US for Kirchdorfer v. Aegis/Zublin Joint Venture

• Decision Date: 01 August 1994
• Docket Number: No. 2:89cv11.,2:89cv11.
• Parties: UNITED STATES of America FOR the Use and Benefit of SKIP KIRCHDORFER, INC. and Joseph C. Kirchdorfer, Plaintiffs, v. AEGIS/ZUBLIN JOINT VENTURE, Zublin Delaware, Inc., Ed. Zublin AG, and Federal Insurance Company, Defendants.
• Court: U.S. District Court — Eastern District of Virginia

869 F. Supp. 387

UNITED STATES of America FOR the Use and Benefit of SKIP KIRCHDORFER, INC. and Joseph C. Kirchdorfer, Plaintiffs, v. AEGIS/ZUBLIN JOINT VENTURE, Zublin Delaware, Inc., Ed. Zublin AG, and Federal Insurance Company, Defendants.

No. 2:89cv11.

United States District Court, E.D. Virginia, Norfolk Division.

August 1, 1994.

COPYRIGHT MATERIAL OMITTED

Laurence J. Zielke, Charles F. Merz, Michael Lowe, Pedley, Ross, Zielke, Gordinier, Louisville, KY, G. William Birkhead, Deborah Mancoll (Local Counsel), William E. Franczek, Vandeventer, Black, Meredith & Martin, Norfolk, VA, for plaintiffs.

Kenneth H. Lambert, Jr., Williams, Kelly & Greer, Norfolk, VA, Ernest M. Stern, Graham & James, Washington, DC, for Aegis/Zublin, Zublin Delaware, and Ed. Zublin, AG and Federal Ins. Co.

Andrew D. Ness, Morgan, Lewis & Bockius, Washington, DC, for Ed. Zublin AG and Federal Ins. Co.

Henry H. McVey, III, McGuire, Woods, Battle & Boothe, Richmond, VA, for Aegis/Zublin Joint Venture, Zublin Delaware, Inc. and Ed. Zublin AG.

Robert G. Watt, Barbara G. Werther, Eric M. Drattell, Watt, Tieder, Killiam & Hoffar, McLean, VA, for USF & G.

MEMORANDUM OPINION AND ORDER

MacKENZIE, Senior District Judge.

This matter is before the Court on a variety of motions presented by both plaintiff and defendants. These motions were argued before the Court on Monday, July 18, 1994. For the reasons set forth below, the Court lifts the stay and enters judgment in accordance with the arbitration award of March 18, 1994.

I. FACTS AND PROCEDURAL HISTORY

On July 3, 1985, Skip Kirchdorfer, Inc. ("SKI") agreed to a subcontract from the American Export Group, Inc. ("AEGIS") to provide all labor, tools, and equipment to construct 125 military family housing units at Guantanamo Bay, Cuba, in the event that AEGIS received the government contract for the job. Several months later, on November 25, 1985, AEGIS and Ed. Zublin AG, a German corporation, formed a joint venture to execute the Navy contract. In accordance with the joint venture agreement, AEGIS and Zublin executed as co-principals a Miller Act payment bond issued by Federal Insurance Company ("Federal") in the amount of $2.5 million.¹ On January 31, 1986, AEGIS and Zublin executed an amendment to their joint venture agreement, reflecting Zublin's intention to transfer its interests in the joint venture to its wholly-owned subsidiary, ZDI. On June 14, 1986, SKI executed a subcontract agreement for $4 million with the AEGIS/Zublin Joint Venture.

The subcontract agreement provided that any claims arising out of the agreement would be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association. The agreement further provided that the arbitrator's award would be final and judgment entered in accordance with the applicable law in any court having jurisdiction. Finally, the agreement provided that the prevailing party in any arbitration would be entitled to recover reasonable attorneys' fees, costs, charges and expenses incurred.

Delays during the construction caused plaintiffs to file this action under the Miller Act, 40 U.S.C. § 270a, et seq., in January, 1989, against the AEGIS/Zublin Joint Venture, ZDI, Zublin, and Federal (collectively, "the defendants") for breach of contract, quantum meruit, trade defamation and libel. On September 14, 1989, the Court stayed the case pending the outcome of the arbitration. This arbitration, conducted in New York before three experienced arbitrators, extended over 5 years and consisted of over 120 separate hearings. On March 22, 1994, the arbitrators issued their final decision awarding SKI $2,631,555.00 on its claims², $709,550.00 in attorney's fees, and $1,939.82 in administrative fees and expenses. SKI was also awarded 9% interest on the balance of the awards (not including the administrative fees) not paid within thirty (30) days of March 22, 1994.

SKI now requests the Court to lift the stay and confirm the arbitration award. In addition, it also requests that the Court pierce the corporate veil of ZDI and hold its parent company, Zublin, liable for the full amount of the arbitration award. The joint venture, on the other hand, has moved the Court to vacate the arbitration award. Finally, Federal, the surety on the bond, argues that even if the arbitration award is confirmed, it cannot be held liable for the full sum of the bond because the arbitrators' award may encompass costs that are not covered by a Miller Act payment bond.

II. DISCUSSION OF AUTHORITY

A. Jurisdiction of this Court to Enter Judgment.

As a preliminary matter, the defendants argue that this Court does not have jurisdiction to confirm the arbitration award. Section 9 of the Federal Arbitration Act provides that:

If the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration, and shall specify the court, then ... any party to the arbitration may apply to the court so specified for an order confirming the award ... If no court is specified in the agreement of the parties, then such application may be made to the United States court in and for the district within which such award was made.

9 U.S.C. § 9 (1988) (emphasis added). In this case, no court was specified in the subcontract to confirm the award. The arbitration, however, was conducted in New York.

The circuits are split as to whether the default provision of section 9 is permissive or mandatory — i.e. whether, in absence of an agreement, confirmation must be brought in the district where the award was made or merely can be brought there. See, e.g., In re VMS Securities Litigation, 21 F.3d 139, at 145 (7th Cir.1994) (Section 9 is permissive); Smiga v. Dean Witter Reynolds, Inc., 766 F.2d 698, 706 (2d Cir.1985), cert. denied, 475 U.S. 1067, 106 S.Ct. 1381, 89 L.Ed.2d 607 (1986) (permissive); Sunshine Beauty Supplies, Inc. v. United States Dist. Court for the Central Dist. of Cal., 872 F.2d 310, 312 (9th Cir.1989) (mandatory). While the Fourth Circuit has not ruled on this issue, at least one district court in this circuit has found the venue provision to be merely permissive. See Amalgamated Clothing and Textile Workers Union v. Fed'n of Union Representatives, 664 F.Supp. 995, 996 (S.D.W.Va.1987) ("This Court joins other courts in holding that the language of the Federal Arbitration Act is permissive rather than exclusive."). Recently, the Seventh Circuit conducted an extensive analysis of section 9 of the Arbitration Act and, after reviewing the case law of other circuits, the wording of the statute and the policy behind the provision, concluded that it is a permissive venue statute. VMS, 21 F.3d, at 145. The Court agrees with that analysis. Moreover, after successfully petitioning this court in this same Miller Act case in 1989 to set aside an early default judgment against the Miller Act surety, Federal (it had failed to answer), counsel for all the defendants asked for the stay of these proceedings pending outcome of the ongoing arbitration. Counsel volunteered that with Federal properly on board all parties herein would be bound by the arbitrators' decision. Because this Court has subject-matter jurisdiction over the case, it has authority to confirm the arbitration award made in New York.

B. Defendants' Motion to Vacate the Arbitration Award.

The defendants, however, have moved the Court to vacate the arbitration award. The mechanics for such action are set up in Section 10 of the Federal Arbitration Act which provides that a court can vacate an arbitration award only where: (1) the award was procured by corruption, fraud, or undue means; (2) there was evident partiality or corruption in the arbitrators; (3) the arbitrators were guilty of misconduct in refusing to postpone the hearing, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or (4) the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award was not made. 9 U.S.C. § 10 (1988).

Courts are in unanimous agreement that an arbitrators' award is entitled to a special degree of deference. Upshur Coals Corp. v. United Mine Workers of America, Dist. 31, 933 F.2d 225 (4th Cir.1991). In fact, the Court's jurisdiction under the Federal Arbitration Act is strictly limited to avoid frustrating the purpose of arbitration — avoiding litigation. Jardine Matheson & Co., Inc. v. Saita Shipping, Ltd., 712 F.Supp. 423, 426 (S.D.N.Y.1989) Thus, where the challenge to an award does not go to the arbitrators' fundamental power but instead, as in this case, involves the merit of an award as made, "the standard of justification is much more stringent ... and they must be considered presumptively unjustified." United Food and Commercial Workers, Local 400 v. Marval Poultry Co. 876 F.2d 346, 351 (4th Cir. 1989). As this Circuit has found, an "award is enforceable `even if the award resulted from a misinterpretation of law, faulty legal reasoning or erroneous legal conclusion' and may only be reversed `when arbitrators understand and correctly state the law, but proceed to disregard the same.'" Upshur, 933 F.2d at 229 (citations omitted).

The defendants argue that the arbitration award in this case should be vacated because: (1) the liability award was irrational; (2) the damage award was irrational and exceeded the powers of the arbitrators; (3) the damage award was made in manifest disregard for the law; and (4) the attorneys fees award was made without allowing further live witnesses and argument pertinent to that award.

Defendants argue that it was irrational for the arbitrators to rule in plaintiffs favor based on the testimony of the witnesses when only one plaintiff's witness appeared and was opposed by 10 defendants' witnesses. Clearly, this is not a proper basis for...