The opinion of the court was delivered by: McMAHON, Distric Judge
MEMORANDUM DECISION AND ORDER
DENYING PLAINTIFFS' MOTION TO VACATE ARBITRATION AWARDS AND
DENYING DEFENDANT'S CROSS-MOTION TO CONFIRM ARBITRATION AWARD
Plaintiffs Yonir Technologies, Inc. ("Yonir") and David Felder ("Felder")
and Defendant Duration Systems (1992) Ltd. ("Duration") are participating
in an ongoing arbitration regarding the dissolution of their joint
venture. See Yonir Technologies, Inc. and David Felder v. Duration
Systems (1992) Limited. Case No. 19 104 0098801. A Demand for Arbitration
was filed with the American Arbitration Association ("AAA") on September
4, 2001, and
the arbitration is being held before a panel of three
arbitrators ("the Panel")*fn1. The Panel has issued a number of letter
directives since arbitration began, but has not yet finally resolved all
issues relating to the dissolution of the joint venture.
On October 22, 2002, the Plaintiffs petitioned the New York State
Supreme Court, by an Order to Show Cause and Verified Petition
("Plaintiffs' Petition"), seeking to vacate five directives issued by the
Panel. Plaintiffs asked that enforcement of these directives be stayed
pending determination of their petition. The petition was supported by a
Memorandum of Law in Support of Petitioners' Motion to Vacate an
Arbitration Award. ("Plaintiffs' Memo."). One of the directives
challenged by Plaintiffs required the parties to execute a contract with
the Reston Group, a third-party service provider, by October 22, 2002.
Pursuant to the request to stay the directives, the Honorable Bruce Allen
of the New York State Supreme Court issued an order that, pending hearing
of the motion, Plaintiffs not be required to execute The Reston Group
contract. Judge Allen scheduled a hearing for October 24, 2002.
Defendant removed this action to federal court on October 23, 2002,
pursuant to 28 U.S.C. § 1332 and 1441. On November 4, 2002,
Plaintiffs' counsel asked for a hearing on the pending Order to Show
Cause. On November 8, 2002, Defendant filed an Opposition to Plaintiffs'
Motion to Vacate Arbitration Awards ("Defendant's Opposition"), and
cross-moved for confirmation of an award issued in the September 17, 2002
letter. Defendant also requested that the Court issue orders mandating
compliance with the challenged directives, including orders directing the
petitioners to sign The Reston Group Contract, to return $132,877.18, with
interest, to the JV accounts, and to arbitrate in good faith.
(Defendant's Opposition, p. 8-9).
On November 12, 2002, the parties appeared before this Court for a
hearing on the Order to Show Cause. Earlier that day, Plaintiffs filed a
Reply Memorandum in Support of the Motion to Vacate an Arbitration Award
("Plaintiffs' Reply") and Defendant filed an Answer to 2 Plaintiffs'
verified petition ("Defendant's Answer"). I extended Judge Allen's stay
pending this decision.
I now deny the pending motions as explained below and vacate the stay
issued by Judge Allen.
Defendant Duration is a corporation organized and existing under the laws
of, and having its principal place of business in, the Country of
Guernsey, in the Channel Islands. (Defendant's Answer, p. 2) Plaintiff
Yonir is a New York Corporation. (Plaintiffs' Petition, p. 1). Plaintiff
Felder is the President and sole stockholder of Yonir, and a resident of
the State of New York, County of Westchester. (Plaintiffs' Petition, p. 1).
In June 1992, Plaintiffs entered into a joint venture with a company that
later assigned the joint venture to Duration. (Plaintiffs' Memo., p. 2).
The joint venture operated in the State of New York. Its business was the
procurement and sale of avionic parts for both civilian and military
aircraft. The companies continued the joint venture until approximately
August 2001, when Duration filed an action in this District, declaring
the formal termination
and dissolution of the Joint Venture and bringing
an action for damages and other relief against Petitioners in this
District. (Plaintiffs' Memo., p. 2). In September 2001, the action was
voluntarily discontinued, and the parties commenced an arbitration
proceeding before the American Arbitration Association, pursuant to the
arbitration provision of their joint venture agreement. (Agreement
between Yonir and Mala [Duration's successor in interest], June 1, 1992,
Ex. A to Plaintiffs' Petition.) This action was later transferred to the
ICDR. (Reply Affidavit of Peter J. Mutino, Esq., November 12, 2002,
("Mutino Aff.") ¶ 3).
In the Claims for Relief Sought attached to their Demand for
Arbitration, Yonir/Felder asked the arbitrators to set up a procedure for
dividing the joint venture's inventory; to order Duration to reimburse
them for the costs of operating the joint venture; and to award them
damages for actions and failures of Defendant. (Claims for Relief
Sought, Ex. 3 to the November 7, 2002 Affidavit of Jeffrey Campisi Esq.
("Campisi Aff.")). Defendant later filed a counter-claim for relief,
asking the arbitrators for detailed relief to effectuate the wind up of
the joint venture. (Claims for Relief Sought on Counterclaim, Ex. 56 to
the Campisi Aff.).
Defendant also sought damages. Id. The Panel has not yet held a hearing
on all of the issues for which the parties require resolution
(Defendant's Opposition, p. 1), but it has already issued a number of
directives. Plaintiffs seek to vacate five of these directives. Defendant
cross-moves to have an additional directive confirmed.
A. The First Challenged Award: The Reston Group Contract
The parties agreed that the Panel should establish a procedure for the
division of their physical inventory. (Defendant's Opposition, p. 5;
Plaintiffs' Claim for Relief Sought, ¶ 1, Ex. 3 to Campisi Aff.;
Defendant's Claims for Relief Sought on Counterclaim, ¶ 1, Ex. 56 to
Campisi Aff.) The record reveals that the Panel held meetings and
telephone conferences, and received written submissions from the parties'
attorneys, on this issue. (Mutino Aff. ¶ 2-11; Campisi Aff. ¶¶
24-48). Mr. Mutino, the attorney for Yonir/Felder, proposed at the first
meeting that Yonir employees divide the inventory. (Campisi Aff .¶
24). Mr. Campisi, the attorney for Duration, subsequently submitted
Defendant's sixteen-page counter-proposal to the Panel, with eight
supporting exhibits attached. (Letter from Campisi to the AAA, Dec. 14,
2001, Ex. 5 to Campisi Aff.; Campisi Aff., ¶ 27). Plaintiffs were
permitted to respond to the Defendant's proposal, and submitted a
twenty-two page response. (Letter from Mutino to the AAA, Dec. 24, 2001,
Ex. 6 to Campisi Aff.). A conference call was held between Counsel and
the Panel to discuss the issue. (Letter to Counsel from AAA, January 24,
2002, Ex. 7 to Campisi Aff.). Both sides were given the opportunity to
identify third-party vendors who could assist with the process of
evaluating and dividing the inventory. (Letter to Counsel from AAA,
January 24, 2002, Ex. 7 to Campisi Aff.; Letter from Campisi to AAA,
February 6, 2002, Ex. 8 to Campisi Aff.; Letter from Mutino to Campisi,
February 5, 2002, Ex. 9 to Campisi Aff.).
At the end of the selection process, the Panel chose The Reston Group to
divide the inventory. By letter directive on May 22, 2002, the Panel
ordered, "The parties are to go forward with the inventory project by
engaging Reston according to the terms of its proposal."
On June 27, 2002, The Reston Group advised the Panel that it could not
reach an agreement with Yonir and Duration on the terms of the
engagement, and was withdrawing its bid. (Letter to AAA from Reston
Group, Ex. 15 to Campisi Aff.). Reston stated that would only be willing
to submit a new bid if certain principles were adhered to in contract
One of these principles was that Reston would only deal with a single
During a July 1, 2002 conference with counsel, the Panel informed the
parties that the Reston Group would be submitting a new contract
proposal, and that the Panel Chair would be the point person for
communicating with Reston. (Mutino Aff. ¶ 9; Campisi Aff. ¶s
41). On July 29, 2002, the Panel informed counsel that it had discussed
The Reston Contract and that it would be discussing a final draft with
The Reston Group. (Letter from AAA to Counsel, July 29, 2002, Ex. 47 to
Campisi Aff.). According to a case status report prepared by Defendant
for the ICDR case manager, the Panel undertook to "finalize The Reston
Group Contract for the division of inventory." (Letter to ICDR from
Campisi, August 15, 2002, Ex. 20 to Campisi Aff.). After reading the
Defendant's case status report, Plaintiffs sent a letter to the ICDR
manager indicating that they agreed with the portion of the status report
about the Reston contract. (Letter to ICDR from Mutino, Aug. 15, 2002,
Ex. 21 to Campisi Aff.). While neither party has submitted the Reston
Group Contract as an exhibit, it appears that the Panel did in fact
negotiate a contract with Reston, since the Panel issued the following
directive on October 15, 2002:
The Panel requests that each party execute and return
the Reston Group Agreement by October 22, 2002.
Plaintiff seeks to vacate that directive.
B. The Second Challenged Award: Joint Venture Monies
On January 10, 2002, Counsel for Duration Systems notified the AAA Case
Manager that Plaintiffs' counsel had sent Duration checks totaling
$70,000.00 of joint venture funds, with a notation that: "Yonir
Technologies, Inc. would be withdrawing a similar amount from the bank
account" (Letter from Campisi to AAA, January 10, 2002, Ex. 28 to Campisi
Aff.). Defendant's counsel attached the checks as an exhibit to his
written submission. Id. On January 16, 2002, the AAA sent a letter to
counsel, memorializing a conference call held among the Panel and counsel
on January 14, 2002 and issuing the following directive:
The panel directs that all monies received by the joint
venture be retained by the joint venture until the
conclusion of this arbitration and the further order of
the panel. To that end, the panel directs Mr. Campisi to
return to Mr. Mutino the two checks totaling $70,000.00
payable to his client for voiding and directs Clamant to
repay $70,000.00 to the joint venture.
(Letter to Counsel from AAA, January 16, 2002, Ex. 29 to Campisi.).
On January 23, 2002, Plaintiffs sent a letter to the Panel seeking
(Plaintiffs' Letter to AAA, January 23, 2002, Ex. 30 to Campisi Aff.).
Defendant responded on January 31, 2002 with a vigorous objection to a
reconsideration (Letter from Defendant to AAA, January 16, 2002, Ex. 31
to Campisi Aff.). On February 7, 2002, the Panel sent a letter to parties
informing that "After consideration of the contentions of the parties,
arbitrators have denied the request to reconsider the distribution of
the monies in the joint venture." (Letter from AAA to Counsel, February
7, 2002, Ex. 33 to Campisi Aff.).
Despite the denial of the request for reconsideration of the January
16, 2002 award, Plaintiffs failed to comply with the Panel's directive.
On July 15, 2002, Plaintiffs indicated that they had distributed
$265,754.36 in joint venture funds, half to themselves and half to
Yonir. (Letter to Defendant from Plaintiff, July 15, 2002, Ex. 44 to
Campisi Aff.). On July 23, 2002, the Panel issued an additional
As previously ordered by letter date January 16, 2002,
all monies received by the joint venture are to be
retained by the joint venture until the conclusion of
the arbitration and the further order of the panel.
Therefore, the claimant is to leave $150,000 in the
attorney's escrow account of the Claimant's counsel and
all other monies paid out of the Joint venture are to be
returned to its accounts on or before August 10, 2002.
(Letter to Counsel from AAA, July 29, 2002, Ex. 47 to Campisi Aff.). On
July 30, 2002, Plaintiffs asked the Panel to rescind its directive
"concerning the return of monies to the joint venture account" (Letter to
AAA from Plaintiff, July 30, 2002, Ex. 48.).
C. The Third Challenged Award: Joint Venture Inventory
Plaintiffs maintain that, as the remaining partner of the joint
venture, they are entitled to continue the business of the joint venture
during the dissolution process. (Plaintiffs' Letter to Duration,
September 13, 2001, Ex. 25 to Campisi Aff.; Plaintiffs' Reply, p. 6-9).
On January 23, 2002, at the Panel's request, Plaintiffs' submitted sales
records and invoices to the Panel, and copied Defendant. (Plaintiffs'
Letter to AAA, January 23, 2002, Ex. 30 to Campisi Aff.). On January 31,
2002, Defendant responded with a letter to the Panel, stating that
Duration had not seen all of the sales invoices until Plaintiffs'
submission, and raising concerns about Plaintiffs' unilateral actions in
respect to sales. (Defendant's Letter to AAA, January 31, 2002, Ex. 31 to
The dispute between the parties over Plaintiffs' sales of joint venture
assets escalated between March and July of 2002. The parties sent at
least six written submissions to the Panel during this time, in which
Defendant disputed the propriety of sales of joint venture assets and
Plaintiffs maintained that such sales were appropriate. (Letters from
Counsel to Panel, March 19, 2002, April 2, 2002, May 14, 2002, May 21,
2002, July 2, 2002, July 15, 2002, July 16, 2002, Exs. 34, 36, 38, 39,
41, 44, 45 to Campisi Aff.). These submissions were often quite
detailed, and some refer to supporting documentation. Id.
On July 29, 2002, the Panel issued the directive:
There are to be no sales of inventory, without the
panels' [sic] approval. In addition, the claimant is to
give the respondent an inventory of what has been sold
and for how much, copying the Association.
(Letter from Counsel to AAA, July 29, 2002, Ex. 47 to Campisi Aff.). In
the Panel's September 17, 2002 letter, it repeated the directive that no
sales were to take place, and clarified the directive in regard to sales
for national security purposes. (Letter from ICDR to Counsel,
D. The Fourth Challenged Award: Retention of CPA
The Parties' joint venture agreement provides that: "Yonir will keep a
separate inventory, bookkeeping and record systems of all matters related
to the joint project and will issue annual accounts. Mala [Duration's
predecessor in interest] will be entitled to inspect the said inventory,
books and records, by prior request, at any time." (Agreement between
Yonir and Mala, June 1, 1992, Ex. A to Plaintiffs' Petition.) In
Duration's cross-claim submission for relief to the AAA, it seeks:
Appointment of a receiver or qualified neutral third
party with authority to oversee the winding up and to
collect and distribute all Joint Venture assets, pay all
Joint Venture debts and distribute surplus assets/divide
inventory to the joint venturers according to their
(Defendant's Claims of Relief Sought on Counterclaim, ¶ 3, Ex. 56 to
In Defendant's submissions to the Panel between January and July of
2003, discussed in Fact Section (C), supra, Defendant repeatedly raised
concerns about the accounts of the joint venture, and Yonir's exclusive
control over them. (See e.g., Letter from Duration to AAA, July 16,
2002, Ex. 45 to Campisi Aff.). On July 1, 2002, a preliminary hearing was
held, and on July 3, 2002, the Panel sent a letter to counsel
memorializing its post-hearing orders, including a procedure for the
selection of a CPA or a CPA firm willing to prepare an accounting.
(Letter from AAA to Parties, July 3, 2002, Ex. 58 to Campisi Aff.).
Pursuant to the terms of the July 3, 2002 letter, Plaintiffs provided
Defendant with a list of three CPAs who were willing to prepare an
accounting. (Letter from Plaintiff to Defendant, July 15, 2002, Ex. 59 to
Correspondence was exchanged between the parties, copying the AAA,
regarding the qualifications of the CPAs. (Letters between Counsel on
July 17, 2002, July 25, 2002, July 31, 2002, August ...