Clarke's Allied, Incorporated v. Rail Source Fuel
662 F. App'x 248
| 5th Cir. | 2016Background
- RSF contracted Clarke’s in 2011 to convert a tie‑grinding operation from diesel to electric; disputes arose over defective work and parts.
- RSF paid Clarke’s $916,850.77 of a $1,072,351.18 contract; Clarke’s filed a mechanic’s lien seeking the unpaid $155,500.41.
- RSF removed the Texas suit to federal court and invoked the contract’s arbitration clause; the case was sent to the AAA.
- The AAA arbitrator denied Clarke’s mechanic’s lien, awarded RSF $916,850.77 (the amount RSF paid Clarke’s), and denied RSF’s claims for fraud, lost profits, and negligent misrepresentation.
- The arbitrator denied attorney’s fees for RSF (for failure to provide contemporaneous time records) but awarded RSF $193,352.59 in reasonable costs for defending the mechanic’s lien.
- The district court confirmed the arbitration award; Clarke’s appealed. The Fifth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the arbitrator exceeded authority by granting a rescission remedy | Clarke’s: Award was a rescission that RSF did not request, so arbitrator exceeded authority under 9 U.S.C. §§ 10(a)(4), 11(b) | RSF: Award simply restored the amount paid to Clarke’s as contract damages; RSF had sought damages including amounts paid | Held: Not rescission; award is a permissible contract construction/apply and will not be vacated |
| Whether award conflicted with contract’s limited remedy (repair/replacement) and whether UCC or construction law governs | Clarke’s: Contract limits warranty remedies to repair/replacement; Oregon construction law should govern | RSF: Contract is sale of goods with installation; Oregon UCC applies; limited remedy failed of essential purpose so revocation/other UCC remedies available | Held: Arbitrator reasonably applied Oregon UCC and inferred revocation of acceptance as available because limited remedy failed its essential purpose |
| Whether arbitrator exceeded authority by awarding unsegregated costs | Clarke’s: Fees not properly segregated between recoverable and unrecoverable claims; award exceeded authority | RSF: Fees “double‑duty” because defending breach claim overlapped with defending mechanic’s lien; entitled to costs for defending lien | Held: Arbitrator reasonably found overlapping work; award of $193,352.59 for costs was within arbitrator’s authority and is affirmed |
Key Cases Cited
- Timegate Studios, Inc. v. Southpeak Interactive, L.L.C., 713 F.3d 797 (5th Cir. 2013) (standard: de novo review of confirmation but great deference to arbitrator)
- Executone Info. Sys., Inc. v. Davis, 26 F.3d 1314 (5th Cir. 1994) (arbitrator’s construction of contract is afforded deference)
- Major League Baseball Players Ass’n v. Garvey, 532 U.S. 504 (2001) (courts must refrain from reviewing merits of arbitrator’s decision)
- Paperworkers v. Misco, Inc., 484 U.S. 29 (1987) (arbitrator’s factfinding and law errors not grounds to vacate absent statutory basis)
- Kergosien v. Ocean Energy, Inc., 390 F.3d 346 (5th Cir. 2004) (incorrect application of law by arbitrator is not alone a basis to set aside award)
- Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299 (Tex. 2006) (Texas rule on segregating fees between recoverable and unrecoverable claims)