guarantee would “affect [Cate Street]’s liability
with respect to any Transaction entered into prior to the time the termination is
effective, which Transaction shall remain guaranteed pursuant to the terms of this
Guarantee.” The arbitrator interpreted an undefined term—“Transaction”—to
include the sales agreement, which was entered into before the automatic
termination date of October 1, 2013. In doing so, the arbitrator did not exceed the
scope of his authority but instead found any necessary facts and rationally
interpreted the agreements submitted for decision to resolve the dispute and
determine liability.
The entry is:
Judgment affirmed.
On the briefs:
Brian L. Champion, Esq., and Tyler J. Smith, Esq., Libby
O’Brien Kingsley & Champion, LLC, Kennebunk, for
appellants Cate Street Capital, Inc., and GNP Parent, LLC
Jennifer A. Archer, Esq., and Timothy H. Norton, Esq., Kelly
Remmel & Zimmerman, Portland, for appellee Xpress Natural
Gas, LLC
10
At oral argument:
Brian L. Champion, Esq., for appellants Cate Street Capital,
Inc., and GNP Parent, LLC
Timothy H. Norton, Esq., for appellee Xpress Natural Gas,
LLC
Cumberland County Superior Court docket number CV-2015-103
FOR CLERK REFERENCE ONLY