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Inc. v. UXB International, Inc.

United States District Court, W.D. Virginia, Roanoke Division

August 5, 2016

THE O'GARA GROUP, INC., Plaintiff,
v.
UXB INTERNATIONAL, INC., Defendant.

          MEMORANDUM OPINION

          Hon. Glen E. Conrad Chief United States District Judge

         On April 1, 2016, The O'Gara Group, Inc. ("O'Gara") was granted an arbitration award against UXB International, Inc. ("UXB"). O'Gara has filed an application for confirmation of the arbitration award and UXB has moved to vacate the award. For the following reasons, the court will deny UXB's motion and confirm the arbitration award.

         Background

         O'Gara, an Ohio corporation, and UXB, a Virginia corporation based in Blacksburg, Virginia, were parties to Subcontract Agreement No: 12-024 (the "Subcontract"). Pursuant to the Subcontract, O'Gara, as subcontractor, agreed to provide qualified and properly-cleared personnel to furnish services in support of various UXB projects. The prime contract for the work had previously been awarded to UXB by the federal government.

         The Subcontract contained an arbitration provision, which provided as follows:

Claims, controversies or disputes between the parties that are not subject to the procedures of (b) above including without limitation, any claim, controversy, or dispute concerning any determination, negotiation, or agreement to be reached by the Parties under this Agreement (hereinafter, the "Dispute") shall be settled by mediation under the then current Center for Public Resources (hereinafter, "CPR") Institute for Dispute Resolution Mediation Procedure in effect on the date of this Agreement. Unless otherwise agreed, the Parties will select a mediator from the CPR Panels of Distinguished Neutrals. Any Dispute which remains unresolved thirty (30) days after the appointment of a mediator shall be settled by binding arbitration by a sole arbitrator in accordance with CPR Rules for Non-Administered Arbitration in effect on the date of this Agreement. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. Section 1-16 to the exclusion of state laws inconsistent therewith, and judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction thereof. The place of arbitration shall be Montgomery County, Virginia. The arbitrator is not empowered to award punitive damages or damages in excess of compensatory damages and each party irrevocably waives any right to recover such punitive damages or excess damages.

         Subcontract § H-26.

         On May 21, 2014, O'Gara sent UXB a demand letter alleging that the company owed O'Gara over $1, 000, 000 for unpaid services provided under the Subcontract. The parties' efforts to resolve the dispute through mediation were unsuccessful. Consequently, on July 29, 2015, O'Gara commenced an arbitration proceeding with the International Institute for Conflict Prevention and Resolution ("CPR"), pursuant to § H-26 of the Subcontract (the "Subcontract Arbitration").

         In addition to the Subcontract, the parties entered into a separate contract for the purchase of ammunition by O'Gara from UXB (the "Ammunition Contract"). The Ammunition Contract also contained an arbitration provision, which required the parties to resolve "any disputes under the terms and conditions of [the Ammunition Contract] . . . through binding arbitration ... in accordance with the rules of the American Arbitration Association." Ammunition Contract § 16. On October 22, 2015, UXB initiated a separate arbitration proceeding with the American Arbitration Association ("AAA") regarding a dispute arising from the Ammunition Contract.

         On January 21, 2016, prior to an evidentiary hearing in the Subcontract Arbitration, UXB filed a prehearing brief indicating that it intended to seek the amount that O'Gara allegedly owed under the Ammunition Contract as a setoff against any amount that UXB was found to owe O'Gara under the Subcontract. The requested setoff was based on § H-31 of the Subcontract, which permitted the "Contractor [to] set off against amounts payable to Subcontractor hereunder any claim or charge Contractor may have against Subcontractor." Subcontract § H-31.

         On January 22, 2016, O'Gara moved to exclude all evidence related to the Ammunition Contract. O'Gara argued that the arbitration clause of the Subcontract only covered disputes arising under the Subcontract, and that disputes under the Ammunition Contract were subject to a separate arbitration provision, which required arbitration through the AAA. O'Gara further emphasized that the Ammunition Contract was already the subject of a separate arbitration proceeding before the AAA, and that the parties disputed what amounts, if any, were owed to whom under that agreement.

         On January 25, 2016, the arbitrator assigned to the Subcontract Arbitration conducted a hearing on the issue via conference call. The following day, the arbitrator entered an order granting O'Gara's motion to exclude. The order provided that UXB "shall not be allowed to present evidence as an offset to, and/or reduction of, the claims of O'Gara under the Subcontract, to the extent the offset arises from alleged breaches by O'Gara in the conduct of the Ammunition Contract, which is the subject of a separate arbitration proceeding before the American Arbitration Association (AAA)." Case Management Order No. 3 at 4. In the order, the arbitrator noted that "counsel for both parties acknowledged that the Subcontract's offset provision does not, by its explicit terms, convey to the Tribunal jurisdiction over and upon an affirmative counterclaim asserted by UXB based on facts and claims outside the penumbra of the Subcontract scope of services." Id. at 3. The arbitrator ultimately concluded that "opening the instant arbitration to matters outside the Subcontract, even for an offset defense, could potentially be determined to be beyond the scope of the arbitration provision within the Subcontract, depriving the Tribunal of jurisdiction . ..." Id. at 4.

         The arbitrator held an evidentiary hearing on January 26, 2016. He received further testimony on February 10, 2016. On April 1, 2016, the arbitrator awarded O'Gara $1, 331, 096.49 plus interest against UXB.

         On April 7, 2016, O'Gara commenced this action by filing an application for confirmation of the arbitration award. On May 9, 2016, UXB moved to vacate the award on the basis that the arbitrator disregarded the law and exceeded his authority by "improperly exclud[ing] ...


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