NOT RECOMMENDED FOR FULL-TEXT PUBLICATION File Name: 17a0424n.06

Case No. 16-3893

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

WILLIAM FARLEY, Petitioner-Appellant,

v. EATON CORPORATION, Respondent-Appellee.

____________________________________/ ) ) ) ) ) ) ) ) ) ) ) ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OHIO

Before: MERRITT, BATCHELDER, and CLAY, Circuit Judges. MERRITT, Circuit Judge. This is an appeal from th e district court’s order denying petitioner William Farley’s motion to vacate an arbitration award and gr anting respondent Eaton Corporation’s motion for confirmation of the arb itration award arising from Farley’s agreement to indemnify Eaton for environmental remediati on expenses in connection with the sale of a plant in Bethel, Connecticut. Th e parties dispute the proper interpretation of indemnification language in the contracts between Farley, or his companies, a nd Eaton concerning the Bethel property. The indemnification provision provides: Liabilities, obligations, fines, clean-up co sts or penalties, with respect to the premises and matters set forth below, resulting from non-c ompliance prior to August 8, 1986 by [sellers], with any appli cable laws, regulations , orders, or other requirements of any governmental author ities existing on or before August 8, 1986:Case No. 16-3893, Farley v. Eaton Corp.

- 2 - Bethel Connecticut Plant: on-site and o ff-site soil and groundwater contamination resulting from the use of on-site pits to treat and dispose of waste solvent. Farley argues that the arbitrator exceeded his power in finding for Eaton because no governmental order regarding groundwater contam ination had been issued on or before August 8, 1986, and the indemnification clau se was therefore not triggered. The arbitrator found that the contract language covered noncompliance predati ng the sale, and that th e parties intended that something other than a specific governmental or der would suffice to require indemnification by Farley to Eaton. An arbitrator’s construction of contract language is ent itled to great deference and Farley has not presented evidence that the ar bitrator’s award did not “draw its essence” from the contract. We agree with the district court’s opinion, and affirm its judgment.

I. The underlying facts are basically undisputed . Eaton acquired a manufacturing plant from Consolidated Controls Corporation, a subs idiary of Condec Corporation (later known as VBQ), through an Asset Purchase and Sale Ag reement and a Stock Purchase Agreement on August 8, 1986. Consolidated Controls was a ma nufacturer of instruments, controls, and systems used in aerospace, naval, and stationa ry power plant applications. Farley was not personally a party to those agreements, but he held a controlling interest in both Condec and Consolidated Controls. The property cont ained an unlined lagoon where untreated waste solvents and paint had been disposed of for year s, a fact known to all parties at the time of the sale. It is undisputed that the Connecticut De partment of Environmenta l Protection knew of the

contamination at the site well before the sale of the property in 1986. The Department issued a “Letter of Deficiency” in 1982 noting that “solvents were dumped into this pit.” It then issued a

“Notice of Violation” in 1984 direc ting that “soil samples must be collected and analyzed . . . for the presence of volatile organic c ontaminants that may remain from the past disposal activities.”Case No. 16-3893, Farley v. Eaton Corp.

- 3 - The Department also filed a complaint agains t Consolidated Controls in May 1986 that was pending at the time of the sale. The complaint alleges mishandling of hazardous waste at the plant, but it does not specifically mention groundwater contamination or remediation. The 1986 Asset Purchase and Sale Agreemen t included a provision where the sellers, Condec and Consolidated Controls, would indemnif y the buyer, Eaton Cor poration, for costs of cleaning up environmental contamination on th e transferred property. Sellers agreed to indemnify Eaton for any liabilities, obligations , fines, clean–up costs or penalties . . . resulting from non-compliance prior to Closing by Sellers w ith respect to any pr emises related to [Consolidated Controls Corporation or Condec], with any applicable laws, regulations, orders or other requirements of governmental aut horities, relating to the control of surface or groundwater pollution, hazardous substances or waste (or the disposal thereof), or air quality and emission standards, or otherwise relating to the protection of the environment. 1986 Agreement § 11.1(C). The 1986 Agreemen t also attached Sc hedule 5.5, entitled “Operation of Purchased Assets Which Violates, or Allegedl y Violates, Applicable Laws, Regulations, Orders or Other Re quirements of Government Authorities,” which set forth all matters that were not in compliance with applicab le laws at the time of the sale. The Schedule also listed pending litigation ag ainst the sellers, including a c opy of the May 6, 1986, complaint by the Department of Environmental Protection concerning the mishandling of hazardous waste

at the site. Also included in the Schedul e was a document whereby the sellers expressly acknowledged the contamination at the time of th e sale. Under Connecticut law, the seller was required to certify to the buyer on a “Form III” certification that the property was free from known contamination at the time of the sale, or to give the reason why such a negative declaration could not be given. Connecticut Transfer Act, P ub. Act 85-568. The sellers statedCase No. 16-3893, Farley v. Eaton Corp.

- 4 - that they were “unable to submit a negative decl aration” due to the contamination from volatile organics present on the property: I certify that, to the extent necessary to minimize or mitigate a threat to human health or the environment, I shall contain, remove or otherwise mitigate the effects of any discharge, spillage, uncontrolled loss, s eepage, or filtration of hazardous waste at the site . . . in accordance with procedures and a time schedule approved by the Commissioner of Environm ental Protection pursuant to an order, stipulated judgment, or consent agreement.

Form III Certification at 2. In 1987, about six months after the sale of the property to Eat on, the Connecticut Department of Environmental Protection issued an order to Eaton, now the owner of the property, identifying the la goon as a “condition which can reasonably be expected to create a source of pollution of the waters of the State . . . .” and directing it to “[i]nvestigate the extent and degree of ground water, surface water and so il contamination” resulting from the facility’s lagoon and to “[t]ake necessary re medial actions to minimize or eliminate the contamination resulting from such practices.” Department of Environmental Protection Order No. HM-398 (Feb. 18, 1987). Eaton and the Department eventually agreed upon a “pump and treat” system, which became operational in 1992. Representatives of the sellers, including Farley, were kept apprised of the negotiations between Eaton and the Department. The 1987 order from the Department is still in effect t oday and Eaton must continue to operate and maintain the pump and treat system. In 1991, pursuant to the indemnification terms of the 1986 Asset Purchase and Sale Agreement, Eaton began seeking, and receiving, reimbursement for the treatment system from the sellers, companies controlled by Farley. In 1996, Condec’s successor, VBQ, filed fo r bankruptcy. Due to the bankruptcy, Farley assumed personal liability for the company’ s indemnification obligations under the 1986 Agreement by entering into with Eaton the Amended and Restated Payment ProceduresCase No. 16-3893, Farley v. Eaton Corp.

- 5 - Agreement, the contract upon which the arbitration arose. 1 The 1998 Agreement provides in relevant part: Eaton has the right to make claims . . . under this Agreement if: Eaton has incurred or suffered losses, liabilities, da mages, costs, or expenses (collectively “Environmental Liabilities”) equal to the amount of the claim resulting from (1) the environmental matters desc ribed on Exhibit A hereto. . . .

Section 1.1.1. Exhibit A states in relevant part (e mphasis added): Liabilities, obligations, fines, clean-up co sts or penalties, with respect to the premises and matters set forth below, resulting from non-c ompliance prior to August 8, 1986 by CCC or VBQ [Condec’s suc cessor], with any applicable laws, regulations, orders, or other requirements of any governmental authorities existing on or before August 8, 1986:

Bethel Connecticut Plant: on-site and off-site soil and groundwater contamination resulting from the use of on- site pits to treat and dispose of waste solvent. Because the 1998 Agreement imposed certain obligations on Farley personally, the 1998 Agreement allowed Farley to obtain a $10 million insurance policy through AIG to secure his obligations under the Agreement, and the Agreement established the terms under which Eaton may receive payment directly from AIG. The AIG policy provides: “The Insurer hereby agrees to . . . pay or reimburse Eaton directly for any Claim . . . made directly by Eaton under Section 1.1, Section 2.1.1. or Exhibit A of th e [Amended and Restated] Payment Procedures Agreement . . . .” Policy § 1. Between 1991 an d 2003, Farley or his comp anies paid Eaton over $2 million in 13 separate payments. See Eaton’s Br. at 9. Between 2003 and 2010, the parties, including Farley or his representati ves, continued to correspond about remediation at the site. No pa yments were made by Farley during that time, and it appears that Eaton made no requests for reimbursement. On November 19, 2010, Eaton

1 The 1998 Agreement provided that if informal dispute resolution fails, the “dispute shall be resolved by arbitration,” and the arbitrator’s aw ard “shall establish if, and to the ex tent, Eaton was “Entitled to Receive Payment’ for the disputed payment(s) . . . .” 1998 Agreement at § 6.5.Case No. 16-3893, Farley v. Eaton Corp.

- 6 - certified that under the 1998 Agreement, it was en titled to receiv e payment in the amount of $506,460.93 from Farley for environmental costs incurred from 2003 through 2010, including costs for the pump and treat gro undwater remediation system. Farley failed to make the requested payment, and Farley did not timely i nvoke dispute resolution in accordance with the 1998 Agreement. Eaton submitted the claim, as authorized under the 1998 Agreement, directly to the insurance company, AIG, pursuant to th e policy Farley had purchased to guarantee his obligations under the 1998 Agreem ent with Eaton. AIG made two reimbursements to Eaton in the approximate amounts of $440,000 and $53,000, su ms Farley now claims were wrongfully paid. A little over three years later, on Janua ry 24, 2014, Eaton again certified in accordance with the 1998 Agreement that it was entitled to receive payment from Farley for environmental costs, including further costs for the groundwater remediation system, incurred from November 2010 through December 2013 in the amount of $175,838.48. Farley again failed to pay. On February 18, 2014, Farley’s counsel timely is sued a notice of dispute resolution under the 1998 Agreement with respect to Eaton’s claim made in January 2014 for $175,838.48. After informal dispute resolution failed, the claim proceed ed to arbitration in Chicago, Illinois, before Arbitrator Michael Pope. Farley added a new claim challenging the payment of $506,460.93 made by AIG to Eaton in 2010. Eaton filed a c ounterclaim. After a f our-day hearing, the Arbitrator awarded Eaton $175,838.48 on its counter claim, $10,265.18 in statutory interest, and $902,106.64 in prevailing party at torney fees and costs for a total of $1,088,210.30. The arbitrator also confirmed the payments made by AIG directly to Eaton. The parties sought confirmation or vacation of th e arbitrator’s award in the district court pursuant to the Federal Arbitrati on Act, 9 U.S.C. § 9. The distri ct court denied Farley’s motion to vacate the award and granted Ea ton’s motion to confirm the award. Farley v. Eaton Corp. ,Case No. 16-3893, Farley v. Eaton Corp.

- 7 - No. 1:16 CV 690, 2016 WL 3619306 (N.D. Ohio July 6, 2016). After emphasizing the deference that must be given to the arbitr ator’s opinion under the Federal Arbi tration Act, the district court noted that the arbitrator did not “ignore” th e language in the 1998 Agreement and had not gone beyond the intent reflected in the contract language. Id. at *4. This appeal followed.

II. Under the Federal Arbitration Act, once an ar bitration award is ma de, any party to the arbitration may move to confirm the award. 9 U. S.C. § 9. The court “must grant the motion unless the award is vacated, modified, or corr ected as prescribed in sections 10 and 11.” Id

. A district court may make an order vacating the award where the arbitrator exceeds his powers. 9 U.S.C. § 10(a)(4). These two sections provide the “exclusive regime [ ]” for federal court

review of an arbi trator’s award. Grain v. Trinity Health, Mercy Health Servs. Inc ., 551 F.3d 374, 378 (6th Cir. 2008) (quoting Hall St. Assocs. v. Mattel, Inc ., 552 U.S. 576, 590 (2008)). The

district court stated the standa rd of review appropria tely and correctly, re lying on the relevant Supreme Court and Sixt h Circuit authority: The Federal Arbitration Act (FAA) ha s a strong presumption in favor of confirming an arbitration award, so a court’s review of an arbitr ator’s decision is exceedingly narrow, “one of the narrowest standards of judicial review in all of American jurisprudence.” UHL v. Komatsu Forklift Co. , 512 F.3d 294, 305 (6th Cir. 2008) (quoting Lottimer-Stevens Co. v. United Steelworkers , 913 F.2d 1166, 1169 (6th Cir. 1990)). “Because the parties have contracted to have disputes settled by an arbitrat or chosen by them rather than by a judge, it is th e arbitrator’s view of the facts and of the meaning of the contract that they have agreed to accept. . . . [A]s long as the arbitrator is even arguably construing or applying the contract and acting within th e scope of his authority, [t he fact] that a court is convinced he committed serious error does not suffice to overturn his decision.” United Paperworkers Int’l Un ion, AFL CIO v. Misco, Inc. , 484 U.S. 29, 37-38 (1987); Stonebridge Equity v. China Auto. Sys., Inc ., 520 F. App’x 331, 337 (6th Cir. 2013)(internal quotation marks and citations omitted)(“So long as the arbitrator was even arguably construing or applying the contract, the award cannot be overturned.”).Case No. 16-3893, Farley v. Eaton Corp.

- 8 - 2016 WL 3619306, at *2. Review of th e arbitrator’s decision is ther efore extremely deferential. Beacon Journal Publ’g Co. v. Akron Newspaper Guild, Local No.7 , 114 F.3d 596, 599 (6th Cir. 1997). Farley stresses that, while deferential, this court’s review is “not toothless” when an arbitrator’s award disregards the explicit provisions of th e contract. An award must be vacated if it is based upon “general considerations of fairne ss and equity rather than the exact terms of the agreement.” Id. at 600. The question presented is one of contract in terpretation, specifically the meaning of the indemnity provision in Exhibit A to the 1998 Am ended and Restated Payment and Procedures Agreement, which sets out the terms under whic h Farley would personally indemnify Eaton. Farley contends that the arbi trator improperly looked beyond the unambiguous language of the 1998 Agreement, which stated that reimbur sement was required only for expenses resulting from non-compliance prior to August 8, 1986 [by the selling companies], with any applicable laws, re gulations, orders, or other requirements of any governmental authorities exis ting on or before August 8, 1986:

Bethel Connecticut Plant: on-site and o ff-site soil and groundwater contamination resulting from the use of on-site pits to treat and dispose of waste solvent. Farley’s position is that the arbitrator “disregard ed” or “rewrote” the contract terms because the Connecticut Department of Environmental Pr otection did not issue its remediation order concerning groundwater contamination until Febr uary 1987, six months after August 8, 1986, and thus there were no “appli cable laws, regulations, orders, or other requirements of any governmental authorities existing on or before August 8, 1986.” Farley concedes that the “requirement” need not n ecessarily be in the form of an “o rder,” but he main tains that the 1982 Letter of Deficiency and the 1984 Notice of Viol ation do not qualify as government requirements to clean up the groundwater and that no other requirement existed.Case No. 16-3893, Farley v. Eaton Corp.

- 9 - Farley maintains, therefore, that the arbi trator looked beyond the plain language of the Agreement, wrongly attempting to “c onstrue the intent of the parties,” instead of interpreting the agreement as written. To support his allegation, Fa rley points to language in the arbitrator’s opinion where he states that a pplying the 1998 Agreement as written was “hard to accept” and questions “[w]hy would a buyer agree to indemn ification of a known polluted site only if a government order had already issued ?” Arbitrator’s Op. at 6. The arbitrator acknowledged that Farley’s argument was intell ectually honest, but

concluded that the intent of the parties in the 1998 Agreement was to indemnify Eaton for cleanup of preexisting contam ination at the Bethel site. The ar bitrator considered and addressed the language in the contract concerning Farley’s argument requiring a governmental order to be in place as of August 6, 1986 in order to trigger th e indemnification term, but he determined that “the language of Exhibit A [to the Amended and Restated Payment Procedures Agreement] does not require that conclusion.” Id . He opined: The reference to “any applicable laws, regulations, orders . . . existing on or before August 6, 1986, might support [Farle y’s] argument, but by the additional terms “or other requirements of any govern mental authorities. . .”[,] the parties clearly intended something other than a specific order or re gulation would be sufficient.

Id

. In construing the “or other requirements of any governmental authorities” language, the arbitrator looked to the intent of the parties. One of the documents the ar bitrator relied on was “Form III,” the certification required by the State of Connecticut when property is transferred. By signing Form III, the sellers acknowledged at the closing on August 6, 1986, that they could not certify that the property was in compliance w ith governmental laws and regulations in effect at the time. The Form also required the selle r to mitigate the effects of any “seepage orCase No. 16-3893, Farley v. Eaton Corp.

- 10 - discharge of hazardous waste” at the site. By signing this document, the sellers, companies controlled by Farley, acknowledged contamination at the site at the time of the sale and the requirement to mitigate it. Farley himself conc eded during his hearing testimony that, “I believe we [his companies] agreed that there was noncompliance in ’86.” Arbitration Hr’g Tr. at 417. Farley attempts to avoid this concession by ar guing that the representation was made by his companies, not by him personally, and that he was not a party to the 1986 Agreement, so any intent derived from Form III cannot be imputed to him. Even if Farley could avoid the imputation to him personally, which is unlikely as he held a controlling interest in the companies making the representation, Farley conceded in the Amended and Restated Payment Procedures Agreem ent in 1998 that the remediation costs at the site were subject to i ndemnification. The 1998 Agreement, to which Farley is a party, includes almost identical indemnification language to the 1986 Agreement and adds “Exhibit A,” which specifically references groundwater contamination at the Bethel site (“Bethel Connecticut Plant: on-site and off-site soil and groundw ater contamination resulting from the use of on-site pits to treat and dispose of waste solvent.”). Given the sp ecific language in Exhib it A, and the fact that the 1987 clean-up order issued by the Connecticut Department of Environmental Protection had been in effect for 11 years at the time Farley entered into the 1998 Agreement with Eaton, the

arbitrator concluded that it coul d not have been Farley ’s intent in 1998 no t to indemnify Eaton for groundwater remediation at the Bethel site, even in the absenc e of a specific governmental order predating August 1986. The arbitrator also pointed to language in the AIG policy Farley procured in 1998 that specifically referenced coverage for cleanup costs to include “the current

remediation at the Bethel site.”Case No. 16-3893, Farley v. Eaton Corp.

- 11 - The arbitrator also considered the parties’ past practices and conduc t in construing the 1998 Agreement, including the previous reimburseme nts to Eaton by Farley or his companies. Farley, his companies or his insurer reimbursed Eaton in excess of $2.5 million. Farley argues that this reliance is improper under the language in the 1998 Agreement stating that “No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of such provision at any time in the future.” 1998 Agreement at § 7.1. Although it is generally true that clear contract language prevails over inconsiste nt past practice, it was not improper for the

arbitrator to consider these admissions of liabi lity when attempting to determine the parties’ intentions when the contract language is open to interpretation, as it is here. See Int’l Paper Co. v. United Paperworkers Int’l Union , 215 F.3d 815, 817 (8th Cir. 2000) (“Although an arbitrator may look to outside sources to aid in interpreting . . . , he must [be] constru[ing] the contract . . . , not amend[ing] it.”) (citing Keebler Co. v. Milk Drivers and Dairy Emps. Union, Local No. 471 , 80 F.3d 284, 288 (8th Cir. 1996)). The arbitrator ha s the authority, as a f unction of interpreting contract language, to consider whether a past pract ice reflects the mutual intent of the parties. The arbitrator may not ignore the plain language of the contract, but the parties authorized the arbitrator to give meaning to the language of the agreement, a nd a court should not reject an award on the ground that the arbitrator misread the c ontract. So long as the arbitrator is arguably construing or applying the contract and acting within the scope of hi s authority, even the fact that

a court is convinced he committed serious error does not suffice to overturn his decision. United Paperworkers Int’l Union , 484 U.S. at 38; see also Major League Baseball Players Ass’n v. Garvey , 532 U.S. 504, 509 (2001). In sum, Farley’s arguments amount to an equitable argument against requiring him to give Eaton a “blank check” to pa y for unknowable cleanup costs far into the future. Farley didCase No. 16-3893, Farley v. Eaton Corp.

- 12 - not raise any argument before the arbitrator that his liability s hould be limited only to what was “reasonably foreseeable” in 1998, or some ot her equitable argument that would support terminating his liability at some point. Given the extreme deference we must give the arbitrator’s decision, we conclude that the arbitrator did not exceed his power in interpreting the indemnification clause. For the foregoing reasons, the judgment of the di strict court is affirmed.