Parsons Energy v. Williams Union , 128 F. App'x 920 ( 2005 )

Opinions of the United
2005 Decisions States Court of Appeals
for the Third Circuit
4-25-2005
Parsons Energy v. Williams Union
Precedential or Non-Precedential: Non-Precedential
Docket No. 04-2171
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NOT PRECEDENTIAL
IN THE UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Case No. 04-2171
PARSONS ENERGY & CHEMICALS GROUP, INC.,
Formerly Parson Process Group Inc.,
Appellant
v.
WILLIAMS UNION BOILER,
A DIVISION OF WILLIAMS POWER CORP.
_______________
On appeal from the United States District Court
for the Eastern District of Pennsylvania
District Court Civ. No. 03-3168
District Judge: Hon. Clifford S. Green
_______________
Argued April 1, 2005
_______________
Before: ALITO, SMITH, and FISHER Circuit Judges
(Filed: April 25, 2005)
___________________
Counsel: Kathleen Olden Barnes (Argued)
Justin Hawkins
Watt, Tieder, Hoffar & Fitzgerald, LLP
8405 Greensboro Drive, Suite 100
McLean, Virginia 22102
Lawrence D. Berger
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania 19103
Attorneys for Appellant, Parsons Energy & Chemicals Group, Inc.
D. Lynn Whitt (Argued)
Pollack & Whitt, P.C.
3783 Rider Trail South
St. Louis, Missouri 63045-1114
Joseph A. Battipaglia
Duane Morris LLP
One Liberty Place
Philadelphia, Pennsylvania 19103
Attorneys for Appellee, Williams Union Boiler, A Division of Williams
Power Corp.
____________________
OPINION OF THE COURT
____________________
SMITH, Circuit Judge.
This appeal requires this Court to determine whether an arbitration award
confirmed by a district court was issued in manifest disregard of the law or was irrational.
Parsons Energy and Chemicals Group, Inc. (Parsons) appeals the decision of the District
Court for the Eastern District of Pennsylvania declining to vacate an arbitration panel’s
award of a contractual incentive fee, as well as attorneys’ and expert fees, to Williams
Union Boiler (Williams), Parsons’s subcontractor. We will affirm.
II. Facts and Procedure
A. Facts
In 1997, Parsons entered a contract with Motiva Enterprises, LLC (Motiva) to
2
build a gasification power system for a refinery in Delaware. In 1998, Parsons executed a
fixed-price subcontract with Williams for construction and other services related to the
gasification system. According to the subcontract, the parties shared equally the risk of
delay – $100,000 per day in liquidated damages – in achieving the milestone dates laid
out in the prime contract. A choice-of-law provision established that Delaware law
controlled disputes arising under the subcontract.
In March 1999, the parties converted the subcontract to a cost-reimbursable
format, with fixed incentive fees.1 The amended subcontract, retroactive to December 8,
1998, provided that:
[a]ll disputes between Contractor and Subcontractor arising
under the Subcontract which cannot be resolved amicably
between the parties shall be referred to the upper management
of Subcontractor and Contractor for resolution. . . . If
resolution is not achieved through mediation, the parties agree
to submit the dispute to final and binding arbitration in
accordance with the rules of the American Arbitration
Association with proceedings conducted in the State of
Delaware, USA or as otherwise agreed to by the Parties.
Rule 46 of the American Arbitration Association (AAA), which since has been renumbered,
provides that an arbitrator’s award may include “an award of attorneys’ fees if all parties have
requested such an award, or it is authorized by law or their arbitration agreement.”
1
There appears to have been no choice-of-law provision in the amended subcontract. The
conversion documents explain, however, that unless specifically modified, “all terms and
conditions of the original Subcontract shall remain in full force and effect.” Apparently
operating under this provision, the parties agree (as did the District Court) that Delaware law
applies to the present dispute.
3
The amended subcontract also altered Williams’s risk in the event of delay. The
new risk terms were as follows:
2.3 LIQUIDATED DAMAGES (Schedule Incentive Fee)
CONTRACTOR 2 agrees to pay a Schedule Incentive Fee as
detailed in SECTION IV, unless CONTRACTOR fails to
meet CONTRACTOR’s Project schedule commitments
associated with Liquidated Damage Dates, regardless of
cause or fault including negligence on the part of any party
or parties. In the event CONTRACTOR must pay any
liquidated damages to COMPANY, CONTRACTOR and
SUBCONTRACTOR expressly agree that the payment of
the first $500,000 of any such liquidated damages shall be
funded through SUBCONTRACTOR’s forfeiture of its
Schedule Incentive Fee for 100% of any and all such
amounts paid to COMPANY. Thereafter, any additional
amounts of Liquidated Damages paid by CONTRACTOR
to COMPANY shall be funded on an equal basis with
CONTRACTOR and SUBCONTRACTOR each
contributing 50% of any and all amounts on the following
basis:
a) CONTRACTOR shall be responsible for the actual
payment or allowance of credit to COMPANY for the full
amount of the liquidated damages.
b) SUBCONTRACTOR’s share of such liquidated
damages shall be funded through SUBCONTRACTOR’s
forfeiture of its Schedule Incentive Fee to the full extent
required to pay such Liquidated Damages.
c) SUBCONTRACTOR expressly agrees to waive any
and all rights for claims to any Schedule Incentive Fee
reduction imposed by CONTRACTOR to cover
SUBCONTRACTOR’s share of CONTRACTOR’s
2
“CONTRACTOR” refers to Parsons; “SUBCONTRACTOR” refers to Williams; and
“COMPANY” refers to Motiva.
4
payment of liquidated damages regardless of cause.
d) Both parties understand and agree that the Liquidated
Damage risk to be imposed against SUBCONTRACTOR’s
potential Schedule Incentive Fee is for an amount of
$100,000 per day for failure to achieve any of the discrete
events indicated below.
e) The maximum amount that SUBCONTRACTOR
shall be required to contribute toward payment of said
Liquidated Damages shall not exceed its total forfeiture
of the above mentioned Schedule Incentive Fee.
....
In turn, Section IV referred to above provided
B.4 SCHEDULE INCENTIVE FEE (maximum of $2,500,000)
CONTRACTOR shall pay SUBCONTRACTOR a Schedule
Incentive Fee (SIF) based on the criteria outlined in Section O.
If for any reason and without regard to fault by CONTRACTOR
or others, CONTRACTOR has to pay Liquidated Damages
to COMPANY, the amount of SUBCONTRACTOR’s Schedule
Incentive fee shall be reduced by 100% of the amount of such
Liquidated Damage payments until such time as the total of
$500,000 has been reduced and then SUBCONTRACTOR’s
Schedule Incentive Fee shall be reduced by 50% of any
additional amount of any additional liquidated damage payments
until such time as the total $2.5 million potential Schedule
Incentive Fee has been reduced to $0.00. In no event will
SUBCONTRACTOR’s contribution to Liquidated Damages be
other than the forfeiture of SUBCONTRACTOR’s potential
Schedule Incentive Fee.
In April 1999, Parsons and Williams accelerated their work in an attempt to
achieve first feed of the gasifier by November 26, 1999, a milestone established in the
Prime Contract. At Parsons’s request, Motiva agreed to adjust the Prime Contract to
5
compensate for Parsons’s increased costs caused by the acceleration. Under that
adjustment, Motiva extended the gasifier first feed date from November 26, 1999 to
January 17, 2000 and promised to pay Parsons a $3 million bonus in exchange for settling
certain pending claims and accelerating efforts to meet the gasifier first feed date. For
each day after January 17, 2000 that gasifier first feed was not achieved, Parsons would
forfeit $100,000 of that bonus:
Notwithstanding the provisions of Schedule “C,” paragraph
1, it is hereby agreed that in the event Gasifier First Feed is
achieved in accordance with the Contract on or before
January 17, 2000, COMPANY shall pay a performance bonus
to CONTRACTOR in the amount of Three Million Dollars
($3,000,000.00). If Gasifier First Feed is not achieved by
aforesaid completion date, then the performance bonus will
be reduced at a rate of $100,000 per calendar day until the
earlier of when Gasifier First Feed [is] achieved or February
16, 2000 when the bonus shall be reduced to $0 (hereinafter
referred to as the “Bonus Forfeiture Period”). Any such
bonus forfeiture shall satisfy any and all CONTRACTOR’s
obligation to COMPANY for Liquidated Damages for the
associated calendar days during such Bonus Forfeiture
Period.
Parsons did not achieve gasifier first feed until April 21, 2000, more than 90 days
after the January 17, 2000 milestone date and well outside the Bonus Forfeiture Period.
When the gasifier was completed, Parsons and Motiva negotiated to resolve all
outstanding disputes under the prime contract, including the amount of liquidated
damages. The parties memorialized their settlement in several documents, including an
agreement called Change Order 90. In relevant part, Change Order 90 provides:
6
LIQUIDATED DAMAGES – Motiva and Parsons have
agreed to a negotiated settlement for Parsons[’s] aggregate
liability to Motiva associated with Delay in Completion
of the Schedule B-1 milestone Event First Feed to the
Gasifier. The agreed payment to be made by Parsons to
Motiva is for 45 days of Liquidated Damages at the
Contract rate of $100,000 per day for a total of
$4,500,000.
BONUS PAYMENT – As consideration for Parsons[’]
considerable unplanned excess expense of overtime and
shift pay etc. to try to achieve the Schedule B-1 Liquidated
Damage Date for First Feed to the Gasifier, Motiva agreed
to Bonus Payment of $3,000,000. It was further agreed
that if the date was not met, this Bonus would be used to
pay Motiva for the first 30 days of actual Liquidated
Damages to be paid.
According to James Rogers, Parsons’s contract administrator, pursuant to this language
Motiva assessed Parsons $4.5 million in liquidated damages for 45 days of delay in
completing the gasifier.
Whether Parsons paid Motiva $4.5 million in liquidated damages is a central
factual dispute in this appeal. William Hall, a senior executive at Parsons, testified that
Motiva gave Parsons a 30-day extension in its schedule. Williams’s expert, Bradley
Hornburg, denied that Parsons paid $4.5 million in liquidated damages to Motiva.
B. Arbitration Award
In February 2003, the arbitration panel awarded Williams $1.5 million on its claim
for the Schedule Incentive Fee and allowed Williams’s claim for recovery of attorneys’
fees and expert fees and expenses. In July 2003, the panel issued a supplemental award
7
specifying the amounts owed to Williams for attorneys’ and expert fees.
C. District Court Decision
In August 2003, Parsons filed a complaint in the U.S. District Court for the Eastern
District of Pennsylvania to vacate the arbitration panel’s award and supplemental award.
Parsons argued that the panel manifestly disregarded the law in awarding Williams
attorneys’ and expert fees, and that the panel acted irrationally in awarding Williams the
$1.5 million schedule incentive fee in light of the “undisputed” factual record that
Parsons paid Motiva $4.5 million in liquidated damages.
In March 2004, the District Court held a hearing on Parsons’ complaint at which it
ordered Williams to provide evidence and/or citations to testimony appearing in the
arbitration record related to the schedule incentive fee and Williams’s claim for attorneys’
and expert fees. In response, Williams filed a 150-page memorandum that included the
above-excerpted documents.
On March 29, 2004, the District Court issued a memorandum, order, and judgment
in Williams’s favor. The Court noted that arbitration awards may be vacated where
arbitrators exceed their powers or act in manifest disregard of the law, but that such
review is “narrow in the extreme.”
First, Judge Green determined that the arbitrators had an evidentiary basis for
awarding $1.5 million of the schedule incentive fee to Williams. He noted that the panel
“extensively questioned” Williams’s expert witness, Bradley Hornburg, about the
8
contract, the liquidated damages provision of the subcontract, the actual liquidated
damages incurred, and Parsons’s forfeiture of its bonus to Motiva. Judge Green observed
that Hornburg could not explain the 45 days of delay for which Parsons’s claimed it was
charged $100,000 per day by Motiva. Judge Green concluded that given “the
consideration given by the Arbitration Panel to the interpretation of the Schedule
Incentive Fee provision of the converted subcontract, and the questioning of the
Defendant’s expert witness, the record does not support a finding that [the] Arbitration
Panel [acted ultra vires] or in manifest disregard of the law.”
Second, Judge Green ruled that the arbitrators did not manifestly disregard the law
in awarding Williams attorneys’ and expert fees because Delaware law was unsettled on
that question. Judge Green acknowledged that the Delaware statute requiring arbitrators
to award attorneys’ and expert fees, 6 Del. C. § 3509,3 became effective after the
commencement of arbitration proceedings. Nevertheless, because the Supreme Court of
Delaware had not yet addressed whether the statute may be applied retroactively, Judge
Green concluded that the arbitration panel did not exceed its authority or manifestly
3
The statute provides:
Absent any agreements to the contrary between the parties, the
arbitrator in any arbitration proceeding arising under this
chapter shall award to the substantially prevailing party its
reasonable attorneys’ fees, arbitration costs, and expenses for
expert witnesses.
6 Del. C. § 3509(b) (2005).
9
disregard the law.
Parsons timely appealed to this Court.
III. Analysis
A.
Review of arbitration awards under the FAA is “extremely deferential.” Dluhos v.
Strasburg, 321 F.3d 365, 370 (3d Cir. 2003). Vacatur is appropriate only in “exceedingly
narrow” circumstances, such as where arbitrators are partial or corrupt or manifestly
disregard, rather than merely erroneously interpret, the law. Id.; Local 863 Int’l Bhd. of
Teamsters, Chauffeurs, Warehousemen and Helpers of Am. v. Jersey Coast Egg Prod.,
773 F.3d 530, 553 (3d Cir. 1985) (stating that error of law is insufficient for vacatur). So
long as an award “draws its essence” from, Local 863, 773 F.3d at 553, i.e., “arguably
construe[s] or applie[s],” the contract, the award must be upheld. News Am. Pub. v.
Newark Typographical Union, 918 F.2d 21, 24 (3d Cir. 1990). In other words, there must
be “absolutely no support at all in the record justifying the arbitrator’s determinations for
a court to deny enforcement of the award.” Id. While “the courts are neither entitled nor
encouraged simply to ‘rubber stamp’ the decisions of arbitrators,” review of arbitration
awards is “singularly undemanding.” Matteson v. Ryder System Inc., 99 F.3d 108, 113
(3d Cir. 1996) (Becker, J.).4
4
While the Federal Arbitration Act’s standards apply to this dispute, the FAA does not create
federal question jurisdiction. See Dluhos, 321 F.3d at 367 (citing Roadway Package Sys. v.
Kayser, 257 F.3d 287, 291 n.1 (3d Cir. 2001)). The District Court exercised diversity
jurisdiction in this case under 28 U.S.C. § 1332; we exercise jurisdiction over the District Court’s
10
Barb.
1. Schedule Incentive Fee
The parties agree that to have awarded Williams $1.5 million of the Schedule
Incentive Fee, the arbitrators had to conclude that Parsons paid Motiva $1.5 million in
liquidated damages, not the full $4.5 million contemplated in Change Order #90. The
threshold question in this appeal, therefore, is whether there is any support at all in the
record for that conclusion. See News America, 918 F.2d at 24. If there is any such
support, then the award must be affirmed. Id.
The record contains some evidence to support the arbitration award. Williams’s
expert, Hornburg, testified that “Parsons paid a million-and-a-half dollars in LDs
[(liquidated damages)],” i.e., not the $4.5 million it claimed to have paid. Additionally,
Parsons’s senior executive, William Hall, testified that Motiva granted Parsons a 30-day
extension on its gasifier first feed date. Whether or not this Court would find such
testimony relevant or credible, it cannot be said that there is “absolutely no support at all
in the record justifying the arbitrator’s determinations.” Id. Accordingly, the District
Court correctly declined to vacate the award of $1.5 million of the Schedule Incentive
Fee.
2. Attorneys’ and Expert Fees
Both sides agree that if the arbitrators relied on § 3509 to award attorneys’ and
final order under 28 U.S.C. § 1291.
11
expert fees, they applied the statute retroactively. Parsons argues that the panel
manifestly disregarded a leading Delaware case on retroactive application of statutory
amendments, Hubbard v. Hibbard Brown & Co., 633 A.2d 345 (Del. 1993). Williams
responds that until the Delaware Supreme Court specifically ruled on the retroactive
application of § 3509, the arbitrators could not have manifestly disregarded the law.
Parsons asks this Court to read too much into Hubbard, which explained that “a
statutory amendment is remedial and may apply retroactively when it relates to practice,
procedure or remedies and does not affect substantive or vested rights.” 633 A.2d at 354.
Because the rights at issue in Hubbard also were established by another statute, the court
ruled that those rights were not substantive. Id. Hubbard thus suggests one approach to
determining whether an amendment is remedial – whether another statute provides the
same right. But Hubbard does not purport to establish the only approach to determining
whether an amendment is remedial, and Parsons cites no cases holding that attorneys’ and
expert fees are a substantive right in Delaware. It is therefore plausible that the Delaware
Supreme Court would determine that such fees are not a substantive right, and therefore §
3509 may be applied retroactively. At worst, the arbitrators wrongly applied Hubbard,
but they did not manifestly disregard it.
3. Expert Fees
Parsons’s fallback position is that the arbitrators awarded excessive expert fees
12
under Delaware law.5 Williams labels this argument “confusing” and contends, in
conclusory fashion, that Parsons cited cases that “have no bearing on the issue before this
Court.” The District Court does not appear to have addressed this argument.
Parsons argues that the arbitrators manifestly disregarded Stevenson v. Henning,
268 A.2d 872 (Del. 1970), and Nygaard v. Lucchesi, 654 A.2d 410 (Del. Super. Ct.
1994), both of which Parsons claims limit expert fees and expenses to the amount
incurred for actual testimony. Stevenson interprets 10 Del. C. § 8906, which provides:
The fees for witnesses testifying as experts or in the capacity
of professionals in cases in the Superior Court, the Court of
Common Pleas and the Court of Chancery, within this State,
shall be fixed by the court in its discretion, and such fees so
fixed shall be taxed as part of the costs in each case and shall
be collected and paid as other witness fees are now collected
and paid.
Id. Stevenson explains that “[w]itness fees allowed under § 8906 should be limited to
time necessarily spent in attendance upon the court for the purpose of testifying. This
does not include time spent in listening to other witnesses for ‘orientation’ or in
consulting and advising with a party or counsel or other witnesses during the trial.” 268
A.2d at 874 (citing State v. 0.0673 Acres of Land, 224 A.2d 598, 602 (Del. 1966)).
Nygaard expresses the same principle positively, stating that “reimbursement for expert
5
Parsons also argues that the arbitrators could not have awarded attorneys’ fees under 6 Del. C.
§ 3506 because Parsons could not have been found to have acted in bad faith, which is required
to award attorneys’ fees under that statute. Because we conclude that § 3509, which requires the
award of attorneys’ and expert fees, arguably applied retroactively, we do not address whether
the award of attorneys’ fees could have been justified under § 3506.
13
testimony [under 10 Del. C. § 8906] encompasses deposition testimony which is
introduced into evidence as well as trial testimony.” 654 A.2d at 413 (citing Super Ct.
Civ. R. 54(h)).
The question for this Court is whether the arbitrators manifestly disregarded
Stevenson, Nygaard and § 8906 in awarding expert witness fees under § 3509 beyond
those incurred for actual testimony. We hold that they did not. As Stevenson and
Nygaard do not speak to § 3509, it is difficult to see how the arbitrators manifestly
disregarded the law in awarding expert fees under that statute. Moreover, Parsons never
explains why the established meaning of § 8906, Delaware’s default rule for expert fees
in litigation proceedings, controls the meaning of § 3509, Delaware’s default rule for
expert expenses in arbitration proceedings. And, indeed, the language of the two statutes
is quite different. Section 8906 states that “fees for witnesses testifying as experts . . .
shall be fixed by the court in its discretion.” 10 Del. C. § 8906. In contrast, § 3509
requires an arbitrator to award to the substantially prevailing party its “reasonable
attorneys’ fees, arbitration costs and expenses for expert witnesses.” 6 Del. C. § 3509.
While Delaware courts appear not yet to have interpreted § 3509, a party’s “expenses for
expert witnesses” seems broader than “fees for witnesses testifying as experts,” and
arbitrators might interpret “reasonable” as affording more leeway in awarding expert fees
than fees “fixed by the court in its discretion.”
In light of the difference between § 8906 and § 3509, at worst the arbitrators
14
erroneously interpreted § 3509 with their award of expert expenses. Accordingly, there is
no ground for holding that the arbitrators manifestly disregarded the law. See Dluhos,
321 F.3d at 370.
V. Conclusion
For the foregoing reasons, we will affirm the judgment of the District Court.
15