Recently, the Maine Supreme Judicial Court affirmed an arbitrator’s award of $1.5 million to Xpress Natural Gas, LLC. The court upheld the arbitrator’s decision that Cate Street Capital Inc. was responsible for payments to Xpress Natural Gas that Cate Street’s subsidiary, GNP Parent, LLC (formerly known as Great Northern Paper Company, LLC) owed Xpress Natural Gas for the delivery of compressed natural gas to the Great Northern Paper Mill in East Millinocket (and for the installation costs of certain associated facilities).

The dispute arose from GNP’s failure to prepare the mill for the installation of equipment and for delivery of gas by March 31, 2013. After agreements to extend that deadline expired and GNP failed to make required payments, the parties proceeded to private arbitration. Deferring to the arbitrator’s interpretation of the “guarantee” in a particular commercial agreement, the Court found that arbitrator’s interpretation was “rationally derived from the agreement.” The Court rejected GNP’s argument that the arbitrator exceeded his authority by interpreting the guarantee in a way that showed “manifest disregard for the contract.”

When explaining the standard that the Court applies when reviewing an arbitrator’s award, the Court noted that even when the arbitrator’s interpretation is erroneous, if the interpretation is rationally derived from the agreement, the arbitrator has not exceeded the arbitrator’s authority. However, an arbitrator may not base an award on the arbitrator’s “own individual concept of justice in the particular area involved” or directly contradict the agreement.