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PARSONS ENERGY & CHEMICALS GROUP v. WILLIAMS UNION BOILER

United States District Court, E.D. Pennsylvania


January 28, 2004.

PARSONS ENERGY & CHEMICALS GROUP Plaintiff,
v.
WILLIAMS UNION BOILER, Defendant

The opinion of the court was delivered by: CLIFFORD GREEN, Senior District Judge

MEMORANDUM

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 Page 2 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, ¶ 65-66.

  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 payment of Page 3 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 Page 4 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.

 III. Discussion

  A. Failure to Obtain Leave of Court to Submit Amended Pleading

  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. Page 5

  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. Page 6

  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 jurisdiction.

  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 Page 7 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. Id.

  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 Page 8 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 Page 9 denied.

  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, Page 10 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. Page 11

  ORDER


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