Opinion
02 Civ. 1484 (SAS)
March 7, 2002
William Kapell, Esq., Winston Strawn, New York, NY, for plaintiff.
Steven M. Bierman, Esq., John J. Kuster, Esq., Sidley Austin Brown Wood, New York, NY.
Peter I. Ostroff, Esq., Sidley Austin Brown Wood, Los Angeles, CA. for defendants.
OPINION AND ORDER
Plaintiff Insurance Company of North America ("INA") moves this Court pursuant to 9 U.S.C. § 9 to confirm an arbitration award (the "Award") issued in its favor on February 20, 2002, and for a judgment conforming to that award. INA also requests that this Court certify the judgment as a final judgment pursuant to Rule 54(b) of the Federal Rules of Civil Procedure. For the reasons stated below, INA's motions are granted.
I. BACKGROUND
INA is in the business of issuing surety bonds, a form of financial guarantee in which the surety agrees under certain specified circumstances to assure the performance or payment of an obligation of another party (the "principal") in exchange for the payment of a bond premium. See Complaint ¶ 1, Ex. 1 to Affidavit of William Kapell, attorney for INA ("Kapell Aff.") On December 14, 1987, INA entered into a written Agreement of Indemnity (the "Indemnity Agreement") with defendant SsangYong Cement Industrial Co., Ltd. ("SSY Cement"), defendant SsangYong Corporation ("SSY Corporation"), and SsangYong Construction Co., Ltd., predecessor-in-interest to defendant SsangYong Engineering Construction Co., Ltd. ("SSY Engineering") (collectively "SSY"). See id. ¶ 8. The Agreement states, in pertinent part:
The Principals and Indemnitors [defined in the Indemnity Agreement as SsangYong Construction, SsangYong Cement and SsangYong Corporation] shall exonerate, indemnify and keep indemnified [INA] from and against any and all liability for losses and/or expenses of whatsoever kind or nature (including, but not limited to interest, court costs and counsel fees) and from and against any and all such losses and/or expenses which [INA] may sustain or incur: (1) By reason of having executed or incurred the execution of Bonds (2) By reason of the failure of the Principals or Indemnitors to perform or comply with the covenants and conditions of this Agreement or (3) In enforcing any of the covenants and conditions of this Agreement. Payment by reason of the aforesaid causes shall be made to [INA] by the Principals and Indemnitors as soon as liability exists or is asserted against [INA] whether or not [INA] shall have made any payment thereof. Such payment shall be equal to the amount of reserve set by [INA]
Complaint ¶ 9 (quoting Indemnity Agreement). The parties do not dispute that they are bound by the Indemnity Agreement or that the language of the contract is unambiguous. See Award in Arbitration ("Award"), Ex. 2 to Kapell Aff., at 2.
In 1992, SSY procured from INA a performance bond in the face amount of $54.6 million for a real estate development project in Guam. See Award at 1 (reciting undisputed facts); Complaint ¶ 13. The project was completed in 1993. See id. Shortly thereafter, following an earthquake in Guam, one of the two towers of the development collapsed and the second tower was demolished. See id. The project's developer sued the prime contractor and SSY in Guam. See id. In 1995, the developer sued INA, also in Guam. See id. The two cases were consolidated into a single action (the "Guam Action"). See id. In December 1998, while the Guam Action was still in litigation, INA established a $30 million reserve for the claim brought by the developer and requested that, pursuant to the Indemnity Agreement, SSY post collateral in the amount of the reserve. See id. at 2. On January 22, 2001, after SSY failed to post the requested collateral, INA brought an action in this Court (the "INA Action"). See id.; see also Complaint.
On November 29, 2001, this Court so ordered the parties' written Stipulation in which they agreed to submit INA's claims to binding arbitration before an arbitrator, Judge Harold R. Tyler. See 11/29/02 Stipulation and Order, Ex. 1 to Kapell Aff. Pursuant to the Stipulation and Order, the parties agreed that the arbitration proceeding would be governed by the Federal Arbitration Act, 9 U.S.C. § 1, et seq. (the "FAA"). See 11/29/02 Stipulation and Order ¶ 2. The INA Action was dismissed without prejudice, but this Court agreed to accept any new action by INA to confirm the arbitrator's award. See id. ¶ 3. Subject to the parties' rights under the FAA, "judgment of this Court may be entered upon such award." Id. ¶ 5.
On December 4, 2001, INA moved before Judge Tyler for summary judgment on its claims for collateral and reimbursement for defense costs. See Kapell Aff. ¶ 5; Affidavit of Peter I. Ostroff, attorney for SSY ("Ostroff Decl."), ¶ 4. The parties agreed that, in the event that Judge Tyler determined that INA was entitled to reimbursement for its defense costs, they would attempt to negotiate the specific amount to be reimbursed before seeking a ruling as to the amount. See Kapell Aff. ¶ 5. Shortly after INA's motion was filed and before SSY's Opposition brief was due, the jury in the Guam Action returned a verdict in favor of the Contractor and against SSY Engineering, INA and a third co-defendant. See Kapell Aff. ¶ 12; Ostroff Decl. ¶ 6; Award at 2-3. Pending at that time before Judge Tyler was SSY's request for additional discovery with respect to INA's claim for attorneys' fees.See Ostroff Decl. ¶ 5.
On December 10, 2001, before SSY served its Opposition brief, Judge Tyler conducted a conference call with the parties. See id. ¶ 7. It is not entirely clear what occurred during this call. SSY claims that, in order to accommodate INA's request for an accelerated briefing schedule, it was agreed that the parties would proceed only on INA's summary judgment motion with respect to the collateral issue. See id. According to SSY, it was instructed only to brief the collateral issue and to add, "at the end of its brief, the reasons why it believed it was entitled to additional discovery on [the attorneys' fees issue]." Id. After all written submissions were filed, Judge Tyler heard oral arguments from the parties on February 1, 2002. See Kapell Aff. ¶ 6.
The parties understanding of the December 10th conference call is described in their memoranda of law submitted to Judge Tyler. SSY's opposition papers stated:
Pursuant to the ruling of Judge Tyler during the December 9, 2001 conference call with the parties. the Defendants are not addressing INA's claim regarding defense costs in their opposition brief, except to the extent it bears on their request for limited discovery.
Defendants' Memorandum of Law in Opposition to Motion for Summary Judgment ("Def. Summ. Judg. Opp."), Ex. A to Ostroff Decl., at 1 n. 1. Similarly, INA's reply papers stated:
On December 10, 2001, after INA had already served its motion papers, including its request for an order requiring defendants to reimburse INA for the legal fees it has incurred in connection with the Guam case, the parties agreed to defer INA's request for such relief until briefing on INA's request for collateral was complete. Defendants, however, were instructed to set forth in their papers in opposition to INA's motion why they feel that additional discovery relating to INA's request for reimbursement of its legal fees is necessary.
Reply Memorandum of Law in Support of Plaintiff's Motion for Summary Judgment ("Pl. Summ. Judg. Rep."), Ex. B to Ostroff Decl., at 13.
On February 20, 2002, Judge Tyler issued a written award holding that SSY is required to post collateral with INA in the amount of $30 million and rejecting SSY's request for discovery. See Award in Arbitration ("Award"), Ex. 2 to Kapell Aff., at 4-5. In the portion of the award discussing attorneys' fees, he stated:
In light of SSY's unwillingness to post collateral to cover the amount for which liability was asserted, no reasonable fact-finder could conclude that INA unreasonably or in bad faith incurred its fees in defending the action in Guam. Therefore, SsangYong's request for further discovery is denied. The parties have represented that they will negotiate and reach agreement on the amount of fees to be paid.
Id. at 5.
On February 26, 2002, SSY sent a letter to Judge Tyler requesting that he clarify the holding of the Award. See Ostroff Decl. ¶ 13; 2/26/02 Letter from Ostroff to Judge Tyler ("Def. 2/26/02 Ltr."), Ex. D. to Ostroff Decl. SSY was concerned that, while Judge Tyler had indicated that the attorneys' fees issue was going to be deferred, "the Award went beyond merely denying the request for discovery [on the attorneys' fees issue] and granted INA an award on that issue as well." Def. 2/26/02 Ltr. at 1. If this was the case, SSY argued, it "did not have the full opportunity to present its entire case." Id. at 2.
That same day, INA moved this Court pursuant to 9 U.S.C. § 9 for an order confirming the Award and for a judgment in conformity with the terms of that award. See Kapell Aff. ¶ 1. On that date, this Court issued an Order directing SsangYoung to show cause as to why an order confirming the Award should not be entered. See Order to Show Cause. SSY was ordered to serve its papers in Opposition to the motion by March 2, 2002 and INA was ordered to serve its reply papers by March 5, 2002. See id.
The next day, INA wrote a letter to Judge Tyler insisting that he did have the power to decide INA's right to reimbursement of its defense costs. See 2/27/02 Letter from Anthony J. D'Auria, attorney for INA, to Judge Tyler ("Pl. 2/27/02 Ltr."), Ex. E to Ostroff Decl. INA further argued that SSY had not been "prejudiced in any way by not being given yet a further opportunity to raise the same `bad faith' defense" that Judge Tyler had heard and rejected. Id. at 2.
On February 28, 2002, Judge Tyler issued a memorandum responding to SSY's February 26th letter. See Memorandum Responding to SsangYong's February 26, 2002 Letter ("Arb. Mem."), Ex. F. to Ostroff Decl. Judge Tyler affirmed the Award and stated that he "specifically reject[ed] the notion that [he] informed counsel on December 10, 2001 that the only summary judgment issue was that of the collateral and its amount." Id. at 2.
The parties agree that the jury's verdict in the Guam Action is internally inconsistent, see Award at 3, and INA has indicated that it will raise this issue to the court in Guam, see Kapell Aff. ¶ 13. Nevertheless, the Guam Action is still in progress. The jury has not been dismissed. The trial of the developer's punitive damages claim is being heard and final arguments are scheduled for March 11, 2002. See Kapell Aff. ¶ 13; Ostroff Decl. ¶ 14.
II. DISCUSSION
A. Confirmation of the Award
INA moves for an order confirming that portion of the Award finding that IRA is entitled to collateral in the amount of $30 million. See Reply Memorandum of Law in Support of Motion to Confirm Arbitration Award ("Pl. Repl.") at 1. SSY argues that the Award should not be confirmed because Judge Tyler's decision was in manifest disregard of the law. See Memorandum of Law in Opposition to Motion to Confirm Arbitration Award ("Def. Opp.") at 6-7.
INA's moving papers suggested that it was seeking to confirm the entire Award, including the determination that IRA is entitled to reimbursement from SSY for defense costs. SSY's opposition papers insist that this portion of the Award should not be confirmed because it was fundamentally unfair for Judge Tyler to deny SSY the opportunity to fully present its argument on this issue. See Def. Opp. at 5-6. Because IRA has since explained that it seeks only to confirm that portion of the Award relating to collateral and that questions regarding the attorneys' fees issue "are matters for another day," Pl. Repl. at 1, I will not address SSY's argument in this decision.
The FAA provides that a court may confirm an arbitration award where, as here, the parties "in their agreement have agreed that a judgment of the court shall be entered upon the award . . . ." 9 U.S.C. § 9; see also Smiga v. Dean Witter Reynolds, Inc., 766 F.2d 698, 304 (2d Cir. 1985). A court is required to confirm the award unless a basis for modification or vacatur exists. See Ottley v. Schwartzberg, 819 F.2d 373, 375 (2d Cir. 1987); Chiarella v. Viscount Indus. Co., Ltd., No. 92 Civ. 9310, 1994 WL 116010, at *1 (S.D.N.Y. Mar. 28, 1994) "Arbitration awards are subject to very limited review in order to avoid undermining the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation." Willemijn Houdstermaatschappit, BV v. Standard Microsystems Corp., 103 F.3d 9, 12 (2d Cir. 1997) (quotation marks omitted); see also McDaniel v. Bear Stearns Co., Inc., No. 01 Civ. 7054, 2002 WL 72938, at *5 (S.D.N.Y. Jan. 17, 2002) The FAA enumerates specific instances where an award may be vacated. See 9 U.S.C. § 10(a). The Second Circuit has also recognized that a court may vacate an arbitration award that was rendered in "manifest disregard of the law." Greenberg v. Bear, Stearns Co., 220 F.3d 22, 28 (2d Cir. 2000); Halligan v. Piper Jafray, Inc., 148 F.3d 197, 202 (2d Cir. 1998). However, "[r]eview for manifest error is severely limited." Greenberg, 220 F.3d at 28 (quotation marks omitted); see also McDaniel, 2002 WL 72938, at *5. As the Second Circuit has cautioned, "manifest disregard clearly means more than error or misunderstanding with respect to the law." Halligan, 148 F.3d at 202 (quotation marks omitted). Specifically, a court may not vacate an arbitration award unless it finds that: "(1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case."Greenberg, 220 F.3d at 28.
The statutory grounds for vacatur listed in the FAA are: (1) the award was procured by corruption, fraud or undue means; (2) "the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the matter submitted was not made;" (3) the arbitrator was guilty of "misconduct in . . . refusing to hear evidence pertinent and material to the controversy;" (4) the arbitrators exhibited "evident partiality" or "corruption;" or (5) the arbitrators were guilty of "misconduct in refusing to postpone the hearing, upon sufficient cause shown," or guilty of "any other misbehavior" that prejudiced the rights of any party. 9 U.S.C. § 10(a). SSY does not argue that any of these provisions apply.
As Judge Tyler noted, New York law requires SSY to abide by the terms of the Indemnity Agreement as long as "the amount of collateral is reasonable and the parties were dealing at arms length with relative equality of bargaining power when the agreement was reached." Award at 2 (citing BIB Const. Co. v. Fireman's Ins. Co., 625 N.Y.S.2d 550, 552 (1st Dep't 1995)). SSY argues that Judge Tyler manifestly disregarded Guam law when he found the $30 million amount reasonable. See Def. Opp. at 6-7. It argues, as it did before Judge Tyler, that the apparent inconsistency in the Guam jury's verdict relieves IRA from any risk of liability in that Action. See id. Contrary to SSY's assertion, Judge Tyler did not disregard Guam law regarding inconsistent verdicts. Rather, he found that, despite any inconsistency in the Gaum verdict, the existence of a verdict against IRA, the ongoing nature of the Action, and the "uncertainty of the ultimate result" left IRA "exposed to liability." Award at 3; Resp. Mem. at 1.
SSY further argues that Judge Tyler manifestly disregarded the law when he refused to relieve SSY of its contractual duty to post collateral because of its tenuous financial condition. See Def. Opp. at 7. Again, SSY's contention is incorrect. IRA bore the burden of showing that SSY was capable of specific performance. See, e.g., U.S. Fidelity Guar. Co. v. J. United Elec. Contracting Corp., 62 F. Supp.2d 915, 921 (E.D.N.Y. 1999). INA presented Judge Tyler with evidence regarding SSY's ability to pay, and SSY presented evidence to the contrary. See Pl. Summ. Judg. Repl. at 11-12; Def. Summ. Judg. Opp. at 8-9. Based on the totality of the evidence, Judge Tyler found SSY's argument regarding its financial condition "unpersuasive." Award at 4 (citing U.S. Fidelity Guar. Co., 62 F. Supp.2d at 922; American Motorists Ins. Co. v. United Furnace Co., 876 F.2d 293, 300 (2d Cir. 1989)). This Court is without authority to review the weight Judge Tyler accorded to conflicting evidence. See McDaniel, 2002 WL 72938, at *5.
Because SSY has failed to prove that the Award requiring SSY to post $30 million collateral was made in "manifest disregard" of the law, the Award is confirmed. See Ottley, 819 F.2d at 375; Chiarella, 1994 WL 116010, at *1.
B. Certification Under Rule 54(b)
INA also seeks an order certifying this judgment as a final judgment pursuant to Rule 54(b) of the Federal Rules of Civil Procedure. See Pl. Mem. at 3-4; Pl. Repl. at 6-8. Rule 54(b) permits a court to enter final judgment on fewer than all the claims presented if "there is no just reason for delay." Fed.R.Civ.P. 54(b). "Respect for the historic federal policy against piecemeal appeals . . . requires that the court's power to enter such a final judgment before the entire case is concluded . . . be exercised sparingly." Harriscom Svenska AB v. Harris Corp., 947 F.2d 627, 629 (2d Cir. 1991) (quotation marks and citations omitted). "However, a separate judgment should be entered where `there are interests of sound judicial administration and efficiency to be served,' or `where there exists some danger of hardship or injustice through delay which would be alleviated by immediate appeal.'" Coleman Co., Inc. v. Hlebanja, No. 96 Civ. 1288, 1997 WL 13189, at *9 (S.D.N.Y. Jan. 15, 1997) (quoting Harriscom, 947 F.2d at 629). "For a Rule 54(b) order to further the principles of sound judicial administration, the claims for which judgment is sought must be `separable' from those which remain pending . . . ." Merrill Lynch, Pierce, Fenner Smith, Inc. v. Young, No. 91 Civ. 2923, 1996 WL 609287, at *3 (S.D.N.Y. Oct. 23, 1996).
Here, the principles of sound judicial administration will be advanced, and hardship to IRA will be avoided, by entry of a final judgment on the issue of IRA's right to $30 million in collateral.First, IRA's claim for collateral is separable from its claim for attorneys' fees. If SSY appeals this Court's judgment regarding the $30 million collateral, it will raise the same argument it has raised here — that Judge Tyler's decision was in manifest disregard of the law. Meanwhile, SSY has indicated that any appeal from a judgment on the attorneys' fees issue will be based on its assertions that: (1) it was denied fundamental fairness by not being permitted to fully brief this issue; (2) INA's decision to hire independent counsel was made in "bad faith;" and/or (3) the attorneys' fees incurred by IRA were "unreasonable, unnecessary or in bad faith." 2/8/02 Letter from Ostroff to Judge Tyler, Ex. 1 to Kapell Repl. Decl.; see also Def. Opp. at 5-6; Def. 2/26/02 Ltr. These legal issues are so obviously distinct from the issues regarding the posting of collateral that there is no significant risk of duplicative appellate review.
SSY claims that the two issues are "closely related factually and legally" because "one of the bases for IRA's claimed entitlement to attorneys' fees is `SsangYong's unwillingness to post collateral to cover the amount for which liability was asserted'." Def. Opp. at 10 (quoting Award at 5) This relationship, however, favors the entry of final judgment. A final decision one way or the other on the requirement of posting collateral will clarify the attorneys' fees issue when and if it is resolved by this Court.
Second, IRA would suffer great prejudice if forced to await judgment on the attorneys' fees issue before receiving the collateral that has long been due. The Guam jury has returned a verdict implicating IRA and IRA remains "exposed to liability" in that Action. Award at 3. With the punitive damages phase of the Guam Action nearly complete, plaintiff in that Action is likely to request entry of final judgment in the near future. Given SSY's financial condition, further delay will likely impair IRA's ability to collect on the collateral. Thus, to ensure that IRA obtains the indemnification to which it is entitled, final judgment is hereby entered on the issue of posting collateral.
SSY argues that "it will be quite some time before final judgment can be entered in that case" because "[t]here are at least 14 directed verdict motions pending before the Guam court" which have been briefed but will require oral argument before being resolved, as well as "at least 4 additional non-jury claims, including a claim for prejudgment interest, indemnity claims, and others, that have not yet been briefed and that the Court must resolve before it may enter final judgment." Ostroff Decl. ¶ 16. IRA insists that, because the Guam court has decided to treat the 14 directed verdict motions as motions for judgment notwithstanding the verdict, they "will not serve to delay the entry of judgment in that case." Reply Declaration of William Kapell ¶ 2, attached to Pl. Repl. Ultimately, this disagreement is irrelevant because the point of the Award is to ensure that IRA receives the collateral before it is ordered to pay the judgment.
III. CONCLUSION
For the aforementioned reasons, IRA's motion to confirm the award requiring SSY to post $30 million in collateral is granted. Judgment will be entered on this award pursuant to Fed.R.Civ.P. 54(b).