Arbitration. Jurisdiction in the matter. The District Court finds that it does not have the authority to prohibit an arbitration proceeding where there was no diversity or federal question jurisdiction.
Perini Management. Serves. vs. Kildare Constr. Consulting, LLC, No. 21-cv-5936 (SDNY Oct. 1, 2021)[[[[click for review
Plaintiff Perini Management Services (“Perini”) is a construction contractor specializing in the construction of facilities for US agencies overseas. Since 2017, Perini has won two contracts for the construction of US military facilities in the Kingdom of Saudi Arabia. These contracts are worth approximately $200 million.
Defendant Kildare Construction Consultants, LLC (“Kildare”) specializes in introducing foreign and US contractors for overseas projects. In 2016, Kildare reportedly introduced Perini to Turkish contractor Yenigun Construction Industry & Commerce (“Yenigun”). Perini and Yenigun then concluded two subcontracts and obtained the two military contracts in Saudi Arabia.
After Kildare introduced Yenigun to Perini, Kildare entered into a contract with Yenigun which would compensate Kildare for his services as a percentage of the value of the awarded contracts. The Kildare-Yenigun contract contained a binding arbitration clause. Perini did not sign any contract with Kildare, although, according to Kildare, Perini asked Kildare to make the contract with Yenigun.
When Yenigun and Perini ignored Kildare’s demands for payment under the Kildare-Yenigun contract, Kildare commenced arbitration proceedings against both parties before the American Arbitration Association (“AAA”). Perini then brought that action in federal court against Kildare and the AAA seeking a preliminary injunction to restrain the pending arbitration against it.
Perini maintained that she could not be forced to arbitrate, as she had never entered into an arbitration agreement. Kildare argued both (1) that Perini could be compelled to arbitrate under a third party beneficiary or estoppel theory and (2) that the court lacked jurisdiction in the matter. The AAA has joined Kildare’s court challenge. The court ultimately sided with Kildare and the AAA and found it unnecessary to rule on the merits of Perini’s claim as it had no jurisdiction in the matter for the court. ‘case.
Perini has not claimed or demonstrated diversity competence. Instead, he advanced a number of theories in support of federal jurisdiction over the matter. First, he argued that the court had jurisdiction under the Declaratory Relief Act and Section 4 of the Federal Arbitration Act, 9 USC § 4 (“FAA”). The court quickly dismissed these arguments because the Declaratory Judgment Act does not provide an independent cause of action and the FAA does not independently confer jurisdiction. Instead, the court explained that “when a party requests that a federal court compel or suspend arbitration under the FAA, the court must review the complaint to the underlying dispute, applying the ordinary rules of federal jurisdiction”.
Perini then argued that (1) the underlying claims relate to interstate and international commerce, international projects, and federal contracts for projects to be used by U.S. government personnel; (2) that Kildare had stated that he could seek redress from Perini under the payment bonds that Perini had provided for government contracts, raising a claim under the Miller Act (40 U.S.C. §§ 3131, 3133(b)); and (3) that Kildare’s request for arbitration invoked “US law”, which Perini said was a reference to federal law.
The court rejected each of these arguments in turn. First, she found that Perini did not cite any support for the assertion that the international elements of the claims at issue would support federal jurisdiction over the matters; instead, the claim at issue was a simple claim for breach of contract, and contract disputes are generally a matter for state law. Then the court backed out of Perini’s claims that Kildare would invoke Miller law, federal laws or “US law”, as Kildare had only referred to “payment obligations” and “US law”. in the e-mails attached to his request and not in the “well argued complaint” itself; Kildare further stipulated during oral argument that he would not seek relief under the Miller Act or any other federal law.
Although Perini sought leave to amend its claim to remedy any jurisdictional flaws, the court held that any basis for jurisdiction would rest on the claims raised in Kildare’s arbitration request, which Perini could not amend. Consequently, the court denied Perini’s motion for a preliminary injunction and dismissed the case for lack of jurisdiction in the matter.
Erin Shields of the Los Angeles, CA office contributed to this summary.
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