B.L. Harbert Intern., LLC v. Hercules Steel Co.

• Decision Date: 28 February 2006
• Docket Number: No. 05-11153.,05-11153.
• Citation: 441 F.3d 905
• Parties: B.L. HARBERT INTERNATIONAL, LLC, Plaintiff-Appellant, v. HERCULES STEEL COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

441 F.3d 905

B.L. HARBERT INTERNATIONAL, LLC, Plaintiff-Appellant, v. HERCULES STEEL COMPANY, Defendant-Appellee.

No. 05-11153.

United States Court of Appeals, Eleventh Circuit.

February 28, 2006.

Marc James Ayers, James F. Archibald, III, Jonathan B. Head, Bradley, Arant, Rose & White, LLP, Birmingham, AL, for Plaintiff-Appellant.

Frank E. Riggs, John David Mura, Jr., William W. Hopson, Troutman Sanders, LLP, Atlanta, GA, for Defendant-Appellee.

Appeal from the United States District Court for the Northern District of Alabama.

Before ANDERSON, BLACK and CARNES, Circuit Judges.

CARNES, Circuit Judge:

The Federal Arbitration Act (FAA) liberally endorses and encourages arbitration as an alternative to litigation. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983); Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1367 (11th Cir.2005); Hill v. Rent-A-Ctr., Inc., 398 F.3d 1286, 1288 (11th Cir.2005). The reasons for this strong pro-arbitration policy are "to relieve congestion in the courts and to provide parties with an alternative method for dispute resolution that is speedier and less costly than litigation." Caley, 428 F.3d at 1367 (quoting Indus. Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434, 1440 (11th Cir.1998) (internal quotation marks omitted)); see also Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 125 n. 2, 121 S.Ct. 1302, 1314 n. 2, 149 L.Ed.2d 234 (2001) ("It was needed to `enable business men to settle their disputes expeditiously and economically and will reduce the congestion in the Federal and State courts.'") (emphasis omitted) (quoting Hearing on S. 4213-and S. 4214 Before a Subcomm. of the Senate Comm. on the Judiciary, 67th Cong., 4th Sess., 2 (1923)); Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 280, 115 S.Ct. 834, 842-43, 130 L.Ed.2d 753 (1995) ("[T]he Act, by avoiding the delay and expense of litigation, will appeal to big business and little business alike, ... corporate interests [and] ... individuals".) (quoting S.Rep. No. 68-536, at 3 (1924)) (internal quotation marks omitted and first alteration added).

The laudatory goals of the FAA will be achieved only to the extent that courts ensure arbitration is an alternative to litigation, not an additional layer in a protracted contest. If we permit parties who lose in arbitration to freely relitigate their cases in court, arbitration will do nothing to reduce congestion in the judicial system; dispute resolution will be slower instead of faster; and reaching a final decision will cost more instead of less. This case is a good example of the poor loser problem and it provides us with an opportunity to discuss a potential solution.

I.

B.L. Harbert International, LLC, is a Delaware corporation based in Birmingham, Alabama, which makes money in large construction projects including some done for the government. Hercules Steel Company is a North Carolina corporation based in Fayetteville, North Carolina, that manufactures steel used in construction.

On August 25, 2000, the United States Army Corp of Engineers, Savannah District, awarded Harbert a contract to construct an office complex for the Special Operations Forces at Fort Bragg, North Carolina. Harbert, in turn, awarded Hercules a $1,197,000 steel fabrication and erection subcontract on September 21, 2000.

The subcontract between the parties includes a provision that disputes between them will be submitted to binding arbitration under the auspices of the American Arbitration Association, using the Construction Industry Arbitration Rules. Later, the parties executed a separate Agreement to Arbitrate, which recognizes that the Federal Arbitration Act, 9 U.S.C. § 1, would control arbitration proceedings.

The subcontract further provides that Harbert will issue a "Progress Schedule" for the project and will provide a copy to each subcontractor. It states that the subcontractor must perform all work "in accordance with Progress Schedule as prepared by [Harbert] and as it may be revised from time to time with the Subcontractor's input." The subcontract also provides that the subcontractor is liable for damages caused by its failure to complete its work within the time provided in the "Project Schedule." The terms "Progress Schedule" and "Project Schedule" are not defined.

Harbert's failure to define those terms might have gone unnoticed if it had created only one schedule for the project, but Harbert developed two, which it referred to as the 2000 and 3000 schedules. Harbert claims that it created the 3000 schedule to update the Corps of Engineers about the progress of the project, and the 2000 schedule to manage the work of its subcontractors, including Hercules. In any event, neither schedule is mentioned in the subcontract.

The dispute-generating problem is that the 2000 schedule contained earlier completion dates than the 3000 one. According to the 2000 schedule, Hercules was to begin work on March 5, 2001, and finish it by June 6, 2001. That did not happen. Hercules began work in April of 2001, and did not finish it until January of 2002. That completion of the work was, however, within the more lenient deadlines of the 3000 schedule.

Dissatisfied with the timeliness of Hercules' work, Harbert stopped making payments to Hercules and demanded that it pay delay damages exceeding the amount due Hercules on the subcontract. In response, on January 21, 2003, Hercules filed a demand for arbitration with the American Arbitration Association, seeking to recover the balance due on the subcontract, other damages, interest, and attorney's fees. Harbert counterclaimed for delay damages, acceleration costs, miscellaneous back charges, interest, and attorney's fees.

The arbitration proceedings took place on seven days in February and May 2004.¹ As is customary in construction industry arbitrations, the parties decided not to have a court reporter take down the proceedings. We can, however, tell from the parties' briefs and statements during oral argument in this Court what their principal positions and arguments were in those proceedings.

We know that the main disagreement of the parties was about which of Harbert's two progress schedules applied to Hercules. Hercules took the position that the only one that applied to it was the 3000 Schedule which contained deadlines it had met. The several arguments Hercules made in support of this position included one that the subcontract language was ambiguous because it referred to both a "Progress Schedule" and "Project Schedule," but did not define either term. Hercules argued that the subcontract provisions had to be interpreted in light of an implied element of reasonableness. It also argued that Harbert had abandoned the 2000 schedule thereby authorizing Hercules to perform in accordance with the 3000 Schedule. Additionally, Hercules presented evidence that it did not have notice of the 2000 Schedule at the time it began work on the project.

Harbert, on the other hand, contended that the subcontract language unambiguously gave it complete authority to set the schedule which would mean that Hercules was bound by the 2000 schedule. Harbert asserted that the 2000 schedule was the "Progress Schedule" referred to in the subcontract because it was the only schedule Harbert issued to all of its subcontractors.

After considering the parties' opposing arguments and a voluminous record, the arbitrator issued his "Award of Arbitrator" on September 8, 2004. That award denied Hercules' delay damages claim, denied all of Harbert's counterclaims, denied both parties' claims for attorney's fees, and awarded Hercules $369,775, representing the subcontract balance and the interest on that sum. Because the award, not counting interest, was nearly $100,000 less than the amount the parties had agreed was the subcontract balance, Hercules believed that the arbitrator had made a scrivener's or mathematical error. It submitted a request for clarification which pointed out the problem.

Harbert moved for clarification and modification of the award but on different grounds. Harbert's motion pointed out that the award did not contain the specificity the parties had agreed they needed and it requested that the arbitrator modify it to provide "enough discussion" on each of the six "Issues for Decision" that had been identified by the parties to enable them to understand the result and the arbitrator's reasons for granting or denying any specific item of damages. The first of those six issues was: "What was the schedule to which Hercules was bound under its subcontract with Harbert?"

On October 18, 2004, the arbitrator issued his "Disposition for Application of Modification/Clarification of the Award," a decision document which corrected the scrivener's error by increasing the award from $369,775 to $469,775. The document also revealed the arbitrator's findings on the six issues, stating in answer to the first one that Hercules was contractually bound to the more generous "project schedule submitted to the Corps of Engineers which was used to build the project [the 3000 schedule] ... not the sixteen week schedule unilaterally set by Harbert [the 2000 schedule]." The arbitrator stated in answer to another of the six issues that Harbert was not entitled to any damages because "[t]he delay and acceleration damages are necessarily dependent on the claimed project schedule which has been found not applicable."

On November 18, 2004, Harbert filed in the district court a motion to vacate the arbitration award, contending that the arbitrator's rationale reflected a manifest disregard of the applicable law. Hercules opposed Harbert's motion with one of its own, asking the court to confirm the award pursuant to 9 U.S.C. § 9.

On February 7, 2005, the district court entered an order denying Harbert's motion to vacate the award and granting Hercules' motion to confirm it. While there...