The opinion of the court was delivered by: Reggie B. Walton United States District Judge
These two cases arise from identical underlying facts. In Civil Action 09-cv-1483 (RBW), the petitioners, Contech Construction Products, Inc. and Patrick Harlow (collectively "Contech"), petition the Court "to vacate a portion of [a] [p]artial [Arbitration] Award" ("Partial Award") rendered in favor of the respondent, Werner Heierli ("Heierli"), on May 7, 2009. Petition to Vacate a Portion of the Arbitration Award ("Contech's Pet. to Vacate") at 1-5. In response, Heierli opposes Contech's petition and has filed a cross-petition seeking confirmation of the Partial Award. Subsequently, on November 12, 2009, a final arbitration award was rendered in favor of Heierli, along with interest, attorneys' fees, and costs ("Final Award"). Then, on November 20, 2009, Heierli instituted the second case, Civil Action 09-cv-2204, petitioning the Court to confirm the Final Award. Petition and Motion of Werner Heierli to Confirm Arbitration Award ("Heierli's Pet. to Confirm") at 1. Contech opposes the petition to confirm the Final Award and has cross-petitioned to vacate the Final Award. Memorandum In Opposition to the Petition of Werner Heierli to Confirm Arbitration Award and Cross-Petition of Contech Construction Products Inc. to Vacate the Arbitration Award ("Contech's Cross-Pet. to Vacate") at 1. Accordingly, both cases involve the same parties and their resolution turns on the question of whether the two awards entered by the arbitrator are enforceable.
For the reasons that follow, the Court must grant both Heierli's Cross-Petition to enforce the Partial Award and his Petition to Confirm the Final Award. Thus, the Court must deny both Contech's Petition to Vacate the Partial Award and its Cross-Petition to Vacate the Final Award.
A. Civil Action 09-cv-1483
Contech Construction Products, Inc. is the sole majority shareholder of BEBOTechCorporation ("BEBOTech") and Patrick Harlow is the President of BEBOTech's Board of Directors. Contech's Pet. to Vacate ¶ 8. Werner Heierli is the sole minority shareholder of BEBOTech. Id.
Contech and Heierli entered into a Stockholders' Agreement and several other related agreements on May 2, 2003. Id. ¶ 9. The agreements contain identical dispute resolution provisions requiring the parties to "attempt in good faith to resolve any dispute arising out of or relating to this Agreement promptly by negotiation . . . failing which the parties shall endeavor to resolve any dispute . . . by mediation under the CPR Mediation procedure." Id., Ex. A at 12. If negotiations and mediation are unsuccessful, the dispute resolution clauses require the parties to arbitrate "[a]ny controversy or claim arising out of or relating to [the agreements in the International Institute for Conflict Prevention and Resolution ("CPR")] . . . in accordance with the CPR Rules for Non-Administered Arbitration." Id. The agreements also provide that any arbitration proceedings will be held in Washington, D.C. Id.
On March 23, 2007, after unsuccessful attempts to negotiate and mediate a dispute between the parties, Heierli filed an arbitration demand against Contech "asserting individual and derivative claims for breach of contract and breach of fiduciary duty". Id. ¶ 13. On May 7, 2009, Arbitrator Nancy Lesser (the "Arbitrator") issued a Partial Award finding that: (1) Contech had breached its contractual duties to Heierli; (2) Contech had breached its fiduciary duties to Heierli; (3) Heierli was entitled to at least the minimum amount of the value of his interest (his shares) in BEBOTech pursuant to the formula adopted in the Stockholders' Agreement, upon exercise of his "Put Option" in that agreement; (4) Contech could not include certain charges and fees in determining Heierli's share value under the Stockholders' Agreement formula; and (5) Heierli was permitted to petition for an interim award of "reasonable attorney's fees and costs in proceedings to be scheduled following the issuance of [the] Partial Award." Id., Ex. E (Partial Award) at 34-35. However, the Arbitrator also found that Heierli had failed to prove that he suffered any compensatory damages or that he was entitled to punitive damages as a result of the breach. Id., Ex. E (Partial Award) at 33.
Contech filed a Motion for Reconsideration of the Partial Award with the Arbitrator on May 22, 2009, requesting that she reconsider and withdraw her award of attorneys' fees and costs, arguing that the Arbitrator did not have the authority to make such awards under either the CPR rules or Delaware law.*fn2 Contech's Pet. to Vacate ¶ 18; Heierli's Memorandum in Opposition to Petition to Vacate a Portion of the Arbitration Award ("Heierli's Opp'n"), Ex. 2 (Respondent Contech Construction Products Inc.'s Motion for Reconsideration of (1) Interim Award of Attorneys' Fees and Costs and (2) Termination of the Management Services Agreement) at 3. On July 15, 2009, the Arbitrator denied Contech's Motion for Reconsideration, finding that "[i]t is uncontroverted that Delaware law permits such an award where circumstances warrant [making the award]." Heierli's Opp'n, Ex. 5 (July 15 Order). Furthermore, the Arbitrator concluded that "[i]n light of [her findings], it [was] unnecessary for [her] to reach the second prong of [Contech's] [m]otion regarding the [applicability of] the CPR [r]ules, although [she] remain[ed] of the view that the [CPR r]ules permit such an award independent of its availability under Delaware law." Id. Contech responded to the denial of its Motion for Reconsideration by filing the first of the two cases, Civil Action 09-cv-1483, now before this Court. After that filing, on September 11, 2009, the Arbitrator set the amount of attorneys' fees and costs to be awarded to Heierli under the Partial Award at $556,749.99. Petitioners' Memorandum in Opposition to Respondent's Cross-Petition to Confirm Arbitrator's Award of Heierli's Attorneys' Fees and Expenses, Ex. B (Fee Award) at 1.
B. Civil Action 09-cv-2204
In addition to the dispute resolution clause, the parties' Stockholders' Agreement contained "put" and "call" options which accorded Heierli the option of selling his BEBOTech shares to Contech at a price calculated pursuant to a formula specified in the Stockholders' Agreement, and Contech had the option to purchase Heierli's shares at a price determined by a different formula specified in the Agreement. Contech's Cross-Pet. to Vacate, Ex. A (Stockholders' Agreement) § 4.*fn3 On May 18, 2009, shortly after the Arbitrator issued her Partial Award finding that Contech had breached its fiduciary duties to Heierli, Heierli exercised his put option. Statement of Points and Authorities In Support of Heierli's Petition and Motion to Confirm Arbitration Award (Heierli's Mem. to Confirm") at 3. The parties, however, disagreed on the "calculated purchase price" offered by Contech, id., and Heierli then filed a request with the Arbitrator for an emergency hearing on the "put price," Contech's Cross-Pet. to Vacate at 5. "Consequently, the Arbitrator set additional hearing dates [of] October 7 and 8, 2009, for the purpose of determining whether Contech had violated the Partial Award and the Stockholders Agreement; the parties appeared before the Arbitrator on those dates and presented witness testimony, documentary evidence and argument." Heierli's Mem. to Confirm at 3. Contech had objected to the Arbitrator conducting any additional hearings, however, claiming that the issue of the appropriate price for the exercise of the put option was outside the scope of the issues originally submitted to arbitration. Contech's Cross-Pet. To Vacate at 5-6. The Arbitrator rejected Contech's challenge, id. at 6, and in her Final Award issued on November 12, 2009, the Arbitrator disallowed certain expenses included in the calculation of the put price claimed by Contech, arriving at a purchase price of $10,354,011.15, Heierli's Mem. to Confirm at 3. She also set the process by which payment would be made by Contech to Heierli. Contech's Cross-Pet. To Vacate, Ex. J (Final Award) at 14-16. However, Contech failed to comply with the terms of the Arbitrator's Final Award, Heierli's Mem. to Confirm at 4, and on November 20, 2009, Heierli commenced the second of the two cases before this court, Civil Action 09-cv-2204, seeking enforcement of the Final Award.
The Stockholders' Agreement also describes the "call" option in Section 4.2(a): Subject to the terms of Section 4.9(c), at any time after June 30, 2006, Contech shall have an annual right, exercisable only in the month of July, to purchase, and Heierli shall be obligated to sell, all, but not less than all, of Heieli's Shares (the "Contech Call"). Contech's Cross-Pet. to Vacate, Ex. A at 5, 7.
Contech argues that under the 2005 version of the CPR Rules the Arbitrator's power to award attorneys' fees and costs under CPR Rules 16.2 and 16.3 is limited by CPR Rule 10.3, which states:*fn4 "[t]he Tribunal may grant any remedy or relief, including but not limited to specific performance of a contract, which is within the scope of the agreement of the parties and permissible under the law(s) or rules of law applicable to the dispute." Contech's Pet. to Vacate ¶¶ 22-23. Thus, according to Contech, the Arbitrator only had the authority to award attorneys' fees and costs under CPR Rule 16.3 that were independently permissible under Delaware law. Id. ¶¶ 24-25. Contech consequently maintains that the award of attorneys' fees and costs to Heierli in this case was impermissible under Delaware law because Heierli was not a prevailing party due to his failure to prove recoverable damages. Id. ¶ 33-34. This, according to Contech, precluded the Arbitrator from having "jurisdiction, authority, or power" to make the awards because the American Rule only allows prevailing parties to recover attorneys' fees and costs and Heierli was not a prevailing party. Id. ¶ 26; see Alaska Elec. Pension, Fund v. Brown, 988 A.2d 412, 417 (Del. 2010) ("Delaware generally follows the American Rule, under which litigants are responsible for their own attorneys' fees, regardless of the outcome of the lawsuit"). Contech further asserts that Delaware's "common corporate benefit" exception to this general rule does not support the award of attorneys' fees and costs for Heierli's breach of fiduciary duty claim because there was no benefit conferred to BEBOTech or its shareholders as a result of Heierli's action.*fn5 Contech's Pet. to Vacate ¶¶ 27-29. Moreover, Contech argues that its conduct does not fall within the bad faith exception to the American Rule, which allows a non-prevailing party to recover attorneys' fees and costs where there is a sufficiently egregious breach of a fiduciary duty. Id. ¶ 35-37. And, Contech notes that the Arbitrator did not find that Contech had acted in bad faith as the basis for awarding attorneys' fees and costs to Heierli. Id. ¶ 36. Specifically, Contech points to the Arbitrator's finding that its conduct was not sufficiently "reprehensible" to give rise to punitive damages. Id.
Contech also contends that under the District of Columbia Uniform Arbitration Act (the "D.C. UAA"), which it maintains governs the arbitration of the parties' dispute, an arbitrator can only award attorneys' fees and costs if the parties expressly agree that the arbitrator has the authority to do so. Id. ¶¶ 30-31. And Contech argues that since its agreements with Heierli did not contain an express provision allowing the Arbitrator to award attorneys' fees and costs, she lacked "jurisdiction, authority, or powers" to make such an award. Id. ¶ 32.
Furthermore, Contech claims that the Arbitrator should have dismissed Heierli's breach of fiduciary duty claim as it was preempted by his identical breach of contract claim and Delaware law prohibits parties from pursuing a breach of fiduciary duty tort claim for conduct that allegedly breached an agreement between the parties "because contract claims preempt tort claims." Id. ¶¶ 38-40. Therefore, according to Contech, "[t]he Arbitrator exceeded her jurisdiction by awarding attorneys' fees and costs" because Heierli's breach of fiduciary duty claims "were barred as a matter of Delaware law." Id. ¶ 41.
Heierli argues that Contech's petition to vacate the arbitration award is procedurally defective and should be dismissed. Heierli's Opp'n at 5. Heierli maintains that Contech, instead of filing a "Petition," id., should have sought to vacate the arbitration award by filing a motion to vacate the award, id. at 6-7. Heierli further argues that Contech is barred by the doctrine of judicial estoppel from challenging the Arbitrator's attorneys' fees and costs awards because its argument that the Arbitrator lacked authority to make the awards is inconsistent with the arguments it advanced during the arbitration hearing. Id. at 9-10. Heierli also contends that Contech waived its challenge to the Arbitrator's jurisdiction to award attorneys' fees and costs when it failed to raise the challenge during the arbitration proceedings. Id. at 10-12. Heierli further argues that the Court must defer to the Arbitrator's determination regarding her jurisdiction because the parties in this case intended for the Arbitrator to determine the scope of her jurisdiction. Id. at 12-14. Heierli posits that the Federal Arbitration Act ("FAA"), not the D.C. UAA, governs the parties' dispute and that Contech is judicially estopped from arguing otherwise.*fn6 Id. at 28-30. But even assuming that the D.C. UAA applies, Heierli argues that the Arbitrator did not exceed her powers in awarding him attorneys' fees and costs under the D.C. UAA.*fn7 Id. at 30-32. Heierli also contends that the plaintiffs' arguments based on Delaware law must fail because the Arbitrator did not exceed her powers in applying Delaware law to the parties' dispute. Id. at 14-16. Heierli further argues that the Arbitrator did not act in manifest disregard of the law in awarding attorneys' fees and costs, and thus, Contech cannot satisfy the prerequisites necessary to successfully challenge the awards under the "manifest disregard of the law" standard.*fn8 Id. at 16-28. Therefore, he contends that the Court is not permitted to set aside the awards. Id.
Heierli also requests that the Court award him costs and attorneys' fees for responding to Contech's petition. Id. at 32-34. Heierli maintains that Contech's challenge is a "presumptively unjustified" challenge to the merits of the awards. Id. at 32. Heierli opines that the Court should use its equitable powers to award him attorneys' fees and costs ...