13-1708-cv Leeward Construction Co. v. American University of Antigua 13‐1708‐cv Leeward Construction Co. v. American University of Antigua

1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 ____________________ 4 5 August Term, 2015 6 7 (Argued: January 7, 2016 Decided: June 24, 2016) 8 9 Docket No. 13‐1708‐cv 10 11 ____________________ 12 13 LEEWARD CONSTRUCTION COMPANY, LTD., 14 15 16 Petitioner‐Appellee, 17 18 v. 19 20 AMERICAN UNIVERSITY OF ANTIGUA ‐ COLLEGE OF MEDICINE, 21 22 Respondent‐Appellant.1 23 24 __________________ 25 26 Before: POOLER, HALL and CARNEY, Circuit Judges. 27 28 American University of Antigua‐College of Medicine (“AUA”) appeals

29 from the March 26, 2013 memorandum opinion and the March 28, 2013 judgment

1 The Clerk of the Court is directed to amend the caption as above. 1 of the United States District Court for the Southern District of New York (Kaplan,

2 J.), confirming an international arbitration award entered in favor of Leeward

3 Construction Company. On appeal, AUA principally argues that the district

4 court erred in confirming the award because the arbitration panel failed to fulfill

5 its obligation to produce a reasoned award. We disagree, and hold that an

6 arbitration decision need not contain a line‐by‐line analysis of damages awarded

7 to be considered a reasoned award. Rather, an arbitration award is a reasoned

8 award when it contains a substantive discussion of the panel’s rationale.

9 This case was heard in tandem with American University of Antigua‐College

10 of Medicine v. Leeward Construction Co., No. 15‐1595‐cv, and we dispose of that

11 case in a separate summary order issued concurrently with this decision.

12 Affirmed.

13 ____________________

14 JAMES M. HIRSCHHORN, Sills Cummis & Gross, P.C., 15 Newark, NJ, for Respondent‐Appellant American 16 University of Antigua‐College of Medicine. 17 18 VERONICA A. McMILLAN, Lewis & Greer, P.C., 19 Poughkeepsie, NY, for Petitioner‐Appellee Leeward 20 Construction Company. 21 22 2 1 2 3 POOLER, Circuit Judge:

4 American University of Antigua‐College of Medicine (“AUA”) appeals

5 from the March 26, 2013 memorandum opinion and the March 28, 2013 judgment

6 of the United States District Court for the Southern District of New York (Kaplan,

7 J.), confirming an international arbitration award entered in favor of Leeward

8 Construction Company. On appeal, AUA principally argues that the district

9 court erred in confirming the award because the arbitration panel failed to fulfill

10 its obligation to produce a reasoned award. We disagree, and hold that an

11 arbitration decision need not contain a line‐by‐line analysis of damages awarded

12 to be considered a reasoned award. Rather, an arbitration award is a reasoned

13 award when it contains a substantive discussion of the panel’s rationale. We thus

14 affirm the district court’s decision.

15 This case was heard in tandem with American University of Antigua‐College

16 of Medicine v. Leeward Construction Co., No. 15‐1595‐cv, and we dispose of that

17 case in a separate summary order issued concurrently with this decision.

18

19 3 1

2 BACKGROUND

3 Leeward and AUA entered into an agreement for Leeward to build a

4 medical school for AUA in Antigua in September 2008 (the “Agreement”). The

5 Agreement provided in relevant part that:

6 § 4.6.1 Any Claim arising out of or related to the 7 Contract . . . shall . . . be subject to arbitration. 8 9 § 4.6.2 Claims not resolved by mediation shall be 10 decided by arbitration which, unless the parties 11 mutually agree otherwise, shall be in accordance with 12 the Construction Industry Arbitration Rules of the 13 American Arbitration Association currently in effect. 14 The demand for arbitration shall be filed in writing with 15 the other party to the Contract and with the American 16 Arbitration Association, and a copy shall be filed with 17 the Architect. Location of any arbitration will be 18 Antigua. 19 20 App’x at 67.

21 In February 2011, Leeward filed an arbitration petition to address certain

22 disputes that arose between the parties during the construction process. Per the

23 Agreement, the parties proceeded to arbitration. While the Agreement is silent as

24 to what form the arbitration award was to take, at a preliminary hearing the

25 arbitral panel decided it would issue a reasoned award. The arbitrators took 4 1 testimony, both written and oral, and the parties were able to submit proposed

2 findings of fact and conclusions of law. The arbitral panel issued its initial award

3 on June 22, 2012 and a modified award on August 8, 2012.

4 In their award, the arbitrators found that the Agreement was a fixed‐price

5 contract, subject to additions and deletions that would occur through formal

6 change orders. The arbitrators also found that “both parties waived” the

7 requirement to process additions and deletions through formal change orders.

8 App’x at 132. While the arbitral panel found that Leeward was “only entitled to

9 payment for work performed,” it also found that “Leeward is entitled to

10 damages in the amount of EC $232,670.132 for work that was deleted from the

11 [Agreement] and then assigned to Leeward under Separate Contracts, under the

12 bad faith doctrine.” App’x at 133‐34. In addition, the award found that Leeward

13 was entitled to overhead and profit for work that was both deleted from the

14 Agreement’s scope of work and bid out again, as well as omitted work that was

15 never performed due to changes in the project.

16 The arbitrators also awarded Leeward EC $190,201.19 for various work

17 Leeward argued it had performed that was not part of the original Agreement,

2 “EC” is the Eastern Caribbean dollar. As of June 23, 2016, EC $1.00 was valued at .37 U.S. dollars. 5 1 and that Leeward had not been paid for (the “Change Order Work”). The

2 arbitrators stated that “[f]rom the evidence presented at trial, the panel finds that

3 Leeward is entitled to the additional EC $190,210.19.” App’x at 148.

4 Leeward then filed a petition to confirm the award in the Southern District

5 of New York, and AUA cross‐petitioned to modify the award. The district court

6 granted the petition to confirm and denied the petition to modify. Leeward Constr.

7 Co. v. Am. Univ. of Antigua‐Coll. of Med., 12 Civ. 6280 (LAK),

, at

8 *4 (S.D.N.Y. March 26, 2013). As relevant to this appeal, AUA argued that (1) the

9 arbitrators exceeded their powers by failing to issue a reasoned award regarding

10 the Change Order work; and (2) the arbitrators committed misconduct by

11 awarding damages pursuant to the doctrine of bad faith because Leeward never

12 relied on the doctrine during the hearing, depriving it of an opportunity to

13 contest on that ground.

14 The district court rejected both arguments. It concluded that the award

15 provided sufficient analysis to constitute a reasoned award.

at *2‐3. The

16 district court also found “that there is at least a ‘barely colorable justification’ for

17 the award rendered and that AUAʹs challenge therefore fails.” Id. at *4 (T.Co

6 1 Metals, LLC v. Dempsey Pipe & Supply, Inc.,

(2d Cir. 2010). This

2 appeal followed.

3 DISCUSSION

4 The underlying arbitration falls under the provisions of the Convention on

5 the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21

6 U.S.T. 2517 (“New York Convention”), as implemented by the Federal

7 Arbitration Act (“FAA”),

et seq. The FAA stipulates that when a

8 party timely seeks to confirm an award under the New York Convention, “[t]he

9 court shall confirm the award unless it finds one of the grounds for refusal or

10 deferral of recognition or enforcement of the award specified in the said

11 Convention.”

. “We review a district court’s legal interpretations of

12 the New York Convention as well as its contract interpretation de novo; findings

13 of fact are reviewed for clear error.” VRG Linhas Aereas S.A. v. MatlinPatterson

14 Global Opportunities Partners II L.P.,

(2d Cir. 2013).

15 Because the arbitration also took place in Puerto Rico, a territory of the

16 United States, any defenses available under the FAA’s domestic provisions are

17 also available. See Scandinavian Reinsurance Co. v. Saint Paul Fire & Marine Ins. Co.,

18

(2d Cir. 2012). The FAA provides that an arbitration award may 7 1 be vacated if: (1) the award was procured by corruption, fraud, or undue means;

2 (2) the arbitrators exhibited “evident partiality” or “corruption”; (3) “the

3 arbitrators were guilty of misconduct” in refusing to hear evidence pertinent and

4 material to the controversy; or of any other misbehavior by which the rights of

5 any party have been prejudiced; or (4) the arbitrators exceeded their power. See 9

(a).

7 “[A]rbitration panel determinations are generally accorded great deference

8 under the FAA.” Tempo Shain Corp. v. Bertek, Inc.,

(2d Cir. 1997).

9 The party challenging the award “bears the heavy burden of showing that the

10 award falls within a very narrow set of circumstances delineated by statute and

11 case law” that warrant vacatur. Duferco Intʹl Steel Trading v. T. Klaveness Shipping

12 A/S,

(2d Cir. 2003). Indeed, as a general matter, a court is

13 required to enforce the arbitration award as long as there is a “barely colorable

14 justification for the outcome reached.” Banco de Seguros del Estado v. Mut. Marine

15 Office, Inc.,

(2d Cir. 2003) (internal quotation marks omitted).

16 I. Reasoned award.

17 As an initial matter, Leeward contends that the arbitrators were not

18 required to issue a reasoned award, as the Agreement did not call for one. 8 1 Instead, the arbitrators decided in the preliminary hearing order that the award

2 would be a reasoned one. We reject this argument: once the arbitrators stated in

3 the preliminary hearing order that they would provide a reasoned award and

4 neither party objected, a reasoned award was required.

5 We turn next to what constitutes a “reasoned award,” which is an open

6 question in this Circuit. Generally, “[t]he arbitrator’s rationale for an award need

7 not be explained.” D.H. Blair & Co., Inc. v. Gottdiener,

(2d Cir.

8 2006). Where a reasoned award is required, district courts in our Circuit have

9 generally concluded that the award must contain “something short of findings

10 [of fact] and conclusions [of law] but more than a simple result.“ Leeward Constr.,

11

, at *3 (alterations in the original)(quoting Rain CII Carbon, LLC

12 v. ConocoPhillips Co.,

(5th Cir. 2012)); see also Tully Const. Co./A.J.

13 Pegno Const. Co. v. Canam Steel Corp., No. 13 Civ. 3037(PGG),

, at *

14 14 (S.D.N.Y. March 2, 2015) (same) (quoting Fulbrook Capital Mgmt. LLC v. Batson,

15 No. 14 Civ. 7564(JPO),

, at *5 (S.D.N.Y. Jan. 26, 2015); Carmody

16 Bldg. Corp. v. Richter & Ratner Contracting Corp., 08–CV–9633 (SHS),

4437213, at *3 (S.D.N.Y. Aug. 19, 2013) (same); Am. Centennial Ins. Co. v. Global

9 1 Intʹl Reinsurance Co., No. 12 Civ. 1400(PKC),

, at *8‐9 (S.D.N.Y.

2 July 9, 2012) (same).

3 The district courts agree with the Circuit courts that have considered the

4 issue. The Fifth Circuit examined what suffices as a “reasoned award” in Rain CII

5 Carbon, LLC v. Conoco Phillips Co.,

(5th Cir. 2012). There, Conoco

6 Phillips Co. challenged the price formula under a supply agreement between

7 itself and Rain CCI Carbon, LLC. When the parties were unable to agree on a

8 new formula, Conoco submitted the dispute to arbitration. The agreement

9 between the parties called for the arbitrator to provide a “reasoned award.” The

10 arbitrator requested both parties to submit draft formats for the award. The

11 arbitrator’s eight‐page award summarized the contentions of the parties and

12 adopted the price formula that Rain submitted but followed the draft format

13 submitted by Conoco. The award also included two paragraphs from Conoco’s

14 draft format. Rain challenged the inclusion of these two paragraphs, and the

15 arbitrator deleted the two Conoco paragraphs as clerical errors. Conoco sought to

16 vacate the award, claiming that the arbitrator exceeded his powers by failing to

17 select only one proposal from the arbitration submissions and by failing to

18 render a “reasoned award.” 10 1 The Fifth Circuit rejected Conoco’s arguments. The Fifth Circuit

2 recognized that in a prior opinion, it had described a reasoned award as

3 something short of “findings and conclusions but more than a simple result.”

4 at 473 (quoting Sarofim v. Trust Co. of the West,

(5th Cir. 2006).

5 The court concluded that:

6 Given the deference employed when evaluating arbitral 7 awards, and as all doubts implicated by an award must 8 be resolved in favor of the arbitration, the award in this 9 case is sufficient to withstand Conoco’s request for 10 vacatur. Conoco’s argument against the award hinges 11 on the summary nature of the arbitratorʹs statement 12 that, based upon all of the evidence, he found that the 13 initial price formula should remain in effect. Conoco 14 ignores that the preceding paragraph thoroughly 15 delineates Rainʹs contention that Conoco had failed to 16 show that the initial formula failed to yield market 17 price, a contention that the arbitrator obviously 18 accepted. Conoco would have this court vacate the 19 arbitration award merely because the arbitrator did not 20 reiterate this reason in the following paragraph. Such a 21 narrow approach is inconsistent with the deference 22 owed to arbitral awards and the congressional policy 23 favoring arbitration of commercial disputes, and is also 24 contrary to the interest of finality. 25 Id. at 474.

26 The Eleventh Circuit also considered the issue of what constitutes a

27 “reasoned award” in Cat Charter, LLC v. Schurtenberger,

(11th Cir.

11 1 2011). There, the petitioner paid $2 million for a yacht that was never delivered.

2 The Eleventh Circuit described the dispute as a “swearing match” whose

3 resolution depended largely on credibility determinations made by the

4 arbitrators. The parties agreed that the panel would issue a reasoned award.

5 After the hearing, the relevant section of the award issued by the panel consisted

6 of seven sentences setting forth its holdings. The respondents moved to vacate on

7 the ground that the panel exceeded its authority by failing to issue a reasoned

8 award. The Eleventh Circuit disagreed, finding that, whereas a reasoned award

9 is an award that is “provided with or marked by the detailed listing or mention

10 of expressions or statements offered as a justification” for the arbitrators’

11 decision, the award met this criteria because the decision turned primarily upon

12 credibility determinations.

(emphasis omitted). The court observed that:

13 Generally, an arbitrator need not explain her decision; 14 thus, in a typical arbitration where no specific form of 15 award is requested, arbitrators may provide a 16 “standard award” and simply announce a result . . . . At 17 the other end of the spectrum, the Arbitration Rules 18 allow parties to request that the arbitrators make 19 “findings of fact and conclusions of law,” a relatively 20 exacting standard familiar to the federal courts. 21 22 Logically, the varying forms of awards may be 23 considered along a spectrum of increasingly reasoned 12 1 awards, with a “standard award” requiring the least 2 explanation and “findings of fact and conclusions of 3 law” requiring the most. . . . [T]herefore, a reasoned 4 award is something short of findings and conclusions 5 but more than a simple result. 6 7

(citations and some internal quotation marks omitted).

8 We agree with our sister Circuits, and hold today that a reasoned award is

9 something more than a line or two of unexplained conclusions, but something

10 less than full findings of fact and conclusions of law on each issue raised before

11 the panel. A reasoned award sets forth the basic reasoning of the arbitral panel

12 on the central issue or issues raised before it. It need not delve into every

13 argument made by the parties. The award here satisfies that standard: while it

14 does not provide a detailed rationale for each and every line of damages

15 awarded, it does set forth the relevant facts, as well as the key factual findings

16 supporting its conclusions. The summary nature of its analytical discussion

17 reflects only that, as the district court found, “[t]he parties had ample

18 opportunity to contest Leeward’s entitlement to compensation for change order

19 work, and the summary nature of the discussion in the decision shows that the

20 panel simply accepted Leeward’s arguments on this particular point.” Leeward

21 Constr.,

, at *3. No more is needed. 13 1

2 II. Bad faith.

3 AUA next challenges the award on the ground that the arbitrators

4 improperly awarded damages to Leeward under the doctrine of “bad faith.”

5 AUA contends that Leeward never presented a “bad faith” doctrine theory to the

6 arbitrators, and thus deprived AUA of the opportunity to defend itself by

7 arguing that bad faith damages were not available under Antiguan law, or by

8 demonstrating that it actually acted in good faith. It also argues that the district

9 court erred when it applied the “barely colorable justification” standard in

10 evaluating the award, because that standard applies only to challenges based on

11 a “manifest disregard of the law” theory.

12 We find no error in the district court’s analysis. The district court properly

13 applied the “barely colorable justification” standard, because the crux of AUA’s

14 argument is that the arbitrators exceeded their authority. In our Circuit, such

15 claims are analyzed under the “barely colorable justification” standard. See U.S.

16 Steel & Carnegie Pension Fund v. Dickinson,

, 252 (2d Cir. 1985)

17 (holding that “if an arbitrator offers even a barely colorable justification for [the]

18 decision, we will not vacate it on the basis of a claim [that] he exceeded his 14 1 authority by misinterpreting the parties’ contract.”). The district court correctly

2 concluded that while “the arbitrators’ reasoning regarding the deleted work

3 awarded to Leeward under separate contracts is questionable and leaves much to

4 be desired, . . . there is at least a ‘barely colorable justification’ for the award

5 rendered and that AUAʹs challenge therefore fails.” Leeward Constr.,

1245549, at *4. While Leeward did not use the term “bad faith” during the

7 arbitration, it did argue that its damages included the benefit of the profit

8 margins it had originally negotiated for the work, and that appears to be what

9 the arbitrators were referencing in awarding “bad faith” damages. We find no

10 error in the district court’s conclusions.

11 CONCLUSION

12 We have examined the remainder of AUA’s arguments and find them to

13 be without merit. For the reasons stated above, the judgment of the district court

14 is affirmed.

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