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Foulger-Pratt Residential v. Madrigal Condominiums

April 27, 2011

FOULGER-PRATT RESIDENTIAL CONTRACTING, LLC AND TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA APPLICANTS,
v.
MADRIGAL CONDOMINIUMS, LLC RESPONDENT.



The opinion of the court was delivered by: Gladys Kessler United States District Judge

MEMORANDUM OPINION

This matter is presently before the Court on Foulger-Pratt Residential Contracting, LLC ("Foulger-Pratt") and Travelers Casualty and Surety Company of America's ("Travelers") Application to Confirm Arbitration Award [Dkt. No. 1], under 28 U.S.C. § 1332, pursuant to 9 U.S.C. § 9 against Respondent Madrigal Condominiums, LLC ("Madrigal"), and Respondent Madrigal's Cross-Motion to Vacate Portions of Interim Arbitration Award [Dkt. No. 27]. Upon consideration of the Application, Motion, Oppositions, Replies, Surreply, and entire record herein, Foulger-Pratt's Application to Confirm Arbitration Award is granted and Madrigal's Motion to Vacate is denied in its entirety.

I. Procedural Background*fn1

The dispute in this case arises out of a construction contract ("Contract"), consisting of the Modified General Conditions of the Contract for Construction, ("Modified Contract Conditions")[Dkt. No. 27-4] , as well as the Modified Standard Form Agreement Between Owner and Contractor, ("Modified Form Agreement")[Dkt. No. 27-3], and the Reconciled GMP Set of Specifications ("GMP Specifications").*fn2 In 2005, Madrigal entered into these agreements with Glen Construction Company, Inc. ("Glen"), the-then general contractor, for the construction of Madrigal Lofts condominiums, located at 811 4th Street, N.W. in Washington, D.C. Applicant Travelers acted as Glen's bonding company, providing the performance and payment bonds for the project.

The parties' Contract included an arbitration provision providing that claims and disputes with a value exceeding $100,000 be submitted to a three-member Panel of arbitrators, and that any award be considered as final, binding, and conclusive. Modified Contract Conditions § 4.4.1. The Contract also contained a provision directing the parties to first attempt mediation of their dispute, before proceeding to arbitration. Modified Contract Conditions § 4.5.2.

In June 2007, Glen stopped paying its subcontractors who were working on the Project. As a result of Glen's non-performance under the Contract, Travelers engaged Foulger-Pratt, one of its long-time bond customers, to assume control over the project. In mid-2007, Glen assigned the Contract and its accompanying documents to Foulger-Pratt, which assumed the role of general contractor and agreed to achieve substantial completion of the project by December 31, 2007. Although Foulger-Pratt allegedly failed to meet this completion date, it did achieve substantial completion by early June 2008, as reflected in the Certificate of Substantial Completion issued by the project's Architect and Development Manager, effective as of June 1,2008 [Dkt. No. 30-4].

Beginning in early 2008, a variety of disputes arose between the parties regarding payments to Foulger-Pratt and various subcontractor liens on the project. The disputes came to a head in December 2008, when Foulger-Pratt filed a mechanic's lien for $2,636,467 against the project. In response, Madrigal filed an emergency motion for a temporary restraining order ("TRO") in D.C. Superior Court, which resulted in a court order vacating the lien.

Shortly thereafter, in January 2009, the parties engaged in mediation to resolve several claims and disputes related to their underlying written agreements and the project. As a result of these efforts, on February 2, 2009, the parties executed a partial settlement agreement, ("APS") [Dkt. No. 27-7], resolving a number of these issues. As a part of this settlement agreement, the parties agreed to designate a "Project Neutral," who would be a licensed architect and would certify Foulger-Pratt's completion of a punch-list of outstanding construction-related items ("Items 1-8 Punch-List"). APS ¶ 5.3. The Punch-List had been previously designated in an expert report, The Exterior Building Envelope Review Report ("Gale Report") [Dkt. No. 27-18]. The parties further agreed to submit to arbitration their remaining unresolved claims, with the exception of those items reserved in the APS for the Project Neutral, as well as any future disputes that might arise between them. Id. ¶ 11.

During the arbitration proceedings, Madrigal brought ten claims against Foulger-Pratt, relating to its work as general contractor. Interim Award ¶¶ 1-10 [Dkt. No. 27-11]. Foulger-Pratt, in turn, brought three cross-claims: (1) for damages for extended direct supervision costs due to Madrigal's alleged failure to permit final completion of the project; (2) for entitlement to payment for final completion of the contract or, alternatively, for recusal from completing the project due to Madrigal's actions or inactions; and (3) for payment to Foulger-Pratt of the entire contract balance, plus pre-award interest. Id. ¶¶ 12-13.

From May to July 2009, the parties participated in hearings on these issues before the Arbitration Panel, consisting of three lawyers who were experienced in handling construction contract disputes ("Panel"). On May 26, 2009, the Panel issued an Order, ("May 26, 2009 Order") [Dkt. No. 27-8], resolving several matters raised by the parties. The Order noted that Madrigal had potentially discovered and was investigating additional defects in the project's exterior skin and that it might wish to bring claims pertaining to such "potential" defects before the Panel; the Order stated that such claims were not ripe and the Panel postponed ruling on those claims if, and when, they became ripe, to a second hearing. May 26, 2009 Order ¶ 1.

On September 11, 2009, the Panel received post-hearing briefs and heard post-hearing argument on September 21, 2009. The Panel issued an "Interim Award" on November 30, 2009. In this award, the Panel concluded that Foulger-Pratt was obligated to complete Items 4-8 of the Punch-List and to cure certain deficiencies in special warranties. Interim Award ¶ 14(c)-(d). The Panel also held that Foulger-Pratt was entitled to final payment as it had either satisfied, or was excused from performance of, the remaining obligations alleged by Madrigal. Id. ¶ 14(f). In connection with this ruling, the Panel ordered Madrigal to pay $1,694,655 to Foulger-Pratt within 15 business days and to deposit $1,113,000 into an interest-bearing escrow account, for payment to Foulger- Pratt upon completion of its remaining obligations. Id. ¶ 16. The Panel also granted some, but not all, of Madrigal's requests for attorneys' fees, although it reserved final determination of the amount for an "additional Interim Award" regarding such fees. Id. ¶¶ 10, 11. In calculating the amount owed to Foulger-Pratt, the Panel subtracted $175,920 in damages awarded to Madrigal, and also permitted Madrigal to retain $30,117, pending the Panel's issuance of an interim award regarding Madrigal's claims to attorneys' fees.*fn3 Id. ¶¶ 11, 16.

On December 8, 2009, Foulger-Pratt*fn4 filed an Application to this Court requesting confirmation of the November 30, 2009 Interim Award ("Foulger-Pratt App."), and the entering of a judgment consistent with the findings and determinations of the Panel. The Panel's conclusions included: (1) an award to Foulger-Pratt of $1,694,655 on or before December 21, 2009; (2) a direction to Madrigal that it must deposit $1,113,000 into an interest-bearing escrow account to be established by the parties; (3) an interpretation of the contract documents; and (4) the Panel's rulings limiting Foulger-Pratt's remaining contractual obligations. Foulger-Pratt App. 5. Foulger-Pratt also sought pre-judgment interest, costs, and attorneys' fees. Id.

On December 22, 2009, Madrigal filed an Opposition to the Application and Cross-Motion to Enter Scheduling Order for its Motion to Vacate parts of the arbitration award ("Madrigal Opp'n to App.")[Dkt. No. 4]. On January 12, 2010, Foulger-Pratt filed its Reply brief opposing Madrigal's attempt to submit a vacatur motion ("Foulger-Pratt Reply to App.")[Dkt. No. 8]. Madrigal filed its Surreply on January 29, 2010 ("Madrigal Surreply")[Dkt. No. 23]. Briefing on vacatur began in March 2010, with Madrigal filing a Motion to Vacate parts of the arbitration award on March 15("Madrigal Mot. to Vacate"). On April 30, 2010, Foulger-Pratt filed its Opposition to the Motion, ("Foulger-Pratt Opp'n") [Dkt. No. 30], with Madrigal submitting its Reply brief on May 26, 2010 ("Madrigal Reply") [Dkt. No. 37].

The pending Motions raise two main issues: (1) the law governing judicial review of the arbitration award; and (2) the substantive merits of the Vacatur Motion. Foulger-Pratt asserts that the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-16, applies, while Madrigal claims that the D.C. Revised Uniform Arbitration Act ("DCRAA"), D.C. Code §§ 16-4401 - 16-4432, governs this Court's consideration of the dispute. Foulger-Pratt also challenges Madrigal's claims for vacatur of portions of the arbitration award, which include: (1) claims that the Panel lacked jurisdiction to rule on certain issues; (2) allegations that Madrigal was deprived of a full and fair hearing; (3) claims that the Panel exceeded its powers; and (4) arguments that the Panel acted arbitrarily and capriciously in rendering its award.*fn5

II. Jurisdiction

Foulger-Pratt brings its Application for Confirmation under the federal diversity statute, 28 U.S.C. § 1332.*fn6 The parties do not challenge the Court's jurisdiction in this matter, nor is there any indication that this claim does not satisfy the federal diversity statute.*fn7

III. Analysis

A. Governing Law

Foulger-Pratt and Madrigal dispute whether the FAA or the DCRAA applies to judicial review of the arbitration award.

As noted above, Foulger-Pratt originally filed its Application to Confirm the Arbitration Award pursuant to the FAA. In response to Madrigal's Opposition to Confirmation and Cross-Motion to Vacate, Foulger-Pratt argues that the FAA applies to the Vacatur Motion, as well as its confirmation application, based upon the statute's purported preemption of state law, as well as the parties' Contract.

Madrigal counters, however, that the parties expressly agreed to have all matters respecting "[t]his [a]greement to arbitrate . . . specifically enforceable pursuant to and interpreted under the laws of the District of Columbia," thereby making the FAA inapplicable in this instance. Modified Contract Conditions § 4.4.1.

As the analysis below demonstrates, Madrigal is correct that District of Columbia law applies to this Court's review of the arbitration award.*fn8 In response to Foulger-Pratt's alternative argument that this Court should apply the previous District of Columbia arbitration statute, the D.C. Uniform Arbitration Act ("D.C. Uniform Act"), D.C. Code §§ 16-4301 - 16-4319, Madrigal also correctly argues that the DCRAA, which became fully effective on February 27, 2008, governs this dispute.

1. The FAA and the D.C. Arbitration Statute

The FAA applies to the review of arbitration disputes involving interstate commerce and maritime matters. 9 U.S.C. §§ 1-2. The statute reflects a federal policy "favoring arbitration" and supersedes any state laws that conflict with this preference. See Preston v. Ferrer, 552 U.S. 346, 359, 128 S. Ct. 978 (2008) ("When parties agree to arbitrate all questions arising under a contract, the FAA supersedes state laws lodging primary jurisdiction in another forum, whether judicial or administrative.").

The Supreme Court's decisions in Volt Information Sciences, Inc. v. Board of Trustees of the Leland Stanford Junior University, 489 U.S. 468, 109 S. Ct. 1248 (1989) and Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 115 S. Ct. 1212 (1995) directly address the issue of whether a contract's choice of law provision trumps the FAA with respect to arbitration agreements. According to Volt, the FAA "'create[s] a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act,' which requires that 'questions of arbitrability . . . be resolved in favor of arbitration.'" 489 U.S. at 475 (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S. Ct. 927 (1983)). The federal policy underlying the FAA "is simply to ensure the enforceability, according to their terms, of private agreements to arbitrate . . . . Arbitration under the [FAA] is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit." Volt, 489 U.S. at 476, 479.

Volt firmly establishes that the FAA does not preempt state arbitration laws if freely chosen by the parties. See Ekstrom v. Value Health, Inc., 68 F.3d 1391, 1395-96 (D.C. Cir. 1995) (relying on Volt in deciding that the FAA does not preempt parties' choice of state rules of arbitration that are consistent with the FAA's goals of protecting private arbitration agreements). See also Hall St. Assocs. v. Mattel, Inc., 552 U.S. 576, 590, 128 S. Ct. 1396 (2008) (noting in dicta that the "FAA is not the only way into court for parties wanting review of arbitration awards: they may contemplate enforcement under state statutory or common law, for example, where judicial review of different scope is arguable").

In Mastrobuono, the Court further described the circumstances in which either state arbitration rules or the FAA may apply to parties' arbitration agreements. Mastrobuono involved a contract, with a general choice of law provision selecting New York law, as well as an arbitration provision setting forth certain procedural rules governing future arbitration proceedings. 514 U.S. at 58-59. Petitioner sought a ruling that the FAA preempted a New York common law rule, which prohibited arbitration awards of punitive damages. Id. at 55-56. Emphasizing its continued support for Volt, the Supreme Court found that the contract at issue did not evince the parties' specific intent to exclude punitive damage awards. Moreover, the parties' selection of New York state law conflicted with their simultaneous selection of specific arbitration rules governing the arbitration proceeding. Id. at 56, 61-62. Relying on principles of contract construction as well as its decision in Volt, the Court concluded that the resulting ambiguity demanded that it interpret the contract so as to permit the arbitration Panel's award of punitive damages. Id. at 62-64.

As noted in Jung v. Association of American Medical Colleges, 300 F. Supp. 2d 119, 152 (D.D.C. 2004), "[n]umerous courts of appeals have concluded that Mastrobuono requires that the intent of the contracting parties to apply state arbitration rules or law to arbitration proceedings [] be explicitly stated in the contract and that . . . a general choice of law provision does not evidence such intent."*fn9 Cf. Roadway Package Sys., Inc. v. Kayser, 257 F.3d 287, 298 n.6 (3d Cir. 2001), overruled on other grounds by Hall St. Assocs., 552 U.S. 576.

In Jung, the District Court concluded that Mastrobuono stands for the proposition that the FAA trumps a general choice of law provision. 300 F. Supp. 2d at 153. Other D.C. District Court decisions have also agreed with this interpretation of Mastrobuono. See Contech Const. Prods., Inc. v. Heierli, Nos. 09-01483, 09-02204, 2011 WL 453236 at *7 (D.D.C. Feb. 4, 2011)(citing to Mastrobuono in holding that FAA and not D.C. arbitration law applied to arbitration because reference in arbitration clause to Washington, D.C. merely constituted agreement as to location of arbitration proceedings); Khan v. Parsons Global Servs., Ltd., 480 F. Supp. 2d 327, 338 (D.D.C. 2007), rev'd on other grounds, 521 F.3d 421 (D.C. Cir. 2008)(relying on Mastrobuono and a line of circuit court cases in holding that "a generic choice-of-law clause, by itself, is insufficient evidence to prove that the parties intended to opt out of the default federal standards").*fn10

This case, however, presents a different scenario from those cases, following Mastrobuono, holding that a generic choice of law clause is insufficient to displace the FAA's default rules. In this case, even though there is a general choice of law provision applying to the Contract as a whole, Modified Contract Conditions § 13.1.1, the parties included a specific clause stating that "[t]his [a]greement to arbitrate shall be specifically enforceable pursuant to and interpreted under the laws of the District of Columbia." Id. § 4.4.1.

As Volt made clear, the FAA demands that private agreements to arbitrate be upheld and that the parties' choice of substantive law governing those arbitrations generally be respected. Despite Foulger-Pratt's claims to the contrary, the choice of law clause contained in the parties' Contract, Modified Contract Condition § 4.4.1, specifically and unambiguously evidences their clear choice of D.C. law rather than the FAA to govern their agreement to arbitrate. It is an axiom of contract interpretation that, in interpreting a contract, the court should determine "what a reasonable person in the position of the parties would have thought the disputed language meant." Steel Founds., Inc. v. Clark Constr. Group, Inc., 937 A.2d 148, 154 (D.C. 2007) (internal quotations and citations omitted). In pursuing this inquiry, the court should "tak[e] into account the contract as a whole, so as to give effect, if possible, to all of the provisions in the contract." Id. (quoting Akassy v. William Penn Apartments, Ltd. P'ship, 891 A.2d 291, 303 (D.C. 2006)). Moreover, there is nothing in the D.C. arbitration law that conflicts with the policy behind the FAA. Masurovsky v. Green, 687 A.2d 198, 204 n.3 (D.C. 1996).

Foulger-Pratt's argument that D.C. law applies only to the actual agreement to arbitrate (in other words, only to the issue of arbitrability) is not persuasive. Foulger-Pratt Reply to App. 13-14. As Madrigal correctly argues, a reasonable reading of the provision would apply D.C. law to all aspects of the arbitration, and not just to the act of entering into the arbitration agreement itself.*fn11

Foulger-Pratt also fails in its claim that the Contract's lack of specific reference to the D.C. arbitration statute demonstrates that the parties did not contemplate application of D.C. arbitration laws. As observed by the Third Circuit Court of Appeals in Roadway, parties may employ various means of evidencing their clear and unambiguous intent to apply state arbitration laws and are not limited in this respect to specifically invoking the state's arbitration provision. 257 F.3d at 297 n.5.

Given the emphasis in Mastrobuono and Volt on upholding private agreements to arbitrate and the parties' clear choice of law governing arbitration in this case, the Court concludes that D.C. law governs its review of the arbitration award.

2. The DCRAA and the D.C. Uniform Act

The DCRAA went into effect in the District of Columbia on February 27, 2008, although full repeal of the D.C. Uniform Act did not take place until July 1, 2009. In brief footnotes, Foulger-Pratt argues that should the Court apply D.C. law then it is the D.C. Uniform Act, and not the DCRAA, which should be applied. Foulger-Pratt Reply to App. 13 n.1, 20 n.4.

Section 16-4403 of the DCRAA generally governs its applicability. According to this section, the statute applies to "an agreement to arbitrate made on or after February 27, 2008" as well as to "an agreement to arbitrate made before February 27, 2008 if all the parties to the agreement or to the arbitration proceeding so agree in a record." D.C. Code § 16-4403 (a)-(b). The provision goes on to state, however, that "[o]n or after July 1, 2009, this chapter governs an agreement to arbitrate whenever made." D.C. Code § 16-4403(e)(emphasis added). The statute also contains a Savings Clause, stating that the DCRAA "does not affect an action or proceeding commenced or right accrued before the effective date of this chapter. Subject to § 16-4403, an arbitration agreement made before the effective date of this chapter is governed by §§ 16-4301 to 16-4319 [the D.C. Uniform Act]." D.C. Code § 16-4432.

While there are few federal or D.C. cases that discuss the DCRAA in any significant depth, the D.C. Court of Appeals recently examined the import of this new statute in Menna v. Plymouth Rock Assurance Corp., 987 A.2d 458 (D.C. 2010). According to Menna, after July 1, 2009, the DCRAA repealed the D.C. Uniform Act in its entirety. Thus, any arbitration agreement entered into before or after that date, as well as any pending arbitration hearing, would be governed by the DCRAA. Id. at 462. Quoting commentary on the Revised Uniform Arbitration Act, on which the DCRAA is based, the court in Menna observed that the DCRAA's "savings clause is 'subject to' the provision that, after the date on which the old Act is repealed, the revised Act governs all arbitration agreements whenever made." Id. at 463 n. 14 (citation omitted).

It is well-settled that on issues of D.C. law, this Court defers to the rulings of the D.C. Court of Appeals. Williams v. Martinez, 586 F.3d 995, 1001 (D.C. Cir. 2009). Morever, the Menna court's reading of the DCRAA is persuasive and utilizes traditional tools of statutory construction. Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy, 548 U.S. 291, 296-97, 126 S. Ct. 2455 (2006) ("We have stated time and time again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there. When the statutory language is plain, the sole function of the courts - at least where the disposition required by the text is not absurd - is to enforce it according to its terms.")(internal quotations and citations omitted).

Furthermore, federal as well as D.C. law regarding statutory retroactivity establish that where the legislature has made clear that a law shall apply retroactively, the court shall uphold such effect, even in cases involving private, contractual rights. See Landgraf v. USI Film Prods., 511 U.S. 244, 280, 114 S. Ct. 1483 (1994)("When a case implicates a federal statute enacted after the events in suit, the court's first task is to determine whether Congress has expressly prescribed the statute's proper reach. If Congress has done so, of course, there is no need to resort to judicial default rules."); District of Columbia v. Beretta USA Corp., 940 A.2d 163, 176 (D.C. 2008)("'When a new law makes clear that it is retroactive, an appellate court must apply that law in reviewing ...


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