                                                                                                                           Opinions of the United
2005 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


4-25-2005

Parsons Energy v. Williams Union
Precedential or Non-Precedential: Non-Precedential

Docket No. 04-2171




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                                                              NOT PRECEDENTIAL

               IN THE UNITED STATES COURT OF APPEALS
                        FOR THE THIRD CIRCUIT

                                Case No. 04-2171

              PARSONS ENERGY & CHEMICALS GROUP, INC.,
                    Formerly Parson Process Group Inc.,

                                                       Appellant

                                          v.

                        WILLIAMS UNION BOILER,
                  A DIVISION OF WILLIAMS POWER CORP.

                                _______________

                 On appeal from the United States District Court
                     for the Eastern District of Pennsylvania
                         District Court Civ. No. 03-3168
                      District Judge: Hon. Clifford S. Green
                                 _______________

                              Argued April 1, 2005
                               _______________

               Before: ALITO, SMITH, and FISHER Circuit Judges

                             (Filed: April 25, 2005)

                             ___________________

Counsel:   Kathleen Olden Barnes (Argued)
           Justin Hawkins
           Watt, Tieder, Hoffar & Fitzgerald, LLP
           8405 Greensboro Drive, Suite 100
           McLean, Virginia 22102

           Lawrence D. Berger
           Ballard Spahr Andrews & Ingersoll, LLP
              1735 Market Street, 51st Floor
              Philadelphia, Pennsylvania 19103
              Attorneys for Appellant, Parsons Energy & Chemicals Group, Inc.

              D. Lynn Whitt (Argued)
              Pollack & Whitt, P.C.
              3783 Rider Trail South
              St. Louis, Missouri 63045-1114

              Joseph A. Battipaglia
              Duane Morris LLP
              One Liberty Place
              Philadelphia, Pennsylvania 19103
              Attorneys for Appellee, Williams Union Boiler, A Division of Williams
              Power Corp.
                                ____________________

                               OPINION OF THE COURT
                                ____________________

SMITH, Circuit Judge.

       This appeal requires this Court to determine whether an arbitration award

confirmed by a district court was issued in manifest disregard of the law or was irrational.

Parsons Energy and Chemicals Group, Inc. (Parsons) appeals the decision of the District

Court for the Eastern District of Pennsylvania declining to vacate an arbitration panel’s

award of a contractual incentive fee, as well as attorneys’ and expert fees, to Williams

Union Boiler (Williams), Parsons’s subcontractor. We will affirm.

                                 II. Facts and Procedure

       A. Facts

       In 1997, Parsons entered a contract with Motiva Enterprises, LLC (Motiva) to



                                             2
build a gasification power system for a refinery in Delaware. In 1998, Parsons executed a

fixed-price subcontract with Williams for construction and other services related to the

gasification system. According to the subcontract, the parties shared equally the risk of

delay – $100,000 per day in liquidated damages – in achieving the milestone dates laid

out in the prime contract. A choice-of-law provision established that Delaware law

controlled disputes arising under the subcontract.

       In March 1999, the parties converted the subcontract to a cost-reimbursable

format, with fixed incentive fees.1 The amended subcontract, retroactive to December 8,

1998, provided that:

               [a]ll disputes between Contractor and Subcontractor arising
               under the Subcontract which cannot be resolved amicably
               between the parties shall be referred to the upper management
               of Subcontractor and Contractor for resolution. . . . If
               resolution is not achieved through mediation, the parties agree
               to submit the dispute to final and binding arbitration in
               accordance with the rules of the American Arbitration
               Association with proceedings conducted in the State of
               Delaware, USA or as otherwise agreed to by the Parties.

Rule 46 of the American Arbitration Association (AAA), which since has been renumbered,

provides that an arbitrator’s award may include “an award of attorneys’ fees if all parties have

requested such an award, or it is authorized by law or their arbitration agreement.”



  1
   There appears to have been no choice-of-law provision in the amended subcontract. The
conversion documents explain, however, that unless specifically modified, “all terms and
conditions of the original Subcontract shall remain in full force and effect.” Apparently
operating under this provision, the parties agree (as did the District Court) that Delaware law
applies to the present dispute.

                                                 3
      The amended subcontract also altered Williams’s risk in the event of delay. The

new risk terms were as follows:

             2.3 LIQUIDATED DAMAGES (Schedule Incentive Fee)

             CONTRACTOR 2 agrees to pay a Schedule Incentive Fee as
             detailed in SECTION IV, unless CONTRACTOR fails to
             meet CONTRACTOR’s Project schedule commitments
             associated with Liquidated Damage Dates, regardless of
             cause or fault including negligence on the part of any party
             or parties. In the event CONTRACTOR must pay any
             liquidated damages to COMPANY, CONTRACTOR and
             SUBCONTRACTOR expressly agree that the payment of
             the first $500,000 of any such liquidated damages shall be
             funded through SUBCONTRACTOR’s forfeiture of its
             Schedule Incentive Fee for 100% of any and all such
             amounts paid to COMPANY. Thereafter, any additional
             amounts of Liquidated Damages paid by CONTRACTOR
             to COMPANY shall be funded on an equal basis with
             CONTRACTOR and SUBCONTRACTOR each
             contributing 50% of any and all amounts on the following
             basis:

             a) CONTRACTOR shall be responsible for the actual
             payment or allowance of credit to COMPANY for the full
             amount of the liquidated damages.

             b) SUBCONTRACTOR’s share of such liquidated
             damages shall be funded through SUBCONTRACTOR’s
             forfeiture of its Schedule Incentive Fee to the full extent
             required to pay such Liquidated Damages.

             c) SUBCONTRACTOR expressly agrees to waive any
             and all rights for claims to any Schedule Incentive Fee
             reduction imposed by CONTRACTOR to cover
             SUBCONTRACTOR’s share of CONTRACTOR’s

  2
  “CONTRACTOR” refers to Parsons; “SUBCONTRACTOR” refers to Williams; and
“COMPANY” refers to Motiva.

                                            4
              payment of liquidated damages regardless of cause.

              d) Both parties understand and agree that the Liquidated
              Damage risk to be imposed against SUBCONTRACTOR’s
              potential Schedule Incentive Fee is for an amount of
              $100,000 per day for failure to achieve any of the discrete
              events indicated below.

              e) The maximum amount that SUBCONTRACTOR
              shall be required to contribute toward payment of said
              Liquidated Damages shall not exceed its total forfeiture
              of the above mentioned Schedule Incentive Fee.

                     ....

In turn, Section IV referred to above provided

              B.4 SCHEDULE INCENTIVE FEE (maximum of $2,500,000)

              CONTRACTOR shall pay SUBCONTRACTOR a Schedule
              Incentive Fee (SIF) based on the criteria outlined in Section O.
              If for any reason and without regard to fault by CONTRACTOR
              or others, CONTRACTOR has to pay Liquidated Damages
              to COMPANY, the amount of SUBCONTRACTOR’s Schedule
              Incentive fee shall be reduced by 100% of the amount of such
              Liquidated Damage payments until such time as the total of
              $500,000 has been reduced and then SUBCONTRACTOR’s
              Schedule Incentive Fee shall be reduced by 50% of any
              additional amount of any additional liquidated damage payments
              until such time as the total $2.5 million potential Schedule
              Incentive Fee has been reduced to $0.00. In no event will
              SUBCONTRACTOR’s contribution to Liquidated Damages be
              other than the forfeiture of SUBCONTRACTOR’s potential
              Schedule Incentive Fee.

       In April 1999, Parsons and Williams accelerated their work in an attempt to

achieve first feed of the gasifier by November 26, 1999, a milestone established in the

Prime Contract. At Parsons’s request, Motiva agreed to adjust the Prime Contract to

                                            5
compensate for Parsons’s increased costs caused by the acceleration. Under that

adjustment, Motiva extended the gasifier first feed date from November 26, 1999 to

January 17, 2000 and promised to pay Parsons a $3 million bonus in exchange for settling

certain pending claims and accelerating efforts to meet the gasifier first feed date. For

each day after January 17, 2000 that gasifier first feed was not achieved, Parsons would

forfeit $100,000 of that bonus:

              Notwithstanding the provisions of Schedule “C,” paragraph
              1, it is hereby agreed that in the event Gasifier First Feed is
              achieved in accordance with the Contract on or before
              January 17, 2000, COMPANY shall pay a performance bonus
              to CONTRACTOR in the amount of Three Million Dollars
              ($3,000,000.00). If Gasifier First Feed is not achieved by
              aforesaid completion date, then the performance bonus will
              be reduced at a rate of $100,000 per calendar day until the
              earlier of when Gasifier First Feed [is] achieved or February
              16, 2000 when the bonus shall be reduced to $0 (hereinafter
              referred to as the “Bonus Forfeiture Period”). Any such
              bonus forfeiture shall satisfy any and all CONTRACTOR’s
              obligation to COMPANY for Liquidated Damages for the
              associated calendar days during such Bonus Forfeiture
              Period.

       Parsons did not achieve gasifier first feed until April 21, 2000, more than 90 days

after the January 17, 2000 milestone date and well outside the Bonus Forfeiture Period.

       When the gasifier was completed, Parsons and Motiva negotiated to resolve all

outstanding disputes under the prime contract, including the amount of liquidated

damages. The parties memorialized their settlement in several documents, including an

agreement called Change Order 90. In relevant part, Change Order 90 provides:



                                             6
              LIQUIDATED DAMAGES – Motiva and Parsons have
              agreed to a negotiated settlement for Parsons[’s] aggregate
              liability to Motiva associated with Delay in Completion
              of the Schedule B-1 milestone Event First Feed to the
              Gasifier. The agreed payment to be made by Parsons to
              Motiva is for 45 days of Liquidated Damages at the
              Contract rate of $100,000 per day for a total of
              $4,500,000.

              BONUS PAYMENT – As consideration for Parsons[’]
              considerable unplanned excess expense of overtime and
              shift pay etc. to try to achieve the Schedule B-1 Liquidated
              Damage Date for First Feed to the Gasifier, Motiva agreed
              to Bonus Payment of $3,000,000. It was further agreed
              that if the date was not met, this Bonus would be used to
              pay Motiva for the first 30 days of actual Liquidated
              Damages to be paid.

According to James Rogers, Parsons’s contract administrator, pursuant to this language

Motiva assessed Parsons $4.5 million in liquidated damages for 45 days of delay in

completing the gasifier.

       Whether Parsons paid Motiva $4.5 million in liquidated damages is a central

factual dispute in this appeal. William Hall, a senior executive at Parsons, testified that

Motiva gave Parsons a 30-day extension in its schedule. Williams’s expert, Bradley

Hornburg, denied that Parsons paid $4.5 million in liquidated damages to Motiva.

       B. Arbitration Award

       In February 2003, the arbitration panel awarded Williams $1.5 million on its claim

for the Schedule Incentive Fee and allowed Williams’s claim for recovery of attorneys’

fees and expert fees and expenses. In July 2003, the panel issued a supplemental award



                                              7
specifying the amounts owed to Williams for attorneys’ and expert fees.

       C. District Court Decision

       In August 2003, Parsons filed a complaint in the U.S. District Court for the Eastern

District of Pennsylvania to vacate the arbitration panel’s award and supplemental award.

Parsons argued that the panel manifestly disregarded the law in awarding Williams

attorneys’ and expert fees, and that the panel acted irrationally in awarding Williams the

$1.5 million schedule incentive fee in light of the “undisputed” factual record that

Parsons paid Motiva $4.5 million in liquidated damages.

       In March 2004, the District Court held a hearing on Parsons’ complaint at which it

ordered Williams to provide evidence and/or citations to testimony appearing in the

arbitration record related to the schedule incentive fee and Williams’s claim for attorneys’

and expert fees. In response, Williams filed a 150-page memorandum that included the

above-excerpted documents.

       On March 29, 2004, the District Court issued a memorandum, order, and judgment

in Williams’s favor. The Court noted that arbitration awards may be vacated where

arbitrators exceed their powers or act in manifest disregard of the law, but that such

review is “narrow in the extreme.”

       First, Judge Green determined that the arbitrators had an evidentiary basis for

awarding $1.5 million of the schedule incentive fee to Williams. He noted that the panel

“extensively questioned” Williams’s expert witness, Bradley Hornburg, about the



                                             8
contract, the liquidated damages provision of the subcontract, the actual liquidated

damages incurred, and Parsons’s forfeiture of its bonus to Motiva. Judge Green observed

that Hornburg could not explain the 45 days of delay for which Parsons’s claimed it was

charged $100,000 per day by Motiva. Judge Green concluded that given “the

consideration given by the Arbitration Panel to the interpretation of the Schedule

Incentive Fee provision of the converted subcontract, and the questioning of the

Defendant’s expert witness, the record does not support a finding that [the] Arbitration

Panel [acted ultra vires] or in manifest disregard of the law.”

         Second, Judge Green ruled that the arbitrators did not manifestly disregard the law

in awarding Williams attorneys’ and expert fees because Delaware law was unsettled on

that question. Judge Green acknowledged that the Delaware statute requiring arbitrators

to award attorneys’ and expert fees, 6 Del. C. § 3509,3 became effective after the

commencement of arbitration proceedings. Nevertheless, because the Supreme Court of

Delaware had not yet addressed whether the statute may be applied retroactively, Judge

Green concluded that the arbitration panel did not exceed its authority or manifestly



  3
      The statute provides:

                 Absent any agreements to the contrary between the parties, the
                 arbitrator in any arbitration proceeding arising under this
                 chapter shall award to the substantially prevailing party its
                 reasonable attorneys’ fees, arbitration costs, and expenses for
                 expert witnesses.

         6 Del. C. § 3509(b) (2005).

                                                  9
disregard the law.

       Parsons timely appealed to this Court.

                                          III. Analysis

                                                A.

       Review of arbitration awards under the FAA is “extremely deferential.” Dluhos v.

Strasburg, 321 F.3d 365, 370 (3d Cir. 2003). Vacatur is appropriate only in “exceedingly

narrow” circumstances, such as where arbitrators are partial or corrupt or manifestly

disregard, rather than merely erroneously interpret, the law. Id.; Local 863 Int’l Bhd. of

Teamsters, Chauffeurs, Warehousemen and Helpers of Am. v. Jersey Coast Egg Prod.,

773 F.3d 530, 553 (3d Cir. 1985) (stating that error of law is insufficient for vacatur). So

long as an award “draws its essence” from, Local 863, 773 F.3d at 553, i.e., “arguably

construe[s] or applie[s],” the contract, the award must be upheld. News Am. Pub. v.

Newark Typographical Union, 918 F.2d 21, 24 (3d Cir. 1990). In other words, there must

be “absolutely no support at all in the record justifying the arbitrator’s determinations for

a court to deny enforcement of the award.” Id. While “the courts are neither entitled nor

encouraged simply to ‘rubber stamp’ the decisions of arbitrators,” review of arbitration

awards is “singularly undemanding.” Matteson v. Ryder System Inc., 99 F.3d 108, 113

(3d Cir. 1996) (Becker, J.).4


  4
    While the Federal Arbitration Act’s standards apply to this dispute, the FAA does not create
federal question jurisdiction. See Dluhos, 321 F.3d at 367 (citing Roadway Package Sys. v.
Kayser, 257 F.3d 287, 291 n.1 (3d Cir. 2001)). The District Court exercised diversity
jurisdiction in this case under 28 U.S.C. § 1332; we exercise jurisdiction over the District Court’s

                                                10
                                              B.

              1.      Schedule Incentive Fee

       The parties agree that to have awarded Williams $1.5 million of the Schedule

Incentive Fee, the arbitrators had to conclude that Parsons paid Motiva $1.5 million in

liquidated damages, not the full $4.5 million contemplated in Change Order #90. The

threshold question in this appeal, therefore, is whether there is any support at all in the

record for that conclusion. See News America, 918 F.2d at 24. If there is any such

support, then the award must be affirmed. Id.

       The record contains some evidence to support the arbitration award. Williams’s

expert, Hornburg, testified that “Parsons paid a million-and-a-half dollars in LDs

[(liquidated damages)],” i.e., not the $4.5 million it claimed to have paid. Additionally,

Parsons’s senior executive, William Hall, testified that Motiva granted Parsons a 30-day

extension on its gasifier first feed date. Whether or not this Court would find such

testimony relevant or credible, it cannot be said that there is “absolutely no support at all

in the record justifying the arbitrator’s determinations.” Id. Accordingly, the District

Court correctly declined to vacate the award of $1.5 million of the Schedule Incentive

Fee.

              2.      Attorneys’ and Expert Fees

       Both sides agree that if the arbitrators relied on § 3509 to award attorneys’ and



final order under 28 U.S.C. § 1291.

                                              11
expert fees, they applied the statute retroactively. Parsons argues that the panel

manifestly disregarded a leading Delaware case on retroactive application of statutory

amendments, Hubbard v. Hibbard Brown & Co., 633 A.2d 345 (Del. 1993). Williams

responds that until the Delaware Supreme Court specifically ruled on the retroactive

application of § 3509, the arbitrators could not have manifestly disregarded the law.

       Parsons asks this Court to read too much into Hubbard, which explained that “a

statutory amendment is remedial and may apply retroactively when it relates to practice,

procedure or remedies and does not affect substantive or vested rights.” 633 A.2d at 354.

Because the rights at issue in Hubbard also were established by another statute, the court

ruled that those rights were not substantive. Id. Hubbard thus suggests one approach to

determining whether an amendment is remedial – whether another statute provides the

same right. But Hubbard does not purport to establish the only approach to determining

whether an amendment is remedial, and Parsons cites no cases holding that attorneys’ and

expert fees are a substantive right in Delaware. It is therefore plausible that the Delaware

Supreme Court would determine that such fees are not a substantive right, and therefore §

3509 may be applied retroactively. At worst, the arbitrators wrongly applied Hubbard,

but they did not manifestly disregard it.

              3. Expert Fees

       Parsons’s fallback position is that the arbitrators awarded excessive expert fees




                                             12
under Delaware law.5 Williams labels this argument “confusing” and contends, in

conclusory fashion, that Parsons cited cases that “have no bearing on the issue before this

Court.” The District Court does not appear to have addressed this argument.

       Parsons argues that the arbitrators manifestly disregarded Stevenson v. Henning,

268 A.2d 872 (Del. 1970), and Nygaard v. Lucchesi, 654 A.2d 410 (Del. Super. Ct.

1994), both of which Parsons claims limit expert fees and expenses to the amount

incurred for actual testimony. Stevenson interprets 10 Del. C. § 8906, which provides:

               The fees for witnesses testifying as experts or in the capacity
               of professionals in cases in the Superior Court, the Court of
               Common Pleas and the Court of Chancery, within this State,
               shall be fixed by the court in its discretion, and such fees so
               fixed shall be taxed as part of the costs in each case and shall
               be collected and paid as other witness fees are now collected
               and paid.

Id. Stevenson explains that “[w]itness fees allowed under § 8906 should be limited to

time necessarily spent in attendance upon the court for the purpose of testifying. This

does not include time spent in listening to other witnesses for ‘orientation’ or in

consulting and advising with a party or counsel or other witnesses during the trial.” 268

A.2d at 874 (citing State v. 0.0673 Acres of Land, 224 A.2d 598, 602 (Del. 1966)).

Nygaard expresses the same principle positively, stating that “reimbursement for expert



  5
    Parsons also argues that the arbitrators could not have awarded attorneys’ fees under 6 Del. C.
§ 3506 because Parsons could not have been found to have acted in bad faith, which is required
to award attorneys’ fees under that statute. Because we conclude that § 3509, which requires the
award of attorneys’ and expert fees, arguably applied retroactively, we do not address whether
the award of attorneys’ fees could have been justified under § 3506.

                                                13
testimony [under 10 Del. C. § 8906] encompasses deposition testimony which is

introduced into evidence as well as trial testimony.” 654 A.2d at 413 (citing Super Ct.

Civ. R. 54(h)).

       The question for this Court is whether the arbitrators manifestly disregarded

Stevenson, Nygaard and § 8906 in awarding expert witness fees under § 3509 beyond

those incurred for actual testimony. We hold that they did not. As Stevenson and

Nygaard do not speak to § 3509, it is difficult to see how the arbitrators manifestly

disregarded the law in awarding expert fees under that statute. Moreover, Parsons never

explains why the established meaning of § 8906, Delaware’s default rule for expert fees

in litigation proceedings, controls the meaning of § 3509, Delaware’s default rule for

expert expenses in arbitration proceedings. And, indeed, the language of the two statutes

is quite different. Section 8906 states that “fees for witnesses testifying as experts . . .

shall be fixed by the court in its discretion.” 10 Del. C. § 8906. In contrast, § 3509

requires an arbitrator to award to the substantially prevailing party its “reasonable

attorneys’ fees, arbitration costs and expenses for expert witnesses.” 6 Del. C. § 3509.

While Delaware courts appear not yet to have interpreted § 3509, a party’s “expenses for

expert witnesses” seems broader than “fees for witnesses testifying as experts,” and

arbitrators might interpret “reasonable” as affording more leeway in awarding expert fees

than fees “fixed by the court in its discretion.”

       In light of the difference between § 8906 and § 3509, at worst the arbitrators



                                              14
erroneously interpreted § 3509 with their award of expert expenses. Accordingly, there is

no ground for holding that the arbitrators manifestly disregarded the law. See Dluhos,

321 F.3d at 370.

                                     V. Conclusion

      For the foregoing reasons, we will affirm the judgment of the District Court.




                                           15
