Reinsurance Focus

Westra Construction, Inc. (“Westra”), a subcontractor, sought payment from Alexander Construction, Inc. (“ACI”), the construction manager, for work performed on a Pennsylvania Turnpike Commission project. ACI rejected Westra’s claims as unsubstantiated. Westra subsequently filed a demand for arbitration. Four days before the arbitration hearing, Westra provided ACI with thousands of pages of documents in support of its claims. The hearing that ensued spanned eighty-five hearing days. At the conclusion of the hearing, an arbitration award in Westra’s favor was issued. Westra then commenced an action in the U.S. District Court for the Middle District of Pennsylvania against United States Fidelity & Guaranty Company (“USF&G”), ACI’s surety, to collect the arbitration award. Due to the fact that ACI had declared bankruptcy and could no longer challenge the validity of the award, the District Court permitted USF&G to file a motion to vacate the arbitration award in ACI’s stead.

As grounds for the motion to vacate, USF&G contended that: (1) the arbitrators so imperfectly executed their powers that they were unable to reach a final and fair disposition of the matter; and (2) the arbitrators manifestly disregarded the law. The District Court denied the motion to vacate, holding that procedural irregularities cited by USF&G did not rise to the level of imperfect execution of powers where the arbitrators resolved only those issues that had been properly presented to them and rationally derived the award from the parties’ submissions and arguments. The Court rejected the manifest disregard argument on the basis that support for the arbitral award could be found in the hearing transcripts and in the parties’ post-hearing submissions, there was no evidence that the arbitrators were “fully aware” that their interpretations of relevant agreements were improper, and it could not be proven that law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case. Westra Construction, Inc. v. United States Fid. & Guar. Co., Case No. 1:03-CV-0833 (M.D. Penn. Mar. 29, 2007).