Opinion
No. 99-10242-GAO
March 27, 2000
MEMORANDUM AND ORDER
On November 16, 1998, an arbitrator entered an award in favor of the plaintiff, Local 285, Service Employees International Union ("Local 285" or "the Local"), against the defendants Parnash, Inc. and McKD, Inc. On December 15, Local 285 sent an accounting to the defendants, and on January 8 and 12, 1999, Local 285 requested the defendants' compliance with the terms of the award. The defendants did not comply.
On February 5, 1999, Local 285 filed suit here to enforce the arbitration award. The complaint was amended on April 14 to add Michael Konig as a defendant. The amended complaint alleged that Konig is the sole shareholder of the closely-held corporate defendants, converted the corporate defendants' assets to his personal use, and thus sufficiently abused the corporate forms to justify piercing the veil and holding him personally liable for the corporate defendants' obligations under the arbitration award. The defendants filed an answer on April 23, 1999. On May 4, the Local moved to strike several of the asserted defenses, arguing that they were untimely and unmeritorious challenges to the arbitrator's final award. Local 285 also moved for summary judgment and for the assessment of attorneys' fees as to the corporate defendants.
On May 17, the corporate defendants moved for summary judgment on the claim against Konig, arguing that there was no evidence to justify piercing the corporate veil, and applied for Rule 11 sanctions, arguing that the claim against Konig was frivolous. The defendants also opposed the motion for attorneys' fees. Notwithstanding these moves, the corporate defendants conceded in their motion papers that they had no viable defense to the complaint to enforce the award and they stood unopposed to the Local's motion for summary judgment against them. Finally, the defendants moved for a stay of consideration of the Local's summary judgment motion as punishment for the Local's supposedly frivolous joinder of Konig.
Oddly, the corporate defendants, not Konig himself, filed the motion. Quaere whether they have standing do so. The extent to which they have any cognizable interest in doing so may add support to the plaintiff's claim that the corporate form ought to be disregarded and Konig held personally liable.
After consideration of the parties' submissions, the Local's unopposed motion for summary judgment against the corporate defendants is GRANTED.
The Local's motion against the corporate defendants for attorneys' fees is likewise GRANTED. Such fees may be awarded if the losing party's actions were "frivolous, unreasonable, or without foundation," regardless of whether that party behaved with subjective bad faith. Local 285, Serv. Employees Int'l Union v. Nonotuck Resource Assocs., Inc., 64 F.3d 735, 737 (1st Cir. 1995) (quoting Washington Hosp. Ctr. v. Service Employees Int'l Union, 746 F.2d 1503, 1510 (D.C. Cir. 1984)). The defendants' refusal to comply with the arbitrator's award and the positions they have taken in this litigation appear to be without foundation and completely dilatory. In Nonotuck, the First Circuit held that a district court's refusal to award fees was an abuse of discretion where the defendant corporation had resisted arbitration by relying on an utterly deficient legal proposition. See id. at 739-42. Here, the corporate defendants did worse than rely on an utterly deficient or frivolous legal argument. They filed an answer replete with defenses and then, less than a month later, abandoned them entirely. The corporate defendants' course of conduct — refusing to obey the arbitrator's decision, mounting a Potemkin defense to the suit invoked to enforce it, and then abandoning that defense when it could no longer be sustained — was evidently designed simply to delay the Local's recovery, or to litter the Local's path to recovery with as many obstacles as possible.
The corporate defendants' motion for summary judgment on the claim against Konig is DENIED, as there are substantial disputes of material fact concerning the veil-piercing issue. The defendants' motion for Rule 11 sanctions, bordering on frivolity itself, is DENIED, as is the motion to stay consideration of the Local's summary judgment motion.