## Facts

- The U.S. Army Corps of Engineers issued Environmental Chemical Corporation (ECC) a task order for post–Hurricane Sandy debris removal on Fire Island, New York, with payment tied to debris volume removed.
- ECC subcontracted most field work to Coastal Environmental Group, Inc. (Coastal), while ECC retained administrative and site-support responsibilities.
- The project generated substantial unexpected costs; ECC blamed Coastal’s mismanagement, while Coastal attributed the overruns to weather and an overestimate of debris volume.
- ECC concluded its extra costs exceeded any remaining amounts owed under the subcontract and withheld additional payments; Coastal claimed it had not been fully paid.
- Coastal initiated an AAA arbitration against ECC; the arbitrator issued a partial final award (Jan. 9, 2018) and a final award (Mar. 1, 2018) granting relief to Coastal and rejecting ECC’s principal defenses and counterclaims.
- Coastal had assigned proceeds of its ECC contract to Signature Bank as part of a financing arrangement; Coastal also disclosed that one of its arbitration co-counsel also represented Signature Bank.
- ECC filed a federal petition to vacate the award under Federal Arbitration Act (FAA) § 10; Coastal cross-moved to confirm.

## Issues

1. Whether the award should be vacated under FAA § 10(a)(1) as procured by fraud or undue means based on alleged concealment of Signature Bank’s assignment and interest.
2. Whether vacatur was warranted under FAA § 10(a)(2)–(3) for evident partiality or arbitral misconduct depriving ECC of a fundamentally fair hearing.
3. Whether alleged nondisclosure prevented ECC from presenting defenses or prevented the arbitrator from considering material issues, justifying vacatur under FAA § 10(a)(3).
4. Whether the arbitrator exceeded his powers under FAA § 10(a)(4) by applying estoppel despite the parties not briefing that doctrine.

## Decision

- ECC’s petition to vacate was denied and Coastal’s cross-motion to confirm was granted.
- The court found ECC had notice of Signature Bank’s involvement before and during arbitration and could have pursued the details through diligence in the arbitral process.
- ECC failed to prove fraud or undue means by clear and convincing evidence and failed to show prejudice or denial of a fundamentally fair hearing.
- ECC offered no evidence supporting evident partiality by the arbitrator.
- The arbitrator did not exceed his authority by applying estoppel because he was resolving the parties’ contractual dispute and there was at least a barely colorable justification for the approach.

## Legal Principles

- Judicial review of arbitration awards under the FAA is extremely limited; an award should be enforced if there is even a barely colorable justification for the outcome.
- FAA § 10(a)(1) vacatur requires clear and convincing proof of material fraud or undue means that was not discoverable through due diligence before or during arbitration.
- FAA § 10(a)(2) evident partiality requires a showing that a reasonable person would have to conclude the arbitrator was partial; speculation or appearance concerns are insufficient.
- FAA § 10(a)(3) misconduct requires bad faith or conduct so gross as to amount to affirmative misconduct, plus prejudice amounting to denial of a fundamentally fair hearing.
- FAA § 10(a)(4) is not satisfied by alleged legal error; an arbitrator exceeds powers only by departing from interpreting/applying the parties’ agreement and dispensing personal notions of justice, rather than deciding issues within the submitted dispute.

## Conclusion

The court confirmed the arbitration award because ECC did not meet the FAA’s demanding vacatur standards: the asserted nondisclosure about a lender’s assignment was known or discoverable with diligence, there was no showing of prejudice or arbitrator bias, and the arbitrator’s use of estoppel remained within the scope of deciding the contractual dispute.


Env’t Chem. Corp. v. Coastal Env’t Grp., Inc., 2018 U.S. Dist. LEXIS 157246 (S.D.N.Y. Sept. 14, 2018)