City of Alturas v. Adkins Consulting Eng'rs, Inc.

CITY OF ALTURAS, Plaintiff, v. ADKINS CONSULTING ENGINEERS, INC.and ANDERSON PERRY & ASSOCIATES, INC. Defendants.

No. 2:13-cv-00354-TLN-CMK

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA

Dated: March 21, 2014

ORDER

This matter is before the Court on Plaintiff's Amended Motion to Vacate the Arbitration Award (ECF No. 18) and Defendants' Motion to Enforce the Arbitration Award (ECF No. 16). For the reasons discussed below, the Amended Motion to Vacate is denied and the Motion to Enforce is granted.

I. Background and Procedural History

i. Underlying facts

Plaintiff City of Alturas ("City") owns and operates a wastewater treatment facility (the "Facility") that discharges treated wastewater into the Pit River, a tributary of the Sacramento River. (Mem. Supp. Mot. to Vacate, ECF No. 1 at 8.) Discharge from the facility is regulated by a National Pollution Discharge Elimination System Permit ("NPDES Permit"), which is issued bythe California Regional Water Quality Control Board ("RWQCB") every five years. (ECF No. 1 at 8.) Due to a history of disinfection problems and effluent limit violations for total coliform and chlorine residual, among other violations, in 2003 the RWQCB ordered the City to cease and desist from discharging wastewater into the Pit River (the "Order"). (ECF No. 1 at 9.) The Order mandated that the City develop improvements to the Facility necessary to bring it into compliance with the then-existing NPDES Permit, which the RWQCB issued in 2000. (ECF No. 1 at 9.)

To comply with the Order, the City entered into a written contract (the "Adkins Contract") with Adkins Consulting Engineers, Inc. ("Adkins") in November, 2005, pursuant to which Adkins agreed to provide civil engineering, structural design, and construction engineering services as part of a project to revamp the Facility. (ECF No. 1 at 9.) In turn, Adkins entered into a sub-consultant contract with Anderson Perry & Associates, Inc. ("Anderson Perry") to complete engineering and design services for the project.¹ (ECF No. 1 at 9.) Before signing its contract with Adkins, Anderson Perry prepared a Project Scoping Report, which identified the scope of improvements to the Facility necessary to meet the Cease and Desist Order and NPDES Permit. (ECF No. 1 at 9.) On or about February 28, 2006, Adkins amended its contract with the City, attaching and incorporating the Project Scoping Report prepared by Anderson Perry. (ECF No. 1 at 9.)

From 2006 to 2008, the Facility improvements were designed and constructed. (Def.'s Resp. Mot. to Vacate, ECF No. 14 at 8.) During that phase, in 2006, a new NPDES waste discharge permit was issued, which established more stringent discharge requirements than those contained in the 2000 NPDES permit.² On September 9, 2011, the California Regional WaterQuality Control Board issued an Administrative Civil Liability Complaint against the City, finding and assessing fines based on its finding that the Facility was discharging wastewater with levels of acute toxicity, coliform, and other harmful constituents that violated the 2003 Cease and Desist Order and the 2006 NPDES permit. (See ECF No. 1-6, Ex. 22.) Allegations by the City that Adkins failed to perform its contractual duties, and other alleged violations which caused the Facility's apparent deficiencies, led the City to file a demand for arbitration. (ECF No. 1 at 12.)

ii. The Arbitration

On August 23, 2011, the City filed a demand for arbitration with the American Arbitration Association, naming Adkins as a defendant and alleging breach of contract, professional negligence, and negligent misrepresentation. (ECF No. 1 at 12.) Adkins demanded indemnity from Anderson Perry and thereafter, the City amended its Demand to assert claims against Anderson Perry. (ECF No. 14 at 3.) A three-member Arbitration Panel (the "Panel") was subsequently appointed. (ECF No. 14 at 3.) On June 22, 2012, the Panel granted the City leave to amend its demand to add a claim for breach of fiduciary duty against Adkins and Anderson Perry. (ECF No. 14 at 4.)

The arbitration hearing was held from October 8-11, 15-18, and 22-23 in Portland, Oregon. (ECF No. 14 at 6.) By stipulation, the arbitration proceedings were not transcribed or recorded. (ECF No. 14 at 6.) The parties submitted post-hearing briefings. (ECF No. 1 at 12.)

On January 3, 2012, the Panel issued an Interim Award, denying the City relief with prejudice. (Interim Award at 5; ECF No. 1-9, Ex. 33 at 106.) On February 21, 2013, the Panel issued a Final Award, affirming the Interim Award and ordering that the City bear the costs of arbitration.³ (Final Award at 5; ECF No. 1-9, Ex. 34 at 114.)

iii. Procedural history before this Court

On February 21, 2013, the City filed a Motion to Vacate the Arbitration Award with theinstant Court (ECF No. 1). On April 5, 2013, Defendants filed a Response to the Motion to Vacate (ECF No. 14) and a Motion to Enforce the Arbitration Award (ECF No. 16). On April 10, 2013, the City filed an Amended Motion to Vacate (ECF No. 18). On June 6, 2013, the City filed an Opposition to Defendants' Motion to Enforce the Arbitration Award (ECF No. 19). On June 13, 2013, the City filed a Reply in Support of the Motion to Vacate (ECF No. 21).

iv. The instant Motions to Vacate / Enforce the award

The Court now considers the City's Amended Motion to Vacate (ECF No. 18) and the Defendants' Motion to Enforce (ECF No. 16) the arbitration award. As discussed below, allegations that Defendants violated various California licensure regulations form the basis for the City's vacatur motion. These allegations include: Anderson Perry was not a licensed engineering firm in California, yet it prepared the Project Scoping Report that Adkins incorporated into its contract with the City. (ECF No. 1 at 3.) Employees of Anderson Perry communicated with City and State officials and regulatory agencies, holding themselves out as professional engineers. (ECF No. 1 at 3.) Anderson Perry's project manager, who was not a licensed engineer in California, signed the Final Acceptance Report for the project, stating falsely that the completed project met its intended design standards. (ECF No. 1 at 3.) Although the City cites to various authorities for the requirement that engineers doing work in California must be licensed, its chief authority appears to be the California Business and Professions Code § 6738(a), which provides generally that for an out-of-state engineering business to practice in California, an officer in charge of the practice must be licensed in California.⁴ (See ECF No. 1 at 21-23.)

These allegations form the basis for the City's arguments that: 1) the Arbitrators manifestly disregarded the law; 2) the underlying contract between the City and Adkins was illegal, thus voiding the provision to arbitrate; and 3) enforcement of the arbitration must be voided because enforcement violates a public policy against unlicensed contract work. (See ECF No. 1.)

II. Standard of Review

The Adkins contract at issue called for engineering services across Oregon and California state lines, and as such is "a contract evidencing a transaction involving commerce" that comes within the purview of the Federal Arbitration Act. 9 U.S.C. § 2; see Johnson v. Gruma Corp. 614 F.3d 1062, 1066 (9th. 2010). When a contract falls within the purview of the FAA, there is a "strong default presumption ... that the FAA, not state law, supplies the rules for arbitration." Sovak v. Chugai Pharm. Co., 280 F.3d 1266, 1269 (9th Cir. 2000). This presumption includes review of the arbitration award for purposes of confirmation and vacatur.⁵ See Kim-Cl, LLC v. Valent Biosciences Corp. 756 F.Supp.2d 1258, 1262 (E.D. Cal. 2010); Johnson, 614 F.3d at 1067.

If a party seeks to have an arbitration award confirmed by a federal court, "the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title." 9 U.S.C. § 9. Section 10(a) permits vacatur:

(1) where the award was procured by corruption, fraud, or undue means;(2) where there was evident partiality or corruption in the arbitrators, or either of them;

(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or

(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

9 U.S.C. § 10(a). Section 10 "provides the exclusive means by which a court ... may grant vacatur of a final arbitration award, and that such review is limited." Biller v. Toyota Motor Corp., 668 F.3d 655, 664 (9th Cir. 2012) (referencing Kyocera Corp. v. Prudential-Bache Trade Services, Inc. 341 F.3d 987, 997-998 (9th Cir. 2003); Hall St. Assoc., v. Mattel, Inc. 552 U.S. 576, 584 (2008)). "[Section] 10 of the FAA provides no authorization for a merits review." Id. "Neither erroneous legal conclusions nor unsubstantiated factual findings justify federal court review of an arbitral award under the [FAA], which is unambiguous in this regard." Kyocera Corp. 341 F.3d at 994.

III. Analysis

i. Manifest disregard of the law: Montes v. Shearson Lehman Bros.

Under 9 U.S.C. § 10(a)(4), arbitrators exceed their powers when the award "exhibits a manifest disregard of law." Biller v. Toyota Motor Corp. 668 F.3d 655, 665 (9th Cir. 2012). "Manifest disregard of the law means something more than just an error in the law or a failure on the part of the arbitrators to understand or apply the law." Id. "To vacate an arbitration award on this ground, it must be clear from the record that the arbitrators recognized the applicable law and ignored it." Id. That is, "a moving party must show that the arbitrator understood and correctly stated the law, but proceeded to...