The opinion of the court was delivered by: HARRIS
This matter is before the Court on petitioner's petition to confirm the arbitral award, petitioner's motion for default judgment, respondent's counter-motion to set aside entry of default, petitioner's renewed motion to confirm arbitral award, and respondent's motion to dismiss. Upon consideration of the entire record, the Court grants respondent's motion to set aside entry of default, grants petitioner's petition to confirm the arbitral award, and denies the remaining motions.
In this action to confirm an arbitral award, petitioner Asia North America Eastbound Rate Agreement ("ANERA") seeks to collect liquidated damages from respondent BJI Industries, Inc. ("BJI"), for a shortfall in the quantity of goods that were to be shipped for BJI during the period March 24, 1987, to March 23, 1988.
ANERA is a Hong Kong based conference of ocean common carriers established pursuant to the Shipping Act of 1984, 46 U.S.C. app. §§ 1701 et seq. ("the Act").
In March of 1987, ANERA allegedly entered into Service Contract No. 262/87 ("the Service Contract") with BJI, a Texas corporation.
The Service Contract was allegedly signed on BJI's behalf by Eric Ko, an employee of TRC Textile Co., Ltd. ("TRC"), a Taiwanese company. TRC serves as an overseas buying agent that has the authority to find carriers and negotiate shipping rates for BJI. Under the Service Contract, BJI agreed to ship and ANERA agreed to carry a minimum of 150 forty-foot equivalent container units ("FEUs") of garments from ports in the Far East to several ports or points in the United States during the period from March 24, 1987, to March 23, 1988. The Service Contract further provided that if BJI failed to ship the minimum quantity of cargo, then BJI would pay liquidated damages (known as "deadfreight") in the amount of $ 2,450.00 per FEU.
On March 23, 1988, when the Service Contract expired, BJI had shipped only 127.605 FEUs; thus, there was a shortfall of 22.395 FEUs. In October of 1989, ANERA notified BJI that it owed ANERA $ 54,867.75 in deadfreight liability.
In December of 1989 and February of 1990, counsel for BJI claimed that TRC was never authorized to bind BJI to any contract, and therefore, that no valid contract existed between ANERA and BJI. On March 18, 1993, ANERA demanded arbitration pursuant to Article 17(a) of the Service Contract, and on March 26, 1993, BJI notified ANERA of its refusal to submit to arbitration.
On June 1, 1993, the Hong Kong International Arbitration Centre ("HKIAC") appointed Robin S. Peard as arbitrator. The following day, counsel for BJI wrote to the HKIAC disputing the validity of the arbitration and the appointment of an arbitrator. Included in this correspondence was a sworn statement, taken in September of 1992, in which BJI's president stated that TRC was not authorized to sign the Service Contract on BJI's behalf. BJI did not file further submissions thereafter.
In order to determine the validity of the arbitration agreement, the arbitrator considered whether TRC had authority to sign the Service Contract on behalf of BJI, and determined that it did. On February 28, 1994, the arbitrator awarded ANERA $ 94,388.01, which BJI did not pay.
On April 22, 1994, ANERA filed the petition to confirm the arbitral award against BJI in this court. On June 28, 1994, the Clerk of the Court entered a default against BJI. ANERA now renews its efforts to collect the liquidated damages.
A court may set aside an entry of default if good cause exists. Fed. R. Civ. P. 55(c). Although a decision to set aside an entry of default lies within the discretion of the trial court, the "exercise of that discretion entails consideration of whether (1) the default was willful, (2) a set-aside would prejudice the plaintiff, and (3) the alleged defense was meritorious." Keegel v. Key West & Caribbean Trading Co., 200 U.S. App. D.C. 319, 627 F.2d 372, 373 (D.C. Cir. 1980) (citations omitted); accord Jackson v. Beech, 205 U.S. App. D.C. 84, 636 F.2d 831, 837-38 (D.C. Cir. 1980). Moreover, judgment by default is normally reserved for a "totally unresponsive party" because a resolution on the merits is preferable to a judgment by default. Jackson, 636 F.2d at 836; Pulliam v. Pulliam, 156 U.S. App. D.C. 25, 478 F.2d 935, 936 (D.C. Cir. 1973); H.F. Livermore Corp. v. Aktiengesellschaft Gebruder Loepfe, 139 U.S. App. D.C. 256, 432 F.2d 689, 691 (D.C. Cir. 1970). In the present case, once the three factors of willfulness, prejudice, and the presence of a meritorious defense are weighed, it becomes clear that a default judgment should not be entered against BJI.
BJI contends that it did not receive the Clerk's notice of entry of default or ANERA's motion for default judgment until after BJI's counsel discovered on August 11, 1994, that these documents were on file with the Court. BJI further contends that its initial failure to participate in this Court's proceedings was due to its good faith belief that it was not a party to the Service Contract. ANERA, however, argues that BJI has been unresponsive throughout this action by refusing to participate in the arbitration proceeding, and by not filing any motion or answer with the Court in response to the petition to confirm the arbitral award. In deciding whether to set aside a default or default judgment, the record must be construed in the light most favorable to the moving party. Jackson, 636 F.2d at 836. Applying this standard of review, the Court finds that BJI's conduct does not rise to the level of "willful" behavior contemplated by Keegel. See Keegel, 627 F.2d at 374.
ANERA also argues that because the arbitrator had determined that BJI was bound by the Service Contract, including the agreement to arbitrate, BJI could not in good faith remain unresponsive to the petition to confirm the arbitral award. The Court disagrees. It is established that the courts, not arbitrators, must decide whether the parties before them had a valid agreement to arbitrate the dispute in question. AT&T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 106 S. Ct. 1415, 1418-19, 89 L. Ed. 2d 648 (1986); National R.R. Passenger Corp. v. Boston & Maine Corp., 271 U.S. App. D.C. 63, 850 F.2d 756, 759 (D.C. Cir. 1988); Weatherly Cellaphonics Partners v. Hueber, 726 F. Supp. 319, 321 (D.D.C. 1989). Thus, the arbitrator's conclusions concerning the validity of the Service Contract are not binding. Moreover, counsel for BJI moved to set aside the entry of default on August 25, 1994, approximately four months after the petition to confirm the arbitral award was filed. Despite its somewhat tardy appearance, BJI cannot be considered a "totally unresponsive party." See Jackson, 636 F.2d at 836. As a result, the willfulness factor weighs heavily against an entry of a default judgment.
B. Prejudice to the Petitioner
ANERA contends that setting aside the default will cause it to suffer prejudice by delaying the entry of relief and an award of attorneys' fees in its favor. However, the delay of satisfaction of a prevailing plaintiff's claim is insufficient to establish prejudice. ...