The opinion of the court was delivered by: Paul L. Friedman United States District Judge
Petitioners Data Mountain Solutions, Inc. ("DMS"), Frederick S. Hill, Jr., and Derek McUmber seek confirmation under the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq. ("FAA"), of an award issued by arbitrator Michael Kelley on November 14, 2008. In the alternative, if the Court is not yet prepared to render judgment in this matter, they have moved for the entry of a preliminary injunction that would, among other things, limit the right of respondent Gregg Giordano to dissipate his assets. As an alternative form of prejudgment remedy, the petitioners request preliminary relief under Rule 64 of the Federal Rules of Civil Procedure, which makes available in a federal court every prejudgment remedy, such as attachment, garnishment, or sequestration, that is available "under the law of the state where the court is located" for the purpose of "secur[ing] satisfaction of the potential judgment." FED. R. CIV. P. 64. For his part, Mr. Giordano - who proceeds on his own behalf without claiming to speak for Anthony Watson, the other respondent in this matter - has moved to vacate or modify portions of the arbitration award under Sections 10 and 11 of the FAA.
The Court heard argument on all of the pending motions on January 5, 2010. Based on those arguments, the parties' written submissions, and the entire record in this case, the Court will confirm the arbitration award in its entirety, deny the motion to vacate or modify, and deny the pending motions for preliminary relief as moot.*fn1
A. The Dispute Leading to Arbitration
DMS is a small, closely held corporation formed under the laws of West Virginia. Orig. Compl. ¶¶ 3, 9. It is engaged in the business of electronic data management, id. ¶ 3, and derives its revenue primarily from its work for another company, NativeTechnologies, Inc. ("NTI"), which has contracted with the United States General Services Administration ("GSA") to provide technical support for the federal government's email system (the "GSA-NTI contract" or "dotGOV contract"). Id. ¶ 11. Under a subcontract with NTI, DMS supplies the technological products and services required by the GSA in exchange for ninety-five percent of the GSA-NTI contract fees. See Cls.' Pre-Arb. Br. at 2 (NTI receives only five percent of GSA-NTI contract proceeds); Resps.' Pre-Arb. Br. at 2 (same).
On June 2, 2003, under a separate contract ("the Shareholders Agreement"), Mr. Hill, Mr. McUmber, Mr. Giordano, and Mr. Watson were named as the initial shareholders of DMS. See Shareholders Agreement at 15. Each held a one-quarter ownership interest in the company, id. ¶ 12, and was prohibited from selling or otherwise transferring his shares without the written consent of the other three shareholders. Id. ¶ 3(a). Each shareholder promised to vote his shares in favor of the election of all four men to DMS' board of directors; each also promised that he would "continue to serve as a director so long as he retains an ownership interest... in the Corporation." Id. ¶ 1(a). If any of the four transferred his entire ownership interest to someone else, he would "resign from all positions... as an officer and/or director" of DMS at that time. Id. ¶ 1(b). The Agreement also included the following provision:
10. Arbitration and Specific Performance
(a) Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, may, at the option of any party thereto, be resolved by arbitration by a panel of three (3) arbitrators in accordance with the Rules of the American Arbitration Association then prevailing, and such arbitration shall be held in _____________ or other place mutually agreeable to the parties. The decision of such panel shall be enforceable in any court having jurisdiction. The panel can enter an ex parte order if a Shareholder fails or refuses to participate in the arbitration proceeding.
(b) Subject to the foregoing, inasmuch as the shares are closely held and the market for them is limited, irreparable damage would result if this Agreement is not specifically enforced. The parties hereto agree that their respective rights and obligations shall be enforceable in a court of equity by a decree of specific performance and that appropriate injunctive relief may be applied for and granted in connection therewith. Such remedies shall, however, be cumulative and not exclusive and shall be in addition to any other remedies which any party may have hereunder or otherwise.
Shareholders Agreement ¶ 10.
In September 2006, Mr. McUmber, Mr. Hill, and DMS brought suit in this Court against Mr. Giordano, Mr. Watson, and a third defendant not relevant here. Among many other things, Mr. McUmber and Mr. Hill claimed that Mr. Giordano had violated the Shareholders Agreement by buying all but one of Mr. Watson's DMS shares without the consent of Mr. McUmber or Mr. Hill. Orig. Compl. ¶ 14. To pay for those shares, Mr. Giordano allegedly withdrew $60,000 from DMS' corporate accounts and gave some of that money to Mr. Watson. Id. ¶¶ 13-14. He also gave Mr. Watson DMS proprietary technology called "SecuriCabinet" "as purported additional consideration for [Mr. Watson's] relinquishment of his roles and entitlements as a shareholder, director, and officer of DMS." Id. ¶ 14.
Mr. McUmber and Mr. Hill contended that Mr. Watson's sale of his stock to Mr. Giordano was void in light of the Shareholders Agreement. Orig. Compl. ¶¶ 14, 16-17. They also asserted that Mr. Watson had, with the permission of all other shareholders, sold his 22,500 shares of DMS stock back to the company, not to Mr. Giordano, in exchange for the rights to SecuriCabinet and $28,406. Id. ¶ 14.
In addition to this dispute over the disposition of Mr. Watson's shares, there was a disagreement about Mr. Hill's ownership position in the company. According to the plaintiffs, at some point Mr. Hill had "offered to relinquish approximately [two-thirds] of his stock to the corporation in exchange for $32,000, the book value of his stock" at the time. Orig. Compl. ¶ 15 n.2. DMS' corporate counsel, however, claimed that no record of the transaction existed. Id. As a result, the plaintiffs professed to be uncertain of how many shares of DMS stock Mr. Hill owned as of the filing of their original complaint. Id.
The plaintiffs further alleged that Mr. Giordano had used his authority as the self-proclaimed majority shareholder of DMS to divert to himself payments from the GSA-NTI contract that should have been made to Mr. McUmber, Mr. Hill, and/or DMS itself. Orig. Compl. ¶ 42; see also id. ¶ 21. They estimated that the payments under the contract that were wrongfully intercepted and retained by Mr. Giordano amounted to approximately $500,000. Id. ¶ 97; see also id. ¶¶ 44, 74. For this and other harms that allegedly resulted from the defendants' improper corporate transactions, the plaintiffs demanded "at least" $680,607 in compensatory damages, one million dollars in punitive damages per defendant, id. ¶¶ 74, 97, disgorgement of the proceeds of the GSA-NTI contract, id. ¶ 53, specific performance, id. ¶ 61, and declaratory and injunctive relief that would establish, among other things, the entitlement of the plaintiffs "to any and all NTI/GSA-related contract documents and proceeds, checks and other payments due any of the Plaintiffs thereon, that are being retained or withheld by any of the Defendants." Id. ¶ 109(D).
In response to the plaintiffs' complaint, the defendants filed a motion to dismiss or to stay in which they asserted that "every single count of the 45-page Complaint relates to the Shareholde[rs] Agreement,... a valid and binding contract containing an arbitration clause. Giordano has invoked that clause, and the plaintiffs must arbitrate their claims." MTD at 8. The Court agreed, and ordered the case stayed while "the parties... submit their claims to arbitration pursuant to Paragraph 10(a) of the Shareholders Agreement." Data Mountain Solutions, Inc. v. Giordano, Civil Action No. 06-1666, Memorandum Opinion and Order at 5 (D.D.C. Nov. 21, 2006).
Several months later, after the parties had still not proceeded to arbitration, the Court held a status hearing and inquired about the source of the delay. The plaintiffs explained that they were hesitating in part because they were not sure that all of their claims fell within the scope of the Shareholders Agreement's arbitration clause: "[O]ur fear is that we will get to arbitration and Mr. Giordano will say,... I'm only arbitrating those issues that are directly related to the Shareholders' Agreement, and then we're stuck, because we have a stay, we can't proceed to get a remedy for the loss of funds that has occurred since June of 2006." May 18, 2007 Trans. at 4-5. The plaintiffs specifically questioned whether the distribution of proceeds from the GSA-NTI contract was arbitrable. Id. at 3; see also id. at 5. The Court responded that it had ordered the plaintiffs to resolve all of their claims in arbitration, id. at 5, and noted that if any of the parties believed that any of those claims were not arbitrable, they should register that objection immediately. Id. at 10-11. Defendants' counsel raised no objections to the Court's order, merely saying, "I also agree with Your Honor that Your Honor ruled that all these claims are going to be arbitrated, and that was the clear direction of the order. So I don't disagree with you at all." Id. at 10. Ultimately, no party filed a motion to amend the Court's order mandating arbitration of all issues, and the parties proceeded to arbitration.*fn2
B. Arbitration Proceedings
In their Statement of Claim before the arbitrator, the plaintiffs/petitioners (called "claimants" during the arbitration) recited the same facts that they included in the complaint filed with the Court. They alleged that Mr. Giordano had used corporate funds to make an invalid purchase of Mr. Watson's stock, Statement of Claim ¶¶ 11-12, and that Mr. Watson also wrongly claimed that he received SecuriCabinet from Mr. Giordano in exchange for his "relinquishment of his roles and entitlements as a shareholder, director, and officer of DMS." Id. ¶ 12. They repeated their claim that Mr. Watson had agreed to sell his shares to DMS, not to Mr. Giordano, and that the sale had been approved by all shareholders in conformity with the Shareholders Agreement. Id. And they once again asserted that "Giordano has intercepted, and now holds, substantial payments from DMS's client, NTI, that are intended for, and payable to, Claimants DMS and McUmber." Id. ¶ 19. They claimed that they had sustained approximately $500,000 in damages as a result of this diversion of payments from NTI, id. ¶ 32, and requested that Mr. Giordano be required to "disgorge... to the Claimants... any and all contract proceeds, checks and other payments due the Claimants but that are being wrongfully retained or withheld by the Respondents," id. at 13, including "all proceeds of DMS' subcontract with NTI, excepting those payments due and payable to Giordano consistent with agreements and practices in place as of June, 2006." Id. at 14-15. Furthermore, the Claimants requested "rescission of any DMS stock issuances or transfers to Mr. Giordano above the equal 'ownership proportion' to which he committed and agreed under the Shareholders' Agreement." Id. at 16.
In their response to the Statement of Claim, the defendants/respondents denied that Mr. Watson had sold any stock back to DMS, admitted that the attempted sale of Mr. Watson's stock to Mr. Giordano was void, and insisted that Mr. Hill had sold most of his stock back to the company. Answering Statement at 2-3. They raised no objection to the arbitrability of any of the claims contained in the Statement of Claim.
In their pre-arbitration brief, the claimaints asked for binding declarations by the arbitrator to the effect that (1) Mr. Watson no longer had any ownership interest in DMS, PreArb. Brief at 1; (2) Mr. Hill owned 19,000 shares in DMS, id. at 1-2; and (3) Mr. McUmber and Mr. Giordano were each entitled to 23 percent of the proceeds paid to NTI by the GSA, with DMS receiving 49 percent and NTI the remaining 5 percent. Id. at 2. They further requested that Mr. Giordano pay to Mr. McUmber any revenue under the NTI contract that was still owed to him (McUmber). Id. at 3.
The respondents, in their responsive pre-arbitration brief, made no objections to the arbitrability of any of the claims raised by Mr. McUmber and Mr. Hill. They instead maintained that (1) Mr. Hill had sold approximately 16,000 shares of his DMS stock back to the company, Resps.' Pre-Arb. Br. at 2; (2) Mr. Watson had never sold any of his own stock to DMS, id. at 6; and (3) pursuant to a contract called the "Teaming Agreement" signed by Mr. Giordano, DMS, and NTI in January of 2003, Mr. Giordano was entitled to 47.5 percent of all GSA-NTI contract proceeds, DMS to another 47.5 percent, NTI to 5 percent, and Mr. McUmber to none.
Id. at 1-2. They too sought relief from the arbitrator, seeking, among other things, "a declaration of the correct ownership percentages of DMS," "an accounting of all DMS funds expended by Hill and McUmber since May 25, 2006," and "the return to DMS of all monies and expenditures by Hill and McUmber not authorized by the Board of Directors, including salary, bonuses and expenses." Id. at 7-8.
On November 15, 2007, the arbitrator sent to the parties an email message in which he stated:
There is a... set of issues and relief requested that I indicated to the parties I do not believe is in the scope of the arbitration clause in the Shareholders Agreement for Data Mountain Solutions, e.g. issues that might require me to determine individual entitlements under contracts with third parties. I informed the parties that I would be pleased to consider these issues pursuant to a submission agreement.
MTV, Ex. 3. In response, the claimants indicated that they were "willing to submit all of their disputes with Mr. Giordano (and Mr. Watson) to the arbitrator for a decision." MTV, Ex. 4. The respondents raised only one objection: they asserted that certain claims included in the plaintiffs' complaint before this Court were not contained in the Statement of Claim. According to Mr. Giordano and Mr. Watson, the supposedly omitted claims had been "waived." MTV, Ex. 5 at 1. They went on to say:
Our view is that such additional counts and relief sought were arbitrable, and are subject to the arbitration clause; our only objection to their being heard at this late date is the failure to file them in arbitration as ordered by the Court.... Should you rule that such claims have not been waived and may be raised at this late juncture, we would obviously have no objection to their being arbitrated: indeed, Judge Friedman's order required them to be arbitrated.
After hearing the parties' initial arguments, the arbitrator issued what he called a "partial award" on December 4, 2007. He declared, among other things, that Hill, Watson, McUmber, and Giordano each owned 22,500 shares of DMS stock, Partial Award ¶ 2, and that various other individuals and entities ("third-party shareholders") owned a total of 1,234 additional shares. Id. He further declared that Hill, Watson, McUmber, and Giordano still constituted the company's board of directors, with Mr. Hill as chairman. Id. ¶ 3. The arbitrator prohibited any shareholder from transferring any DMS shares or attempting to change the composition of the board of directors before the issuance of the arbitrator's final award. Id. ¶¶ 2-3. Because DMS' third-party shareholders routinely voted with Mr. Giordano and Mr. Watson, this initial ruling by the arbitrator left the respondents in control of the company. See MTV at 13. At the conclusion of the Partial Award, the arbitrator noted that the proceedings before him had not yet concluded, explaining that "[a]ny other relief sought by the parties" would be "determined in the Final Award of this matter." Id. ¶ 7.
On January 8, 2008, the arbitrator issued an "interim order" in which he declared that, from the date of his order until the conclusion of the arbitration, "Claimant McUmber shall be entitled to receive from DMS... $10,000 monthly dating back to September 2007 for services rendered by him on the dotGOV contract," plus payment at a specified hourly rate for work on another contract. Interim Order ¶ 2(a). The arbitrator also ordered the company to ...