Clarke's Allied, Incorporated v. Rail Source Fuel , 662 F. App'x 248 ( 2016 )

Case: 15-41492 Document: 00513705818 Page: 1 Date Filed: 10/05/2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
No. 15-41492
Fifth Circuit
FILED
Summary Calendar October 5, 2016
Lyle W. Cayce
CLARKE'S ALLIED, INCORPORATED, Clerk
Plaintiff - Appellant
v.
RAIL SOURCE FUEL, L.L.C.; VICKY SHADE,
Defendants - Appellees
Appeal from the United States District Court
for the Eastern District of Texas
USDC No. 2:12-CV-00079
Before STEWART, Chief Judge, and CLEMENT and SOUTHWICK, Circuit
Judges.
PER CURIAM:*
Plaintiff-Appellant Clarke’s Allied, Inc. (“Clarke’s”) brought a suit in
federal district court, seeking to vacate or modify an arbitration award granted
in favor of Defendant-Appellee Rail Source Fuel, L.L.C. (“RSF”). On RSF’s
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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No. 15-41492
motion, the district court confirmed the award in full. Clarke’s now appeals.
We AFFIRM.
I. BACKGROUND
In 2011, RSF contracted with Clarke’s to convert its tie-grinding
operation from a diesel to an electric-powered system. A short while after the
conversion project began, several problems arose and many component parts
needed to be either repaired or replaced. Dissatisfied with Clarke’s service and
equipment, RSF decided to use another company for its conversion project,
ultimately paying Clarke’s only $916,850.77 of the $1,072,351.18 contract
price. As a result, Clarke’s brought a mechanic’s lien enforcement action in a
Texas state court for the remaining $155,500.41. RSF then removed the case
to the U.S. District Court for the Eastern District of Texas. Once in federal
district court, citing the contract’s arbitration clause and bringing breach of
contract, fraud, lost profits, and negligent misrepresentation counterclaims,
RSF moved for the case to be sent to arbitration. Pursuant to the contract, the
district court transferred the case to the American Arbitration Association
(“AAA”) for consideration.
After reviewing the contract’s provisions, several affidavits, and the
relevant case law, the AAA arbitrator found in favor of RSF, awarding it
$916,850.77, the price paid under the contract, but denied RSF’s fraud, lost
profits, and negligent misrepresentation claims. Moreover, in awarding this
amount, the arbitrator denied Clarke’s mechanic’s lien, finding it lacked merit.
Thereafter, RSF moved for Clarke’s to pay attorney’s fees and costs. Finding
that RSF had failed to provide him with contemporaneous time records, the
arbitrator concluded that RSF was not entitled to attorney’s fees. The arbitrator
did, however, find that RSF was entitled to $193,352.59, the reasonable costs
associated with defending against Clarke’s mechanic’s lien claim.
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On January 6, 2015, RSF moved for the federal district court to confirm
the arbitration award. On February 6, 2015, Clarke’s moved to vacate or
modify the award. The district court granted RSF’s motion in full, denying
Clarke’s. Clarke’s appealed. We affirm.
II. STANDARD OF REVIEW
This court reviews a district court’s confirmation of an arbitrator’s award
de novo. Timegate Studios, Inc. v. Southpeak Interactive, L.L.C., 713 F.3d 797,
802 (5th Cir. 2013). In reviewing the district court’s judgment, however, we
afford the arbitrator’s award great deference. Id. (quoting Executone Info. Sys.,
Inc. v. Davis, 26 F.3d 1314, 1320 (5th Cir. 1994)). The court must refrain from
analyzing an arbitrator’s decision on the merits. Major League Baseball
Players Ass’n v. Garvey, 532 U.S. 504, 509 (2001) (citing Paperworkers v. Misco,
Inc., 484 U.S. 29, 36 (1987)). Similarly, even if the arbitrator applied the
governing law incorrectly, that alone is not grounds for setting the award aside.
Kergosien v. Ocean Energy, Inc., 390 F.3d 346, 356 (5th Cir. 2004). If the
“‘arbitrator is even arguably construing or applying the contract and acting
within the scope of his authority,’ the fact that ‘a court is convinced he
committed serious error does not suffice to overturn his decision.’” Garvey, 532
U.S. at 509 (quoting E. Associated Coal Corp. v. United Mine Workers of Am.,
531 U.S. 57, 62 (2000)). To vacate or modify an arbitration award, the
arbitrator’s award must be “so unfounded in reason and fact, so unconnected
with the wording and purpose of the [contract,] as to ‘manifest an infidelity to
the obligation of the arbitrator.’” Timegate Studios, 713 F.3d at 803 (quoting
Bhd. of R.R. Trainmen v. Cent. of Ga. Ry., 415 F.2d 403, 415 (5th Cir. 1969)).
III. DISCUSSION
Clarke’s raises three issues on appeal: that the arbitrator exceeded his
authority by granting RSF (1) an unauthorized rescission remedy, (2) a remedy
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that conflicted with the terms of the underlying contract, and (3) unsegregated
costs. 1 We address each issue in turn.
A.
Clarke’s argues that by awarding what it characterizes as a “rescission
remedy,” the arbitrator awarded damages for which RSF did not ask, thereby
exceeding his authority in violation of 9 U.S.C. §§ 10(a)(4) and 11(b). RSF
counters by asserting that the arbitrator’s award was not a rescission remedy,
but rather damages “consisting of the undisputed amounts paid to Clarke’s,” a
point the arbitrator stressed in his final award. RSF further notes that,
although it did not request a rescission, it did request damages for Clarke’s
breach of contract, including any amounts RSF paid to Clarke’s.
In making his final award, the arbitrator found that, because Clarke’s
work was in many ways defective, RSF rightfully rejected the work as a whole,
citing to OR. REV. STAT. § 72.3160(2) and noting that RSF had not waived the
warranty of merchantability. In rendering his $916,850.77 award, the
arbitrator noted that this was the total amount RSF paid Clarke’s. Thus, the
arbitrator did not award an improper rescission remedy, but rather damages
that “arguably constru[e] or appl[y] the contract.” Garvey, 532 U.S. at 509
(quoting E. Associated Coal Corp., 531 U.S. at 62). Accordingly, we will not
overturn the award on this ground.
1 Clarke’s also brings several evidentiary challenges, alleging that the evidence before
the arbitrator did not support the award. Clarke’s does not, however, allege that the
arbitrator made these determinations in bad faith. Because “[w]hen an arbitrator resolves
disputes regarding the application of a contract, and no dishonesty is alleged, the arbitrator’s
‘improvident, even silly, factfinding’ does not provide a basis for a reviewing court to refuse
to enforce the award,” we need not address these issues. Major League Baseball Players Ass’n
v. Garvey, 532 U.S. 504, 509 (2001) (quoting Paperworkers v. Misco, Inc., 484 U.S. 29, 38
(1987)); see also Christopher D. Kratovil, Judicial Review of Arbitration Awards in the Fifth
Circuit, 38 ST. MARY’S L.J. 471, 478 (2007) (“[N]one of the four FAA statutory grounds for
vacating an arbitration award is designed to correct a good-faith error of fact or law by the
arbitrator, no matter how egregious.” (citing Garvey, 532 U.S. at 509)).
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B.
The second issue Clarke’s raises is that the arbitrator’s damages award
directly conflicts with the terms of Clarke’s agreement with RSF, which limits
damages for breach of warranty to the repair and replacement of any defective
equipment. Further, Clarke’s contends that Oregon law regarding
construction contracts, not the Oregon Uniform Commercial Code (“UCC”),
should govern here. RSF, on the other hand, asserts that the arbitrator’s
application of the Oregon UCC was proper, as its contract with Clarke’s is
titled “Agreement For The Sale Of Goods With Installation Services,” and the
contract outlines the manufacture, sale, and installation of the equipment
Clarke’s agreed to supply.
Under Oregon law, “[w]here circumstances cause an exclusive or limited
remedy to fail of its essential purpose, remedy may be had as provided in the
[UCC].” Young v. Hessel Tractor & Equip. Co., 782 P.2d 164, 167 (Or. Ct. App.
1989) (quoting OR. REV. STAT. § 72.7190). Because the arbitrator found that
the exclusive remedy listed in Clarke’s contract with RSF failed of its essential
purpose, revocation of acceptance became an available remedy, see id., a
remedy rationally inferable from the purpose of the underlying agreement. See
Timegate Studios, 713 F.3d at 802; Executone, 26 F.3d at 1325 (“[T]he remedy
lies beyond the arbitrator’s jurisdiction only if there is no rational way to
explain the remedy handed down by the arbitrator as a logical means of
furthering the aims of the contract.” (citation omitted)). Accordingly, we affirm
the district court’s confirmation of the damages award.
C.
Finally, Clarke’s argues that the arbitrator exceeded his authority in
awarding RSF unsegregated costs. RSF counters by pointing out that the
expenses associated with bringing its breach of contract claim against
Clarke’s—a claim under which RSF is not entitled to expenses—served “double
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duty” in defending against Clarke’s mechanic’s lien claim—a claim pursuant
to which RSF is entitled to fees and expenses. Thus, RSF argues, the arbitrator
did not exceed his authority in awarding RSF $193,352.59 in expenses.
The arbitrator determined that because Clarke’s did not recover on its
mechanic’s lien, RSF was entitled to costs and expenses associated with
defending that claim. After noting that, under Texas law, claimants must
segregate fees between recoverable and unrecoverable claims, the arbitrator
explained that some fees associated with multiple claims can serve double
duty, in that the claims’ “prosecution or defense entail[] proof or denial of
essentially the same facts.” Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d
299, 311 (Tex. 2006) (quoting Flint & Assocs. v. Intercontinental Pipe & Steel,
Inc., 739 S.W.2d 622, 624–25 (Tex. App.—Dallas 1987, writ denied)).
Concluding that “the work necessary to defend the mechanic’s lien was
inextricably intertwined with the efforts to handle the claims for breach of
contract and misrepresentation,” the arbitrator found that RSF was entitled to
reasonable costs. Because the arbitrator’s award is based on the essence of
RSF and Clarke’s contract and does not amount to manifest infidelity, we
affirm the arbitrator’s award. See Timegate Studios, 713 F.3d at 802–03.
IV. CONCLUSION
For the foregoing reasons, we AFFIRM the arbitration award in full.
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