Filed: Aug. 08, 2006
Latest Update: Mar. 02, 2020
Summary: Opinions of the United 2006 Decisions States Court of Appeals for the Third Circuit 8-8-2006 Admart AG v. Stephen & Mary Birch Precedential or Non-Precedential: Precedential Docket No. 04-4014 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2006 Recommended Citation "Admart AG v. Stephen & Mary Birch" (2006). 2006 Decisions. Paper 533. http://digitalcommons.law.villanova.edu/thirdcircuit_2006/533 This decision is brought to you for free and open access b
Summary: Opinions of the United 2006 Decisions States Court of Appeals for the Third Circuit 8-8-2006 Admart AG v. Stephen & Mary Birch Precedential or Non-Precedential: Precedential Docket No. 04-4014 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2006 Recommended Citation "Admart AG v. Stephen & Mary Birch" (2006). 2006 Decisions. Paper 533. http://digitalcommons.law.villanova.edu/thirdcircuit_2006/533 This decision is brought to you for free and open access by..
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Opinions of the United
2006 Decisions States Court of Appeals
for the Third Circuit
8-8-2006
Admart AG v. Stephen & Mary Birch
Precedential or Non-Precedential: Precedential
Docket No. 04-4014
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2006
Recommended Citation
"Admart AG v. Stephen & Mary Birch" (2006). 2006 Decisions. Paper 533.
http://digitalcommons.law.villanova.edu/thirdcircuit_2006/533
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 04-4014
ADMART AG; HELLER WERKSTATT GESMBH;
ANDRE HELLER; STEFAN SEIGNER,
Appellees
vs.
STEPHEN and MARY BIRCH FOUNDATION, INC.,
Appellants
____________
Appeal from the United States District Court
for the District of Delaware
(D.C. Civ. No. 95-cv-00410 )
District Judge: Honorable Sue L. Robinson
____________
Argued September 29, 2005
Before: RENDELL, FUENTES and WEIS, Circuit Judges.
(Filed: August 8, 2006)
____________
Alice A. Seebach, Esquire (ARGUED)
Seebach & Seebach
633 West Fifth Street, Suite 5410
Los Angeles, CA 90071
Attorneys for Appellant
Thomas A. Brown, II, Esquire (ARGUED)
Orans, Elsen & Lupert
875 Third Avenue, 28th Floor
New York, NY 10022
Attorneys for Appellees
_______________
OPINION
WEIS, Circuit Judge.
The Convention on the Recognition and Enforcement of
Foreign Arbitral Awards of June 10, 1958 imposes rigid
restrictions on confirmation of awards issued by an arbitral
entity in a signatory country. In the case before us, the District
Court appropriately issued a confirmation judgment. However,
some variances in the specific directions of execution on the
judgment differ from those in the Award and will be modified
to conform more closely to its text and to the circumstances that
presently exist.
2
I.
The Stephen and Mary Birch Foundation, Inc. is a
Delaware not-for-profit corporation (“Birch”). In 1990, it
entered into an agreement to buy “Luna Luna,” an open-air
exhibit composed of artwork created by approximately thirty
renowned artists. One of the plaintiffs, Andre Heller, organized
the exhibition.
The original sellers of Luna Luna were Andre Heller,
Stefan Seigner and Heller Werkstatt GesmbH, an Austrian
limited corporation. After the sale agreement was executed,
Admart AG, a Swiss corporation, replaced Werkstatt, although
it remained liable for completing the contract. We will refer to
Andre Heller, Stefan Seigner, Heller Werkstatt GesmbH and
Admart AG collectively as “Admart.”
The sale agreement, executed on June 28, 1990, stated
that the aggregate price was $6 million including a fee for the
United States license rights for the various works of art. Birch
paid $3 million, leaving due $2 million after delivery of Luna
Luna to San Diego, California and $1 million after “termination
of the on-site construction” and set-up, but no later than
March 31 1992.
The agreement, governed by Swiss law, provided for
arbitration of any disputes in Zurich. Admart agreed to provide
evidence of the authenticity of the art and to indemnify Birch
“from all claims from the artists, prior owners and lessees.”
Admart further promised to “deliver Luna [Luna] in materially
and legally good standing with clear title.” The agreement gave
3
Birch the right to “examine the basic contracts” between Admart
and the artists.
Andre Heller and Stefan Seigner provided personal
guarantees for $500,000 “in case [Admart was] not in a position
to fulfill the agreement.” In the event of a dispute over the use
of Luna Luna, Admart could replace any “single object by
another one of similar artistic level and standard, within a
reasonable length of time.”
On July 26, 1990, the parties entered into an Addendum
to the agreement that included confirmation that each of the
artists had conveyed ownership and use of the original artwork
to Admart as well as the right to transfer the artwork to third-
parties. The amendment warranted that Admart’s agreements
with the artists would not restrict Birch’s ownership of Luna
Luna or its use within the United States.
Contending that it had not received sufficient
documentary evidence of Admart’s clear title to Luna Luna,
Birch sent a notice of recission on October 2, 1991. Admart
denied any breach of contract and the parties commenced
arbitration in Zurich.
The Swiss arbitration panel issued its Final Arbitral
Award in 1994 (the “Award”). The panel concluded that
Birch’s recission was invalid because Admart had no obligation
to provide “clear title” until the date of delivery of Luna Luna,
and because Birch was aware that Admart’s ownership of the
works of art was limited in various respects such that demand
for “clear title” was never intended by the parties.
4
Birch contended that it could not display and operate
Luna Luna in the United States without exposing itself to
litigation with the artists. In response, the arbitrators indicated
that they were persuaded by Admart’s success in obtaining
twenty seven “supplementary declarations” from the artists
which, according to the panel, “specifically referr[ed] to the
transfer of Luna Luna to [Birch] and specif[ied] that Luna Luna
should have all rights of use of the copyrights and/or ‘droit
moral’ for the artists [sic] work in the USA . . . .” Further, the
arbitration panel emphasized that the sales agreement contained
an indemnity provision as well as a statement that, in the event
there was a problem with one of the artist agreements, Admart
would substitute a similar piece of art.
The Award directed Birch to pay Admart the outstanding
balance of $3 million – $2 million within thirty days of the date
of the Award on simultaneous exchange of the artwork and an
additional $1 million after Luna Luna had been set up, but no
later than eight months following the date of the Award. A set-
off against the $1 million payment was “allowable only for [sic]
amount for which on the due date a claim by [Birch] is pending
in another arbitration.” Birch was also directed to pay interest
and storage fees.
As an alternative, the Award “authorized” Admart to
deposit the property with a third-party storage company in
Vienna after thirty-five days from the date of the Award. Upon
this action, the $2 million would become due and payable.
The parties engaged in some unsuccessful efforts to
comply with the Award. Then, Birch appealed to the Swiss
5
Federal Supreme Court complaining, among other grounds,
about the arbitrators’ refusal to allow inspection of the goods
before transfer. The Swiss court affirmed the Award on
February 16, 1996, observing, inter alia, that the $1 million
holdback was intended to adjust any claim for damage to the
goods. The court did not rule on enforcement of the Award per
se.
In June 1995, while the Swiss appeal was pending,
Admart filed suit in the United States District Court for the
District of Delaware asking that the Award be confirmed under
the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards of June 10, 1958. 21 U.S.T. 2517, T.I.A.S.
No. 6997; 9 U.S.C. § 201 et seq. The District Court stayed the
confirmation proceedings pending the Swiss court’s decision.
In 1999, Birch representatives attempted to examine the
art in Vienna, but Admart allegedly denied them access. Birch
then filed a petition to enforce the Award in the Austrian courts.
That petition was dismissed in May 2002, apparently on the
ground that, as the loser in the arbitration, Birch lacked standing
to seek enforcement of the Award.
While the Austrian case was pending, Birch filed a
request for a second arbitration in Switzerland, claiming
damages for Admart’s failure to comply with the Award. On
March 21, 2005, the panel for the second arbitration decided it
had jurisdiction over several of Birch’s claims for damages to
the art and loss of profits for the period of time since the Award
was delivered in 1994. That panel has not yet ruled on the
merits of those claims.
6
The District Court lifted its stay of the confirmation
proceedings in 2003. When the proceedings resumed, Birch
filed a request for production of the art based on evidence
suggesting that several pieces had been repaired or improperly
stored. The District Court denied the motion because the Award
did not include such relief.
On January 29, 2004, the District Court required Birch to
confirm that the monies required for satisfaction of the Award
had been deposited in an interest-bearing account for the benefit
of Admart. In turn, Admart was to submit to the District Court
a description of the condition and location of the artwork. In its
responsive affidavit, Admart explained that “a few” pieces of art
needed minor restoration and four pieces had been destroyed by
fire or had fallen apart. In addition, Admart noted that the
shipping license for Luna Luna had expired so the containers
holding the art could no longer be used. Birch submitted the
affidavit of Thierry F. Ador, its attorney. He averred that
“several years” earlier, Birch transferred funds “to [his control]
so that the funds could be used to pay Admart AG to resolve
[Birch’s] dispute with Admart.” Mr. Ador confirmed that the
funds had been placed in “interest bearing bank accounts now
holding in excess of $5,600,000 (USD) . . . .”
On June 8, 2004 the District Court confirmed the Award
and issued the following order:
7
“(1) On or before July 8, 2004, [Birch] shall
pay the total of $5,562,818.191 to
[Admart], plus whatever interest said
monies have earned since their deposition
with Theirry F. Ador [Birch’s attorney in
Switzerland].2 The court declines to order
any further interest, given the
circumstances of this dispute.
(2) Within 24 hours of receipt of said
payment, [Admart] shall deliver to [Birch]
the containers holding the artwork . . .
[Admart] shall be prepared to repair the
minor damage to the artwork sustained
during the many years it has been in
storage due to this dispute . . . .”
II.
We begin our discussion with a threshold issue. Birch
has argued that we should stay these proceedings pending
resolution of the arbitration currently under way in Switzerland.
1
The amount consists of the sum of the $3 million, storage fees,
costs and interest through May 31, 2004.
2
On October 6, 2004, the District Court issued a revised order
in which it removed the requirement of “interest said monies
have earned since their deposition with Theirry F. Ador.” In
effect, the rate of interest due after May 31, 2004 is that earned
on the funds in the Ador accounts.
8
In addition, Birch filed with this Court a separate Motion to
Adjourn the Decision on Enforcement of the 1994 Arbitration
Award. Birch claimed that the issues before this Court overlap
with those before the Swiss arbitration panel and that we should
stay our proceedings to avoid a conflicting ruling.
Article VI of the Convention states in relevant part:
“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 relied upon may, if it considers it proper,
adjourn the decision on the enforcement of the
award . . . .”
Birch argues that it made an application “for the setting aside or
suspension of the [1994 arbitration] award” by instituting the
currently pending Swiss arbitration proceedings.
We decline the request to adjourn the appeal on
enforcement of the Award and will affirm the District Court’s
decision to deny further delay. In Hewlett-Packard Co., Inc. v.
Helge Berge, Etc., 61 F.3d 101 (1st Cir. 1995), the Court of
Appeals for the First Circuit considered a district court’s
decision not to adjourn proceedings to enforce one arbitration
award while a second arbitration proceeding was pending. The
issues pending in arbitration partially overlapped those pending
as part of the enforcement suit. On appeal, the Court held that
the district court erred in refusing to adjourn the suit as to the
issues implicated by the pending arbitration. With respect to the
9
issues no longer contested, however, adjournment was not
appropriate and the enforcement proceedings should continue.
Id. at 105.
It is clear that the issues to be arbitrated in Switzerland do
not overlap those in the case before us which is limited to
enforcement of the Award. By contrast, the claims before the
arbitration panel involve actions or harm that Birch has alleged
occurred after the Award was rendered. Such claims are not
within the ambit of Admart’s suit to confirm the Award.
The Swiss arbitration panel reached the same conclusion
when Admart sought to stay the arbitration until this case was
completed. The arbitration panel rejected Admart’s motion in
a June 5, 2005 order in which it stated that the issues in the
arbitration proceedings are different from those before us. The
panel noted that it would adjudicate all the claims currently
before it, regardless of whether we enforced the Award.
Because the issues here are distinct from those in the
pending Swiss arbitration proceedings, the arbitration is not an
attempt to set aside or suspend the Award. We will, therefore,
proceed to decide the issues before us.
III.
Birch has appealed asserting that the District Court
improperly modified the Award by abrogating simultaneous
performance, failing to require the artist’s documentation be
transferred, failing to honor the $1 million hold back and failing
to stay confirmation in light of the pending second arbitration
10
proceeding in Switzerland. Admart counters that Birch waived
its argument that the opinion of the Swiss Federal Supreme
Court supports concurrent performance.
We review de novo the District Court’s interpretation of
the Convention. Standard Bent Glass Corp. v. Glassrobots Oy,
333 F.3d 440, 443 n.2 (3d Cir. 2003).
In 1970, the United States acceded to the Convention and
supplemented its action through the enactment of legislation.
See 9 U.S.C. § 201 et seq. As the Supreme Court explained, the
principal purpose for acceding to the Convention was to
“encourage the recognition and enforcement of commercial
arbitration agreements in international contracts and to unify the
standards by which agreements to arbitrate are observed and
arbitral awards are enforced in the signatory countries.” Scherk
v. Alberto-Culver Co., 417 U.S. 506, 520 n.15 (1974); see also
China Minmetals Materials Import & Export Co., Ltd. v. Chi
Mei Corp.,
334 F.3d 274, 282-83 (3d Cir. 2003); General
Electric Co. v. Deutz Ag,
270 F.3d 144, 154 (3d Cir. 2001).
Consistent with the policy of favoring enforcement of foreign
arbitral awards, parties have limited defenses to recognition and
enforcement of an award as set out in Article V of the
Convention.
Under the Convention, a district court’s role is limited –
it must confirm the award unless one of the grounds for refusal
specified in the Convention applies to the underlying award.
Compagnie Noga D’Importation et D’Exportation S.A. v. The
Russian Federation, 361 F.3d 676, 683 (2d Cir. 2004).
11
Article V provides that:
“1. Recognition and enforcement of the award
may be refused, at the request of the party against
whom it is invoked, only if that party furnishes to
the competent authority where the recognition and
enforcement is sought, proof that:
(a) The parties to the agreement
referred to in article II were, under
the law applicable to them, under
some incapacity, or the said
agreement is not valid under the
law to which the parties have
subjected it or, failing any
indication thereon, under the law of
the country where the award was
made; or
(b) The party against whom the
award is invoked was not given
proper notice of the appointment of
the arbitrator or of the arbitration
proceedings or was otherwise
unable to present his case; or
(c) The award deals with a
difference not contemplated by or
not falling within the terms of the
submission to arbitration, or it
contains decisions on matters
12
beyond the scope of the submission
to arbitration, provided that, if the
decisions on matters submitted to
arbitration can be separated from
those not so submitted, that part of
the award which contains decisions
on matters submitted to arbitration
may be recognized and enforced; or
(d) The composition of the arbitral
authority or the arbitral procedure
was not in accordance with the
agreement of the parties, or, failing
such agreement, was not in
accordance with the law of the
country where the arbitration took
place; or
(e) The award has not yet become
binding on the parties, or has been
set aside or suspended by a
competent authority of the country
in which, or under the law of
which, that award was made.
2. Recognition and enforcement of an arbitral
award may also be refused if the competent
authority in the country where recognition and
enforcement is sought finds that:
13
(a) The subject matter of the
difference is not capable of
settlement by arbitration under the
law of that country; or
(b) The recognition or enforcement
of the award would be contrary to
the public policy of that country.”
To carry out the policy favoring enforcement of foreign arbitral
awards, courts have strictly applied the Article V defenses and
generally view them narrowly. See China Minmetals, 334 F.3d
at 283.
In Yusuf Ahmed Alghanim & Son, W.L.L. v. Toys “R”
Us, Inc., 126 F.3d 15 (2d Cir. 1997), the court emphasized the
limited power of review granted to district courts under the
Convention. The court examined the distinction between
awards rendered in the same nation as the site of the arbitral
proceeding and those rendered in a foreign country. The court
concluded that more flexibility was available when the
arbitration site and the site of the confirmation proceeding were
within the same jurisdiction.
Id. at 22-23. However, “the
[C]onvention is equally clear that when an action for
enforcement is brought in a foreign state, the state may refuse to
enforce the award only on the grounds explicitly set forth in
Article V of the Convention.”
Id. at 23.
Yusuf observed, “[T]here is now considerable caselaw
holding that, in an action to confirm an award rendered in, or
under the law of, a foreign jurisdiction, the grounds for relief
14
enumerated in Article V of the Convention are the only grounds
available for setting aside an arbitral award.” Id. at 20. Thus,
mistake of fact and manifest disregard of the law do not justify
setting aside an award.
Id. (citing M&C Corp. v. Erwin Behr
GmbH & Co., KG,
87 F.3d 844, 851 (6th Cir. 1996).
In the same vein, in Parsons & Whittemore Overseas Co.,
Inc. v. Societe Generale de L’Industrie du Papier (RAKTA), 508
F.2d 969 (2d Cir. 1974), the Court of Appeals reviewed the
grounds for refusal contained in the Convention and said that the
public policy defense is available “only where enforcement
would violate the forum state’s most basic notions of morality
and justice.”
Id. at 974. Similarly, the court noted that an award
cannot be enforced under the Convention where it is “predicated
on a subject matter outside the arbitrator’s jurisdiction,” but the
Convention does not “sanction second-guessing the arbitrator’s
construction of the parties’ agreement.”
Id. at 977.
Parsons & Whittemore’s adhered to a close reading of an
arbitral award’s text, but the court considered, on its merits, a
party’s contention that the judgment contained an arithmetical
error. Id. at 978. The plaintiff contended that the district court
had failed to include in its judgment the amount of $4,750 due
from the defendant for arbitration expenses. The Court of
Appeals concluded that the sum was payable to the arbitration
panel, not to the plaintiff and, hence, the district court’s
judgment was correct. The opinion did not quote the text of the
underlying award but conceded that the plaintiff, having paid
more than its share of the expenses, was entitled to a partial
refund. Nonetheless, the district court’s order did not award the
$4,750 to the plaintiff. The Court of Appeals discounted mere
15
oversight and said “we find that this exclusion reflects the most
plausible interpretation of [the defendant’s] liability to [the
plaintiff] and therefore decline to amend the judgment upward
by $4,750.” Id. at 978. The Court of Appeals thus recognized
a district court’s right to interpret or clarify the terms of the
arbitral award.
A somewhat similar situation arose in Ministry of
Defense of the Islamic Republic of Iran v. Gould, Inc., 969 F.2d
764 (9th Cir. 1992). In that case, Iran received an award of $3.6
million and, in addition, the arbitrators directed that defendant
“‘make available’ to Iran certain communications equipment in
the possession of [the defendant].”
Id. at 767.
The district court confirmed the award, but its order
relieved the defendant of the obligation to transfer the
communication equipment because doing so would violate
United States’ export restrictions. While the appeal to the Court
of Appeals for the Ninth Circuit was pending, the United States
Department of State, as amicus, suggested that the matter might
be resolved by making the equipment available to Iran at a
warehouse in the United States. Iran could then sell the
equipment to a buyer who could lawfully use or export it. Id. at
773.
The Gould court observed that “it is unclear whether a
plan that essentially amounts to selling the equipment and giving
over the proceeds to Iran would actually fulfill the terms of the
award, which lists particular pieces of equipment that must be
‘made available’ to Iran.” Id. at 773. The court expressed “no
views at [that] time on the legality” under the Convention of the
16
district court’s orders concerning “specific performance of the
award, or on whether the State Department’s proposal is
consistent with federal law or fulfills the terms of the award.”
Id. at 773-74.
Nonetheless, the court remanded the case to the district
court for resolution of factual issues raised by the State
Department’s proposal and other regulatory matters. The Gould
court’s action is significant in that it required that the district
court consider the State Department’s proposal – a distinct
modification of the award. If the Court of Appeals had
concluded that any alteration to the terms of the Award was
prohibited, there would have been no basis for a remand.
Gould and Parsons & Whittemore indicate that there is a
distinction between the substance of a foreign arbitral award and
its execution. The Convention uses the term “enforcement,” but
does not mention execution on a judgment, a process that would
generally be governed by the law of the confirmation forum.
Gould and Parsons & Whittemore did not give the arbitrator’s
decisions a brittle rigidity but found some flexibility to modify
execution of an award without altering its substance. That
leeway, however, is very small and is available only in limited
circumstances so as not to interfere with the Convention’s clear
preference for confirmation of awards.
With these considerations in the background, we proceed
to the text of the Award in this case which reads in pertinent
part:
17
“2. The counterclaim [of Admart] is admitted in
the following manner:
a. [Birch] is ordered to pay
[Admart] within 30 days from the
receipt of the Award USD
2,000,000. – plus interest at 4.5%
p.a. non-compound from 1 January
1992 to the date of the Award and
at 6.5% p.a. non-compound from
the date of the Award,
simultaneously with [Admart]
– releasing to [Birch] the containers
as per Annex 1 containing the
“Luna Luna” objects, in their
present state at their present
location in Vienna,
– releasing to [Birch] the Artists’
Declaration as per Annex 2 in
Vienna.
– releasing to [Birch] the technical
documentation (“passports”) for
“Luna Luna” in Vienna.
b. [Birch] is ordered to pay to
[Admart] after termination of the
on site construction, and the project
is completely set up, but not later
18
than within 8 months from the
receipt of the Award USD
1,000,000. – plus interest at 4.5%
p.a. non-compound from 1 April
1992 to the date of the Award and
at 6.5% p.a. non-compound from
the date of the Award.
Against this payment a set-off is allowable only
for [sic] amount for which on the due date a claim
by [Birch] is pending in another arbitration.
3. After 35 days from the date of receipt of the
Award, [Admart is] authorized to deposit, the
items described in No. 2 a. above, at [Birch’s] risk
and expense, with a third party storage company
in the Vienna area. Upon such deposit, the
payment as per No. 2 a. above becomes due and
payable immediately and unconditionally.”3
The District Court judgment confirming the Award was
consistent with its substance, that is, Birch was required to pay
for the art and Admart was required to transfer possession.
Some of the terms of execution of the Award in the District
Court’s order, however, varied from those set out by the
arbitrators. The passage of ten years from the rendition of the
Award and the date of the District Court’s confirmation order
understandably necessitated some deviation from the original
3
The Award also required Birch to pay for storage costs,
arbitration costs, fees and interest.
19
terms of execution. Any modification, however, should adhere
as closely to the text of the Award as feasible.
The Award provided two options for performance; the
first was effective for thirty days after the Award and provided
for simultaneous exchange of $2 million and the artwork in its
then condition along with its supporting documentation. In
addition, $1 million would be due to Admart eight months after
Birch had set up the artwork. At the time of the Award, Luna
Luna was expected to be set up in an amusement park leased by
Birch in San Diego. A set-off against the $1 million was to be
permitted at that point against a possible claim submitted by
Birch if another arbitration was pending.
The Award’s second alternative would come into effect
thirty-five days after rendition on which date Admart was
authorized to deposit the artwork and documentation with a
storage company in Vienna at Birch’s expense. Upon such
deposit, the $2 million payment became due and payable. The
$1 million hold back and set-off also applied if this alternative
was pursued. Under both options, the Award provided Birch a
potential set-off.
One of the principal aims of arbitration is reducing the
delay in resolving disputes. As the Parsons & Whittemore court
pointed out, “‘Extensive judicial review frustrates the basic
purpose of arbitration, which is to dispose of disputes quickly
and avoid the expense and delay of extended court
proceedings.’” Parsons & Whittemore, 508 F.2d at 977 (quoting
Saxis Steamship Co. v. Multifacs International Traders, Inc.,
375 F.2d 577, 582 (2d Cir. 1967)).
20
The Award’s provision for simultaneous exchange within
thirty days was an obvious encouragement to the parties to
resolve their dispute promptly. That incentive is even more
desirable now, after ten years of international bickering. No
advantage to either party exists at this stage in the Award’s
second option of storage with delay in payment.
We see no reason why the concurrent exchange should
not now be directed to take place, rather than allowing a twenty-
four hour interval between payment and transfer as directed by
the District Court. That modification of the Award serves no
apparent purpose and it is appropriate to adhere to the original
text whenever possible. We will modify the District Court’s
order to delete the twenty-four hour provision.
The holdback of $1 million, an expedient that is present
in the original sales agreement, was intended to address the
possibility that the artwork might suffer physical damage before
completion of set up in California. The record does not reveal
whether, after the long delay here, Birch intends to, or has
facilities available to, set up Luna Luna in San Diego as
originally contemplated. The arbitrators use of that eventuality
is no longer an appropriate benchmark for performance.
The Award did provide for an alternative that is presently
viable, an additional arbitration proceeding which might give
Birch a right of set-off. Admart has conceded that some items
of the artwork have been damaged, destroyed or are missing.
Birch’s second arbitration seeks compensation for this injury
and other losses caused by the delay. Whether there will be a
21
set-off and the amount, if any, cannot be determined until an
award is rendered.4
In the circumstances here, we conclude that the District
Court’s confirmation order should have adhered more closely to
the Award and provided for the holdback of $1 million even
though the initial eight month period had expired. We leave to
the arbitrators any claims for damage to the pieces of art. It is
appropriate to postpone payment of all or a portion of the
holdback until such time as an award determines whether Birch
is entitled to a set-off and, if it is, in what amount.
We also modify the District Court’s order to provide that
in addition to the artwork itself, the documentation consisting of
the artists’ declarations and “passports” should also be
transferred to Birch. The parties have not challenged the
assessment for interest, storage fees and arbitration costs and we
accept the District Court’s computation for these items.
We will modify the District Court’s order of October 6,
2004 as follows:
“1. The Stephen and Mary Birch Foundation
is required to pay plaintiffs
4
We note that much of the controversy between the parties
might have been resolved had Admart, although not legally
bound to do so, permitted Birch to inspect the property.
22
$4,941,045.91,5 plus the interest that sum
has earned between May 31, 2004 and the
date the money is paid to the plaintiffs. In
addition, Birch will pay storage charges
from May 31, 2004 to the date of transfer.
2. The parties shall simultaneously exchange
in Vienna [on a date to be set by the
District Court] the payment described in
paragraph 1 and the property constituting
Luna Luna, including the artwork and the
documentation consisting of the artists’
declarations and the technical
documentation (“passports”).
3. The Stephen and Mary Birch Foundation
is required to pay $1 million to the
plaintiffs which shall be set off against any
award by the arbitration panel constituted
in 2004. Interest on the net amount shall
be payable as per the formulation used in
the Court’s Order of October 6, 2004. The
total sum described in this paragraph 3
shall be due within thirty days of the date
of the arbitrators’ award. In the interim,
5
The District Court ordered Birch to pay $5,562,818.19. We
revise that figure to account for the $1 million hold back. As of
May 31, 2004, $621.73 of interest had accumulated on the
holdback amount. We subtracted the holdback plus interest
from the amount set out in the District Court’s order.
23
the Stephen and Mary Birch Foundation
shall continue to ensure that Thierry Ador
maintains the interest bearing accounts
described in his affidavit of April 29,
2004.”
We remind the parties that they have submitted
themselves to the jurisdiction of the United States District Court
for the District of Delaware. Accordingly, failure to follow the
orders of the District Court may submit them to sanctions for
contempt of court. This dispute has been unduly prolonged by
the recalcitrance of the parties and must come to an end.
The Judgment of the District Court will be affirmed with
modifications in the Order of October 6, 2004.
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