LTF Construction Company, LLC v. Cento Solutions Inc.

Background

LTF Construction Company, LLC and LTF Club Operations Company, Inc. entered into a February 2018 contract with Cento Solutions Inc. concerning construction of a fitness club in Chappaqua, New York. LTF was the general contractor, and Cento was a subcontractor. The contract required disputes to be arbitrated under the American Arbitration Association’s Construction Industry Arbitration Rules and the Federal Arbitration Act.

LTF began arbitration in September 2018, initially seeking $815,000. During the proceedings, LTF later notified Cento that it sought more than $1.9 million and ultimately presented a damages claim exceeding $1.8 million. The arbitration rules required claims exceeding $1 million to be heard by three arbitrators and resolved through a reasoned award, meaning an award that explains the arbitrator’s reasoning. The parties had initially requested a standard award, which announces the result without factual findings or an explanation.

Cento participated in the arbitration for nearly two years, including by responding to LTF’s claims, filing a counterclaim, attending some preliminary proceedings, and helping schedule the hearing. Cento also failed to appear at some preliminary hearings and missed document-production and witness-and-exhibit deadlines. In February 2020, after learning that participation would cost about $35,000, Cento’s owner ended its lawyer’s representation and sought a postponement so Cento could obtain new counsel. The arbitrator denied the postponement.

Cento did not provide its witness and exhibit lists even after receiving an extension, and it did not attend a final preliminary hearing. The arbitrator therefore granted LTF’s request to prevent Cento from introducing exhibits or calling witnesses. The arbitrator did not bar Cento from attending the hearing or challenging LTF’s evidence, but Cento did not attend the March 2020 arbitration hearing. The arbitrator issued the award on March 17, 2020, holding Cento liable for $1,866,027.36 in damages and $21,962.50 in fees and expenses.

Cento’s arguments

Cento made four principal arguments for vacating, or canceling, the award:

Court’s analysis

The court explained that judicial review of arbitration awards is very limited. Under Section 10 of the Federal Arbitration Act, an award may be vacated on specific grounds, including serious procedural misconduct, an arbitrator exceeding his authority, or an award issued in deliberate disregard of the law.

The court rejected Cento’s reliance on Section 5. It held that Section 5 supplies default procedures for appointing an arbitrator when an arbitration agreement is silent; it does not independently authorize a court to vacate an award. Cento therefore had to establish one of the limited grounds for vacatur under Section 10 and could not use Section 5 to avoid that requirement.

The court recognized that the arbitration rules required three arbitrators and a reasoned award for damages claims above $1 million. But it held that Cento waived those requirements under Construction Industry Arbitration Rule R-42. That rule provides that a party proceeding with arbitration after learning that a rule has not been followed, without making a written objection, waives the right to object. Cento did not object in writing—or otherwise object—to proceeding before one arbitrator or receiving a standard award. The court therefore declined to vacate the award on that basis.

The court also rejected Cento’s due-process and deliberate-disregard arguments. The relevant question was not whether the court might have made different procedural decisions, but whether the arbitrator’s decisions lacked even a minimally reasonable justification or were fundamentally unfair. The court concluded that the arbitrator reasonably could deny a postponement requested less than two weeks before the hearing, after the arbitration had been pending for nearly eighteen months and Cento had repeatedly missed hearings and deadlines. The court also noted that Cento’s loss of counsel resulted from its own decision to stop paying for its lawyer.

The court found that Cento had received sufficient notice of LTF’s increased damages claim. LTF had amended its claim in July 2019, more than eight months before the hearing, and Cento had been represented by counsel at that time. Cento did not then demand a three-arbitrator panel or a reasoned award. The court further held that Cento had an opportunity to be heard because the arbitrator did not prevent Cento from attending the hearing or challenging LTF’s evidence; Cento chose not to attend after failing to provide its own witness and exhibit lists.

Finally, the court considered Cento’s argument that the refusal to postpone the arbitration was misconduct, even though Cento raised that argument for the first time in its reply brief. The court held that the argument repeated the same points it had already rejected and that the arbitrator had at least a minimally reasonable basis for denying the postponement.

Disposition

The court granted LTF’s petition to confirm the arbitration award and denied Cento’s motion to vacate the award. The court stated that LTF could make a separate application for costs and statutory interest under the court’s local rules. The clerk was directed to mark the matter closed, and all pending motions were denied as moot.