UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT

________________ _________________ MEMC II, LLC; MIKE MCDANIEL, Plaintiffs - Appellants,

v. CANNON STORAGE SY STEMS, INC., Defendant - Appellee. No. 18-6079 (D.C. No. 5:18- CV-00143-C) (W.D. Okla.)

________________ _________________ ORDER AND JUDGMENT *

________________ _________________ Before MATHESON , PHILLIPS , and EID , Circuit Judges.

________________ _________________ MEMC II, LLC and Mike McDaniel ( collectively, “MEMC”) contracte d to have Cannon Storage Systems, I nc. (“Cannon”) build a commercial storage facility in Dallas, Texas. The contract inc luded precise design specificat ions and stipulated that any disputes between the parti es would be subject to binding ar bitration. During construction, Cannon deviated f rom the agreed-upon design speci fications. In response, MEMC withheld payment s. The parties submitted their dispute to

* After examining the briefs and appellate record, this panel ha s determined unanimously that oral argument would not materially assist in t he determination of this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is t herefore ordered submitted without oral ar gument. This order and judgme nt is not binding precedent, except under the doctr ines of law of the case, res j udicata, and collateral estoppel. It may be cited, howev er, for its persuasive value c onsistent with Federal Rule of Appellate Procedure 32.1 and 10th Circuit Rule 32.1. FILED United States Court of Appeals Tenth Circuit 

### February 12, 2019
Elisabeth A. Shumaker Clerk of Court2 arbitration, each rai sing claims for breach of contract. The a rbitrator found that Cannon had breached by varying from the design specifications, that MEMC had breached by withholding payments, a nd that MEMC was liable to C annon for approximately $230,000 in damages. MEMC applied for relief from the arbitration award in the Unite d States District Court for the Western Di strict of Oklahoma. It argued that Cannon’s deviation from the design speci fications constituted material b reach and thus excused MEMC from its payment obligati ons under the contract. Accordin gly, MEMC requested that the court confirm the arbitrator’s finding of Ca nnon’s breach and vacate the award of damages to Cannon. The district court deni ed MEMC’s application, and MEMC timely app ealed. Exercising jurisdiction under 28 U.S.C. §1291, we affirm. I. BACKGROUND A. The Contract On June 17, 2016, MEMC and Cann on entered into a construction i ndustry “Standard Form of Agreement Betw een Owner and Contractor” (“Con tract”) obligating Cannon to build a com mercial storage facility in Dal las, Texas. The Contract incorporated American I nstitute of Architects (“AIA”) Document A201-2007, which provided genera l terms about insurance, tax li abilities, and other miscellaneous topics. The Contr act also listed express perform ance standards and mandated Cannon’s compliance with a detailed set of design spec ifications. In3 addition, the Contract specified payment terms and provided tha t MEMC would pay Cannon in installments on th e 15th day of each month. The Contract also contained a se ction called “Binding Dispute R esolution,” which mandated arbitration for a ny contractual disputes subject to but not resolved by mediation. Specifically, the Contract incorporated Section 15.4 of AIA Document A201-2007, which reads: If the parties have selected a rbitration as the method for binding dispute resolution in the Agreement, any Claim subject to, but not r esolved by, mediation shall be subject to arbitration which, unless the parties mu tually agree otherwise, shall be admin istered by the American Arbitration Association in accordance with its Construction Industry Arbitrat ion Rules in effect on the date of the Agreement. . . . The award rendered by the arbitrator or arbitrat ors shall be final, and judgment may be entered upon it in accordance w ith applicable law in any court having jurisdiction thereof. Id. at 69. The parties agreed that Texas la w would govern a ny contractual dispute. They also agreed that “[p]ending fina l resolution of a claim, Cannon shall proceed diligently with perform ance of the contract and [MEMC] shall co ntinue to make payments in accordance with payment terms.” Aplt. App. at 25. B. The Dispute After starting construction, Canno n decided that the plans spec ified in the Contract were “inadequate.” A plt. App. at 188. Accordingly, C annon hired a new engineer and changed the structur al plans. When MEMC learned o f the changes, it refused to make further paymen ts, arguing that Cannon had breac hed the Contract by4 deviating from the design specifi cations. Cannon continued con struction without payment for nearly five months. On December 14, 2016, MEMC sen t Cannon a demand letter describing the per ceived breach and warning that it planned to “proceed with initiating th e claim process.” Id. at 72. The letter yielded no results, and Cannon eventually submitted th e dispute to arbitration. C. Arbitration Cannon brought arbitration claims for breach of contract based on MEMC’s nonpayment. MEMC responded with a n affirmative defense, arguin g that Cannon’s departure from the design specifi cations was a material breach that discharged MEMC’s payment obligations. MEMC also counter-claimed for brea ch of contract, arguing that “Cannon failed to u se the approved plans and speci fications and did not complete the construction in acc ordance with approved plans and specifications.” Id. at 76. The arbitrator issued a decisi on on January 12, 2018. She foun d that MEMC breached the Contract by refusing to pay Cannon, and that Canno n breached the contract by failing to construc t the storage facility according to the agreed-upon specifications. For both findings of breach, the arbitrator ci ted Bartush-Schnitzius Foods Co. v. Cimco Refrigeration, Inc. , 518 S.W.3d 432 (Tex. 2017) (“ Cimco ”), which outlines the factors that T exas courts use to assess mate riality.5 Because she found that MEMC breach ed by withholdi ng payments, t he arbitrator awarded Can non $143,608.82 owed under the Contract. 1 She also noted that although “[MEMC] establishe d that Cannon breached the cont ract by not getting owner approval for several change s to the structural plans, evi dence of the cost to remediate the work related to [C annon’s design] changes was ins ufficient.” Id. at 173 n.3. Accordingly, she found that MEMC could “recover nothi ng from Cannon.” Id. at 173. D. District Court Proceedings On February 13, 2018, MEMC filed an application for relief rega rding the arbitration award in the United States District Court for the W estern District of Oklahoma. MEMC said that under Te xas law, “a failure by a cont racting party to comply with expressly define d performance metrics . . . categorically operates as a ‘material’ breach.” Id. at 7. MEMC further argued that “[w]hen one party to a contract materially breaches t he contract, the non-breaching pa rty is discharged or excused from further perfo rmance of its duties.” Id. at 8 (citing Mustang Pipeline Co., Inc. v. DenverPipeline Co., Inc. , 134 S.W.3d 195, 196 (Tex. 2004)). Because the arbitrator found that Cannon deviated from express “performance metrics,” 2 MEMC contended that the arbit ration decision operated as a fin ding of

1 The arbitrator also awarded Ca nnon $28,811.68 in interest, jud icial foreclosure of its mechanic lie ns, $49,016.89 in attorney fees, and $6,914.50 in expert witness fees. 2 MEMC has used this term throughout the matter. See, e.g. , Aplt. Br. at 3, 4, 10.6 material breach. MEMC thus claim ed that the arbitrator should not have awarded damages. It argued that, becau se Cannon “materially breached t he contract first,” MEMC was excused from, and could not be held liable for, its pa yment obligations under the Contract. Id. at 11. MEMC asked the distric t court to vacate the damages award but “enforce” the arbitrat or’s finding that Cannon had br eached the Contract. Id. at 7. The district court denied MEMC’s application. It explained “th ere exists [a] strong presumption favoring the validation of [arbitration] awa rd[s].” Id. at 214 (quotations omitted). It further explained that vacatur is app ropriate only in rare circumstances, such as “where t he arbitrators exceeded their po wers.” Id. (citing 9 U.S.C. § 10(a)(4)). The court no ted that under Texas law, mate riality is a question of fact that is assessed using a factor-based ana lysis. Because t he arbitrator cited Cimco , which outlines this factor-bas ed approach, the district court concluded that she correctly “found that [Cannon’ s] initial conduct was a brea ch, not a material breach.” Id. at 216. The district court ther efore held that “the arbitrator ’s conclusions were well within her purview as the fact finder” an d that “the arbitrator was not exceeding her powers . . . by awarding damages.” Id. at 217. II. DISCUSSION Under the Federal Arbitration Ac t (“FAA”), courts “may vacate a n arbitrator’s decision only in very unus ual circumstances.” THI of N.M. at Vida Encantada, LLC
v. Lovato , 864 F.3d 1080, 1082 (10th Cir. 2017) (quotations omitted). S ection 10(a) of the FAA identifies four situa tions where vacatur is appropri ate. 9 U.S.C.7 § 10(a)(4). Here, we consider w hether the arbitrator’s decisio n exceeded her legal authority under 9 U.S.C. § 10(a)(4). Below, we present the highly defe rential standard generally use d for judicial review of arbitral decisions. We then describe the FAA rules g overning vacatur of arbitration awards, and we discu ss one rare example in which a circuit court vacated an arbitration award after findi ng that the arbitrators exceede d their authority under 9 U.S.C. § 10(a)(4). Applying this legal background to the pre sent case, we conclude that the arbitrator did not excee d her authority in issuing an award for Cannon, and we affirm the district court’s de nial of MEMC’s application for relief. A. Legal Background 1. Standard of Review 3 When analyzing a challenge to th e district court’s confirmation of an arbitration award, “we review le gal questions de novo and factu al findings for clear error.” CEEG (Shanghai) Solar Sci. & Tech. Co. v. LUMOS LLC , 829 F.3d 1201, 1205 (10th Cir. 2016). We “do not o we deference to the distric t court’s legal conclusions,” but we “afford max imum deference to the arbitrato r’s decisions.” Id. (quotations omitted). “Our task i s to assess whet her the distr ict court correctly

3 In articulating the standard o f review for challenges to arbit ration decisions, this court has relied on cases a rising under both the FAA, 9 U. S.C. § 10, and the Labor Management Relations Act (“LMRA”), 29 U.S.C. § 185. See, e.g. , THI , 864 F.3d at 1083 (citing FAA case Oxford Health Plans LLC v. Sutter , 569 U.S. 564 (2013) and also ci ting LMRA cases San Juan Coal Co. v. Int’ l Union of Operating Eng’rs, Local 953 , 672 F.3d 1198 (10th Cir. 2012) and United Paperworkers Int’l Union v. Misco, Inc. , 484 U.S. 29 (1987) (“ Misco ”)).8 followed the restrictive standa rd that governs judicial review of an arbitrator’s award.” THI , 864 F.3d at 1083 ( 10th Cir. 2017). “[T]he standard of review of arbitral awards is among the narrowest known to law .” Brown v. Coleman Co., Inc. , 220 F.3d 1180, 1182 (10t h Cir. 2000) (emphasis added) (quotations omitted). C ourts “give extreme deference to the determinations of the [arbitrator].” Id . Courts also “exerci s[e] great caution,” Ormsbee Dev. Co. v. Grace , 668 F.2d 1140, 1147 (1 0th Cir. 1982), and vacate arbitration awards “only in extraordinary circumstances.” San Juan Coal Co. v. Int’l Union of Operating Eng’rs, Local 953 , 672 F.3d 1198, 1201 (10th Cir. 2012). The Supreme Court has said that such extraordinary circumstance s exist only when the arbitrator “strays from interpretation and application of the agreement and effectively dispenses his own br and of industrial justice.” Major League Baseball Players Ass’n v. Garvey , 532 U.S. 504, 509 (2001) (quota tions omitted). “[E]rrors in either the arbitrator’s factual findings or his interpretation of the law (unless that interpretation shows a manifest disregard of controlling law) d o not justify review or reversal on the merits o f the controversy.” Dish Network LLC v. Ray , 900 F.3d 1240, 1243 (10th Cir. 2018). Rather, if an arbitrator “is even argua bly construing or applying the contract and acting within the scope of his author ity,” the arbitral award should be upheld. Major League Baseball Players Ass’n , 532 U.S. at 509 (quotations omitted). In practice, this deferential st andard means that courts “are n ot authorized to reconsider the merits of an awar d even though the parties may a llege that the award9 rests on errors of fact or on mi sinterpretation of the contract .” CEEG , 829 F.3d at 1206 (quotations omitted). I nstead, a court’s “sole questio n” is “whether the arbitrator (even arguably) inter preted the parties’ contract, n ot whether he got its meaning right or wrong.” Oxford Health Plans LLC v. Sutter , 569 U.S. 564, 569 (2013). “As long as the arbitrato r [was] even arguably constru ing or applying the contract,” United Paperworkers Int’l Union v. Misco, Inc. , 484 U.S. 29, 30 (1987) (“ Misco ”), courts remain “highly defere ntial” to the arbitrator’s deci sions. THI , 864 F.3d at 1084. 2. Vacating Arbitration A wards Under the FAA Section 10(a) of the Federal Arb itration Act provides four stat utory grounds for vacating arbitration awards: (1) where the award was pro cured by corruption, fraud, or undue means; (2) where there was evident pa rtiality or corruption in the arbitrators, or either of them; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hear ing, upon sufficient cause shown, or in refusing to h ear evidence pertinent and material to the controversy; o r of any other misbehavior by which the rights of any part y have been prejudiced; or (4) where the arbitrators ex ceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matt er submitted was not made. 9 U.S.C. § 10(a)(1)-(4). MEMC seeks relief from the arbitr ator’s award under 9 U.S.C. § 10(a)(4). As described above, federal courts s trongly defer to an arbitrator ’s decisions. Because10 of this, “a party seeking relie f under § 10(a)(4) bears a heavy burden.” Oxford Health Plans LLC , 569 U.S. at 564 (quotations o mitted). “[C]onvincing a court of an arbitrator’s error—ev en his grave error—is not enough” to warra nt vacatur under § 10(a)(4). Id. at 572. “Because the parties ‘bar gained for the arbitrator’s construction of their agreement, ’ an arbitral decision ‘even ar guably construing or applying the contract’ must sta nd, regardless of a court’s view of its (de)merits.” Id. at 569 (quoting E. Associated Coal Corp. v. Mine Workers of Am., Dist. 17 , 531 U.S. 57, 62 (2000)). Thus, “in considering whether th e arbitrator exceeded [her] pow ers, we consider one question: whether t he arbitrator arguably interpr eted the parties’ contract, regardless of whether that interpretation was correct .” THI , 864 F.3d at 1084. If the court finds that the arbitrator “strayed from his delegated task of interpreting a contract,” vacat ur under § 10(a)(4) is appropria te. Id. at 1088 (citing Oxford Health Plans LLC , 569 U.S. at 572). If, however , the arbitrator’s decision “has any contractual basis, it should not be overtur ned under the defere ntial standard of review afforded to arbitration awards.” Id. (quotations omitted); see also San Juan Coal Co. , 672 F.3d at 1201. Given this highly deferential approach, courts do not often fin d that an arbitrator “exceeded h is powers” under § 1 0(a)(4). In cases in volving § 10(a)(4) challenges, this circuit has ge nerally affirmed the arbitration award. See, e.g. , THI , 864 F.3d 1080 at 1088 (affirming an arbitrator’s award of costs and interests because the award “[found] support in the terms of the Arbitration Agre ement” and was a11 “defensible construction[ ] of the agreement”); San Juan Coal Co. , 672 F.3d at 1201 (reversing a district court’s vaca tur of an arbitration award b ecause the award “had at least some foundation in the tex t of the controlling agreements ”); Brown , 220 F.3d at 1183 (reversing a district cour t’s vacatur of an arbitration award that, though possibly erroneous, “was ba sed on the contract”). Tenth Circuit case law thus provi des few examples that might wa rrant vacatur of an arbitration award under § 10(a)(4), 4 but one example from the Ninth Circuit is instructive. In Coast Trading Co., Inc. v. Pac. Molasses Co. , 681 F.2d 1195 (9th Cir. 1982), a buyer sued after a selle r cancelled a contract for a b ulk sale of peas. The arbitrators found that the buye r improperly changed shipping in structions. Id. at 1197. The arbitrators also found that the seller was negligent in communicating with the buyer about the problem with the shipping instructions. Ra ther than award monetary relief, however, the a rbitrators extended the contract and designated a new delivery date well beyond the date specified in the original ag reement. Id. The district court vacated the ar bitration award, holding that it went “beyond the scope of the submission and [was] an arbitrary and irration al finding.” Id. at 1197. On appeal, the Ninth Cir cuit affirmed. The court acknow ledged that it owed significant deference to the ar bitrator’s decision, and it note d that arbitration decisions generally “will not be set aside by a court for error either in law or fact.” Id. at 1198 (quotations omitted). But because the arbitrators’ dec ision exceeded the

4 MEMC has not cited any case where an arbitrator’s reading of the law was deemed so wayward as to warran t vacatur under 9 U.S.C. §10(a)(4 ).12 scope of the contract and did not “draw[] its essence from the agreement,” the court deemed the award invalid under 9 U.S.C. § 10(a)(4). Id. at 1197. It held: Because the inherent nature of arbitration as a method of dispute resolution involves t he agreement of the parties, we vacate this arbitration aw ard as being contrary to remedies provided in the c ontract and as beyond the authority of the arbitrator s under the submission. We emphasize it is not for the cour ts to examine the merits of an award, but the award will not be shielded from judicial scrutiny intended to insure [sic ] that the award is grounded on the agreement of the parties and the issues they present for resolution. Id. at 1198. Coast Trading Co. is thus a rare example of an award vacated under 9 U.S.C. § 10(a)(4). The Ninth Circuit did not vacate the award because it was legally or factually unsound—in fact, the c ourt noted that it generally up holds awards even if the “arbitrators’ view of the law [was] open to serious questio n.” Id. But because the arbitrators crafted a remedy that was not contemplated in t he contract, the court determined that the arbitrati on award “exceeded the authority g iven them by the consent of the parties” and wa rranted vacatur under § 10(a)(4). Id. B. Analysis MEMC argues that the arbitrato r exceeded her authority under 9 U.S.C. § 10(a)(4) because her ruling was “manifestly at odds with Texa s law.” Aplt. Br. at 11. 5 According to MEMC, C annon’s breach—the failure to adhere to e xplicit “strict

5 MEMC argues that under Texas la w, any deviation from a specifi ed “performance metric” is necessarily a mater ial breach. Aplt. B r. at 11. Because our deferential approach does not s econd guess the soundness of an arbitrator’s13 performance[] metrics”—was “mat erial” as a matter of law. Aplt . Br. at 11-12, 15-16. MEMC contends that it was theref ore excused from its payment ob ligations under the Contract. It further argues that the arbitrator exceeded her a uthority in awarding damages to Cannon and requests that we vacate the award in favo r of Cannon, enforce the arbitrator’s finding of Canno n’s breach, and designate MEMC as the prevailing party so that it may seek fe es and costs upon remand. As discussed above, we give “extreme deference” to an arbitrato r’s determinations. Brown , 220 F.3d at 1182. Accordingly , we vacate arbitral awards onl y in narrow, rare circumstances—whe n an arbitrator “exceed[s] [he r] powers,” 9 U.S.C. § 10(a)(4), o r “dispenses [her] own brand of industria l justice.” Major League Baseball Player’s Ass’n , 532 U.S. 509. Here, the arbitrator held a thr ee-day arbitration hearing, revi ewed nearly 100 exhibits, and heard arguments an d evidence from both parties. She also cited the governing Texas law on material breach and analyzed the facts u sing the cases the parties

interpretation of the contract o r the law, we do not address th is issue. But even if we did consider MEMC’s Texas law ar gument, our holding would remai n the same. The Texas Supreme Court has stated that “materiality is an issue to be determined by the trier of facts” and should be a ssessed using a series of factor s from the Restatement (Second) of Contracts. Cimco , 518 S.W.3d at 436 (Tex. 201 7) (quotations omitted); see also Mustang Pipeline Co. , 134 S.W.3d at 199 (citing Restatement (Second) of Contracts § 241 (Am. Law Inst. 1981)). Texas courts also have specified that “materiality may be decided as a matter of law only if reasonab le jurors could reach only one verdict,” Cimco , 518 S.W.3d at 436, which i s not the case here. Given this precedent, MEMC’s ar gument is without merit. We thu s summarily deny MEMC’s motion to certify the question of whether disregard of “an express, contractual performance metric” constitutes material breach as a matter of Texas state law. Aplt. Opposed Mot. Certify Questions State Law at 5. We also deny as moot MEMC’s request for leave to fil e a reply in support of that mot ion.14 cited in their briefs (including Cimco ). Based on her assessment of the facts, the Contract, and the relevant law, the arbitrator found that MEMC breached by withholding the payments it owed under the C ontract. She also found that C annon breached the Contract by deviating from the design specifications. By citing Cimco in her decision, the arbitrato r demonstrated her awareness of Texas law governing material b reach. And as the district court noted, she correctly “relied on [the Cimco ] factors . . . and did not find conclusive e vidence that a mat erial breach occurred by [Cannon].” Id. at 216. Because she determi ned that Cannon’s breach was not material, and because MEMC did not sufficiently establi sh evidence of damages, the arbitrator ordered MEMC to complete its payments and did no t allow it to recover damages. We are limited to assessing whether the arbitrator interpreted the Contract and do not consider the substance of he r legal or factual conclusions. See Oxford Health Plans LLC , 569 U.S. at 569; Misco , 484 U.S. at 38. Nothing in the arbitrator’s decision suggests that she did not inte rpret the Contract. In fact, the award indicates just the opposite. The arbitrator conside red the respective clauses usi ng relevant case law, weighed the evidence, and decide d that, even thou gh Cannon brea ched, its breach did not excuse MEMC from payment obligations. See Aplt. App. at 172-73, 172 n.1. Unlike in Coast Trading Co ., where the arbitrators created a remedy not contemplated by e ither party, this arbitrator ordered M EMC to pay the money it owed un der the agreement. Her decision was thus comparable to awards we have upheld in other cases. It had “at least some foundation in the text of the controlling agreements” and was based on a15 “defensible construction[] of the [Contract].” San Juan Coal Co. , 672 F.3d at 1201; see also THI , 864 F.3d at 1088 (upholding an arbitral award that had “‘ any ’ contractual basis”). Because the arbitrator interpretedthe Contract and applied the law of the jurisdiction selected b y the parties, she d id not “dispense[] [ her] own brand of industrial justice” or exceed her autho rity under the agreement. Major League Baseball Players Ass’n , 532 U.S. at 509 (quotations o mitted). Vacatur is not appropr iate under 9 U.S.C. § 10(a)(4). III. CONCLUSION Applying one of the narrowest s tandards of review known to law, we hold that the arbitrator did not exceed her aut hority when she issued an arbi tration award in favor of Cannon. Accordingly, we affirm the district court’s denial of MEMC’s motion.

Entered for the Court

Scott M. Matheson, Jr. Circuit Judge