Agility Public Warehousing Co. v. Supreme Foodservice

840 F. Supp. 2d 703, 2011 WL 6952106, 2011 U.S. Dist. LEXIS 150166
District Court, S.D. New York·Decided December 29, 2011·No. No. 11 Civ. 7375·Published·Cited by 5 cases

Opinion

DECISION AND ORDER

VICTOR MARRERO, District Judge.

On October 18, 2011, petitioners Agility Public Warehousing Co. K.S.C. (“PWC”) and Professional Contract Administrators, Inc. (“PCA”) (together, “PWC/PCA”) petitioned the Court (Docket No. 1) to confirm partial and final arbitration awards (together, the “Award”) against respondent Supreme Foodservice GmbH (“Supreme”). A panel of three arbitrators (the “Tribunal”) under the auspices of the American Arbitration Association (“AAA”) International Centre for Dispute Resolution issued the Partial Final Award on April 26, 2011, and the Final Award and August 25, 2011. (See Docket No. 17, ex. 1A, IB.) Supreme cross-petitioned to vacate the Award on November 4, 2011 (Docket No. 18).l Supreme argues for vacatur of the Award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958, 9 U.S.C. §§ 201-08, 21 U.S.T. 2517 (the “Convention”) and the Federal Arbitration Act (the “FAA”), 9 U.S.C. §§ 1-16.1

In an Order dated December 19, 2011, the Court confirmed the Award and denied Supreme’s motion to vacate (Docket No. 31). The Court now sets forth its findings, reasoning, and conclusions in support of the December 19, 2011 Order below.

I. BACKGROUND2

A. THE SERVICES AGREEMENT AND SIDE AGREEMENT

The arbitration at issue derives from agreements between the parties related to the supply of food to American troops in Afghanistan. On October 25, 2004, PWC/ PCA and Supreme Foodservice AG, a subsidiary of Supreme, executed an agreement (the “Services Agreement”) whereby Supreme, with the assistance of PWC/ PCA, would enter a bid (the “Solicitation”) with the United States government to win the prime vendor contract supplying food to United States forces in Afghanistan, also known as “Zone 3.” At the time of the negotiation of the Services Agreement, PWC operated as the prime vendor supplying food and related supplies to troops in “Zone 1,” including Iraq, Kuwait, and Jordan. PCA provided advice and counseling to food supply contractors, including PWC.

Under the Services Agreement, PWC/ PCA’s assistance to Supreme included providing food prices and supply chains for use in the Solicitation. In the event that Supreme won the prime vendor contract, the Services Agreement provided that Supreme would pay PWC/PCA a “Monthly Service Fee” equal to 3.5% of “Net Revenues,” as therein defined. The Services Agreement also provided that Supreme would continue to pay PWC/PCA 1.75% of “Net Revenues” after termination of the Services Agreement (“Posb-Termination Fees”) for the life of the prime vendor contract.

[707]*707On June 3, 2005, Supreme won the prime vendor contract for Afghanistan. As the war in Afghanistan expanded beyond the geographical range anticipated by the Solicitation and the Services Agreement,3 the United States government requested that Supreme expand services to additional “Forward Operating Bases.” On May 15, 2006, Stephen Orenstein, the chief principal executive officer of Supreme, and Toby Switzer, general manager of PWC’s Prime Vendor Program, exchanged emails regarding whether PWC/ PCA should be compensated for this expanded service — in particular, transportation into and out of Afghanistan. In what became known as the “Side Agreement,” Orenstein and Switzer agreed that Supreme would pay PWC/PCA fees equal to 2% of revenue earned from “all services not included in the solicitation of U.S. SPV Afghanistan. These services include outbound airlift and road transport (deliveries from Kabul to customers not specified in the original solicitation) ...” (Docket 17, ex. IB at 49.) During the exchange of emails, Orenstein clarified that airlift into Afghanistan (“Inbound Airlift Services”) “while not part of the solicitation, will still attract S.5%.” Id.

The parties performed under the Services Agreement and the Side Agreement without dispute until November 2007. Around that time, news broke of a criminal investigation into PWC’s procurement practices. On March 26, 2008, following a dispute between the parties over PWC/ PCA’s refusal to supply pricing information to Supreme, Supreme gave notice of termination of the Services Agreement for material breach, and ceased payment of the Monthly Service Fees.

B. THE INDICTMENT AND ARBITRATION

Article 12 of the Services Agreement provides that disputes shall be settled under the Rules of the AAA by a panel of three arbitrators. Accordingly, on July 31, 2008, PWC/PCA filed a Notice of Arbitration with the AAA, alleging breach of the Servicing Agreement and seeking to recover unpaid Monthly Service Fees from December 2007 to March 2008 and Monthly Service Fees accrued thereafter. In the alternative, PWC/PCA sought Post-Termination Fees if Supreme had properly terminated. Supreme answered on September 17, 2008 that it had properly terminated because PWC/PCA had committed material breach by failing to provide pricing information upon request. Supreme also argued that it did not owe any Post-Termination Fees for transportation services covered in the Side Agreement, which was a separate contract from the Services Agreement.

The Tribunal held a preliminary hearing on March 25, 2009 and set a schedule for arbitration. The parties exchanged documents, filed written witness statements, and submitted expert reports and prehearing briefs.

On November 9, 2009 the United States unsealed a criminal indictment (the “Indictment”) against PWC in the United States District Court for the Northern District of Georgia. The Indictment accused PWC of a “Major Fraud Against the [708]*708United States” in connection with PWC’s procurement and performance of its separate prime vendor contract in Zone 1. (Id. at 15.) In particular, the Indictment alleged that PWC had misrepresented its buying power for food items in its bid for the Zone 1 vendor contract.

Following the unsealing of the Indictment, Supreme filed a Second Amended Statement of Defense and Counterclaims, claiming for the first time that PWC/PCA had fraudulently induced it to enter into the Services Agreement “by making promises they intended to fulfill only by illegal means.” (Docket No. 17, ex. IB at 15-16.) Thereafter, Supreme opposed, and the Tribunal denied, PWC/PCA’s request for a stay of the arbitration during the criminal proceedings. Supreme also sought the testimony of four PWC executives, including 1) Toby Switzer; 2) Stephen Lubrano, assistant general manager; 3) Tarek Aziz Sultan Al-Essa, board chairman and managing director; and 4) Emad AlSaleh, deputy general manager (collectively, the “PWC Executives”).

The Tribunal held two weeks of hearings in New York in February 2010. Thirteen witnesses testified during the hearings, including two experts and several PWC employees. However, the PWC Executives did not testify despite Supreme’s request. As the Tribunal later explained, “the missing PWC witnesses — while never actually asserting the Fifth Amendment privilege — quite clearly declined to appear to avoid answering questions under oath in arbitration that might in some way impact upon the pending criminal proceeding.” (Docket No. 17, ex.

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Agility Public Warehousing Co. v. Supreme Foodservice, 840 F. Supp. 2d 703, 2011 WL 6952106, 2011 U.S. Dist. LEXIS 150166 (S.D.N.Y. 2011).

840 F. Supp. 2d 703 (Agility Public Warehousing Co. v. Supreme Foodservice) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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