United States Ex Rel. Milestone Tarant, LLC/Highland Ornamental Iron Works, Inc. v. Federal Insurance

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
_____________________________________
)
UNITED STATES OF AMERICA for the )
Use and Benefit of MILESTONE )
TARANT, LLC / HIGHLAND )
ORNAMENTAL IRON WORKS, INC., a )
Joint Venture, )
)
Plaintiffs, )
) Civil Action No. 08-2186 (RCL)
v. )
)
FEDERAL INSURANCE COMPANY, )
)
Defendants. )
_____________________________________ )
)
MANHATTAN CONSTRUCTION )
COMPANY, et al., )
)
Interpleader Plaintiffs, )
)
v. )
)
MILESTONE TARANT, LLC / )
HIGHLAND ORNAMENTAL IRON )
WORKS, INC., a Joint Venture, et al., )
)
Interpleader Defendants. )
_____________________________________ )
MEMORANDUM OPINION
An arbitration panel found Manhattan Construction Company (“Manhattan”) liable for
approximately $1.1 million in unpaid services and attorney’s fees on a subcontract to renovate
the Capitol Visitor Center in Washington, DC. Fearing exposure to multiple or inconsistent
obligations on this award, Manhattan deposited the sum with the Court and moved for
interpleader relief. See Fed. R. Civ. P. 22(a). A variety of interested parties then asserted claims
against the resulting Interpleaded Fund (“Fund”). Because the creation of the Fund extinguishes
1
Manhattan’s liability under the arbitration award and there is no genuine dispute as to the proper
distribution of the Fund, the Court will enter a declaratory judgment regarding the distribution of
the Fund and dismiss the case with prejudice.
I. BACKGROUND
The following facts are not disputed. In 2003, Manhattan awarded Milestone Tarant,
LLC/Highland Ornamental Iron Works, Inc., a Joint Venture (“Joint Venture”) a subcontract to
fabricate and install ornamental metals and custom bronze doors and windows in the Capitol
Visitor Center. The agreement contained an arbitration clause requiring the parties to arbitrate
any disputes arising under the subcontract. A payment bond issued earlier that year obligated
Federal Insurance Company (“Federal”), Manhattan’s surety under the Miller Act, 40 U.S.C. §
3131 et seq., to compensate any subcontractor for labor and materials furnished pursuant to the
subcontract in the event Manhattan was unable to pay.
The project was hampered by delays and cost overruns. For reasons that are not entirely
clear and are ultimately beside the point, the renovations took about three years longer than
expected and allegedly cost the Joint Venture nearly twice the original subcontract price of $8.3
million to complete. After the Government opened the Capitol Visitor Center to the public in
late 2008, the Joint Venture filed this suit against Federal under the Miller Act, 40 U.S.C. §
3133, seeking to recover from Federal the reasonable value of its services for which Manhattan
had not yet paid.
Manhattan, however, sought to enforce its rights under the subcontract’s arbitration
clause, and accordingly filed for arbitration with the American Arbitration Association (“AAA”)
in September 2009. This Court dismissed the Joint Venture’s separate suit to enjoin Manhattan
from arbitrating the dispute (Case No. 1:09-CV-01941), and then stayed the instant case pending
2
the outcome of the arbitration proceeding. U.S. ex rel Milestone Tarant, LLC v. Federal Ins. Co.,
672 F. Supp. 2d 92, 106 (D.D.C. 2009). After a two-week arbitration hearing, a panel of the
AAA issued a final award on March 28, 2011, finding Manhattan liable to the Joint Venture for
$1,087,088.14 plus interest. Included in this amount was an award for attorney’s fees of
$181,274.00 for services provided by the Joint Venture’s legal counsel, Braude & Margulies,
P.C. (“B&M”), during the arbitration proceeding.
On July 1, 2011, the Court granted Manhattan’s motion to intervene in this action and file
an interpleader complaint. U.S. ex rel Milestone Tarant, LLC/Highland Ornamental Iron Works,
Inc. v. Federal Ins. Co., — F. Supp. 2d —, 2011 WL 2604830, at *2-*4 (D.D.C. July 1, 2011).
The Court simultaneously deferred ruling on the Joint Venture’s motion to confirm the
arbitration award against Federal, since the Joint Venture had not yet attempted to secure its
remedy against Manhattan. Id. at *4. Defendants then deposited $1,094,375.60 with the
Court—an amount representing the final arbitration award plus all agreed-upon interest—which
resulted in the creation of the Fund. The Court has previously confirmed that with the deposit of
this sum, “all amounts due under the March 28th arbitration award in favor of the Joint Venture
and against Manhattan are paid and satisfied.” Order [28] at 4.
The only remaining issue in this case, therefore, is the proper distribution of the Fund.
Following the deposit of the arbitration award, the interested parties filed answers to Manhattan’s
interpleader complaint asserting their various claims against the Fund. Among these are B&M’s
claim for attorney’s fees, the Joint Venture’s claim on the merits of its dispute with Manhattan,
and a federal tax lien for unpaid taxes owed by Highland Ornamental Iron Works, Inc.
(“Highland”), one of the Joint Venture partners, which has attached to Highland’s share of any
recovery in arbitration. In addition, Columbia Bank, a secured creditor of Milestone Tarant,
3
LLC (“Milestone”), the other Joint Venture partner, has moved to intervene in this action,
claiming an interest in Milestone’s share of the arbitration award. 1
Columbia Bank and most of the interpleader defendants have since agreed to a settlement
of their claims against the Fund. See Revised Agreed Distribution of Funds Paid Into Court [32]
(“Agreed Distribution”) at 3-4. Of the interested parties who filed answers to Manhattan’s
interpleader complaint, only the Internal Revenue Service has not consented to the Agreed
Distribution, and the remaining interpleader defendants have either explicitly disclaimed or
failed to assert an interest in the Fund. 2
II. DISCUSSION
Before the Court are several motions that together dispose of this case. First, the Court
will grant the Joint Venture’s motion to confirm the arbitration award, which was initially
deferred while Manhattan moved to intervene in this case, and will dismiss Manhattan and
Federal from the suit, since the deposit of $1,097,375.60 with the Court extinguishes their
liability under the arbitration award. The Court will then enter a declaratory judgment regarding
the distribution of the Fund, since there is no genuine dispute and the proper distribution of the
Fund can be determined as a matter of law. Finally, the Court will deny as moot Columbia
Bank’s motion to intervene, since the case is at an end and there is no further relief this Court can
provide to assist Columbia in the pursuit of its rights and remedies against Milestone.
1
Milestone filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the District
of Maryland in January 2011. In re Milestone Tarant, LLC, Case No. 11-10038 (PM). The bankruptcy
court lifted the automatic stay to allow Columbia Bank to immediately exercise its rights and remedies as
a secured creditor under its loan agreement with Milestone. Accordingly, by order of the bankruptcy
court, Milestone is obligated to pay Columbia Bank its portion of the arbitration award. See Mot. to
Intervene [27-7].
2
The other parties to this action are United States Fidelity and Guaranty Company (the Joint Venture’s
surety on the Capitol Visitor Center project), and W. Clarkson McDow, Jr., United States Trustee (the
administrator of Milestone’s bankruptcy estate). Both parties have indicated that they do not have an
interest in the Fund. Answer to Intervenor Compl. [26]; Notice of Disclaimer of Interest [35].
4
A. Confirmation of the Arbitration Award
There is no longer any reason to defer ruling on the Joint Venture’s motion to confirm the
arbitration award because the Joint Venture’s remedy is now against the Fund rather than
Federal, Manhattan’s surety under the Miller Act. See 40 U.S.C. § 3133. The Court initially
deferred ruling on the motion to confirm the arbitration award against Federal because
Manhattan was not yet a party to the suit and the Joint Venture had “not even tried to secure its
remedy against Manhattan much less shown itself unable to do so.” U.S. ex rel Milestone
Tarant, LLC, 2011 WL 2604830, at *4 (internal quotation marks omitted). Manhattan has since
been joined as a party and all amounts due under the arbitration award have been deposited with
the Court. Accordingly, it is now appropriate to reduce that award to a judgment and conclude
the case as to Manhattan and Federal.
The Federal Arbitration Act provides that a court “must grant” an order confirming an
arbitration award where “the parties . . . have agreed that a judgment of the court shall be entered
upon the award made pursuant to the arbitration.” 9 U.S.C. § 9. In its motion to stay this matter,
Federal specifically agreed to be bound by the results of the arbitration between the Joint
Venture and Manhattan. Mot. to Stay [8] at 1. Because Manhattan does not oppose
confirmation of the arbitration award, and because Federal suggests no basis on which to vacate,
modify or correct the award pursuant to 9 U.S.C. §§ 10 and 11, the Court will enter a judgment
upon the March 28th arbitration award. Confirmation of the award, together with the payment of
all amounts due under it, concludes this case as to Manhattan and Federal. Accordingly, the
Court will also dismiss Manhattan and Federal from the case with prejudice. 3
3
For similar reasons, the Court will grant as unopposed Manhattan and Federal’s motion to dismiss W.
Clarkson McDow, Jr., United States Trustee, who has already disclaimed any interest in the Fund. See
Notice of Disclaimer of Interest [35].
5
B. Distribution of the Fund
The final issue in this case is the proper distribution of the Fund, as to which there is no
genuine dispute. With the exception of the IRS, all interested parties—including Columbia
Bank—have consented to the Agreed Distribution or have indicated that they do not have an
interest in the Fund. See Agreed Distribution [32] at 3-4. Although the IRS has not consented to
the Agreed Distribution, its claim against the Fund is consistent with the distribution of the Fund
consented to by all of the other interested parties. Accordingly, the Court will enter a declaratory
judgment adopting the Agreed Distribution as the proper distribution of the Fund.
Under this settlement, B&M is entitled to $360,000 out of the Fund for attorney’s fees
and expenses earned by representing the Joint Venture in its claims against Manhattan. Mot. for
Partial Summ. J. [37]. This amount is substantially greater than the amount specified in the
March 28th arbitration award. However, B&M claims that in addition to the $181,274.00 in
attorney’s fees and $34,108.00 in expenses specifically awarded by the arbitration panel, the firm
is also owed $155,753.22 for two unpaid invoices for previous services related to a partial
settlement of claims against Manhattan prior to the arbitration proceeding. 4 There is no dispute
that B&M holds a valid attorney’s lien against the Fund for the full amount of fees and expenses
incurred in representing the Joint Venture.
The IRS also holds a federal tax lien against the Fund for unpaid taxes owed by
Highland, one of the Joint Venture partners, which has attached to Highland’s share of any
recovery in arbitration. But under the laws of the District of Columbia, the Joint Venture is
required to discharge its obligations to creditors—including B&M—before any portion of the
arbitration award can be distributed to the Joint Venture partners. See D.C. Code § 29-608.07(a).
4
In order to facilitate the interested parties’ consent to the Agreed Distribution, B&M has apparently
discounted the total amount allegedly owed by the Joint Venture to a claim of $360,000 against the Fund.
See Agreed Distribution [32] at 3 n.1.
6
That means that the IRS’s claim against the Fund is limited to whatever is distributed to
Highland after the Joint Venture’s liabilities are satisfied. 5 Accordingly, because all other
interested parties have either consented to the Agreed Distribution or have disclaimed any
interest in the Fund, the Agreed Distribution represents the proper distribution of the Fund and a
declaratory judgment to that effect is appropriate at this time.
C. Columbia Bank’s Motion to Intervene
Distribution of the Fund concludes this case as to all of the remaining parties. Thus, the
Court will deny as moot Columbia Bank’s motion to intervene, since this case is at an end and
there is no further relief the Court can provide to Columbia Bank in the pursuit of its rights and
remedies against Milestone.
III. CONCLUSION
For these reasons, the Joint Venture’s motion to confirm the arbitration award is
GRANTED and Manhattan and Federal are DISMISSED from this action with prejudice.
B&M’s motion for partial summary judgment is GRANTED and the Court will enter a
declaratory judgment adopting the Agreed Distribution as the proper distribution of the Fund.
Columbia Bank’s motion to intervene is DENIED as moot. A separate order memorializing
these conclusions will issue this day.
Date: November 4, 2011 ______________/s/______________
Royce C. Lamberth
Chief United States District Judge
5
The IRS does not oppose the immediate payment of $204,246.78 to B&M, see Mem. in Opp’n to Mot.
for Partial Summ. J. [41] at 4, and has withdrawn its partial objection to B&M’s motion for summary
judgment contesting the payment of the additional $155,753.22, see Surreply to Mot. for Partial Summ. J.
[44-1] at 2.
7