After Hurricane Sandy hit the east coast in 2012, the Army Corps of Engineers contracted with Environmental Chemical Corp. (ECC) to conduct clean up on Fire Island, New York. ECC subcontracted most of the work to Coastal Environmental Group, Inc. (Coastal). Both entities incurred unexpected costs, which ECC blamed on Coastal and Coastal blamed on factors outside of its control. ECC then refused to pay Coastal a portion of the money it was otherwise due under the contract, and Coastal commenced an arbitration that ended with an award in Coastal’s favor.
ECC moved to vacate the award, focusing on two main issues: (1) Coastal’s failure to disclose the interest of its creditor Signature Bank in the matter; and (2) the arbitrator’s decision that ECC was estopped from challenging certain calculations of costs that Coastal had provided during the litigation because ECC has used those same calculations in submissions to the Army Corps of Engineers.
Documents filed after the award was issued showed that all of Coastal’s rights to payment under its agreement with ECC had been assigned to Signature Bank, which had agreed to take over all efforts to collect amounts due under the contract. ECC argued that Signature Bank was thus the real party in interest, and that Coastal’s failure to disclose this assignment of claims tainted the entire proceeding, including because this prevented the arbitrator from performing a proper conflict check. However, the court found that ECC had presented no evidence that Coastal or its attorneys ever made any affirmative misrepresentations on the question of Signature Bank’s role in the matter and that Coastal had informed ECC prior to the arbitration that one of its attorneys was also an attorney for Signature Bank. The court also found that ECC presented no evidence that a conflict check that included Signature Bank would have led the arbitrator to be conflicted out of the matter, and that “raising only the specter of potential but totally unknown conflicts” was not enough to show objective facts inconsistent with impartiality, as is needed to vacate an award on the basis of “evident partiality.”
Regarding the arbitrator’s invocation of equitable estoppel, ECC argued that, by raising the issue sua sponte and without briefing from the parties, the arbitrator exceeded his authority. The court disagreed, finding that the relevant portion of the contract specifically said that Coastal’s rights to certain compensation should be based on what “is equitable under all of the circumstances,” thus inviting the arbitrator to consider the equitable doctrine of estoppel. The court also noted that ECC had provided no authority suggesting that an arbitrator cannot consider an issue that was not briefed by the parties. Thus, the court confirmed the award.
Environmental Chemical Corp. v. Coastal Environmental Group, Inc., 18 Civ. 3082 (S.D.N.Y. Sept. 14, 2018).
This post written by Jason Brost.
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