Plaintiffs-Appellants MEMC II, LLC and Mike McDaniel (collectively, “MEMC”) contracted to have Defendant-Appellee Cannon Storage Systems, Inc. (“Cannon”) build a commercial storage facility in Dallas, Texas. The contract included, among other things, precise design specifications and required that any disputes between the parties be resolved by binding arbitration. During construction, Cannon deviated from the agreed-upon design specifications, and MEMC began withholding payments, arguing that Cannon had materially breached the Contract by deviating from those specifications. Cannon continued construction without payment for nearly five months until the parties proceeded to arbitration.
Cannon brought claims for breach of contract based on MEMC’s nonpayment, to which MEMC responded with an affirmative defense, arguing that Cannon’s departure from the design specifications constituted a material breach that discharged MEMC of its payment obligations. Additionally, MEMC counterclaimed for breach of contract due to Cannon’s failure to use the approved plans and specifications. Ultimately, the arbitrator found that MEMC breached the contract by refusing to pay Cannon and that Cannon breached the contract by failing to construct the storage facility according to the agreed-upon specifications. Importantly, the arbitrator did not find Cannon’s breach to be material under Texas law, and therefore, held that MEMC could not evade liability for its refusal to pay.
The District Court for the Western District of Oklahoma confirmed the award and the Tenth Circuit affirmed. The Panel reiterated the narrow scope of judicial review of arbitral awards and found that nothing in the arbitrator’s decision suggested that she did not interpret the contract; in fact, the Panel found the opposite—that the arbitrator considered the respective clauses using relevant case law, weighed the evidence, and decided that, even though Cannon breached the operative contract, its breach did not excuse MEMC from payment obligations. As such, and “[b]ecause the arbitrator interpreted the Contract and applied the law of the jurisdiction selected by the parties, she did not dispense [of] her own brand of industrial justice or exceed her authority under the agreement.”
MEMC II, LLC v. Cannon Storage Sys., Inc., No. 18-6079, 2019 WL 549633 (10th Cir. Feb. 12, 2019).