United States District Court, District of Columbia
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For ARMA, S.R.O., Petitioner: Andrew P. Cooper, Jonathan M. Cader, LEAD ATTORNEYS, PRO HAC VICE, DAVIDOFF, HUTCHER & CITRON, LLP, Garden City, ny; Eric B. Meyer, LEAD ATTORNEY, Joshua D. Wolson, DILWORTH PAXSON, LLP, Philadelphia, PA.
For BAE SYSTEMS OVERSEAS, INC., Respondent: Alan Scott Bolden, Lawrence S. Sher, LEAD ATTORNEYS, REED SMITH LLP, Washington, DC; Tarek F. Abdalla, Thomas M. Pohl, PRO HAC VICE, REED SMITH, LLP, Pittsburgh, PA.
JAMES E. BOASBERG, United States District Judge.
This case derives from a contract dispute between Petitioner ARMA, S.R.O., a Slovak Company, and Respondent BAE Systems (BAES), an American defense contractor. An arbitral Tribunal, convened here in Washington to resolve the disagreement, ruled in favor of BAES. ARMA then filed this action under the Federal Arbitration Act, 9 U.S.C. § 1, et seq. , seeking vacatur of the final award. ARMA argues that the integrity of the award has been marred by numerous acts of fraud on Respondent's part, as well as misconduct and legal overreach by the members of the Tribunal that issued the award. BAES objects to all of these claims and asks the Court to confirm the award under Section 9 of the FAA.
After devoting considerable time to an extensive review of the factual record and the parties' submissions, the Court finds that Petitioner has failed to make even a passable case for vacatur. In its dogged efforts to delay confirmation of the award, ARMA has made a series of untenable arguments and, even worse, has submitted pleadings rife with misleading statements, significant omissions, and, occasionally, outright misrepresentations. Disagreeing with Petitioner on all fronts, this Court will deny its petition for vacatur and grant Respondent's request that the award be confirmed. Given ARMA's egregious behavior, moreover, the Court will also grant BAES leave to file a motion requesting an award of reasonable attorney fees.
According to the Petition, for more than a decade international defense contractor BAES relied upon ARMA, a family-owned Slovak relationship-management firm, to promote its reputation in Eastern Europe and to secure inroads with various government ministries. See ARMA Petition to Vacate (ECF No. 1), ¶ ¶ 3-4. In mid-2005, the Slovak Ministry of Defense (MOD) announced a sizable international public tender for the development of a mobile communications system (MOKYS) for its armed forces. See id., ¶ 5. ARMA agreed to assist BAES in its efforts to win the MOKYS tender, and on October 14, 2005, the parties concluded an International Representative Agreement (IRA) to reflect this arrangement. See id., ¶ 6; BAES Answer (ECF No. 11) at 3.
The IRA stipulated that if BAES succeeded in securing the MOKYS tender, it would pay ARMA commissions for all " Compensable Sale[s]" obtained in connection with the project during the lifetime of the IRA. See Pet., Exh. T (IRA), § 4.A; Answer at 3. The IRA had an initial term of two years, see Pet., ¶ 6; IRA App'x A, § 1, and provided that after its expiration, BAES would continue to pay commissions on any qualifying " Compensable Sales." See IRA, § 6. BAES was ultimately selected as the winning bidder in the MOKYS tender. See Pet., ¶ 8. In December 2005, BAES and the Slovak MOD entered into an " Agreement for Future Delivery of Work" (AFDW) to design and implement
the MOKYS, see id., ¶ 8, which had an initial term of four years. See Pet., Exh. A (Final Award), ¶ 19. Following the signing of the AFDW, BAES and the MOD entered into a succession of " Contracts of Work" to deliver specific elements of the MOKYS program, see Pet., ¶ 9, concluding contracts C-1 and C-2 in May of 2006, and contract C-3 in December of 2006. See Award, ¶ 21.
BAES paid ARMA commissions on all three of these Contracts of Work, see Pet., ¶ 10, and also extended the term of the IRA until March 31, 2008, at which time it expired. See Award, ¶ 22. ARMA contends that BAES allowed the IRA to expire and terminated all of its other similar international representation agreements in response to a high-profile corruption investigation. See Pet., ¶ 10. Whatever the reason for its decision, BAES took the position that it did not owe ARMA any commissions on Contracts for Work concluded after March of 2008. See id.; Award, ¶ 25. In December of 2009, BAES and the MOD extended the term of the AFDW for a further four years and continued to enter into Contracts of Work for products and services related to the MOKYS program. See Award, ¶ ¶ 24-25. When BAES refused to pay ARMA a commission on Contract for Work C-4, ARMA commenced the arbitration at issue in this matter. See Pet., ¶ 11; Award, ¶ 25.
On November 8, 2011, pursuant to the arbitration clause in the parties' IRA, see IRA § 18, ARMA submitted a demand for arbitration to the International Center for Dispute Resolution (ICDR), a division of the American Arbitration Association. See Pet., ¶ 21; Answer at 3; Award, ¶ ¶ 3-4. The parties jointly selected the members of a three-person Tribunal, all experts in the field of arbitration, to preside over the dispute. See Answer at 4. At the outset, both parties agreed that the dispute essentially boiled down to a single issue: how to interpret the term " Compensable Sale" in § 4.C of the IRA and whether the AFDW fit that definition, thereby requiring BAES to pay ARMA commissions on all transactions with the Slovak MOD throughout the lifetime of the AFDW. See Award, ¶ ¶ 29-31; Pet., Exh. K (ARMA Cross-Motion for Summary Judgment) at 2. As defined in the IRA, a " Compensable Sale" is " a transaction . . . formalized in an unconditional sales contract," IRA, § 4.C, that must become binding on the parties during the term of the IRA and involves the " sale [of] Products or Services to a Customer." Id., § 4.C(3). ARMA argued that the AFDW satisfied these criteria and BAES disagreed, submitting that the AFDW was akin to a framework agreement that did not automatically obligate the Slovak MOD to buy any products or services. See Award, ¶ ¶ 30-31. Both parties asserted that the dispute could be resolved within the " four corners" and " unambiguous language" of the IRA, without resort to extrinsic evidence of the parties' intent. See id., ¶ 33; Pet., Exh. B (ARMA Demand for Arbitration) at 12; see also Pet., Exh. I (ARMA Letter of June 21, 2012) at 1.
At a preliminary meeting in March of 2012, BAES requested that the dispute be resolved on summary judgment. See Pet., ¶ 26. Following the exchange of various briefings and motions, and the resolution of a number of discovery-related issues, the three-person arbitral Tribunal convened in Washington, D.C., to hear oral argument on BAES's motion for summary judgment. See id., ¶ ¶ 25-36; Award, ¶ ¶ 5-12. While the Tribunal set out five questions for the parties to address at oral argument, it agreed to hear any other arguments the parties wished to present. See Award, ¶ 11. After a further exchange of post-hearing briefings and letters, the Tribunal issued a Final Award on January 11, 2013, granting summary judgment to
BAES and dismissing ARMA's claims. See Pet., ¶ ¶ 37-40. The Tribunal determined that each party would bear its own costs and attorney fees, and that the costs of the arbitration would be apportioned equally. See Award, ¶ ¶ 52-53.
In its Petition, ARMA invokes the Federal Arbitration Act, 9 U.S.C. § 1, et seq. , and requests that the Court vacate the award on various grounds set out in FAA § 10(a). See Pet., ¶ ¶ 17, 114. Respondent BAES opposes all of ARMA's claims and moves to have the Final Award confirmed pursuant to 9 U.S.C. § 9. See BAES Motion to Confirm (ECF No. 12), ¶ 8.
II. Standard of Review
The Federal Arbitration Act, 9 U.S.C. § 1 et seq. , provides for " expedited judicial review to confirm, vacate, or modify arbitration awards," Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 578, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008), thereby " establish[ing] an alternative to the complications of litigation." Revere Copper & Brass Inc. v. Overseas Private Inv. Corp., 628 F.2d 81, 83, 202 U.S. App. D.C. 81 (D.C. Cir. 1980) (internal quotation marks omitted). As the D.C. Circuit has repeatedly emphasized: " [J]udicial review of arbitral awards is extremely limited," and the courts " do not sit to hear claims of factual or legal error by an arbitrator." Teamsters Local Union No. 61 v. United Parcel Serv., Inc., 272 F.3d 600, 604, 348 U.S. App. D.C. 198 (D.C. Cir. 2001) (internal quotation marks omitted); Kurke v. Oscar Gruss & Son, Inc., 454 F.3d 350, 354, 372 U.S. App. D.C. 154 (D.C. Cir. 2006). As a consequence, a party seeking to challenge an arbitrator's award under any of the FAA's limited grounds, see 9 U.S.C. § 10(a), " must clear a high hurdle." Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 130 S.Ct. 1758, 1767, 176 L.Ed.2d 605 (2010). Even a serious legal or factual error on the part of the arbitral Tribunal will not, standing alone, justify vacatur of an award. Id.; see also United Paperworkers Int'l Union, AFL-CIO v. Misco, Inc., 484 U.S. 29, 37-38, 108 S.Ct. 364, 98 L.Ed.2d 286 (1987). Rather, " '[i]t is only when [an] arbitrator strays from interpretation and application of the agreement and effectively dispenses his own brand of industrial justice that his decision may be unenforceable.'" Stolt-Nielsen S.A., 130 S.Ct. at 1767 (quoting Major League Baseball Players Assn. v. Garvey, 532 U.S. 504, 509, 121 S.Ct. 1724, 149 L.Ed.2d 740 (2001) ( per curiam )) (internal quotation marks omitted). An arbitral award " must be upheld so long as it draws its essence from the [arbitration] agreement." Nat'l Postal Mail Handlers Union v. Am. Postal Workers Union, 589 F.3d 437, 441, 389 U.S. App. D.C. 5 (D.C. Cir. 2009) (internal quotation marks omitted). Even if the arbitrators offered no explanation for their decision, the reviewing court must confirm the award so long as " any justification can be gleaned from the record." Kurke, 454 F.3d at 354-55 (internal quotation marks omitted).
Against the backdrop of this extremely narrow standard of review, the Court considers the multiple arguments for vacatur raised by Petitioner, ultimately finding each deficient.
In seeking vacatur here, Petitioner invokes three of the four statutory grounds available in 9 U.S.C. § 10(a), see Pet., ¶ ¶ 118-83, and proffers an additional common-law ground, claiming that the arbitral Tribunal " manifestly disregarded the law" in rendering its decision. See id., ¶ ¶ 184-225. Respondent BAES moves to confirm the award, disputing each of ARMA's proposed grounds for vacatur. See Answer at 10-30. It also raises additional procedural objections to the form of Petitioner's submissions, see id. at 7-9, which the Court
can bypass given its ultimate decision. Finally, BAES requests that it be granted leave to file a motion for an award of attorney fees and costs associated with this federal-court action. See id. at 31-33. The Court will first address each of ARMA's proposed grounds for vacatur and then conclude with a discussion of attorney fees.
A. Award Procured by Corruption, Fraud, or Undue Means
The FAA provides that a district court can refuse to enforce an arbitral award when it has been " procured by corruption, fraud, or undue means." 9 U.S.C. § 10(a)(1). While § 10(a)(1) has not been addressed in any detail by this Circuit, other courts in this District as well as those from outside jurisdictions have laid a sound foundation and set out persuasive guidelines that this Court will take into account in responding to Petitioner's request for relief under this subsection.
Federal courts consistently refuse to vacate an arbitral award under § 10(a)(1) unless the movant's submissions meet three cumulative conditions. See Bonar v. Dean Witter Reynolds, Inc., 835 F.2d 1378, 1383 (11th Cir. 1988) (collecting cases). First, the party seeking vacatur must demonstrate by clear and convincing evidence that its opponent actually engaged in fraudulent conduct or used undue means during the course of the arbitration. See, e.g., Lafarge Conseils et Etudes, S.A. v. Kaiser Cement & Gypsum Corp., 791 F.2d 1334, 1339 (9th Cir. 1986); Dogherra v. Safeway Stores, Inc., 679 F.2d 1293, 1297 (9th Cir. 1982); see also Owen-Williams v. BB & T Inv. Servs., Inc., 717 F.Supp.2d 1, 17 (D.D.C. 2010) (plaintiff's failure to provide evidence beyond its own " unsupported, hearsay statements" insufficient to prove fraud). Under this first requirement, ordinary misconduct will not suffice; the alleged fraudulent acts must have been so prejudicial that they effectively denied the opposing party a " fundamentally fair hearing." See Hayne, Miller & Farni, Inc. v. Flume, 888 F.Supp. 949, 952-53 (E.D. Wis. 1995) (internal citations omitted). At least one circuit has determined that " fraud" under § 10(a)(1) demands a greater level of impropriety than required to meet the common-law standard. See Pac. & Arctic Ry. & Navigation Co. v. United Transp. Union, 952 F.2d 1144, 1148 (9th Cir. 1991). The " undue means" component of § 10(a)(1) sets a similarly high bar, requiring " nefarious intent or bad faith," PaineWebber Grp., Inc. v. Zinsmeyer Trusts P'ship, 187 F.3d 988, 993 (8th Cir. 1999), or conduct that is " immoral, if not illegal." Conoco, Inc. v. Oil, Chem. & Atomic Workers Int'l Union, 26 F.Supp.2d 1310, 1320 (N.D. Okla. 1998).
As a second condition, the movant must show that the fraud could not have been discovered before or during the arbitration through the exercise of reasonable diligence. See, e.g., Lafarge Conseils et Etudes, S.A., 791 F.2d at 1339; Karppinen v. Karl Kiefer Machine Co., 187 F.2d 32, 35 (2d Cir. 1951) (A. Hand, J.). If the misconduct came to light at some point during the course of the arbitral proceedings, but the movant nevertheless failed to raise its concerns in a timely fashion, it may be deemed to have waived its right to seek vacatur under § 10(a)(1). See Johnson v. Gruma Corp., 614 F.3d 1062, 1069 (9th Cir. 2010). Were it otherwise, parties would have an incentive to hold claims of fraud in reserve and engage in " sandbagging" strategies inimical to the very goals of the FAA. See id.
As a third and final condition, the alleged misconduct must " materially relate to an issue in the arbitration." Lafarge Conseils et Etudes, S.A., 791 F.2d at 1339;
Dogherra, 679 F.2d at 1297. The
movant must demonstrate a causal connection between its opponent's conduct and the outcome of the arbitration. See, e.g., A.G. Edwards & Sons, Inc. v. McCollough, 967 F.2d 1401, 1403 (9th Cir. 1992) (" statute requires a showing that the undue means caused the award to be given," otherwise federal courts could second-guess an arbitrator's decision based upon meritless arguments not explicitly addressed in an award); Forsythe Int'l, S.A. v. Gibbs Oil Co. of Texas, 915 F.2d 1017, 1022 (5th Cir. 1990) (the phrase " procured by fraud" to be read as " requiring a nexus between the alleged fraud and the basis for the panel's decision" ). Courts in this District have also demanded proof that the misconduct or fraud had some bearing on the arbitrator's final decision. See Owen-Williams, 717 F.Supp. at 17-18 (finding that even if party had made fraudulent misrepresentations in order to secure delay in arbitral proceedings, no proof that this changed outcome of arbitration and so conduct was immaterial); Pigford v. Johanns, 421 F.Supp.2d 130, 135 (D.D.C. 2006) (unethical misrepresentation as to counsel's bar status not enough to satisfy nexus requirement because no showing that it led to different result); Bryson v. Gere, 268 F.Supp.2d 46, 50 (D.D.C. 2003) (movant must prove that substantial misconduct actually prejudiced outcome of arbitration).
Here, Petitioner offers numerous arguments for vacatur under § 10(a)(1), all of which are aimed at Respondent BAES's supposedly fraudulent and immoral conduct. In particular, ARMA claims that: 1) BAES filed a bad-faith motion for summary judgment, thereby " obtain[ing] a competitive and unfair advantage" throughout the course of the proceedings, Pet., ¶ ¶ 149-151; 2) BAES made multiple misrepresentations and false statements in its written submissions, thereby thwarting ARMA's ability to obtain relevant discovery,
see id., ¶ ¶ 157-59; ARMA Response (ECF No. 16) at 12-14; 3) BAES made further misrepresentations during oral argument, see Pet., ¶ ¶ 152-56, and offered " false opinions in the form of testimony,"
see id. ¶ 160; see also Resp. at 14-15, which the Tribunal " improperly adopted" as fact, see, e.g., Pet., ¶ 196-99; and 4) BAES improperly submitted a letter to the arbitral Tribunal after the record had been closed, which contained false information provided for the " sole intent of misleading the Tribunal."
Id., ¶ ¶ 163-64. Petitioner alternatively asserts that, if it has failed to provide enough proof to demonstrate that the award was procured by fraud or undue means, this Court should grant ARMA additional limited discovery in order to make its case under § 10(a)(1).
See id., ¶ ¶ 168-70. The Court takes each claim in sequence.
1. BAES's " Bad Faith" Motion for Summary Judgment
ARMA alleges that BAES procured a favorable arbitral decision through " clearly immoral conduct" when it filed an unauthorized motion for summary judgment, Pet., ¶ 149, which was purportedly based upon " arguments BAES knew to be specious." Id., ¶ 150. Petitioner's submissions to this Court appear to reflect two different theories regarding the influence of the motion for summary judgment.
In its initial Petition, ARMA asserts that BAES requested summary judgment " [o]ver ARMA's objection," thereby " den[ying] ARMA the opportunity to proceed to the very hearing contemplated in the arbitration provision contained in the IRA." Id., ¶ 70. The Petition further contends that BAES's motion had the effect of limiting ARMA's rights to discovery, see id., ¶ 149, and depriving it of a chance to question or present witnesses on the factual representations contained in the motion.
See id., ¶ 150. Finally, the Petition asserts that the request for summary judgment effectively narrowed the dispute to " only those [issues] framed by BAES in its motion," id., ¶ 70, such that the " entire case could be decided within the ...