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Drc, Inc v. Republic of Honduras

March 28, 2011


The opinion of the court was delivered by: Paul L. Friedman United States District Judge


This is an action to enforce a foreign arbitration award rendered in the Republic of Honduras by Honduran arbitrators under Honduran law. The underlying dispute arose out of a construction contract between petitioner, DRC, Inc. ("DRC"), and the Fondo Hondureno de Inversion Social ("FHIS") - an instrumentality of respondent, the Republic of Honduras (the "Republic") - under which DRC agreed to construct certain water and wastewater sub-projects in Honduras. DRC demanded arbitration with FHIS, and, after approximately twenty-four days of arbitration proceedings, an arbitration award was rendered against FHIS that required FHIS to pay DRC over $51 million. DRC has now petitioned this Court for confirmation of this arbitration award against the Republic of Honduras.

There are six motions currently pending before the Court: (1) the Republic's motion to stay; (2) the Republic's motion to dismiss; (3) the Republic's motion to bifurcate; (4) the Republic's motion to dismiss with prejudice because of DRC's alleged severe litigation misconduct; (5) DRC's motion to strike materials submitted by the Republic in support of its motion to dismiss; and (6) DRC's motion to place certain filings under seal. Upon consideration of the parties' papers, the relevant legal authorities, and the entire record in this case, the Court will grant the Republic's motion to stay and will postpone ruling on DRC's petition in light of the pendency of a prior, parallel action before the Honduran Supreme Court, DRC, Inc. v. Fondo Hondureno de Inversion Social, Case No. 301-2009.*fn1


A. Construction Contract for Infrastructure Work in Honduras Hurricane Mitch struck Central America in 1998 and caused tremendous destruction and dislocation. See Mot. at 1. In response, the United States Agency for

International Development ("USAID") funded reconstruction projects in various Central American countries, including Honduras. Id. One such project was undertaken in collaboration with FHIS, an instrumentality of the Republic of Honduras. See id.*fn2 This project involved the construction of certain water and wastewater sub-projects in Honduras. Pet. at 2; see Mot. at 1. FHIS solicited bids for the project, and DRC was eventually selected as the contractor. See Mot. at 1, 6.

FHIS and DRC therefore entered into a construction contract on June 21, 2000. See Pet., Farmer Aff. Ex. B, Construction Contract ("Construction Contract") at 9, June 21, 2000; see also Pet. at 2; Pet. Opp. at 4. According to the Republic, the Construction Contract expressly provided "that the work would be funded by USAID, and USAID would pay DRC." Mot. at 1. In addition, USAID issued a Letter of Commitment to DRC, in which USAID committed to pay for the construction work through grants payable directly to DRC. Id.

The Construction Contract between FHIS and DRC required that all controversies and disputes be governed by the Construction Contract Liability Clauses. Construction Contract at 8; see also Pet. at 3. According to DRC, the Construction Contract Liability Clauses state "the parties' agreement to resolve disputes arising under the Contract pursuant to arbitration." Pet. at 3; see Pet., Farmer Aff. Ex. C, Mandatory Clauses, Construction Services Contracts at 17 ¶ 9(c).

B. Problems Arising Out of the Construction Contract In June and July 2004, DRC brought two suits against the United States government in the United States Court of Federal Claims. See DRC, Inc. v. United States, Civil Action No. 04-940C (Fed. Cl., filed June 1, 2004); DRC, Inc. v. United States, Civil Action No. 04-1124C (Fed. Cl., filed July 7, 2004). The first suit, Civil Action No. 04-940C, arises out of the Letter of Commitment that USAID provided to DRC in connection with the Construction Contract. See Mot. at 7. DRC alleges that the Letter of Commitment created a contract between DRC and USAID, and that USAID breached that contract by failing to pay certain invoices. See Mot., Basombrio Aff. Ex. 20, Complaint in Civil Action No. 04-940C ¶¶ 28-32. The second suit, Civil Action No. 04-1124C, relates to an assignment to USAID of a different contract between DRC and FHIS. See Mot. at 7; see also Mot., Basombrio Aff. Ex. 26, Complaint in Civil Action No. 04-1124C ¶¶ 44-48.

Several months later, in September 2004, the United States brought suit against DRC in this Court, asserting claims under the False Claims Act and the common law. See United States v. DRC, Inc., Civil Action No. 04-1608 (Roberts, J.) ("FCA Action"). In this FCA Action, the government "seeks to recover payments made to [DRC] for contract infrastructure work in Honduras, alleging inter alia that DRC misrepresented itself in order to obtain the contract and subcontracted out most of the work without USAID's approval." Memorandum Order at 1, Feb. 17, 2009 (Oberdorfer, J.); see also Mot. at 6-7.*fn3 In other words, the government alleges that DRC committed fraud in both the procurement and in the performance of the Construction Contract. See Mot. at. 7.

After the United States filed the FCA Action against DRC in this Court, it moved for a stay of the two proceedings before the Claims Court. That court, over DRC's objection, granted the government's motion, finding that

[a] stay in [Civil Action No. 04-940C and Civil Action No. 04-1124C] is necessary because the dispositive issue of fraud is already being litigated in the District Court for the District of Columbia. Moving forward with the proceedings in this court would result in duplicative litigation on the issue. The issue of fraud is relevant to the [Letter of Commitment] from USAID because a finding that DRC acted fraudulently in obtaining the Honduran contracts would have a dispositive effect on DRC's LOC-based claims in this court. Therefore, the parties would be engaging in duplicative litigation if the cases were permitted to move forward.

Mot., Basombrio Aff. Exs. 25 & 31, DRC, Inc. v. United States, Civil Action No. 04-940C, Order at 2-3 (Fed. Cl. Jan. 24, 2005); DRC, Inc. v. United States, Civil Action No. 04-1124C, Order at 2-3 (Fed. Cl. Jan. 24, 2005). Accordingly, Civil Action No. 04-940C is presently stayed pending resolution of the FCA Action in this Court. With respect to the latter, on February 17, 2009, Judge Oberdorfer denied DRC's motion to dismiss. See Memorandum Order at 8, Feb. 17, 2009 (Oberdorfer, J.); see also Mot. at 7. Thus, the parties in the FCA action before Judge Roberts are now proceeding with discovery.

In early 2009, DRC demanded arbitration with FHIS. Opp. at 8; Pet. at 3. DRC sought damages totaling over $86 million, arising out of purported breaches of the Construction Contract. See Pet. at 3. Arbitration proceedings commenced and, as DRC describes it, "[t]he arbitral tribunal consisted of three Honduran attorneys," Opp. at 8, and the arbitration proceedings resulted "in approximately 24 hearing days during which [DRC and FHIS] presented approximately 29 witnesses including 10 expert witnesses, performed 7 site inspections in two countries, and introduced approximately 2,165 documents." Id.; see Pet. at 4. The arbitral tribunal rendered the arbitration award ("Award") on September 8, 2009. Pet. at 4. The Award required that FHIS pay DRC $51,482,556.90, consisting of the following:

* $2,799,392.72 for invoices pending for work estimates, mobilization balance, differential for the exchange rate applied to the contract, contractual balance, and retention of 5%, plus interest of $2,639,212.24.

* $20,560,341.04 for costs incurred to perform additional work authorized and accepted but not paid for by FHIS, plus interest of $9,496,270.17.

* $0 for the cancellation of Contract IA.

* $8,210,451.23 for expenses incurred for the legal and technical defense against a civil lawsuit and criminal investigations stemming from FHIS's negligence in the administration of the contract, plus interest of $2,951,699.74.

* $0 for business value lost, including lost goodwill, commercial reputation, ...

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