United States District Court, W.D. Oklahoma
MEMORANDUM OPINION AND ORDER
J. CAUTHRON, United States District Judge
filed a Motion and Application for Relief Regarding
Arbitration Award (Dkt. No. 1). Defendant filed a Response to
Plaintiff's Motion (Dkt. No. 7) and Plaintiffs filed a
Reply (Dkt. No. 10). The motion is now at issue.
events of this action arise from a contract entered into by
Plaintiffs MEMC II, LLC (“MEMC”) and Mike
McDaniel with Defendant Cannon Storage Systems, Inc.
(“Cannon”). The parties entered into a Standard
Form of Agreement Between Owner and Contractor
(“Contract”) to build a commercial storage
facility in Dallas, Texas. The contract expressly articulated
various performance standards and included design
specifications to which Defendant agreed to adhere during
construction. The parties agreed Texas law would govern their
contractual relationship and Texas substantive law would
govern any disputes that arose under the contract.
construction began, Plaintiffs made the agreed-upon payments
to Defendant. Subsequently, Defendant changed the structural
plans because Defendant believed certain elements of the
agreed-upon structural plans were inadequate and would result
in further structural issues. But Plaintiffs did not
immediately fire Defendant although they made no further
payments under the contract. Defendant Cannon sent a demand
letter to Plaintiffs that did not yield any results regarding
the parties' dispute. As a result of their irreconcilable
disagreement, the parties then proceeded to arbitration. At
arbitration, Defendant presented expert testimony regarding
its proposed changes to the structural plans and the experts
testified that those changes met or exceeded the design plan
approved of in the contract. Plaintiffs' expert witnesses
testified that the design plans did not meet the
specifications approved of in the contract. The arbitrator
found that Defendant did not construct the facility according
to the contracted specifications and Defendant was therefore
in breach of the contract. The arbitrator also found
Plaintiffs were in breach of the contract because of
non-payment to Defendant.
argue that Defendant materially breached the contract first
and, as a result, that would justify Plaintiffs'
non-payment of its obligations under the contract. Plaintiffs
argue that the Court should confirm the arbitrator's
finding that Defendant Cannon breached the contract pursuant
to 9 U.S.C. § 9 and the Court should find that the
arbitrator exceeded her authority pursuant to 9 U.S.C. §
10(a)(4). Defendant argues that it did not materially breach
the contract and that the arbitrator's award of damages
to Defendant should stand.
Courts are hesitant to get involved in the merits of an
arbitration decision. In order for Plaintiffs to obtain
relief, “they must clear a high hurdle. It is not
enough for [them] to show that the [arbitrator] committed an
error-or even a serious error.” Stolt-Nielsen S.A.
v. AnimalFeeds Int'l Corp., 559 U.S. 662, 671
(2010). At the time when an arbitrator inputs her
“‘interpretation and application of the agreement
and effectively “dispense[s] his own brand of
industrial justice” [is when] his decision may be
unenforceable.'” Id. (citations omitted).
Federal Arbitration Act outlines the scope of the district
court's authority in these circumstances. Under 9 U.S.C.
§ 10(a)(4), a court may vacate an award: “where
the arbitrators exceeded their powers, or so imperfectly
executed them that a mutual, final, and definite award upon
the subject matter submitted was not made.”
Id. “[A]n arbitration decision may be vacated
under § 10(a)(4) of the FAA on the ground that the
arbitrator ‘exceeded [his] powers, ' for the task
of an arbitrator is to interpret and enforce a contract, not
to make public policy.” Stolt-Nielsen S.A.,
599 U.S. at 671 (quoting 9 U.S.C. § 10(a)(4)).
law favors arbitration and it has long been an accepted
principle of law, with respect to review by a court of an
arbitration award, that there exists strong presumption
favoring the validity of the award.'” Newark
Stereotypers' Union No. 18 v. Newark Morning Ledger
Co., 261 F.Supp. 832, 835 (D.N.J. 1966) (quoting
Nickals v. Ohio Farmers Ins. Co., 237 F.Supp. 904, 906
(N.D. Cal. 1965)). Generally, courts are “justified
when the decision to be set aside is the product of the
theoretically informal, speedy, and inexpensive process of
arbitration, freely chosen by the parties.” In re
Andros Compania Maritima, S.A., 579 F.2d 691, 701 (2d
threshold question is whether the arbitrator exceeded her
power under 9 U.S.C. § 10. In order to determine this,
the Court must first explore the scope of the
arbitrator's contractually delegated authority.
Plaintiffs and Defendant agree that the competing breach
claims and counterclaims were properly before the arbitrator.
The parties agreed Texas law would govern their contractual
relationship and Texas substantive law would govern any
dispute that arose under the contract. At the core of the
parties' dispute is whether the arbitrator's
application of the material breach standard was contrary to
argue that when one party materially breaches a contract, the
other party is precluded from further performance under the
contract. (Pls.' Mot., Dkt. No. 1, p. 5.) Although it is
not necessary to analyze that argument, it is necessary to
distinguish between Plaintiffs' assertion - that
Defendant committed a material breach - from the
arbitrator's finding - that the Defendant did not commit
a material breach when Defendant modified the structural
engineering portion of the plan.
arbitrator analyzed both claims, counterclaims, and the facts
presented by both parties. “Generally, materiality is
an issue ‘to be determined by the trier of
facts.'” Bartush-Schnitzius Foods Co. v. Cimco
Refrigeration, Inc.,518 S.W.3d 432, 436 (Tex. 2017)
(quoting Hudson v. Wakefield,645 S.W.2d 427, 430
(Tex. 1983)). The Texas Supreme Court in Mustang Pipeline
Co., Inc. v. Driver Pipeline Co., Inc.,134 S.W.3d 195
(Tex. 2004), set forth various factors in the Restatement
that are ...