Opinion
601303/06.
Decided September 15, 2006.
Patterson Belknap Webb Tyler LLP, New York, New York, (Stephen P. Younger, Catherine Williams).
Kilpatrick Stockton LLP, Atlanta, Georgia, (Randall F. Hafer, Neal J. Sweeney, Shawn Rodda) for Respondent.
Peckar Abramson, P.C. New York, New York, (Bruce D. Meller).
Motion Sequence Numbers 001 and 002 are consolidated in accordance with the following decision and order.
In Motion Sequence Number 001, petitioner seeks a stay of enforcement of Arbitrators' Final Award on Phase I of the Proceedings, received by the parties on March 14, 2006 (the Award), issued by a panel of arbitrators of the American Arbitration Association, in a proceeding captioned Redondo Perini Joint Venture v. Siemens Transportation Partnership Puerto Rico, S.E., No. 50T 199 00647-02. The Award directs petitioner to pay respondent $15,681,491.33 within 30 days from the date of transmittal of the Award to the parties. In Motion Sequence Number 002, petitioner moves for an order, pursuant to Federal Arbitration Act, 9 USC § 1 et seq., vacating the Award on the grounds that the panel manifestly and irrationally disregarded the law in rendering the Award
An additional ground for vacatur was raised initially in the petition about the impartiality of one of the arbitrators. Petitioner, however, conceded at oral argument that issues about the arbitrator's relationship with respondent became known to petitioner during the arbitration, and that it was not pursuing vacatur on the ground of impartiality.
Respondent opposes both the request for a stay and the request for vacatur. Rather, it has counterclaimed to confirm the Award and and seeks an Order confirming the Award and directing that Judgment be entered in its behalf.
The controversy underlying the Award arose over the construction of an urban train system in San Juan, Puerto Rico (the Project), in which petitioner was the prime contractor for the Project, and respondent was a subcontractor. The parties filed claims and counterclaims against each other with regard to payments and liabilities under their contract, in accordance with their contractual arbitration provision. The Award was issued by a three-member panel familiar with construction law, which conducted 81 days of hearings, with 17 witnesses and over 4,000 exhibits, and which deliberated for six weeks before issuing the Award. Petitioner claims that the Award's analysis is contrary to law in concluding that petitioner is liable to respondent for certain damages because petitioner's indemnity rights under a different contract for losses arising from certain design services for the Project flow down to respondent under its subcontract with petitioner. Petitioner claims that the arbitrators created a fictitious indemnification provision in the parties' subcontract, which it contends is a manifest disregard of the law of contracts, and is irrational.
The Project is a 17 kilometer heavy rail mass transit system, comprised of 16 stations, to be built in San Juan, Puerto Rico (Affidavit of Mark Evans, dated April 17, 2006, ¶ 4). The Puerto Rico Highways and Transportation Authority (the Authority), the Owner of the Project, divided the work up into seven contracts, six of which were for sections of guideway and accompanying stations, and the seventh was for the construction of the Operations and Administration Building and two stations located in a particular area, the installation of all trackwork and systems for the Project, the manufacture of all vehicles, and the operation and maintenance of the entire system for two consecutive five-year periods ( id., ¶¶ 5-7). The Authority entered into a contract (the General Contract) with a consortium led by petitioner for this seventh portion of the Project ( see id., ¶¶ 6-8). The consortium is composed of petitioner, Alternate Concepts, Inc. (ACI), and Juan Requena Associates (JRA), the Engineer of Record, who was licensed as an engineer in Puerto Rico ( see id., ¶ 8). Petitioner is a partnership composed of two Delaware corporations, one with a principal place of business in New York and the other in California ( id., ¶ 26).
The petitioner, ACI, and JRA entered into a Consortium Agreement, which set forth their rights and obligations among each other ( see id., ¶ 9; see also Exhibit U to Affirmation of Bruce Meller in Opposition, Consortium Agreement). Section 3.1 of the Consortium Agreement sets forth the allocation or scope of work, and refers specifically to Appendix 3.1 attached thereto, as specifying each party's scope of work (Exhibit U to Meller Affirm., Consortium Agreement § 3.1). Appendix 3.1 states that petitioner "will be responsible to provide the Design, Construction, Installation and Testing for the Fixed Facilities and Systems (Items D.1 through D.7) portion of [the seventh or General Contract], excluding however those Services attributable to the Contractors Designer as per Puerto Rican Law 173 which will be the responsibility of [JRA]" ( id., Appendix 3.1). Petitioner was also responsible for the trackwork installation, train control, traction power, communications and system integration of all Alignment Section Contracts (ASCs, the other six contracts) (Evans Aff., ¶ 10). The Consortium Agreement also contains an indemnification provision stating that each party would indemnify and hold harmless the other from any claims by third parties relating to the indemnifying party's scope of work, or the indemnifying party's fault or negligence ( id., ¶ 11; Exhibit U, Consortium Agreement § 8.1).
Redondo Construction Corporation, a Puerto Rican corporation, formed joint ventures with other contractors to perform various portions of several of the other six ASC contracts (Evans Aff., ¶ 12). It teamed with Perini Corporation, a Massachusetts corporation which does business in multiple states, to form a joint venture RPJV, the respondent here ( id., ¶¶ 14, 27, 29).
On April 5, 1996, petitioner entered into a subcontract with respondent (the Subcontract), in which respondent agreed to perform certain work relating to the General Contract ( id., ¶ 15; Exhibit V to Meller Affirm., Subcontract Exhibit A). This work included the procurement of the design for, and the construction of, two stations and an administration building, along with a train car cleaning building, a maintenance and storage facility, and other support buildings (Exhibit V to Meller Affirm., Subcontract Exhibit A). This Subcontract also contained an indemnification provision, section 9.1, in which respondent agreed to indemnify and hold harmless the Authority and petitioner from and against all claims arising from a breach of the Subcontract or the negligent performance of work under the Subcontract or the General Contract (Exhibit V to Meller Affirm., § 9.1). It further contained a provision incorporating by reference the General Contract, and each and every document comprising part of the General Contract ( id., § 1.1).
Respondent then entered into a subcontract with Guillermety, Ortiz Associates (GOA), in which GOA agreed to perform the design work for the Fixed Facilities (the RPJV/GOA Subcontract) (Exhibit 3 to Evans Aff.). This subcontract provided that respondent, as the contractor, had agreed in the Subcontract with petitioner, to procure the services of licensed design professionals to provide the architectural and engineering services required to design the Fixed Facilities and the signage and graphics in accordance with the petitioner's and Authority's requirements, as set forth in the contract documents (Exhibit 3 to Evans Aff., RPJV/GOA Subcontract § 2). It further provided that JRA is the Engineer of Record, and JRA signed this subcontract in that capacity (Evans Aff., ¶ 18; Exhibit 3 to Evans Aff., RPJV Subcontract § 2.2.4, and at 17). The RPJV/GOA Subcontract stated that all of the Project Contract Documents were incorporated by reference (Exhibit 3 to Evans Aff., RPJV Subcontract § 2.3.1). This subcontract also included several provisions regarding indemnification for delays by the architect/engineer, as well as delays by respondent, petitioner, and the Authority ( id., §§ 5.1 and 5.2).
Disputes arose between petitioner and respondent under the Subcontract regarding delays, and being over budget (Evans Aff., ¶ 24). On March 15, 2001, petitioner and respondent executed an amendment to the Subcontract, providing that all disputes arising out of their agreement would be submitted to binding arbitration ( id., ¶ 25; Exhibit 5 to Evans Aff.). On December 23, 2002, respondent filed a Demand for Arbitration with the American Arbitration Association, in accordance with the amendment to the Subcontract, asserting claims in the amount of $25,000,000 arising out of the Subcontract ( see Affirmation of Blair Andrews in Support, ¶ 3). Petitioner responded, asserting a number of counterclaims against respondent ( id., ¶ 4). The parties each selected an arbitrator petitioner selected Michael Shane, and respondent selected Steven Lausell and those two arbitrators selected a third arbitrator, Michael Simon ( id., ¶¶ 6-9). Arbitrators Shane and Lausell each submitted disclosure statements regarding any connections they had with the party which appointed them ( see Exhibit 3 to Andrews Affirm.). On June 27, 2003, the parties entered into an agreement in which they agreed that all of the arbitrators would take an oath of neutrality, and they waived any objections they had to the other party's arbitrator's disclosures ( id.). After additional disclosures by Arbitrator Lausell, by letter dated March 12, 2004, petitioner stated that based on his additional disclosures, it would not object to his continued service as an arbitrator in the matter (Exhibit J to Meller Affirm.).
The Arbitration hearings began on March 22, 2004, and ended on January 24, 2006, with 81 days of evidentiary hearings, and two days of closing arguments (Meller Affirm., ¶ 4). Seventeen witnesses testified, with thousands of pages of testimony and proceedings, and thousands of exhibits produced ( id.). The disputes between the parties were divided up so that some would be determined in what the arbitrators called Phase I of the Arbitration, and some were reserved for a later Phase II ( see Award). During Phase I, petitioner asserted counterclaims against respondent for over $33,000,000 for damages allegedly incurred by petitioner's consortium partners (JRA and ACI), and petitioner's subcontractors, based on the Subcontract (Meller Affirm., ¶ 64).
In the arbitration, respondent was seeking damages for delay costs, some of which were attributable to design delays caused by petitioner's alleged interference in the design. Respondent argued at the arbitration hearings that because of Puerto Rico's Law 173, and Article 1.8.1 of the General Contract, it was prohibited from undertaking responsibility for the design, and that, instead, JRA and GOA were responsible for the design process (Andrews Affirm., ¶¶ 28, 29, 45). It also argued that because of Law 173 and certain provisions of the General Contract, it could not recover from GOA for the design delays, and it could only look to petitioner for such recovery ( id., ¶¶ 45-47).
In its Initial Position Statement to the arbitration panel, petitioner stated that it was seeking damages from respondent in its counterclaims due to defects and delays in respondent's work under the Subcontract, and that respondent's claims against petitioner had no merit, because the vast majority of the delays were from problems caused by respondent (Exhibit W to Meller Affirm., at 1-2). Petitioner asserted that under the Consortium Agreement, it is the consortium leader, and is also responsible for the design and construction of the Fixed Facilities ( id. at 3). It urged that the Subcontract was a "pass-through contract whereby [respondent] is required to perform all of the civil construction and design work required by the [General Contract] and all conditions with the Authority for [petitioner] are passed through to [respondent]" ( id.). Petitioner contended that it retained no design responsibilities, and that under its design-build obligations, respondent retained GOA for the fixed facilities design, and Parsons Brinkerhoff (PB) for the trackwork design ( id. at 12). Petitioner further contended that the RPJV/GOA Subcontract gave GOA and PB full responsibility for the design requirements, not petitioner ( id.). It disputed respondent's claims of design interference as unfounded, and not supported by the facts ( id. at 13). Petitioner did not cite any law, or make any arguments with respect to any particular statute or legal principle.
At the close of respondent's direct case, the arbitrators dismissed a substantial portion of respondent's claims ( id., ¶ 12). The arbitrators deliberated for approximately six weeks before issuing the Award.
On March 14, 2006, the parties received the Award, pursuant to which a majority (two of the three arbitrators) directed petitioner to pay respondent $15,681,491.33 (Exhibit 29 to Andrews Affirm., at 4; Exhibit C to Meller Affirm., at 4). The Award begins with a finding that under Puerto Rico Law 173, only JRA, as the Contractor's Designer under the General Contract, had responsibility for the architectural and engineering services required to complete the Project, and only JRA could subcontract those services ( id., Award, at 1). It found that this arrangement was consistent with Puerto Rico Law 173, because none of the other parties to the General Contract were Puerto Rican licensed engineers or architects ( id.). The panel then determined that the RPJV/GOA Subcontract, which was executed by JRA, was a tri-party contract with a subcontractual relationship between JRA and GOA for the architectural and engineering services ( id.). It found that the obligations established in the RPJV/GOA Subcontract toward respondent were obligations assumed by GOA so that respondent would be afforded some measure of involvement in the design process, which was necessary so that the respondent's assumptions in its "fixed price subcontract," the Subcontract, were incorporated into the GOA design ( id. at 2). The Award determined that whatever liability there was between GOA and JRA and respondent did not limit the existing liabilities between respondent and petitioner under the Subcontract ( id.). It concluded that petitioner's "indemnity rights for losses arising from the performance of the architectural and engineering services required in order to complete the Project are an essential part of petitioner's contractual responsibility for construction of the fixed facilities and thus flow down to [respondent] under the [Subcontract] for construction of the fixed facilities" ( id.). The panel reasoned that any different conclusions would require it to disregard Puerto Rico Law 173, and ignore substantial evidence from the hearings regarding the parties' contractual relationships ( id.). The Award then stated the amounts awarded to respondent for its various claims, and the amounts awarded to petitioner for its counterclaims; it listed the pending issues that would be determined in Phase II of the arbitration proceedings; and it netted the award amounts, stating that petitioner shall pay respondent the net amount of $15,681,491.33 within 30 days from the date of transmittal of the Award to the parties ( id. at 2-4).
Arbitrator Michael B. Shane, appointed by petitioner, did not sign the Award, and, instead, filed a Comments on Majority Award (Annexed to Award, at 1). Arbitrator Shane disagreed with the other panel members with regard to their conclusion that in addition to GOA and JRA, petitioner also had liability for design errors, delays, and omissions ( id. at 2). He reasoned that Puerto Rico Law 173 prevents both petitioner and respondent from assuming responsibility for the design of the fixed facilities, and that by the terms of the General Contract, only JRA is responsible for the design of the fixed facilities to the Authority ( id.). Thus, he contended that petitioner could not purportedly pass down any obligation for this design to respondent, and that the panel holding that petitioner shared joint responsibility with GOA and JRA to respondent for design-related damages lacks any basis ( id. at 3). He concluded that he "know[s] of no reason or precedent that could possibly expand a right of indemnity to a burden of responsibility" ( id.). He stated that this expands petitioner's scope of work under the General Contract ( id.).
On April 13, 2006, petitioner filed its Petition challenging the Award. The Petition states that the Award manifestly disregards the principles of contract law, and that this disregard stems directly from Arbitrator Lausell's undisclosed bias, and that the Award is irrational for the same reason. On or about April 27, 2006, respondent filed its Answer, Objections in Point of Law, and Counterclaim, in which it contends that the Award was proper and should be confirmed.
Petitioner now moves to vacate the Award, pursuant to Section 10 of the Federal Arbitration Act (FAA), 9 USC § 10, on the grounds that Arbitrator Lausell was biased in favor of respondent, the Award manifestly disregards fundamental contract law, and the Award is irrational. Petitioner argues that the Award manifestly disregarded contract law when it created a non-existent right of recovery in favor of respondent and against petitioner for design delays and related damages. It claims that the only plausible explanation for this is that Arbitrator Lausell's bias and partiality in favor of respondent infected the Award. It asserts that the panel's holding that petitioner is responsible to respondent because petitioner can later seek indemnification from JRA, the true wrongdoer, demonstrates a manifest disregard of the law of contracts and indemnification. It argues that where there is an unambiguous contract, the parties' responsibilities must be found within the contract, and that a court may not write into a contract conditions the parties did not insert themselves. Petitioner further argues that the panel's conclusion that the indemnity rights between petitioner and JRA could flow down into the Subcontract without a provision incorporating it by reference is wrong. It contends that respondent cannot enforce rights as a third-party beneficiary of the Consortium Agreement, because respondent did not argue, and evidence was not presented, to support such an argument.
Finally, petitioner asserts that the Award is irrational for the same reasons.
In opposition and in support of its counterclaim to confirm, respondent contends that petitioner has not met its heavy burden on a petition to vacate for manifest disregard of the law. First, it urges that petitioner has waived any right to challenge the Award on the basis of partiality by Arbitrator Lausell. Second, it argues that the panel here was not directed to resolve this dispute in accordance with any specific statute or doctrine, the Award was not based upon any specific statute or legal doctrine, the rights and obligations of the parties was a hotly disputed question of fact subject to the panel's interpretation, and the Award was expressly based upon substantial amounts of credible evidence regarding the contractual relationships among the parties. Respondent maintains that petitioner's argument that the only explanation for the ill-reasoned outcome in the Award is that Lausell was biased, is purely speculative, and fails to provide a basis for vacatur.
The petition to vacate the Award is denied, and the counterclaim to confirm it is granted. The motion to stay enforcement of the Award also is denied.
This court will disregard the ad hominem attacks and all references to the personal interest and bias of arbitrator Steven C. Lausell, particularly in conjunction with petitioner's argument that this alleged bias is the "only plausible explanation" for the panel's manifest disregard of the law. Arbitrator Lausell made a full disclosure prior to the arbitration, petitioner waived objections to his partiality and fully participated in the arbitration, and any claim that he harbored a personal bias is based on sheer speculation.
Petitioner's arguments that the arbitrators manifestly disregarded the law are rejected. It is established law that judicial review of arbitration awards is extremely limited, and an award will be upheld so long as there is even a "barely colorable justification for the outcome'" ( Wien Malkin LLP v. Helmsley-Spear, Inc., 6 NY3d 471, 479, cert filed 75 USLW 3035 (July 21, 2006), quoting Matter of Andros Compania Maritima, S.A. [Marc Rich Co., A.G.], 579 F2d 691, 704 [2d Cir 1978]). A court should not vacate an award for the arbitrator's errors of fact and law, or substitute its judgment for that of the arbitrators ( id. at 479-80).
The parties do not dispute that the Federal Arbitration Act (FAA) applies to this controversy. The FAA mandates the enforcement of arbitration agreements relating to transactions affecting interstate commerce ( 9 USC § 2; Diamond Waterproofing Systems, Inc. v. 55 Liberty Owners Corp., 4 NY3d 247, 252; Morgan Stanley DW Inc. v. Afridi, 13 AD3d 248 [1st Dept 2004]). The transactions here affect interstate commerce.
The grounds set forth in the FAA itself for vacating an award ( 9 USC § 10[a]), all involving fraud, corruption, and misconduct by the arbitrators, do not apply in this case. Thus, the Award may only be vacated if a manifest disregard of the law, a judicially created ground for vacatur under the FAA, is plainly evident from the record ( Wien Malkin LLP v. Helmsley-Spear, Inc., 6 NY3d at 480; Morgan Stanley DW Inc. v. Afridi, 13 AD3d at 250; Duferco Intl. Steel Trading v. T. Klaveness Shipping A/S, 333 F3d 383 [2d Cir 2003]). This doctrine, however, is "severely limited'" ( Wien Malkin LLP v. Helmsley-Spear, Inc., 6 NY3d at 480, quoting Matter of Arbitration No. AAA13-161-0511-85 Under Grain Arbitration Rules, 867 F2d 130, 133 [2d Cir 1989]). Judicial review is highly deferential to the arbitral award ( Duferco Intl. Steel Trading v. T. Klaveness Shipping A/S, 333 F3d at 389). As the Court of Appeals in Wien Malkin LLP v. Helmsley-Spear, Inc. ( 6 NY3d 471, supra) stated, it is "a doctrine of last resort limited to the rare occurrences of apparent egregious impropriety' on the part of the arbitrators, where none of the provisions of the FAA apply'" ( id. at 480-81, quoting Duferco Intl. Steel Trading v. T. Klaveness Shipping A/S, 333 F3d at 389). In fact, since 1960, the Second Circuit Court of Appeals has vacated some or all of an award on this basis in only four out at least 48 cases where the standard was applied ( id.). The doctrine requires more than a simple error of law, a failure to understand or apply the law, or an erroneous interpretation of the law ( Wien Malkin LLP v. Helmsley-Spear, Inc., 6 NY3d at 481; Duferco Intl. Steel Trading v. T. Klaveness Shipping A/S, 333 F3d at 389; see Westerbeke Corp. v. Daihatsu Motor Co., Ltd., 304 F3d 200, 208 [2d Cir 2002]).
The party seeking vacatur bears the burden of proving manifest disregard of the law ( Westerbeke Corp. v. Daihatsu Motor Co., 304 F3d at 209). To satisfy this burden, that party must prove both that "(1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case'" ( Wien Malkin LLP v. Helmsley-Spear, Inc., 6 NY3d at 481, quoting Wallace v. Buttar, 378 F3d 182, 189 [2d Cir 2004] [other citations omitted]). As to the first subjective element, the court must look to the knowledge actually possessed by the arbitrators. "In order to intentionally disregard the law, the arbitrator must have known of its existence and its applicability to the problem" ( Duferco Intl. Steel Trading v. T. Klaveness Shipping A/S, 333 F3d at 390; Roffler v. Spear, Leeds Kellogg, 13 AD3d 308 [1st Dept 2004] [must show arbitrator appreciates the existence of clearly governing legal principle and ignores it]). The court will only impute knowledge of governing law identified by the parties ( Duferco Intl. Steel Trading v. T. Klaveness Shipping A/S, supra). The second element involves consideration of whether the law allegedly ignored was clear, and explicitly applicable to the arbitration, and whether it was improperly applied, leading to an incorrect result ( Duferco Intl. Steel Trading v. T. Klaveness Shipping A/S, 333 F3d at 390). If the explanation for the award is deficient, the award will be confirmed if a justifiable ground for it can be inferred from the facts ( id.).
Here, petitioner fails to meet its heavy burden of demonstrating manifest disregard of the law. First, petitioner has not satisfied the first prong of the two-prong test it fails to show that the panel knew of a governing legal principle, and refused to apply it or ignored it ( see Wien Malkin LLP v. Helmsley-Spear, Inc., 6 NY3d at 481; cf. Sawtelle v. Waddell Reed, Inc., 304 AD2d 103, 113-14 [1st Dept 2003] [attorneys for both parties agreed on law and explained it to arbitrators who failed to adhere to it]). The panel did not discuss in the Award, or in the record, that they knew of the proper applicable law, according to petitioner "the law of contract interpretation," and were not going to follow it. Petitioner's submissions here fail to prove that it instructed the arbitrators about any principles of law, either contracts or indemnification. The only brief it submitted makes no mention of particular governing legal principles, only arguing the facts and setting forth particular provisions of the contracts involved with the Project ( see Exhibit W to Meller Affirm.). There is no explicit evidence in the record that any of the arbitrators believed that certain principles of contract interpretation or principles of indemnification applied ( see Wien Malkin LLP v. Helmsley-Spear, Inc., 6 NY3d at 484). The Award also does not exhibit any deliberateness or willfulness that shows that the arbitrators intended to flout the law ( id.). The alleged error is not "so obvious that it would be instantly perceived as such by the average person qualified to serve as an arbitrator" such that this court could infer knowledge and intention on the part of the arbitrators ( see Duferco Intl. Steel Trading v. T. Klaveness Shipping A/S, 333 F3d at 390). The arbitrators' reasoning that looking at the entire relationships of the parties, and their responsibilities under the various contracts, there is an indemnification right flowing down from petitioner to respondent does not strain credulity ( id.). Where arbitrators explain their conclusions in terms that offer even a barely colorable justification for their result, the award must be confirmed ( see Roffler v. Spear, Leeds Kellogg, 13 AD3d at 309). Here, there was a "barely colorable justification" for their finding of a flow down of indemnity rights based on the parties' relationships and responsibilities as set forth in the various contracts involved in the Project. Thus, petitioner fails to present evidence of any rule of law being fully, clearly, and explicitly presented to the arbitrators, and the arbitrators intentionally disregarded it.
On the second prong, petitioner also fails to demonstrate that the law was well defined, explicit, and clearly applicable. In order to vacate an award based on a manifest disregard of a contract, the petitioner must demonstrate that the award contradicts an express and unambiguous term of the contract, or that the award so far departs from the terms of the contract that it is not even arguably derived from the agreement ( Wien Malkin LLP v. Helmsley-Spear, Inc., 6 NY3d at 485, citing Westerbeke Corp. v. Daihatsu Motor Co., 304 F3d 200, supra). Interpretation of contractual terms is within the province of the arbitrators, and their factual findings and contractual interpretation will not be overruled because a court disagrees with that interpretation ( see Westerbeke Corp. v. Daihatsu Motor Co., 304 F3d at 213-14; Yusuf Ahmed Alghanim Sons v. Toys "R" Us, Inc., 126 F3d 15, 25 [2d Cir 1997], cert denied 522 US 1111; InterDigital Communications Corp. v. Nokia Corp., 407 F Supp 2d 522, 530-31 [SD NY 2005]). Indeed, whether the arbitrator's interpretation of the parties' contract or the petitioner's interpretation of it is correct, "[c]ourts do not have the power to review the merits of arbitrators' contract interpretations'" ( InterDigital Communications Corp. v. Nokia Corp., 407 F Supp 2d at 531 [citation omitted]).
Here, the Award does not contradict any express and unambiguous terms of the agreements. The Subcontract provides that respondent will indemnify petitioner from and against all claims arising from a breach of the Subcontract or the negligent performance of work under the Subcontract or the General Contract (Exhibit V to Meller Affirm., § 9.1). While the Subcontract does not expressly provide for indemnification by petitioner to respondent, the panel found the source for this indemnity right in petitioner's responsibilities as set forth in the General Contract and the Consortium Agreement, petitioner's right to indemnity from losses arising from the performance of engineering services, and the interrelationship of these rights and responsibilities. The arbitrators' opinion does not reflect any refusal to apply any clearly applicable rule of law. Petitioner's reliance upon New York contract law as proof of the panel's manifest disregard of the law is unavailing. The panel was not directed to resolve the claims and counterclaims under New York law, or under certain tenets of contract law that are clearly and explicitly applicable. Thus, the award's conclusion is arguably derived from the terms of the contracts so that vacatur for manifest disregard of the contract is not warranted.
Petitioner's reliance on Hardy v. Walsh Manning Securities, L.L.C. ( 341 F3d 126 [2d Cir 2003]) is misplaced as that case is clearly distinguishable. In Hardy, the Court found that the arbitrators' determination that the brokerage firm employee was liable to the investor claimant "based upon principles of respondeat superior," was problematic, because as the fellow employee of a wrongdoer, liability under this theory could not be imposed. The Court found that this principle of law was well defined and explicit. It also found that the parties made the panel aware of it explicitly in their post-hearing submissions, and the claimant impliedly agreed to it ( id. at 130). Thus, the Hardy Court remanded the award for a clarification of what the panel intended with regard to the liability of the employee ( id. at 133-34). In the instant case, by contrast, there was no well-defined and explicit principle of law barring the panel's determination, which was made based on their factual findings with regard to the contractual relationships, scopes of work, and responsibilities, and petitioner did not explicitly argue to the panel particular principles of law, which it now claims the panel violated.
Accordingly, petitioner fails to meet its burden of proof for manifest disregard of the law.
To the extent that the FAA permits vacatur of an arbitration award on the ground that it is irrational ( see Morgan Stanley DW Inc. v. Afridi, 13 AD3d 248, supra), this court cannot say that the Award's holding that petitioner's indemnity rights flowed down to respondent under the Subcontract was irrational. The arbitrators found, as a matter of fact and contractual interpretation, that petitioner had contractual responsibility for construction of the fixed facilities, and that the architectural and engineering services required to complete the Project were an essential part of that responsibility. They may have also found that the scope of work petitioner subcontracted to respondent included the construction obligations required by the Consortium Agreement, together with its indemnity rights thereunder. The Award specifically states that respondent needed to have input and involvement in the design process so that the assumptions underlying its price could be incorporated into the design (Award, at 2). Evidence was presented to the panel, in the form of testimony from Mark Evans, petitioner's Chief Financial Officer, regarding the parties' obligations upon the flow-through provisions of the Subcontract, and the petitioner's liability if it did not submit that claim to the responsible party (Exhibit AA to Meller Affirm.; see also Exhibit DD to Meller Affirm., and Meller Affirm., ¶¶ 43-51). Thus, there was evidence from which the panel could have rationally concluded that petitioner's indemnity rights flowed through to respondent, and that respondent could make a claim against petitioner for design delays and defects (Meller Affirm., ¶¶ 43-51). Thus, petitioner has failed to demonstrate a basis to vacate the Award.
The motion to stay enforcement of the Award also is denied. Petitioner has failed to demonstrate any basis for delaying enforcement, and this court finds none. The fact that petitioner has additional counterclaims against respondent, which will be determined in Phase II of the arbitration proceedings, and that it may owe petitioner damages, does not warrant a stay.
Accordingly, it is
ORDERED that the petition to vacate the arbitration award is denied and dismissed; and it is further
ORDERED that the counterclaim to confirm the arbitration award is granted and the award rendered in favor of respondent and against petitioner is confirmed; and it is further
ORDERED that Confidential Exhibit O to the Affirmation of Bruce D. Mellor, Esq. In Opposition to Petition be retrieved from the Clerk of Part 60 within 14 days.