Metzler Contracting Co. Llc v. Stephens

• Decision Date: 28 February 2011
• Docket Number: Civ. No. 10–00516 ACK–BMK.
• Citation: 774 F.Supp.2d 1073
• Parties: METZLER CONTRACTING CO. LLC, Petitioner and Cross–Respondent,v.Elle STEPHENS and Paul Stephens, Respondents and Cross–Petitioners.
• Court: U.S. District Court — District of Hawaii

774 F.Supp.2d 1073

METZLER CONTRACTING CO. LLC, Petitioner and Cross–Respondent,
v.
Elle STEPHENS and Paul Stephens, Respondents and Cross–Petitioners.

Civ. No. 10–00516 ACK–BMK.

United States District Court, D. Hawai‘i.

Feb. 28, 2011.

[774 F.Supp.2d 1075]

Bruce D. Voss, David Ronald Major, Bays Deaver Lung Rose & Holma ALII Place, Kale Feldman, Chee Markham & Feldman, Honolulu, HI, Jerry M. Hiatt, Mahilani E.K. Hiatt, Hiatt & Hiatt, Kamuela, HI, for Petitioner and Cross–Respondent.Anna H. Oshiro, Christi–Anne Hiromi Kudo Chock, James C. McWhinnie, Kenneth R. Kupchak, Damon Key Leong Kupchak Hastert, Honolulu, HI, Ellis Ross Anderson, Deidre Von Rock–Ricci, Jamie C. Couche, Anderson & Poole, James M. Schurz, Leah F. Wilson, Paul T. Friedman, Ruth N. Borenstein, Morrison & Foerster LLP, San Francisco, CA, for Respondents and Cross–Petitioners.

ORDER GRANTING IN PART AND DENYING IN PART PETITIONER'S MOTION TO CONFIRM ARBITRATION AWARD AND DENYING RESPONDENTS' PETITION TO VACATE ARBITRATION AWARD ALAN C. KAY, Senior District Judge.I. PROCEDURAL AND FACTUAL BACKGROUND

Invoking the Court's diversity jurisdiction, Petitioner Metzler Contracting Co. LLC (“Metzler”) has moved under Hawai'i state law for the Court to confirm an arbitration award and has filed a memorandum in support of its motion (“Mot. Mem.”). (ECF Nos. 1–2.) The arbitration concerned a home on the Island of Hawai'i that Metzler contracted to build for Respondents Elle Stephens and Paul Stephens.¹

The Stephenses have filed a memorandum in opposition to Metzler's motion. (ECF No. 18.) They have also filed a petition under federal law for the court to vacate the arbitration award (“Cross–Pet.”) and a memorandum in support of that petition (“Cross–Pet. Mem.”).² (ECF

[774 F.Supp.2d 1076]

No. 17.) Metzler has since filed a memorandum in opposition to the Stephenses' petition (“Metzler's Opp'n”). (ECF No. 25.) Both parties have filed replies in support of their positions. (ECF Nos. 26–27.) ³

The claims submitted for arbitration include so-called “audit claims,” including claims by the Stephenses that Metzler overbilled for the project by approximately 70 percent, or about $7 million, that approximately $2.3 million in costs billed were not reimbursable, and that the Stephenses suffered losses of more than $2.5 million due to delay, (Mot. Mem. Ex. L. (“Final Award”) at 5–10); “defect claims” by the Stephenses, including claims involving the residence's doors, stone flooring, roofing system, landscape, plumbing, integrated control system, and fifty-one miscellaneous issues, ( id. at 11–36.); and an “affirmative claim” by Metzler for approximately $450,000, the remaining amount billed but not yet paid at the time of the arbitration. ( Id. at 10–11.) ⁴

The arbitrator awarded $800,103.40 to the Stephenses on their claims and $645,921.76 to Metzler on its claims. (Final Award at 36–37.) The arbitrator also allocated 75 percent of the fees, expenses, and compensation of the American Arbitration Association and the arbitrator to the Stephenses, resulting in an additional award to Metzler of $106,672.62.⁵ (Final Award at 40.) All told, the net result of the arbitration was an award of $47,509.02 to the Stephenses, which Metzler has paid. (Mot. Mem. Exs. N–O.)

II. APPLICABLE LAW

Although they agree that the standard for evaluating whether to confirm or vacate the arbitration award is the same either way, the parties disagree about whether state or federal law governs that evaluation.⁶ (Metzler's Opp'n at 33; Stephenses'

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Reply at 2.) Metzler seeks confirmation of the award under state law. The Stephenses, in their cross-petition, seek vacation under the Federal Arbitration Act (“FAA”). Both parties are correct about the result; the state and federal standards for confirming and vacating arbitration awards are nearly identical and the Court has previously treated them as such. See Howard Fields & Assocs. v. Grand Wailea Co., 848 F.Supp. 890, 895 (D.Haw.1993) (“[T]he State of Hawaii has enacted an arbitration act that is virtually the same as the federal act.”). Based on recent Ninth Circuit decisions, the Court will evaluate both Metzler's motion to confirm and the Stephenses petition to vacate under federal law.

The contract says that “judgment may be entered upon [a final arbitration award] in accordance with applicable law in any court having jurisdiction thereof.” (Gen. Conditions § 4.6.6.) The contract contains “no express limitation stating that the Arbitration may only be confirmed under” either state or federal law; in that situation, a court in this district has previously applied state law to the confirmation of an arbitration award. Valrose Maui, Inc. v. Maclyn Morris, Inc., 105 F.Supp.2d 1118, 1122 & nn. 5–6 (D.Haw.2000).

Since the decision in Valrose Maui, however, the Ninth Circuit has developed a “strong default presumption that the FAA, not state law, supplies the rules for arbitration,” and has held that the presumption only can be overcome by “clear intent to incorporate state law rules for arbitration.” Johnson v. Gruma Corp., 614 F.3d 1062, 1066–67 (9th Cir.2010) (ellipsis and internal quotation marks omitted) (quoting Fid. Fed. Bank, FSB v. Durga Ma Corp., 386 F.3d 1306, 1311 (9th Cir.2004); Sovak v. Chugai Pharm. Co., 280 F.3d 1266, 1269 (9th Cir.2002)). This presumption applies to the confirmation and vacation of arbitration awards as well as the arbitration itself. See Fid. Fed. Bank, 386 F.3d at 1308, 1311 (deciding consolidated appeals from the confirmation of an arbitration award and the denial of a motion to vacate that award and stating that “federal law governs” the “issues we address on appeal”); see also Johnson, 614 F.3d at 1067 (“[W]here the FAA's rules control arbitration proceedings, a reviewing court must also apply the FAA standard for vacatur.”) (citing Fid. Fed. Bank, 386 F.3d at 1312). The Court will therefore depart from the analysis in Valrose Maui and will instead consider whether the contract evinces a clear intent to apply Hawai'i's arbitration rules.

As stated above, the contract does not specify which law governs the confirmation and vacation of arbitration awards. (Gen. Conditions § 4.6.6.) The contract also specifies that “arbitration ... shall be in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association currently in effect.” (Gen. Conditions § 4.6.2.) Those rules similarly do not evince a clear intent to choose state over federal arbitration rules. See American Arbitration Association, Construction Industry Arbitration Rules R–49(c) (Jul. 2003), http:// adr. org/ sp. asp? id= 26397 (“Parties to these rules shall be deemed to have consented that judgment upon the arbitration award may be entered in any federal or state court having

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jurisdiction thereof.”).⁷ Also, Metzler has not argued that there was a clear intent to have Hawai'i's arbitration rules apply. For these reasons, the Court will evaluate both the motion to confirm and the petition to vacate under federal law.⁸

Although federal law governs the arbitration, including its confirmation or vacation, the contract itself is governed by Hawai'i state contract law. (Gen. Conditions § 13.1 (“The Contract shall be governed by the law of the place where the Project is located.”).) The Court, following the Ninth Circuit cases cited above, interprets the contract as “electing federal procedural rules for arbitration and state substantive law.” Fid. Fed. Bank, 386 F.3d at 1312 (citing Sovak, 280 F.3d at 1270); see also Johnson, 614 F.3d at 1066–67 (describing Fidelity Federal Bank and Sovak ).

III. STANDARD

A Court must confirm an arbitration award if the award has not been vacated, corrected, or modified. See 9 U.S.C. § 9. There are few permissible bases for vacating an arbitration award under federal law, and the Stephenses focus on only one: that the “arbitrator[ ] exceeded [his] powers.” 9 U.S.C. § 10(a)(4).

To obtain vacation on this basis, the Stephenses “must clear a high hurdle.”

[774 F.Supp.2d 1079]

Stolt–Nielsen S.A. v. AnimalFeeds Int'l Corp., –––U.S. ––––, 130 S.Ct. 1758, 1767, 176 L.Ed.2d 605 (2010). “It is not enough for petitioners to show that the [arbitrator] committed an error—or even a serious error.” Id. “[A]s long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, that a court is convinced he committed serious error does not suffice to overturn his decision.” United Paperworkers Int'l Union, AFL–CIO v. Misco, Inc., 484 U.S. 29, 38, 108 S.Ct. 364, 98 L.Ed.2d 286 (1987). A court “may ask only whether the arbitrator's solution can be rationally derived from some plausible theory of the general framework or intent of the agreement.” Tristar Pictures, Inc. v. Dir.'s Guild of Am., Inc., 160 F.3d 537, 540 (9th Cir.1998) (internal quotation marks omitted). “Fail[ing] to arbitrate the dispute according to the terms of the arbitration agreement,” however, can exceed an arbitrator's powers. W. Emp'rs Ins. Co. v. Jefferies & Co., 958 F.2d 258, 262 (9th Cir.1992).

IV. DISCUSSION A. The Arbitrator's Power to Consider the Parties' Claims

The Stephenses claimed in the arbitration that they should not have to pay the full amount billed, which was more than $17 million, because cost increases beyond approximately $10.4 million had not been accompanied by the formal change-order procedures required by the contract. (Cross–Pet. ¶¶ 26, 45; Supp. Conditions § 7.1.3.1.) They therefore requested that the arbitrator force Metzler to “disgorge $5,879,759 in inappropriately collected sums in excess of the adjusted Contract Sum.” (Metzler's Opp'n Ex. B (“Stephenses' Post–Hr'g Br.”) at 246.) The arbitrator rejected this claim after determining that there was “doubt and ambiguity as to the meaning of the language embodying the [ ] contractual bargain,” that “the parties through their course of conduct and dealing abandoned...