Mass. Highway Dep't & Another 1 v. Perini Corp.. & Others.2

• Decision Date: 09 May 2011
• Docket Number: No. 09–P–2052.,09–P–2052.
• Citation: 947 N.E.2d 62,79 Mass.App.Ct. 430
• Court: Appeals Court of Massachusetts
• Parties: MASSACHUSETTS HIGHWAY DEPARTMENT & another 1v.PERINI CORPORATION & others.2

79 Mass.App.Ct. 430

947 N.E.2d 62

MASSACHUSETTS HIGHWAY DEPARTMENT & another 1

v.PERINI CORPORATION & others.2

No. 09–P–2052.

Appeals Court of Massachusetts, Suffolk.

Argued Nov. 9, 2010.Decided May 9, 2011.

Thomas H. Hayman, Special Assistant Attorney General (James A. Sweeney, Assistant Attorney General, & Francis R. Powell, Special Assistant Attorney General, with him) for the plaintiffs.Joel Lewin (Michael D. Healan with him), Boston, for the defendants.Present: COHEN, MILLS, & HANLON, JJ.HANLON, J.

This appeal concerns an arbitration panel's award of postaward interest on amounts owed to a general contractor for work on a public construction project. The Massachusetts Highway Department and Massachusetts Turnpike Authority (collectively, CA/T), filed these actions, later consolidated, seeking to vacate two arbitration awards in favor of Perini Corporation, Kiewit Construction Company, Inc., and Jay Cashman, Inc. (collectively, PKC), joint venturers, in connection with work PKC performed on the Central Artery/Tunnel project (project) in Boston, under the parties' 1995 public construction contract (construction contract). CA/T subsequently moved to dismiss the action as moot, arguing that CA/T already had paid the awards on time, by means of interim funding provided to PKC over the course of the work, and that no postaward interest was due. CA/T also raised issues of equity, public policy, and sovereign immunity in opposing confirmation of the award. For the reasons laid out below, we affirm the arbitration awards in all respects.

Factual background.³ The matter before us arises in connection with PKC's claims for additional compensation, or change proposals, in two of several such disputes between the parties that were submitted to arbitration. ⁴ The construction contract originally provided for nonbinding resolution for disputed claims, but in March, 1999, the parties executed a dispute resolution agreement (1999 agreement), whereby they agreed to submit disputes regarding certain identified claims, including the claims involved here, to binding arbitration before a disputes review board (DRB). As to the identified claims, the 1999 agreement was to “supercede and/or supplement” the dispute resolution provisions of the construction contract; the 1999 agreement expressly granted “the exclusive authority to adjudicate any and all such disputes” to the DRB.

At issue in this appeal are DRB orders 11A and 16, both of which include an award of postaward interest on amounts not paid within sixty days of the awards. Pivotal to the dispute is certain interim funding paid by CA/T to PKC over the course of the project. According to the record, CA/T modified the construction contract on occasion to provide PKC with interim funding, i.e., provisional payments for change proposals for which PKC had incurred costs, but for which no final agreement about payment had been reached. The time between PKC's completion of the work and final agreement regarding payment sometimes took several years; the interim funding provided PKC with money to operate, pending final payment.

CA/T provided the interim funding by making modifications to the construction contract.⁵ The record indicates that, as the parties reached agreement concerning the amounts that were owed for the various change proposals, CA/T allocated the funds it had previously paid to PKC on an interim basis to the agreed-upon change proposals. Once allocated, the payments became final and were no longer subject to CA/T's ability to make upward or downward adjustments or to make deductions against future payments. As of January, 2004, however, $20,089,149 of interim funding, previously paid to PKC, remained unallocated to specific change proposals.

Arbitration proceedings. In deciding the parties' various disputed claims involving payment for change proposals, the DRB issued five orders between August 31, 2001 and December 2, 2005, and awarded PKC a total of $56,529,000 in additional payments. All five awards provided for postaward interest. Three of the orders, DRB orders 3, 5, and 10, were confirmed in Superior Court and affirmed on appeal, and are not at issue here.⁶

On May 13, 2005, the DRB issued order 11A, awarding PKC the amount of $10,763,000, and providing that “interest should be added to the ... Award Amount at the rate of nine percent (9%) compounded per annum for any delay in payment beyond sixty (60) days after the date of the Award.” On December 2, 2005, the DRB issued order 16, awarding PKC the amount of $12,226,000, and again providing for postaward interest at nine percent, compounded annually, for any delay in payment. In 2008, CA/T allocated sufficient amounts from the interim funding previously paid to PKC, pursuant to modification 950, IG and IH, to pay the award amounts in orders 11A and 16. However, CA/T did not allocate funds to cover postaward interest for either award.

Judicial review. In motions before the Superior Court, CA/T did not contest the amounts of the underlying arbitration awards 11A and 16, but argued that no postaward interest was due because the awards had been paid in full and on time, by virtue of the interim funding. CA/T also challenged the award of postaward interest on sovereign immunity grounds, maintaining that CA/T's specific consent to postaward interest was needed to impose liability for such an award on a public entity. Finally, it argued that inclusion of compound interest as part of the awards was contrary to applicable statutory provisions governing interest on late payments by the Commonwealth.

The judge confirmed orders 11A and 16 to the extent they required CA/T to pay postaward interest, but imposed a different interest rate, the rate established by G.L. c. 30, § 39G, and ruled that the award of compound interest was contrary to the controlling statute. Both parties appeal.

Discussion. a. Interim funding. CA/T does not appear to challenge the general proposition that an arbitrator has the authority to award postaward interest. “An arbitrator's award of interest, when made as a component of an award, is an integral part of the total remedy that he fashions and, as such, is not subject to the statutory provisions which apply to court-awarded interest on contract claims.” Blue Hills Regional Dist. Sch. Comm. v. Flight, 10 Mass.App.Ct. 459, 472, 409 N.E.2d 226 (1980), reversed in part on other grounds, 383 Mass. 642, 644, 421 N.E.2d 755 (1981) (“For the reasons given by the Appeals Court, we uphold the power of the arbitrator to commence the accumulation of interest”); Baxter Health Care, Corp. v. Harvard Apparatus, Inc., 35 Mass.App.Ct. 204, 207, 617 N.E.2d 1018 (1993). The Supreme Judicial Court has upheld postaward interest on arbitration awards as a means of encouraging compliance. See Watertown Firefighters, Local 1347 v. Watertown, 376 Mass. 706, 717–718, 383 N.E.2d 494 (1978).

CA/T, however, argues that it owes no postaward interest on the amounts awarded in DRB orders 11A and 16 because it paid PKC in full, within the time ordered by the DRB, by way of the interim funding that was already in PKC's possession. The question, then, is whether the interim funding constituted final and timely payment of the award amounts.

As an initial matter, the parties dispute the appropriate standard of review. CA/T argues that the judge, and not the DRB, decided, as a matter of law, that the interim funding did not constitute final payment of the awards, and hence our review of that ruling should be de novo. PKC counters that the significance of the interim funding for purposes of preaward and postaward interest was argued to, and decided by the DRB, and thus our review of the arbitrator's award of postaward interest is limited to the factors set out in the Massachusetts Uniform Arbitration Act, G.L. c. 251, § 12. Among those factors, § 12(a)(5), inserted by St.1960, c. 374, § 1, provides that “the fact that the relief was such that it could not or would not be granted by a court of law or equity is not ground for vacating or refusing to confirm the award.”

After review of the record, we are satisfied that the DRB decided the issue whether the interim funding constituted final payment of the awards when it ordered postaward interest. The merits of that decision are not revisited on appeal. Sheriff of Suffolk County v. AFSCME Council 93, Local 419, 67 Mass.App.Ct. 702, 705, 856 N.E.2d 194 (2006), citing School Dist. of Beverly v. Geller, 435 Mass. 223, 228, 755 N.E.2d 1241 (2001).⁷ We are strictly bound by the DRB's findings and legal conclusions, and “[a]bsent fraud, errors of law or fact are not sufficient grounds to set aside an award.” Lynn v. Thompson, 435 Mass. 54, 61, 754 N.E.2d 54 (2001), cert. denied, 534 U.S. 1131, 122 S.Ct. 1071, 151 L.Ed.2d 973 (2002), quoting from Plymouth–Carver Regional Sch. Dist. v. J. Farmer & Co., 407 Mass. 1006, 1007, 553 N.E.2d 1284 (1990). With respect to awarding damages, so long as the arbitrator “do[es] not overstep the limits of the issues submitted to [him], a court may not substitute its judgment on the matter.” Softkey, Inc. v. Useful Software, Inc., 52 Mass.App.Ct. 837, 839, 756 N.E.2d 631 (2001), quoting from Lawrence v. Falzarano, 380 Mass. 18, 28–29, 402 N.E.2d 1017 (1980).

On the other hand, the judge made certain rulings, based on the DRB's findings and legal conclusions, in order to determine the manner in which CA/T could satisfy the awards. Our review of a judge's decision to confirm an arbitration award is de novo, since we have before us the same record as the judge. Cybulski v. Vaiani, 75 Mass.App.Ct. 382, 384, 914 N.E.2d 354 (2009).

Viewing DRB orders 11A and 16 together, it becomes apparent that the DRB treated preaward and postaward interest differently; that is, it found that the provisional nature of the interim funding satisfied the purposes of one and not the other. To place orders 11A and 16 in context, we begin with DRB...