Contech Constr. Products Inc. v. Heierli

• Decision Date: 04 February 2011
• Docket Number: Civil Actions Nos. 09–01483 (RBW), 09–02204.
• Citation: 764 F.Supp.2d 96
• Parties: CONTECH CONSTRUCTION PRODUCTS, INC., et al., Petitioners,v.Werner HEIERLI, (RBW), Respondent.
• Court: U.S. District Court — District of Columbia

764 F.Supp.2d 96

CONTECH CONSTRUCTION PRODUCTS, INC., et al., Petitioners,

v.Werner HEIERLI, (RBW), Respondent.

Civil Actions Nos. 09–01483 (RBW), 09–02204.

United States District Court, District of Columbia.

Feb. 4, 2011.

David Andrew Wilson, Thompson Hine, LLP, Washington, D.C., Heather M. Hawkins, Joseph B. Russell, Stephen J. Butler, Thompson Hine, LLP, Cincinnati, OH, for Petitioners.Michael Joseph Prame, Washington, D.C., Brian H. Lamkin, Steven L. Manchel, Manchel & Brennan, P.C., Newton, MA, for Respondent.

MEMORANDUM OPINION

REGGIE B. WALTON, District Judge.

These two cases arise from identical underlying facts. In Civil Action 09–cv–1483 (RBW), the petitioners, Contech Construction Products, Inc. and Patrick Harlow (collectively “Contech”), petition the Court to “vacate a portion of [a] [p]artial [Arbitration] Award” (“Partial Award”) rendered in favor of the respondent, Werner Heierli (“Heierli”), on May 7, 2009. Petition to Vacate a Portion of the Arbitration Award (“Contechs Pet. to Vacate”) at 1–5. In response, Heierli opposes Contechs petition and has filed a cross-petition seeking confirmation of the Partial Award. Subsequently, on November 12, 2009, a final arbitration award was rendered in favor of Heierli, along with interest, attorneys fees, and costs (“Final Award”). Then, on November 20, 2009, Heierli instituted the second case, Civil Action 09–cv–2204, petitioning the Court to confirm the Final Award. Petition and Motion of Werner Heierli to Confirm Arbitration Award (“Heierlis Pet. to Confirm”) at 1. Contech opposes the petition to confirm the Final Award and has cross-petitioned to vacate the Final Award. Memorandum In Opposition to the Petition of Werner Heierli to Confirm Arbitration Award and Cross–Petition of Contech Construction Products Inc. to Vacate the Arbitration Award (“Contechs Cross–Pet. to Vacate”) at 1. Accordingly, both cases involve the same parties and their resolution turns on the question of whether the two awards entered by the arbitrator are enforceable.

For the reasons that follow, the Court must grant both Heierlis Cross–Petition to enforce the Partial Award and his Petition to Confirm the Final Award. Thus, the Court must deny both Contechs Petition to Vacate the Partial Award and its Cross–Petition to Vacate the Final Award.

I. Background ¹

A. Civil Action 09–cv–1483

Contech Construction Products, Inc. is the sole majority shareholder of BEBOTech Corporation (“BEBOTech”) and Patrick Harlow is the President of BEBOTech's Board of Directors. Contech's Pet. to Vacate ¶ 8. Werner Heierli is the sole minority shareholder of BEBOTech. Id.

Contech and Heierli entered into a Stockholders' Agreement and several other related agreements on May 2, 2003. Id. ¶ 9. The agreements contain identical dispute resolution provisions requiring the parties to “attempt in good faith to resolve any dispute arising out of or relating to this Agreement promptly by negotiation ... failing which the parties shall endeavor to resolve any dispute ... by mediation under the CPR Mediation procedure.” Id., Ex. A at 12. If negotiations and mediation are unsuccessful, the dispute resolution clauses require the parties to arbitrate “[a]ny controversy or claim arising out of or relating to [the agreements in the International Institute for Conflict Prevention and Resolution (“CPR”) ] ... in accordance with the CPR Rules for Non–Administered Arbitration.” Id. The agreements also provide that any arbitration proceedings will be held in Washington, D.C. Id.

On March 23, 2007, after unsuccessful attempts to negotiate and mediate a dispute between the parties, Heierli filed an arbitration demand against Contech “asserting individual and derivative claims for breach of contract and breach of fiduciary duty”. Id. ¶ 13. On May 7, 2009, Arbitrator Nancy Lesser (the “Arbitrator”) issued a Partial Award finding that: (1) Contech had breached its contractual duties to Heierli; (2) Contech had breached its fiduciary duties to Heierli; (3) Heierli was entitled to at least the minimum amount of the value of his interest (his shares) in BEBOTech pursuant to the formula adopted in the Stockholders' Agreement, upon exercise of his “Put Option” in that agreement; (4) Contech could not include certain charges and fees in determining Heierli's share value under the Stockholders' Agreement formula; and (5) Heierli was permitted to petition for an interim award of “reasonable attorney's fees and costs in proceedings to be scheduled following the issuance of [the] Partial Award.” Id., Ex. E (Partial Award) at 34–35. However, the Arbitrator also found that Heierli had failed to prove that he suffered any compensatory damages or that he was entitled to punitive damages as a result of the breach. Id., Ex. E (Partial Award) at 33.

Contech filed a Motion for Reconsideration of the Partial Award with the Arbitrator on May 22, 2009, requesting that she reconsider and withdraw her award of attorneys' fees and costs, arguing that the Arbitrator did not have the authority to make such awards under either the CPR rules or Delaware law. ² Contech's Pet. to Vacate ¶ 18; Heierli's Memorandum in Opposition to Petition to Vacate a Portion of the Arbitration Award (“Heierli's Opp'n”), Ex. 2 (Respondent Contech Construction Products Inc.'s Motion for Reconsideration of (1) Interim Award of Attorneys' Fees and Costs and (2) Termination of the Management Services Agreement) at 3. On July 15, 2009, the Arbitrator denied Contech's Motion for Reconsideration, finding that “[i]t is uncontroverted that Delaware law permits such an award where circumstances warrant [making the award].” Heierli's Opp'n, Ex. 5 (July 15 Order). Furthermore, the Arbitrator concluded that “[i]n light of [her findings], it [was] unnecessary for [her] to reach the second prong of [Contech's] [m]otion regarding the [applicability of] the CPR [r]ules, although [she] remain[ed] of the view that the [CPR r]ules permit such an award independent of its availability under Delaware law.” Id. Contech responded to the denial of its Motion for Reconsideration by filing the first of the two cases, Civil Action 09–cv–1483, now before this Court. After that filing, on September 11, 2009, the Arbitrator set the amount of attorneys' fees and costs to be awarded to Heierli under the Partial Award at $556,749.99. Petitioners' Memorandum in Opposition to Respondent's Cross–Petition to Confirm Arbitrator's Award of Heierli's Attorneys' Fees and Expenses, Ex. B (Fee Award) at 1.

B. Civil Action 09–cv–2204

In addition to the dispute resolution clause, the parties' Stockholders' Agreement contained “put” and “call” options which accorded Heierli the option of selling his BEBOTech shares to Contech at a price calculated pursuant to a formula specified in the Stockholders' Agreement, and Contech had the option to purchase Heierli's shares at a price determined by a different formula specified in the Agreement. Contech's Cross–Pet. to Vacate, Ex. A (Stockholders' Agreement) § 4.³ On May 18, 2009, shortly after the Arbitrator issued her Partial Award finding that Contech had breached its fiduciary duties to Heierli, Heierli exercised his put option. Statement of Points and Authorities In Support of Heierli's Petition and Motion to Confirm Arbitration Award (“Heierli's Mem. to Confirm”) at 3. The parties, however, disagreed on the “calculated purchase price” offered by Contech, id., and Heierli then filed a request with the Arbitrator for an emergency hearing on the “put price,” Contech's Cross–Pet. to Vacate at 5. “Consequently, the Arbitrator set additional hearing dates [of] October 7 and 8, 2009, for the purpose of determining whether Contech had violated the Partial Award and the Stockholders Agreement; the parties appeared before the Arbitrator on those dates and presented witness testimony, documentary evidence and argument.” Heierli's Mem. to Confirm at 3. Contech had objected to the Arbitrator conducting any additional hearings, however, claiming that the issue of the appropriate price for the exercise of the put option was outside the scope of the issues originally submitted to arbitration. Contech's Cross–Pet. To Vacate at 5–6. The Arbitrator rejected Contech's challenge, id. at 6, and in her Final Award issued on November 12, 2009, the Arbitrator disallowed certain expenses included in the calculation of the put price claimed by Contech, arriving at a purchase price of $10,354,011.15, Heierli's Mem. to Confirm at 3. She also set the process by which payment would be made by Contech to Heierli. Contech's Cross–Pet. To Vacate, Ex. J (Final Award) at 14–16. However, Contech failed to comply with the terms of the Arbitrator's Final Award, Heierli's Mem. to Confirm at 4, and on November 20, 2009, Heierli commenced the second of the two cases before this court, Civil Action 09–cv–2204, seeking enforcement of the Final Award.

II. Analysis

A. The Partial Award

Contech argues that under the 2005 version of the CPR Rules the Arbitrator's power to award attorneys' fees and costs under CPR Rules 16.2 and 16.3 is limited by CPR Rule 10.3, which states: ⁴ “[t]he Tribunal may grant any remedy or relief, including but not limited to specific performance of a contract, which is within the scope of the agreement of the parties and permissible under the law(s) or rules of law applicable to the dispute.” Contech's Pet. to Vacate ¶¶ 22–23. Thus, according to Contech, the Arbitrator only had the authority to award attorneys' fees and costs under CPR Rule 16.3 that were independently permissible under Delaware law. Id. ¶¶ 24–25. Contech consequently maintains that the award of attorneys' fees and costs to Heierli in this case was impermissible under Delaware law because Heierli was not a prevailing party due to his failure to prove recoverable damages. Id. ¶ 33–34. This, according to Contech, precluded the Arbitrator from having “jurisdiction, authority, or power” to make the awards...