PIRITO v. PENN ENGINEERING WORLD HOLDINGS et al
MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE STEWART DALZELL ON 12/22/11. 12/23/11 ENTERED AND COPIES MAILED AND E-MAILED.(mbh, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
PENN ENGINEERING WORLD
HOLDINGS, et al.
December 22, 2011
Plaintiff and counterclaim defendant Cataldo Pirito
(“Pirito”) brings this action against defendants and counterclaim
plaintiffs Penn Engineering World Holdings (“Penn World”) and
Penn Engineering & Manufacturing Corp. (“Penn Engineering,” and
collectively, the “Penn entities”), asserting two claims for
breach of contract -- one against each defendant.
arise out of a Share Purchase Agreement (the “Agreement”)
executed in January of 2003 whereby Penn World purchased from
Pirito the outstanding capital stock of Maelux SA, a Luxembourg
corporation that owned all of the capital stock of M.A.E. S.p.A.,
an Italian corporation.
Pirito alleges that Penn World and Penn Engineering
(which executed a Guarantee that Penn World would perform under
the Agreement) failed to sell certain real property in Offanengo,
Italy to Pirito upon his exercise of an option to purchase this
property, as the Agreement required.
The Penn entities counter
with four claims of their own against Pirito: for (1) fraud; (2)
breach and lapse of the option to purchase real property; (3)
enforcement of the determination of an independent public
accountant; and (4) breach of contract.
The Penn entities allege
that Pirito misrepresented the financial condition of Maelux SA
and M.A.E. S.p.A. in violation of the Agreement.
Though Pirito filed this action in May of 2009, we
stayed these proceedings for much of the ensuing time to permit
the parties to try to resolve this complex dispute under the good
offices of Judge Jacob P. Hart.
When these discussions failed,
we restored the case to our active docket and the parties
promptly started a flurry of motion practice.
We now have before
us four fully briefed motions: (1) the Penn entities’ motion for
costs; (2) Penn World’s petition to confirm arbitration award;
(3) Pirito’s motion to dismiss for lack of jurisdiction; and (4)
the Penn entities’ motion for partial summary judgment.
For the reasons set forth at length below, we will
grant the Penn entities’ motion for costs in part and Penn
World’s petition to confirm arbitration award in part.
deny Pirito’s motion to dismiss and the Penn entities’ motion for
Factual and Procedural Background
For the reasons later detailed, we will resolve the
pending motions without considering in depth the merits of the
Instead, our decisions depend upon the language
of the January, 2003 Agreement and the procedural history of the
parties’ efforts to arbitrate this dispute in Italy.
thus recite the undisputed facts as to the Agreement itself and
recount the arbitration proceedings initiated before the Chamber
of National and International Arbitration of Milan (the
“Chamber”) on March 20, 2008.
Our decision will make more sense when it is placed in
the context of the parties’ allegations as to their performances
under the Agreement and the outcome of an arbitration initiated
before the Chamber in January of 2005 -- though the parties
display little agreement on these topics.
We will therefore
rehearse the parties’ main averments as to these topics, though
we need not decide which averments to credit in resolving the
The Undisputed Facts As To The Agreement
Pirito, an Italian citizen, resides in Brazil, Pl.’s
Compl. ¶ 2; Defs.’ Countercls. ¶ 1, while Penn Engineering is a
Delaware corporation with its principal place of business in
Danboro, Pennsylvania, Defs.’ Countercls. ¶ 6; Pl.’s Ans. to
Defs.’ Countercls. (“Pl.’s Ans.”) ¶ 6.
Penn World is a Bermuda
limited partnership, whose General Partner is Penn Engineering
Holdings, Inc., Defs.’ Countercls. ¶¶ 7, 9; Pl.’s Ans. ¶¶ 7, 9.
Penn Engineering Holdings, Inc. is a wholly-owned, direct
subsidiary of Penn Engineering.
Defs.’ Countercls. ¶ 8; Pl.’s
Ans. ¶ 8.
On January 23, 2003, Pirito and Penn World entered into
an Agreement whereby Penn World purchased from Pirito all of the
capital stock of Maelux SA.
Countercls. ¶¶ 16-17.
Pl.’s Compl. ¶¶ 8-9; Defs.’
The Agreement provided that “[t]he Buyer
agrees to pay to the Seller, subject to adjustment as provided in
Section 2(d), a purchase price (the ‘Purchase Price’) by delivery
of (i) cash in the amount of €7,000,000 payable to the Seller by
wire transfer or delivery of other immediately available funds,
[and] (ii) cash in the amount of €2,000,000 payable to the Escrow
Agent by wire transfer or delivery of other immediately available
funds,” as well as enough funds to satisfy in part a loan that
Maelux SA had taken out and an earn-out to be paid to Pirito over
Ex. A.1 to Defs.’ Countercls. (“Agreement”) § 2(b).
The Agreement established an elaborate mechanism for
determining the consolidated net worth of Maelux SA after the
closing, id. § 2(d), and this mechanism proved sufficiently
important during the proceedings in which the parties later
participated that we will quote the relevant language of the
Agreement at length:
Immediately after the consummation of the
Closing hereunder the Buyer shall, at the
Buyer’s expense, engage Ernst & Young LLP to
prepare an audited consolidated balance sheet
of the Company (the “Closing Statement”) and
determine the consolidated net worth (i.e.,
total assets minus total liabilities) of
Maelux (including the Company) as of the
close of business on the business day
immediately preceding the Closing Date (“Net
Worth”), which shall be prepared in
accordance with Italian Accounting Principles
applied on a consistent basis for all periods
subject to the accounting standards more
fully described on Appendix G. Ernst & Young
LLP shall be required to deliver the Closing
Statement to the Buyer not later than 90 days
after the Closing Date. Promptly after the
Buyer’s receipt thereof, the Buyer shall
deliver a copy of the Closing Statement to
the Seller. Upon receipt of the Closing
Statement, the Seller shall give written
notice to the Buyer within 30 days if the
Seller disputes the Closing Statement and the
parties shall negotiate in good faith to
resolve such dispute. . . . If the Buyer and
the Seller are unable to resolve such dispute
within 15 days after the Buyer is notified
thereof, the disputed matters shall be
referred to an independent public accountant
satisfactory to the Buyer and the Seller, who
shall be directed to determine the Net Worth
of the Company as of the close of business on
the business day immediately preceding the
Closing Date and the determination of such
accountant shall be binding on the parties
hereto. If the Buyer and the Seller are
unable to agree upon an independent public
accountant, the Buyer and the Seller shall
each designate an independent public
accountant, who shall choose the independent
public accountant that will finally determine
the Net Worth of the Company as of the close
of business on the business day immediately
preceding the Closing Date. The Buyer and
the Seller shall each pay one-half of the
cost of the services of such independent
accountant. If and to the extent that the
Net Worth of the Company reflected on the
Closing Statement as finally determined (“Net
Worth at Closing”) shall be an amount less
than €815,821 (“Minimum Required Net Worth”):
(i) the Purchase Price shall be retroactively
and immediately reduced by an amount equal to
the amount (“Net Worth Deficit”) by which the
Net Worth at Closing is less than the Minimum
Required Net Worth, and (ii) an amount equal
to the Net Worth Deficit shall become
immediately due and payable to the Buyer from
the Seller, such amount being payable first
from the Escrow, and, if in excess of the
Escrow, then by the Seller.
The Agreement envisioned the prospect that Pirito would
purchase the “Real Property,” meaning “land and buildings owned
by the Company in Offanengo, Italy,” id. at 4, from Penn World
following the closing.
Thus, the Agreement provided that “[u]pon
delivery of a written notice” to the Seller or the Buyer “not
less than 60 days prior to the third anniversary of the Closing
Date,” “the Seller shall be obligated to purchase the Real
Property from the Company” and “the Buyer shall be obligated to
cause the Company to sell the Real Property by the Seller” on the
third anniversary of the closing date.
Id. § 2(f)(i)-(ii).
Under the Agreement, however, “[i]n the event there are
outstanding amounts owed at the end of the three-year period by
the Seller to the Buyer for any matter with respect to this
Agreement . . . the Real Property Payment Amount will be
increased by such amounts, provided, however, that no increase
will be made for amounts for which a claim is pending under the
Id. § 2(f)(vii).
The Agreement contained Pirito's representations that,
(among other things): (1) certain financial statements attached
to the Agreement “present fairly the financial condition of the
Company and Maelux,” id. § 4(d); (2) M.A.E. S.p.A. “has no
liability . . . except for (i) liabilities set forth on the face
of the Most Recent Balance Sheet (rather than in any notes
thereto) and (ii) liabilities that have arisen after the Most
Recent Fiscal Month End in the Ordinary Course of Business,” id.
§ 4(f); (3) “Maelux’s sole assets are, and has [sic] been since
its incorporation, the Company Shares.
Except for owning the
Company Shares, Maelux has never conducted any business
activity,” id. § 4(k); and (4) “[t]he inventory of the Company .
. . is merchantable and saleable in the Ordinary Course of
Business . . . and, except as set forth on Appendix H or Appendix
I, none of which is Slow Moving Inventory or Obsolete Inventory.”
Id. § 4(l).
Finally, with respect to the resolution of disputes, §
13(h) states that “[t]his Agreement shall be governed by and
construed in accordance with the laws of Italy without giving
effect to any choice or conflict of law provisions or rules that
would cause the application of the laws of any jurisdiction other
Section 13(m) further provided that
Except for disputes concerning the
preparation of the Closing Statement and any
reduction of the Purchase Price under Section
2(d), which shall be resolved in accordance
with such Section 2(d), any other dispute
arising under the indemnification provisions
or any other provisions of this Agreement or
the Real Property Agreement, including those
concerning their validity, interpretation,
performance and termination, shall be
referred to an arbitral tribunal in Milan,
Italy, or such other place agreed by the
Parties hereto . . . . Judgment may be
entered in any court of competent
jurisdiction based upon the decision reached
in such arbitration.
On the same day that Pirito and Penn World entered into the
Agreement, Penn Engineering executed a Guarantee, Pl.’s Compl. ¶
11; Defs.’ Ans. ¶ 11, under which
Penn Engineering & Manufacturing Corp.
(“Parent”) irrevocably guarantees each and
every representation, warranty, covenant,
agreement and other obligation of the Buyer,
and/or any of its permitted assigns (and
where any such representation or warranty is
made to the knowledge of the Buyer, such
representation or warranty shall be deemed
made to the knowledge of Parent), and the
full and timely performance of their
respective obligations under the provisions
of the foregoing Agreement.
Ex. B to Pl.’s Compl. (“Guarantee”) at 1.
The Parties’ Allegations as to Performance
Both Pirito and the Penn entities contend that
following the closing of the transaction described in the
Agreement, the other party or parties violated it.
entities also claim that Pirito’s conduct leading up to the
closing constituted fraud.
Pirito alleges that on February 22, 2007, he notified
Penn World of his decision to exercise his option to purchase the
Real Property under § 2(f)(ii) of the Agreement, Pl.’s Compl. ¶
23, but that Penn World responded “that Plaintiff would only be
able to take title to the Real Property if Plaintiff agreed to
pay an additional €2,994,509 / $4,087,265 USD, which Defendant
Penn World’s counsel, Mr. Dreher, claimed Plaintiff owed
Defendant, Penn World.”
Id. ¶ 27.
According to Pirito, “[u]nder
the terms of the Agreement governing the sale of the Real
Property, no term requires the payment of these additional monies
to Defendant Penn World.”
Id. ¶ 32.
The Penn entities, for their part, assert that “[o]n
July 2, 2003 Penn World gave Pirito notice of the Closing
Statement provided by Ernst & Young, consisting of the Audited
Balance Sheet of M.A.E. as of February 5, 2003, finding that
M.A.E.’s Net Worth was a negative €442,000 and the Net Worth
Deficit was approximately €1,258,000.”
Defs.’ Countercls. ¶ 96.
The Penn entities further allege that “[a]fter years of delay by
Pirito, in October 2007, an independent public accountant, Dr.
Marcello Del Prete . . . . determined that the Net Worth was
negative €669,856 as of February 5, 2003 -- not €815,821 as
represented by Pirito.”
Id. ¶ 48.
The Penn entities contend
that Pirito misrepresented the Net Worth in the Agreement, id. ¶
49, and further aver that Pirito misrepresented M.A.E. S.p.A.’s
income and profit, id. ¶ 51, and the “warehouse value,” which
presumably refers to M.A.E. S.p.A.’s inventory, id. ¶ 52 -- all
in violation of the Agreement.
The Penn entities also claim that
in the spring of 2005 Pirito filed a lawsuit against Maelux SA to
collect a €514,000 debt he claims Maelux SA owed him that he had
created and that he had not disclosed to the Penn entities.
According to the Penn entities, the existence of this
debt contradicted certain of Pirito's representations in the
Agreement, including that “Maelux did no business other than own
the M.A.E. stock.”
Id. ¶ 79.
The Parties’ Allegations As To The First Arbitration
According to the Penn entities, Pirito’s counsel
contested Ernst & Young’s Net Worth Deficit calculation in July
of 2003, Defs.’ Countercls. ¶ 99, and the Penn entities attempted
to resolve this dispute with Pirito from late July of 2003 until
January of 2004.
Id. ¶ 104.
When Pirito refused to identify an
independent accountant pursuant to § 2(d) of the Agreement,
however, id. ¶ 133-34, the Penn entities initiated an arbitration
proceeding (the “First Arbitration”) in the Chamber in January of
Id. ¶ 135; Pl.’s Compl. ¶ 35.
The Penn entities claim that before the First
Arbitration panel Pirito interposed a number of challenges to the
panel’s jurisdiction, the validity of the Agreement, and the
manner in which Penn World had served him with Ernst & Young’s
Id. ¶ 136.
According to the Penn entities,
in February of 2007 the Panel issued a Partial Determination
“rejecting Pirito’s claims that: the Arbitration Panel was not
competent under the Agreement to make any decision with respect
to the validity, interpretation or execution of the Net Worth
provision in the Agreement; that the Net Worth provision was void
and the service of the Closing Statement was untimely.”
The Panel, however, “found that it did not have the power
to appoint an independent public accountant,” id., leading Penn
World to file a petition in the Court of Milan on February 22,
2007 to appoint such an accountant.
Id. ¶ 138; Pl.’s Ans. ¶ 138.
The Penn entities aver that in mid-2007, the Court of
Milan “appointed Dr. Marcello Del Prete as the independent public
accountant to determine the Net Worth Deficit.”
Id. ¶ 140.
parties agree that “[i]n early October 2007, Dr. Del Prete issued
his report finding that the Net Worth of the Consolidated
Financial Statement of Maelux was a negative €669,856 and that
the Net Worth Deficit was €1,485,687.”
Id. ¶ 142; Pl.’s Ans. ¶
Pirito maintains, however, that “the independent public
accountant’s report was seriously flawed and did not accurately
calculate the Net Worth value.”
In October of 2007, Penn
World sought to have the First Arbitration panel consider Del
Defs.’ Countercls. ¶ 148; Pl.’s Ans. ¶ 148.
If the Penn entities believe that they found some
vindication before the First Arbitration panel, Pirito, too,
alleges that he was vindicated.
According to Pirito, on February
1, 2008, “[t]he Arbitration Panel rejected Defendant Penn World’s
position” that “it had a right to demand that Plaintiff pay an
additional €3,000,000 / $4,094,760 USD to Defendant before
conveying title to the Real Property as a ‘guarantee’ that other
allegedly outstanding amounts owed by Plaintiff would be paid.”
Pl.’s Compl. ¶ 39.
Pirito further contends that “[t]he first
Arbitration Panel refused to consider Mr. Del Prete’s findings
because it concluded that the issue of price adjustment could not
be adjudicated as an arbitration matter.”
Pl.’s Ans. ¶ 149.
Penn entities disagree, maintaining that the Panel “did not
consider Dr. Del Prete’s findings” merely due to “Pirito delaying
the appointment of Dr. Del Prete and delaying and hindering the
completion of his report.”
Defs.’ Countercls. ¶ 149.
thus filed a second request for arbitration (the “Second
Arbitration”) before the Chamber on March 20, 2008.
Pet. to Confirm Arb. Award (“Def.’s Pet.”) ¶ 11; Pl.’s Resp. to
Def.’s Pet. ¶ 12.
The Undisputed Facts As To The Second Arbitration
On February 13, 2009 -- shortly before the parties
filed their pleadings in this action -- the Chamber filed a
Partial Award on Jurisdiction in the Second Arbitration.
Pet. at 4 n.1; Pl.’s Resp. to Def.’s Pet. ¶ 13.
In the Partial
Award, a majority of the arbitral panel concluded that “[t]he
Tribunal has jurisdiction on the claim of the Claimant for the
Net Worth Deficit as formulated in the Request for Arbitration.”
Ex. C to Def.’s Pet. at 25.
One arbitrator dissented, explaining
that “the First Tribunal held that it lacked jurisdiction on all
claims relating to price reduction pursuant to Article 2(d) SPA,”
id. at 81 (emphasis in original), and that “[t]he First
Tribunal’s decision on jurisdiction -- and more specifically on
the interpretation of the Arbitration Clause in relation to the
issue of price reduction -- is final, it is res judicata.”
The dissenting arbitrator thus concluded that “the finding
of the majority that our Tribunal has jurisdiction over the Claim
Though Penn World presents the majority and
dissenting opinions in the Second Arbitration Panel’s Partial
Award in a single exhibit, the opinions have been separately
paginated. Thus, a pagination reference to the exhibit may
denote either of two different pages. Where we refer to the
dissenting opinion, we use its separate pagination; these numbers
do not refer to the majority opinion.
is . . . in contrast with the decision on jurisdiction of the
First Tribunal which is final and binding,” and that “[o]ur
Tribunal should therefore have declined jurisdiction over the
Id. at 11.
On September 18, 2009 -- after Pirito had filed his
complaint and the Penn entities had filed their counterclaims,
but before Pirito answered these counterclaims -- the Second
Arbitration panel issued a Final Award.
Resp. to Def.’s Pet. ¶ 14.
Def.’s Pet. ¶ 14; Pl.’s
The panel noted that Penn World had
submitted three prayers for relief, Ex. B to Def.’s Pet. ¶ 52
(quoting Penn World’s Ex. C-5 at 13):
Condemn the Respondent to pay the amount
of € 1,485.677, deriving from the
determination of Mr Del Prete, with
interest from the 5th February 2003 to
the moment of payment at the applicable
Rate (Euribor at one month) . . . .
Condemn the RESPONDENT to pay the amount
of € 40,935.66 for the 50% of the costs
of Mr Del Prete (plus interest from the
date of the invoice of Mr Del Prete) and
€ 150,000 -- for legal costs for the
proceedings in volontaria girisdizione;
Condemn the RESPONDENT to pay all the
costs of these proceeding [sic].”
The Second Arbitration Panel concluded that “[t]he conclusions of
the Del Prete Report are valid, final and binding upon the
Parties,” id. ¶ 116, and thus decided as follows, id. at 32:
Mr Cataldo Pirito shall pay to
Pennengineering World Holdings LP the
amount of € 1.485,677 plus interest at
the Euro Libor (one month) as reported
in the Wall Street Journal as from 5
February 2003 until full and complete
Mr Cataldo Pirito shall pay to
Pennengineering World Holdings LP the
amount of € 40,935.66 as participation
to Mr Del Prete costs and fees, plus
interest at the legal rate as from 9
January 2008 until full and complete
Mr Cataldo Pirito shall pay to
Pennengineering World Holdings LP the
€ 50,000 as compensation for
costs and fees incurred in
connection with the procedure
of Volontaria Giurisdizione;
(ii) € 60,000 as compensation for
costs and fees incurred in
connection with the
(iii) € 105,269.31 as participation to the
Any and all other claims by the Parties
Pirito states that he
has appealed the Partial Award on
Jurisdiction and Final Award II
(collectively, the ‘Appeal’), which are
currently pending. A hearing with respect to
the Appeal is currently scheduled for
September 18, 2012; however, Pirito is
attempting to expedite the matter.
Pl.’s Resp. to Def.’s Pet. ¶ 15.
The Penn entities concede that
Pirito has lodged this appeal, see, e.g., Defs.’ Br. in Supp. of
Mot. for Summ. J. (“Defs.’ MSJ Br.”) at 13 n.9 (“Pirito appealed
the finding of jurisdiction to the Milan Court of Appeal.”),
though they ironically note that “[i]f Pirito has made any
arrangement to expedite the appeal, he has not shared that fact
with Penn World’s counsel of record in Italy.”
Def.’s Reply in
Supp. of Def.’s Pet. at 6.
Rather than address the pending motions in the order
they were filed, we will consider them in a more logical
sequence: (1) Pirito’s motion to dismiss for lack of
jurisdiction; (2) Penn World’s petition to confirm arbitration
award; (3) the Penn entities’ motion for summary judgment; and
(4) the Penn entities’ motion for costs.
Pirito’s Motion to Dismiss for Lack of Jurisdiction
Pirito notes that the Agreement between him and Penn
World “includes an arbitration clause, making all disputes
concerning the ‘validity, interpretation, performance and
termination’ of the SPA subject to arbitration,” Pl.’s Mot. to
Dismiss at 2 (“Pl.’s MTD”) (quoting Agreement § 13(m)), though he
concedes that Penn Engineering’s Guarantee “does not contain an
Id. at 3 (citing Guarantee).
further observes that he “filed his Answer to the Counterclaims
on September 28, 2009, wherein he asserted several affirmative
defenses, including that ‘Counts I-IV are improper in this forum
and should be dismissed since Counts I-IV are subject to the
arbitration provisions of Section 13(m) contained in the Share
Id. at 6 (quoting Pl.’s Ans. at 19).
thus contends that “[t]he Court should dismiss the Counterclaims
because: (i) the Counterclaims asserted by Defendants are subject
to arbitration pursuant to Section 13(m) of the SPA to which the
parties expressly agreed; and (ii) Pirito has not waived his
right to enforce the arbitration clause.”
Id. at 7.
Penn Engineering responds that although the Agreement
included an arbitration clause, “Penn Engineering was not a party
to that Agreement.”
Penn Eng’g’s Resp. to Pl.’s MTD at 1
Since “[t]he Guarantee does not include an
arbitration agreement, and indeed, Pirito’s Motion makes no claim
that there is any arbitration agreement with Penn Engineering,”
Penn Engineering urges that “Pirito’s Motion should be summarily
denied as to Penn Engineering.”
Id. at 2.
As for Penn World, it explains that “Pirito’s motion
ignores one key, and dispositive fact: Pirito has himself brought
a breach of contract claim against Penn World that is squarely
within the scope of the Agreement’s arbitration clause.”
World’s Resp. to Pl.’s MTD at 18.
Penn World further suggests
that granting Pirito’s motion “would result in prejudice,
duplication, multiple trials of the same issues and potentially
Id. at 19.
As a result, Penn World argues
that “Pirito has waived his arbitration rights under the
Agreement,” and that his motion should be denied.
Id. at 27.
Pirito suggests that “‘[w]here parties have agreed to
submit claims to arbitration under a valid and enforceable
arbitration clause or agreement, dismissal for lack of subject
matter jurisdiction under Rule 12(b)(1) is proper.’”
at 7 (quoting Allstate Ins. Co. v. Masco Corp., 2008 WL 183651,
at *2 (E.D. Pa. 2008)).
But our Court of Appeals has explained
that the issue of whether a defendant “has or does not have a
contract-based defense requiring arbitration rather than
litigation . . . . is not a jurisdictional one.”
HOVENSA, LLC, 369 F.3d 263, 272 (3d Cir. 2004).
consequently evaluate Pirito’s motion pursuant to Fed. R. Civ. P.
12(b)(6), not Rule 12(b)(1).
In evaluating a Rule 12(b)(6) motion to dismiss, we
“accept all factual allegations in the complaint as true and give
the pleader the benefit of all reasonable inferences that can be
fairly drawn therefrom,” Ordonez v. Yost, 289 Fed. Appx. 553, 554
(3d Cir. 2008) (internal quotation marks omitted), and “consider
only allegations in the complaint, exhibits attached to the
complaint, matters of public record, and documents that form the
basis of a claim.”
Brown v. Daniels, 128 Fed. Appx. 910, 913 (3d
Cir. 2005) (internal quotation marks omitted).
When, as here, a
Rule 12(b)(6) motion to dismiss is premised on an affirmative
defense appearing on the face of a plaintiff’s pleading, “[t]he
question to be answered . . . becomes whether the assertions of
the complaint, given the required broad sweep, would permit
adduction of proofs that would provide a recognized legal basis”
for rejecting the affirmative defense.
Leone v. Aetna Cas. &
Sur. Co., 599 F.2d 566, 567 (3d Cir. 1979) (discussing a motion
to dismiss based on noncompliance with the applicable limitations
However, the Supreme Court has also reminded courts
that affirmative defenses are “subject to rules of forfeiture and
John R. Sand & Gravel Co. v. United States, 552 U.S.
130, 133 (2008).
We will thus consider the allegations in the
pleadings and the documents attached thereto, as well as the
litigation conduct of the parties, to determine whether (1) the
affirmative defense of arbitrability may apply to the Penn
entities’ counterclaims; and, if so, (2) this defense is
nonetheless subject to waiver or forfeiture.
Our Court of Appeals has noted that “a question of
arbitrability arises only in two circumstances -- first, when
there is a threshold dispute over whether the parties have a
valid arbitration agreement at all, and, second, when the parties
are in dispute as to whether a concededly binding arbitration
clause applies to a certain type of controversy.”
Puleo v. Chase
Bank USA, N.A., 605 F.3d 172, 178 (3d Cir. 2010).
to Penn Engineering’s counterclaims, Pirito’s motion to dismiss
fails to satisfy Puleo’s threshold inquiry.
Penn Engineering was
not a party to the Agreement (which contained an arbitration
clause), its Guarantee contained no arbitration clause, and
Pirito has identified no other agreement that might impose upon
Penn Engineering an obligation to arbitrate its claims.
thus deny Pirito’s motion as to Penn Engineering’s counterclaims.
Penn World, on the other hand, contends that “Pirito’s
Motion ignores the fact that Pirito’s claim against Penn World .
. . is every bit as subject to arbitration as the Counterclaims.”
Penn World’s Resp. to Pl.’s MTD at 21-22.
Penn World thus
appears to concede that its claims are subject to arbitration.
We will consequently proceed to the second question we identified
above: whether Pirito’s affirmative defense is subject to waiver.
Our Court of Appeals has stressed that “prejudice is
the touchstone for determining whether the right to arbitrate has
been waived,” Hoxworth v. Blinder, Robinson & Co., 980 F.2d 912,
925 (3d Cir. 1992), and has set forth six factors that may guide
the waiver determination.
Id. at 926-27.
A fair reading of
Hoxworth suggests, however, that its test was intended for
situations where a party might have waived the right to arbitrate
due to its acquiescence with the opposing party’s litigation
conduct, not for the exceptional case in which the party
asserting the defense of arbitrability itself initiated the
litigation by asserting arbitrable claims.
We have found only
one case from this Circuit in which a party attempted to employ
such a gambit.
See Expofrut S.A. v. M/V Aconcagua, 280 F. Supp.
2d 374 (E.D. Pa. 2003) (Rufe, J.) (denying plaintiff’s motion to
stay proceedings pending arbitration).
Moreover, our Court of Appeals has emphasized that
“[a]s is evident by our repeated characterization of [the
Hoxworth] factors as a nonexclusive list, not all the factors
need be present to justify a finding of waiver, and the waiver
determination must be based on the circumstances and context of
the particular case.”
Nino v. Jewelry Exch., Inc., 609 F.3d 191,
209 (3d Cir. 2010) (internal quotation marks and brackets
Thus, “the investment of considerable time and money
litigating a case may amount to sufficient prejudice to bar a
later-asserted right to arbitrate,” since to conclude otherwise
might frustrate “the purpose behind arbitration itself -arbitration is meant to streamline the proceedings, lower costs,
and conserve private and judicial resources.”
nonexclusive nature of the Hoxworth factors, the unique
circumstances of this case, and Nino’s admonition that prejudice
and the purposes of arbitration should guide the waiver inquiry,
we will thus dispense with a factor-by-factor examination of
Pirito’s entitlement to assert the arbitrability defense and
focus on whether such an assertion would prejudice the Penn
entities, complicate judicial proceedings, squander resources,
and cause delay.
We find that it would.
We first note that Pirito’s
breach of contract claim against Penn World plainly falls within
the Agreement’s arbitration clause since it concerns the
“validity, interpretation, performance and termination” of
“provisions of this Agreement” and does not concern “the
preparation of the Closing Statement and any reduction of the
Purchase Price under Section 2(d).”
Agreement § 13(m).
Pirito has waived the defense of arbitrability not by passive
acquiescence -- as we more commonly see and as Hoxworth envisions
-- but by his active choice of this forum.
By submitting his
arbitrable claim to this Court, he has waived the argument that
this Court is an inappropriate forum for the resolution of such
In this context, the fact that Pirito did assert the
affirmative defense of arbitrability in his answer to the Penn
entities’ counterclaims, see Pl.’s Ans. at 19, diminishes in
Second, Penn World rightly explains that if we grant
Pirito’s motion, the parties will be forced to litigate
intimately related claims before different tribunals, since
neither Pirito’s claim against Penn Engineering nor Penn
Engineering’s counterclaims against Pirito are subject to
Penn World’s Resp. to Pl.’s MTD at 25-26.
approach will not only waste the resources of the parties and the
tribunals, it will raise the specter of inconsistent
adjudications of the parties’ rights and obligations.
Finally, Penn World notes that its “domestic counsel
has spent considerable time on this matter since Plaintiff filed
his Complaint in May 2009, and actively participated in two
unsuccessful mediation sessions aimed at resolving the parties’
Id. at 26.
We have similarly expended
significant judicial resources in familiarizing ourselves with
this complex litigation -- to say nothing of the labor of
Hercules Judge Hart undertook for so long -- and we note that the
parties have already filed and fully briefed three motions (aside
from Pirito’s motion to dismiss) in this action.
Under these circumstances -- where Pirito has waived
any argument that arbitrable claims should not be litigated in
this forum -- granting Pirito’s motion would cause significant
judicial inefficiency and risk inconsistent outcomes.
parties and the Court have already devoted much ink, effort and
time to these proceedings.
It therefore simply makes no sense to
dismiss Penn World’s counterclaims in favor of arbitration.
is especially true given that the purpose of arbitration is to
streamline litigation and reduce costs.
We will consequently
deny Pirito’s motion to dismiss Penn World’s counterclaims.
Penn World’s Petition to Confirm Arbitration Award
In Penn World’s petition, it asked that the Court
“confirm and enter judgment upon the Arbitration Final Award
entered on September 18, 2009 by the Chamber of National and
International Arbitration of Milan, in Milan, Italy in
Arbitration No. 2308.”
Def.’s Pet. at 1.
Penn World sought “an
order confirming the Final Award, for entry of judgment in the
amount (as of April 30, 2011) of $1,419,704, plus post judgment
interest at the Euro Libor (1 month) rate, and for costs and such
other relief as the Court may deem proper.”
Id. at 7.
World’s proposed Order also noted that “this judgment fully
resolves Count III of the Counterclaim.”
Id. at 8.
Pirito initially filed a response in opposition to this
motion, see Pl.’s Resp. to Def.’s Pet., and then, by letter,
“advise[d] the Court that Mr. Pirito wishes to withdraw his
opposition to the Motion and consents to the entry of judgment in
the form attached hereto.”
Pl.’s June 30, 2011 Letter at 1.
we noted in our July 21, 2011 Order, “the parties appear to agree
that the Court should confirm the Chamber of National and
International Arbitration of Milan’s September 18, 2009 award in
Arbitration No. 2308 in the amount of $1,391,886 with postjudgment interest at a rate of Euro Libor (1 month).”
(g), July 21, 2011.
However, the parties’ proposed judgments
suggested that they disagreed “as to whether this judgment should
(1) resolve Count III of Penn World’s counterclaims; (2)
explicitly reserve Pirito’s rights before the Milan Court of
Appeals and his other rights under the Federal Rules of Civil
Procedure; or (3) be characterized as ‘final.’”
Id. ¶ (h).
We explained that it was unnecessary in any judgment to
make a pronouncement as to Pirito’s future rights, id. ¶¶ (m)(n), and that Penn World had not explained why confirming the
Chamber’s September 18, 2009 Award “resolved” Count III of the
Penn entities’ counterclaims.
Id. ¶¶ (i)-(l).
We also noted
that the parties had not briefed us on the propriety of
certifying any judgment as final pursuant to Fed. R. Civ. P.
Id. ¶¶ (o)-(s).
We thus instructed Penn World “to show
cause why we should issue a Rule 54(b) certification as to any
judgment confirming the September 18, 2009 arbitration award” and
gave Pirito leave to brief us on the same topic.
Id. at ¶ 8.
Penn World and Pirito have now filed briefings
responsive to our July 21, 2011 Order.
Penn World suggests that
“confirmation of the award is the ultimate disposition of a
cognizable claim for relief,” Penn World’s Br. at 4, Aug. 3,
2011, and that “there is no just reason to delay making [the
Award] final, thereby permitting enforcement.”
Id. at 6.
World further explains that “resolution of the Petition to
Confirm does moot Count III; thus, it does not remain an
alternate theory of recovery.”
Id. at 4.
Pirito responds that
“[t]he Judgment is not ‘final’ for Rule 54(b) purposes because
the Appeal of Final Award II may require modification or vacation
of the Judgment and it does not resolve an individual claim,”
since “Final Award II is inextricably intertwined with all of the
Pl.’s Br. at 1-2, Aug. 3, 2011.
In ruling on Penn World’s petition, we must determine:
(1) what it means to confirm the Chamber’s September 18, 2009
Award; (2) whether such confirmation “resolves” Count III of the
Penn entities’ counterclaims, and, if so, in what manner; and (3)
whether any judgment confirming the award should be certified as
We begin by returning to first principles.
9 U.S.C. §
201 provides that “[t]he Convention on the Recognition and
Enforcement of Foreign Arbitral Awards of June 10, 1958, shall be
enforced in United States courts in accordance with this
Under § 203, “[a]n action or proceeding falling under
the Convention shall be deemed to arise under the laws and
treaties of the United States.
The district courts of the United
States . . . shall have original jurisdiction over such an action
or proceeding, regardless of the amount in controversy.”
Finally, § 207 states that
Within three years after an arbitral award
falling under the Convention is made, any
party to the arbitration may apply to any
court having jurisdiction under this chapter
for an order confirming the award as against
any other party to the arbitration. The
court shall confirm the award unless it finds
one of the grounds for refusal or deferral of
recognition or enforcement of the award
specified in the said Convention.
Article V of the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards of June 10, 1958 (the “New
York Convention”2) lists seven grounds upon which “[r]ecognition
and enforcement of the award may be refused,” New York Convention
As Judge Haight has observed, “[b]ecause the
Convention was drafted in New York under United Nations
sponsorship, it is sometimes referred to in the literature as the
‘New York Convention.’” Spier v. Calzaturificio Technica S.p.A.,
663 F. Supp. 871, 872 n.1 (S.D.N.Y. 1987).
art. V, none of which the parties have suggested apply here.
Article VI provides that
If an application for the setting aside or
suspension of the award has been made to a
competent authority referred to in article
V(1)(e), the authority before which the award
is sought to be relief upon may, if it
considers it proper, adjourn the decision on
the enforcement of the award and may also, on
the application of the party claiming
enforcement of the award, order the other
party to give suitable security.
Though Pirito initially suggested that Article VI should rule
Penn World’s petition, he has now withdrawn his opposition to the
We thus have the authority to confirm the Award
pursuant to 9 U.S.C. § 207, and neither party suggests that we
should refuse “[r]ecognition and enforcement of the award,” New
York Convention art. V, or “adjourn the decision on the
enforcement of the award.”
Id. art. VI.
We thus turn to the question of what it means to
confirm the September 18, 2009 Award.
As we have already
explained, Penn World submitted three prayers for relief to the
Second Arbitration panel, seeking “‘€ 1,485.677, deriving from
the determination of Mr Del Prete,’” “‘€ 40,935.66 for the 50% of
the costs of Mr Del Prete,’” “‘€ 150,000 -- for legal costs for
the proceedings in volontaria girisdizione,” and “‘all the costs
of these proceeding [sic].’”
Ex. B to Def.’s Pet. ¶ 52 (quoting
Penn World’s Ex. C-5 at 13).
Penn World did not seek a
declaratory judgment from the Panel that Del Prete’s report was
valid, final, or binding upon the parties.
The Panel decided
that Pirito would pay Penn World a total of €1,741,882 plus
interest,3 representing nearly all of the amounts Penn World
Id. at 32.
En route, the Panel concluded that “[t]he
conclusions of the Del Prete Report are valid, final and binding
upon the Parties.”
Id. ¶ 116.
its decision, however.4
This conclusion was not part of
In confirming the Award, then, we would
confirm only Pirito’s obligation to pay Penn World the sums that
the Panel described in its decision; such confirmation would not
constitute judicial affirmation that the Del Prete Report was
“valid, final, and binding upon the Parties.”
As Penn World explains, this amount differs from what
it seeks in its petition to confirm the arbitration award because
“the Final Award totaled €2,057,208 before Penn World executed on
the €1,069,283.34 in the escrow. After execution, €987,924
($1,391,886 as converted on 5/24/11) remains to be collected.”
Penn World’s Br. at Appx. I at 2, Aug. 3, 2011 (citations
Whether the Second Arbitration panel’s determination
as to Del Prete’s report is issue preclusive is a question we
take up below when we consider the Penn entities’ motion for
partial summary judgment. See Section II.C, infra.
We turn next to the effect of confirmation upon Count
III of the Penn entities’ counterclaims.
Penn World argues that
“Count III sought and the Final Award determined that Dr. Del
Prete’s determination of the Net Worth Deficit (€1,485,677 plus
interest, costs and fees) should be enforced,” Penn World’s Br.
at 5, Aug. 3, 2011, so that “resolution of the Petition to
Confirm does moot Count III.”
Id. at 4 (emphasis in original).
We observe that Penn World does not suggest that confirmation of
the petition means that we have granted judgment in favor of Penn
World on Count III,5 as indeed it could not.
Count III seeks
“Enforcement of the Determination of Independent Public
Accountant,” and, as we have noted, confirming the September 18,
2009 Award does not mean that we have confirmed the findings of
Del Prete’s report.
Instead, Penn World explains that confirming
the Award grants it the relief it seeks under Count III, making
that claim moot.
We thus conclude that confirming the September
18, 2009 Award would permit us to dismiss Count III as moot.
We now arrive at our final question: whether any
judgment confirming the September 18, 2009 Award should be
certified as final pursuant to Rule 54(b), which provides that
As we explain below, Penn World does seek this relief
in its motion for summary judgment. See Section II.C, infra.
When an action presents more than one claim
for relief -- whether as a claim,
counterclaim, crossclaim, or third-party
claim -- or when multiple parties are
involved, the court may direct entry of a
final judgment as to one or more, but fewer
than all, claims or parties only if the court
expressly determines that there is no just
reason for delay.
Our Court of Appeals has explained that “in setting the standards
for a certification under Fed. R. Civ. P. 54(b), we have
indicated that the court must determine whether there are
multiple claims or merely alternative legal theories supporting a
Am. Motorists Ins. Co. v. Levolor Lorentzen,
Inc., 879 F.2d 1165, 1171 (3d Cir. 1989) (internal quotation
Thus, “if a plaintiff presents a number of
alternative legal theories to support a single recovery there is
only one claim and there can be no certification.”
Penn World argues that “almost all petitions to confirm
awards are filed as separate stand alone cases because, as here,
they present only the issue of whether the award should be
confirmed and enforced.”
Penn World’s Br. at 4, Aug. 3, 2011.
Penn World further asserts that “Count III of the counterclaims
is the only claim for recovery of the Net Worth Deficit.”
While we agree with Penn World’s first
proposition -- that petitions to confirm arbitration awards can
be stand-alone claims -- we disagree with its second proposition,
that its petition here constitutes an independent claim.
According to the Penn entities, “[i]n § 2(d) of the
Agreement, Pirito represented and guaranteed on January 23, 2003
and February 5, 2003 that the minimum net worth would be not less
Defs.’ Countercls. ¶ 23.
The Penn entities thus
contend that “[b]ased on the report of Dr. Del Prete, dated
October 12, 2007, there is a gaping differential of €1,485,687
between the actual net worth on February 5, 2003 and the Minimum
Required Net Worth as represented by Pirito and set forth in
detail in the Agreement and Financial Statements.”
Id. ¶ 49.
Count IV of the Penn entities’ counterclaims alleges that “[a]s
set forth in detail above, Pirito has breached of [sic] the
Agreement, including but limited to Section 2 . . . . Pirito’s
breaches have caused millions of Euros in damages to Penn World,”
id. ¶¶ 194-95, so that “Penn World demands that judgment be
entered against Pirito for all damages suffered by Penn World.”
Id. at 48.
These allegations demonstrate that Penn World seeks
damages under its breach of contract claim for Pirito’s alleged
misrepresentations in § 2(d) of the Agreement of the net worth
This conclusion is bolstered by the Penn entities’
argument, in their motion for partial summary judgment, that
“[t]he Del Prete Report and the Final Award establish that
Pirito’s promises and representations as to the Net Worth were
false. . . . They also will establish that Pirito breached the
Agreement by breaching the net worth representation and
Defs.’ MSJ Br. at 20.
Since Penn World concedes that Count III of the
counterclaims and its petition to confirm arbitration award both
seek “recovery of the net worth deficit,” Penn World’s Br. at 4,
Aug. 3, 2011, it is apparent that the petition and Count IV
present alternative theories -- on the one hand, confirmation of
an arbitration award, and, on the other, breach of contract -- in
support of a claim for recovery of the net worth deficit.
consequence, Penn World’s proposed judgment confirming the
September 18, 2009 Award fails to satisfy the threshold inquiry
under Rule 54(b) since it does not resolve “one or more” claims,
but rather resolves one theory in support of its claim for
payment of the net worth deficit.
We thus do not reach the question of whether there is
just reason to delay enforcing the judgment, and we cannot
certify such a judgment as final.
We will accordingly grant Penn
World’s petition to confirm arbitration award as unopposed and
dismiss Count III of the Penn entities’ counterclaims as moot,
but will decline to certify our Judgment in favor of Penn World
The Penn Entities’ Motion for Partial Summary Judgment
The Penn entities move for “I) partial summary
judgment; II) determination that certain facts found in the Del
Prete Report and Final Award are taken as established in this
Action; and III) in limine.”
MSJ”) at 1.
Defs.’ Mot. for Summ. J. (“Defs.’
In support thereof, the Penn entities argue that
Plaintiff Cataldo Pirito . . . is
contractually bound to accept as final the
findings and conclusions of the Del Prete
Report and the Final Arbitration Award in
this litigation. Moreover, the standards for
recognition of a foreign judgment, including
arbitration awards, delineated in Hilton v.
Guyot, 159 U.S. 113, 163-64, 205 (1895) . . .
and the doctrine of issue preclusion prohibit
Pirito from relitigating the facts found in
the Del Prete Report and confirmed by the
Defs.’ MSJ Br. at 1-2.
Pirito responds that “under Pennsylvania
We apply the exchange rate as published in today's
Wall Street Journal (one € = $1.3047). Given that the Penn
entities therefore cannot immediately enforce this Judgment
against Pirito, we will entertain briefing from the parties on
whether we should (and may) order Pirito to post security for
law,7 Final Award II is not a final judgment since it is subject
to the pending Appeal,” and that “because Pirito challenged the
Arbitral Tribunal’s jurisdiction, neither the Hilton standards
nor principles of comity require this Court to enter summary
Pl.’s Resp. to Defs.’ MSJ at 10.
As the Penn entities correctly observe, Fed. R. Civ. P.
56(a) provides that “[a] party may move for summary judgment,
identifying each claim or defense -- or the part of each claim or
defense -- on which summary judgment is sought.”
entities thus seek summary judgment not only as to Count III of
their counterclaims -- a request rendered moot by our decision in
Section II.B, supra -- but also as to “the element of material
misrepresentation in Count I of the Counterclaim and Defendants’
Fifth and Eighth Affirmative Defenses; and the element of breach
of the contract in the Counterclaims and in Defendants’ Fourth,
Eighth, and Eleventh Affirmative Defenses.”
Defs.’ MSJ ¶ 2.
The parties agree that the Pennsylvania law of issue
preclusion should apply here. See Pl.’s Resp. to Defs.’ MSJ at
11 n.3 (“Pirito agrees with Defendants that Pennsylvania law
applies to the Court’s determination of whether Final Award II
should have preclusive effect.”); Defs.’ MSJ Reply 3 n.5
(“Plaintiff and Penn are in agreement that Pennsylvania law
governs this collateral estoppel issue.”).
Under Rule 56(a), “[t]he court shall grant summary
judgment if the movant shows that there is no genuine dispute as
to any material fact and the movant is entitled to judgment as a
matter of law,” where “[a] party asserting that there is a
genuine dispute as to a material fact must support that assertion
with specific citations to the record.”
Appx. 130, 133 (3d Cir. 2011).
Bello v. Romeo, 424 Fed.
In evaluating a Rule 56 motion,
we of course “‘must draw all reasonable inferences in favor of
the nonmoving party, and [we] may not make credibility
determinations or weigh the evidence.’”
Eisenberry v. Shaw
Bros., 421 Fed. Appx. 239, 241 (3d Cir. 2011) (quoting Reeves v.
Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000)).
The Penn entities first argue that the Agreement
“mandates that disputed matters related to the net worth be
resolved by an independent public accountant, ‘and the
determination of such accountant shall be binding on the parties
Defs.’ MSJ Br. at 19 (quoting Agreement § 2(d)).
Pirito does not appear to respond to this argument, but
examination of the language of the Agreement suggests that we
should nonetheless reject it.
Section 2(d) of the Agreement
If the Buyer and the Seller are unable to
resolve such dispute within 15 days after the
Buyer is notified thereof, the disputed
matters shall be referred to an independent
public accountant satisfactory to the Buyer
and the Seller, who shall be directed to
determine the Net Worth of the Company as of
the close of business on the business day
immediately preceding the Closing Date and
the determination of such accountant shall be
binding on the parties hereto. If the Buyer
and the Seller are unable to agree upon an
independent public accountant, the Buyer and
the Seller shall each designate an
independent public accountant, who shall
choose the independent public accountant that
will finally determine the Net Worth of the
Company as of the close of business on the
business day immediately preceding the
As this language makes clear, the phrase “such accountant” -describing one whose determination binds the parties -- refers to
“an independent public accountant satisfactory to the Buyer and
Since the Penn entities have pointed to no
evidence suggesting that Del Prete was “satisfactory” to Pirito,
we cannot conclude that the plain language of the Agreement makes
Del Prete’s determination binding upon Pirito.8
Our decision in this respect does not, however,
foreclose the possibility that (1) the alternative mechanism for
determining the net worth envisioned in Agreement § 2(d) -- “the
Buyer and the Seller shall each designate an independent public
accountant, who shall choose the independent public accountant
that will finally determine the Net Worth of the Company” -(continued...)
The Penn entities’ second argument is that “[f]ederal
courts permit ‘the use of a foreign judgment [and arbitration
awards] to estop relitigation of an issue if the judgment
satisfies (1) the Hilton requirements for recognition of a
foreign judgment, and (2) the requirements of collateral
Defs.’ MSJ Br. at 21-22 (quoting Hurst v. Socialist
People’s Libyan Arab Jamahiriya, 474 F. Supp. 2d 19, 33 (D.D.C.
2007)) (brackets in Defs.’ MSJ Br.).
Because “the Final Award
satisfies the Hilton Standards,” id. at 26, the Penn entities
suggest that “[t]his Court should not permit Pirito’s continued
attempt to evade . . . the valid judgment of the arbitrators in
the Final Award.”
Id. at 28.
Pirito responds that “Plaintiff is challenging the
jurisdiction of the Arbitral Tribunal in the Appeal,” and that
“[t]herefore, the principles of comity do not require that this
Court find that the Del Prete Report and Final Award II are
Pl.’s Resp. to Defs.’ MSJ at 14.
Pirito also explains
might produce a binding determination; or (2) refusal by one
party to participate in the mechanism established by § 2(d) might
justify recourse to use another mechanism for arriving at a
binding determination of the net worth. The Penn entities have
not briefed us on either of these possibilities.
that “Final Award II is not . . . a final judgment on the merits
and cannot have preclusive effect.”
Id. at 12.
In Hilton, the Supreme Court held that
When an action is brought in a court of this
country, by a citizen of a foreign country
against one of our own citizens, to recover a
sum of money adjudged by a court of that
country to be due from the defendant to the
plaintiff, and the foreign judgment appears
to have been rendered by a competent court,
having jurisdiction of the cause and of the
parties, and upon due allegations and proofs,
and opportunity to defend against them, and
its proceedings are according to the course
of a civilized jurisprudence, and are stated
in a clear and formal record, the judgment is
prima facie evidence, at least, of the truth
of the matter adjudged; and it should be held
conclusive upon the merits tried in the
foreign court, unless some special ground is
shown for impeaching the judgment, as by
showing that it was affected by fraud or
prejudice, or that by the principles of
international law, and by the comity of our
own country, it should not be given full
credit and effect.
159 U.S. at 159-60.
On the basis of this test -- and Hurst’s
suggestion that a foreign judgment may have issue preclusive
effect if it satisfies the requirements for collateral estoppel,
474 F. Supp. 2d at 33 -- we note three problems with the Penn
entities’ suggestion that because of Hilton and the doctrine of
collateral estoppel the September 18, 2009 Award estops Pirito
from re-litigating issues the Second Panel decided.
While two of
these problems are not necessarily insuperable, the third bars us
from granting the Penn entities’ motion.
First, as Pirito notes, he has challenged -- and indeed
is currently challenging -- the Second Arbitration panel’s
jurisdiction over Penn World’s claims.
Though the Penn entities
suggest that “Pirito’s arguments have been considered,
repeatedly, and rejected, repeatedly,” Defs.’ MSJ Br. at 28, we
note that one arbitrator supplied a well-reasoned dissent to the
Second Arbitration Panel’s February 13, 2009 Partial Award on
While we (of course) express no view as to the
correctness of this dissent, our examination of it reveals that
Pirito’s jurisdictional objections are, at the very least, not
frivolous. The parties have not fully briefed us on whether the
Second Arbitration panel had jurisdiction over Penn World’s
claims, and, even if they had, we doubt whether it would be wise9
to make a jurisdictional determination of our own on this
The interests of comity that the Penn entities
espouse suggest that we should defer to the Italian court where
Pirito is prosecuting his appeal of the Second Arbitration
panel’s jurisdiction rather than arrive at an independent
determination -- possibly subject to later contradiction by that
court -- in order to apply the Hilton test. However, the parties
have not briefed us on this question.
At a minimum, we lack confidence that the
jurisdictional prong of the Hilton test has been satisfied here.
Second, the Penn entities add “[and arbitration
awards]” to the language of Hurst but present no case law
supporting this amendment, and indeed concede that neither “the
Third Circuit [nor] Pennsylvania . . . . has expressly addressed
how these two doctrines should apply to a foreign arbitration
award governed by the New York Convention.”
Id. at 22 n.11.
examination of Hilton reveals that it limits its application to a
judgment rendered by a “court of that country,” not a private
tribunal that happens to convene in another country.
limitation is made explicit by Hilton’s description of the
grounds on which it rests, i.e. comity:
‘Comity,’ in the legal sense, is neither a
matter of absolute obligation, on the one
hand, nor of mere courtesy and good will,
upon the other. But it is the recognition
which one nation allows within its territory
to the legislative, executive, or judicial
acts of another nation, having due regard
both to international duty and convenience,
and to the rights of its own citizens, or of
other persons who are under the protection of
Hilton, 159 U.S. at 143 (emphasis added).
Hilton thus makes
clear that comity is grounded in mutual respect between
sovereigns for their official acts.
The Penn entities have not
explained why considerations of comity require a national court
of this country to accord similar respect to the decisions of a
private tribunal in another country.10
As a result, we are not
convinced that Hilton obliges us to accord issue preclusive
effect to the decisions of foreign arbitral tribunals.
To be sure, these are not mere questions of good
The Supreme Court has stressed that
they are founded on “concerns of international comity, respect
for the capacities of foreign and transnational tribunals, and
sensitivity to the need of the international commercial system
for predictability in the resolution of disputes require that we
enforce the parties' [international arbitration] agreement.”
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473
U.S. 614, 629 (1985). Our Court of Appeals has also held that
“[u]nder Pennsylvania law, arbitration proceedings and their
findings are considered final judgments for the purposes of
collateral estoppel,” Witkowski v. Welch, 173 F.3d 192, 199 (3d
Of course, 9 U.S.C. § 207 requires courts to confirm
foreign arbitral awards “unless it finds one of the grounds for
refusal or deferral of recognition or enforcement of the award
specified in the said [New York] Convention.” See also Section
II.B, supra. But the fact that this statute, implementing an
international treaty, imposes this obligation does not
necessarily mean that comity does so as well.
Judge Buchwald has noted that “in the Second
Circuit, the doctrine of collateral estoppel has long been
applied to arbitrator's decisions, and the effects of foreign
arbitration are no less preclusive than domestic arbitration.”
Alghanim v. Alghanim, 2011 WL 5978350, at *24 (S.D.N.Y. 2011)
We thus do not reject the possibility that
comity or some other doctrine may oblige us to estop relitigation of an issue a foreign arbitral tribunal decides,
provided that tribunal had jurisdiction and the elements of
collateral estoppel have been satisfied.
The possibility that
such estoppel could apply here, however, does not mean the
September 18, 2009 Award fails to satisfy the collateral estoppel
This brings us to the third problem with the Penn
As our Court of Appeals has rehearsed,
Collateral estoppel, also known as issue
preclusion, prevents relitigation of a
particular fact or legal issue that was
litigated in an earlier action. In order for
the doctrine to apply, (1) the issue decided
in the prior adjudication must be identical
to the one presented in the later action, (2)
there must be a final judgment on the merits
and (3) the party against whom the doctrine
is asserted must have been a party or in
privity with a party to the prior
adjudication and have had a full and fair
opportunity to litigate the issue in question
in the prior action.
Seborowski v. Pittsburgh Press Co., 188 F.3d 163, 169 (3d Cir.
Pirito points out that in Pennsylvania “there are two
lines of cases that address whether a judgment subject to appeal
is ‘final’ for claim preclusion purposes,” Pl.’s Resp. to Defs.’
MSJ at 12.
One of these series of cases holds that a judgment is
not final for collateral estoppel purposes while an appeal from
that judgment is pending.
The other maintains that a state court
judgment is final for these purposes until it has been reversed.
According to Pirito, our Court of Appeals has concluded that
in light of this split, a “‘District Court should stay its
determination until the issue is resolved upon appeal.’”
(quoting Ashford v. Skiles, 837 F. Supp. 108, 115 (E.D. Pa. 1993)
(Brody, J.) (citing Bailey v. Ness, 733 F.2d 279, 283 (3d Cir.
The Penn entities reply that in Shaffer v. Smith, 673
A.2d 872, 876 (Pa. 1996), “the Supreme Court resolved the ‘split’
in Pennsylvania authority upon which Plaintiff relies in his
brief,” Defs.’ Reply in Supp. of Defs.’ MSJ (“Defs.’ MSJ Reply”)
at 3, and concluded that “‘[a] judgment is deemed final for
purposes of res judicata or collateral estoppel unless or until
it is reversed on appeal.’” Id. at 4 (quoting Shaffer, 673 A.2d
at 874-75) (emphasis omitted).
It is true that Shaffer overruled cases standing for
the proposition that “a state court judgment in Pennsylvania is
not considered a final judgment for purposes of res judicata or
collateral estoppel while an appeal is pending,” 673 A.2d at 874
Importantly, Shaffer considered the preclusive effect of a
criminal conviction in state court -- not an arbitration award.
Given that Shaffer referred to “judgment[s]” and “state court
judgment[s]” in its holdings, it is by no means clear that it
meant it should apply to arbitral awards as well.
jurisprudence in Pennsylvania law suggests that it did not.
Several years before Shaffer, the Superior Court of
Pennsylvania reiterated that "[a]n arbitration award from which
no appeal is taken has the effect of a final judgment on the
Dyer v. Travelers, 572 A.2d 762, 764 (Pa. Super. 1990)
(citing Ottaviano v. SEPTA, 361 A.2d 810, 814 (Pa. Super. 1976)).
In 2003 -- seven years after Shaffer was decided -- the Superior
Court of Pennsylvania cited Dyer in explaining that because
"[t]he Robbinses never filed a notice of appeal from the
arbitrator's award entered against Kathleen Robbins in favor of
the Bucks in Buck v. Robbins,” the “award became a final
Robbins v. Buck, 827 A.2d 1213, 1214 (Pa. Super.
That same year, a Philadelphia Court of Common Pleas
cited Ottaviano in explaining, with respect to an arbitration,
that since “Judge Gafni has ruled on the issue and AHP has
represented that it does not intend to appeal, that ruling
constitutes a final order, which has preclusive effect with
respect to the issue before Judge Gafni.”
Inc. v. Am. Home Prods., 2003 WL 21731124, at *2 (Phila. Ct. Com.
And just three years ago, Judge Connor explained that
“Pennsylvania law considers an arbitration award to be ‘final’ in
either of two circumstances.
Most obviously, an arbitral award
is final when it has been judicially confirmed.
State law also
treats as final an unconfirmed award from which no appeal is
Novinger Grp., Inc. v. Hartford Life & Annuity Ins. Co.,
2008 WL 5378288, at *11 (M.D. Pa. 2008) (internal citations
Against this authority, the Penn entities present no
cases that suggest Ottaviano or Dyer have been reversed with
respect to their holdings that only unappealed arbitral awards
constitute final judgments for preclusive purposes.
We will thus
defer to admittedly non-definitive Pennsylvania case law holding
that, notwithstanding the Pennsylvania Supreme Court’s decision
in Shaffer, arbitral awards are not final judgments while appeals
The Penn entities’ motion for partial summary judgment
-- which also seeks a determination that certain facts in Del
Prete’s report are taken as established, and to limit both
discovery and the use of evidence -- depends either on the
contractually binding nature of Del Prete’s report or on the
issue preclusive effect of the September 18, 2009 Award.
we have explained, the plain language of the Agreement does not
make Del Prete’s report binding, and the Award does not have
issue preclusive effect because an appeal of the Award remains
We thus will deny the Penn entities’ motion.
The Penn Entities’ Motion for Costs
Finally, the Penn entities seek “to require Plaintiff
Cataldo Pirito, a resident of Brazil, to provide security for the
approximately $244,000 of anticipated recoverable costs that will
We recognize that should Pirito’s appeal be resolved
in the Penn entities’ favor, we would then be able to conclude
that (1) the Second Arbitration Panel had jurisdiction over the
Penn entities’ claims, and (2) the September 18, 2009 Award
constitutes a final judgment, so that the Award might have issue
preclusive effect. We invite the parties to brief us on whether
they would prefer to proceed with discovery at this time or stay
proceedings pending resolution of the appeal.
be incurred by Defendants during discovery and the pretrial
proceedings in this matter.”
Defs.’ Mot. Costs at 1.
responds that “Defendants’ estimation of taxable costs, in excess
of $244,000, far exceeds any reasonable assessment of costs for
which Pirito should be obligated to provide security,” Pl.’s
Resp. to Defs.’ Mot. Costs at 2, though Pirito concedes that
“because he is a foreign citizen, this Court may grant some
manner of the relief requested in the Motion for Costs.”
Loc. R. Civ. P. 54.1(a) provides that
In every action in which the plaintiff was
not a resident of the Eastern District of
Pennsylvania at the time suit was brought, or
having been so afterwards removed from this
District, an order for security for costs may
be entered, upon application therefor within
a reasonable time and upon notice. In
default of the entry of such security at the
time fixed by the court, judgment of
dismissal shall be entered on motion.
Moreover, under 20 U.S.C. § 1920,
A judge or clerk of any court of the United
States may tax as costs the following:
. . .
Fees for printed or
obtained for use in the case;
Fees and disbursements for
printing and witnesses;
Fees for exemplification and
the costs of making copies of
any materials where the copies
are necessarily obtained for
use in the case;
. . .
Compensation of court
compensation of interpreters,
and salaries, fees, expenses,
and costs of special
interpretation services under
section 1828 of this title.
Judge Robert Kelly has explained that while Rule 54.1(a) “does
not list specific factors a district court should consider in
requiring a plaintiff to post security,” decisions from this
District suggest that a court should “evaluate the likelihood
of a plaintiff’s ultimate success and a plaintiff’s ability to
post security or pay costs in making its determination.”
v. Children’s Hosp. of Phila., 178 F.R.D. 54, 55 (E.D. Pa. 1998).
While Pirito’s claims do not seem frivolous,12 he has
conceded that it would be reasonable to “grant some manner of the
relief requested in the Motion for Costs” given his foreign
We thus need not tarry long on the Van Bui inquiry
In making this observation, we measure Pirito’s
claims against a low bar; our evaluation should not be taken to
suggest that he is ultimately likely to prevail on the merits.
and instead may proceed directly to consider the Penn entities’
claims for costs.
The Penn entities identify five costs that
they suggest would be taxable against Pirito under § 1920: “costs
of transcribing depositions ($14,560); costs of translation
services at depositions in United States and Europe ($9,800);
costs of videotaping depositions (in Europe) ($12,800); costs of
translating documents produced and collected in discovery
($204,000); copying costs ($3,000).”
Defs.’ Mot. for Costs ¶ 17.
Of these costs, we begin by considering the claim for
“costs of translating documents produced and collected in
The Penn entities argue that “[t]his Court has
. . . confirmed that costs for translation of necessary
documents, including testimony, are recoverable costs under Rule
Defs.’ Br. in Supp. of Mot. Costs (“Defs.’ Costs Br.”) at 9
(citing Lockett v. Hellenic Sea Transps., Ltd., 60 F.R.D. 469,
473 (E.D. Pa. 1973) (Newcomer, J.)).
Pirito responds that
“[t]ranslation costs are not listed as an appropriate cost under
28 U.S.C. § 1920(6)” and cites in support two district court
cases from outside this Circuit, one of which having been
Pl.’s Resp. to Mot. Costs at 10.
On the one hand,
courts within this Circuit have taxed the costs of translating
documents under § 1920.
See Lockett, 60 F.R.D. at 473; Lazaridis
v. Wehmer, 2008 WL 4758551, at *1 (D. Del. 2008) (Robinson, J.)
(“Had plaintiff prevailed in this action he could have sought the
costs of translation pursuant to 28 U.S.C. § 1920.”).
other hand, in legal usage a distinction is often drawn between
translators and interpreters, with the latter appearing to be a
subset of the former.
Translation means “[t]he transformation of
language from one form to another; esp., the systematic rendering
of the language of a book, document, or speech into another
language,” Black’s Law Dictionary 1637 (9th ed. 2009), while
interpreter means “[a] person who translates, esp. orally, from
one language to another; esp., a person who is sworn at a trial
to accurately translate the testimony of a witness who is deaf or
who speaks a foreign language.”
Id. at 895.
Luckily, we need not resolve the question of whether
“compensation of interpreters” under § 1920(6) includes the cost
of translating documents, because the Penn entities have failed
to support their request for security for such costs with details
sufficient to permit us to conclude that these costs are
As Judge Newcomer noted in Lockett, “[n]ecessity is
indeed the proper standard” for determining whether a cost is
60 F.R.D. at 473.
The Penn entities merely aver that
“Penn Engineering assumes that it will gather three to four boxes
of documents during discovery in Italian, French or Portuguese
that will need to be translated at a cost of $204,000-272,000.”
Defs.’ Costs Br. at 9.
Without more information about these
“boxes of documents,” we cannot at this juncture determine
whether they are necessary to the Penn Entities’ defense of this
We thus at this time (and without prejudice to later
determination on a less vaporous record) deny the request for
costs of translating such documents.
The Penn entities’ other requests (which total $40,160)
are similarly speculative, see Defs.’ Mot. Costs ¶¶ 18-20, 22,
and we must further discount these requests because Pirito’s
claims do not appear to be frivolous.
We accept, however, that
the Penn entities’ are likely to incur significant costs in
defending this complex transnational commercial action.
accordingly grant in part the Penn entities’ motion for security
for costs in discovery, in the amount of $20,000.
BY THE COURT:
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