Hitachi America, Ltd. v. Steadfast Insurance Company et al

Filing 86

MEMORANDUM OPINION AND ORDER, within fourteen 14 days of the date of this Order, HAL is to identify with particularity the specific bases on which it claims it did not have a full and fair opportunity to litigate in the arbitration proceedings, and t o serve amended discovery requests limited to those issues. Steadfast and AKSI's application for a protective order with respect to HAL's pending discovery requests is granted. HAL's application to compel discovery is denied. (Signed by Magistrate Judge Henry B. Pitman on 4/15/2011) Copies Sent By Chambers. (lnl)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------X
HITACHI AMERICA, LTD.,
Plaintiff,

:

STEADFAST INSURANCE COMPANY
and Intervenor, AKER KVAERNER
SONGER, INC.,
Defendants.

09 Civ. 8045 (VM)(HBP)

:

-against-

:

MEMORANDUM OPINION
AND ORDER

:
:
:

-----------------------------------X

PITMAN, United States Magistrate Judge:

I write to resolve the parties' conflicting letter
applications for a protective order and to compel discovery.
This is an action on two performance bonds issued by
defendant Steadfast Insurance Company ("Steadfast") in connection
with the construction of a power plant in Council Bluffs, Iowa.
Hitachi America, Ltd. ("HAL") was retained as the engineering,
procurement and construction subcontractor, and HAL, in turn,
subcontracted certain work to Aker Kvaerner Songer, Inc.
("AKSI").

AKSI then subcontracted some of the work it was to

perform under its contract with HAL to AZCO, Inc. ("AZCO").
Steadfast issued Bond SGD 5087943-00 in favor of AKSI; it provided coverage against certain losses paid as a result of a
default by one or more of AKSI's subcontractors.

Steadfast

subsequently issued a second bond, Bond SGD 5087968-00, in favor
of HAL; it provided coverage against certain losses paid as a
result of defaults by AKSI on the project.

HAL was subsequently

added as an insured on the first bond, conditioned on HAL's
faithful performance of its contractual obligations to AKSI and
excluding coverage for any costs or expenses incurred as a result
of a default by AKSI.
Disputes arose among HAL, AKSI and AZCO as to the
performance of each under the contracts.

These disputes have now

been resolved in an arbitration that was conducted in two phases.
Phase I of the arbitration resulted in a net award against HAL in
the amount of approximately $8.6 million; the arbitrator's award
with respect to Phase I has been confirmed by the United States
District Court for the Southern District of Iowa.

HAL moved to

set aside the order confirming the award, arguing that it was
denied adequate discovery in the arbitration and that AKSI
produced altered documents in the arbitration.

The District

Court in Iowa denied that motion earlier this month.

Hitachi

America, Ltd. v. Aker Kvaerner Songer, Inc., No. 1-09-cv-32-CTWRAW (S.D. Iowa April 6, 2011).

The arbitrators also recently

issued a decision resolving Phase II of the arbitration; that
decision resulted in a net award in favor of HAL in the amount of
approximately $6 million. The District Court in Iowa has not yet
2

acted with respect to the arbitrators' decision concerning Phase
II.

In general terms, the arbitrators found that HAL was respon-

sible for some of the losses and that AKSI and AZCO were responsible for others.
The arbitration proceedings among HAL, AKSI and AZCO
were lengthy and extensive.
more than three years.

Discovery in the arbitration spanned

Millions of pages of documents were

produced, more than eighty depositions were conducted and there
were fifty-nine days of evidentiary hearings.

The arbitrators'

decision with respect to the Phase II issues is more than
seventy-five pages long and provides detailed explanations for
their conclusions.
Notwithstanding the results of the arbitration, HAL
seeks here to recover all of its claimed losses from Steadfast.1
Although this action was commenced in 2009, it was stayed until
December of last year to prevent interference with Phase II of
the arbitration proceeding.

In December, 2010, the parties

completed their submissions in the arbitration proceeding, and I
lifted the stay of this action (Docket Item 80).

Immediately

after the stay was lifted, HAL served broad discovery requests
seeking, among other things, virtually every non-privileged

1

AKSI has intervened in this action because Steadfast has a
potential subrogation claim against it if HAL prevails here.
3

document concerning the underlying contract disputes that was
requested but not produced in the arbitration proceeding.

By

proceeding in this manner, HAL has effectively incorporated by
reference and re-asserted here the one hundred twenty document
requests that it served in the arbitration proceeding.
Steadfast and AKSI contend that the arbitration decisions will be dispositive of HAL's claims in this action and
intend to move for summary judgment on the ground of collateral
estoppel.

They contend that proceeding with the wide-ranging

discovery HAL seeks will be burdensome and expensive and will be
unnecessary if they prevail on their contemplated motion for
summary judgment.

Thus, Steadfast and AKSI seek a protective

order substantially limiting discovery until their summary
judgment motion is resolved.

HAL, on the other hand, contends

that collateral estoppel is not applicable here because it did
not have a full and fair opportunity to litigate in the arbitration proceeding.

Thus, HAL seeks to enforce its discovery

requests.
Under both federal and New York law,2 the doctrine of
collateral estoppel requires, among other things, that the party
against whom the doctrine is asserted had a full and fair oppor-

2

None of the parties' submissions address the choice of law
issue.
4

tunity to litigate the pertinent issue in the prior proceeding.
Curry v. City of Syracuse, 316 F.3d 324, 331 (2d Cir. 2003)
("[u]nder New York law, collateral estoppel prevents a party from
relitigating an issue . . . . (1) identical to an issue already
decided (2) in a previous proceeding in which that party had a
full and fair opportunity to litigate" and where (3) "the issue
that was raised previously [is] decisive of the present action"
(internal quotation marks and citations omitted and emphasis
added)); Boguslavsky v. Kaplan, 159 F.3d 715, 720 (2d Cir. 1998)
("Under federal law, a party is collaterally estopped from
relitigating an issue if a four-part test is met: (1) the identical issue was raised in a previous proceeding; (2) the issue was
actually litigated and decided in the previous proceeding; (3)
the party had a full and fair opportunity to litigate the issue;
and (4) the resolution of the issue was necessary to support a
valid and final judgment on the merits." (internal quotation
marks and footnote omitted and emphasis added)); accord King v.
Fox, 418 F.3d 121, 129-30 (2d Cir. 2005).

Although collateral

estoppel is an affirmative defense, see Curry v. City of Syracuse, supra, 316 F.3d at 330-31; Colon v. Coughlin, 58 F.3d 865,
869 (2d Cir. 1995), where it is clear from the face of a complaint that a claim is barred by a prior judgment, the complaint
may be dismissed prior to any discovery pursuant to Rule 12.
5

Conopco, Inc. v. Roll Int'l, 231 F.3d 82, 86-87 (2d Cir. 2000).
"The party asserting issue preclusion bears the burden of showing
that the identical issue was raised and necessarily decided in a
previous proceeding, while 'the party against whom the doctrine
is asserted bears the burden of showing the absence of a full and
fair opportunity to litigate in the prior proceeding.'"
Narumanchi v. American Home Assur. Co., 317 F. App'x 56, 58-59
(2d Cir. 2009) (applying New York law), citing LaFleur v. Whitman, 300 F.3d 256, 272 (2d Cir. 2002) and Colon v. Coughlin,
supra, 58 F.3d at 869; accord Webster v. Wells Fargo Bank, N.A.,
08 Civ. 10145 (LAP), 2009 WL 5178654 at *9 (S.D.N.Y. Dec. 23,
2009) (Preska, D.J.); V'soske, Inc. v. Vsoske.com, 00 Civ. 6099
(DC), 2001 WL 546567 at *6 (S.D.N.Y. May 23, 2001) (Chin, D.J.).
A collateral estoppel defense may be predicated on an arbitration
award whether or not the award has been judicially confirmed.
Jacobson v. Fireman's Fund Ins. Co., 111 F.3d 261, 267 (2d Cir.
1997)(applying New York law).
The Court of Appeals has held that, at least in some
circumstances, the party resisting the application of collateral
estoppel on the ground that it did not have a full and fair
opportunity to litigate in an arbitration is entitled to conduct
discovery on that issue before the court adjudicates the applicability of the defense.

PenneCom, B.V. v. Merrill Lynch & Co.,
6

372 F.3d 488, 493 (2d Cir. 2004).

Thus, I conclude that the most

prudent course is to permit HAL to take some discovery here.
However, the discovery requests that HAL has served seek plenary
discovery concerning all the issues resolved in the arbitration
and are far too broad.

If Steadfast and AKSI are correct that

HAL is bound by the results of the arbitration, requiring the
production of the discovery sought by HAL will be extremely
wasteful.
Accordingly, within fourteen 14 days of the date of
this Order, HAL is to identify with particularity the specific
bases on which it claims it did not have a full and fair opportunity to litigate in the arbitration proceedings, and to serve
amended discovery requests limited to those issues.3

Steadfast

and AKSI's application for a protective order with respect to

3

In reaching this result, I have considered whether I am
requiring HAL to identify facts in the exclusive possession of
its adversary, and I conclude that I am not. HAL was intimately
involved in the underlying project for several years, and, as
noted above, participated in an arbitration that lasted three
years and in which extensive discovery was conducted. If HAL has
a colorable argument that it was denied a full and fair
opportunity to litigate, it must know the bases for that
argument. HAL is not being required to identify facts that are
in the exclusive possession of its adversary.
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HAL's pending discovery requests is granted.

HAL's application

to compel discovery is denied.
Dated:

New York, New York
April 15, 2011

SO ORDERED

United States Magistrate Judge
Copies transmitted to:
George J. Tzanetopoulos, Esq.

Baker & Hostetler LLP

Suite 3100

191 North Wacker Drive

Chicago, Illinois 60606 1901

Paul L. Langer, Esq.

Proskauer Rose LLP

Suite 3800

70 West Madison

Chicago, Illinois 60602

David J. Krebs, Esq.

Charles A. Nunmaker, Esq.

Krebs, Farley & Pelleteri, P.L.L.C.

Suite 2500

400 Poydras Street

New Orleans, Louisiana 70130

Robert W. Muilenburg, Esq.

Tucker Eliis & West LLP

1150 Huntington BIding

925 Euclid Avenue

Cleveland, Ohio 44115

8

Katie Pfeifer t Esq.
Dorsey & Whitney LLP
Suite 1500
50 South Sixth Street
Minneapolist Minnesota

55402-1498

Neil E. McDonell t Esq.
Dorsey & Whitney LLP
250 Park Avenue
New York t New York 10177

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