Flight Systems v. Paul A. Laurence Co.

• Decision Date: 24 May 1989
• Docket Number: 88-2846 SSH.,Civ. A. No. 88-2651 SSH
• Parties: FLIGHT SYSTEMS, Plaintiff, v. PAUL A. LAURENCE CO., Defendant. PAUL A. LAURENCE CO., Plaintiff, v. FLIGHT SYSTEMS, Defendant.
• Court: U.S. District Court — District of Columbia

715 F. Supp. 1125

FLIGHT SYSTEMS, Plaintiff, v. PAUL A. LAURENCE CO., Defendant.

PAUL A. LAURENCE CO., Plaintiff, v. FLIGHT SYSTEMS, Defendant.

Civ. A. Nos. 88-2651 SSH, 88-2846 SSH.

United States District Court, District of Columbia.

May 24, 1989.

Robert C. Zimmer, Washington, D.C., for Flight Systems.

Paul W. Killian, Vienna, Va., for Paul A. Laurence Co.

MEMORANDUM OPINION

STANLEY S. HARRIS, District Judge.

On September 20, 1988, Flight Systems petitioned the Court to vacate or modify an arbitration award decided by a panel of the American Arbitration Association in Paul A. Laurence Company's (hereinafter PALCO) favor. On October 3, 1988, not having received notice of Flight Systems' petition, PALCO petitioned the Court to confirm the arbitration award. The two petitions were consolidated.

Background

PALCO, a Minnesota corporation, contracted with Flight Systems, a Pennsylvania metal fabrications supplier, for the furnishing of various metals and structural steel in connection with a Regional Water Reclamation Plant Expansion project for the Upper Occoquan Sewage Authority, located in Centreville, Virginia. A dispute arose concerning certain additional work and materials. Both parties agreed that the dispute would be submitted to the American Arbitration Association (AAA) in accordance with the rules established by the AAA for construction disputes and in accordance with Virginia law.

In addition to agreeing to a final resolution by arbitration, both parties agreed that Flight Systems would complete the project and would deliver the material in dispute. In response, PALCO would pay half of the total price of the material, $56,390.50. If Flight Systems prevailed in the arbitration, PALCO would pay Flight Systems the remaining $56,390.50. If PALCO prevailed, Flight Systems was to return PALCO's payment.

Arbitration hearings were held by the AAA's Construction Industry Arbitration Tribunal in Washington, D.C., on June 2 and 3, 1988. On June 17, 1988, the AAA decided in favor of PALCO and ordered Flight Systems to return the $56,390.

Flight Systems did not pay PALCO in accordance with the arbitration award. Instead, on September 16, 1988, five months after agreeing to settle the dispute by arbitration and two months after the award was issued, Flight Systems contacted a former employee, Stephen Diehl, who had formulated Flight Systems' bid. Flight Systems showed Diehl a document that PALCO presented during the arbitration. Based on that document, Diehl recalled details which Flight Systems alleges materially affect the subject of the arbitration. As a result, Flight Systems petitioned this Court to vacate the arbitration award. Flight Systems premised its petition on the fact that the arbitrators, by not having access to the information provided by Diehl, made an evident mistake which greatly prejudiced Flight Systems.

Meanwhile, PALCO, after corresponding with Flight Systems to no avail and being without notice of Flight Systems petition to vacate, instituted action in this Court to confirm the arbitration award. PALCO's and Flight Systems' petitions are now consolidated.

Discussion

The parties' petitions present several issues: (1) Should the Federal Arbitration Act, 9 U.S.C. § 1 et seq., or Virginia arbitration law, Virginia Code § 8.01-581.01 et seq., apply in determining the validity of the arbitration award; (2) under the applicable law, does Flight Systems' "new evidence" argument justify vacating or modifying the arbitration award; (3) was Flight Systems' petition timely; and (4) if Flight Systems' petition is denied, should the Court grant PALCO's petition, thus affirming the arbitration award.

Choice-of-law

PALCO claims that because the contract involves interstate commerce, the Federal Arbitration Act (FAA) applies. Flight Systems contends that Virginia arbitration law controls, rather than the FAA.

The question whether the FAA displaces state law in transactions involving interstate commerce, even when the parties have agreed to arbitrate in accordance with state law, has been in debate.¹ Recently, however, the Supreme Court decided the issue in Volt Information Science, Inc. v. Board of Trustees of the Leland Stanford Junior University, ___ U.S. ___, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989). In Volt, the parties, who were involved in interstate commerce, contracted to arbitrate all disputes between the parties arising out of breach of contract. The contract also contained a choice-of-law clause, similar to the one used in this case, providing that the contract would be governed by the law of the place where the project involved was located. When a dispute arose, Volt made a formal demand for arbitration, and Stanford filed an action in California Superior Court, asking that the arbitration be stayed pursuant to Cal.Civ.Proc.Code Ann. § 1281.2(c).² In response, Volt asked the Court to compel arbitration. The Superior Court denied the motion to compel and stayed the arbitration proceeding pending the outcome of the litigation. The California Court of Appeals affirmed. The California Supreme Court denied Volt's petition for discretionary review, and eventually the choice-of-law issue was entertained by the Supreme Court. The Court held that "the FAA contains no express pre-emptive provision, nor does it reflect a congressional intent to occupy the entire field of arbitration." Volt, 109 S.Ct. at 1254. State law, the Supreme Court said, may be preempted to the extent that it actually conflicts with federal law and "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Id. at 1255 (quoting Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581 (1941)). However, it does not follow, the Supreme Court stated, that "the FAA prevents the enforcement of agreements to arbitrate under different rules than those set forth in the Act itself ... parties are generally free to structure their arbitration agreements as they see fit. Just as they may limit by contract the issues which they will arbitrate ... so too may they specify by contract the rules under which that arbitration will be conducted." Id. Thus, given the FAA's mandate that courts enforce privately negotiated agreements to arbitrate in accordance with their terms as long as those terms are consistent with the goals of the FAA and the recent Volt decision, the Court finds that it should apply Virginia law. The parties contracted under the laws of Virginia, agreed to arbitration under the laws of Virginia, and the applicable Virginia law does not directly conflict with the goals of the FAA.³ Therefore, the Court applies the Virginia Arbitration Act and not the FAA in analyzing Flight Systems' motion to vacate and PALCO's motion to confirm.⁴

Review of the Arbitration Award

Flight Systems claims that because the arbitrators did not get a chance to hear Mr. Diehl's statements, the arbitration award was "based on terms and conditions other than those set forth in the contract, and as such, represents an evident mistake or abuse of discretion by the panel of arbitrators and must be modified or corrected...."⁵ To support this position, Flight Systems relies upon two arguments. First, Flight Systems contends that the award represents an abuse of discretion because the arbitrators did not set a discovery schedule, hold a preliminary hearing, or require the parties to submit discovery and documents prior to the arbitration. Second, using an analogy of granting a new trial, Flight Systems argues that the award represents an evident mistake because the arbitrators did not view the evidence which was later supplied by Mr. Diehl.⁶

Neither of Flight Systems' arguments justifies vacating the arbitration award. First of all, an arbitration panel is not subject to the more rigid procedural mechanisms that courts are. Arbitration panels have great discretion and courts have narrow review of their actions and decisions. See, e.g., Washington-Baltimore Newspaper Guild v. Washington Post Co., 442 F.2d 1234, 1239 (D.C.Cir. 1971); City of Fairbanks Municipality Utilities System v. Lees, 705 P.2d 457 (Alaska 1985) (arbitration should be a final and binding means of dispute resolution, and courts should follow a policy of minimal interference with arbitration), reh'g denied, Id.; AFSCME Council 65, Local Union No. 667, Aitkin County Courthouse Employees, AFL-CIO v. Aitkin County, 357 N.W.2d 432 (Minn.App.1984) (the role of the trial court in reviewing arbitration cases under Minnesota's variation of the Uniform Arbitration Act is severely limited). The fact that the arbitration panel did not set a discovery schedule does not put its actions in the area of misconduct. Flight Systems does not allege any facts which might lead the Court to believe that Flight Systems did not have adequate notice or time to conduct discovery, that the panel refused to hear evidence, or that Flight Systems was denied a fair hearing. Furthermore, Flight Systems did not bring up any problems with the arbitration panel's conduct at the time of the arbitration hearings, nor did Flight Systems request the arbitrators to postpone proceedings so that Flight Systems could conduct further discovery. Flight Systems does not offer, nor can the Court find, any case law which would allow the Court to overturn an arbitration decision based on the facts presented.

Second, Flight Systems relies on invalid case law in its argument that the award should be vacated based on a new trial analogy. There is Virginia case law, dating back to 1874, that applies the rules governing courts of equity in arbitration litigation. The cases allow the awarding of a new trial based on the ground of new evidence. Adams v. Hubbard, 66 Va. 129 (25 Gratt. 1874). However, Virginia recently repealed Va.Code § 8.01-580, which codified the law on which the early cases had relied.⁷ In its place, Virginia adopted, almost verbatim, the Uniform...