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FAIRCHILD & CO. v. RICHMOND

June 30, 1981

FAIRCHILD & COMPANY, INC., Plaintiff,
v.
RICHMOND, FREDERICKSBURG AND POTOMAC RAILROAD COMPANY, Defendant



The opinion of the court was delivered by: SIRICA

MEMORANDUM

 Jurisdiction has been premised on the diversity of citizenship in that Richmond, an interstate rail carrier, has its principal place of business in Virginia, and Fairchild is a District of Columbia corporation.

 Richmond is the owner of a 38.5 acre tract of land in Alexandria, Virginia, situated between its Potomac freight yard and the George Washington Memorial Parkway, which runs along the tract's eastern border. In 1971, Fairchild, intending extensive commercial development of this property, entered into an agreement with Richmond whereby Fairchild obtained a 99-year lease of the tract. The controversy in this case has its origins in that lengthy document, which represents a comprehensive agreement between the parties setting forth their mutual rights, obligations and commitments under a plan providing for the development of the tract into a commercial complex to be known as the Potomac Center. The nature of the Potomac Center commercial complex as contemplated by Fairchild and Richmond is set forth in the leasing agreement which they executed. It addresses the construction of a development consisting of office buildings, apartment houses, stores, hotels and motels, parking garages, and other improvements of a quality and workmanship comparable to the nearby Crystal City complex.

 Of course, to facilitate the development and commercial success of such a complex, it was necessary to assure adequate public access to the property. This originally presented a problem, because the Potomac Center was considered "landlocked" insofar as commercial development was concerned. That is to say, the only road which could meet the needs and goals of the contemplated development was the George Washington Memorial Parkway, a limited access national highway lacking ingress or egress to the property.

 In order to alleviate this shortcoming, Charles Fairchild, the president and principal owner of Fairchild, had previously executed an "Exchange Agreement" with the United States government to permit the construction of suitable access facilities between the Parkway and the Potomac Center. In return for the granting of these access rights, Mr. Fairchild agreed, in part, to deliver to the United States another tract of land south of Alexandria, Virginia consisting of some 28.8 acres.

 This exchange was referred to in the leasing agreement, which also provided for the construction of the necessary access facilities between the Parkway and the Potomac Center. Pursuant to the leasing agreement, Fairchild was to undertake and complete all of the necessary access construction by December 31, 1977, in addition to conveying the other 28.8 acres of property to the government. In return, Richmond agreed to pay Fairchild one million dollars as its contribution to the effort. Richmond's payment schedule to Fairchild provided for an initial $ 500,000 advance which was to be given after the lease and the property exchange agreement were executed and the deed for the 28.8 acre tract of land was recorded and accepted by the government. Fairchild, in return, agreed to pledge a performance bond or other security in the same $ 500,000 amount to assure completion of the access facilities prior to December 31, 1977. Additionally, Richmond placed $ 200,000 in an escrow account to be paid to Fairchild should it meet the deadline and to be returned to Richmond if it should not. Finally, the remaining $ 300,000 was to be paid to Fairchild in future years from the excess of the "net cash flow," a property income figure to be calculated according to a formula set forth in another section of the lease.

 In the interim, there was another development with regard to the provisions of the lease. The Washington Metropolitan Area Transit Authority sought to obtain a portion of the Potomac Center for purposes of constructing a subway line between National Airport and Alexandria. A condemnation trial was had in the United States District Court for the Eastern District of Virginia and the jury awarded $ 922,250 as compensation for the permanent taking and an additional $ 80,000 as compensation for the temporary easement used during the subway line construction. Despite the fact that the leasing agreement contained a lengthy provision relating to eminent domain awards, a dispute subsequently arose between the parties over these proceeds and the proper distribution of them.

 Thereafter, Fairchild sent two letters, both dated May 11, 1979, to Richmond. The first of these indicated Fairchild's intent to submit the matter involving the $ 500,000 construction bond to arbitration pursuant to Article XXIV of the leasing agreement. That article provides:

 
Any controversy, claim or dispute arising out of or relating to this Agreement or to the interpretation, breach or enforcement thereof shall be submitted to arbitration in accordance with the rules then obtaining of the American Arbitration Association. Any award made as a result of arbitration shall be final, binding and conclusive on all parties hereto for all purposes, and judgment may be entered thereon in any court having jurisdiction.

 The second letter consisted of a settlement offer with regard to the condemnation award, with a proviso that, in the event the offer was not accepted, the letter was to constitute a demand for arbitration pursuant to Article XXIV of the leasing agreement.

 On June 15, 1979, Richmond itself filed a formal demand for arbitration pursuant to the arbitration provision of the leasing agreement, seeking disposition of the proceeds of the condemnation award in accordance with the various terms of the lease. This was followed shortly thereafter on June 18, 1979, with a second formal demand for arbitration pursuant to the lease, seeking repayment of the $ 500,000 which had been provided to Fairchild upon condition that it complete the access facilities to the Potomac Center by December 31, 1977.

 Fairchild, in turn, responded with its own formal demand for arbitration pursuant to the lease on June 26, 1979, seeking a determination as to whether Richmond improperly declared a default and would have to return to escrow the $ 200,000 it had withdrawn, plus interest.

 The arbitration proceeding took place between December 11 and 14, 1979, consuming three days, with a break of a day between the second and third. Both parties participated in the selection of the arbitrators and the proceedings were governed by the rules of the American Arbitration Association. No transcript of the proceedings was made and the panel issued no findings of fact or conclusions of law. With respect to the condemnation proceeds, Fairchild was awarded $ 129,006.47, and Richmond was awarded $ 10,000.00. The balance was divided between the two parties with Richmond to receive 92 percent and Fairchild to receive 8 percent, which amount was to be included in calculating the "net cash flow" figure of the leasing agreement. Richmond's claim for repayment of the $ 500,000 it had provided to Fairchild was granted along with interest at the rate of 11 percent. Fairchild's claim for the return to escrow of $ 200,000 plus interest was denied.

 The jurisdiction of the Court in this action is premised upon diversity of citizenship, insofar as Richmond, an interstate rail carrier, has its principal place of business in Virginia, and Fairchild is a District of Columbia corporation. A diversity action such as this, brought to determine the validity of an arbitration award, will be decided upon the law of the applicable state, unless it falls within the provisions of the United States Arbitration ...


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