NOT PRECEDENTIAL

U N IT E D STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

No. 06-2584

HSM CONSTRUCTION SERVICES, INC.;

H S M MANAGEMENT SERVICES, INC.,

Appellants

v. M D C SYSTEMS, INC.

On Appeal from the United States District Court

f o r the Eastern District of Pennsylvania

(D .C . No. 05-cv-05983)

D is tric t Judge: Honorable Ronald L. Buckwalter

Submitted Under Third Circuit LAR 34.1(a)

J u ly 9, 2007

B e f o re : SLOVITER, HARDIMAN, and ROTH, Circuit Judges

(F i le d July 16, 2007

OPINION

S L O V IT E R , Circuit Judge.

A p p e lla n ts HSM Construction Services, Inc. ("Construction") and HSM M a n a g e m e n t Services, Inc. ("Management") (jointly referred to as "HSM" unless o th e rw ise noted) appeal from the District Court's order confirming an arbitration award in f a v o r of the appellee, MDC Systems, Inc. HSM argues that the Arbitration Panel m a n if e stly disregarded the law and was evidently partial to MDC Systems, Inc.1 I.

B e c au s e the parties are familiar with the facts, we adopt the factual scenario as s ta te d by the District Court in its opinion: T h e present case stems from a lawsuit regarding the construction of th e Rosewood Care Center of St. Charles, Illinois, in which Construction w a s a named defendant. To aid in its defense of that lawsuit, Construction h i re d MDC Systems, Inc. ("MDC") to prepare expert engineering reports.

B y a letter dated July 18, 2002, MDC drafted a Proposal of Expert Consulting Services. Throughout the Proposal, MDC refers to the other p a rty to the contract as "HSM" and does not specify whether it is referring to "HSM Management" or "HSM Construction." By a letter dated July 19, 2 0 0 2 , printed on "HSM Management Services, Inc." letter head, "HSM" p ro v id e d supplementary terms and conditions. The fax also included the s ig n a tu re page of the Proposal, which was signed by General Counsel for " H S M ." Afterwards, HSM Management Services, Inc. paid the initial re ta in e r and made two subsequent partial payments to MDC.

C o n s tru c tio n and Management argue[d] that MDC prepared an u n u s a b le expert disclosure report. As a result, MDC was not paid for the The District Court had diversity jurisdiction over this action p u rs u a n t to 28U.S.C. § 1332. This court has jurisdiction over the a p p e a l pursuant to 9U.S.C. § 16(a)(1)(D) and 28U.S.C. § 1291. b a la n c e due under the contract. MDC then submitted a Demand for A rb itra tio n to the American Arbitration Association ("AAA") seeking relief o f $80,662.53 in unpaid fees from only "HSM Management Services, Inc." C o n s tru c tio n was not named as a party on MDC's initial Demand.

O n March 16, 2004, the arbitration Panel conducted a preliminary h e a rin g conference call. Management argued that it was not a party to the c o n tra c t in question. The Panel later amended the caption from "HSM M a n a g e m e n t, Inc." to "HSM, Inc., HSM Management, Inc., and HSM C o n s tru c tio n Services, Inc." H S M Constr. Serv., Inc. v. MDC Sys., Inc., 2006 WL 1030229, at *1 (E.D.Pa. Apr. 13, 2 0 0 6 ).

A t the conclusion of the arbitration, the panel issued a decision in favor of MDC a n d held Construction and Management jointly and severally liable for $86,969. HSM ra ise s two issues in its appeal. It argues first, that "the District Court err[ed] in d e te rm in in g that the arbitration panel did not manifestly disregard the law by finding M a n a g em e n t liable to MDC where Management was not a party to the agreement b e tw e e n Construction and MDC[.]" Appellants' Br. at 3. Second, it argues that the D istric t Court erred in determining that the arbitration panel was not evidently partial to MDC.

II.

A.

W e consider first which law applies. HSM argued in the District Court that the F ed era l Arbitration Act ("FAA") applies, whereas MDC argued that the Delaware U n if o rm Arbitration Act ("DUAA") applies. The District Court decided that "the p ro v isio n s of the FAA and the DUAA that are applicable in this case, the `evidently p a rtia l' standard and the `manifest disregard of the law' standard, are identical" and th e re f o re it declined to decide which law applies because the result would be the same.

2006 WL 1030229, at *2. We agree with the District Court in this respect.

T h is court reviews a district court's denial of a motion to vacate a commercial arb itratio n award de novo. Dluhos v. Strasberg, 321 F.3d 365, 369 (3d Cir. 2003). In re v ie w in g a district court's order confirming an arbitration award, this court reviews the d is tric t court's factual findings for clear error and exercises plenary review over the d is tric t court's determination on questions of law. See China Minmetals Materials Imp.

& Exp. Co., Ltd. v. Chi Mei Corp., 334 F.3d 274, 278-79 (3d Cir. 2003) (citing First O p t io n s of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947-48 (1995)); Kaplan v. First O p tio n s of Chicago, Inc., 19 F.3d 1503, 1509 (3d Cir. 1994), aff'd, 514 U.S. 938 (1995).

B.

H S M contends that Management was never a party to the agreement with MDC (th e "Agreement") because it neither signed the Agreement nor was a party to the u n d e r lyin g lawsuit concerning the construction of the Rosewood Care Center. Because th e issue as to whether Management was a party to the arbitration agreement is an issue of a rb itra b ility, the court must make an independent determination. See First Options, 514 U .S . at 943-45.

T h e parties' objective manifestations control in deciding whether they formed a c o n tr a c t by mutual assent. Management's outward words and acts indicate that it is a p a rty to the Agreement. First, the signature page of MDC's Proposal and the July 19, 2 0 0 2 letter from "HSM" to MDC (the "Letter") were both signed by Dennis McCubbin, th e General Counsel of Management and Construction, on behalf of "HSM." Although n e ith e r MDC nor McCubbin explicitly specified whether "HSM" referred to Management o r Construction, both the Letter and its fax cover sheet were on Management's letter h e a d . "HSM Management Services, Inc.," as it appears on both the letter head and fax c o v e r page, is the only full name on those documents that is consistent with the a b b re v ia tio n of "HSM." This leads to the conclusion that the "HSM" referred to in the L e tte r as a party must be "HSM Management Services, Inc." Second, Management is the entity that paid MDC's fees for its service. The c h e c k s payable to MDC for its service were all under Management's name. Indeed, it p a id the initial retainer and the two subsequent partial payments. Although Management c o n te n d s that it paid the check on behalf of Construction, there was no outward indication o f such subjective and undisclosed intention. From the objective acts of Management, it w a s Management who signed the Agreement and performed the obligation to pay under th e Agreement. Thus, Management is a party to the Agreement.

M an ag em en t argues that it never was a party to the underlying Rosewood Care C e n te r lawsuit, and therefore it could not be a party to the Agreement, which retained M D C to provide expert services for the underlying proceeding. However, Management h a d an interest in the proceeding, because it possessed one of the claims for which C o n stru ctio n sought indemnification in the Rosewood Care Center lawsuit. Moreover, w h e th e r Management is a party to the underlying lawsuit is not directly related to the q u e stio n as to which entity is the party to the Agreement. The objective manifestation by M a n a g e m e n t was sufficient to indicate its assent to be a party to the Agreement.

M a n a g e m e n t also argues that MDC's president "knew MDC was dealing with C o n stru c tio n , not Management." Appellants' Br. at 16. It notes that MDC's president, in re sp o n s e to questioning at the arbitration hearing, appears to have agreed that references to "HSM" in the expert report were specifically meant to indicate "HSM Construction S e rv ice s, Inc." because "they were the party to the contract, so it would only be proper to d o that." App. at 41.

MDC does not fully respond to the foregoing argument. Although these s ta te m e n ts show that MDC knew that it was providing services to Construction, they do n o t lead to the conclusion that MDC knew it was not also signing the Agreement with M a n a g e m e n t.

The contract between the parties was the subject of a broad arbitration clause c o v e rin g "all" disputes arising from the transaction. App. at 50. We conclude that M a n a g e m e n t's outward manifestations were clear enough to find its objective intention to b e a party and accordingly hold that it is bound by the arbitration award.

C.

W e turn then to the second issue, HSM's argument that "the District Court erred in d e te rm in in g that the arbitration panel was not evidently partial to MDC where MDC in f o rm e d the arbitration panel in writing that Construction and Management `ha[ve] not p a id the AAA-required fees or deposits,'" Appellants' Br. at 3, and the panel was made a w a re that HSM "were not paying [their] share of the arbitration fees" in the conference a f te r the first day of the hearing. App. at 82. This issue arose from a letter sent by MDC to the Arbitration Panel on July 12, 2004, stating, in part, "HSM has not paid the AAAre q u ire d fees or deposits, nor has it requested in forma pauperis relief[.]" App. at 78.

Originally, the arbitration was to be for a single day, but the panel believed a second day w o u ld be required. HSM argues that because the salary of the arbitrators "originate[s]" f ro m the arbitration fees, the Panel has a financial interest "in the outcome of the a rb itra tio n ," and thus created, at the very least "an appearance of impropriety." Appellants' Br. at 21.

M D C responds that during the conference after the first day of the arbitration h e a rin g , no party (MDC, AAA or the Arbitration Panel) other than HSM itself could have k n o w n that HSM planned to refuse to pay its share of fees. Therefore, even if the Panel d id know of HSM's intention, HSM has not proven that it was MDC who told the a rb itra to rs so. MDC also argues that if evident partiality may be found based on the fact th a t an arbitration panel knows a party refused to pay arbitration fees, it would be easy for p a rties to get rid of an arbitration award simply by voluntarily telling the panel that it did n o t pay arbitration fees. The District Court refused to find evident partiality of the A rb itra tio n Panel, because HSM failed to prove that the July 12, 2004 letter of MDC a c tu a lly reached the Panel, and failed to submit any additional evidence of bias.

The courts have not clearly articulated the standard to be applied in interpreting s e c tio n 10 of the Federal Arbitration Act which provides that courts may vacate an a rb itra tio n award if an arbitrator shows "evident partiality." 9U.S.C. §10(a)(2). On one h a n d , the Supreme Court has stated that evident partiality is shown when arbitrators fail to d isc lo se "any dealings that might create an impression of possible bias." Commonwealth C o a tin g s Corp. v. Cont'l Cas. Co., 393 U.S. 145, 149 (1968). The arbitrators "not only m u s t be unbiased but also must avoid even the appearance of bias." Id. at 150. On the o th e r hand, this court has appeared to adopt what we refer to as a "reasonably construed" b ia s standard, which finds evident partiality only when "a reasonable person would have to conclude that the arbitrator was partial to [one] party to the arbitration." Kaplan, 19 F .3 d at 1523 n.30 (quoting Apperson v. Fleet Carrier Corp., 879 F.2d 1344, 1358 (6th Cir. 1 9 8 9 )). The reasonably construed bias standard requires proof of circumstances " p o w e rf u lly suggestive of bias." Id. (quoting Merit Ins. Co. v. Leatherby Ins. Co., 714 F .2 d 673, 681-82 (7th Cir. 1983)).

T h e First, Second, Fourth, Sixth, Seventh, Ninth and Eleventh Circuits have a d o p ted the reasonably construed bias standard, albeit not under that name. See Morelite C o n s t. Corp. v. N.Y. City Dist. Council Carpenters Benefit Funds, 748 F.2d 79, 84 (2d C ir. 1984) (evident partiality will be found where "a reasonable person would have to c o n c lu d e that an arbitrator was partial to one party to the arbitration"); JCI Commc'ns, In c . v. Int'l Bhd. of Elec. Workers, Local 103, 324 F.3d 42, 51 (1st Cir. 2003) (same); ANR Coal Co., Inc. v. Cogentrix of N.C., Inc., 173 F.3d 493, 500-01 (4th Cir. 1999) (s a m e ) ; Apperson, 879 F.2d at 1358 (same); see also Gianelli Money Purchase Plan and T ru s t v. ADM Investor Servs., Inc., 146 F.3d 1309, 1312 (11th Cir. 1998); Toyota of B e rk e le y v. Auto. Salesman's Union, Local 1095, 834 F.2d 751, 756 (9th Cir. 1987) ("the p a rty alleging bias must establish facts that create a reasonable impression of partiality") (in te rn a l citation and quotation marks omitted); Merit Ins. Co., 714 F.2d at 681.

We need not decide the standard of bias in this case because HSM has failed to s h o w evident partiality of the arbitrators even under the more generous standard of " a p p ea ra n c e of bias." The District Court found that it was unclear whether MDC's letter a c tu a lly reached the Panel members. Without clear error, we will not reverse a factual f in d in g of the District Court. The District Court also held that there is "no additional e v id e n c e of bias." 2006 WL 1030299, at *3. We agree. Although HSM has stated that th e Arbitration Panel learned that HSM was planning not to pay arbitration fees in the c o n f ere n c e after the hearing, it is no more than a conclusory assertion. The only evidence in the record regarding this allegation is the affidavit of HSM's General Counsel, M c C u b b in , who stated, "[o]n February 2, 2005, the arbitrators were aware that [ C o n s tru c tio n and Management] were not paying a share of the arbitration fees." App. at 8 2 . No other evidence is cited to support McCubbin's allegation or to prove that it was M D C who informed the Panel of HSM's intention to avoid arbitration fees.

Even if HSM had proven that the Arbitration Panel was aware of HSM's intention n o t to pay the arbitration fee, such awareness itself is not sufficient to show that the a rb itra to rs had a financial interest in the outcome of the arbitration. Rule 54 of the A A A 's Commercial Rules of Arbitration provides that the AAA may suspend or te rm in a te the hearing or proceeding if arbitration fees are not paid on time. The fact that th e arbitration proceeded suggests that the fees were paid, no matter which party actually p a id them. HSM conceded that if it did not pay the arbitration fees, MDC "would have to p a y the fees for both parties in order for the arbitration to proceed." App. at 82.

Therefore, the Panel did not have any financial interest in the outcome of the arbitration, b e c a u s e the fees would have been paid as long as the proceeding continued.

In conclusion, HSM has failed to prove that MDC's July 12, 2004 letter actually re a ch e d the Arbitration Panel, and it has not provided any additional evidence showing b ia s of the arbitrators. Even under the generous standard of "appearance of bias," we c o n c lu d e that HSM has failed to raise any genuine issue of bias.

I I I.

F o r the reasons set forth, we will affirm the District Court's order confirming the a rb itr a tio n award.