United States District Court, E.D. Pennsylvania
January 28, 2004.
PARSONS ENERGY & CHEMICALS GROUP Plaintiff,
WILLIAMS UNION BOILER, Defendant
The opinion of the court was delivered by: CLIFFORD GREEN, Senior District Judge
Presently before the Court are Defendant Williams Union Boiler's
("Williams") Motion to Dismiss Plaintiffs Amended Complaint to Vacate
Arbitration Award Docket (#14) and Plaintiffs Reply thereto.*fn1
Defendant Williams moves to dismiss the Amended Complaint pursuant to
Fed.R.Civ.P. 12(b)(1), 12(b)(2), 12(b)(3), 12(b)(6), and 15(a). For
the following reasons, Defendant's motion will be denied.
I. Factual and Procedural Background
On April 30, 1998, Plaintiff Parsons Energy and Chemicals, Inc.
("Parsons") entered into a subcontract with Williams, in the amount of
$44,724,195 for performance of certain services involved in the
construction of a gasification power system in Delaware City, Delaware
for Motiva Enterprises, LLC ("Motiva"). Amended Complaint,
¶ 34, 37. Due to delays in construction, Williams completed the
project on April 21, 2000, after the pre-determined Milestone Date of
January 17, 2000. Amended Complaint, ¶ 62. Parsons alleges
that Williams failure to complete the project by the target date resulted
in the assessment and payment of $4.5
million in liquidated damages to Motiva. Amended
Complaint, ¶ 101-02. Pursuant to the prime contract with Motiva,
Parsons was required to make a liquidated damages payment of up to $4.5
million, based upon the number of days elapsed between the milestone date
and the completion of the project. Amended Complaint, ¶
Williams submitted an invoice for full payment of the Schedule
Incentive Fee included in the subcontract between Parsons and Williams.
Amended Complaint, ¶ 63. The subcontract provided that
Williams was eligible for a maximum $2.5 million Schedule Incentive Fee
upon completion of the project. Subcontract. Section IV. The
subcontract also contained a provision apportioning payment of any
liquidated damages owed by Parsons, requiring that Williams' share of
liquidated damages be funded through forfeiture of the Schedule Incentive
Fee. Subcontract. Section IV. As a result of tardy completion
of the project, and later discovery of overbilling, Parsons refused to
oblige Williams' request for payment of a Schedule Incentive Fee and
other invoices. Amended Complaint, ¶ 64, 72-74.
The subcontract between Parsons and Williams contained a relevant
provision intended to resolve disputes between the parties. Section 25 of
the converted subcontract, in pertinent part, reads:
All disputes between Contractor and Subcontractor
arising under the Subcontract which cannot be
resolved amicably by the Parties shall be referred
to the upper management of Subcontractor and
Contractor for resolution. If resolution cannot be
reached by upper management, then the parties
agree to mediation. If resolution is not achieved
through mediation, the parties agree to submit the
dispute to final and binding arbitration in
accordance with the rules of the American
Arbitration Association with proceedings conducted
in the State of Delaware, USA or as otherwise
agreed to by the Parties.
Subcontract. Section 25.
In December of 2000, Williams filed a Demand for Arbitration seeking
invoices totaling $5,749,530. Amended Complaint, ¶
11. A panel of three arbitrators was convened by the American Arbitration
Association. Amended Complaint, ¶ 14. As agreed upon by
both Parsons and Williams, the Arbitration Panel conducted twenty-five
hearing days, and two days for closing arguments, in Philadelphia,
Pennsylvania during 2002. Amended Complaint, ¶ 16, 19.
On February 20, 2003, the Arbitration Panel issued Williams an award of
$2,859,066 for unpaid invoices, $1,500,000 for the Schedule Incentive
Fee, $522,074 in accrued interest, and attorneys' fees, expert fees and
expenses to be determined in a supplemental award. Arbitration
Award, at 1. Additionally, the Arbitration Panel awarded Parsons a
counterclaim award of $1,607,848 for various overbilling.
Arbitration Award, at 1. The net sum of $3,273,292 was awarded
to Williams. Arbitration Award, at 2. On August 1, 2003, the
Arbitration Panel issued a supplemental award to Williams of $598,407 for
attorneys' fees, and $271,783 for expert witness fees and expenses.
Supplemental Award, at 1.
On May 19, 2003, Parsons filed a Complaint to Vacate the Arbitration
Award. On June 10, 2003, Defendant Williams filed a Motion to Dismiss
Parsons' Complaint to Vacate Arbitration Award. Shortly after the
Arbitration Panel submitted its supplemental award for attorneys' fees
and expert witness fees and expenses on August 1, 2003, Parsons filed an
Amended Complaint to Vacate Arbitration Award and Supplemental Award.
Pursuant to this filing, Williams filed an amended Motion to Dismiss
Parsons' Amended Complaint to Vacate Arbitration Award and Supplemental
Award on September 3, 2003.
Presently before this court is Defendant Williams' Motion to Dismiss
Parsons' Amended Complaint to Vacate Arbitration Award and Supplemental
Award. Williams asks this Court to dismiss Parsons' Amended Complaint
for: (1) failure to obtain leave of court to submit an
amended pleading pursuant to Fed.R.Civ.P. 15(a); (2) failure to
state a claim upon which relief can be granted, pursuant to Fed.R.Civ.
P. 12(b)(6); (3) lack of subject matter jurisdiction, pursuant to
Fed.R.Civ.P. 12(b)(1); (4) improper venue, pursuant to Fed.R.Civ.P.
12(b)(3); and (5) lack of personal jurisdiction, pursuant to Fed.R.Civ.
P. 12(b)(2). Motion to Dismiss, at 1.
II. Standard of Review
In order for this Court to grant a defendant's motion to dismiss, it
must first take all of the allegations of the complaint as true, viewing
the allegations liberally and giving the Plaintiff the benefit of all
inferences which fairly may be drawn from it. Wisniewski v.
Johns-Manville Corp., 759 F.2d 271, 273 (3rd Cir. 1985) (citing
Bogosian v. Gulf Oil Corp., 561 F.2d 434, 444 (3rd Cir. 1977),
cert. denied, 434 U.S. 1086 (1978)); Markowitz v. Northeast Land
Co., 906 F.2d 100, 103 (3rd 1990). As a result, dismissal of a claim
is proper only where "it is clear that no relief could be granted under
any set of facts that could be proved consistent with the allegations."
Hison v. King and Spalding, 467 U.S. 69, 73 (1984);
Wisniewski, 759 F.2d at 273.
A. Failure to Obtain Leave of Court to Submit Amended
Defendant Williams maintains that Plaintiff's Amended Complaint to
Vacate Arbitration Award and Supplemental Award should be dismissed for
failure to comply with Federal Rule of Civil Procedure 15(a). Federal
Rule of Civil Procedure 15(a) states, in part:
A party may amend the party's pleading once as a
matter of course at any time before a responsive
pleading is served or, if the pleading is one to
which no responsive pleading is permitted and the
action has not been placed upon the trial
calendar, the party may so amend it at any time
within 20 days after it is served. Otherwise a
party may amend the party's pleading only by leave
of court or by written consent of the adverse
party; and leave shall be freely given when
justice so requires.
Plaintiff filed its original Complaint in this Court on May 19, 2003
and Defendant filed its original motion to dismiss that Complaint on June
10, 2003. The Court, however, notes that the Arbitration Panel granted
Williams a supplemental award for attorneys' fees and expert witness fees
and expenses on August 1, 2003. Shortly thereafter on August 23, 2003
Parsons filed its Amended Complaint, without leave of Court, seeking to
vacate both the Arbitration Panel's original award and the supplemental
award. Williams then, on September 3, 2003, filed its Motion to Dismiss
the Amended Complaint. Under the circumstances, the Court concludes that
Defendant Williams was not in any way prejudiced by Plaintiff's filing of
its Amended Complaint. The Court also determines that justice so requires
that Plaintiff be granted leave of Court to file its Amended Complaint.
Therefore, Defendant's motion to dismiss for failure to obtain leave of
court to submit an amended pleading will be denied.
B. Failure to State a Claim Upon Which Relief Can be Granted
Defendant Williams asserts that dismissal is warranted pursuant to
Fed.R.Civ.P. 12(b)(6) because "nowhere in its [Parsons'] initial pleading
did it allege that the arbitration agreement, which is the subject of its
[Parsons'] complaint, involve interstate commerce." Motion to
Dismiss Memorandum. II.B. Parsons notes that its Amended Complaint
expressly states that "performance of the Original Subcontract [between
Parsons and Williams] required the utilization of millions of dollars in
design, construction and engineering services, labor, equipment, and
materials obtained from many states and involved interstate commerce."
Amended Complaint, ¶ 39. As discussed above, the Court will
grant Plaintiff leave to file its Amended Complaint. Accordingly,
Plaintiff has satisfied the pleading requirements for interstate commerce
under the arbitration agreement and Defendant's motion to dismiss for
failure to state a claim for which relief can be granted will be denied.
C. Lack of Subject Matter Jurisdiction
Defendant Williams contends that this Court lacks subject matter
jurisdiction over the present matter. In its Amended Complaint, Plaintiff
Parsons contends that this Court has proper subject matter jurisdiction
pursuant to 28 U.S.C. § 1332, the diversity of citizenship
jurisdiction statute. In order to satisfy the requirements of diversity
jurisdiction, the parties must be citizens of different States and the
matter in controversy must exceed $75,000. 28 U.S.C. § 1332(a). For
purposes of determining diversity jurisdiction, a corporation "shall be
deemed to be a citizen of any State by which it has been incorporated and
of the State where it has its principal place of business."
28 U.S.C. § 1332(c)(1).
In the present case, Plaintiff Parsons is a corporate citizen of both
Delaware and Texas, and Defendant Williams is a corporate citizen of
Georgia. Amended Complaint, ¶ 3-4. As a result, the parties
satisfy the diversity of citizenship prong. In its prayer for relief,
Parsons' Amended Complaint asks this Court to vacate the Arbitration
Panel's Schedule Incentive Fee award of $1,500,000 and its supplemental
award of $271,783 for expert fees and expenses. Amended
Complaint, at 27. To this end, the sum in controversy far exceeds
the $75,000 minimum threshold. Consequently, it is clear that the Court
has jurisdiction over this matter. Based upon the foregoing reasons, this
Court denies Defendant's motion to dismiss for lack of subject matter
D. Improper Venue
Defendant Williams argues that the United States District Court for
the Eastern District of Pennsylvania is an improper venue for litigating
disputes stemming from the arbitration award and its underlying contract.
Citing a forum selection clause in the subcontract, Williams contends
that only the Delaware Court of Chancery is the proper venue. Article
26.9 of the
Subcontract Special Conditions states that, "this subcontract shall
be governed by and construed in all respects in accordance with the laws
of the State of Delaware, without regard to the conflict of laws
principles thereof." Subcontract. Section V, Art. 26.9.
Williams argues that this general choice-of-law provision limits the only
proper venue to the Delaware Court of Chancery. Parsons, on the other
hand, contends that in spite of the choice-of-law provision included in
the subcontract, the United States District Court for the Eastern
District of Pennsylvania is a proper venue for its challenge to an
arbitration award arising from the contractual dispute. This Court
concludes that venue is proper under the Federal Arbitration Act ("FAA").
Recently, the Third Circuit unequivocally held that "a generic
choice-of-law clause, standing alone, is insufficient to support a
finding that contracting parties intended to opt out of the FAA's default
regime." Roadway Package System. Inc. v. Kayser, 257 F.3d 287,
289 (3rd Cir. 2001). In Roadway, the Third Circuit determined
that the FAA does permit contracting parties to opt out of the federal
vacatur standards in favor of an alternative. Id. at 288. The
Court then determined when parties have chosen to contract out of the
default vacatur rules established in the FAA. Id. Judge Becker,
writing for the Court, reasoned that "the presence of a generic
choice-of-law clause tells us little (if anything) about whether
contracting parties intended to opt out of the FAA's default standards
and incorporate ones borrowed from state law." Id. at 288-89.
As a result, the Roadway Court concluded that a general
choice-of-law provision did not evince an intent of the contracting
parties to supplant the FAA vacatur standards with comparable state law.
Section 10(a) of the FAA, addressing motions to vacate arbitration
awards, commands that "the United States court in and for the district
wherein the [arbitration] award was made may make an order vacating the
award upon the application of any party to the
arbitration [pursuant to five enumerated situations]."
9 U.S.C. § 10(a). In Cortez Byrd Chips. Inc. v. Bill Harbert Construction
Company. 529 U.S. 193 (2000), the Supreme Court determined that the
FAA venue provisions for review of an arbitration award are permissive,
and review may be brought either in the federal jurisdiction where the
award was made or under any jurisdiction meeting general venue
prerequisites. Id. at 195. In its analysis of the FAA venue
provisions, Cortez noted that an action seeking confirmation or
vacation of an arbitration award may be brought in a federal jurisdiction
where the award was made, even if performance of the underlying
subcontract did not occur in that district, and despite the fact that the
contract contained a choice-of-law provision applying the laws of another
state. Id. at 195-96.
In the instant matter, the subcontract does not contain a provision
directly dealing with the appropriate forum for an attempt to vacate an
arbitration award. Article 26.9 of the Subcontract Special Conditions is
a general choice-of-law provision that resembles the language of the
pertinent clause in Roadway. Section 25 of the Subcontract
provides for the resolution of disputes through binding arbitration. This
provision states that any arbitration arising under the subcontract shall
take place in Delaware, "or as otherwise agreed to by the Parties."
Subcontract. Section 25. Without this last caveat, a reading of
the Article 26.9 choice-of-law clause, in conjunction with the dispute
resolution provision in Section 25, may have displayed an intent to
supplant the FAA standards for vacatur. However, Article 26.9 merely
evinces a general intent to subject the contract to Delaware law, and
Section 25 allows the parties to manifest a specific intent to conduct
arbitration outside of Delaware. Moreover, the arbitration hearings were
held in Philadelphia, Pennsylvania. According to the provisions of the
FAA, this Court, being the court wherein the arbitration award was made,
may make an order vacating the award. Venue, therefore, is proper in this
Court. Defendant's motion to dismiss for improper venue will be
E. Lack of Personal Jurisdiction
Defendant Williams argues that nowhere in its pleading does Plaintiff
Parsons "state what minimum contacts Defendant has with the Commonwealth
of Pennsylvania," contrary to Federal Rule of Civil Procedure 8(a)(1).
Plaintiff Parsons contends that Williams agreement to arbitrate the
dispute in Philadelphia operates to confer the Eastern District of
Pennsylvania with personal jurisdiction over the Defendant.
In The Mutual Fire. Marine and Inland Insurance Company v.
Armour, 1987 U.S. Dist. LEXIS 3012 (E.D. Pa. April 16, 1987), this
Court found that where a federal court is the chosen venue for litigation
or arbitration, personal jurisdiction necessarily exists. Mutual
Fire involved a choice-of-venue clause in an indemnity agreement.
None of the numerous named defendants had any contacts with Pennsylvania
aside from the prevailing venue clause. The Defendants argued that the
clause waived only venue and did not affect personal jurisdiction.
Id. at 2. Nonetheless, this Court determined that it had
personal jurisdiction over the defendants, based on their agreement to
litigate and arbitrate the contract in Pennsylvania. In coming to the
decision, the Court found Judge Scirica's reasoning in Mutual Fire.
Marine and Inland Insurance Company v. Antebi, No. 86-4080, slip op.
at 1 (E.D. Pa. Sept. 12, 1986) to be instructive. Judge Scirica held,
"[i]t is clear that the term `venue' in this context is used to identify
the locale where litigation or arbitration of any claims arising under
the agreement shall be held. An agreement as to the location of any
litigation without a concomitant agreement as to jurisdiction would
render this clause meaningless." Id. at 2.
In the case at hand, both parties agreed to conduct arbitration in
Philadelphia, Pennsylvania. Neither party was required to submit to
arbitration in Philadelphia, and in fact,
the State of Delaware was the default arbitration location in the
subcontract. However, the mutual agreement to conduct arbitration in
Philadelphia subjected Defendant to the personal jurisdiction of this
Court. Defendant's motion to dismiss based upon lack of personal
jurisdiction will be denied.