Petrofac, Inc. v. DynMcDermott Petroleum Operations Co.
687 F.3d 671
5th Cir.
2012
Check Treatment
Docket

PETROFAC, INCORPORATED, Plaintiff-Appellee, v. DYNMCDERMOTT PETROLEUM OPERATIONS COMPANY, Defendant-Appellant.

No. 11-20141.

United States Court of Appeals, Fifth Circuit.

July 17, 2012.

671 F.3d 671

demand to “timely validate” was inconsistent with the Section 1692g(a) notice.

We have already determined that the “timely validate” language is not inconsistent with the letter‘s notice. While overshadowing is a different inquiry than inconsistency, we conclude that McMurray‘s overshadowing argument as to the “timely validate” language fails for similar reasons.

The supposed threat falls in the category of “letters [that] encourage debtors to pay their debts by informing them of the possible negative consequences of failing to pay,” words that do not overshadow the required notice language. . This is because “one way to encourage someone with a true dispute to come forward and resolve that dispute is to inform him of the possible negative consequences of his continued inaction.” . “Not only does this encouragement promote payment of valid debts, it also promotes disclosing genuine claims of invalid debts (such as demonstrating the debt resulted from a forgery).” “Promoting final resolution of such matters, either way, is inherently beneficial.” The letter in this case essentially provided such warnings and nothing more. Thus, the notice language in ProCollect‘s letter is not overshadowed by the letter‘s bad-credit warnings.

We also conclude that the physical attributes of ProCollect‘s Section 1692g(a) notice do not cause an overshadowing. The notice is located on the same page as the language contested by McMurray, is in bold typeface (unlike the contested language), and of the same size and font as the rest of the letter. Also significant is that the notice is located immediately above the line provided for tearing off the payment form, and thus, by this spacial proximity, provided visual confirmation that payment was not the only option. Cf. (concluding statement on letter‘s front in prominent, red, bold, capital lettering that “important consumer information” on back was not overshadowed by text on front asking for prompt payment of debts, despite notice text on back being more difficult to read than text on front).

ProCollect‘s collection letter was not inconsistent with and did not overshadow the letter‘s Section 1692g(a) notice. Therefore, a least-sophisticated or unsophisticated consumer would not be confused by the letter.

AFFIRMED.

Robert Anthony Plessala, Sr. Counsel (argued), Andrews Myers, P.C., Houston, TX, David James Bush, Kent, Good Anderson & Bush, P.C., Tyler, TX, for Plaintiff-Appellee.

Henry A. King (argued), John A. Cangelosi, Timothy S. Madden, King, Krebs & Jurgens, P.L.L.C., New Orleans, LA, for Defendant-Appellant.

Before DeMOSS, CLEMENT and ELROD, Circuit Judges.

JENNIFER WALKER ELROD, Circuit Judge:

DynMcDermott Petroleum Operations Company (DM) appeals the district court‘s confirmation of an arbitration award in favor of Petrofac, Incorporated. Because DM fails to show any reversible error, we AFFIRM.

I.

DM operates the Strategic Petroleum Reserve for the Department of Energy. DM subcontracted with Petrofac to design and install a transportable degas plant to service the reserve. On July 30, 2003, DM and Petrofac agreed to resolve any claim under the subcontract through binding arbitration. The contract stated:

Petrofac and DM agree to enter into binding arbitration for any Request for Equitable Adjustment or claim submitted against the referenced subcontract, in lieu of litigation, in the event that a mutually agreeable resolution cannot be bilaterally achieved between DM and Petrofac through negotiations.

In May 2004, Petrofac sent DM a multivolume Request for Equitable Adjustment (REA). There, Petrofac asserted that DM disrupted Petrofac‘s ability to perform its work and sought damages for differing site conditions, delays, disruption costs, lost productivity, and acceleration costs.

On December 6, 2005, Petrofac agreed to release DM from all but a few specifically preserved claims. Among these preserved claims, the release included Petrofac‘s REA “as may be amended or supplemented.”1 By July 2006, the parties had failed to resolve the REA dispute via negotiation.

Pursuant to the 2003 arbitration agreement, DM and Petrofac entered into an “Agreement for Arbitration and for Location and Methodology of Arbitration.” There, the parties agreed that “[t]hey shall submit to binding arbitration the [REA] and all claims and disputes between them arising out of or relating to the Subcontract.” In addition, the parties agreed that the arbitration would be conducted by the American Arbitration Association under its Construction Industry Arbitration Rules (AAA Rules).

Petrofac subsequently filed its demand for arbitration. In June 2008, Petrofac provided DM the report of its damages expert, Frank Adams. The Adams report calculated Petrofac‘s damages using a different methodology and reached a different amount than the original REA. The arbitration began in March 2009. After five days of hearings, however, the arbitration panel recessed for seven months. When the arbitration reconvened, DM objected to the arbitration panel hearing any claims stemming from the different damages methodology used in the Adams report, claiming that it effectively created a new constructive change claim outside the parties’ agreement to arbitrate.

The arbitration panel dismissed DM‘s objection because “the arbitration agreement is clear and encompasses all of the issues between the parties arising out of this contract. It is also clear that DM waived any objection it had to the arbitration of a constructive change claim.” The arbitration panel subsequently awarded Petrofac damages for the “contract balance, damages for a constructive change to the contract, an award for the benefit of Womack, and interest from August 24, 2006 to July 26, 2010” to be paid “within thirty days of the Award.”

The district court confirmed the award. The district court rejected DM‘s argument that the REA and the Adams report represented different claims. Therefore, the district court ruled that the arbitration panel did not exceed its authority by awarding damages as presented in the Adams report. The court also determined that the award was not procured through fraud or undue means under 9 U.S.C. § 10(a)(1). Finally, the district court ordered prejudgment interest after August 26, 2010, ruling that prejudgment interest recommenced after DM failed to pay the award within the thirty-day period.

II.

This court reviews “a district court‘s confirmation of an award de novo, but the review of the underlying award is exceedingly deferential.” (internal quotation marks omitted).

A.

On appeal, DM argues that the arbitration panel exceeded its powers by issuing an award on a claim not covered by the parties’ arbitration agreement. 9 U.S.C. § 10(a)(4) (allowing a district court to vacate an award “where the arbitrators exceeded their powers“). Specifically, DM contends that the calculations in the expert report were extinguished by the 2005 release and therefore fall outside the parties’ agreement to arbitrate. Petrofac responds that the parties contracted for the arbitration panel (and not the courts) to decide this question of arbitrability, and even if the arbitration panel did not have the power to decide arbitrability, the district court properly determined that the claims at issue were within the arbitration agreement.

We first consider if the arbitration panel properly determined the initial question of arbitrability, i.e. whether the claim is within the parties’ agreement to arbitrate. “Just as the arbitrability of the merits of a dispute depends upon whether the parties agreed to arbitrate that dispute, so the question ‘who has the primary power to decide arbitrability’ turns upon what the parties agreed about that matter.” (internal citations omitted). We will not assume that the parties agreed to arbitrate arbitrability “[u]nless the parties clearly and unmistakably provide otherwise.” . Accordingly, we must decide if DM and Petrofac “clearly and unmistakably” provided for the arbitration panel to decide arbitrability.

Here, the parties expressly incorporated into their arbitration agreement the AAA Rules. These rules state that “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.” We agree with most of our sister circuits that the express adoption of these rules presents clear and unmistakable evidence that the parties agreed to arbitrate arbitrability. See (“[W]e conclude that the arbitration provision‘s incorporation of the AAA Rules ... constitutes a clear and unmistakable expression of the parties’ intent to leave the question of arbitrability to an arbitrator.“); (same); (same); (same); (same result under the similar ICC Rules). But see .2 Therefore, the arbitration panel properly made the decision that the damages calculations in the Adams report fell within the agreement to arbitrate.3

B.

Next, DM contends that Petrofac procured the overtime premium portion of the award through fraud or undue means. 9 U.S.C. § 10(a)(1) (permitting the district court to vacate an award “where the award was procured by corruption, fraud, or undue means“). Among the many claims brought in the original REA, Petrofac brought two distinct claims for damages: (1) an overtime premium claim for the additional overtime on the degas project; and (2) a claim for DM‘s impact on other projects.4 Petrofac made a strategic decision to abandon the latter claim, while maintaining the former. DM argues that Petrofac pulled a bait-and-switch by representing that it had abandoned its impact on other jobs claim, but then slipped those damages back in through its overtime premium claim. Rather than a covert legerdemain hidden from the arbitration panel, DM thoroughly advocated these arguments to the arbitration panel (both before and during the arbitration) and to the district court. In each case, the arbitration panel or court rejected DM‘s arguments. See (reversing a district court‘s vacatur of award where the arbitration panel heard evidence of the fraud and ruled it immaterial). Having examined the record, we conclude that DM‘s allegation of fraud misunderstands the distinct nature of Petrofac‘s claims.

C.

Finally, DM argues the district court committed reversible error by ordering prejudgment interest. “Texas law governs the award of prejudgment interest on the [arbitration] award,” and “[u]nder Texas law, prevailing parties receive prejudgment interest as a matter of course.” . On July 26, 2010, the arbitration panel ruled that Petrofac was entitled to interest, calculated the amount of interest as of the date of the award, and ordered payment of “interest from August 24, 2006 to July 26, 2010, within thirty days of the Award.” DM did not pay within the required thirty-day period. The district court ordered that DM pay additional interest, reasoning that by ordering payment by August 25, 2010, the arbitration panel created “a thirty-day interest-free window from the date of the award,” and DM “is not permitted to discount the arbitration panel‘s award by recalcitrantly delaying payment.” We agree. The district court properly reinstated the arbitration panel‘s interest award after DM refused to pay within the required period.5

III.

The district court properly confirmed the arbitration panel‘s arbitration award. On appeal, DM has failed to demonstrate reversible error. Consequently, the judgment of the district court is AFFIRMED.

GUIDEONE SPECIALTY MUTUAL INSURANCE COMPANY, Plaintiff-Appellee, v. MISSIONARY CHURCH OF DISCIPLES OF JESUS CHRIST; Michael A. Meyer; Amando Salgado, Defendants-Appellees, v. Sonya Gilmore, Defendant-Appellant.

No. 11-10894.

United States Court of Appeals, Fifth Circuit.

July 17, 2012.

Notes

1
The release stated that:

In consideration of payments made heretofore, or to be made, by DM ... [Petrofac] hereby unconditionally releases DM from any and all liens and claims whatsoever arising out of or during the performance of said Subcontract other than such claims, if any, that may be specifically excepted from the terms of this Release and Certificate, stated below:

  1. Request for Equitable Adjustment submitted by Petrofac, Inc. as may be amended or supplemented;
  2. Invoice No. 2004-79-855 in the amount of $995,718.00...;
  3. Invoice No. 2005-01-855 in the amount of $338,400.00;
  4. All rights and claims of [Petrofac] in connection with its disputes and objections to DM‘s Unilateral Change Orders 17, 18, and 22;
  5. Claim for Equitable Adjustment in the amount of $536,128.08 submitted by L.S. Womack, Inc. a subcontractor of Petrofac, Inc.; and
  6. Specified claims in full and precise amounts to be received by the Subcontract Manager within ninety (90) calendar days from the issuance of final acceptance by the Subcontract Manager.
2
Today‘s holding complies with our own prior suggestions that the incorporation of the AAA Rules “may be sufficient to show that the parties to those agreements intended to confer that power on the arbitration panel.” (emphasis omitted). Also, while the Texas Supreme Court has not weighed in on the issue, Texas appellate courts have adopted the same approach. See .
3
Although DM characterizes its contracts as narrow arbitration agreements for only a few preserved disputes, nothing limits the parties’ broad agreement to arbitrate “all claims and disputes” that related to the subcontract. Indeed, the 2006 arbitration agreement covered all disputes “including but not limited to” those preserved in the 2005 release.
4
Under the overtime claim, Petrofac sought to recover the amount of overtime paid to employees who were billed on other projects but, because of DM‘s disruption, needed to work overtime on the degas project. Under the impact on other projects claim, Petrofac demanded damages because DM‘s disruption of the degas project required Petrofac to hire additional subcontractors and pay overtime for work on two other projects to keep them on schedule.
5
The arbitration panel‘s award of interest—and order that it be paid within thirty days—distinguishes this case from others where the arbitration panel decided not to award interest to the prevailing party. See .
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