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B/E Aerospace, Inc. v. Jet Aviation St. Louis

May 3, 2012

B/E AEROSPACE, INC., PETITIONER AND CROSS-RESPONDENT,
v.
JET AVIATION ST. LOUIS, INC. F/K/A MIDCOAST AVIATION, INC., RESPONDENT AND CROSS-PETITIONER.



The opinion of the court was delivered by: Shira A. Scheindlin, U.S.D.J.

OPINION AND ORDER

I. INTRODUCTION

B/E Aerospace, Inc. ("B/E") petitions the Court to vacate a final award entered in favor of Jet Aviation St. Louis, Inc. F/K/A Midcoast Aviation, Inc. ("Midcoast") in an arbitration proceeding between the two parties. B/E contends that the Arbitration Panel erred in awarding consequential damages*fn1 and in awarding attorneys' fees.*fn2 Midcoast cross-petitions to confirm the arbitration award. For the rasons discussed below, B/E's petition to vacate is denied and Midcoast's cross-petition is granted.

II. BACKGROUND

B/E is a developer and manufacturer of interior products for commercial aircraft and business jets.*fn3 Midcoast installs interiors on private jets for owners and original equipment manufacturers.*fn4 In 2005, B/E contacted Midcoast regarding a business deal whereby B/E would develop seats and divans for Midcoast to install in aircraft; Midcoast would pay $1.4 million to B/E and would purchase the seating.*fn5 In October 2005, the parties signed a contract (the "Agreement") pursuant to which B/E agreed to provide goods and related services to bring the seating to market, "including dynamic testing and certification" of the seating.*fn6

Under the agreement, B/E was required to conduct "head impact criteria testing" to ensure that the seating and installation complied with Federal Aviation Administration ("FAA") regulations.*fn7 Midcoast paid B/E the required amount and installed the seating per B/E's instructions.*fn8 The parties do not dispute that B/E provided incorrect installation instructions to Midcoast and that, as a result, the seating was not certifiable by the FAA.*fn9 Midcoast disclosed the issue to the FAA, notified its customers to disable the affected seating, and participated in testing various solutions to correct the issue.*fn10 "Midcoast incurred over $3.3 million in non-recurring engineering costs and payments to its customers."*fn11

Midcoast requested payment in this amount from B/E, but B/E refused.*fn12

Midcoast began arbitration proceedings against B/E in May 2011. As called for in the Agreement, Midcoast and B/E each appointed one arbitrator. The arbitrators failed to agree on the third arbitrator, so, as per the Agreement, the American Arbitration Association ("AAA") appointed the third arbitrator.*fn13 B/E sought an injunction in the Southern District of New York in June 2011 to enjoin the arbitration, which was denied on July 1, 2011.*fn14 Five days later, Midcoast filed a motion to compel arbitration, which I dismissed without prejudice on August 31, 2011.*fn15 Midcoast then filed a motion to dismiss in September 2011. Citing the July 1 opinion, I denied all requested relief, dismissed Midcoast's motion as moot, and dismissed the case in an order dated September 26, 2011.*fn16 B/E appealed this decision, but has since withdrawn the appeal.

The arbitration proceeded and Midcoast sought damages for breach of contract and negligent misrepresentation.*fn17 B/E argued that Midcoast had "a non-delegable duty to certify the test results" and that its failure to do so was the cause of its damages.*fn18 The Arbitration Panel made the following findings: (1) B/E breached its contract with Midcoast by providing seating and installation instructions that did not comply with FAA regulations;*fn19 (2) "B/E negligently misrepresented the information it was required to provide to Midcoast";*fn20 and (3) B/E was legally liable for the incorrect testing data.*fn21 The Panel awarded damages against B/E in the amount of $3,324,215 including: (1) payments to Midcoast's customers for non-compliance in the amount of $1,550,000; (2) actual costs for Midcoast to correct the error in the amount of $473,730; and (3) legal fees and expenses Midcoast incurred in obtaining dismissal of the suit B/E filed in the Southern District of New York in the amount of $84,543.

On November 22, 2011, B/E sought to modify the award claiming there had been a clerical error.*fn22 The Panel rejected B/E's request and found that the request was a "thinly-disguised attempt to re-argue" its case.*fn23 Finding that the request was submitted by B/E in bad faith, the Panel awarded Midcoast attorneys' fees associated with the modification request.*fn24

On November 23, 2011, B/E filed the instant action seeking to vacate the award alleging, inter alia, that the Panel's award of consequential damages and attorneys' fees was in disregard of both New York law and the parties' Agreement.*fn25 Midcoast filed a cross-motion to confirm the final arbitration award.

III. APPLICABLE LAW

A. Vacatur of an Arbitration Award

"'It is well established that courts must grant an arbitration panel's decision great deference.'"*fn26 "'[A]rbitration awards are subject to very limited review in order to avoid undermining the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation.'"*fn27 The party challenging an arbitration award "bears the heavy burden" of proving the existence of grounds for vacatur.*fn28 "So long as some ...

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