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Ahtna, Inc., v. Ebasco (5/12/95), 894 P 2d 657
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Notice: This opinion is subject to formal correction
before publication in the Pacific Reporter. Readers
are requested to bring errors to the attention of the
Clerk of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, telephone (907) 264-0607, fax (907) 276-
5808.
THE SUPREME COURT OF THE STATE OF ALASKA
AHTNA, INC., )
) Supreme Court No. S-5841
Appellant, )
) Superior Court No.
) 3AN-92-07806 Civil
v. )
) O P I N I O N
EBASCO CONSTRUCTORS, INC., )
f/k/a FRANK MOOLIN and ) [No. 4199 - May 12, 1995]
ASSOCIATES, INC., f/k/a )
ENSERCH ALASKA SERVICES, INC.,)
)
Appellee. )
______________________________)
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Anchorage,
Mark C. Rowland, Judge.
Appearances: John Ahlers and Herbert A.
Viergutz, Barokas & Martin, Anchorage, for
Appellant. Robert J. Dickson, Atkinson,
Conway & Gagnon, Anchorage, for Appellee.
Before: Moore, Chief Justice,
Rabinowitz, Matthews, Compton and Eastaugh,
Justices.
MOORE, Chief Justice.
I. INTRODUCTION
In this appeal from an arbitration proceeding, the
superior court vacated Ahtna's arbitration award after concluding
that the arbitrator exceeded his power by resolving a non-
arbitrable dispute. We reverse.
II. FACTS AND PROCEEDINGS
In 1988 the U.S. Air Force was considering locating the
Alaska Radar System Over-the-Horizon Backscatter Radar Project
("the Project") on lands owned by Ahtna, Inc. ("Ahtna"). A
leading general contractor candidate on this project was General
Electric Co. ("GE"). In February 1988 Enserch Alaska Services,
Inc. ("Enserch"), a predecessor to Ebasco Constructors, Inc.
("Ebasco"), entered into an agreement ("the Teaming Agreement")
with GE. The Teaming Agreement called for Enserch to assist GE
in securing the Project's prime contract for GE, which would then
enter into a subcontract with Enserch.
In May 1989 Ahtna and Enserch entered into a joint
venture agreement ("JVA"). The purpose of the Joint Venture was
to obtain, perform, and receive payment for "contracting
opportunities in the design, construction, testing, and
operations maintenance"of the Project. Section 22 of the JVA
provided that: "All disputes arising out of this Agreement shall
be resolved by arbitration under the Commercial Rules of the
American Arbitration Association and subject to the provisions of
Alaska's Uniform Arbitration Act, AS 09.43.101, et seq."
At the time the JVA was executed, the Project was still
in its preliminary stages: the Air Force had not yet selected a
project site or a general contractor and it was uncertain whether
the Project would actually be built; additionally, GE had the
option to subcontract with parties other than the Ahtna/Enserch
Joint Venture. However, in an attempt to secure a Project sub-
contract, the Joint Venture submitted to GE three construction
proposals and two revisions. In so doing, it incurred
significant expenses.
In November 1990 Ebasco notified GE that the Joint
Venture intended to submit a claim for compensation, based upon
implied contract, seeking remuneration for the extraordinary
costs incurred in the proposal and design work. The letter
stated that Ebasco would submit "a claim for impact and proposal
costs, to include those of our Joint Venture partner, Ahtna."
Two months later, GE advised Ebasco that the government had
canceled the Project.
Ebasco directed Ahtna to prepare a claim reflecting the
losses and expenses incurred in the creation of the construction
proposals. In March 1991 Ahtna submitted to Ebasco its claim for
costs and expenses in the amount of $1.7 million. Ebasco did not
submit Ahtna's claim for many months, however, despite a number
of unsuccessful inquiries by Ahtna aimed at speeding up the
process. According to Ahtna, Ebasco's inaction eventually doomed
the claim by "inexplicably fail[ing] to submit the claim . . .
within . . . one year,"as required by federal regulations. In
January 1992 Ahtna filed a demand for arbitration.
The parties stipulated to $1.7 million in damages and
arbitrated only the issue of liability. In a July 1992
arbitration, Ahtna prevailed on its claim for $1,700,003 plus
costs and fees. As he later explained in supplemental findings,
the arbitrator held that Ebasco had breached the JVA in two ways.
First, the arbitrator found that Ebasco had breached
sections 4 and 7.2 of the JVA by failing to timely submit Ahtna's
claim through GE to the government. Under section 4, each
venturing party owed the other an obligation to "use its best
efforts to carry out the purposes of [the JVA and] to cooperate
fully with the other Joint Venturer." Section 7.2 provided that
the "general supervision and management of the [Joint Venture]
work"along with "other matters relating thereto"were "under the
. . . control of the Sponsor." Ebasco was designated the Joint
Venture "Sponsor"in section 7.1. This basis for the arbitration
award is hereinafter termed the "tardy claim rationale."
Second, notwithstanding the dispute over Ebasco's
submission of Ahtna's claim, the arbitrator found that Ebasco had
breached sections 5.1, 5.2, and 11.7 of the JVA by simply failing
to compensate Ahtna for the $1.7 million in expenses incurred in
preparation of the Project proposals. Section 5.1 of the JVA
stated that it was "expressly understood and agreed . . . that
Ahtna . . . shall not be liable for any losses in performance of
the Joint Venture work." Section 11.7 obligated the Joint
Venture "as soon as reasonably practicable . . . [to] reimburse
the Joint Venturers for all expenses incurred in connection with
the preparation of the Proposal for . . . [the Project] as
determined in accordance with section 5.2." Section 5.2 provided
that "[p]roposal costs . . . related to the Project . . . will be
submitted to the [Joint Venture] Management Committee for
approval," and "paid in accordance with Section 11.7."1 This
basis for the arbitral award is hereinafter termed the
"reimbursement rationale."
In August 1992 Ahtna moved in superior court for
confirmation of the award. Ebasco opposed the motion and moved,
pursuant to Alaska's Uniform Arbitration Act ("the Act"), to
vacate the award.
The superior court ordered and received a clarification
of the arbitrator's decision and then, following two subsequent
hearings, vacated the arbitrator's award. The court's opinion
discussed only the "tardy claim rationale;" it concluded that
under that theory of liability Ebasco's obligation to submit
Ahtna's claim "arose after the [JVA] terminated." The court
found that since "[t]he claim upon which the award is based does
not arise out of the [JVA],"and since "[n]o agreement existed to
arbitrate claims arising out of extra-contractual promises or an
implied contract,"the dispute was not arbitrable. Consequently,
the court held that the arbitrator had "exceeded his power" and
vacated the award under AS 09.43.120.2
III. DISCUSSION
On appeal, Ahtna argues: (1) that the lower court
erred by ignoring the arbitrator's reimbursement rationale, which
Ahtna believes to be an independent basis for enforcing the
arbitral award; and (2) that the court erred in rejecting the
arbitrator's tardy claim rationale.3
In support of the superior court's
order, Ebasco mounts two attacks on the
substance of the arbitration award. First,
Ebasco asserts that the award should be
vacated under AS 09.43.120(a)(5). It argues
that Ahtna's claim consisted solely of a
complaint that Ebasco had not pursued Ahtna's
claim for compensation, and that such a claim
was not arbitrable under the terms of the JVA
because it arose after the Joint Venture
terminated. Ebasco bases this contention on
section 24 of the JVA, which states:
This Agreement shall remain in effect
and the Joint Venture shall continue until
the earlier of the following:
(a) The United States shall have
announced it is abandoning construction of
the Project.
Second, Ebasco argues under AS 09.43.120(a)(3) that the
arbitrator "exceeded his powers"by interpreting the JVA in a way
that was not reasonably possible. According to Ebasco, the
arbitral award is irreconcilable with sections 5.2 and 16.1 of
the JVA. Section 5.2 states that "[i]f no Contract is awarded to
the Joint Venture then each Joint Venturer incurring such costs
shall be solely responsible therefor." Ebasco argues that
despite the arbitrator's finding that an implied-in-fact contract
existed between the government and GE, this provision of section
5.2 applies because there was no privity between the Joint
Venture and GE or the government. Section 16.1 states that "[i]n
no event shall any Joint Venturer be liable to any other Joint
Venturer . . . for the acts and omissions of any of its officers
. . . except for direct (but not consequential) damages resulting
from actual fraudulent or dishonest conduct."4
A. Standard of review: An arbitrator's "conclusions
of law"may not be reviewed on the merits
Whether the dispute between the parties was arbitrable
under the JVA and whether the arbitral award violated AS
09.43.120(a) are questions of law. Accordingly, our review of
the lower court's decision is de novo. Guin v. Ha, 591 P.2d
1281, 1284 n.6 (Alaska 1979).
The arbitrator's findings of both fact and law,
however, receive great deference. As we have long made clear, a
highly deferential standard of review is appropriate with regard
to arbitral awards, since arbitration is "essentially a creature
of contract . . . in which the parties themselves charter a
private tribunal for the resolution of their disputes." Nizinski
v. Golden Valley Elec. Ass'n, 509 P.2d 280, 283 (Alaska 1973)
(quoting Astorial Medical Group v. Insurance Plan of Greater New
York, 182 N.E.2d 85, 87 (N.Y. 1962)). Accordingly, as a matter
of both policy and law, we are "loathe to vacate an award made by
an arbitrator." Department of Pub. Safety v. Public Safety
Employees Ass'n, 732 P.2d 1090, 1093 (Alaska 1987).
Under Alaska law it is clear that when, as here, the
arbitration proceeds under the terms of Alaska's Uniform
Arbitration Act, the arbitrator's findings of fact are
unreviewable, even in the case of gross error. Breeze v. Sims,
778 P.2d 215, 217 (Alaska 1989).
Ebasco claims that the standard of review with regard
to an arbitrator's "conclusions of law"is found in the following
passage of Breeze v. Sims: "the arbitrator's construction of the
contract will be reviewed to determine whether it 'is a
reasonably possible one that can be seriously made in the context
in which the contract was made.'" 778 P.2d at 217 (quoting
University of Alaska v. Modern Constr., Inc., 522 P.2d 1132, 1137
(Alaska 1974)). Ebasco argues that the arbitrator's
interpretation of the JVA could not be "seriously made," and
therefore urges us to affirm the superior court's vacation of the
award.
Ebasco is wrong to contend that Alaska law allows
courts to routinely review the merits of an arbitrator's legal
conclusions. An examination of Breeze and Modern Construction
reveals that the language Ebasco proffers here represents the
standard of review for examining the arbitrator's construction of
the contract with regard to arbitrability. As we have elsewhere
held, "[t]here are no statutory grounds for review of an
arbitrator's determination as to the meaning of contract
provisions which do not pertain to the issue of arbitrability."
Alaska State Housing Auth. v. Riley Pleas, Inc., 586 P.2d 1244,
1247 (Alaska 1978). "We clearly indicated [in Riley Pleas] that
judicial review under AS 09.43.120 of an arbitrator's decision is
limited to issues of arbitrability. . . . In accordance with
Riley Pleas, we cannot address [an] argument that the arbitrator
incorrectly interpreted the collective bargaining agreement,"
unless such an argument is limited to a dispute over the meaning
of the arbitration clause. Masden v. University of Alaska, 633
P.2d 1374, 1376-77 (Alaska 1981) (footnote omitted).
Ebasco asserts that Professor Pirsig, whose article was
the source for the language quoted in Modern Construction and
later in Breeze, would have applied the "reasonably possible"
standard to the arbitrator's act of contractual interpretation.
See Pirsig, Some Comments on Arbitration Legislation and the
Uniform Act, 10 Vand. L. Rev. 685, 706 (1957). This may be true,
but such a standard of review has been rejected by both federal
and state courts. As the United States Supreme Court explained:
It is the arbitrator's construction
which was bargained for; and so far as the
arbitrator's decision concerns construction
of the contract, the courts have no business
overruling him because their interpretation
of the contract is different from his.
United Steel Workers of America v. Enterprise Wheel & Car Corp.,
363 U.S. 593, 599 (1960).5
Thus what we said in Riley Pleas remains true today:
"Our holding that an arbitrator's misconstruction of a contract
is not open to judicial review, except on questions of
arbitrability, is in accordance with what we believe to be the
weight of authority in jurisdictions similar to ours." 586 P.2d
at 1247. Both parties in this case have expended great resources
rearguing the merits of an already arbitrated dispute. In order
to prevent such wasteful and unnecessary activity in future
cases, we clearly state that the principle enunciated in Riley
Pleas accurately describes the standard of review with regard to
an arbitrator's interpretation of a contract with regard to
questions other than arbitrability. To the extent that any of our
previous opinions have taken a contrary approach, see, e.g.,
Anchorage Medical & Surgical Clinic v. James, 555 P.2d 1320, 1323
(Alaska 1976), they are overruled. Accordingly, we reject
Ebasco's invitation to revisit the merits of this dispute, and
will scrutinize only the arbitrator's conclusion that Ahtna
presented him with an arbitrable dispute.6
B. The superior court erred in finding this dispute
non-arbitrable
Having established that the question of arbitrability
is the only substantive issue to be reviewed by this court, we
turn to a review of the superior court's decision. In light of
Alaska's "strong public policy in favor of arbitration,"we apply
a presumption in favor of arbitrability. Modern Constr., 522
P.2d at 1138. Any ambiguity with regard to arbitrability is to
be construed in favor of arbitration, "especially where, as here,
the party contesting arbitrability drafted the contract." Id.
Thus with regard to this narrow question of the
arbitrator's interpretation of the arbitration clause, the Modern
Constr./Breeze standard is indeed applicable: if the
arbitrator's determination of arbitrability is "a reasonably
possible one that can seriously be made in the context in which
the contract was made," then the court should affirm that
finding.7 Modern Constr., 522 P.2d at 1137 (citations omitted).
With this standard in mind, it is apparent that the superior
court doubly erred in finding this dispute non-arbitrable.
1. The court failed to consider a
legitimate and independent basis for the award
Ahtna argues that the superior court should have upheld
the arbitral award based on the "reimbursement rationale"-- the
arbitrator's finding that, under sections 5.1, 5.2, and 11.7 of
the JVA, Ebasco was obligated to reimburse Ahtna for expenses
incurred and/or partially performed work. We agree.
The reimbursement rationale amounts to a finding that
Ebasco became liable to Ahtna at the time when Ahtna executed
Project proposals and incurred expenses. Since those events took
place while the JVA was indisputably in effect, it follows that
the reimbursement rationale was a means to resolve a dispute
arising under the contract. This was clearly within the
arbitrator's power, given JVA section 22's command that "[a]ll
disputes arising out of this Agreement shall be resolved by
arbitration."
Ebasco disputes this conclusion, arguing that Ahtna's
initial arbitral claim nowhere indicated that Ahtna sought
reimbursement under sections 5.1, 5.2, and 11.7. Instead, Ebasco
argues that the dispute was only about its alleged failure to
submit Ahtna's claim.8 According to Ebasco, any arbitral award
not based on a "tardy claim"is therefore illegitimate.
Ebasco cites Sea Star Stevedore Co. v. International
Union of Operating Eng'rs Local 302, 769 P.2d 428 (Alaska 1989),
in support of its contention that "by going beyond the scope of
the claim as it had been submitted, the arbitrator exceeded his
powers." In Sea Star, an arbitrator ordered the reinstatement of
a discharged worker, but the worker was subsequently laid off as
part of a cost-cutting program. The union sued to enforce the
arbitration award by having the employee reinstated, and the
superior court remanded the issue to the arbitrator for a
resolution of the dispute over the second layoff. We held that
the arbitrator did not have jurisdiction to reach the merits of
the economic layoff because the dispute the parties had
originally submitted to him concerned a discharge for violation
of company policy and insubordination.
In Sea Star "the sole issue submitted [to the
arbitrator], as defined by [the arbitrator], was whether the
initial discharge was violative of the collective bargaining
agreement." 769 P.2d at 431 (emphasis added). When the Sea Star
arbitrator resolved the dispute about the second, economic
layoff, he exceeded his jurisdiction. Ebasco contends that the
only issue before the arbitrator in this case was Ebasco's
alleged failure to timely file Ahtna's claim, and that by partly
basing his award on a separate theory -- the reimbursement
rationale -- the arbitrator exceeded his jurisdiction in
violation of Sea Star.
The error in this argument is evident. In Sea Star
this court forbade an arbitrator from resolving a dispute that
was not brought before him by the parties. In this case, there
are not two disputes, but one: whether Ebasco breached the JVA,
thereby owing Ahtna $1.7 million. Here, the arbitrator has
merely given a basis for the award which differs from that which,
according to Ebasco, was initially argued by the claimant.
We have explained above that the arbitrator's reasons
for the award will not be scrutinized by the court, so long as he
has resolved an arbitrable dispute. The reimbursement rationale
rests on the arbitrator's interpretation of various JVA
provisions and his findings regarding Ebasco's contractual
obligations during the life of the Joint Venture. As such, it
resolves a dispute that arises out of the contract, constitutes a
proper basis for the award, and convinces us to reverse the
superior court's decision.
2. The court erred in concluding that
because Ebasco's alleged duty to file Ahtna's
claim arose after the JVA terminated the dispute
was non-arbitrable
Ebasco argues that under section 24(a) of the JVA, the
Joint Venture terminated immediately upon the parties' learning
that the government had cancelled the Project. Proceeding from
this premise, Ebasco believes the issue of the tardy claim is
resolved by an established principle of contract law: "Once [a]
business arrangement has terminated, the activities of former
confederates are transacted in their individual capacities and
not in their capacities as joint venturers . . . . Thus, to the
extent a fiduciary relationship existed, it was terminated prior
to the purported breach in the present case." National Soil
Servs., Inc. v. Hurst, 630 P.2d 3, 7 (Alaska 1981).
This argument is misplaced. National Soils states
merely that parties no longer incur obligations to each other
after the termination of a partnership agreement or joint
venture. But as Ahtna points out, disputes over obligations
arguably arising from an expired contract are arbitrable. See
Nolde Bros., Inc v. Local No. 358, Bakery & Confectionery Workers
Union, 430 U.S. 243, 249 (1977). Thus if Ebasco's obligation to
timely file Ahtna's claim arose during the term of the JVA, it
matters not that Ebasco's breach occurred after the JVA expired.
The arbitrator's supplemental findings contain his
conclusion that Ebasco's position as "Sponsor" of the Venture
obligated Ebasco to submit a claim as soon as Ahtna incurred
expenses that were reasonably considered compensable. Even by
Ebasco's account of the JVA's duration, this type of obligation
clearly would have arisen before the date of the Project's
termination, when the JVA was still operative.
Whether Ebasco incurred such an obligation turns on an
interpretation of the substantive provisions of the JVA. This is
a task, however, that under Riley Pleas is left to the
arbitrator. The superior court was not entitled to substitute
its judgment for the arbitrator's on this matter. Rather, the
lower court should have applied a presumption of arbitrability,
and reviewed for reasonableness the arbitrator's decision that
the dispute was arbitrable. We hold that the arbitrator could
have reasonably concluded that Ebasco's failure to submit Ahtna's
claim breached obligations that arose while the JVA was in
effect. Consequently, the superior court's rejection of the
tardy claim rationale is reversed.
IV. CONCLUSION
We REVERSE the superior court's determination that this
dispute was not arbitrable, and REMAND for consideration of
Ebasco's AS 09.43.120(a)(4) claim.
_______________________________
1 Section 5.2 also provided that proposal costs would be
submitted "within thirty (30) days following receipt of an award
of a Contract from GE and/or the USAF,"and said that "[i]f no
Contract is awarded to the Joint Venture then each Joint Venturer
incurring such costs shall be solely responsible therefor." The
arbitrator, however, found that Ahtna had commenced performance
pursuant to an implied-in-fact contract between GE and the
government; therefore, he deemed this portion of section 5.2
inapplicable.
2 AS 09.43.120(a) sets out five grounds upon which an
arbitrator's award shall be vacated. Relevant to this case are
the statute's directives that courts shall vacate an award when
(3) the arbitrators exceeded their
powers;
(4) the arbitrators refused to postpone
the hearing upon sufficient cause being shown
for postponement or refused to hear evidence
material to the controversy or otherwise so
conducted the hearing, contrary to the
provisions of AS 09.43.050, as to prejudice
substantially the rights of a party;
(5) there was no arbitration agreement
and the issue was not adversely determined in
proceedings under AS 09.43.020 and the party
did not participate in the arbitration
hearing without raising the objection.
AS 09.43.120(a).
3 Ahtna also claims that Ebasco waived its right to
contest arbitrability by participating in the arbitration instead
of filing suit for a determination of arbitrability under AS
09.43.020. The superior court did not address this issue in its
order, and we find the claim moot, given our holding that this
dispute was arbitrable.
4 Ebasco also argues, under AS 09.43.120(a)(4), that the
award should be vacated (1) because the arbitrator refused to
postpone the hearing after sufficient cause had been shown; and
(2) because Ebasco did not receive a specific explanation of
Ahtna's complaint until approximately one month before the
arbitration. These issues were not addressed by the trial court,
and may be considered on remand.
5 See also Moncharsh v. Heily & Blase, 832 P.2d 899, 916
(Cal. 1992) ("It is well settled that 'arbitrators do not exceed
their power merely because they assign an erroneous reason for
their decision.'"); Morrison Knudsen Co. v. Makahuena Corp., 675
P.2d 760, 766 (Hawaii 1983) ("[T]he fact that an arbitrator may
err in applying the law, finding facts, or in construing the
contract, or enters an award that is contrary to the evidence
adduced, is insufficient grounds for judicial reversal.");
Bingham County Comm'n v. Interstate Elec. Co., 665 P.2d 1046,
1052 (Idaho 1983) ("Arbitrators are the final judges of law and
fact."); Evans Elec. Constr. v. Medical Ctr., 634 P.2d 1079, 1087
(Kan. 1981) ("Where parties have agreed to be bound by a
submission to arbitration, errors of law and fact, or an
erroneous decision of matters submitted to the judgment of the
arbitrators, are insufficient to invalidate an award fairly and
honestly made."); Binghamton Civil Serv. Forum v. City of
Binghamton, 374 N.E.2d 380, 382 (N.Y. 1978) ("[O]nce the issue is
properly before the arbitrator, questions of law and fact are
merged in the award and are not within the power of the judiciary
to resolve."); Brewer v. Allstate Ins. Co., 436 P.2d 547, 549
(Or. 1968) ("Neither a mistake of fact or law vitiates an
[arbitral] award.").
6 Under AS 09.43.120, a number of the arbitrator's
procedural decisions -- such as his decision to deny Ebasco a
continuance -- are also subject to review. As explained in n.4
supra, Ebasco's claim under AS 09.43.120 (a)(4) should be
considered by the trial court on remand. Again, this is an area
where the policies in favor of arbitration dictate a deferential
review of arbitral decisions. See, e.g., Storey v. Searle Blatt,
Ltd., 685 F. Supp. 80, 82 (S.D.N.Y. 1988) ("The granting or
denying of an adjournment falls within the broad discretion of
appointed arbitrators.").
7 The United States Supreme Court has prescribed a similar
approach when determining the arbitrability of a dispute:
An order to arbitrate the particular
grievance should not be denied unless it may
be said with positive assurance that the
arbitration clause is not susceptible to an
interpretation that covers the dispute.
Doubts should be resolved in favor of
coverage.
United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S.
574, 582-83 (1960).
8 Ahtna disputes this characterization of its original
arbitral claim, and notes that during the course of the
arbitration proceedings it argued the points contained in the
reimbursement rationale.
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