Homeland Munitions et al v. Purple Shovel

Filing 48

MEMORANDUM DECISION and ORDER granting 25 Defendant's Motion for Judicial Confirmation of the Arbitration Award. Signed by Judge Dee Benson on 7/12/2017. (blh)

IN THE UNITED STATES COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION

HOMELAND MUNITIONS, LLC, BIRKEN
STARTREE HOLDINGS, CORP., KILO
CHARLIE, LLC and LC DEFENSE, LLC,
Plaintiffs,

MEMORANDUM DECISION
AND ORDER

vs.

PURPLE SHOVEL, LLC,

Case No. 2:17-CV-207

Defendant.

Judge Dee Benson

This matter is before the Court on Defendant Purple Shovel, LLC’s (“Purple Shovel”)
Motion for Judicial Confirmation of the Arbitration Award. (Dkt. No. 25.) More specifically,
Purple Shovel moves the Court pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 6, 9, and the
Utah Uniform Arbitration Act, Utah Code Ann. § 78B-11-123, to confirm the Final Award
entered in favor of Purple Shovel by the International Institute of Conflict Prevention and
Resolution in Arbitration No. G-17-20-C issued on June 2, 2017, and to enter judgment against
Plaintiffs Homeland Munitions, LLC (“Homeland”); Birken Startree Holdings, Corp.; Kilo
Charlie, LLC; and LC Defense, LLC (collectively “Plaintiffs” or “Homeland entities”) in the
amount of $9,986,909.92.

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On June 27, 2017, Plaintiffs filed a timely opposition to the motion, and on July 3, 2017,
Defendant replied, rendering the motion ready for decision. Pursuant to civil rule 7-1(f) of the
United States District Court for the District of Utah Rules of Practice, the Court elects to
determine the motion on the basis of the written memoranda and finds that oral argument would
not be helpful or necessary. DUCivR 7-1(f).
BACKGROUND
Defendant Purple Shovel, a government contractor that supplies services and products to
the United States government, entered into a prime contract with a U.S. government agency in
2015. Purple Shovel later entered into a “Basic Ordering Agreement (BOA) Subcontract
Agreement Number Sub-BOA-PS027" with Homeland. The BOA provided that Homeland
would supply Purple Shovel with materials and services in support of Purple Shovel’s prime
contract. Homeland and Purple Shovel also entered into a separate Non-Circumvention
Agreement which further reflected and reinforced their intention to enter into an exclusive
relationship.
The BOA included a “Dispute Resolution and Governing Law” clause, Article 20, which
contained the following dispute resolution provision:
Each party agrees to timely notify the other party of any claim, dispute or cause of
action arising under or related to this Agreement and Orders issued hereunder and
to negotiate in good faith to resolve any such claim, dispute or cause of action. If
a resolution is unable to be reached between both parties, the dispute may be
resolved by arbitration. The arbitration will be conducted in accordance with the
Rules for Non-Administered Arbitration of the International Institute for Conflict
Prevention and Resolution then in effect. The arbitration will be conducted before
an arbitrator who shall be an attorney experienced in federal procurement law.
The arbitrator shall have no power to award non-monetary or equitable relief of
any sort. It shall also have no power to award lost profits; or consequential,
indirect, punitive, exemplary or special damages or any direct damages in excess

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of the liability cap set forth in the limitation of liability provision included in this
Agreement.
(Dkt. No. 9, Ex. A at 14-15.)
For purposes of this Order, suffice it to say, Homeland failed to perform its obligations
under the BOA to provide ammunition to fulfill the orders awarded to Purple Shovel. As a result,
Purple Shovel, in order to cover its contractual obligations, had to seek ammunition elsewhere
and at a higher cost than had been quoted to it by Homeland, and in some instances Purple
Shovel was unable to find the necessary cover. Purple Shovel considered this conduct by
Homeland to be a complete breach of the BOA and Non-Circumvention Agreement.
By letter dated August 5, 2016, Purple Shovel notified Homeland of its claim of breach of
the BOA and the Non-Circumvention Agreement. It followed up with a demand letter dated
August 22, 2016. Homeland did not respond to either. Accordingly, on September 12, 2016,
Purple Shovel served a Notice of Arbitration, which included a full statement of claims asserted
against Homeland, Birken Startree and Kilo Charlie pursuant to Article 20 of the BOA.1 The

Homeland entities did not file an answer and no attorney entered an appearance on their behalf.
Although the parties had agreed to a “non-administered” arbitration – meaning that the parties
would run the arbitration without the assistance of the International Institute of Conflict
Prevention Resolution (“the CPR”) – when Homeland failed to participate, Purple Shovel
invoked the CPR’s assistance to select an arbitrator.

1

Purple Shovel named all three plaintiffs in the Notice of Arbitration because one month
prior, on August 1, 2016, Homeland had informed Purple Shovel that going forward Homeland
would only be an “operational company,” overseen by a board of directors through Birken
Startree and managed by its parent company, Kilo Charlie. (Dkt. No. 9, Ex. C.)

3

In December 2016, some discussion ensued between the parties. No resolution resulted.
Then, in January of 2017, the CPR selected Michael D. Zimmerman, former Chief Justice of the
Utah Supreme Court, as the Arbitrator. Plaintiffs did not object to this appointment. Rather, on
February 9, 2017, the Homeland entities filed a “limited appearance” and a Motion to Terminate
or Stay the Arbitration. The motion argued the following: (1) that the reference to arbitration
under the CPR Rules in Article 20 of the BOA was insufficient to contractually bind Homeland
to arbitrate, and (2) that the BOA did not give the arbitral tribunal jurisdiction over Birken
Startree and Kilo Charlie, non-parties to the BOA and Non-Circumvention Agreement.
On February 23, 2017, after review of Homeland’s motion to terminate arbitration,
Homeland’s reply to Purple Shovel’s opposition to the motion, and a second motion to stay
arbitration and extend time to respond to Purple Shovel’s claims, the Arbitrator issued Order No.
2, denying Homeland’s motions.2 In Order No. 2, as a threshold matter, the Arbitrator
determined he had authority to determine issues of arbitrability. Additionally, the Arbitrator
addressed each of Homeland’s arguments in detail and concluded (1) that the arbitration
provision was binding on the parties (Order No. 2 at 3-5),3 and (2) that all of the Respondents –
Homeland Munitions, Birken Startree and Kilo Charlie – were bound to the arbitration provision

2

The Arbitrator’s Orders will be referred to as “Order No. __.” The Arbitrator’s Orders 2
through 8 are attachments to Dkt. No. 9 (Order No. 2 at Ex. G; Order No. 3 at Ex. H; Order No. 4
at Ex. I; Order No. 5 at Ex. K; Order No. 6 at Ex. L; Order No. 7 at Ex. M; Order No. 8 at Ex.
N). The Arbitrator’s Orders 9 and 10 are attachments to Dkt. No. 25 (Order No. 9 at Ex. V;
Order No. 10 at Ex. W).
3

The Arbitrator found on three alternative grounds that the tribunal had jurisdiction over
the parties and that they were bound to arbitrate their dispute to conclusion.

4

in the BOA (Order No. 2 at 6).4
In early March, the Arbitrator ordered the Homeland entities to either appear in the
proceeding and pay the requisite fees or face default. (Order No. 4.) The Homeland entities
were to respond by March 20, 2017. (Id.) Instead of filing a response by that date, Homeland
moved to stay the arbitration or for an extension of time to respond. The Arbitrator provided an
extension of time until April 5, 2017. (Order No. 7.) Homeland failed to respond by the new
deadline.
On April 7, after not receiving a response, the Arbitrator entered default against the
Homeland entities, and set a final evidentiary hearing for April 24, 2017, for the purpose of
argument on Purple Shovel’s Motion for Determination of Breach and Amount of Damages.
(Order No. 8.) Despite having been given notice, no one appeared for Homeland at the April 24
hearing and no filings were received from or on their behalf. At the hearing, the Arbitrator
raised a number of questions and requested additional information from Purple Shovel. Purple
Shovel complied with this request, filing a supplemental brief on May 9, 2017. On May 17,
2017, the Arbitrator held an additional hearing, addressing the issues in the supplemental brief,
and then took the matter under advisement.

4

In Order No. 9, issued May 23, 2017, the Arbitrator affirmed his prior conclusion that
Birken Startree and Kilo Charlie were bound by the arbitration agreement, and added an
additional entity - LC Defense, LLC (which the Utah governmental website indicates is
Homeland Munition, LLC by a new name). The Arbitrator found, “based on the information
before the tribunal, that Birken Startree Holdings, LLC, and Kilo Charlie, LLC, as well as LC
Defense, LLC are beneficiaries of the BOA and Non-Circumvention Agreement, affiliates and/or
successors of Homeland Munitions, and alter egos and/or agents of Homeland Munitions, LLC
and/or Brady McCorkle.” (Order No. 9 at 4.) This caused the Arbitrator to conclude that “all
three entities, as well as Homeland, are bound by the agreement to arbitrate in the Subcontract.”
(Id.)

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On May 23, the Arbitrator issued Order No. 9, concluding that the Homeland entities
were in breach of the contract with Purple Shovel, and fixing the amount of damages that would
be awarded. The Arbitrator also awarded Purple Shovel “all costs of this arbitration,” and
directed Purple Shovel to submit an itemization of costs. (Order No. 9 at 8.)
On May 31, 2017, after reviewing Purple Shovel’s request for attorneys’ fees and
expenses, and based on the damage determinations made in Order No. 9, the Arbitrator issued a
“Total Final Award” in the amount of $9,986,909.92 to Claimant Purple Shovel against
Respondents Homeland Munitions, LLC, Birken Startree Holdings, Corp., Kilo Charlie, LLC,
and LC Defense, LLC. (Order No. 10, Final Award.)
As stated above, on June 5, 2017, Purple Shovel filed a Motion for Judicial Confirmation
of the Arbitration Award. On June 27, 2017, new counsel entered an appearance on behalf of
Homeland. That same day, Homeland filed an Opposition to Purple Shovel’s motion, asserting
that the arbitration award should be vacated under the Federal Arbitration Act (“FAA”), 9 U.S.C.
§ 10 and under Utah Code. Ann. § 78B-11-123.
DISCUSSION
The Federal Arbitration Act reflects a “strong federal policy encouraging the expeditious
and inexpensive resolution of disputes through arbitration.” Metz v. Merrill Lynch, Pierce,
Fenner & Smith, 39 F.3d 1482, 1488 (10th Cir. 1994). In light of the federal policy favoring
arbitration of disputes, Congress erected very few barriers to the confirmation and enforcement
of arbitration awards under section 9 of the FAA. Upon receiving an application, a court “must
grant” an order confirming the award “unless the award is vacated, modified, or corrected as
prescribed” in sections 10 and 11 of the FAA. Id.
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The United States Supreme Court has stated, there is “nothing malleable” about this
standard: it “unequivocally tells the court to grant confirmation in all cases, except when one of
the prescribed exceptions applies” and “carries no hint of flexibility.” Hall St. Assocs. LLC, v.
Mattel, Inc., 552 U.S. 576, 587 (2008). Applying this standard, the United States Court of
Appeals for the Tenth Circuit has explained that the standard for judicial review of an arbitration
award is “among the narrowest known to law.” Brown v. Coleman Co., 220 F.3d 1180 (10th Cir.
2000) (quoting ARW Exploration Corp. v. Aguirre, 45 F.3d 1455, 1462 (10th Cir. 1995));
Ormsbee Dev. Co. v. Santa Fe Pac. R.R., 668 F.3d 1140, 1147-48 (10th Cir. 1982) (“Once an
arbitration award is entered, the finality of arbitration weighs heavily in its favor and cannot be
upset except under exceptional circumstances.”).
The narrow bases on which an arbitration award may be vacated are set forth in § 10 of
the Federal Arbitration Act. Section 10 provides, in pertinent part, that a court may vacate an
arbitration award:
(1) where the award was procured by corruption, fraud, or undue means;
. . . or
(4) where the abitrators exceeded their powers, or so imperfectly executed them
that a mutual, final, and definite award upon the subject matter submitted was not
made.
9 U.S.C. § 10 (emphasis added).
Relying on § 10, Plaintiffs assert they have sufficient grounds to vacate the arbitration
award in this case. Plaintiffs claim that the Arbitrator exceeded his powers by determining the
issue of arbitrability and subjecting Plaintiffs to an arbitration to which they did not agree;
exceeding his powers under the BOA contract; and issuing an award against non-signatory
parties. Plaintiffs also assert that the arbitration award was procured by undue means.
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Having reviewed the record in this case and the memoranda filed by the parties, and
applying the standard of review set forth above, the Court concludes that Plaintiffs have failed to
demonstrate circumstances sufficient to vacate the arbitration award.
I.

The Dispute was Properly Submitted to Arbitration

As an initial matter, the Court concludes that the Arbitrator did not exceed his authority
by determining that the parties intended to submit the dispute to arbitration. The parties agreed
to arbitrate the issue of arbitrability by incorporating the CPR Rules into their contract. As the
Arbitrator explained in Order No. 2, the CPR Rules provide that “the tribunal shall have the
power to hear and determine challenges to jurisdiction, including any objections with respect to
the existence, scope or validity of the arbitration agreement.” CPR Rule 8.1. Further, “the
tribunal shall have the power to determine the existence, validity or scope of the contract of
which an arbitration clause forms a part.” CPR Rule 8.2. These rules explicitly and expressly
assign the question of arbitrability to the arbitrator. It is well-established that the Arbitrator’s
determination that this dispute was arbitrable is entitled to substantial deference. See First
Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995) (“[A] court must defer to an
arbitrator’s arbitrability decision when the parties submitted that matter to arbitration.”).
The Arbitrator, in Order No. 2 and Order No. 9, set forth in extensive detail his bases for
concluding that the arbitration provision was binding on the parties. (Order No. 2 at 3-5; Order
No. 9 at 4.) In fact, the Arbitrator found “on three alternative grounds that the arbitral tribunal
had jurisdiction over the parties and that they were bound to arbitrate their dispute to
conclusion.” (Order No. 7 at 2.) Having reviewed these Orders and the reasoning set forth
therein, the Court finds them to be consistent with the language set forth in the BOA and
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applicable law. Additionally, the Court finds that any objection Plaintiffs had to the tribunal’s
jurisdiction was waived by requesting that the tribunal exercise its authority to terminate the
arbitration on grounds that the parties had not agreed to arbitrate the dispute.
In light of these facts and the deference that must be given to the Arbitrator, the Court
concludes that the Arbitrator did not exceed his authority in concluding that the dispute was
properly submitted to arbitration.
II.

There is No Basis to Conclude that the Arbitrator Exceeded His Power With
Regard to Any Matter Within His Jurisdiction

A party must “clear a high hurdle” in demonstrating that an arbitrator exceeded his
authority under Section 10(a)(4) of the FAA, because it is not enough to show that the arbitrator
“committed an error – or even a serious error.” Stolt-Nielson S.A. v. AnimalFeeds Int’l Corp.,
559 U.S. 662, 671 (2010). Instead, an award will be vacated only where “an arbitrator strays
from interpretation and application of the agreement and effectively dispenses his own brand of .
. . justice.” Id. “Because the parties ‘bargained for the arbitrator’s construction of their
agreement,’ an arbitral decision ‘even arguably construing or applying the contract’ must stand,
regardless of a court’s view of its (de)merits.” Oxford Health Plans LLC v. Sutter, 133 S. Ct.
2064, 2068 (2013) (quoting E. Assoc. Coal Corp. v. Mine Workers, 531 U.S. 57, 62 (2000)).
Given this standard, the Court finds unpersuasive Plaintiffs’ arguments that the Arbitrator
exceeded his authority under the BOA.
A.

The Arbitrator’s Qualifications

First, the Court finds baseless Plaintiffs’ argument that the Arbitrator was not “an
attorney experienced in federal procurement law” and therefore “was not authorized to serve as

9

an arbitrator.” As an initial matter, the Court finds Plaintiffs waived any objection to Arbitrator
Zimmerman by asking him to exercise his authority to decide their motion to terminate
arbitration. Moreover, as Purple Shovel points out, had Plaintiffs elected to participate in the
arbitration, they would have recognized that Arbitrator Zimmerman was familiar with the
Federal Acquisition Regulations and that he sought briefing on the extent to which they
governed the issues in dispute. (Dkt. No. 47, Def.’s Reply at 5.) Significantly, the CPR
presumably considered Arbitrator Zimmerman to be qualified when it selected him to serve as an
arbitrator from its list of potential candidates.
B.

Non-Monetary or Equitable Relief

Second, the Court finds that the Arbitrator did not exceed his authority by awarding
“non-monetary or equitable relief” as prohibited by the BOA. To the contrary, it was entirely
within the Arbitrator’s authority to order Homeland to enter an appearance, execute the
engagement letter and pay arbitration fees or else risk default. In so doing, the arbitrator was not
“award[ing] ... non-monetary or equitable relief.” Moreover and importantly, Plaintiffs do not
assert that any relief awarded in the “Final Award” is improper “non-monetary or equitable
relief.”
C.

Awarding Expected Profits

Third, the Court concludes that the Arbitrator did not exceed his authority by awarding
Purple Shovel its expected profits from a contract awarded to a competitor. The Arbitrator
determined that certain damages were warranted because Purple Shovel would have been
awarded several “line items” in the prime contract using Homeland’s pricing had Homeland not
undercut several of Purple Shovel’s bids by quoting lower prices to a Purple Shovel competitor,
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ADS. (Dkt. No. 25 at 43, 46, Ex. S, Claimants Mot. For Determination of Breach and Amount
of Damages at 7, 10 & n.4.)
The Arbitrator carefully considered whether the BOA permitted recovery of Purple
Shovel’s expected net profit on these items. To that end, the Arbitrator sought supplemental
briefing and explicitly noted that the BOA dispute resolution provision stated that the arbitrator
“shall . . . have no power to award lost profits; or consequential, indirect, punitive, exemplary or
special damages, or any direct damages in excess of the liability cap set forth in the limitation on
liability provision included in this Agreement.”
Ultimately, however, the Arbitrator concluded that Purple Shovel’s anticipated profits of
$2,590,000 on one of the line items constituted “‘direct’ damages that were clearly anticipated
and essential in order to put Purple Shovel in the position it would have been in had Homeland
not breached the exclusivity provision.” (Order No. 9.) The Arbitrator reasoned: “Absent
entitlement to this award, Homeland’s blatant breach of an essential provision of the [BOA]
would be without a remedy,” and he noted that Virginia law (which applies in this instance),
specifically Virginia Code § 8.2-719(2), provides for recovery under such instances. Id. Given
the Arbitrator’s detailed consideration of the contract and application of the relevant law, the
Court cannot conclude that the Arbitrator exceeded his authority in awarding these damages.
See Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064, 2068 (2013) (explaining that a decision
that arguably construes or applies the contract must stand, even if the court disagrees with the
outcome).
III.

The Arbitrator Did Not Exceed His Authority in Exercising Jurisdiction over
the Affiliates of Homeland Munitions

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Next, the Court finds no basis for concluding that the Arbitrator exceeded his authority in
exercising jurisdiction over Birken Startree, Kilo Charlie and LC Defense, LLC. This issue was
raised by the Homeland entities on February 9, 2017, in their initial Motion to Terminate or Stay
Arbitration, and has been considered and rejected by the Arbitrator on numerous occasions.
(Order No. 2, Order No. 6, Order No. 7, Order No. 9.)
In Order No. 2, the Arbitrator noted that under Virginia and federal law, “non-signatories
can be bound to arbitrate under several theories grounded in common law of contract and
agency.” The Arbitrator then discussed the facts pertaining to the organization of Birken
Startree and Kilo Charlie and made a preliminary finding that “Birken Startree Holdings and
Kilo Charlie were organized at or about the time Homeland Munitions received notice of the
claim of breach from Purple Shovel, had been represented by Homeland Munitions to Purple
Shovel as integrated with Homeland Munitions in management and operations, and were owned
and controlled by the same person(s) who are represented as owning and controlling Homland
Munitions, a party to contracts in dispute.” (Order No. 2.) Subsequently, in Order No. 6, after
being informed that Homeland Munitions had changed its name (in January 2017) to LC
Defense, LLC, the Arbitrator added LC Defense as a party to the arbitration. (Order No. 6.)
On May 23, 2017, following the evidentiary hearing, in Order No. 9 the Arbitrator
expressly stated that his earlier conclusion had not been undermined and therefore he found as a
matter of law and fact, that Birken Startree Holdings, LLC, Kilo Charlie, LLC and LC Defense,
LLC are beneficiaries of the BOA and Non-Circumvention Agreement, affiliates and/or
successors of Homeland Munitions, and alter egos and/or agents of Homeland Munitions, LLC
and/or Bradley McCorkle. The Arbitrator further stated, “under Virginia and federal law, equity
12

requires that these entities be estopped from denying their being bound by the BOA and NonCircumvention Agreement to the same degree as Homeland Munitions, LLC. . . . [A]ll three
entities, as well as Homeland, are bound by the agreement to arbitrate in the Subcontract.”
(Order No. 9.)
The Arbitrator’s decision to exercise jurisdiction over all four Plaintiffs reflects careful
consideration over the course of several months of briefing and argument. Plaintiffs submitted
their argument regarding jurisdiction to the Arbitrator, and the Court can find no basis for
concluding that the Arbitrator exceeded his authority in concluding that the affiliates of
Homeland were subject to arbitration.
IV.

There is No Basis to Conclude That the Arbitration Award Was Obtained by
Undue Means

The federal circuit courts of appeals agree that “undue means,” as used in the § 10(a)(1)
of the FAA, is best construed to refer to “underhanded or conniving ways of procuring an award
that are similar to corruption or fraud, but do not precisely constitute either.” Nat’l Cas. Co. v.
First State Ins. Grp., 430 F.3d 492, 499 (1st Cir. 2005) (noting consensus). Plaintiffs in this case
claim that Purple Shovel obtained $7,044,250 in cover damages by undue means because Purple
Shovel’s initial arbitration demand alleged damages totaling only one-third that amount.
Despite Purple Shovel’s significantly increased revised damages estimate and award, the
Court finds nothing in the record to support Plaintiffs’ claim Purple Shovel’s damage award was
obtained by undue means. Purple Shovel expressly acknowledges that it revised its initial
estimate of damages, and further explains that it did so after determining that the prevailing
market rate was substantially higher than its initial estimate because it obtained quotes that were

13

much higher than what it thought would be necessary to cover. (Dkt. No. 47 at 9 & n.5.)
Moreover, Plaintiffs do not allege that they lacked notice that Purple Shovel had revised the
estimated damages set forth in its arbitration demand, nor do Plaintiffs allege that they lacked an
opportunity to respond to the revised estimate with their own evidence.
In sum, the Court finds that although Plaintiffs complain that Purple Shovel was not
entitled to the amount of damages they were awarded, they have failed to identify or allege any
“underhanded or conniving” conduct that would justify vacating the award.
CONCLUSION
For the foregoing reasons, the Court hereby GRANTS Defendant’s Motion for Judicial
Confirmation of the Arbitration Award and confirms the Final Award as a judgment of this Court
pursuant to Chapter 1 of the Federal Arbitration Act and the Utah Uniform Arbitration Act.5
DATED this 12th day of July, 2017.

_________________________________
Dee Benson
United States District Judge

5

Plaintiffs assert that the award should be vacated under the Utah Uniform Arbitration Act
for the same reasons it should be vacated under the FAA. Because Plaintiffs failed to prevail
under the FAA their claims also fail under the UUAA.

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