Nitram, Inc. v. Industrial Risk Insurers

• Decision Date: 23 March 1994
• Docket Number: No. 85-1770-CIV-T-17.,85-1770-CIV-T-17.
• Citation: 848 F. Supp. 162
• Parties: NITRAM, INC., Plaintiff, v. INDUSTRIAL RISK INSURERS et al., Defendants/Third Party Plaintiffs, v. MAN GUTEHOFFNUNGSHUTTE GmbH, et al., Third Party Defendants.
• Court: U.S. District Court — Middle District of Florida

848 F. Supp. 162

NITRAM, INC., Plaintiff, v. INDUSTRIAL RISK INSURERS et al., Defendants/Third Party Plaintiffs, v. MAN GUTEHOFFNUNGSHUTTE GmbH, et al., Third Party Defendants.

No. 85-1770-CIV-T-17.

United States District Court, M.D. Florida, Tampa Division.

March 23, 1994.

Charles W. Pittman, Macfarlane, Ausley, Ferguson & McMullen, Tampa, FL, for Nitram.

R. Dennis Withers, Robins, Kaplan, Miller & Ciresi, Atlanta, GA, for Industrial Risk Insu.

John L. O'Donnell, Jr., Dewolf, Ward, O'Donnell & Hoofman, P.A., Orlando, FL, for ISI, American Home Assur., Employer's Cas., Applegate Indus., J.W. Runge & Compan, M.A.N. Maschinenfabr, Barnard & Burk Group, Inc., Employers Ins. of Wausau and Barnard & Burk Engi.

Mark Edwin Grantham, Holland & Knight, Tampa, FL, for M.A.N. Gutehoffnungs and American M.A.N. Corp.

ORDER ON MOTION TO VACATE AND MOTION TO CONFIRM

KOVACHEVICH, District Judge.

This cause is before the Court on Barnard and Burk Engineers & Constructors, Inc.'s, ("BBEC"), as well as Barnard and Burk Group, Inc. ("Barnard and Burk"), ISI, Nitram, Inc., ("Nitram"), and Industrial Risk Insurers ("IRI"), (herein collectively "Respondents"), Motion to Vacate Arbitrators' Award (Docket # 558) filed on August 6, 1993; response filed thereto (Docket # 564 & 569) on August 18, 1993; Motion to vacate the Arbitrator's Costs Award (Docket # 572) filed October 13, 1993; response filed thereto on October 29, 1993 (Docket # 580); and MAN GUTEHOFFNUNGSHUTTE GmbH's (herein MAN GHH) Petition to Confirm Final Arbitral Awards (Docket # 568), filed on September 23, 1993.

FACTUAL BACKGROUND

Arbitration was compelled between MAN GHH and Respondents pursuant to an arbitration provision in the parties' subcontract agreement. The parties arbitrated their claims before a three member panel in a consolidated arbitration. The claim arose out of the supply, by MAN GHH, of a tail gas expander for a nitric acid plant operated in Tampa, Florida by Nitram.

The facts as set out in the Arbitrator's Award are as follows: Respondents were retained by Nitram Inc., as project engineers & contractors, to assist in the modification of Nitram's nitric acid plant. Part of the work performed by Respondents was the installation of a tail gas expander, the purpose of which was to generate energy from waste gas. MAN GHH delivered the expander. The Respondents were responsible for the piping required to put the expander into service. On January 16, 1985, during start-up procedures, moving and stationary components of the expander came in contact with each other. This caused a "wreck" of the machine, deforming its rotor, scarring its stator casing and destroying seals.

Parts of the expander were returned to Germany for repair and the piping was modified. In March of 1985, the expander, again suffered a second wreck. The machine was subsequently rebuilt and after further piping modifications, it ran successfully.

Respondents, in addition to other allegations, primarily alleged that MAN GHH breached its contract and was negligent. Respondents also argued that the machine failed to achieve the performance criteria required of it. MAN GHH argued that it delivered a machine as required by its contract with the Respondents and that the performance requirements were met.

The main issues before the Arbitration Panel were:

1. What caused the two "wrecks."

2. Was MAN GHH in breach of contract and negligent.

3. To what, if any money, would either party be entitled.

4. Who would be responsible for costs of the arbitration.

After hearing expert testimony on both sides, the Arbitration Panel concluded that both the "wrecks" were caused by the piping and not the expander. Additionally, the Panel found that MAN GHH was not negligent, nor in breach of contract.

Further, the Panel awarded MAN GHH 218,387.96 in Deutschemark which was converted into a total of $80,658.56. U.S. dollars. The Panel ordered Respondents to pay MAN GHH the sum awarded and held that Respondent was not entitled to any money. The Panel also held that MAN GHH should receive only the costs of arbitration, excluding attorneys fees, the filing and postponement fees it paid to the American Arbitration Association (herein "AAA"), the costs of interpreters and the costs of Mr. Hansen, and mediation costs. The Panel awarded $299,772.05. in costs to MAN GHH to be paid by Respondents and the Insurers.

Subsequent to the Arbitration Panel's Award, Respondents filed their Motions to Vacate and MAN GHH filed a Motion To Confirm the Arbitral Award.

ISSUES

Respondents argue that the Arbitral Award should be vacated on the following grounds:

1. The use of expert witness, Hansen, who was originally retained by Respondents, and admission of the "last minute report," denied them a fundamentally fair hearing, and constituted substantial prejudice to Respondent's rights and violated 9 U.S.C. § 10(a)(1) and (a)(3);

2. The Panel failed to conform the hearing to the arbitration agreement, made and amended by the parties through the specific agreement, in violation of the AAA's Panel's Orders concerning ex parte communications with Hansen and deadlines for disclosure of expert reports and thereby denied them a fundamentally fair hearing and prejudiced the rights of Respondents in violation of 9 U.S.C. § 10(a)(3) and (a)(4);

3. Admission of the Hansen evidence violated public policy;

4. The Arbitration Award was irrational, arbitrary, and capricious with no basis in evidence and in contradiction of undisputed facts, failed to provide a reasoned award on principle issues as agreed by the parties, and failed to determine the issues submitted contrary to 9 U.S.C. § 10(a)(4).

Additionally, Respondents argue in their Motion to Vacate the Arbitrators' Costs Award that the Panel's cost award is arbitrary and capricious.

STANDARD OF REVIEW

Respondents base their Motion to Vacate the Arbitration Award on 9 U.S.C. § 10(a)(1), (3) and (4). The Statute reads in pertinent part:

(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—

(1) Where the award was procured by corruption, fraud, or undue means ...

(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.

Although District Courts have discretion to vacate arbitration awards, this authority is not without limits. Great deference is afforded to these types of awards. O.R. Securities, Inc. v. Professional Planning Association, 857 F.2d 742, 746 (11th Cir.1988), citing Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953).

OPINION

1. Whether Hansen's testimony unfairly prejudiced Respondents' case — Respondents state that they originally retained Hansen as an expert. Respondents therefore, argue that they never consented to counsel for MAN GHH contacting Hansen nor their use of his expert testimony in their case. Further, Respondents argue that because of Hansen's history of "side-switching," the Panel, should not have called nor allowed Hansen to testify, as this unfairly prejudiced their case.

The issue over whether Hansen should have been allowed to testify was vigorously debated by the parties. The Arbitration Panel, over Respondents contentions, decided to call Hansen as their own witness. The Panel found that Hansen's testimony was relevant to the issues in the case and indeed, the Panel relied on Hansen's testimony, along with the other expert testimony, in making its ruling. Clearly, Hansen's testimony was damaging to Respondent's case.

Respondents are in effect, asking this Court to review the Arbitrator's Award de novo. The level of scrutiny given to an Arbitrator's award is not that intrusive and moreover, because such awards are given greater deference, this Court shall not make such a review.

It is well settled that Federal courts give great deference to an arbitrator's decision to control the order, procedure and presentation of evidence. While it is true that Hansen testified that he believed the piping caused the machine failure and that this may have been a change from his original position, this Court finds that Respondents were not unduly prejudiced by this testimony. The Panel's written "Hansen Ruling" was published on February 15, 1993 and Hansen testified on March 26, and 27, 1993. There was opportunity for cross examination, and, in fact, Respondents conducted cross examination. Because Respondents had over one month to prepare for Hansen's appearance and because there was ample time for cross examination, this Court finds that Panel's decision to call Hansen as their own witness and allow his testimony was not unreasonable. Moreover, because Hansen's testimony was not the only evidence considered by the Panel, it cannot be considered so materially prejudicial as to move this Court to grant the Motion to Vacate.

2. Whether Admission of the evidence violated the rules of the Arbitration — Respondents argue that the admission of Hansen's testimony, on the report which pointed to the piping as the cause of the wrecks, was in violation of a prehearing order that all expert reports and significant documents be exchanged before October 31, 1992. Respondents allege that the report was not provided to them until January 8, 1993, the Friday before the hearings began. Additionally, the Respondents argue that admission of this evidence was unfairly prejudicial to their case.

The fact that the report, which indicated the piping as the cause of the "wreck," was given to Respondents only days before the...