Appeal from Circuit Court of Cass County. No. 91L2. Honorable Fred W. Reither, Judge Presiding.
As Corrected May 31, 1995.
Honorable Robert W. Cook, J., Honorable Carl A. Lund, J., Honorable Robert J. Steigmann, J., Concurring
The opinion of the court was delivered by: Cook
JUSTICE COOK delivered the opinion of the court:
Plaintiff Tim Huey Corporation, d/b/a Huey Forest Products (Huey), operates a lumber mill in Arenzville, Illinois. In 1988, Huey became interested in developing a cogeneration facility to produce electricity by burning sawdust and other wood waste. The facility would also produce steam to operate kilns used in drying green lumber. Defendant Global Boiler and Mechanical, Inc. (Global), is located in Abilene, Texas. On January 17, 1989, the parties signed a contract whereby Global would design and install a fuel handling system, design and install a firebox and burner system, remove and install a power plant then existing in Minnesota, and interconnect those component parts at Arenzville. Huey was responsible for site preparation, foundations, a building shell for the facility, permits, and purchasing all equipment used in the facility. The amended contract price was $687,175. Global was to complete the project by January 1990.
The contract provided that Global could not recover for extra work unless Huey had signed a written change order. The contract also provided that the circuit court of Cass County, Illinois, constituted the exclusive forum for adjudication of any disputes. The contract provided that it would be governed by and construed in accordance with Texas law, and "any controversy [or] claim arising out of or relating to any agreement resulting from this proposal or breach thereof shall be settled in accordance with the Uniform Arbitration Act, Vernon's Ann. Texas Civil Statutes, articles 224 to 238-6."
Construction of the cogeneration facility was commenced but never completed. Global effectively stopped work in May 1990 after having been paid $412,516 by Huey. There are indications Global at that point realized it was "in over its head," and that the project could not be completed for anything close to the balance remaining on the contract. Global, however, claimed that Huey had breached the contract by interfering with Global's performance, making it impossible for Global to complete the project. Huey filed suit in the circuit court of Cass County, seeking arbitration. Global removed that suit to the district court for the central district of Illinois, but the district court remanded the case back to the circuit court. The circuit court ordered arbitration in accordance with a submission agreement calling for arbitration by the American Arbitration Association (AAA) pursuant to its construction industry arbitration rules. The AAA chose a panel of three arbitrators.
Huey's expert witness, William Morrow, testified it would cost $1,690,000 to complete the facility, which figure included $286,650 for refurbishing part of the work which had deteriorated since August 1990. Global's expert, Arthur S. McGraw, testified to a cost of completion as of August 1990 of $560,620, or $691,713 including profit and overhead. Reducing those figures by the amount unpaid on the contract ($274,659), Morrow's testimony indicated damages of $1,415,341, and McGraw's testimony indicated damages of $417,054. The arbitrators awarded Huey $161,588 plus $17,340 prejudgment interest (allowed by Texas law), a total of $178,928. Huey was also awarded "the boiler and auxiliary equipment and the piping ducts, transitions, machinery and other property on the Arenzville, Illinois[,] site."
Global had sought compensation of $94,724 for extra work and materials it claimed to have furnished. The most significant extra claimed was the installation and repair of an oil-burning "loaner" boiler which Global had supplied Huey so that Huey could operate its dry kilns pending completion of the cogeneration facility. The arbitrators awarded Global $92,224 on this claim, thereby reducing Huey's net award to $86,704 ($104,044.80 including interest). The arbitrators gave no explanation for their award.
Global filed with the circuit court to confirm the award, and Huey filed seeking vacatur. In an order entered July 6, 1994, the circuit court of Cass County confirmed the award. Huey appeals, contending the trial court should have vacated the damages award and ordered rearbitration, because (1) the arbitrators acted in manifest disregard of the law, (2) the arbitrators exceeded their powers and authority, (3) the award was irrational, arbitrary and capricious, and (4) the award violated public policy by undermining confidence in arbitration. Huey also contends the arbitrators improperly allowed Global compensation for extras despite Global's failure to comply with the contract provision requiring prior written approval of any change orders.
Because the contract involves interstate commerce, the parties are in agreement that the Federal Arbitration Act (Federal Act) (9 U.S.C. § 1 et seq. (1988)) controls our review of the validity of the arbitration award, despite their contract provision that any arbitration arising from a contract dispute would be governed by the Texas Uniform Arbitration Act (Texas Act) (Tex. Rev. Civ. Stat. Ann. arts. 224 through 238-2 (West Supp. 1995)). Huey cites Atlantic Aviation, Inc. v. EBM Group, Inc. (5th Cir. 1994), 11 F.3d 1276, 1280, and Northern Illinois Gas Co. v. AIRCO Industrial Gases,a Division of AIRCO, Inc. (7th Cir. 1982), 676 F.2d 270, 274-75, in support of the proposition that Federal law preempts State law whenever arbitration concerns interstate commerce, notwithstanding any contractual choice of law provision. The grounds for vacating an award under the Texas Act and Federal Act are virtually identical. Both acts state that an arbitration award may be vacated if the arbitrators exceeded their powers. (Tex. Rev. Civ. Stat. Ann. art. 237, at 34 (West 1973); 9 U.S.C. § 10(d) (1988).) However, Huey argues that Federal preemption is significant because the Federal courts have recognized additional nonstatutory grounds upon which an arbitration award may be vacated. "These additional common law standards include the requirement [(1)] that an award cannot be in manifest disregard of the law; [(2)] cannot be irrational, arbitrary, or capricious; and [(3)] cannot be violative of public policy."
We disagree that Federal law governs the grounds for vacatur. None of the preemption cases cited by Huey hold that Federal law preempts State vacatur law. It is true that section 2 of the Federal Act, which provides that written arbitration agreements in contracts "involving commerce" are valid, preempts conflicting State law. (Allied-Bruce Terminix Cos. v. Dobson (1995), 513 U.S. , , 130 L. Ed. 2d 753, 761, 115 S. Ct. 834, 837 (Alabama statute made predispute arbitration agreements invalid and unenforceable).) This is because "the basic purpose of the Federal Arbitration Act is to overcome courts' refusals to enforce agreements to arbitrate." (Allied-Bruce, 513 U.S. at , 130 L. Ed. 2d at 762, 115 S. Ct. at 838; see also Southland Corp. v. Keating (1984), 465 U.S. 1, 16, 79 L. Ed. 2d 1, 15-16, 104 S. Ct. 852, 861.) Nevertheless:
"Even when federal law applies to an arbitration agreement, the [Federal Act] has never been construed to preempt all state law on arbitration. *** At best, the Supreme Court's decisions support a conclusion that all state laws seeking to limit the use of the arbitral process are superseded by federal law." (Emphasis in ...