U.S. v. Park Place Associates, Ltd.

• Citation: 563 F.3d 907
• Decision Date: 22 April 2009
• Docket Number: No. 05-56312.,No. 05-56235.,05-56235.,05-56312.
• Parties: UNITED STATES of America, Plaintiff-Appellant, v. PARK PLACE ASSOCIATES, LTD., a California limited partnership; George Hardie; Kard King, Inc., a California corporation, Defendants-Appellees. United States of America, Plaintiff-Appellee, v. Park Place Associates, Ltd., a California limited partnership; George Hardie; Kard King, Inc., a California corporation, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

563 F.3d 907

UNITED STATES of America, Plaintiff-Appellant, v. PARK PLACE ASSOCIATES, LTD., a California limited partnership; George Hardie; Kard King, Inc., a California corporation, Defendants-Appellees.

United States of America, Plaintiff-Appellee, v. Park Place Associates, Ltd., a California limited partnership; George Hardie; Kard King, Inc., a California corporation, Defendants-Appellants.

No. 05-56235.

No. 05-56312.

United States Court of Appeals, Ninth Circuit.

Argued May 10, 2007.

Submitted April 15, 2009.

Filed April 22, 2009.

Peter D. Keisler, David M. Cohen, Franklin E. White, Jr., Civil Division, Department of Justice, Washington, DC, for the petitioner-appellant.

Christopher H. Buckley, Jr., Daniel W. Nelson, Thomas H. Dupree, Jr., Amir C. Tayrani, Gibson, Dunn & Crutcher, Washington, DC, for the respondents-appellees.

Appeal from the United States District Court for the Central District of California, Dickran M. Tevrizian, District Judge, Presiding. D.C. No. CV-04-08387-DT.

Before: BARRY G. SILVERMAN, KIM McLANE WARDLAW, and JAY S. BYBEE, Circuit Judges.

BYBEE, Circuit Judge:

An arbitration panel in Los Angeles awarded Park Place Associates, Ltd. $93,612,892 against the United States, after a proceeding in which the United States declined to participate. Under the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., where a controversy has been arbitrated pursuant to a valid arbitration provision and the arbitrator has made an award, the parties may seek to confirm, see 9 U.S.C. § 9, or to vacate, see 9 U.S.C § 10, that award in the appropriate court. The District Court for the Central District of California denied the United States' motion to vacate the award and granted Park Place's motion to confirm the award.

Because we, no less than private parties, "must turn square corners" when we deal with the government as a litigant, Rock Island, A. & L.R. Co. v. United States, 254 U.S. 141, 143, 41 S.Ct. 55, 65 L.Ed. 188 (1920), we find that, under the unique circumstances presented here, the district court had jurisdiction over the United States' motion to vacate, and we affirm the district court's order denying that motion. However, we find that the district court had no authority to confirm the arbitration award against the United States and we vacate the district court's order granting Park Place's motion.¹ We remand to the district court with instructions to dismiss the action to confirm as barred by sovereign immunity.

I. FACTS AND PROCEEDINGS

The events at issue span twenty years, resulted in congressional hearings, and involve litigation in three circuits. We are not sure if the appropriate literary metaphor belongs to Tolstoy or to Kafka, but we are going to set forth the history of this case in some detail.

The contract and arbitration provision that governs the current dispute was part of an agreement between two private parties and did not involve the United States. In 1983, Park Place entered into a Joint Venture Agreement ("JVA") with LCP Associates to develop, own, and operate the Bell Gardens Bicycle Club ("Club"), a legal card-playing club in Bell Gardens, California. Section 5.03 of the JVA set out procedures for dispute resolution between the contracting parties, requiring that the parties arbitrate controversies arising under the JVA in Los Angeles County, California; that an arbitration award would be "final and binding"; and that "judgment may be entered [on an arbitration award] in any court of competent jurisdiction in the State of California."² Park Place originally held a thirty percent interest and LCP held the remaining seventy percent interest in the Club, which opened for business in November 1984.³ In 1987, after certain loans were repaid, Park Place's share increased to thirty-five percent and LCP's interest decreased to sixty-five percent.

A. Forfeiture of the Club

What Park Place did not know was that LCP had financed more than twelve million dollars of the initial investment using the proceeds of a drug trafficking ring. United States v. Gilbert, 244 F.3d 888, 894 (11th Cir.2001). The United States discovered this fraudulent activity following a money laundering investigation, and in 1987, indicted various individuals, including some LCP partners, in the Southern District of Florida. In March 1990, certain LCP partners were convicted of laundering the profits of a drug-smuggling business. In April 1990, a jury returned a verdict in favor of the United States in a subsequent forfeiture proceeding pursuant to the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1963. In response, the Southern District of Florida entered an order forfeiting the entire Club to the United States in rem and freezing all distributions to LCP, Park Place, and their respective partners. In either May or September 1990, the district court confirmed that Park Place was an innocent owner and returned its thirty-five percent interest in the Club.

The United States retained its interest in LCP following the forfeiture proceedings. By August 1993, as the result of negotiated settlements with LCP partners, the United States ultimately obtained a fifty-five percent interest in LCP. Consequently, the United States controlled the LCP partnership and, because LCP was the majority shareholder in the venture, possessed effective control of the Club under the terms of the JVA. From 1990 to 1999, the United States managed its interest in LCP—and the Club—through a series of trustees appointed by the Southern District of Florida on its behalf. The United States continued its control of the Club's management until it sold its LCP interests in May 1999.⁴ According to Park Place, the Club's value declined dramatically during the period the United States managed it.

B. Court Proceedings

The arbitration underlying this litigation concerns the United States' conduct during its eight-year management of the Club. Early on, Park Place disputed the forfeiture proceedings, the United States' right to sell the seized interests, and trustee compensation. Park Place brought these claims, which are not part of the present action, in the Southern District of Florida. Separately, in proceedings leading to the arbitration underlying this litigation, Park Place sought recovery for the United States' conduct after the forfeiture. Specifically, Park Place pursued relief for what it claimed was the United States' gross mismanagement of the Club.⁵ As will be explained, Park Place proceeded on this second set of claims in a series of courts.

In June 1997, Park Place served the successor trustee, as general partner of LCP, with an arbitration demand under section 5.03 of the JVA, for alleged breaches of various provisions of the JVA and violations of California law in connection with the management of the Club. In response, the United States filed a motion for an order to show cause, requesting that the Southern District of Florida preclude Park Place from continuing with the arbitration on forfeiture-related issues pending before the court. In May 1998, the Southern District of Florida issued an order staying the arbitration in part, but allowing it to proceed as to claims concerning the United States' daily operation of the Club. As directed by the court, Park Place withdrew several claims from its arbitration demand, but it maintained the claims as to the Club's management. Shortly thereafter, Park Place requested the American Arbitration Association ("AAA") to hold the arbitration matter in abeyance until May 1999. That arbitration demand was never revived.

In April 1998, Park Place filed suit in the Central District of California seeking, among other things, damages in excess of $150 million against the United States. As it had in the Southern District of Florida, Park Place asserted that the United States mismanaged the Club during the eight years of its control. Specifically, Park Place claimed the United States failed to dispose promptly of its interest in the Club; failed to protect Park Place's rights and interests; and failed to preserve and protect the Club's value as an ongoing business by, for example, failing to hire or train competent and experienced casino managers; failing to modernize the Club's facility; and failing to market the Club when business in the area became increasingly competitive. Park Place asserted claims before the district court pursuant to the Federal Tort Claims Act and the United States Constitution, including negligence, negligent supervision and retention, breach of fiduciary duty, conversion, breach of contract, and breach of the covenant of good faith and fair dealing. It requested money damages, an accounting, and the imposition of a constructive trust. Although Park Place's complaint included a breach of contract claim, it did not mention the Tucker Act as a basis for the district court's jurisdiction over that claim, but instead relied on supplemental jurisdiction for all the state law claims.

The United States moved to dismiss Park Place's complaint, contending that the Central District of California lacked subject matter jurisdiction over Park Place's claims. The Central District of California granted the United States' motion and, in December 1998, dismissed the case with prejudice with respect to all claims except the four contract claims. As to the contract claims, the Central District of California explained that although federal district courts have concurrent jurisdiction with the Court of Federal Claims as to contract claims against the United States not exceeding $10,000, the Court of Federal Claims has exclusive jurisdiction over contract claims in excess of $10,000. See 28 U.S.C. §§ 1346(a)(2), 1491(a)(1). The Central District of California directed Park Place to file its contract claims in the proper forum, the Court of Federal Claims.

On October 26, 1999, Park Place filed a complaint in the Court of Federal Claims,...