Court Opinion

ID: 4015733
Source: CourtListenerOpinion
Date Created: 2016-07-14 15:06:06.856409+00
Date Added: 2024-06-11T12:12:25.889020
License: Public Domain

MAINE SUPREME JUDICIAL COURT                                    Reporter of Decisions
Decision: 2016 ME 111
Docket:   Cum-15-377
Argued:   April 7, 2016
Decided:  July 14, 2016

Panel:          SAUFLEY, C.J., and ALEXANDER, MEAD, GORMAN, JABAR, HJELM, and
                HUMPHREY, JJ.

                           XPRESS NATURAL GAS, LLC

                                         v.

                        CATE STREET CAPITAL, INC., et al.

SAUFLEY, C.J.

         [¶1]    Cate Street Capital, Inc., appeals from a judgment in which the

Superior Court (Cumberland County, Warren, J.) granted an application to confirm

an arbitration award and denied a competing motion to vacate that award. In the

award that Cate Street challenges on appeal, the arbitrator determined that Cate

Street was responsible on its agreement to guarantee $1,500,000 in payments owed

to Xpress Natural Gas, LLC, by Cate Street’s subsidiary, GNP Parent, LLC—

formerly known as Great Northern Paper Company, LLC—for the installation of

equipment and the delivery of compressed natural gas to the Great Northern Paper

Mill in East Millinocket. Because the arbitrator’s interpretation “was rationally

derived from the agreement,” Dep’t of Corr. v. AFSCME, Council 93, 2000 ME
2

51, ¶ 9, 747 A.2d 592 (quotation marks omitted), we affirm the judgment

confirming the arbitration award.

                                        I. BACKGROUND

        [¶2] Although the arbitrator did not make extensive findings of fact and

additional findings were not requested, the sequence of events in this case is not in

dispute. GNP, the owner of the Great Northern Paper Mill, entered into a sales

agreement1 on September 18, 2012, to purchase compressed natural gas from

Xpress as fuel for the mill. By the sales agreement’s terms, the conversion of

equipment to use natural gas at the mill was to occur in time for gas delivery to

commence on March 31, 2013.

        [¶3] Also on September 18, 2012, Cate Street, the corporate owner of GNP,

executed a guarantee of the amounts payable by GNP on transactions provided for

in the sales agreement, up to $1,500,000. The guarantee contains the following

provision relevant to the issue in this appeal:

        1.     Guarantee. In consideration of [Xpress Natural Gas, LLC]
        from time to time entering into natural gas transactions under that
        certain Contract for the Sale of Compressed Natural Gas (the
        “Agreement”), with Great Northern Paper Company LLC . . . , an
        wholly owned subsidiary of [Cate Street Capital, Inc.], [Cate Street]
        irrevocably and unconditionally guarantees to [Xpress], its successors
        and assigns, the prompt payment when due, subject to any applicable
        grace period under the Agreement, of all present and future amounts
    1
     The agreement itself was not presented to the Superior Court and therefore is not part of the record
on appeal. We discern the nature of the agreement from the statement of claim presented to the arbitrator.
                                                                                  3

      payable by [GNP] to [Xpress] under the Agreement (even if such
      payments are deemed to be damages) not to exceed ONE MILLION
      FIVE HUNDRED THOUSAND US dollars ($1,500,000.00) (the
      “Obligations”). [Xpress] may make written demand of [Cate Street]
      for any Obligation not paid by [GNP] when due, subject to applicable
      grace periods, and [Cate Street] shall pay such Obligations within five
      (5) business days of receipt of such demand. Notwithstanding any
      other provision hereof to the contrary, (a) [Cate Street] may terminate
      its obligations hereunder upon 30 days’ prior written notice to
      [Xpress] with respect to transactions as defined in the Agreement (the
      “Transaction”) entered into after the expiration of such 30 day period,
      and (b) to the extent not earlier terminated pursuant to clause (a), this
      Guarantee shall automatically terminate on October 1, 2013.
      However, in either case of termination, no such termination shall
      affect Guarantor’s liability with respect to any Transaction entered
      into prior to the time the termination is effective, which Transaction
      shall remain guaranteed pursuant to the terms of this Guarantee.

(Emphasis added.)

      [¶4] GNP was ultimately not able to prepare the mill property for the

installation of equipment and delivery of the gas by March 31, 2013. Additional

agreements were reached before the guarantee’s automatic termination date of

October 1, 2013, to extend the deadline for the conversion of equipment and initial

delivery of gas, and to establish new terms for GNP to finance the conversion

through a loan from Xpress, also guaranteed by Cate Street, with payments to

Xpress scheduled through fall 2013.       After GNP failed to make the required

payments for natural gas and defaulted on the conversion-related loan, the parties

proceeded, pursuant to the terms of their agreements, to private arbitration.
4

      [¶5] In Xpress’s statement of claim submitted to the arbitrator, it sought

damages from GNP for breach of the sales agreement and default on the loan, and

from Cate Street for breach of its guarantees, and it requested the return of its

personal property located at the mill site.     After receiving an answer, with

counterclaims and defenses, from GNP and Cate Street, and after holding a hearing

and receiving briefs from the parties, the arbitrator entered an award finding GNP

and Cate Street liable to Xpress. In addition to other determinations of liability,

the arbitrator found Cate Street liable to Xpress for $1,500,000 on the guarantee at

issue in this appeal.

      [¶6] Xpress applied to the Superior Court to confirm the arbitration award.

See 14 M.R.S. § 5937 (2015). Cate Street and GNP moved to vacate the award in

part, on the ground that the arbitrator had exceeded his authority in awarding

Xpress $1,500,000 in damages on the guarantee of payments because, they argued,

the guarantee had automatically terminated, by its terms, on October 1, 2013. See

14 M.R.S. § 5938 (2015). After receiving memoranda from the parties, the court

entered a judgment granting Xpress’s application to confirm the award and

denying Cate Street and GNP’s motion to vacate the award. Cate Street and GNP

timely appealed. See 14 M.R.S. § 1851 (2015); M.R. App. P. 2.
                                                                                                           5

                                          II. DISCUSSION

        [¶7] Cate Street and GNP argue that the arbitrator exceeded his authority by

interpreting the guarantee in a way that shows a manifest disregard for the contract.

Specifically, they argue that there is no guarantee of payment on transactions that

were to be effectuated after October 1, 2013.2

        [¶8] Our review of the decision of an arbitrator is much more limited than a

review of a court decision; the award of an arbitrator “will not be vacated even

when there is an error of law or fact, unless the challenger demonstrates that the

arbitration violated one of the grounds to vacate an award stated in 14 M.R.S. §

5938(1).” Leete & Lemieux, P.A. v. Horowitz, 2012 ME 115, ¶ 12, 53 A.3d 1106.

Relevant here, section 5938(1) authorizes courts to vacate arbitration awards if

“arbitrators exceeded their powers.” 14 M.R.S. § 5938(1)(C). An arbitrator has

exceeded his or her powers if no rational construction of the agreement could

support the award. See Stanley, 2015 ME 21, ¶ 26, 111 A.3d 663. “The burden of

demonstrating that an arbitrator exceeded his or her authority lies with the party

seeking to vacate the award.” Id. ¶ 23.

   2
       Although Xpress also argues that Cate Street and GNP waived any defense based on the expiration
language by failing to plead it as an affirmative defense or otherwise raise it before or during the
arbitration hearing, Cate Street and GNP argue only a narrow legal issue on appeal—an argument that
they did present to the arbitrator in their post-hearing brief. Because no factual disputes have been raised,
it is immaterial to the appeal whether Cate Street and GNP bore the burden of proof on any pertinent
factual disputes that could arise from an ambiguity in the language of the guarantee. See Westbrook Sch.
Comm. v. Westbrook Teachers Ass’n, 404 A.2d 204, 211-12 (Me. 1979). Accordingly, we do not decide
here whether the defense had to be pleaded or proved by Cate Street and GNP as an affirmative defense.
6

      [¶9]    “The standard for determining whether an award exceeds an

arbitrator’s power is an extremely narrow one.” AFSCME, Council 93 v. City of

Portland, 675 A.2d 100, 102 (Me. 1996).           “It is, after all, the arbitrator’s

construction of the contract that was bargained for and only when there is manifest

disregard of the contract will we disturb the award.” Bureau of Me. State Police v.

Pratt, 568 A.2d 501, 505 (Me. 1989). We afford arbitrators a high degree of

deference, “with all doubts generally resolved in favor of the arbitrator’s

authority.” Dep’t of Corr., 2000 ME 51, ¶ 9, 747 A.2d 592. “[A]n arbitrator does

not exceed his authority if the arbitrator’s interpretation, even if erroneous,

nevertheless was rationally derived from the agreement.” Id. (quotation marks

omitted) (alteration in original). The arbitrator’s interpretation will be upheld “if

any rational construction of the agreement could support” that interpretation.

Stanley, 2015 ME 21, ¶ 26, 111 A.3d 663 (quotation marks omitted).

      [¶10]    Although the Superior Court’s reasoning upon review of an

arbitration award is helpful to us and to the parties, we review the award of an

arbitrator directly with respect to legal questions such as whether the arbitrator

exceeded the scope of his or her authority. See Stanley v. Liberty, 2015 ME 21, ¶

23, 111 A.3d 663; Randall v. Conley, 2010 ME 68, ¶ 21, 2 A.3d 328. When an

arbitrator has acted within his or her authority, we will uphold an award based on

the arbitrator’s interpretation of a contract unless we conclude that the Superior
                                                                                   7

Court “was compelled to vacate it” for other reasons, such as fraud or corruption.

Stanley, 2015 ME 21, ¶ 23, 111 A.3d 663; Randall, 2010 ME 68, ¶ 11, 2 A.3d 328.

This standard differs from the usual de novo review of a trial court’s interpretation

of an unambiguous contract. Cf. CitiMortgage, Inc. v. Chartier, 2015 ME 17, ¶ 7,

111 A.3d 39 (“We review the meaning of a contract de novo and interpret an

unambiguous provision according to the plain meaning of its terms.” (quotation

marks omitted)).

      [¶11] There are, however, limits to an arbitrator’s authority in interpreting a

contract. “In reaching a conclusion . . . arbitrators may not travel outside the

agreement” and base the award “on their own individual concept of justice in the

particular area involved.” AFSCME, Council 93, 675 A.2d at 102. “An arbitrator

does not have unfettered discretion and may not fashion a remedy that directly

contradicts the language of the agreement.” Id.

      [¶12] Applying these standards, we have concluded that arbitrators did not

“exceed[] their powers” when their awards were based on rational constructions of

the contracts submitted for interpretation, even if those contracts could have been

interpreted differently. 14 M.R.S. § 5938(1)(C); see, e.g., Dep’t of Transp. v. Me.

State Emps. Ass’n, 610 A.2d 750, 752-53 (Me. 1992) (affirming an award

interpreting “just cause” for reprimand as distinct from “just cause” for discharge);

Augusta Uniformed Firefighters Ass’n, Local 1650 v. City of Augusta, 600 A.2d
8

403, 404 (Me. 1991) (affirming an award interpreting “just cause” to allow the

termination of employment based on an employee’s off-duty conduct); City of

Westbrook v. Teamsters Local No. 48, 578 A.2d 716, 720-21 (Me. 1990)

(affirming an award in which the word “and” was interpreted in the disjunctive to

give effect to the parties’ intent in executing the agreement); Westbrook Sch.

Comm. v. Westbrook Teachers Ass’n, 404 A.2d 204, 211-12 (Me. 1979) (affirming

an award interpreting a requirement of “just cause” to apply “to extracurricular as

well as regular teaching contracts”).

      [¶13] In contrast, we have held that an arbitrator exceeded the powers

conferred on the arbitrator when the arbitrator applied a contract to a person whose

employment was not governed by the contract’s terms, see Dep’t of Transp. v. Me.

State Emps. Ass’n, SEIU Local 1989, 1999 ME 7, ¶¶ 8-14, 727 A.2d 896; the

arbitrator determined a matter that was not subject to arbitration, see Sch. Admin.

Dist. No. 58 v. Mount Abram Teachers Ass’n, 1997 ME 219, ¶¶ 5-8, 704 A.2d 349;

Superintending Sch. Comm. v. Portland Teachers’ Ass’n, 338 A.2d 155, 157-58

(Me. 1975); and the arbitrator effectively rewrote the contract, see Caribou Bd. of

Educ. v. Caribou Teachers Ass’n, 404 A.2d 212, 215 (Me. 1979).

      [¶14] The arbitrator did not exceed his authority here. The arbitrator did

what was asked of him: he interpreted the guarantee to determine which parties

would be liable and for how much.        The relevant language in the guarantee
                                                                                   9

provided that no termination of the guarantee would “affect [Cate Street]’s liability

with respect to any Transaction entered into prior to the time the termination is

effective, which Transaction shall remain guaranteed pursuant to the terms of this

Guarantee.”    The arbitrator interpreted an undefined term—“Transaction”—to

include the sales agreement, which was entered into before the automatic

termination date of October 1, 2013. In doing so, the arbitrator did not exceed the

scope of his authority but instead found any necessary facts and rationally

interpreted the agreements submitted for decision to resolve the dispute and

determine liability.

      The entry is:

                       Judgment affirmed.

On the briefs:

      Brian L. Champion, Esq., and Tyler J. Smith, Esq., Libby
      O’Brien Kingsley & Champion, LLC, Kennebunk, for
      appellants Cate Street Capital, Inc., and GNP Parent, LLC

      Jennifer A. Archer, Esq., and Timothy H. Norton, Esq., Kelly
      Remmel & Zimmerman, Portland, for appellee Xpress Natural
      Gas, LLC
10

At oral argument:

        Brian L. Champion, Esq., for appellants Cate Street Capital,
        Inc., and GNP Parent, LLC

        Timothy H. Norton, Esq., for appellee Xpress Natural Gas,
        LLC

Cumberland County Superior Court docket number CV-2015-103
FOR CLERK REFERENCE ONLY