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IN RE COMPUDYNE CORP.

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA


June 27, 1966

In the Matter of COMPUDYNE CORPORATION, Debtor

The opinion of the court was delivered by: LORD, JR.

OPINION AND ORDER SUR MOTIONS CONCERNING AWARD OF ARBITRATOR

 JOHN W. LORD, Jr., District Judge.

 The present cross motions relate to an award of arbitrator dated April 21, 1966 against Regan Construction Co., Inc. ("Regan") and Acme Missiles and Construction Corporation ("Acme") and in favor of CompuDyne Corporation ("CompuDyne") in the amount of $147,651.28. CompuDyne (noted in the above caption as Debtor) has moved to confirm the award, and Regan and Acme have moved to set it aside.

 The arbitration was held pursuant to a Stipulation entered into by the parties and approved by this Court on July 18, 1963. Paragraph 9 of the Stipulation is set out in the Findings of Fact which follow. As will be seen, it related to unreimbursed expenses, and provided that if the parties were unable to agree, the matter should be submitted to arbitration in a certain specified way.

 It has not been asserted that the reference to arbitration was unauthorized or otherwise improper. The reasons which Regan and Acme assign in support of their motion to set aside the award may be summarized as follows:

 The arbitrator refused to hear material and relevant evidence on two subjects: (1) the determination of costs on a prior joint venture, and (2) the alleged admissions of one Tecosky. As a result, it is alleged the arbitrator failed to give Regan and Acme a full and fair hearing. Thus they were denied due process - it is argued - and the arbitrator was guilty of misconduct in the sense to which that term applies to the conduct of arbitration hearings.

 The circumstances and details of the foregoing contentions will be developed hereafter. Meanwhile, in lieu of further preliminaries, the following matters and things will be stated as

 FINDINGS OF FACT

 1. CompuDyne Corporation ("CompuDyne") is a Pennsylvania corporation having its principal office and place of business at 1965 Pioneer Road, Huntingdon Valley, Pennsylvania.

 2. Acme Missiles and Construction Corporation ("Acme") is a Delaware corporation, having its principal office and place of business at 43 North Village Avenue, Rockville Center, New York.

 3. C. W. Regan, Inc., also known as Regan Construction Co., Inc. ("Regan") is a New York corporation having its principal office and place of business at 327 Hewes Street, Brooklyn, New York.

 4. On July 18, 1963, a written Stipulation was entered into by CompuDyne, Regan and Acme and approved by this Court. Notice is taken of the fact that a copy thereof was made a part of the records of this Court at that time.

 5. Paragraph 9 of said Stipulation provides:

 

"9. The parties shall attempt forthwith to mutually agree on the figures to be used in computing 'unreimbursed expenses' as defined in Paragraph 2. If the parties are unable to mutually agree by August 15, 1963, then the dispute shall be submitted to Lybrand, Ross Bros. and Montgomery as an arbitrator, whose decision shall be binding upon the parties. The arbitrator so named shall use, as his standards for determining (a) proper expenses incurred by the Debtor as attributable to this project and (b) whether expenses incurred by the Debtor should be charged as a joint venture expense or as a managerial expense, those standards which are normally used by joint venturers and managers on such projects."

 6. On April 15, 1965, after hearing and argument on CompuDyne's Motion to Compel Arbitration, this Court directed Acme and Regan to submit immediately the matter in controversy to Lybrand, Ross Bros. and Montgomery and to proceed with the arbitration proceedings with all reasonable dispatch in accordance with the Stipulation.

 7. Hearings were held in the offices of Lybrand, Ross Bros. and Montgomery before Glenn O. Petty, a member of the firm, and Burton L. Tacke, a manager on the accounting staff of the firm, with morning and afternoon sessions on November 8, 9, 23, 24 and December 1 and 2, 1965, and with an evening session on November 23, 1965.

 8. On April 21, 1966, the arbitrator made a 34 page report finding for CompuDyne in the amount of $147,651.28, which report was thereafter filed with the Court and served upon the parties.

 9. Paragraph 7 of the Stipulation provides:

 

"7. If the new manager and/or the joint venture is successful in obtaining from the Government a special claim or change order for additional managerial expenses, this fund will also be used as hereinafter set forth to pay the Debtor's 'unreimbursed expenses.' As, if and when such funds are received from the Government, Acme and Regan shall immediately pay over fifty percent (50%) thereof to the Debtor on account of such 'unreimbursed expenses.'"

 10. In 1964 Regan and Acme were successful in obtaining from the Government and receiving payment of a special claim or change order for additional managerial expenses in the amount of $495,973.00.

 11. In 1965 Regan and Acme were successful in obtaining from the Government and receiving payment of a special claim or change order for additional managerial expenses in the amount of $264,000.00.

 12. Regan and Acme have refused and still refuse to make any payment whatsoever on account of CompuDyne's unreimbursed expenses, despite the arbitrator's determination (Finding of Fact No. 8, supra) that CompuDyne's unreimbursed managerial expenses are $147,651.28; and despite the circumstances recited in Findings Nos. 10 and 11 supra whereby Regan and Acme received payments of additional managerial expenses from the Government in the total amount of $759,970.00.

 13. It is undisputed that in the course of the 6 morning sessions and the 7 afternoon or evening sessions before the arbitrator (Finding No. 7, supra) many exhibits were received and 1092 pages of testimony were taken.

 14. On November 24, 1965, the third day of the hearings before the arbitrator, counsel for Regan and Acme attempted to elicit testimony concerning the management by Regan of a joint venture between Regan and CompuDyne known as the Lunar Landing Project. Pursuant to objection by counsel for CompuDyne, and after extensive argument, the arbitrator sustained the objection for reasons set forth in his Report, p. 26. (Hereafter cited as "Report")

 15. Both parties testified as to conversations with one Lawrence Tecosky, identified as "an executive vice-president of CompuDyne and a systems engineer * * * chief architect of the joint venture insofar as CompuDyne was concerned." (Report 20)

 16. Tecosky refused to testify unless subpoenaed, and neither CompuDyne nor Regan - Acme elected to obtain a subpoena. (Report 20)

 17. The arbitrator "decided to eliminate all of this hearsay testimony in the consideration of the case." That is to say, the testimony of both parties as to out of court statements of Tecosky (see Finding 15, supra) was stricken and not taken into account by the arbitrator. (Report 20-21) 18. The total CompuDyne claim at the outset of arbitration had been $194,091.40. The arbitrator's award of $147,651.28 was the result of determinations that certain items were not "proper" managerial expenses (Report 4): Challenged by Regan-Acme and conceded by CompuDyne $23,673.96 Challenged by Regan-Acme and disallowed by arbitrator 22,766.16 Total disallowances $46,440.12

19660627

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