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In Environmental Barrier Co., LLC v. Slurry Systems, Inc., No. 06C0212, 2006 WL 2853830 (N.D. Ill. Sept. 29, 2006), the United States District Court for the Northern District of Illinois confirmed an arbitral award in favor of a successor party not named in the original arbitration agreement.
Following bankruptcy proceedings involving construction company Geo-Con, Environmental Barrier Company (EBC) assumed Geo-Con’s subcontract with Slurry Systems, Inc. (SSI) for the construction of a large flood reservoir. At the time, Geo-Con believed that it was owed in excess of $711,335 for its work on the project. The original subcontract contained an arbitration clause, and EBC prevailed in arbitration against SSI for remaining balance under the agreement.
SSI first argued that this arbitral award should not be confirmed because EBC was not a party to the arbitration agreement. The Court, however, was “satisfied that the right to arbitrate transferred to EBC when it executed the Bill of Sale and purchased the account receivable from Geo-Con.” See Oxford Commercial Funding v. Cargill, Inc., No. 00-C-4996, 2002 WL 31455989, *3 (N.D. Ill. Oct. 31, 2002).
SSI also contended that EBC lacked standing to invoke arbitration because they had not first “cured all defaults” as required by the contract. Yet, the arbitrator had already addressed this matter, so the Court deferred to the arbitrator on issues of “procedural standing.” See Chicago Typographical Union v. Sun Times, 860 F.2d 1420, 1424 (7th Cir. 1988).
Finally, SSI argued that the arbitrator had exceeded his authority by “splitting the difference” on the award, rather than awarding an amount specified in the contract. This allegation lacked merit because the arbitrator had “attempted to derive a general framework of intent based on the initial cost and profit allocations of the parties.” So long as the arbitrator’s resolution of the conflict “draws its essence from the contract,” there was nothing unreasonable or unauthorized about the arbitrator’s decision-making process. Ethyl Corp. v. United Steelworkers of America, 768 F.2d 180, 187 (7th Cir. 1985).
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