M&L Power Services v. American Networks Intern.

Citation44 F.Supp.2d 134
Decision Date15 April 1999
Docket NumberNo. C.A. 98-268L.,C.A. 98-268L.
PartiesM & L POWER SERVICES, INC., Plaintiff, v. AMERICAN NETWORKS INTERNATIONAL, Lucent Technologies, Inc. and St. Paul Fire & Marine Insurance Company, Defendants.
CourtUnited States District Courts. 1st Circuit. United States District Courts. 1st Circuit. District of Rhode Island

Joseph J. Reale, Jr., Providence, RI, for plaintiff.

Peter L. Kennedy, R. Bart Totten, Adler Pollock & Sheehan, Providence, RI, for Defendant American Networks.

Joseph V. Cavanagh, Jr., Blish & Cavanagh, Providence, RI, for Defendants Lucent & St. Paul Fire.

DECISION AND ORDER

LAGUEUX, Chief Judge.

American Networks International ("defendant") and M & L Power Services, Inc. ("plaintiff") did not want a judge to settle their differences. Defendant, a subcontractor for Lucent Technologies, hired plaintiff to assist as a sub-subcontractor, and one clause of their contract dictated that any dispute arising from the contract would be heard by an arbitrator.

The parties did have a dispute. An arbitrator heard the case. Arbitrator Paul G. Cove ("Cove") awarded plaintiff $135,858.88 on December 5, 1998, and the parties now ask this Court to intervene. Specifically, defendant asks this Court to vacate Cove's decision, and plaintiff requests that the award be confirmed and that judgment be entered thereon.1

The parties do not agree whether this Court should look to federal or state law when it decides whether to vacate or confirm the arbitrator's decision. Neither side raised the issue in a meaningful way, even though there are reams of cases on both standards and on preemption by the Federal Arbitration Act, 9 U.S.C. §§ 1-16 ("FAA"). After analysis, it is clear that the two standards are almost identical and that the FAA preempts state law where the state provides less protection to arbitration awards.

It is equally as clear that, under either federal or Rhode Island law, this Court may vacate an arbitrator's award only in rare circumstances and this case does not qualify. Defendant offers a number of objections to Cove's decision, but after examination, this Court finds that all of defendant's claims are flawed. Defendant contracted to arbitrate, and it has suffered no harm that merits a judicial remedy. It was merely the losing party in a run-of-the-mill arbitration proceeding.

This Court will not substitute its judgment for the arbitrator's resolution of this matter. Therefore, defendant's motion to vacate the arbitration award is denied, and plaintiff's motion for confirmation of the award is granted.

I. Facts

The parties signed a contract under which plaintiff was to perform as a sub-subcontractor on a construction project at the Rhode Island Department of Corrections, Howard Avenue in Cranston, Rhode Island. Plaintiff's employees helped install fiber optic and other cables as part of a larger project overseen by Lucent Technologies. The contract between the parties provided that any dispute between them should be decided through binding arbitration.

Plaintiff eventually demanded more money for its work than defendant was willing to pay. The dispute centered on claims for extra work, delays, materials, truck rentals and acceleration. Plaintiff sued in this Court, but plaintiff and defendant agreed to stay the proceedings pending arbitration. Arbitrator Cove heard four days of evidence in September and October 1998. Defendant paid for a transcript of the hearings. At the outset, plaintiff's counsel declined to join in shouldering a part of the cost although he did not object to making the transcript the official record of the proceedings. On the fourth day, plaintiff's counsel precipitated a new conflict by asking to see the transcript.

Through early November, the parties' counsel — who occupy offices separated by a single floor in Providence's BankBoston Plaza building — could not agree on a location for plaintiff's counsel to inspect the transcript. Cove tried to negotiate a solution, but plaintiff's counsel refused to drive to Boston to read the document, while defendant's counsel refused to allow inspection in Providence. On November 12, 1998, Cove dictated a Solomonic solution. He cut the baby in half — ruling that plaintiff could not see the transcript but that the transcript was not the official record of the hearing. (See Letter from Romeo to Parties of 11/13/98, at 1 (recording the decision) (attached as Exhibit 9 of Mem. of American Networks Int'l in Supp. of its Mot. To Vacate the Award of the Arbitrator (herinafter Defendant's Mem.)).2 However, Cove allowed defendant's counsel to use the transcript at his discretion. (See id.)

The parties filed their post-hearing briefs, and on December 5, 1998, Cove found in favor of plaintiff for $135,858.88. Cove's single-page decision explained that the award was based on two of plaintiff's three claims against defendant. He awarded nothing on the third. However, he did not explain the reasoning behind his decision or the evidence that he found compelling.

II. Review of an Arbitration Decision

The parties do not agree what law controls this Court's review of the arbitration decision. Defendant looks to the FAA, 9 U.S.C. § 10. Plaintiff looks to the Rhode Island Arbitration Act, R.I.Gen.Laws § 10-3-12 (the "RIAA"). Unfortunately, neither party makes a complete or well-documented argument in support of its position.

The application of the FAA to a state law proceeding is complex. It is controlled neither by the single district court case cited by defendant in oral argument nor by the primordial Erie R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), trotted out by plaintiff. This Court must decide whether the FAA trumps state arbitration law. To accomplish that, this Court will outline the federal and state (here Rhode Island) standards. Then, it will decide what effect the FAA has on this case, namely in what circumstances the FAA preempts the state standard when this Court hears a case based on diversity jurisdiction.

A. The Federal and State Standards

Defendant frames the argument that Cove's behavior prejudiced the rights of defendant and that Cove's decision was fundamentally irrational. The behavior attacked was Cove's choice to "decertify" the transcript. The irrationality is based on two grounds: that the decision was unfounded in fact and that it totally disregarded a contract provision that contained a condition precedent to making claims.

Therefore, this Court does not discuss the standards for reviewing an arbitration based on corruption, see, e.g., 9 U.S.C. § 10(a)(1)-(2), based on lack of arbitrability, see, Fleet Constr. Co. v. Town of North Smithfield, 713 A.2d 1241, 1243 (R.I.1998), or based on public policy, see, e.g., Exxon Corp. v. Esso Workers' Union, Inc., 118 F.3d 841 (1st Cir.1997) (federal); Vose v. Brotherhood of Correctional Officers, 587 A.2d 913 (R.I.1991) (state). See also William E. Smith, Judicial Review of Labor Arbitration Awards in Rhode Island, 3 Roger Williams U.L.Rev. 165, 183-85, 192-94 (1998).

1. The FAA and "Advest"

The FAA establishes the relevant standard for a court to vacate an arbitration award:

(a) In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration—

(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.

(4) 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)(3)-(4).

Additionally, the First Circuit has recognized a judge-created ground to vacate an arbitration verdict where an arbitrator exhibits a manifest disregard of the law. See Advest, Inc. v. McCarthy, 914 F.2d 6, 8-10 (1st Cir.1990). Judge Bruce M. Selya reduced the doctrine in non-labor cases to instances "where it is clear from the record that the arbitrator recognized the applicable law — and then ignored it." Id. at 9. In that case, Advest claimed that the law regarding damages was so clear and the arbitrators' award so irreconcilable that the panel must have disregarded the law and "embarked on a flight of fancy." Id. at 9-10. Judge Selya noted that the Circuit Court gives greater deference to arbitrators than it does to district judges:

[I]n order to prevail, Advest by its own admission must prove that the arbitrators' choice of redress was in manifest disregard of the law. The hurdle is a high one, especially since there is nothing talismanic about the phrase "manifest disregard." The configuration merely means that, to vacate an arbitration award, there must be some showing in the record, other than the result obtained, that the arbitrators knew the law and expressly disregarded it... As arbitrators need not explain their award, and did not do so here, it is no wonder that appellant is hard pressed to satisfy the exacting criteria for invocation of the doctrine.

Id. at 10 (citations omitted). See also Prudential-Bache Securities, Inc. v. Tanner, 72 F.3d 234, 237-38 (1st Cir.1995).

2. The RIAA and "Prudential Property"

The parallel Rhode Island standard of review appears in the RIAA, which states that a court may vacate an award:

(3) Where the arbitrators were guilty of misconduct in refusing to postpone hearing, upon sufficient cause shown, or in hearing legally immaterial evidence, or refusing to hear evidence pertinent and material to the controversy, or other misbehavior by which the rights of any party have been substantially prejudiced

(4) Where the arbitrators exceeded their powers, or imperfectly executed them that a material, final and definite award upon the subject matter submitted was not made.

R.I.Gen.Laws. § 10-3-12(3)-(4).

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