Opinion
02 Civ. 6530 (JFK)
November 5, 2003
Louis J. Maione, Esq., SALON MARROW DYCKMAN NEWMAN, LLP, New York, New York, Of Counsel for Petitioner
Hugh H. Mo, Esq., THE LAW FIRM OF HUGH H. MO, P.C., New York, New York, Of Counsel for Respondent
OPINION ORDER
Data-Stream AS/RS Technologies, LLC ("Data-Stream"), as assignee of Transact International, Inc. ("Transact") has petitioned the Court to both confirm and modify the award of Arbitrator Stephen D. Kramer, Esq. ("Kramer") dated April 29, 2002 (the "Award") in Transact's favor and against respondent China International Marine Containers, Ltd. of Hong Kong ("CIMC"). CIMC opposes Data-Stream's motion and seeks to have the Award vacated. For the reasons set forth below, the Award is hereby confirmed as issued by Kramer and the request to modify it is denied.
Background
On or about January 28, 1999, Transact, CIMC and Airis Newark, LLC ("Airis") entered into an agreement for the manufacture and installation of a cargo container handling system at Newark Airport (the "System") for EVA Airways ("EVA"). Under the terms of the agreement, Tansact and CIMC were to act as co-contractors with Airis responsible for overseeing the project on EVA's behalf. On October 26, 1999, Transact subcontracted the installation portion of the project to Data-Stream.
In the latter part of 2001 a dispute arose among Airis, Transact and Data-Stream regarding contract fees and payments for work related to the project. Data-Stream contended that it was owed $212,747.03 by CIMC for work it had done to repair defective CIMC equipment in order to complete the installation of the System. Data-Stream also sought the payment of approximately $74,000 from Airis. The $74,000, Data-Stream alleged, represented the final progress payment due the company under the manufacture and installation agreement. The basis for Data-Stream's demand for monies technically due to Transact was a March 15, 2001 assignment by Transact of "the entire right, title and interest" in any action or claim Transaction had against CIMC and Airis related to the EVA project.
Unable to resolve the payment dispute, on September 5, 2001, the parties, pursuant to a clause in the agreement, submitted it to binding arbitration. On April 29, 2002, Kramer issued his award, directing CIMC to pay Transact $138,732.59 plus interest from December 1, 2000. Airis was instructed to pay Transact $14,149.10. On May 9, 2002, Data-Stream moved to have Kramer recalculate the award to include the $74,000 it claimed to be owed by CIMC. Airis had apparently paid the money to CIMC, on the final progress payment. On June 3, 2002, Kramer denied Data-Stream's motion. Data-Stream has since petitioned this Court to modify Kramer's April 29, 2002 Award to include the $74,000 it claims CIMC owes it and to confirm the then-modified Award.
Discussion
Standard of Review
This case is governed by the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1-16 (1988), because federal subject matter jurisdiction exists in the form of diversity jurisdiction and the contract that contained the arbitration clause related to a transaction involving interstate commerce. See Barbier v. Shearson Lehman Hutton, Inc., 948 F.2d 117, 120 (2d Cir. 1991). As such, Kramer's award benefits from a strong presumption of validity. See Wall St. Assocs., L.P. v. Becker Pariubas Inc., 27 F.3d 845, 849 (2d Cir. 1994). Because the award is presumed valid, CIMC, as the party seeking to avoid confirmation, bears a heavy burden of proof. See Willemijn Houdstermaatchappij, B.V. v. Standard Microsystems Corp., 103 F.3d 9, 12 (2d Cir. 1997). Moreover, the area within which CIMC has to operate is extremely narrow. The award will be vacated only if one of the grounds specified by 9 U.S.C. § 10 is found to exist. See Barbier, 948 F.2d at 120. Section 10 provides, in essence, four grounds for vacating an award: (1) fraud, corruption or undue means in procuring the award; (2) partiality on the part of the arbitrator; (3) misconduct by the arbitrator that prejudiced one of the parties; and (4) where the arbitrator exceeds his powers. 9 U.S.C. § 10.
Making CIMC's task all that more difficult is the fact that arbitrators are not required to provide explanations for their decisions. See United Steelworkers of Am. v. Enter. Wheel Car Corp., 363 U.S. 593, 598 (1960). If the arbritrator does not give an explanation, the district court must confirm the award so long as it can infer that a valid reason existed for it and that none of the grounds set forth in Section 10 were met. See Willemijin, 103 F.3d at 13. Furthermore, whether the court agrees with the arbitrator's rationale, expressed or implied, is irrelevant. See St. Mary Home. Inc. v. Serv. Employees Int'l Union, Dist. 1199, 116 F.3d 41, 44 (2d Cir. 1997).
Data-Stream's Standing
CIMC insists that Data-Stream's petition for confirmation should be dismissed because Data-Stream lacks the standing necessary to pursue confirmation of the Award. Section 9 of the FAA states that "at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award." (emphasis added) CIMC's contention is that because Data-Stream was not listed as a party to the arbitration, it is not authorized to petition to have the Award confirmed.
Although Data-Stream was not captioned as a party to the arbitration, it is clear that Data-Stream was an active party and a real party in interest to the arbitration. As discussed, prior to the commencement of the arbitration, Transact had assigned its contract rights to Data-Stream. Data-Stream was, in turn, the entity that actually initiated the arbitration on Transact's behalf. The Claim for Arbitration and Mediation (the "Claim") made clear that Data-Stream was the party in interest. The Claim stated, "By assignment, Transact has authorized Data-Stream to act on its behalf with full discretion to collect the monies claimed. Consequently, although Transact is the Claimant and the contracting party, Data-Stream, a real party in interest, is authorized to initiate the instant Claim in the name of Transact." Petition Ex. B, §§ 10, 11. It is also worth noting with regard to the Claim that it was signed and filed, not by Transact's counsel, but by Data-Stream's counsel.
During the course of the arbitration proceedings the issue of Data-Stream's status as an assignee empowered to proceed with the matter, for and on behalf of Transact, was presented to Kramer and litigated.See Maione Reply Aff. § 5. It is clear from the evidence submitted that Data-Stream was in fact a party to the arbitration, a reality even CIMC seemed to grasp during the proceedings. In its Post Hearing Memorandum, CIMC offered, "CIMC-TianDa is also permitted to counterclaim against Transact even though its claims are being brought by Data-Stream, since Data-Stream is either an agent and/or assignee of Transact." Petition Ex. F, at p. 8.
Considering its role in the arbitration, Data-Stream can be deemed to have been a party to the arbitration. Certainly, Data-Stream's level of involvement was sufficient to satisfy the spirit and meaning of Section 9 of the FAA. Data-Stream, therefore, has standing to bring this petition as assignee of Transact.
The Authority of the Arbitrator
CIMC contends that the Award should be vacated because Kramer exceeded his authority as an arbitrator and exercised powers not granted to him by the arbitration clause in the agreement. Section 10 of the FAA provides that an award may be vacated "where the arbitrators exceeded their powers." 9 U.S.C. § 10(a)(4). According to CIMC, the agreement containing the arbitration clause was one signed by Airis, Transact and CIMC. The claim arbitrated, however, was for breach of a separate purchase agreement between Transact and Shenzhen CIMC-TianDa ("CIMC-TianDa"), a wholly-owned subsidiary of CIMC. CIMC informed Kramer of its belief that it should not be required to arbitrate in a letter dated December 7, 2001. See CIMC Mem. in Opp. Confirmation Ex. A. Kramer considered CIMC's position and determined that "there is no basis to suggest that the claim is not properly a subject of this arbitration, and I deny the motion to dismiss." See CIMC Mem. in Opp. Confirmation Ex. B. CIMC believes Kramer exceeded his power by determining that the claim and CIMC should be subjected to arbitration.
A party need not be a signatory to the contract containing the arbitration clause to be deemed a party to the arbitration. An individual or entity may be compelled to arbitrate if it is the alter-ego of a signatory. See Nat'l Dev. Co. v. Khashoggi, 781 F. Supp. 959, 963 (S.D.N.Y. 1992). Whether an individual or entity should be compelled to arbitrate as an alter-ego of a signatory is a determination for a district court to make, not an arbitrator, however. See Orion Shipping Trading Co. v. E. States Petroleum Corp., 312 F.2d 299, 301 (1963). An arbitrator who makes this determination in place of a district court, therefore, may be guilty of exceeding his powers.
Had CIMC refused to enter into arbitration, Data-Stream would have been forced to move the district court to compel arbitration under Section 4 of the FAA. CIMC did not refuse to participate, however. Instead, CIMC participated in the arbitration as CIMC-TianDa's parent and in the posture of a legitimate party. In fact, CIMC even offered claims of its own based on the contract for the EVA System. By participating in the arbitration, CIMC effectively waived its right to claim that it should not be a party to the arbitration.
CIMC waived its right to claim its participation should not be compelled by its conduct. Conduct which denied Data-Stream the opportunity to seek clarification from the district court that CIMC should be deemed the alter-ego of CIMC-TianDa and an appropriate party to the arbitration. So long as CIMC moved forward with the arbitration, Data-Stream lacked a basis under 9 U.S.C. § 4 to bring an action to clarify and compel CIMC's participation. CIMC's inclusion of its belief that it should not be forced to arbitrate in its December 7, 2002 letter to Kramer is not sufficient to prevent the Court from finding a waiver. If CIMC believed the position it stated in the letter, it should have refused to participate in the arbitration and forced Data-Stream to bring a district court action to compel its participation. CIMC could have then asserted its belief that it should not be made a party to the arbitration in the appropriate forum at the appropriate juncture. The time and manner for CIMC to have raised its objection was prior to the arbitration in response to a motion to compel participation, not after a lengthy arbitration in opposition to a motion to confirm the Award. See In the Matter of Hidrocarburos y Derivados, C.A., 453 F. Supp. 160, 177 (S.D.N.Y. 1978). By actively participating and waiting until an award has been entered against it to complain to a district court, CIMC is essentially seeking a second bite at the apple. Were the Court to allow this to occur, it would undermine the twin goals of arbitration: efficient resolution of disputes and avoidance of costly litigation.
Data-Stream's Request for a Modification
The FAA grants district courts, in a narrowly tailored set of circumstances, the power to modify an arbitrator's award. A district court may modify or correct an award, upon an application to do so by a party, where (a) there was an evident miscalculation of figures; (b) the award is based upon a matter not submitted to the arbitrator; or (c) the award is imperfect in matter of form not affecting the merits of the controversy. 9 U.S.C. § 11. Data-Stream contends that the award should be modified to correct for a miscalculation on the part of Kramer.
Data-Stream's application is based on its belief that Kramer failed to consider the final progress payment Data-Stream alleges it was owed in calculating the amount of the Award. Data-Stream, therefore, wants the award increased by $74,749.10, the amount of the final progress payment. In support of its application, Data-Stream claims that CIMC acknowledged owing this money in its post-hearing brief to Kramer.
Just as CIMC faced in its attempt to prevent the Award from being confirmed, so Data-Stream faces a strong presumption that the Award is valid and accurate as drafted. Although Data-Stream characterizes its application as one to correct an oversight or miscalculation, the reality is that Data-Stream is asking the Court to do much more. Data-Stream wants the Court to make a finding of fact that it is entitled to $74,749.10 that the arbitrator either felt Data-Stream was not entitled to or accounted for in calculating set-offs that affected the final value of the Award. Data-Stream has presented no evidence that Kramer failed to consider its right to a final progress payment or that the Award contains a mathematical miscalculation.
In fact, what evidence there is of Kramer's thinking strongly favors the belief that he did consider Data-Stream's right to a final progress payment. On May 9, 2002, Data-Stream submitted a detailed motion to Kramer requesting that he recalculate the Award. See Petition Ex. D. After reviewing Data-Stream's motion and submission, Kramer ruled that he had not made a miscalculation. Kramer regarded Data-Stream's motion as "an [improper] attempt to appeal the decision on the merits."See Petition Ex. G. Kramer's ruling on Data-Stream's motion, a motion that was based on the same facts and arguments as the motion to modify presently before the Court, provides strong evidence that Kramer is not guilty of an oversight or a miscalculation in rendering the Award. Considering as much, as well as the strong presumption in favor of the arbitrator's decision and the absence of evidence of miscalculation offered by Data-Stream, the Court hereby denies the application to modify the Award.