Court Opinion

ID: 4561627
Source: CourtListenerOpinion
Date Created: 2020-08-31 20:00:12.663648+00
Date Added: 2024-06-11T09:27:44.574716
License: Public Domain

United States Court of Appeals
                       For the First Circuit

No. 19-1649

                     AXIA NETMEDIA CORPORATION,

                        Plaintiff, Appellant,

                           KCST USA, INC.,

                             Plaintiff,

                                 v.

              MASSACHUSETTS TECHNOLOGY PARK CORPORATION,
            d/b/a Massachusetts Technology Collaborative,

                        Defendant, Appellee.

            APPEAL FROM THE UNITED STATES DISTRICT COURT
                  FOR THE DISTRICT OF MASSACHUSETTS

           [Hon. Timothy S. Hillman, U.S. District Judge]

                               Before

                         Howard, Chief Judge,
                        Lipez, Circuit Judge,
                   and Saris, U.S. District Judge.*

     Brian P. Voke, with whom Adam A. Larson and Campbell Conroy
& O'Neil, P.C. were on brief, for appellant.
     Robert J. Kaler, with whom Edwin L. Hall and Holland & Knight
LLP were on brief, for appellee.

     *   Of the District of Massachusetts, sitting by designation.
August 31, 2020

     - 2 -
             LIPEZ,   Circuit    Judge.      Massachusetts        Technology          Park

Corporation,     an    independent      public        instrumentality        of       the

Commonwealth     of     Massachusetts          operating         under     the        name

Massachusetts Technology Collaborative ("MTC"), owns a fiber-optic

network in western Massachusetts known as the Massbroadband123

Network.     Before the network was built, MTC contracted with Axia

NGNetworks USA, Inc. -- now called KCST USA, Inc. ("KCST") -- to

operate and market the network.              MTC also secured a guaranty of

KCST's obligations under the contract from KCST's parent company,

Axia NetMedia Corporation ("Axia").

             The relationship between MTC and Axia deteriorated after

the network was built.           Axia ultimately sued MTC in federal

district court over the guaranty agreement and MTC procured an

order   compelling     arbitration      of     the    parties'     dispute.           The

arbitrator found that MTC had materially breached the underlying

contract with KCST, and, accordingly, that the guaranty agreement

was void for failure of consideration.                Axia sought confirmation

of   the   arbitration     award    while      MTC,       dissatisfied     with       the

arbitrator's    decision,    sought      vacatur      or    modification         of   the

arbitration award under section 10 of the Federal Arbitration Act

("FAA"), 9 U.S.C. § 10(a).         The district court concluded that the

arbitrator     had    exceeded   the    scope        of    his   powers,    see id.

§ 10(a)(4), and vacated the portion of the arbitration award that

voided the guaranty.      Axia has appealed that decision.

                                       - 3 -
           Concluding that the arbitrator acted within the scope of

his powers, we reverse and remand with instructions to enter an

order confirming the arbitration award.

                                    I.

           We begin by providing background about the relevant

provisions of the contracts between MTC and KCST and between MTC

and Axia, the breakdown of the relationship among MTC, KCST, and

Axia, and the arbitrator's and district court's decisions.            This

is not the first time that the dispute between MTC and Axia has

come before us.   See Axia NetMedia Corp. v. Mass. Tech. Park Corp.

(hereinafter   Axia I), 889 F.3d 1 (1st Cir. 2018) (affirming

preliminary injunction as modified); see also Axia NetMedia Corp.

v. Mass. Tech. Park Corp., Nos. 18-2180, 18-2192, 2019 WL 2273650

(1st Cir. Apr. 9, 2019) (dismissing appeals from district court

orders denying Axia's motion to execute on preliminary injunction

bond).   We draw background facts from our prior published opinion

where appropriate.

A.    The Contracts

           In 2010, MTC received state and federal funding to build

the   Massbroadband123   Network    to   provide   high   speed   broadband

service to underserved communities in western and north central

Massachusetts.    Shortly before the funding was approved, MTC

solicited proposals from telecommunications companies to operate

and market the soon-to-be-built network.       Axia, a Canadian company

                                   - 4 -
seeking to expand into the United States market, submitted a bid

on behalf of its newly created United States subsidiary, KCST.

MTC selected KCST to be the network operator.              On February 25,

2011, MTC and KCST entered into the Agreement for Network Operator

Services (the "Network Operator Agreement" or "NOA"), and MTC and

Axia entered into the Guaranty Agreement (the "Guaranty") that is

at issue in this appeal.

              Under the terms of the NOA, MTC was responsible for

constructing the network1 and turning it over to KCST in segments.

The planned network, as described in the NOA, would be "a 1,338-

mile fiber-optic network with new fiber running through or near

124 communities in western and north central Massachusetts" that

connected to 1,392 Community Anchor Institutions ("CAIs").             CAIs

are   state    or   community   facilities,   like    schools,   libraries,

hospitals and police departments.       These facilities "are directly

connected to the network[ and] serve as hubs of connectivity for

extending the network to other customers."           Axia I, 889 F.3d at 5.

The NOA defines a CAI as "any one of the organizations and agencies

identified in" a list that was appended to the NOA, which was

subject to revision by MTC "from time to time in MTC's sole

discretion."

      1MTC contracted with another company, G4S Technology LLC, to
design and construct the network.

                                   - 5 -
              The NOA details the many responsibilities that KCST

agreed to assume as the "Network Operator."              In short, KCST was

"responsible for all aspects of the management, sales, monitoring,

operations, support, and maintenance of" the Massbroadband123

Network.      Also, it was responsible for "pay[ing] for all ongoing

costs of operating" the network "and all costs of compliance with

the terms of" the NOA.            KCST, additionally, paid an annual fee to

MTC.     "In return, KCST retained the network's revenue up to a

defined threshold, above which it agreed to share the revenue with

MTC."      Axia I, 889 F.3d at 4.

              By its express terms, the NOA would not take effect until

Axia signed the Guaranty:

              12.14     Parent Guaranty.    This Agreement
              [the NOA] shall become binding only upon
              condition that Network Operator's parent
              company, Axia NetMedia Corporation, executes
              and delivers to MTC a guaranty of obligations
              of Network Operator hereunder in a form
              acceptable to MTC, with a limit of liability
              no less than four million ($4,000,000) U.S.
              dollars.

In the Guaranty, Axia promised that, should KCST "default in any

of   its    payment    or    performance   obligations   under   the    Network

Operator Agreement," Axia would "make all such payments and perform

all such obligations of the Network Operator" under the NOA, and

would "fully and punctually pay and discharge . . . any and all

costs,      expenses        and    liabilities"   associated     with     those

obligations. The Guaranty was "limited to and capped at the amount

                                        - 6 -
of" $4 million and it provided that, should Axia "advance to MTC

funds up to said amount, [Axia] shall have no further obligation

or liability under this Agreement."

             The Guaranty also provided that its validity would be

unaffected by potential breaches of the NOA by KCST:

             2.3 This    Agreement    and   the   liability
             hereunder shall not be affected or impaired by
             any compromise, settlement, release, renewal,
             extension,    indulgence,    change    in   or
             modification of any of the obligations and
             liabilities of Network Operator under the
             Network Operator Agreement, or by any failure
             on the part of MTC, its successors or assigns,
             to realize upon any obligations or liabilities
             of Network Operator.

The Guaranty said nothing about what effect, if any, potential

breaches of the NOA by MTC would have on its continuing validity.

             Finally, both the NOA and the Guaranty address dispute

resolution.      The NOA provides that any dispute between MTC and

KCST that cannot be resolved through informal dispute resolution

procedures      "will   be    finally    settled      by    binding   arbitration

conducted     in    accordance      with        the    [American      Arbitration

Association] Rules."         Under the Guaranty, all disputes between MTC

and Axia that could not be resolved in mediation would "be resolved

by litigation in a court serving Middlesex County, Massachusetts,"

unless   "MTC    elect[ed]      arbitration      as   the    method   of   dispute

resolution for a given dispute."           The Guaranty provides that, "at

MTC's sole election, MTC may file a demand for arbitration by the

                                        - 7 -
American Arbitration Association in its office serving Boston,

Massachusetts."       (Emphasis added.)

B.    Factual and Procedural Background2

             The construction of the network did not go as planned.

The NOA required MTC to deliver the network to KCST in segments,

as it was completed, with all thirty-six segments being turned

over to KCST no later than August 25, 2013.                 MTC delivered only

one network segment to KCST by that date.              MTC then turned over

more than half of the network at once in late December 2013 and

the remaining segments in early 2014.               In addition, the network

was smaller in size and scope than the NOA contemplated, with fewer

than the anticipated 1,392 CAIs connected to it.3

             KCST   initially    responded     to   MTC's    delays   and   other

shortfalls by asking MTC to renegotiate the commercial terms of

the   NOA.     When    those    negotiations    proved      unsuccessful,   KCST

threatened to withhold payments due MTC, which MTC relied upon to

      2We draw the background information primarily from the
arbitration award, as the parties are bound by the arbitrator's
view of the facts. See United Paperworkers Int'l Union v. Misco,
Inc., 484 U.S. 29, 37-38 (1987).

      3The parties dispute the number of CAIs that were connected
to the network at the time it was turned over to KCST, with
estimates ranging from 901 on the low end to 1,225 on the high
end. The arbitrator did not resolve this factual dispute but found
that, "[a]ccepting any of the[] numbers from either side as
accurate, it is plain that MTC had a material shortfall in its
failure to deliver connected CAIs reasonably approaching" the
promised 1,392 in total.

                                     - 8 -
pay for overhead and other network-related costs.             MTC promptly

sought and obtained a preliminary injunction in Massachusetts

Superior    Court    in   mid-2014    requiring   KCST   to   perform   its

obligations under the NOA, including making payments to MTC.

            For the next two years, KCST performed its obligations

under the NOA, but it was losing money and required loans from

Axia to meet the demand on its financial resources.            Then, "[i]n

2016, a Swiss investment firm acquired a controlling position in

Axia."     Axia I, 889 F.3d at 5.        To facilitate approval of the

acquisition by the Federal Communications Commission ("FCC") --

required because the FCC had authorized KCST to operate the network

-- Axia transferred all KCST shares into a trust, see id., of which

Axia was the sole beneficiary.          KCST retained its original name

-- Axia NGNetworks USA, Inc. -- at that time, but changed its name

to KCST USA, Inc. in February 2017.

             On March 22, 2017, KCST filed a voluntary petition for

Chapter 11 bankruptcy, an "Event of Default" that triggered Axia's

obligations under the Guaranty. On the same day, Axia preemptively

filed this lawsuit against MTC in federal district court, seeking

a declaratory judgment that the Guaranty was unenforceable because

MTC had materially breached the NOA.          MTC secured a preliminary

injunction, which required Axia to perform its obligations under

the Guaranty while the parties resolved their contract dispute.

See id. at 4.       And, as we noted at the outset, MTC successfully

                                     - 9 -
moved to compel arbitration of the dispute with Axia pursuant to

the dispute resolution provision in the Guaranty.

          Also, before the bankruptcy court, MTC filed a proof of

claim against KCST's bankruptcy estate seeking damages for alleged

breaches of the NOA by KCST. KCST, in turn, commenced an adversary

proceeding against MTC, objecting to MTC's claim and asserting

counterclaims against MTC for its alleged breaches of the NOA.

MTC filed a motion to compel arbitration of the competing claims,

which the bankruptcy court granted. The arbitration of the dispute

between MTC and KCST was then consolidated with the arbitration

proceedings between MTC and Axia, which were already underway.4

          The arbitration proceedings were conducted before a sole

arbitrator, who received documentary evidence from the parties and

heard twenty-seven days of live testimony.5   The arbitrator issued

his decision in the fall of 2018 in three parts: the Partial Final

Award ("PFA"), the Final Award and Modification of Partial Final

Award, and the Modification of Final Award.

     4 Although the arbitration proceedings were consolidated, the
two disputes arose from different contracts and originated in
different fora. They retained their separate identities, and the
arbitrator's resolution of each dispute thus needed to be confirmed
in the forum where it originated after the arbitration proceedings
concluded.

     5 MTC raises issues with the arbitrator selection process in
the factual background section of its brief but does not later
argue that those issues provide a basis to vacate the arbitrator's
award. We therefore do not address them.

                              - 10 -
            In the PFA, the arbitrator found that "MTC failed to

deliver a network within a reasonable range of the 1,392 CAIs that

it contracted to provide under the NOA," that it "failed to

'connect' a significant number of CAIs" to the network, and that

it "failed to comply with its obligations to deliver the Network

in a timely manner and in segments to achieve a cost-effective

rollout."    The arbitrator concluded that these failures amounted

to a material breach of the NOA.6

            As to remedy, the relief granted to KCST "for MTC's

breach [wa]s that of reformation of the NOA" to make the terms of

the contract commercially reasonable in light of MTC's "failed

Network delivery obligations."7 The arbitrator also granted relief

     6 The arbitrator also found misconduct on the part of KCST
and Axia.   Most notably, during the time leading up to KCST's
bankruptcy filing, the companies failed to disclose to MTC that
KCST had stopped paying network vendors (to the tune of hundreds
of thousands of dollars of unpaid obligations) and that it was in
dire economic straits. As a result, "the surprise attack of the
KCST    bankruptcy     filing    and    Axia     federal    court
litigation . . . combined to achieve maximized impact, as they
were surely calculated to do." But the arbitrator concluded that
KCST and Axia "escape[d] the consequences of these wrongful
actions" because MTC accepted "curing performance" by Axia and
because MTC failed to prove any damage caused by the delay in
disclosure of KCST's financial situation.

     7 The arbitrator explained that reformation of the NOA was an
appropriate remedy based on both the language of the NOA and the
record. Specifically, the arbitrator relied on section 5.2.7 of
the NOA, in which MTC promised to cooperate with KCST to "effect
the goals, objectives and purposes" of the contract "in a
commercially reasonable manner."     The arbitrator also observed
that "the record reflects that at the time of [MTC's] breach [KCST]
did not seek to terminate and claim damages, but rather it . . .

                               - 11 -
to Axia, observing that "the underlying consideration for the Axia

Guaranty was the NOA, and MTC materially breached it."             As a

result, "MTC was not entitled to the benefits it secured" pursuant

to the district court's preliminary injunction order requiring

Axia's continued performance of its obligations under the Guaranty

while the parties' dispute was ongoing.      Thus, Axia was "entitled

to recoup" from MTC over $4 million in costs that it had incurred

in connection with the preliminary injunction order.

          After the arbitrator issued the PFA, MTC asked the

arbitrator to clarify "the meaning of the PFA as to the continued

effectiveness of the Guaranty . . . going forward."        MTC explained

that Axia understood the PFA to mean that the Guaranty was "'void'

going forward," but that MTC disagreed with that interpretation.

MTC insisted that the Guaranty remained valid, and that "the effect

of MTC making the payments to Axia required by the PFA would be to

reinstate the full value of the Guaranty."        In other words, MTC

argued,   "the   $4   million   limitation   on   Axia's    performance

obligations would be reset" when MTC made the required payments to

Axia.

          In response to MTC's request for clarification, the

arbitrator specified in the Final Award and Modification of Partial

continued to seek financially adjusted terms for ongoing
performance of the NOA." The arbitrator treated that choice by
KCST as an "election of remedies."

                                - 12 -
Final Award that "MTC lost on its request for declaratory relief

with respect to the continued validity of the Guarant[y], as

reflected in . . . the PFA."                    The arbitrator explained that this

result was justified under Massachusetts law because "the breach

by     MTC    found    in    the    PFA    went       at   once    to    the   'essence'    or

'foundation'          of    the    NOA    and    underlying       consideration     of     the

Guarant[y]."          In addition, the arbitrator found that MTC had not

met its burden to prove that, if the parties had independently

renegotiated          the    contract,          MTC    would      have    conditioned      its

acceptance of the reformed NOA on the execution of a new guaranty

agreement by Axia. Since "the record was simply devoid of specific

persuasive evidence in this regard," the arbitrator concluded, MTC

could not prevail on the issue.

               MTC and Axia returned to the district court, where Axia

moved for confirmation of the arbitration award and MTC moved to

vacate it insofar as it voided the Guaranty, arguing that the

arbitrator had acted outside the scope of his authority in doing

so.8        As we recounted above, the district court agreed with MTC

and granted MTC's motion to partially vacate the arbitration award.

                                                II.

               We apply de novo review to a district court's decision

to confirm or vacate an arbitration award.                         Dialysis Access Ctr.,

        8
       KCST secured confirmation in the bankruptcy court of the
portion of the arbitration award that reformed the NOA.

                                            - 13 -
LLC v. RMS Lifeline, Inc., 932 F.3d 1, 7 (1st Cir. 2019).   In doing

so, however, we are mindful that "[t]he authority of a federal

court to disturb an arbitration award is tightly circumscribed."

Cytyc Corp. v. DEKA Prods. Ltd. P'ship, 439 F.3d 27, 32 (1st Cir.

2006).   After all, "the parties have contracted to have disputes

settled by an arbitrator chosen by them rather than by a judge,"

and thus "it is the arbitrator's view of the facts and of the

meaning of the contract that they have agreed to accept."    United

Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 37-38 (1987).

          Although our review is limited, "arbitration awards are

not invincible, and there are 'a few exceptions to the general

rule that arbitrators have the last word.'"       Hoolahan v. IBC

Advanced Alloys Corp., 947 F.3d 101, 111 (1st Cir. 2020) (quoting

Cytyc Corp., 439 F.3d at 32-33).   Under section 10(a) of the FAA,

federal courts are authorized to vacate an arbitral award only

when (1) "the award was procured by corruption, fraud, or undue

means," (2) "there was evident partiality or corruption" on the

part of the arbitrator, (3) the arbitrator is guilty of misconduct

that prejudices the rights of a party, including refusing to

postpone the hearing when sufficient cause has been shown and

refusing to hear evidence that is "pertinent and material to the

controversy," or (4) the arbitrator "exceeded [his] powers, or so

imperfectly executed them that a mutual, final, and definite award

                              - 14 -
upon the subject matter submitted was not made." 9 U.S.C. § 10(a).9

Only the claim that the arbitrator exceeded his powers is at issue

in this appeal.

             An    arbitrator's   decision   may    be   vacated   when   the

arbitrator "strays from interpretation and application of the

agreement and effectively 'dispense[s] his own brand of industrial

justice.'"        Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559
U.S. 662, 671 (2010) (alteration in original) (quoting Major League

Baseball Players Ass'n v. Garvey, 532 U.S. 504, 509 (2001) (per

curiam)).     In so doing, an arbitrator acts outside the scope of

his "contractually delineated powers."             First State Ins. Co. v.

Nat'l Cas. Co., 781 F.3d 7, 11 (1st Cir. 2015).           If, however, the

     9 We have also recognized in earlier case law "a second set
of exceptions [that] flows from the federal courts' inherent power
to vacate arbitral awards." Hoolahan, 947 F.3d at 111 (quoting
Cytyc Corp., 439 F.3d at 33). This "very narrow" authority, Cytyc
Corp., 439 F.3d at 33, arises in cases where the arbitrator acted
"in manifest disregard of the law," Advest, Inc. v. McCarthy, 914
F.2d 6, 9 n.6 (1st Cir. 1990); see also id. at 9-10; Hoolahan, 947
F.3d at 111.      The Supreme Court's decision in Hall Street
Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008), however,
cast doubt on "[t]he availability of non-statutory grounds to
vacate an arbitration award." Hoolahan, 947 F.3d at 111 n.14; see
Hall Street, 552 U.S. at 584-87 ("[T]he text [of the FAA] compels
a reading of the §§ 10 and 11 categories [for vacating and
modifying arbitration awards] as exclusive.").       We "have not
squarely determined whether our manifest disregard case law can be
reconciled with Hall Street," Kashner Davidson Sec. Corp. v.
Mscisz, 601 F.3d 19, 22 (1st Cir. 2010); see also Hoolahan, 947
F.3d at 111 n.14, and we need not do so here. The district court
did not rely on the manifest disregard doctrine, see Axia NetMedia
Corp. v. Mass. Tech. Park Corp., 381 F. Supp.3d 128, 134 n.4 (D.
Mass. 2019), and MTC does not argue that the doctrine provides a
distinct basis for affirming the district court's decision.

                                   - 15 -
award "'draw[s] its essence from the contract' that underlies the

arbitration proceeding" and the arbitrator was "even arguably

construing or applying the contract and acting within the scope of

[his] authority," the award must stand -- even if the arbitrator

committed serious legal or factual error.         Cytyc Corp., 439 F.3d

at 32 (quoting Misco, 484 U.S. at 38).          MTC bears the burden "to

establish   that   the   arbitrator's   award    should   be   set   aside."

Hoolahan, 947 F.3d at 110 (quoting Dialysis Access Ctr., 932 F.3d

at 7).

            We note the limited scope of MTC's claim.          The question

of whether the arbitrator exceeded his powers by reforming the NOA

is not before us, nor was it before the district court.              Just as

the district court ordered MTC and Axia to resolve their contract

dispute over the Guaranty through arbitration, the bankruptcy

court ordered MTC and KCST to resolve their competing claims of

breach of the NOA -- which were originally raised in an adversary

proceeding in the bankruptcy court -- through arbitration.             Hence,

the bankruptcy court was the proper forum for a challenge to the

arbitrator's resolution of MTC and KCST's dispute over the NOA,

including the relief awarded to KCST for MTC's material breach of

the NOA.    But MTC chose not to pursue such a challenge.            Instead,

it poses in this proceeding a more limited question -- whether the

arbitrator acted outside the scope of his authority by determining

                                 - 16 -
that the Guaranty agreement was void for failure of consideration

as a result of MTC's material breach of the NOA.10

               The    district   court       concluded    that   "the     arbitrator

exceeded his powers under the FAA by prospectively voiding the

Guaranty while re-writing the terms of the NOA."                       Axia NetMedia

Corp. v. Mass. Tech. Park Corp., 381 F. Supp. 3d 128, 138 (D. Mass.

2019).        The court reasoned, first, that "there is evidence that

the   parties        never   intended     to    bestow    this   power     upon   the

arbitrator" because arbitrators do not have the power to rewrite

contracts or stray from the scope of the parties' agreement.                      See
id.   Second, the court rejected the arbitrator's finding that "the

record was simply devoid of specific persuasive evidence" that MTC

would        have    insisted    upon    a     Guaranty    in    any     independent

renegotiation of the NOA. Id.        The court observed that section

12.14 of the NOA, section 2.3 of the Guaranty, and testimony and

circumstantial evidence presented to the arbitrator demonstrate

the necessity of the Guaranty. Id. at 138-39.

        10
       This decision of MTC to accept in the bankruptcy court
proceedings the arbitrator's resolution of its dispute with KCST
-- the reformation of the NOA -- while refusing to accept his
resolution of the dispute with Axia -- invalidating the Guaranty
because of the material breach of the NOA -- arguably could have
precluded MTC from challenging that reformation decision here in
the guise of challenging only the decision on the Guaranty.
Indeed, Axia made preclusion arguments before the district court,
which rejected them, and renews those arguments here.     Without
making any judgments on these arguments, we choose to reject the
district court's decision on a different basis.

                                        - 17 -
            The     district     court's    reasoning     is   incompatible    in

several respects with the limited role of the courts in reviewing

arbitration awards.           The question of the Guaranty's validity was

squarely before the arbitrator as a result of MTC's strategic

choices.     The dispute resolution provision of the Guaranty gave

MTC the power to seek arbitration of disputes with Axia "at [its]

sole election."          MTC elected to pursue arbitration and, as the

arbitrator       noted   in   the   PFA,   sought   "a    declaration   in   th[e

arbitration] proceeding that '[t]he Guaranty and NOA . . . are

valid and enforceable contracts not subject to recession [sic] nor

rendered null and void.'"           In addition, after the PFA was issued,

MTC sought further clarification from the arbitrator as to the

validity of the Guaranty.           MTC itself submitted the issue to the

arbitrator and the arbitrator had the power to reach it.                      See

DiRussa v. Dean Witter Reynolds, Inc., 121 F.3d 818, 824 (2d Cir.

1997) ("Our inquiry under § 10(a)(4) . . . focuses on whether the

arbitrator[] had the power, based on the parties' submissions or

the arbitration agreement, to reach a certain issue, not whether

the arbitrator[] correctly decided that issue." (emphasis added)).

            Moreover, it is clear from the text of the arbitral award

that the arbitrator did not stray outside the scope of the parties'

agreement with his decision.           See First State Ins. Co., 781 F.3d

at   11   ("In    ascertaining      whether    [the]     arbitrator[]   arguably

interpreted the underlying contract, an inquiring court must look

                                      - 18 -
. . . to the text of the arbitral award.").           The consideration

underlying the Guaranty was the NOA, and specifically MTC's promise

to build the network as described in the NOA.           The arbitrator

determined that MTC's failure to fulfill that promise constituted

a material breach of the NOA, and that the material breach of the

NOA constituted a failure of consideration for the Guaranty.

Applying Massachusetts law, the arbitrator concluded that the

failure of consideration rendered the Guaranty void.11       Thus, with

its explicit reasoning, the arbitrator's decision "draw[s] its

essence"   from      the   contracts    underlying    the   arbitration

proceeding,12 Misco, 484 U.S. at 38, and the arbitrator acted within

the scope of his authority in rendering it.

           In   an   effort   to   support   its   disapproval   of   the

arbitrator's decision on the Guaranty, the district court observed

that section 2.3 of the Guaranty supports MTC's view that the

     11 MTC argues that the arbitration award should be set aside
because the arbitrator's application of Massachusetts law was "not
even . . . colorable." Even if that were true, our limited review
of the arbitrator's decision means that we must leave the award in
place despite legal errors committed by the arbitrator, "[e]ven
where such error is painfully clear." Dialysis Access Ctr., 932
F.3d at 9 (alteration in original) (quoting Advest, 914 F.2d at
8).

     12 The arbitrator's decision necessarily "draws its essence"
from both the NOA and the Guaranty.        The two contracts are
connected because the NOA served as consideration for the Guaranty.
Thus, the arbitrator's resolution of MTC and KCST's competing
breach of contract claims based on the NOA affected his resolution
of MTC and Axia's dispute over the validity of the Guaranty.

                                   - 19 -
Guaranty must remain in place as long as the NOA is operative.   We

disagree.    As we described above, section 2.3 provides that the

Guaranty will remain valid regardless of any breaches of the NOA

by the "Network Operator," i.e., KCST.     The provision is silent,

however, as to the effect (if any) of a material breach of the NOA

by MTC on the validity of the Guaranty.      Thus, section 2.3 does

not constrain the arbitrator's power to determine the effect of

such a breach.13   And no other provision of the Guaranty limits the

arbitrator's power to decide issues submitted to him by the

parties, including the validity of the Guaranty itself.

            Nor does the Guaranty limit the arbitrator's power to

award appropriate remedies.   The "Defaults and Remedies" provision

of the Guaranty provides:

            No remedy herein conferred or reserved is
            intended to be exclusive of any other
            available remedy or remedies, if any, but each
            and every such remedy shall be cumulative and
            shall be in addition to every other remedy
            given under this Agreement or now or hereafter
            existing at law or in equity or by statute.

The Guaranty also incorporates by reference the dispute resolution

and arbitration provisions of the NOA, which likewise do not limit

the arbitrator's choice of remedy.    Thus, the decision to void the

     13 The district court also highlighted section 12.14 of the
NOA, which requires a Guaranty from Axia if the NOA is to take
effect.    This provision does support an argument about the
necessity of the Guaranty, but, as we explain below, we are not in
a position to question the arbitrator's finding of fact on this
score.

                               - 20 -
Guaranty prospectively as a choice of remedy was within the

authority of the arbitrator.            Indeed, "where it is contemplated

that    the     arbitrator     will    determine    remedies       for    contract

violations that he finds, courts have no authority to disagree

with his honest judgment in that respect."               Misco, 484 U.S. at 38.

              The district court's disagreement with the arbitrator's

factual finding as to the necessity of the Guaranty was not an

appropriate basis for vacating the award.            Federal courts "do not

sit . . . to hear claims of factual or legal error by an arbitrator

or to consider the merits of the award."            Asociación de Empleados

del    Estado       Libre   Asociado    de   P.R.   v.     Local    1850,   Unión

Internacional de Trabajadores de la Industria de Automóviles,

Aeroespacio e Implementos Agrícolas, 559 F.3d 44, 47 (1st Cir.

2009) (quoting Challenger Caribbean Corp. v. Union General de

Trabajadores de P.R., 903 F.2d 857, 860 (1st Cir. 1990)).                   Thus,

even   if     the    arbitrator   committed     serious     factual      error   by

concluding that the record lacked "specific persuasive evidence"

that MTC would insist upon a Guaranty as part of a renegotiation

of the NOA, that would not "justify setting aside the arbitral

decision."      Cytyc Corp., 439 F.3d at 32.

              In short, this is not a case where the arbitrator

"ignore[d] the contract and simply dispense[d] 'his own brand of

industrial justice.'"         Kraft Foods, Inc. v. Local 1295, Office and

Prof'l Emps. Int'l Union, 203 F.3d 98, 100 (1st Cir. 2000) (quoting

                                       - 21 -
United Steelworkers of Am. v. Enter. Wheel & Car Corp., 363 U.S.
593, 597 (1960)).     To the contrary, the arbitration award is

grounded in the record and the parties' agreement.   The arbitrator

did not exceed the scope of his powers under section 10(a)(4) of

the FAA.   Accordingly, we reverse the district court's ruling and

remand the case with instructions to enter a judgment confirming

the arbitration award.

           So ordered.

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