Transtech Industries, Inc. v. A&Z Septic Clean

270 F. App'x 200

• Court: Court of Appeals for the Third Circuit
• Decided: March 24, 2008
• Docket: No. 05-5246
• Status: Published

Opinion

OPINION

AMBRO, Circuit Judge.

Appellant Transtech Industries, Inc. seeks a new arbitration hearing after obtaining an unwelcome result in arbitration with appellee SCA Services, Inc.¹ The United States District Court for the District of New Jersey denied Transtech’s motion to vacate the prior arbitration award. We affirm that decision.

I. Background

For a nine-month period during 1975 and 1976, Transtech and SCA operated a joint partnership that transported waste to the Kin-Buc landfill, which closed in 1977. The Environmental Protection Agency eventually declared it a Superfund site. In 1990, Transtech sued under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), 42 U.S.C. §§ 9601 — 75, several hundred parties who had either arranged for the disposal of wastes at Kin-Buc or transported waste there. Initially, SCA was a defendant in the suit, but it was later realigned as plaintiff. Transtech eventually paid approximately $19 million related to the remediation of Kin-Buc site.

Until reaching settlement in 1997, SCA and Transtech had disputed them respective shares of responsibility for cleaning up Kin-Buc. In the settlement contract, SCA assumed Transtech’s obligations under the EPA orders pertaining to Kin-Buc, indemnifying and releasing Transtech from all claims. In return, Transtech agreed to pay SCA a portion of its “Recoveries”² in a separate action (the “Insurance Action”) against various insurers. SCA’s portion is equal to 75 percent of Transtech’s “Net Recoveries”³ up to a maximum payment to SCA of $8.5 million.

Four principal issues exist in interpreting the settlement contract: (1) whether Recoveries include the portion of proceeds from the Insurance Action allocated to a separate site (known as Chemsol); (2) whether Recoveries include proceeds from firms dismissed from the Insurance Action that paid Transtech as a result of separate legal actions; (3) whether Transtech can deduct estimated or actual taxes on the proceeds from the Insurance Action when calculating Net Recoveries; and (4) whether Transtech can deduct its attorneys’ fees as specified in a 1995 contract with its counsel or the attorneys’ fees it actually paid under a subsequent contract.

In November 2000, SCA filed suit to require Transtech to disburse funds to the Paying Agent⁴ because Transtech had begun receiving proceeds from the Insurance Action. After the District Court ordered it to do so in March 2002, Transtech issued its first Preparer’s Certificate. It specified a payment of $0, to which SCA objected. The parties selected the Honorable Abraham J. Gafni (retired from the Pennsylvania Court of Common Pleas) as their arbitrator in June 2002. In October 2002, Judge Gafni issued his first Decision and Award, which gave a payment to SCA of $3.5 million, the maximum under the contract. In response, Transtech issued a second Preparer’s Certificate in December 2002. This second document revised Tran-stech’s tax liability from $6,703,957 to $16,682,997, yielding a calculated payment due to SCA of $0.

SCA objected again, resulting in additional briefing as well as oral argument. In June 2003, Judge Gafni issued an Amended Decision and Award with, among other revisions, an expanded discussion of Transtech’s tax liability. In February 2004, after further submissions and oral argument, as well as a third Preparer’s Certificate that provided three versions of the relevant calculation, Judge Gafni affirmed his amended decision and awarded $3.5 million (plus arbitration costs) to SCA.

Transtech moved in District Court to vacate the award under § 10 of the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-16, and to obtain a new arbitration hearing. SCA cross-moved to confirm the award. The District Court denied Tran-stech’s motion and granted that of SCA. Transtech appeals to our Court, asking us to reverse the District Court’s decision and to vacate the arbitration award.

II. Jurisdiction and Standard of Review

The District Court had jurisdiction over the initial CERCLA action under 28 U.S.C. § 1331. The District Court administratively closed that CERCLA action in April 1999, but has yet to enter a final judgment. See Penn West Assocs., Inc. v. Cohen, 371 F.3d 118, 126-29 (3d Cir.2004) (clarifying the meaning of administrative closings). It entered an order requiring Transtech to “comply with all other provisions of paragraphs 5.1 through 5.6 of the Settlement Agreement regarding application of insurance recoveries.” Dist. Ct. Order of Nov. 13, 2000. Because the Court incorporated the settlement agreement into an order using specific language, it retained the power to exercise ancillary jurisdiction over Transtech’s motion to vacate the arbitration award and SCA’s cross-motion to confirm it. Compare Halderman v. Pennhurst State Sch. & Hosp., 901 F.2d 311, 317 (3d Cir.1990) (holding that a District Court retained jurisdiction where it had “incorporated [a settlement agreement] into an order of the court”), with Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 381, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994) (holding that a District Court did not have ancillary jurisdiction but stating that “[t]he situation would be quite different if the parties’ obligation to comply with the terms of the settlement agreement had been made part of the order of dismissal”).⁵ We have appellate jurisdiction under 9 U.S.C. § 16(a).

We review the District Court’s decision de novo. Dluhos v. Strasberg, 321 F.3d 365, 369 (3d Cir.2003). The FAA lists four circumstances in which we must vacate an arbitration award:

(1) where the award was procured by corruption, fraud, or undue means;

(2) where there was evident partiality or corruption in the arbitrators, or either of them;

(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or

(4) where the arbitrators exceeded them powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

9 U.S.C. § 10(a). We may vacate an award if it demonstrates “ ‘manifest disregard of the law,’ ” Tanoma Mining Co. v. Local Union No. 1269, 896 F.2d 745, 749 (3d Cir.1990) (citation omitted). We can also vacate an award if it cannot be justified “ ‘in any rational way,’ ” id. at 748 (emphasis in original) (citation omitted). Our Court has recently summarized the standard of review as follows:

As a general rule, we must enforce an arbitration award if it was based on an “arguable” interpretation and/or application of the collective bargaining agreement, and may only vacate it if there is no support in the record for its determination or if it reflects “manifest disregard of the agreement, totally unsupported by principles of contract construction ...”

Exxon Shipping Co. v. Exxon Seamen’s Union, 993 F.2d 357, 360 (3d Cir.1993) (quoting News America Publ’ns v. Newark Typographical Union, Local 103, 918 F.2d 21, 24 (3d Cir.1990)).

III. Transtech’s Challenges to the Arbitration Award

Transtech challenges the arbitration award on both procedural and substantive grounds. We discuss each category of arguments in turn.⁶

A. Procedural Infirmities

Transtech alleges procedural flaws in the arbitration process that Judge Gafni employed and that those flaws violated its due process rights. In particular, it argues that the proceedings lacked certain pertinent evidence, a live hearing, and cross-examination of witnesses. But given the multiple submissions, voluminous supporting materials, and frequent opportunities for oral argument, it does not appear that Transtech’s position on contract interpretation issues escaped the arbitrator’s notice. Its opening “position paper” comprised over 500 pages. By the end of the arbitration, it had made 17 different submissions. These facts do not suggest a constitutional procedural defect.

Relatedly, Transtech claims that Judge Gafni engaged in “misconduct.” It alleges that, in an ex parte conversation, Judge Gafni said to its counsel that he “knew” why a contract term had been drafted in a certain way. We fail to see why such a statement indicates corruption under the FAA. An arbitrator in a contract case would naturally seek to understand the intent of the parties.

Transtech further challenges the arbitration award on the ground that Judge Gafni failed to state his reasons in writing. But our Court has stated that “we decline to impose a requirement of arbitral opinions as a matter of law.” Virgin Islands Nursing Ass’n Bargaining Unit v. Schneider, 668 F.2d 221, 224 (3d Cir.1981). Especially where, as here, no evidence exists of an arbitrator disregarding the law or the text of a contract, we have no reason to view the absence of a written opinion as a procedural failing.

Transtech next argues that Judge Gafni considered extrinsic evidence, showing manifest disregard for the law and thus violating the FAA. But New Jersey law allows parol evidence, see, e.g., Nat’l Utility Service, Inc. v. Chesapeake Corp., 45 F.Supp.2d 438, 446 (D.N.J.1999), and our Court has deemed it appropriate for arbitrators to look beyond the text of the contract, see American Cyanamid Co. v. Fermenta Animal Health Co., 54 F.3d 177, 181 (3d Cir.1995). So it was not a procedural flaw to look to extrinsic evidence.

Finally, Transtech claims that Judge Gafni violated the funtcus officio doctrine.⁷ Our Court has outlined three exceptions to the functus officio doctrine against modifying arbitration opinions: “(1) an arbitrator ‘can correct a mistake which is apparent on the face of his award,’ (2) “where the award does not adjudicate an issue which has been submitted, then as to such issue the arbitrator has not exhausted his function and it remains open to him for subsequent determination’; and (3) ‘[wjhere the award, although seemingly complete, leaves doubt whether the submission has been fully executed, an ambiguity arises which the arbitrator is entitled to clarify.’ ” Colonial Penn Ins. Co. v. Omaha Indem. Co., 943 F.2d 327, 332 (3d Cir.1991) (citations omitted). In this case, Transtech’s functus officio argument centers on the issue of the underlying tax liability, denoted as “(x)” in the contract. Judge Gafni’s initial decision had relatively little to say about “(x),” and thus his amended decision clarifies ambiguity about “(x)” in the initial award, qualifying for exception (3) above.

In sum, we discern no procedural infirmities in the arbitration proceedings.

B. Substantive Contract-Interpretation Issues

As mentioned above, Transtech raises four substantive issues of contract interpretation. As the District Court explained in detail, specific contract language rationally supports the interpretation chosen by Judge Gafni and affirmed by the District Court.

First, Transtech argues that “Recoveries” do not include the portion of proceeds from the Insurance Action allocated to the Chemsol site as well as the Kin-Buc site. Paragraph 5.1 of the settlement contract reads: “All recoveries of insurance proceeds relating to claims made, or to the Kin-Buc related claims which could have been made ... [,] shall be paid to [the Paying Agent].” Judge Gafni and the District Court found that “all” modifies “claims made,” while “Kin-Buc related” only modifies “claims which could have been made.” We agree that this interpretation, given the particular placement of the phrase “Kin-Buc related,” makes the most sense. 1

Second, Transtech contends that Recoveries should not include proceeds from various insolvent insurance firms who were dismissed from the Insurance Action but who did pay Transtech as a result of separate legal actions. But the contract says “[a]ll recoveries” for claims and related claims, leaving Transtech’s argument for excluding these recoveries with no basis.

Third, Transtech disputes that it must deduct actual taxes on the proceeds from the Insurance Action when calculating “Net Recoveries.” If Transtech’s calculated taxes were to be used (as distinguished from its actual taxes owed), it would have been pointless to include the provision in Paragraph 5.2 of the settlement contract that addresses what to do if Transtech’s tax liability was not ascertainable at that time. It is reasonable to believe the contract contemplated the deduction of actual taxes.

Fourth, Transtech claims it should not have to deduct the attorneys’ fees it actually paid under a subsequent contract. Rather, it seeks to deduct the fees specified in a superseded 1995 contract with its counsel. Paragraph 5.1(a) of the settlement contract allows Transtech to deduct attorneys’ fees “paid” or “payable.” But there is also language about deducting only those fees that were pursuant to a 1995 contract between Transtech and its lawyers. While this is a closer issue than the other provisions, under our deferential standard of review the arbitrator had some rational support for his decision to require Transtech to deduct its actual attorneys’ fees, and thus it stands.

* * * « * *

In this context, we affirm.

1 . SCA Services, Inc. is now known as SC Holdings, Inc., but we will follow the usage of the parties and refer to the appellee as "SCA."

2 . The settlement contract defines Recoveries in 11 5.1 as "fajll recoveries of insurance proceeds relating to the claims made, or to the Kin-Buc related claims which could have been made,” in the Insurance Action.

3 . The settlement contract defines Net Recoveries in 115.1 as Recoveries minus Transtech's attorneys' fees and income-tax liability related to Recoveries. The specific definitions of the fees and taxes to be subtracted from Recoveries are among the substantive disputes in this case and will be discussed below in more detail.

4 . The settlement contract defines Paying Agent in 11 5.1 as a particular named attorney or “another independent third party acceptable to Transtech and SCA ... who shall make payment to SCA."

5 . Alternatively, the District Court had diversity jurisdiction over this case. Transtech is a Delaware corporation with its principal place of business in New Jersey. SCA became a Pennsylvania corporation, with its principal place of business in Texas, when it merged with SC Holdings (which gives the company its current name). The amount in controversy, $3.5 million, exceeds $75,000. Thus, the requirements of 28 U.S.C. § 1332 are satisfied as well.

6 . On appeal, SCA argues that Transtech has waived all its procedurally phrased arguments, but we reject that line of reasoning. SCA had ample notice, based on Transtech’s opening brief in the District Court, of the basis for the procedural claims Transtech has pursued in this appeal; even if the terms "due process” and “functus officio ” did not appear, the substance of the claims did. De Laval Turbine, Inc. v. West India Indus., Inc., 502 F.2d 259, 271 (3d Cir.1974) ("The general rule that matters must first be raised at the district court level is a cornerstone of a rational federal judicial system. As significant as the rule is, however, we see no reason to append to it a ‘magic word' requirement.”).

7 . "The doctrine of functus officio, Latin for a task performed, was applied strictly at common law to prevent an arbitrator from in any way revising, re-examining, or supplementing his award. The rule provided simply that when ‘arbitrators have executed their award and declared their decision they are fundus officio and have no power or authority to proceed further.'" Teamsters Local 312 v. Matlack, Inc., 118 F.3d 985, 991 (3d Cir.1997) (emphasis added) (footnote and citations omitted).