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NAING INT'L ENTERPRISES v. ELLSWORTH ASSOCS.

April 3, 1997

NAING INTERNATIONAL ENTERPRISES, LTD., Claimant,
v.
ELLSWORTH ASSOCIATES, INC., and TRINH L. ELLSWORTH, Respondents.



The opinion of the court was delivered by: SPORKIN

 BACKGROUND

 By Merger Agreement dated December 1, 1994, NIE, EAI, and Mrs. Ellsworth entered into a written contract providing for the merger of NIE and EAI. In Article 3.4 of the Merger Agreement, NIE represented and warranted that: (a) it was certified by the Small Business Administration ("the SBA") as a small disadvantaged business eligible for participation in the SBA's Section 8(a) Program (15 U.S.C. § 637(a)), which provides for preferences in government contracting for disadvantaged minority-owned firms; (b) it had filed all required reports, business plans and other information required by the SBA in connection with participation in the Section 8(a) Program; (c) all information it had submitted to the SBA was accurate, complete and current; and (d) it had fully complied with all program requirements and had not taken any actions or failed to act in such a way as would warrant or justify termination or suspension from the program.

 A dispute arose between the parties concerning NIE's compliance with Article 3.4 of the Merger Agreement and EAI and Mrs. Ellsworth's failure to go to closing on the transaction. The dispute was submitted to arbitration pursuant to the Merger Agreement under the auspices of the American Arbitration Association ("AAA"), No. 16-199-00408-95. Messrs. Richard J. Leighton, Warren G. Wickersham, and Ross G. Macaulay were appointed neutral arbitrators by the AAA. Arbitration hearings were conducted from April 15 through April 19, 1996. On June 5, 1996, the arbitrators issued an unanimous award, ordering that EAI and Mrs. Ellsworth, individually and jointly, pay to NIE: (a) $ 2,474,878.00 plus interest at the rate of nine percent per year from September 30, 1995 to the date of payment of the award; (b) $ 6,230.44 for NIE's share of AAA administrative fees and expenses previously advanced by NIE to the AAA; and (c) $ 9,984.44 for NIE's share of the arbitrator's compensation previously advanced by NIE to the AAA. On June 16, 1996, the claimant filed the instant Motion to Confirm the Arbitration Award, and on June 19, 1996, the respondents filed their Application to Vacate the Arbitration Award also now before the Court. On June 21, 1996, NIE's counsel sent the SBA for review a letter whereby NIE would voluntarily withdraw from the Section 8(a) Program. NIE withdrew from the program on July 19, 1996.

 DISCUSSION

 I. The Arbitrary Denial of a Reasonable Request for a Postponement May Serve as Grounds for Vacating an Arbitration Award.

 Section 10(a)(3) of the Federal Arbitration Act, 9 U.S.C. § 10(a)(3), provides that a United States court in and for the district wherein an arbitration award was made may issue an order vacating the award where

 
the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy ....

 See District of Columbia Uniform Arbitration Act, D.C. Code § 16-4311(a)(4) ("the Court shall vacate an award where ... the arbitrators refused to postpone the hearing upon sufficient cause being shown therefor"); Virginia Uniform Arbitration Act, Va. Code § 8.01-581.010(4) (same). The respondents in this case assert that the arbitrators were guilty of such misconduct when they refused to grant the respondents a continuance in order to allow the SBA to complete its investigation into NIE's eligibility for the Section 8(a) Program. *fn1" The Court agrees.

 The arbitrary denial of a reasonable request for a postponement may serve as grounds for vacating an arbitration award. Fairchild & Co., Inc. v. Richmond, Fredericksburg and Potomac Railroad Co., 516 F. Supp. 1305, 1313 (D.D.C. 1981)(citing Tube & Steel Corp. of America v. Chicago Carbon Steel Products, 319 F. Supp. 1302 (S.D.N.Y. 1970)). However, arbitrators are to be accorded a degree of discretion in exercising their judgment with respect to a requested postponement. Thus, if there exists a reasonable basis for the arbitrators' decision not to grant a continuance, the Court will be reluctant to interfere with the award on these grounds. Id. Nonetheless, if the failure of an arbitrator to grant a postponement or adjournment results in the foreclosure of the presentation of "pertinent and material evidence," it is an abuse of discretion. Insurance Co. of North America v. St. Paul Fire & Marine Insurance Co., 215 A.D.2d 386, 626 N.Y.S.2d 232, 233 (N.Y. App. Div. 1995) (citing Matter of Bevona, 204 A.D.2d 136, 611 N.Y.S.2d 193, 195 (N.Y. App. Div. 1994)).

 II. The Arbitration Award in this Case Must Be Vacated Because the Arbitrators Erred When They Refused to Postpone the Arbitration Hearing.

 Upon careful consideration of the record in this case, the Court concludes that the arbitration award must be vacated because the arbitrators erred when they refused to grant the respondents a continuance so that the SBA could complete its investigation into the claimant's eligibility for the Section 8(a) Program and the resulting SBA action or other disposition of the investigation could be placed in the record and considered by the panel.

 A. The Arbitration Panel Should Have Postponed the Hearing Until the SBA Investigation and Any Resulting Action Were Completed and Could ...


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