Sverdrup Corp. v. WHC Constructors, Inc.

• Decision Date: 19 March 1993
• Docket Number: No. 92-1597,92-1597
• Citation: 989 F.2d 148
• Parties: SVERDRUP CORPORATION, Plaintiff-Appellant, v. WHC CONSTRUCTORS, INCORPORATED, Defendant-Appellee, and Century III, Incorporated, Defendant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 148

989 F.2d 148

61 USLW 2565

SVERDRUP CORPORATION, Plaintiff-Appellant, v. WHC CONSTRUCTORS, INCORPORATED, Defendant-Appellee and Century III, Incorporated, Defendant.

No. 92-1597.

United States Court of Appeals Fourth Circuit.

Argued Dec. 3, 1992.

Decided March 19, 1993.

Mark Geoffrey Arnold, Husch & Eppenberger, St. Louis, MO, argued (Matthew D. Menghini, Husch & Eppenberger, St. Louis, MO, David W. Robinson, Hirschler, Fleischer, Weinberg, Cox & Allen, Richmond, VA, on the brief), for plaintiff-appellant.

Ira J. Smotherman, Jr., Shapiro, Fussell, Wedge & Smotherman, Atlanta, GA, argued (Herman L. Fussell, Shapiro, Fussell, Wedge & Smotherman, on the brief) for defendant-appellee.

Before RUSSELL and HALL, Circuit Judges, and MORGAN, United States District Judge for the Eastern District of Virginia, sitting by designation.

OPINION

DONALD RUSSELL, Circuit Judge:

The Appellant, Sverdrup Corporation (Sverdrup), and Appellee, WHC Constructors, Inc. (WHC), agreed, pursuant to an arbitration provision contained in a construction subcontract between the two parties, to submit a dispute regarding liability for faulty construction to arbitration. Arbitration resulted in an award for Sverdrup on August 31, 1990. On October 8, 1991, Sverdrup attempted to enforce the award. The district court ruled that Sverdrup was barred from confirmation and enforcement of an award because it had delayed in seeking confirmation beyond the one-year period in § 9 of the Federal Arbitration Act (FAA), 9 U.S.C. § 9. The trial court accordingly dismissed Sverdrup's arbitrated claims with prejudice, and Sverdrup appealed. We reverse the district court's dismissal and remand with instructions to confirm Sverdrup's arbitration award.

I.

Sverdrup is a Missouri corporation, WHC is a Georgia corporation, and Century III, Inc. (Century) is a South Carolina Corporation. All three companies are in the construction business.

During the construction of a package development center in South Carolina for Sonoco Products, Inc., the present dispute arose. Sverdrup was the general contractor, and Century and WHC were subcontractors. WHC was responsible for various mechanical systems for the project, including the water tower and chilled water systems. Century tested and repaired the cooling system. When the plant's cooling system failed in July 1988, Sverdrup blamed the two subcontractors. Century and WHC accused each other and Sverdrup of causing the cooling system's breakdown. Sverdrup filed this suit in December 1988 against Century and WHC.

The subcontract between Sverdrup and WHC contained an arbitration provision which read:

All claims that cannot be resolved between the parties shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association. This agreement to arbitrate shall be specifically enforceable under the prevailing arbitration law. The award rendered by the arbitrator shall be final, and judgment may be entered upon it in accordance with the applicable law in any court having jurisdiction thereof.

(Emphasis added).

In May 1989, WHC moved to compel arbitration and a stay of the proceedings in district court. Following this request, the parties formally agreed to submit their disputes to arbitration. That Agreement mandated that the parties:

A. Submit their disputes to "arbitration under the Construction Industry Arbitration Rules of the American Arbitration Association (the Arbitration Rules),

B. [F]aithfully observe this Agreement and the Rules, and

C. [A]bide by and perform any award rendered by the arbitrators ..."

The Agreement also provided:

[T]he award rendered by the arbitrators will be final and judgment may be entered upon it in any court having jurisdiction thereof and will not be made subject to modification or appeal except to the extent permitted by Sections 10 and 11 of the Federal Arbitration Act. (9 U.S.C. §§ 10, 11).

In response to this agreement, the district court issued a consent order staying the action pending arbitration.

The parties submitted all of their disputes, with the exception of one of Sverdrup's claims against WHC, to arbitration. Two awards were rendered, one in favor of Century against Sverdrup for $99,522.16 and another favoring Sverdrup against WHC totaling $419,456.07. WHC did not make a motion to vacate or modify the award against it within 90 days as required in § 12 of the FAA. 9 U.S.C. § 12.

On October 8, 1991, 38 days beyond the one-year period allowed in § 9 of the FAA for confirmation of awards, Sverdrup filed a motion to enter the arbitration award as a judgment against WHC and to certify that judgment. This motion was based on Rule 54(b) Fed.R.Civ.P. and the Arbitration Rules. The district court denied the motion and dismissed the arbitrated claims with prejudice. 787 F.Supp. 542. Sverdrup's motion was considered a motion to confirm under the FAA rather than an enforcement of the award at law. In reaching its decision, the district court found that § 9 imposed a one-year limitation period which acted as a bar to confirmation of arbitration awards under the FAA. The court indicated that an arbitration award, which was not confirmed within a one-year period, was unenforceable as a judgment. The stay covering the remaining unarbitrated claim before the district court was lifted, and a date for trial was set. This claim was then dismissed by stipulation. Sverdrup made a timely appeal to this Court.

II.

In accord with the district court, we treat Sverdrup's motion as a request to confirm the arbitration award. Section 9 of the FAA provides a mechanism for summary confirmation of arbitration awards. 9 U.S.C. § 9. It reads in pertinent part:

If the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration, and shall specify the court, then at any time within one year after the award is made, any party to the arbitration may apply to the court so specified for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in section 10 and 11 of this title. If no court is specified in the agreement of the parties, then such application may be made to the United States court in and for the district within which such award was made.

Id. (emphasis added). Contradictory interpretations of this language give rise to the primary issue on appeal, i.e., whether a party to an arbitration agreement, which is subject to the FAA's provisions, may confirm an arbitration award beyond the one-year period allowed in § 9.

Before the district court and on appeal, Sverdrup relied heavily on cases from other jurisdictions which have addressed § 9 and have held that the one-year time period for application to a district court is permissive rather than mandatory.

The language of the foregoing section [§ 9 of the FAA] as to application to the court for an order is not mandatory, but permissive.... Enforcement of the award in this case is not barred by the one-year limitation contained in Section 9 of the Act, which provides for the summary remedy of confirmation of the award by the court.

Kentucky River Mills v. Jackson, 206 F.2d 111, 120 (6th Cir.), cert. denied, 346 U.S. 887, 74 S.Ct. 144, 98 L.Ed. 392 (1953); Paul Allison, Inc. v. Minikin Storage of Omaha, Inc., 452 F.Supp. 573, 575 (D.Neb.1978); Brown v. Bridgeport Rolling Mills Co., 245 F.Supp. 41, 45 n. 7 (D.Conn.1965). See also Derwin v. General Dynamics Corp., 719 F.2d 484, 490 n. 5 (1st Cir.1983) (state arbitration statute construed); Heffner v. Jacobson, 100 N.J. 550, 498 A.2d 766, 768-69 (1985) (state arbitration statute stating party "may" commence action to confirm within three months was permissive).

A persuasive textual argument bolsters this interpretation. The use of the word "may," as opposed to mandatory language, has been deemed to have been of critical importance in determining the permissive nature of § 9. The word "[m]ay in a statute ... normally confers a discretionary power, not a mandatory power, unless the legislative intent, as evidenced by the legislative history, evidences a contrary purpose." Dalton v. United States, 816 F.2d 971, 973 (4th Cir.1987) (citing United Hospital Center, Inc. v. Richardson, 757 F.2d 1445, 1453 (4th Cir.1985)); see also Koch Refining Co. v. United States Dep't of Energy, 497 F.Supp. 879, 891 (D.Minn.1980) ("[W]here the words 'shall' and 'may' are used in the same statute or regulation, 'shall' is usually interpreted to impose a mandatory obligation and 'may' is usually interpreted to grant discretion.") (citing Farmers Bank v. Federal Reserve Bank, 262 U.S. 649, 662-63, 43 S.Ct. 651, 656-57, 67 L.Ed. 1157 (1923)). However, this rule is not inflexible, and there are situations where legislative intent indicates that the term "may" should be interpreted as mandatory. Dalton, 816 F.2d at 973.

An examination of the FAA's language gives rise to the inference that Congress understood the plain meaning of "may" to be permissive. Section 9 of the FAA states that any party "may apply" for a confirmation order but the court "must grant" the order absent a modification or vacation under §§ 10 or 11. 9 U.S.C. § 9. Furthermore, under § 12 of the FAA, a motion to modify "must be served" within three months of the award. 9 U.S.C. § 12. This Court has previously concluded that this language in § 12 is mandatory, and thus, modification motions made beyond three months after the award are time barred. Taylor v. Nelson, 788 F.2d 220, 225 (4th Cir.1986). In this instance, the use of alternating permissive and mandatory language throughout the FAA indicates that Congress was cognizant of the difference in meaning between "may" and "must" and intended that the term "may" be construed as permissive.

The district court rejected case law from other jurisdictions, and instead,...