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Aspic Engineering and Construction Co. v. ECC Centcom Constructors, LLC

United States District Court, N.D. California

July 18, 2017




         Defendants ECC International, LLC and ECC CENTCOM Constructors, LLC (collectively “ECC”) bring this motion to vacate a final arbitration award (the “Arbitration Award”) entered against them and in favor of plaintiff Aspic Engineering and Construction Company (“Aspic”) on the ground that the arbitrator exceeded his authority. (Dkt. No. 19.) Plaintiff Aspic opposes defendants' motion and moves to confirm and correct the award to include Aspic's attorney's fees. (Dkt. No. 17 at 20; Dkt. No. 26.) While considerable deference to an arbitrator exists under Ninth Circuit law, the Court finds here rare circumstances warranting vacatur.

         I. Relevant Background

         ECC is an employee-owned engineering and construction firm located in Burlingame, California. ECC performs work on various commercial and government construction projects, including as a prime contractor to the U.S. Army Corp of Engineers (“USACE”) supporting two reconstruction projects for police training facilities in Sheberghan and Badghis, Afghanistan (the “Projects”). (Dkt. No. 20-2, ECC Prehearing Brief at 3.) The prime contracts between USACE and ECC incorporated Federal Acquisition Regulations (“FAR”) Sections 49.206 and 52.249-2, which allowed USACE to terminate the Projects “for convenience” and provided for ECC's recovery of costs and profits in the event of such a termination.[1]

         A. The Subcontracts

         ECC awarded subcontracts for the Projects (the “Subcontracts”) to plaintiff Aspic, an Afghan engineering and contracting firm. (Dkt. No 20-10, Sheberghan Subcontract; Dkt. No. 20-11, Badghis Subcontract.) The Subcontracts are lengthy and provide detailed descriptions of termination rights, recovery of costs, and dispute resolution procedures. (Id.) For example, the Badghis Subcontract is 90 pages and incorporates more than 100 FARs. The Sheberghan Subcontract is even larger, totaling 450 pages and incorporating more than 250 FARs. Each Subcontract was signed by Aspic Vice President and co-owner Omar Irshad, who apparently had experience in contracting with the U.S. government and a familiarity with U.S. Government requirements including FAR clauses. (Sheberghan Subcontract ECC-000132; Badghis Subcontract at ECC-000002; Dkt. No. 14, Certification of Interested Entitles or Persons of Petitioner/Plaintiff Aspic at 1; Dkt. No. 20-4 at 8.)

         After ECC and Aspic had partially performed under the prime and Subcontracts, respectively, USACE issued a notice of termination for convenience which ended the Projects in their entirety. (Dkt. No. 20-2, ECC Prehearing Brief at 4, 6.) On September 25, 2015, Aspic brought an arbitration claim against EEC seeking roughly $2.3 million for certain costs, lost profits, and attorneys' fees. (Dkt. No. 20-4, ECC Posthearing Brief at 23; Dkt. No. 20-3, Aspic Posthearing Brief at 6; Dkt. No. 20-5, Aspic Reply Brief at 20.)

         B. The Arbitration Award

         An arbitration hearing was held from August 1-3, 2016 in Burlingame, California. On September 30, 2016, arbitrator Eugene M. Bass (the “Arbitrator”) issued a partial final award in favor of Aspic in the amount of $1, 072, 520.90. (Dkt. No. 20-6, Partial Final Award.) The Arbitrator stated, in relevant part:

. . . . The parties entered into two lengthy subcontract agreements for the two projects which were prepared by ECC and presented to ASPIC. Each subcontract included very detailed provisions relating to Federal regulations governing the work as well as pass through and ‘Pay when/if Paid' clauses. The subcontracts were somewhat onerous as to ASPIC and were clearly drafted to give every advantage to ECC. In light of the fact that the ASFIC was a local Afghanistan subcontractor that had some experience with government contracting but not nearly as extensive as that of ECC, and in view of the fact that the normal business practices and customs of subcontractors in Afghanistan were more ‘primitive' than those of U.S. subcontractors experienced with U.S. Government work, it was not reasonable to expect that Afghanistan subcontractors would be able to conform to the strict and detailed requirements of general contractors on U.S. Federal projects. Notwithstanding that expectation, ECC prepared its subcontract agreements to require the same level of precision and adherence to Federal procedures from ASPIC as ECC had toward the USACE through the pass through provisions of the agreements.
It was not reasonable that when the parties entered into the subcontract agreements, they both had the same expectations as to the performance of the agreements. ECC could not expect that ASPIC would be capable of modifying their local business practices to completely and strictly conform to the U.S. governmental contracting practices that were normal to ECC. There was not a true meeting of the minds when the subcontract agreements were entered. Hence, ASPIC was not held to the strict provisions of the subcontract agreements that ECC had to the USACE. This arbitration demonstrated that ASPIC conducted its business practices in a manner normal to Afghanistan which was clearly not the same as a U.S. subcontractor working on a Federal project in the U.S .....

(Emphasis supplied.) The award was made final on November 14, 2016. (Dkt. No. 20-9.)

         II. Legal Framework

         Resolution of this matter implicates the New York Convention and the Federal Arbitration Act (“FAA”). First, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) requires U.S. courts to recognize and enforce arbitration awards made in foreign states that have assented to the terms of the New York Convention (“contracting states”). The New York Convention applies to arbitrations where one of the parties is a U.S. citizen and the other is a citizen of a foreign contracting state. 9 U.S.C. § 202; LaPine v. Kyocera Corp., 2008 WL 2168914 at *3-4 (N.D. Cal. 2008). Under the New York Convention, an arbitral award in one contracting state is enforceable in ...

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