Time Const., Inc., In re, 93-2218

Decision Date09 January 1995
Docket NumberNo. 93-2218,93-2218
Citation43 F.3d 1041
Parties, 1995 Fed.App. 5P In re: TIME CONSTRUCTION, INC., Defendant. 8300 NEWBURGH ROAD PARTNERSHIP, a Michigan partnership; Edio De Ciantis; Vincent Mancuso, Jr.; and Mitchell Wieczorek, Plaintiffs-Appellants, v. TIME CONSTRUCTION, INC., Defendant-Appellee.
CourtU.S. Court of Appeals — Sixth Circuit

David P. Wood (briefed), Rachelle G. Silberberg, Clark, Klein & Beaumont, Detroit, MI, for 8300 Newburgh Road Partnership.

Susan Healy Zitterman, Jeremiah J. Kenney, Edward L. Ewald, Kitch, Drutchas, Wagner & Kenney, Detroit, MI, for John Geralt.

David P. Wood, Kenneth M. Schneider, Dougherty, Schneider & Miller, Detroit, MI, for Leo M. Calhoun.

David P. Wood, Detroit, MI, for Edio De Ciantis, Vincent Mancuso, Jr., Mitchell Wieczorek.

Daniel F. Stella (briefed), Dykema & Gossett (Deceased), Krishna S. Dighe, Dykema & Gossett, Detroit, MI, for Time Const., Inc.

Before: WELLFORD, RYAN, and BATCHELDER, Circuit Judges.

PER CURIAM.

I.

8300 Newburgh Road Partnership ("NRP"), a Michigan-based land development venture comprised of Vincent Mancuso, the general manager, and a number of other Michigan residents, in May, 1986, entered into an agreement with Time Construction, Inc. ("Time") for Time to construct a condominium and apartment project in Westland, Michigan. The agreement provided that claims and disputes would be decided under construction industry arbitration rules of the American Arbitration Association.

Pasqual Carnacchi was the sole owner-stockholder of Time and had become a partner in NRP in 1985. Unfortunately, the entities involved had a "falling out" after Time had commenced and had performed substantial work on the project. In 1988, NRP removed Time from the project in the midst of a dispute about the amount of construction money owed Time over its partial performance of the contract. Time demanded arbitration in August of 1988, naming as respondents NRP and seven individual partners (including Mancuso, Leo Calhoun, Edio De Ciantis, John Geralt, and Mitchell Wieczorek, but excluding Carnacchi).

NRP responded by suing Time in Michigan state court, seeking an injunction to stay arbitration proceedings. 1 That court, denying NRP's petition, held that the arbitration agreement covered the disputes between the parties. The arbitration proceedings ensued with three arbitrators selected to be on the panel, purportedly with experience in the construction industry. After delays and the taking of discovery, the parties agreed to a hearing in March of 1991. On the eve of the scheduled hearing, counsel for NRP once again requested an adjournment, this time unsuccessfully.

During the hearing NRP, for the first time, demanded an accounting from Time and from Carnacchi with respect to the amounts paid Time by NRP. The arbitrators denied this demand as coming too late. 2 On Thursday morning, which was the fourth day of the hearing, NRP's counsel again requested an adjournment, claiming that a partner, De Ciantis, was unavailable to testify and in the hospital. The panel rejected this motion, holding that under the rules selected, the arbitration might proceed in the not fully explained absence of one of the partners.

Later Thursday afternoon, NRP renewed its motion for an adjournment. NRP's counsel promised that he would find out what De Ciantis suffered from, and would report to the panel on Friday morning. The panel agreed to adjourn the hearing at 3:00 p.m.

On Friday morning, however, NRP's counsel failed to state what De Ciantis' illness was, or how long the panel could expect to delay the hearing. NRP's counsel did present a photograph of De Ciantis in a hospital room, but failed to call Vincent Mancuso, who had visited with De Ciantis in the hospital, to testify about De Ciantis' condition. Nor did NRP's counsel present evidence from De Ciantis' doctor. 3 Once again, NRP moved for an adjournment.

The panel took the motion under advisement, and the parties spent the remainder of the morning disputing procedural rules and evidentiary submissions. After the lunch recess ended at 1:15 p.m., the panel denied NRP's motion for a postponement. The panel further instructed that if the case was not completed by 3:30 p.m. that day, the hearing would be continued until a later date. On at least two different occasions, the panel assured NRP's counsel that he would be allowed to bring in De Ciantis' testimony at a later date if he would make use of the time that remained (a little over two hours) on Friday.

NRP's counsel, however, fought the hearings at every turn. Although he indicated that he could go forward, he refused:

Arbitrator: Well, would you have any--would you be able to put any evidence on at all or testimony?

NRP's Counsel: Well I could put on somebody, yes, but I wouldn't.

NRP's counsel further threatened that "if you want me just to ask nonsensical questions, I will go ahead for an hour-and-a-half."

Exasperated with this delay and others that had occurred since the case was submitted to arbitration two and a half years earlier, the panel then asked for closing arguments, and informed the parties that they could also submit briefs after the hearing. Although De Ciantis was released from the hospital the day after the hearing concluded on Friday, NRP's counsel did not attempt to submit De Ciantis' testimony or affidavit until after the arbitrators had rendered their decision (some two months after the close of the hearing).

Not surprisingly (since NRP did not present a case), the arbitration panel awarded Time $1,474,644.33 in damages against the partnership and the named partners. This was the amount sought in accordance with Time's specific and detailed claim.

Thereafter, NRP filed another complaint in Michigan state court seeking to vacate the arbitration award and to compel an accounting. On March 18, 1991, however, prior to NRP's filing the complaint to vacate the arbitrator's award, Carnacchi and his wife had filed a voluntary bankruptcy petition. Realizing Carnacchi had filed for bankruptcy, NRP amended its complaint to drop Carnacchi as a defendant, seeking relief only from Time. Despite being removed as a party in the NRP action, the trustee for Carnacchi's bankrupt estate attempted to remove the state court action to the Carnacchi bankruptcy proceeding. 4

NRP contested removal of the action to the Carnacchi bankruptcy proceeding and filed a motion to remand the matter to state court. Prior to a response, however, Time also filed a voluntary bankruptcy petition. The parties agreed to transfer the action to the Time bankruptcy proceeding, and NRP withdrew its motion to remand the matter to state court.

After these procedural maneuverings, the Time trustee moved for summary judgment. The bankruptcy court granted Time's motion and, in effect, affirmed the arbitration award in Time's favor. The bankruptcy judge noted that the parties might have applied to lift the bankruptcy automatic stay "in order to proceed exclusively in state court." NRP made no such application. Judge Graves found no merit in NRP's contention that the arbitrators erroneously refused to grant it an adjournment. Neither did he find merit in NRP's claim that the arbitrators erred in denying the eleventh-hour demand for an accounting, finding a "lack of preparation" on the part of NRP. The bankruptcy judge also denied as untimely NRP's claim, made for the first time, that the arbitrators "failed to apply the correct legal standard with regard to Partnership liability."

NRP and partners Geralt, Calhoun, De Ciantis, Mancuso and Wieczorek timely appealed the bankruptcy court's decision to the district court. Several months after filing its appeal to the district court, NRP moved to dismiss, or that the court abstain, based on alleged lack of subject matter jurisdiction. The basis for this "second-thought" action, taken over a year after the removal to bankruptcy court of NRP's state court complaint to set aside the arbitration award, was two- fold: (1) that the Carnacchi trustee, a non-party, had removed the state case to bankruptcy court, and (2) the transfer of the removed case from the Carnacchi bankruptcy to the later Time bankruptcy carried with it the taint of the invalid Carnacchi removal.

Although the parties had agreed to remove the state court action to the Time bankruptcy proceedings, the district court was obligated to review the jurisdictional issue because subject matter jurisdiction is a prerequisite that cannot be waived by consent of the parties. The district court concluded, however, that the bankruptcy court had jurisdiction over the action because the arbitration award was a Time asset affecting its stock value and thus "directly affected the assets available in the Carnacchi bankruptcy proceeding." Furthermore, the district court concluded that "when the adversary proceeding to vacate the arbitration award was transferred to the Time bankruptcy on stipulation of [NRP] and the Trustee, and thereafter, subject matter jurisdiction existed." 5

NRP and the individual partners appeal the district court's order denying their motion to remand for lack of subject matter jurisdiction. Alternatively, they ask that this court vacate the arbitration award because of the panel's refusal to postpone the hearing in light of De Ciantis' absence.

II.
A. Whether the district court had subject matter jurisdiction over the state court appeal.

We need not review whether jurisdiction existed under the Carnacchi proceeding or at the time the state court appeal was removed because NRP did not renew its objection to the bankruptcy court's jurisdiction until after a decision was rendered. In Grubbs v. General Electric Credit Corp., 405 U.S. 699, 702, 92 S.Ct. 1344, 1347, 31 L.Ed.2d 612 (1972), the Supreme Court held that when a case is improperly removed but is tried to judgment on the merits without objection, a...

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