Sanwan Trust v. Lindsay, Inc.

• Decision Date: 05 May 2017
• Docket Number: CIVIL ACTION NO. 16-12469-RWZ.
• Citation: 251 F.Supp.3d 353
• Parties: The SANWAN TRUST v. LINDSAY, INC.
• Court: U.S. District Court — District of Massachusetts

251 F.Supp.3d 353

The SANWAN TRUST

v.LINDSAY, INC.

CIVIL ACTION NO. 16-12469-RWZ.

United States District Court, D. Massachusetts.

Signed May 5, 2017

Christopher C. Storm, Edwin F. Landers, Jr., Andrew I. Douglass, Morrison, Mahoney, & Miller LLP, Boston, MA, for The Sanwan Trust.

Ashly E. Scheufele, Jonathan W. Fitch, Fitch Law Partners LLP, Boston, MA, for Lindsay, Inc.

MEMORANDUM AND ORDER

ZOBEL, UNITED STATES SENIOR DISTRICT JUDGE

Petitioner The Sanwan Trust ("Sanwan") petitions the court to vacate a November 4, 2016, arbitration award (the "Award"), which respondent Lindsay, Inc. ("Lindsay"), separately moves to confirm.¹ For the following reasons, Sanwan's petition is denied and Lindsay's motion is allowed.

I. Standard of Review

"[A] district court's review of an arbitral award must be ‘extremely narrow and exceedingly deferential.’ " Bull HN Info. Sys., Inc. v. Hutson, 229 F.3d 321, 330 (1st Cir. 2000) (quoting Wheelabrator Envirotech Operating Services Inc. v. Mass. Laborers Dist. Council Local 1144, 88 F.3d 40, 43 (1st Cir. 1996) ). "We have found arbitral awards ‘nearly impervious to judicial oversight’ because both parties ‘have contracted to have disputes settled by an arbitrator’ and therefore ‘it is the arbitrator's view of the facts and the meaning of the contract that they have agreed to accept.’ " UMass Mem'l Med. Ctr., Inc. v. United Food and Commercial Workers Union, 527 F.3d 1, 5 (1st Cir. 2008) (quoting Teamsters Local Union No. 42 v. Supervalu, Inc., 212 F.3d 59, 61 (1st Cir. 2000) ; United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 37–38, 108 S.Ct. 364, 98 L.Ed.2d 286 (1987) ). The Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 – 16, provides four specific grounds for which federal courts can vacate an arbitration award:

(1) where the award was procured by corruption, fraud, or undue means;

(2) where there was evident partiality or corruption in the arbitrators, or either of them;

(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; or

(4) where the arbitrators exceed their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

See 9 U.S.C. § 10(a)(1)–(4). In Hall Street Assoc., LLC v. Mattel, Inc., 552 U.S. 576, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008), the Supreme Court held that " § 10... provide[s] the FAA's exclusive grounds for expedited vacatur [of an arbitral award]." 552 U.S. at 585, 128 S.Ct. 1396 ; see Kashner Davidson Sec. Corp. v. Mscisz, 601 F.3d 19, 22 (1st Cir. 2010) (explaining that "the Supreme Court held that the grounds for prompt vacatur or modification of an arbitral award enumerated in [the FAA], 9 U.S.C. §§ 10 – 11, are exclusive and may not be supplemented by contract").

"To obtain vacatur of an arbitration award, ‘[i]t is not enough for [a party] to show that the panel committed an error—or even a serious error.’ " Raymond James Fin. Serv., Inc. v. Fenyk, 780 F.3d 59, 63 (1st Cir. 2015) (quoting Stolt–Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 671, 130 S.Ct. 1758, 176 L.Ed.2d 605 (2010) ). Rather, "[t]he challenging party has the burden to establish ‘substantially more than an erroneous conclusion of law or fact.’ " Rogers v. Ausdal Fin. Partners, Inc., 168 F.Supp.3d 378, 385 (D. Mass. 2016) (quoting Local Union No. 251 v. Narragansett Imp. Co., 503 F.2d 309, 312 (1st Cir. 1974) ).

II. Analysis

Sanwan moves to vacate the Award "pursuant to 9 U.S.C. § 1 et seq. ," Docket # 2, at 1, but fails to cite to any particular provision of section 10 under which it seeks vacatur. It states that it seeks vacatur of the Award on two grounds: (1) manifest disregard of the law; and (2) public policy, which it acknowledged are "not listed within § 10." Docket # 3, at 5. Indeed, it argued that the FAA "establishes most, but not all grounds for vacatur of an arbitration award. Courts ‘retain a very limited power to review arbitration awards outside of section 10[.]’ " Id. at 4 (emphasis added) (quoting Advest, Inc. v. McCarthy, 914 F.2d 6, 8 (1st Cir. 1990) ). In response, Lindsay contends that following Hall Street neither ground, independent of any provision under section 10, is an appropriate basis for vacatur under the FAA. Lindsay is correct.

A. Manifest Disregard of the Law

Prior to Hall Street, the First Circuit recognized that "manifest disregard of the law" is a "non-statutory standard of review." See McCarthy v. Citigroup Global Markets Inc., 463 F.3d 87, 91 n.6 (1st Cir. 2006) (quoting P.R. Tel. Co., Inc. v. U.S. Phone Mfg. Corp., 427 F.3d 21, 25 (1st Cir. 2005) (explaining that earlier case law holding that " ‘[u]nder the FAA, an award may be vacated for legal error only when in ‘manifest disregard of the law’ ... means that the FAA does not foreclose extra-statutory judicial review of arbitration awards on a limited basis," and not that this standard of review "is part of the FAA itself"). Following Hall Street, the First Circuit has not "squarely determined whether [its] manifest disregard case law can be reconciled with Hall Street." Kashner, 601 F.3d at 22. It has, however, stated, in dicta, that "[w]e acknowledge the Supreme Court's recent holding in [ Hall Street] that manifest disregard of the law is not a valid ground for vacating or modifying an arbitral award in cases brought under the [FAA]." Ramos–Santiago v. United Parcel Serv., 524 F.3d 120, 124 n.3 (1st Cir. 2008). Further, to the extent the standard survives, " Hall Street compels the conclusion that it does so only as a judicial gloss on § 10." Ortiz–Espinosa v. BBVA Sec . , of P.R., Inc., 852 F.3d 36, 46 (1st Cir. 2017) ; see Hall Street, 552 U.S. at 585, 128 S.Ct. 1396 ("Or, as some courts have thought, ‘manifest disregard’ may have been shorthand for § 10(a)(3) or § 10(a)(4) [.]").

In attempting to align its position with this case law, and "link[ ] the manifest disregard argument directly to § 10," Docket # 25, at 4, Sanwan does an about-face and contends, in its reply memorandum, "that the arbitrator imperfectly executed his power [by recognizing but failing to apply the correct law]." Id. I read this statement to mean that Sanwan now wants the court to understand its argument as brought under section 10(a)(4). See id. (citing 9 U.S.C. § 10(a)(4) ).

In order to succeed on this basis, Sanwan must show that "the arbitrator[ ] appreciated the existence of a governing legal rule but wilfully decided not to apply it." Advest, Inc., 914 F.2d at 10. "The hurdle is a high one." Id." ‘As long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority,’ a court's conviction that the arbitrator made a serious mistake or committed grievous error will not furnish a satisfactory basis for undoing the decision." Id. at 9 (quoting Misco, Inc., 484 U.S. at 38, 108 S.Ct. 364 ).

Sanwan's arguments rest on two provisions in the Agreement. Specifically, Article 11 provides that after "[t]he making and acceptance of the final payment," Sanwan waives all claims "other than those arising out of ... faulty work appearing thereafter, as provided for in Article 9...." See Docket # 18–1, at 7. Article 9 states that Lindsay "shall remedy any defects due to faulty materials or workmanship which appear within one (1) year from the date of the completion of the contract." Id. Sanwan argues that, under Creative Playthings Franchising, Corp. v. Reiser, 463 Mass. 758, 978 N.E.2d 765 (2012) : (1) a contractual limitations of repose is per se unreasonable because "the power to create limitations of repose [is reserved] to the legislature," Docket # 3, at 10; (2) a contractually shortened limitations period must be reasonable and not contrary to a controlling statute; and (3) a contractual limitations period that does not permit the operation of the discovery rule would be unreasonable. See id., 9–11.

As to its first point, Sanwan contends that the one-year limitation in the Agreement "was a limitation of repose² because ... [it] did not allow for claims arising from latent defects to be brought upon discovery." Docket # 3, 7–8. Thus, it argues, although the arbitrator cited to Creative Playthings, which evidences his appreciation of the governing rule, he manifestly disregarded it by upholding a contractual limitation of repose which, Sanwan argues, under Creative Playthings is (1) per se unreasonable; (2) contrary to Massachusetts General Laws chapter 260, section 2B (" section 2B"), which imposes a six-year limitation of repose on construction defect claims; and (3) unreasonable because it does not permit the operation of the discovery rule.

Here, although the one-year limitation does appear to be a contractual limitations of repose, the arbitrator interpreted it to be a contractually shortened statute of limitations, which the Massachusetts Supreme Judicial Court has held is generally enforceable provided that the limitation is reasonable. Creative Playthings, 978 N.E.2d at 769–70. And he found the one-year limitation to be reasonable, in light of all the facts, including that "[t]he credible evidence established that the Contract Agreement was subject to negotiation between The Sanwan Trust and Lindsay, Inc." Docket # 18–1, at 15. Even if the arbitrator committed a serious error by interpreting the contractual provision as a statute of limitations and not a statute of repose³ , and therefore, also failed to consider section 2B, it is not a sufficient basis to vacate the Award. See Misco, Inc., 484 U.S. at 38, 108 S.Ct. 364 ("[T]hat a court is convinced [the arbitrator] committed serious error does not suffice to overturn his decision.").

Further, Sanwan's argument regarding the discovery rule fails because it presumes that the rule is applicable. The arbitrator,...