UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
VEOLIA ES SPECIAL SERVICES, INC.,
Case No. 13-C-63
PILGRIM INVESTMENTS, LLC,
SCOTT SMET AND CHAD SMET,
DECISION AND ORDER
Plaintiff Veolia ES Special Services, Inc. filed this action under the Federal Arbitration Act
(FAA), 9 U.S.C. § 1 et. seq., seeking to confirm an arbitration award and to enforce the award
against Defendant Pilgrim Investments LLC as well as Pilgrim’s two individual owners. Presently
before me are the Defendants’ partial motion to dismiss and a motion to modify the arbitration
award. For the reasons given below, the motion to dismiss will be granted and the motion to modify
will be denied.
The dispute arose over a vessel charter agreement entered into between Pilgrim and Veolia.
Veolia chartered a vessel from Pilgrim for a period of 60 months, after which it would have the
option to buy the vessel for $10,000. On or around the close of the 60-month charter period, Veolia
contended that it had paid the $10,000 and was entitled to receive title to the vessel. Pilgrim argued
that the charter agreement required payment by a certain date, and Veolia’s attempt to exercise its
option was tardy. The matter was submitted to arbitration, and a panel ruled in Veolia’s favor and
required that title be turned over to Veolia. The panel also awarded $505,000 in damages and
$150,000 in attorney’s fees.
Case 1:13-cv-00063-WCG Filed 07/30/13 Page 1 of 9 Document 22
Veolia asserts that the Smets, who are the sole owners of Pilgrim, have stated that Pilgrim
has no funds from which to satisfy the damages and fee award. Thus, in addition to seeking
confirmation of the award against Pilgrim, Veolia also seeks to establish liability on the part of the
Smets, alleging fraudulent transfer, improper distribution and alter ego theories, which arise under
state law. The Smets seek to dismiss the claims against them on the ground that they were not
personally named in the arbitration proceedings. They also assert that the claims fail to state a claim
upon which relief may be granted. In addition, the Defendants move to modify the arbitration
award, citing what in their view is a mathematical or calculation error on the part of the arbitrators.
I. Claims Against the Smets
The only parties to the vessel charter were Veolia and Pilgrim, and the award was entered
against Pilgrim. The Smets were neither a party to the charter nor the arbitration itself. As such,
the Smets argue that it would be premature to entertain any claims against themselves when the
award against Pilgrim has not even been confirmed yet. Citing Orion Shipping & Trading Co. v.
Eastern States Petroleum Corp. of Panama, S.A., they argue that an “action to confirm the
arbitrator’s award cannot be employed as a substitute” for an alter ego claim. 312 F.2d 299, 301
(2d. Cir. 1963).
Orion held that a court should not consider alter ego liability in the same breath as a
confirmation of an arbitration award. “This action [to confirm an award] is one where the judge's
powers are narrowly circumscribed and best exercised with expedition. It would unduly complicate
and protract the proceeding were the court to be confronted with a potentially voluminous record
setting out details of the corporate relationship between a party bound by an arbitration award and
Case 1:13-cv-00063-WCG Filed 07/30/13 Page 2 of 9 Document 22
its purported ‘alter ego.’” Id. Veolia argues, however, that its confirmation claim is simply one part
of its lawsuit. In Orion, there was a single claim to confirm an award against a non-party to the
arbitration. Here, by contrast, Veolia brought its confirmation claim only against Pilgrim, the party
to the arbitration, and then brought separate claims against the individual non-party defendants.
It thus is not seeking to “confirm” the award against a non-party but to confirm the award against
the proper party and then subsequently to enforce that award against the non-parties through alter
ego, fraud and other theories. Even Orion observed that there was no bar on bringing other actions
to enforce arbitration awards; it was merely deemed improper to do so in the context of an
enforcement action. Veolia’s method in effect saves a step and obviates the need to file a second
Veolia’s strongest argument is that Orion did not exactly address the scenario we have here,
where the party seeking to confirm the award has pled separate claims that have the same effect as
the filing of a separate action. At least one unpublished case has recognized that distinction:
If this were merely an action to confirm the arbitration award, its attempt to impose
liability on the defendants other than Hanan would have to be dismissed under
Orion. However, plaintiff's complaint specifies two grounds for subject matter
jurisdiction: Federal Arbitration Act, Title 9 U.S.C. and 28 U.S.C. § 1333 (general
admiralty and maritime jurisdiction). This action could thus be construed as a
separate action to enforce the arbitration award against nonparties to the arbitration.
Sea Eagle Maritime, Ltd. v. Hanan Int'l, Inc., 1985 WL 3828, *2 (S.D.N.Y. 1985).
Under this line of reasoning, I would distinguish Orion by finding the claims against non-
parties to be, in effect, a separate lawsuit. Why require the formality of filing a separate lawsuit
(which Orion acknowledges) when all claims can be sorted out in a single action? But while this
approach has some ostensible attraction, I am not satisfied that it would meet with controlling
Case 1:13-cv-00063-WCG Filed 07/30/13 Page 3 of 9 Document 22
According to the complaint, Veolia is a corporation organized under Wisconsin law with
a principal place of business in Texas. Both individual Defendants are Wisconsin citizens, and thus
their LLC is deemed a Wisconsin citizen as well. Because all parties are Wisconsin citizens, there
is no independent basis for subject matter jurisdiction over the state law claims brought against the
individual Defendants. (The court has original admiralty jurisdiction over the confirmation of the
arbitration award under 28 U.S.C. § 1333.)
Recognizing the absence of an independent jurisdictional basis for the state law claims, the
complaint cites the supplemental jurisdiction statute, 28 U.S.C. § 1367. That statute allows federal
courts to entertain claims when jurisdiction would otherwise be lacking if the claims are “so related
to the claims in the action with such original jurisdiction that they form part of the same case or
controversy under Article III of the United States Constitution.” 28 U.S.C. § 1367(a). Part of the
spirit animating Orion was the idea that a confirmation action is itself a simple undertaking because
in the vast majority of cases the heavy lifting has (by design) been done by the arbitrators. Because
state law claims alleging alter ego theories and the like are a different animal entirely, they should
not bog down an otherwise simple confirmation action. Orion was not a jurisdiction case, but
implicit in its analysis is the idea that claims to collect an award are different than claims to confirm
an award. If this is true, then it is unlikely that such claims are so intertwined with the confirmation
claim that they form part of the same case or controversy.
I am not satisfied that this Court would have supplemental jurisdiction over the state law
claims because they involve different legal theories and facts than the more straightforward
confirmation claim. It is therefore difficult to conclude that they are “so related . . . that they form
part of the same case or controversy.” 28 U.S.C. § 1367(a). The collection claims will involve the
Case 1:13-cv-00063-WCG Filed 07/30/13 Page 4 of 9 Document 22
application of state law to the individual Defendants’ conduct of their LLC and whether they made
proper distributions or fraudulent transfers. By contrast, the confirmation claim merely looks at the
arbitration award under the deferential standard provided in the FAA. The claims in fact have little
factual or legal nexus at all.
Even if this Court could hear the claims, I would decline to do so under § 1367(c)(2), which
provides that district courts may decline jurisdiction when the claim “substantially predominates
over the claim . . . over which the district court has original jurisdiction.” 28 U.S.C. § 1367(c)(2).
That is what would occur here under Veolia’s approach. In essence, in this action the state law
claims (alter ego, fraudulent transfer, and wrongful distribution) would predominate, and
§ 1367(c)(2) suggests that the tail of supplemental jurisdiction should not wag the dog of original
jurisdiction. Moreover, once the federal claim was decided, the normal practice would be to dismiss
the remaining state claims without prejudice in any event. See 28 U.S.C. § 1367(c)(3); see also
Payne for Hicks v. Churchich, 161 F.3d 1030, 1043 (7th Cir. 1998) (“Indeed, when the district court
dismisses all federal claims before trial, the usual and preferred course is to remand the state claims
to the state court unless there are countervailing considerations.”). Thus, even if I retained
jurisdiction now, it would likely be only until the federal confirmation claim was decided.
It is tempting to conclude that a single court could be a “one stop shop” both to confirm an
award and to enforce it against individuals, and in some cases that might be a viable approach. But
here, given that the collection claims rest on shaky jurisdictional grounds, I conclude that such
claims should be brought in a separate proceeding. Granting the defendants’ motion for partial
dismissal is therefore likely to avoid uncertainty and save time.
I recognize that the jurisdictional grounds for my ruling are somewhat different than the
Orion argument the Defendants make. Courts are required to independently police their own
subject matter jurisdiction, however.
Case 1:13-cv-00063-WCG Filed 07/30/13 Page 5 of 9 Document 22
II. Motion to Modify the Award
In addition to their partial motion to dismiss, the Defendants move to modify the arbitration
award due to what they describe as a miscalculation of figures. The FAA allows courts to modify
or correct an award “where there was an evident material miscalculation of figures or an evident
material mistake in the description of any person, thing, or property referred to in the award.” 9
U.S.C. § 11.
Some brief background is required to understand the claim. The charter was to expire on
January 31, 2011, but the arbitration panel concluded that it did not expire due to Veolia’s continued
monthly payments in February and March 2011, which payments were evidently made in error. But
those continued payments effectively extended the charter and thereby also extended the period
during which Veolia could have exercised its $10,000 option to buy the vessel.
The Defendants disagree with the arbitrators’ conclusions but recognize that they are not
open for debate here. Instead, what they dispute is the fact that the arbitrators required them to
refund the February and March 2011 payments, as well as a prepayment, a security deposit and
payment of insurance for 2011. Their point is that it was these very payments that extended the
term of the charter and allowed Veolia to exercise its option, and thus they should not be seen as
“damages” that Veolia gets to recoup because these same payments were crucial to its success.
Otherwise, Defendants argue, Veolia is receiving a double recovery by receiving both the benefit
of its extended payments (the ability to exercise the option) plus a refund of those same payments.
It should not work both ways.
Under 9 U.S.C. § 12, a motion to modify an arbitration award must be served within three
months of the award being filed or delivered. Here, the final award was delivered on November 7,
Case 1:13-cv-00063-WCG Filed 07/30/13 Page 6 of 9 Document 22
2012, and the motion to modify was served on March 25, 2013—roughly seven weeks too late under
The Defendants believe the motion to modify was timely because it is, in effect, a
compulsory counterclaim to the filing of the confirmation action itself. This action was filed on
January 17, 2013 (within the three months provided by 9 U.S.C. § 12), and in the Defendants’ view
the timely filing of this action tolled their limitation period for filing their motion to modify.
Even if the statute of limitations is tolled by compulsory counterclaims, the Defendants’
argument is foreclosed by binding Seventh Circuit precedent. In Int’l Union of Operating
Engineers, Local No. 841 v. Murphy Co., the Seventh Circuit rejected a company’s attempt to
challenge an arbitration award outside the three-month period. 82 F.3d 185, 188 (7th Cir. 1996).
The Seventh Circuit rejected the compulsory counterclaim tolling theory, concluding that “[o]nce
the three-month limitation period expired, Murphy was precluded from advancing as defenses to
the Union's confirmation action arguments . . . that it could have asserted in conjunction with a
timely motion to vacate, modify or correct the award.” In so ruling, the Seventh Circuit cited a
Second Circuit case holding that Section 12 precludes “a motion to vacate, modify, or correct an
arbitration award after the three month period has run, even when raised as a defense to a motion
to confirm.” Id. (citing Florasynth, Inc. v. Pickholz, 750 F.2d 171, 174–75 (2d Cir.1984)). The
Florasynth case explains at some length why a motion to vacate is not similar to a compulsory
counterclaim, and why it must be filed within three months or not at all. In short, a confirmation
action is a summary proceeding that does not generate “counterclaims” in the traditional sense;
confirmation is not even pursued in a great number of cases because the arbitration award may stand
on its own. Given the deferential level of review, and that the purpose of arbitration is to obtain
Case 1:13-cv-00063-WCG Filed 07/30/13 Page 7 of 9 Document 22
swift results, a motion questioning the validity of the award must be made quickly, regardless of
when (or whether) confirmation is ever sought. Id. at 176-77. “When the three month limitations
period has run without vacation of the arbitration award, the successful party has a right to assume
the award is valid and untainted, and to obtain its confirmation in a summary proceeding.” Id. at
The point of Murphy and Florasynth is that any challenge to the validity of an award is not
the flip-side of a motion to confirm. Whether and when a party brings an application seeking
confirmation of an arbitration award has no relationship with any challenge that might be made to
the award, and so it makes no sense to tie § 12's statute of limitations to the filing of a confirmation
action. This is borne out by the situation in this case. Here, it is merely happenstance that Veolia
sought confirmation of its award, and that it did so within the three month period that Pilgrim had
to challenge the award. It could have waited another three months or longer (the statute gives it a
year) or not filed any action at all. Its own conduct does not control the statute of limitations for any
challenge its opponent might bring, or else it would find itself punished simply because it filed an
action to confirm the award in a timely fashion. The challenge to the ruling is not an answer, or a
compulsory counterclaim, but a separate undertaking altogether. The statute, and the courts, have
required such a motion to be brought within three months, and here it was brought too late.
In sum, I conclude that I do not have subject matter jurisdiction over the state law claims
against the individual Defendants. The motion to dismiss (ECF No. 14) is therefore GRANTED,
and these claims are therefore DISMISSED without prejudice to their being brought in state court.
Case 1:13-cv-00063-WCG Filed 07/30/13 Page 8 of 9 Document 22
The motion to modify the award (ECF No. 15) is DENIED. The motion to file a sur-reply is
DENIED. The Clerk is directed to set this matter on the court’s calendar for a status conference
within the next ten days. The parties may appear by telephone.
SO ORDERED this 30th day of July, 2013.
s/ William C. Griesbach
William C. Griesbach, Chief Judge
United States District Court
Case 1:13-cv-00063-WCG Filed 07/30/13 Page 9 of 9 Document 22