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Lawyers and other representatives

Final Award

WE, THE UNDERSIGNED ARBITRATORS, having been designated in accordance with an arbitration agreement entered into by the above-named Parties and dated June 21, 2006, and amended December 11, 2007, and having issued Interim Measures Award dated September 1, 2010 and having been duly sworn, and having heard the proofs and allegations of the Parties, DO HEREBY FIND and AWARD as follows.

I. The Parties, Counsel and Arbitrators

The Claimant in this arbitration is Celestial Airways Limited ("Celestial"), formerly known as Legatum Aviation Limited ("Legatum"), a company organized under the laws of the British Virgin Islands. Celestial is represented in this arbitration by Akin Gump Strauss Hauer & Feld LLP, 1700 Pacific Ave., Suite 4100, Dallas, Texas 75291, and by Bailey & Partners, 2800 28th St., Suite 200, Santa Monica CA 90405.
The Respondents are Associated Air Center, L.P., a limited partnership organized under the laws of the State of Texas, and DAE Aviation Holdings, Inc., a corporation organized under the laws of the State of Delaware (collectively, "AAC"). AAC is represented by DLA Piper LLP (US), 2525 East Camelback Road, Suite 1000, Phoenix, AZ 85016-4232.
The arbitrators are:

James H. Carter, Esq. (Chairman)
Wilmer Cutler Pickering Hale and Dorr LLP
399 Park Avenue
New York, NY 10022

William C. Brown, III, Esq.
Jones Hirsch Connors & Bull P.C.
1 Battery Park Plaza, 28th Floor
New York, NY 10004

Stephen P. Younger, Esq.
Patterson Belknap Webb & Tyler LLP
1133 Avenue of the Americas
New York, NY 10036

II. Governing Law and Arbitration Agreement

The governing law provision and arbitration agreement are contained in Paragraphs 26(a) and (b) of a Maintenance/Modification Agreement (the "MMA") entered into by Associated Air Center, L.P. and Legatum dated as of June 21, 2006, which provided for certain installation and modification work to be performed for Legatum by AAC on a Boeing 757-23N aircraft (the "Aircraft") in return for payment of an original contract price of S27,958,050. Those paragraphs state:

(a) This Agreement shall be governed and construed in accordance with law of the State of New York including section 5-1401 of the New York General Obligations Law but excluding any other conflict of law rules that would lead to the application of the law of another jurisdiction.

(b) Any controversy or claim arising out of or relating to this Agreement, or breach thereof, shall be determined by arbitration administered by the American Arbitration Association (the "AAA") in accordance with its International Arbitration Rules. The place of arbitration shall be New York, New York, United States. The language of the arbitration shall be English. The arbitrators shall be three. AAC and the Client shall each appoint one arbitrator and the two arbitrators shall select the third arbitrator, who will act as the presiding arbitrator. If either AAC or the Client fails to appoint an arbitrator within 45 days of commencement of the arbitration, the AAA shall appoint the arbitrator upon written request of either AAC or the Client. Within 30 days of appointment of the two arbitrators, if the arbitrators have failed to agree on the appointment of the third arbitrator, the AAA shall appoint the third arbitrator upon written request of any party to the arbitration. ACC and the Client shall submit to the non-exclusive jurisdiction of any New York State court or Federal court sitting in the City and County of New York for the purpose of enforcement of any arbitral award and waive any defenses to the lack of convenience of proceedings brought in these courts for this purpose.

DAE Aviation Holdings, Inc. became the corporate parent of Associated Air Center, L.P. in 2007, after the MMA was entered into, and became a party to the MMA as a party to a Letter Agreement amending and restating the MMA dated December 11, 2007 (the "Letter Agreement").

III. Procedural History

Celestial commenced the arbitration by filing a Demand and Statement of Claim on July 31, 2009. That pleading eventually was superseded by Celestial’s Second Amended Demand in Arbitration and Statement of Claim, submitted February 15, 2011. It alleges that AAC breached the MMA and was negligent in providing the contracted services; failed to surrender possession to Celestial of certain intellectual property and technical data required to complete work on the Aircraft; and made false and material misstatements to Celestial concerning AAC’s ability to complete the work required by the MMA.
AAC submitted a Response to Celestial’s Second Amended Demand and a Counterclaim on March 18, 2011. The Response denies all claims, and the Counterclaim alleges that Celestial has failed to pay amounts due under the MMA of "not less than $6 million."
Promptly after completion of the formation of the arbitral Tribunal, the Tribunal and Parties participated in a telephonic Preliminary Hearing on April 6, 2010, and a schedule and case management plan thereafter was agreed in a further conference call on April 27, 2010. At that time, the merits hearing was scheduled to begin January 31,2011.
On July 20, 2010 Celestial submitted a Request for Interim Relief directed to certain technical documentation and intellectual property listed in Exhibit E of the MMA, described as the "IP Work Product," which was needed for completion of work on the Aircraft by another contractor to be employed by Celestial. Following briefing and oral argument, the Tribunal entered an Interim Measures Award on September 1, 2010 directing that AAC provide Celestial or its designated contractor access to or possession of all IP Work Product on condition that Celestial provide a letter of credit or bond in the amount of $6 million as provided in the Interim Measures Award.
On October 5, 2010 AAC submitted a Request for Reconsideration of the Interim Measures Award, which the Tribunal denied as untimely, pursuant to Article 30 of the ICDR International Arbitration Rules, on October 25, 2010 in Procedural Order No. 4.
The Parties were unable to agree on the form of security for the $6 million letter of credit or bond required by the Interim Measures Award. After briefing and oral argument at a telephonic conference on November 15, 2010, the Tribunal entered Procedural Order No. 5 directing the form of security to be posted on November 29, 2010.
Those measures did not resolve the matter of compliance with the Interim Measures Award. Celestial entered into the required Escrow Agreement and deposited $6 million as the Escrow Deposit, but AAC maintained that those steps did not constitute compliance with Procedural Order No, 5, and AAC continued to refuse to produce the IP Work Product. The Tribunal overruled AAC’s objections on December 15, 2010 in Procedural Order No. 7 and granted Celestial’s Motion to Compel Production. The Order stated (Paragraph 9): "AAC is directed to produce the IP Work Product now, in accordance with Procedural Order No. 5."
As a result of discovery delays, the Parties proposed and the Tribunal agreed to postpone the commencement of the merits hearing in the case from January 31, 2011 to June 14, 2011. On April 28, 2011 AAC submitted an application to postpone the hearing further. The Panel resolved outstanding discovery issues in Procedural Order No. 9 and denied the request for a postponement.
The Parties thereafter agreed to reschedule the hearing to commence August 22, 2011. The Parties continued with discovery, and the Tribunal ruled on various discovery disputes. On August 18, 2011 counsel for Celestial advised that three of its witnesses would not be available the first week of the hearing, when it had been expected that they would be present for cross examination. The Tribunal directed that Celestial submit written statements from each of the witnesses setting forth specific reasons for these scheduling problems, which they did. The merits hearing then commenced on August 22, 2011 and continued on August 23, 24, 25, 26, 30 and 31 and September 1 and 2, 2011. Hearing time was shortened due to the approach of a hurricane in the New York area and difficulties in scheduling certain Celestial witnesses. A continued hearing solely to complete the cross-examination of witnesses based on previously submitted written witness testimony was scheduled for March 12, 13, 14 and 15, 2012.
On November 4, 2011 Celestial submitted a Motion to Compel Production of Certain Intellectual Property Work Product (the "Motion") and a Second Request for Interim Relief. The Motion sought a direction compelling AAC to comply with the September 2010 Interim Measures Award, to deliver certain physical property to Celestial and to take additional steps to facilitate Celestial’s ability to arrange for completion of work on the Aircraft by an alternative aircraft modification service company which Celestial designated, Comlux America LLC ("Comlux"). Celestial requested sanctions against AAC in the form of an award of Celestial’s attorneys’ fees and costs incurred in seeking to recover IP Work Product and physical property.
AAC maintained that it had complied with the Interim Measures Award but resisted requests that it deliver certain items of Celestial’s physical property to Celestial and resisted taking steps to assist Celestial in obtaining IP Work Product in the hands of vendors or subcontractors to AAC.
On December 6, 2011 in Procedural Order No. 15, the Tribunal directed that AAC promptly deliver to Celestial or its authorized representative the specific items of property purchased or fabricated by AAC for completion of the Aircraft that Celestial requested in its Motion.
AAC did not comply promptly with Procedural Order No. 15. On December 15, 2011 Celestial submitted a Motion to Compel delivery of the property as required in Procedural Order No. 15. At the same time, AAC submitted a request for clarification of that Order with respect to IP Work Product. The Tribunal clarified the matters in dispute by Procedural Order No. 16 on December 19, 2011.
About seven weeks later, on February 7, 2012, Celestial submitted a "Motion to Supplement its Witness Statements and Hearing Exhibit List," proposing to add new evidence based on work done by Comlux on the Aircraft subsequent to the August/September 2011 merits hearing. Celestial had first raised this issue with AAC on January 6, 2012, and AAC had objected to the addition of evidence based on activities of which it had no knowledge. However, Celestial delayed for an additional month before bringing the matter to the attention of the Tribunal.
The Tribunal denied Celestial’s Motion to Supplement the Record on February 14, 2012 in Procedural Order No. 17 because, in the Tribunal’s view, to admit the new evidence under the circumstances would deny AAC an adequate opportunity to present its case. Celestial had not offered AAC an opportunity for its representatives to observe the work that led to development of the proposed new evidence, and Celestial’s offer of an after-the-fact inspection on the eve of conclusion of hearings was insufficient to make up for this.
The merits hearing was resumed on March 12, 2012, continued on March 13, 14 and 15 and concluded at that time. The Parties thereafter filed post-hearing memorials and presented closing oral argument on April 25, 2012, following which the record was closed. Neither Party objected to the independence or impartiality of the Arbitrators at any time during the proceedings.

IV. Relevant Facts

Beginning in 2005 Christopher Chandler, in conjunction with his Chief Pilot Rodney Cook, investigated possible purchase and modification of a commercial aircraft to serve primarily as personal transportation for Mr. Chandler and his family. Mr. Cook’s investigation included discussions at that time with representatives of AAC, the operator of an aircraft completion center at Love Field in Dallas, Texas, which he and Mr. Chandler were considering as potential provider of modification services to create a "VIP" or "VVIP" custom interior for the aircraft to be purchased.
Mr. Chandler and Mr. Cook thereafter decided to purchase the Aircraft, which had been used as a commercial airliner by ATA Airlines and now is owned by Wells Fargo Bank held in trust for Talos Aviation Ltd. ("Talos"). Talos purchased the Aircraft from its prior owner, FINOVA Capital Corp. for $17,700,000. Talos contracted with Celestial to provide management services, including overseeing modification of the Aircraft.
Celestial (then named Legatum) and AAC entered into the June 2006 MMA, which provided for AAC to perform installations on and modifications to the Aircraft. The MMA included as Exhibit E a Preliminary Custom Interior Completion Specification, later revised as the final Custom Interior Completion Specification dated August 5, 2007 (the "Specification"), which was the result of extensive consultation between Celestial and AAC representatives and described in detail aspects of the work to be performed by AAC. The MMA also included a "Scheduled Redelivery Date" of December 21, 2007 (later extended to February 8, 2008), by which date AAC was to deliver the completed Aircraft to Celestial.
Before AAC could begin work on the Aircraft, Celestial arranged for certain interior and exterior modifications to be made by other contractors, including removal of the commercial airline interior and addition of a new cockpit, with new avionics, winglets and a new metal "skin" to replace the original outer surface of the Aircraft. Celestial also arranged for purchase of "PATS" auxiliary fuel tanks, designed to augment the flying range of the Aircraft, which were to be installed later. The Aircraft was delivered temporarily to AAC for about one month in the fall of 2006 for preliminary inspection before this work by other contractors was done, and the Aircraft was delivered for commencement of AAC’s work on March 1, 2007.

A. Contract Provisions Governing Timing of Completion and Redelivery

In 2006 and 2007 AAC was increasing the volume of aircraft modification work it was undertaking, a fact that was not disclosed to Celestial and that Celestial alleges stretched AAC’s engineering and other staff resources thin and led to delays in completion of work as originally contemplated in the MMA.
Ownership of AAC changed in 2007, as noted above, when DAE became the parent company of AAC. Thereafter, AAC, DAE and Celestial entered into the December 11, 2007 Letter Agreement that, among other things, extended the Redelivery Date for the Aircraft to October 20, 2008. It stated that "The parties hereto agree that time is of the essence for the completion of the Work" and that "AAC and DAE agree to prioritize the Aircraft until Redelivery." AAC agreed to "manage its staffing and resourcing in a manner which is necessary to ensure that it is reasonably expected to complete the Work in accordance with" a detailed agreed schedule; to "continuously monitor the performance of the Work in relation to the Schedule"; to provide Celestial with prompt notice of "any delays or deviations," and to assign a Project Manager or his delegated representative to meet weekly with Celestial "to discuss the status of the Work and whether there are any deviations from" the "agreed schedule."
In addition, in recognition of delays that had occurred, the Letter Agreement established a credit to Celestial of $670,080 against outstanding AAC invoices as "full payment of all liquidated damages" owed to Celestial under the original MMA for delays. The Letter Agreement went on to deal with any future delays by providing for a credit or payment by AAC to Celestial if AAC missed the deadline for any of three designated remaining Work Stages, one of which was the Redelivery date, in the amount of $200,000 per Work Stage. The Letter Agreement stated that liquidated damages in that amount would "constitute the full amount of damages which the Client shall be entitled to recover from AAC as a result of a delay in completion of the Work."

B. Contract Provisions Governing Aircraft Weight

The weight of an aircraft is very important to its owners and operators because the weight limits the aircraft’s flying range. Representatives of Celestial and AAC discussed weight as an issue in the work to be done on the Aircraft selected by Mr. Chandler and Mr. Cook because of the range they desired for the Aircraft when completed and the relative complexity of the interior design that Mr. Chandler selected. The Specification on which they agreed stated, "Notwithstanding the aesthetic, acoustic, durability and maintainability requirements defined elsewhere in this specification, the finished Aircraft weight is a primary consideration by AAC in the design, fabrication and installation of the interior completion components."
The MMA did not specify a precise weight limit for the completed Aircraft or for its interior fittings. Section 3.4.1, headed "Weight Target," stated that Celestial was to deliver the Aircraft to AAC in a "green" aircraft configuration with its interior removed and that AAC would further "strip" the Aircraft of unnecessary items and weigh the Aircraft to establish a "Starting Empty Weight." AAC then was to "propose a weight reduction plan for customer review and approval that will allow the aircraft to be completed, with PATS tanks installed, and allow for an installed modification total weight that results in a target payload. The target payload of 1,000 lbs for passengers and passenger baggage is to be added to the sum of Aircraft Starting Weight, installed modification weight, full aircraft fuel tanks and auxiliary tanks at an agreed fuel SG, crew and crew baggage, standard catering and operational items, the total not to exceed the Aircraft AFM Maximum Ramp Weight" (emphasis in original). The Parties agree that the Aircraft AFM Maximum Ramp Weight for this Aircraft was 255,000 pounds.
In effect, however, the Weight Target provisions included a formula by which the maximum weight of the interior could be calculated: Aircraft Empty Weight + Interior Weight + Fuel Weight + Passenger and Crew Weight + Standard Catering and Operational Items = Total Weight (255,000 pounds).
Section 3.4.0 of the Specification stated that, "Notwithstanding the target weight allocation, AAC shall use due diligent efforts to reduce the actual finished weight of the completed aircraft. All systems, equipments [sic] and furnishings designed and/or installed by AAC shall be of light-weight construction and materials available that meet the objectives of good design practice, aesthetic appeal, safety and performance as set forth in the Specification."
Section 3.4.2 of the Specification called for a "Weight Accountability Program" pursuant to which, after obtaining the Aircraft Starting Weight, AAC would provide a "weight and center of gravity (CG) estimate" to Celestial and report monthly thereafter both a "current status weight" and a "forecasted final weight." That section continued: "The current status will include only accepted weight changes, if any. The forecasted status weight will also include high probability potential changes, which must be approved by both the Customer and AAC before being added to the current status weight report. The weight will be adjusted for approved configuration changes. All components and equipment installed by AAC shall be weighed at critical times and prior to installation and reported as actuals against the original estimate. These regular reports will be part of other regularly scheduled project status reports."

C. Contract Terms Referring to Quality of Work

Mr. Chandler desired a very high quality aircraft interior and contracted with a design firm to develop plans and specifications. Paragraph 3(a) of the MMA, in a section headed "Scope of Work," provided that "AAC covenants and agrees that it shall perform and complete, or cause its subcontractors to perform and complete, the Work in accordance with the highest industry standards and all applicable FAA requirements."
The term "Work" is defined as "Initial Work" plus "Additional Work" agreed by the Parties, including "all services required in connection with the modification of the Aircraft described in Exhibit E" (i.e., the Specification).
AAC warranted that the Work would be free from "Defects," which were defined (with underscoring added) as:

(a) Any inconsistency between the quality of workmanship performed by AAC, its agents, servants or contractors on the Aircraft and the quality of workmanship required by the FAA or any specifications and drawings agreed to by AAC and the Client in Exhibit E or in connection with any AWR or Non-Conforming Task Card, (b) any other inconsistency or defect in workmanship as compared to the quality required by the Client, (c) any defects in design (except for any design provided by the Client without collaboration with AAC) including selection of materials by AAC or its subcontractors, having regard to the state of art on the date of design and normal use and service or (d) any defect in the quality of any cabin furnishings, equipment, components, accessories, materials, units or parts which are made or built by AAC or its subcontractors; and "Defective" shall be construed accordingly.

D. Contract Terms Concerning Warranties and Remedies

Paragraph 18 of the MMA provides, in pertinent part:

18. Limited Warranty

(a) AAC hereby warrants, until the Warranty Expiry Date, that the Work was performed and conforms to all relevant FAA standards and is free from Defects. No warranty is given (except to the extent of any installation and workmanship provided by AAC or its subcontractors) with respect to any unit or part furnished by the Client or for any equipment, component, accessory, material, or part which is not manufactured by AAC or its subcontractors; provided that AAC has ensured (and provided Client with written evidence) that all warranties, if any, of manufacturers of such other equipment, components, accessories, and parts have been assigned to the Client. To the extent AAC receives the benefit of any warranty from a manufacturer that AAC is prohibited from assigning to Client, AAC agrees that, upon request of Client, it will diligently pursue any claims it may have under such warranty on behalf of Client. For the avoidance of doubt, AAC shall be deemed to be the manufacturer of all cabin furnishings and other units or parts which are made or built by AAC or its subcontractors.

(b) The sole and exclusive remedy and responsibility of AAC under this warranty is to correct, repair, or replace without charge to Client any article or part of the Work found by AAC after inspection to require repair or replacement under part (a) of this paragraph 18. The anticipated location for any such repair is the Love Field Facility. If such repair or replacement cannot be performed at the Love Field Facility due to location and Client’s service need of the Aircraft, or due to the unavailability of required hangar space at the Love Field Facility, AAC shall either (i) endeavor to deliver to the location of the aircraft the required replacement items or parts and appropriate personnel to perform such task at AAC expense (ii) Client and AAC shall mutually agree on a third party repair location to perform such repair and AAC shall agree with such third party the labor hours required to perform the repair and AAC shall pay the standard AAC labor rates for the negotiated hours and AAC shall supply the required replacement items or parts to such third party unless to do so would delay the repair or replacement of the Aircraft, in which case such third party or another vendor mutually agreed by the Client and AAC will supply such items or parts. AAC shall pay the cost to acquire such items or parts, up to the amount that AAC would charge on an arms length basis for the sale and delivery of the same or substantially comparable items or parts. All associated costs in addition to items or parts supplied by AAC and labor shall be the responsibility of Client; provided that the Client has advised AAC in writing of any claim prior to the later of the Warranty Expiry Date or the date which is thirty (30) days after the date of discovery of the Defect (so long as the Defect is discovered on or before the Warranty Expiry Date).

* * *



Paragraph 23 of the MMA permits either Party to terminate the contract if the other Party breaches it and fails to cure the breach within 15 days after receiving notice. That paragraph then continues, in pertinent part:

(2) Remedies

(a) In the case of termination by the Client [Celestial] (other than under [provisions not relevant here]), the Client shall be entitled to procure the completion of the Work by such third party contractor as it may in its discretion select and AAC shall be entitled to be paid for the part of the Work it completed, in an amount equal to:

(i) the Partial Work Value; less

(ii) the difference between the cost to the Client of procuring the completion of the Work by such third party contractor and the cost that the Client would have incurred had the Work been completed by AAC in accordance with this Agreement. The Client will notify AAC of that amount together with the details supporting the calculation

If the amount calculated under sub-clauses (i) and (ii) above is less than the amount paid to AAC under clause 8, AAC will repay the difference to the Client within five (5) days of being required by the Client to do so.

* * *

(d) In the event of termination of this Agreement under Clause 23(1), the party which has given valid notice to terminate this Agreement may, in its sole and absolute discretion exercise any right, power, privilege or remedy provided by applicable law of the Agreement.

(e) No remedy referred to in this Clause 23 herein or in any part of this Agreement is intended to be exclusive, but each shall be cumulative and in addition to any other legal remedy referred to above or otherwise available to either party.

(f) "Partial Work Value" means, at any time that this Agreement is terminated prior to the completion of the Work, the value of the portion of Work that has been completed by AAC as such value is determined by a firm of internationally recognized appraisers experienced in the aircraft industry and agreed by the parties. If the parties are unable to agree on one such firm of internationally recognized appraisers, each party will select one firm of internationally recognized appraisers experienced in the aircraft industry to each value the partially completed Work, and the Partial Work Value will be the average of these two values. The determination of the Partial Work Value will be conclusive and binding and its costs borne equally by the parties in respect of termination under Clauses 21(d) or 23(1)(a)(iv)), and otherwise by the defaulting party.

(g) In the event this Agreement is terminated and another facility is retained to complete the Work, AAC shall cooperate with all reasonable requests of the Client or such other facility for purposes of coordinating a smooth transfer of the Work.

E. Problems With AAC’s Work

1. Additional Delays

By December of 2007 both Parties recognized that delays were a significant problem, and Celestial contemplated the possibility of invoking a breach and contracting with a different completion center to take over work on the Aircraft. Instead, the Parties entered into the Letter Agreement to amend the MMA.
Delays in the work being done by AAC continued after the Letter Agreement, and the Aircraft was not redelivered by October 20, 2008, as had been agreed, or for many months thereafter. Celestial attributes the delay to AAC’s overcrowded schedule, loss of engineering talent and ineffective supervision of engineering work contracted out to other parties.
AAC contends that a substantial reason for the further delay was difficulty encountered in installation of the PATS auxiliary fuel tanks. Celestial contracted with AAC to provide the "touch labor" involved in the installation, but Celestial and its contractor remained responsible for the design and supply of parts needed for that work. AAC also maintains that changes in design made by Celestial contributed to the delays.

2. Weight Problems

At the time of commencement of work on Project Electra, after being stripped of its prior interior the Aircraft was weighed, and its Starting Empty Weight was heavier than had been anticipated. The interior designed by Celestial for installation was elaborate and likely to be heavy, and the Parties recognized that weight would need careful monitoring on an ongoing basis. Celestial took responsibility for the fact that the plane was overweight, but the Parties expected that the project still could be completed to stay within the target weight. The method for this was for AAC to weigh each "monument" or piece of furniture or equipment as it was placed on board for installation and to maintain a cumulative estimate of the Aircraft’s current weight by adding the individual monument weights to the beginning Aircraft weight. If the estimates built up in this way showed overall weight problems, the Parties would consider ways to trim back on the monuments yet to be added.
However, AAC did not monitor the weight of the interior components being added accurately or on a regular basis from beginning its work. AAC’s preliminary weight estimate of total installed modifications in June of 2007 was 33,185 pounds; but by July 2008 that estimate had increased by 702 pounds. On February 15, 2009 AAC reported that the estimated weight had increased by an additional 452 pounds above the preliminary estimate as a result of the weight of items installed between July 30, 2008 and February 15, 2009, for a total of 1,154 pounds excess weight. Celestial believed that this was undesirable but not likely to cause ultimate weight limit problems.
On February 21, 2009, when the Aircraft was being prepared to leave AAC’s facilities for painting, it was weighed for the first time since AAC’s work on Project Electra began, this time with most of the interior installed. That actual weight shocked Celestial by disclosing that the true weight was 2,965.8 pounds more than the last AAC estimate just six days earlier, on February 15. The Aircraft was more than 4,000 pounds heavier than AAC’s initial estimated weight.
Because this information was not available until the Aircraft was weighed on February 21, Celestial had relied on AAC’s estimates as accurate and presumably based on the actual weights of the monuments as they were installed in accordance with Section 3.4.2 of the Specification. Celestial therefore had rejected various earlier AAC suggestions that the design be modified by eliminating some monuments entirely because Celestial reasonably believed at the time that the target weight would not be exceeded in view of AAC’s presumably accurate ongoing weight estimates.

3. Quality Issues

AAC presented evidence establishing that expensive materials and expert craftsmanship were used for Project Electra and that the Aircraft interior as completed to the time when Celestial removed it for painting was strikingly beautiful. However, Celestial submitted convincing evidence that some of the work was not consistent with the Specification and was incomplete or would require reworking to be acceptable to Celestial. Celestial and its experts also maintained that haste and lack of engineering resources had caused AAC to "build heavy" rather than make special efforts to engineer components both to satisfy Celestial’s request for high quality and also to minimize weight.
Celestial complains of defects in wood finish, gold plating, the location of holes cut for decompression purposes and the quality of some of the installations. Celestial further cites missing documentation such as stress reports and burn reports that are necessary for FAA certification. AAC responds that it did not have an opportunity to complete the work and thus had no chance to address these complaints.

4. Flame Retardant

Flame retardant used by AAC eventually became a particular subject of concern. AAC’s burn testing of all of the materials used in the Aircraft interior, as required by detailed FCC regulations, lagged behind schedule, so that bum testing was being conducted on samples of many components after those fabrics and woods already had been installed. Failure to pass the bum tests could require removal of monuments, changes in materials and reinstallation, all at increased cost and with further delays.
AAC addressed this problem by deciding, without disclosing the potential consequences to Celestial, to spray the Aircraft interior with a flame retardant known as CH l 0. This product, developed by a former AAC employee, was not widely known or used in the industry at that time.

F. Celestial Removes the Aircraft for Painting

On February 26, 2009, as a result of prior agreement with AAC, Celestial removed the Aircraft from Love Field and flew it to a facility in New Iberia, Louisiana, for painting of the plane’s exterior. The Parties intended that it would be returned to Dallas for completion of Project Electra by AAC thereafter, in mid-April.
During the painting process, the Parties discussed the Aircraft overweight situation that had been discovered when the actual weight was determined on February 21, while the Aircraft was being readied for departure for painting. Celestial made a presentation to AAC expressing Celestial’s dissatisfaction with the weight situation in early March (Ex. 294), and a series of emails between the Parties followed (Ex. 300). They discussed steps that might be taken to reduce the weight, but ultimately AAC advised on March 18 that AAC intended to "complete the aircraft as currently designed" and thereafter would take steps to reduce the weight of the completed interior if and as approved by Celestial, and at Celestial’s expense, preferably after the Aircraft had been flown and tested.

G. Celestial Refuses to Return the Aircraft

Lawyers then entered the discussions. On April 6, 2009 counsel for Celestial wrote to AAC (Ex. 316) notifying AAC of alleged material breach of the MMA due to, among other things, failure to report accurately to Celestial on the Aircraft weight. The letter stated that AAC had "failed to offer any reasonable solution to the non-conformity that it created and has made no attempt to address or remedy the problem." It requested a meeting of senior Party representatives.
No meeting occurred, and the Aircraft did not return. On April 17 AAC’s President Jack Lawless wrote to Celestial, on behalf of AAC’s parent company DAE, in response to the request for assurances with respect to future performance by AAC, stating that "We intend to provide AAC with the resources and capability to perform its obligations to you under the [MMA] in connection with your Aircraft" (Ex. 5623.0975). However, AAC never retreated from its refusal to offer a solution to the weight problem or its position that post-completion corrections would require further payment by Celestial.
Shortly thereafter, Celestial determined that it would not return the Aircraft to AAC’s facilities and would instead investigate the possibilities of arranging for completion of the modifications by another aviation contractor.
At that time, $7,151,443.62 remained to be paid by Celestial under the MMA to complete contracted work on the Aircraft, including work ordered by Celestial at agreed prices beyond those in the original MMA. (Ex. 5615 at para. 19). AAC claims that it actually incurred costs exceeding $39 million on Project Electra, so that AAC operated the project at a loss.

H. Subsequent Events

Celestial did not make prompt arrangements for completion of work on the Aircraft by an alternative contractor. Celestial contends that it was unable to do so in substantial part because of delays in obtaining production of the IP Work Product from AAC that was ordered by the Tribunal. However, Celestial did not submit a first request for an order requiring AAC to produce the IP Work Product until more than a year after deciding not to return the Aircraft to AAC for completion. Without the IP Work Product, it was unclear how much of certain work done by AAC would have to be duplicated, malting it difficult for Celestial to obtain bids.
Eventually, by agreement dated August 5, 2011 (Exs. 6001, 6008), Celestial contracted with Comlux America LLC ("Comlux") for additional work to complete the Aircraft. The documentation timely submitted by Celestial in the arbitration did not include a price for the work to be done, but Mr. Chandler testified that Comlux’s bid was $18,750,000, with a potential "upside" exposure to additional charges, on a time and material basis, then estimated to range between $2 million and $6 million. (Tr. 1235).
Celestial and Comlux determined that, rather than just complete the work remaining to finish Project Electra as carried forward to that time by AAC, which initially was described as 80 to 90 percent complete (Ex. 6008; but see Ex. 357: "From weekly discussions and status report led to believe 75% complete but when opened up much had not been started... then discovered 55% complete."), it was necessary to remove much or all of the interior work done by AAC and redo it. In the course of that removal and after the August/September 2011 hearing, Celestial allegedly discovered additional evidence concerning the quality of the AAC work. This caused Celestial to submit its February 7, 2012 Motion to Supplement its Witness Statements and Hearing Exhibit List, which the Tribunal denied in Procedural Order No. 17 as described above.
One of the consequences of Celestial’s decision to have much of the work redone is that the cost of the project now is claimed to be likely to exceed $40 million, well in excess of the total cost of Project Electra at AAC.

V. The Parties’ Contentions

Celestial claims, first, that AAC failed to meet the MMA’s requirements for weight control and "highest industry standard" quality, and second, that AAC failed to complete the Aircraft on schedule. In addition, Celestial contends that AAC has failed to give Celestial possession of intellectual property and technical data required for completion of the Aircraft.
Celestial asserts claims based on breach of contract; conversion or trespass; violation of the Texas Theft Liability Act, Texas Civil Practice & Remedies Code sections 134,001-134.005; negligence; the making of false and material misstatements, and breach of an implied warranty of good and workmanlike services.
Celestial’s damage computations are based on liquidated damages resulting from delay plus, alternatively, (a) the cost of obtaining "alternative lift" in the form of other aircraft during the period when the Aircraft was unavailable, or (b) the estimated cost of Comlux’s charges to complete the Aircraft’s interior as originally planned. Celestial also seeks liquidated damages arising from the delay, exemplary damages and the costs of this arbitration, including attorneys’ fees.
AAC denies all of Celestial’s claims and alleges that it completed all of the work it was allowed to do, before Celestial removed the Aircraft, in accordance with proper standards, and that AAC was not given an opportunity to complete the work after the Aircraft was removed from AAC’s facilities. AAC also asserts defenses based on the doctrines of impossibility and/or impracticability, excuse by reason of Celestial’s alleged breach of the MMA and the doctrines of release, estoppel, waiver and/or laches, statute of limitations and the economic loss doctrine. AAC alleges failure to mitigate any damages, as well as a right of setoff against sums due it from Celestial.
AAC counterclaims for unpaid amounts that would have been paid by Celestial pursuant to the MMA had all work on the Aircraft been completed. AAC asserted (for the first time in its Pre-Hearing Brief) that Celestial breached Section 27 of the MMA by improperly offering employment to AAC’s employees. AAC also seeks an award of the costs of this arbitration, including its attorneys’ fees.

VI. Analysis and Reasons for the Award

The arbitrators have carefully considered all of the submissions and evidence presented by the Parties, although not every particular argument, filing, exhibit or testimony is mentioned in this Award.

A. Delay

In December of 2007, at a time when the Parties knew that the original completion schedule contained in the MMA could not be met, they negotiated and entered into the Letter Agreement providing for the consequences of that delay and of any further delay by stipulating liquidated damages. Celestial received a credit against the contract price due to AAC and became entitled to a further payment of $200,000 if AAC did not meet the new redelivery deadline of October 20, 2008 (or such later date as may have been agreed or justified by delays caused by Celestial).
The Tribunal concludes that AAC did not meet the redelivery deadline, that AAC’s failure to have the Aircraft ready for redelivery prior to the time the Aircraft left for painting was not caused entirely by Celestial and that AAC therefore breached the terms of the Letter Agreement and is responsible for liquidated damages in the amount of $200,000.

B. Weight

The Tribunal agrees with Celestial that AAC did not plan or conduct an effective weight control program as required by the Specification and that AAC therefore breached the MMA. While the Aircraft’s weight may have been difficult to keep within the maximum ramp weight of 255,000 pounds as a result of decisions made by Celestial with respect to initial selection of the Aircraft and its interior design and addition of PATS tanks, it was AAC’s responsibility to monitor the weight of the monuments being added to the interior so that the Parties would know when and where weight was becoming a problem and adjust accordingly. AAC did not do so appropriately.
It is not sufficient for AAC to establish that it did have a weight reduction and accountability program. The MMA required a program maintained competently and in accordance with the high quality standards that AAC promised for its work. AAC did make suggestions for controlling and reducing weight in various respects, and Celestial disapproved of many of those ideas and insisted on the original design that the Parties had approved in the Specification, as was its right. Celestial did so on the basis of its belief, in accordance with the reports it was receiving from AAC, that the Aircraft had not yet reached or exceeded the interior weight limits. If Celestial had received timely advice from AAC about increasing weight, Celestial might have considered the matter differently. Instead, AAC failed to maintain accurate weight estimates and measurements and Celestial was surprised by a report on February 21, 2009 that the Aircraft was seriously overweight. At that point, AAC’s only proposed solution was to recommend reducing weight by removing some of the monuments, after it was too late to fabricate lighter monuments at the outset.

C. Quality

AAC "covenanted and agreed" to perform its work on Project Electra "in accordance with the highest industry standards and all applicable FAA requirements." The Parties differ over whether "highest industry standards" in the context of a "VIP" or "VVIP" luxury aircraft interior completion supplies a meaningful legal standard for measurement of contractual performance. AAC contends that the term is entirely subjective and adds nothing to the requirement that the work satisfy FAA requirements. Celestial claims that it is a recognized term known in the aircraft modification industry.
In Paragraph 18 of the MMA, AAC warranted freedom from "Defects" defined in part as any inconsistency in workmanship "as compared to the quality required by the Client," which in this case was "highest industry standards." The Tribunal concludes that the term "highest industry standards," in the context of the MMA, is an objective criterion that requires performance of work to a standard that a reasonable person skilled in the art or science of aircraft modification would recognize as superior to merely passable or functional compliance with technical specifications. Both Celestial’s expert Larry Hinebaugh and aircraft interior design contractor Cheryl Strack testified that such a term has a distinct industry meaning.
Aspects of the work done by AAC were at the least incomplete and in some instances plainly improper. Certain monuments were in need of modifications or replacement at the time when Celestial removed the Aircraft. Celestial also presented convincing evidence that burn testing and certification of that testing was incomplete and now may be impossible due to AAC’s inability to produce documentation, requiring much removal and replacement. An external "doubler" was added to a portion of the Aircraft’s skin without Celestial’s agreement. An antenna was installed incorrectly, causing water to leak into the Aircraft and creating pressurization problems. The vacuum waste system was substandard, and cables were found to be installed improperly and riding against fuel lines. A variety of wiring and plumbing problems require correction. The Tribunal accepts the testimony of former AAC employees Chris Mason and Eric Castillo as persuasive evidence of problems and breakdowns of normal procedures at AAC during the period in issue. This work did not meet "highest industry standards."

D. Flame Retardant

AAC’s use of a flame retardant, CH10, throughout the interior of the Aircraft, without explaining its disadvantages to Celestial and securing Celestial’s approval, also failed to rise to "highest industry standards." Although evidence was conflicting, the Tribunal concludes that CH10 causes damage to gold leaf and wood finishes and unless replaced could require subsequent expensive reapplications in order to maintain retardant efficacy. AAC did not advise Celestial of these drawbacks before administering CH10.
AAC contends that Celestial did not complain about the effects of CH10 until after removal of the Aircraft and that the complaints were motivated by litigation strategy rather than genuine concern. The Tribunal rejects that argument because it was not possible for Celestial to understand the relevant facts until after inspection of the Aircraft subsequent to its removal from AAC’s facilities and disclosure of AAC’s documents.

E. Possibility and Adequacy of Cure

AAC maintains that it should have been permitted to complete its work on the Aircraft, and could have remedied quality problems in that process, but was prevented from doing so by Celestial’s refusal to return the Aircraft after painting. AAC also notes that the MMA provides that repair by AAC normally is to be the sole remedy for defects in AAC’s work.
The Parties did discuss the possibility of returning the Aircraft to AAC for remedial work, but Celestial rejected what AAC offered in that regard as inadequate. Mr. Chandler testified: "[T]heir response to us was very clear. It was, bring the aircraft back, pay us everything you asked under the contract, and we’ll finish it as is, overweight and all, and then you can bring the aircraft back to us and you can pay us to remedy the breach. Now, that’s the path that they had pushed Lukoil down, that they pushed other aircraft down, and we felt that that was reprehensible, both morally and contractually, and although they might have business leverage over us to the extent that we had an incomplete aircraft, we felt that to simply close our eyes and go along with their proposition would be the wrong thing to do, because somebody else would be in line behind us to go through exactly the same experience, like we had followed Lukoil, and it was appropriate for somebody to stand up and say, no, no further, own your problems, fix the problems" (Tr. 1136-37).
The Tribunal concludes that repair was not an adequate remedy for the harm caused by spraying CH10 throughout the Aircraft, and that AAC never offered to replace completely the monuments damaged by its use. Also, AAC did not offer any effective cure for the overweight problem but merely suggested that Celestial fly the plane "as is" for a while and then perhaps contract with AAC to remove some monuments and pay a further charge.
Paragraph 23(2)(e) states that remedies for a Party’s breach available under the MMA or as provided by law are cumulative, and one such remedy is Celestial’s right to procure completion of the agreed Work by another party as it may in its discretion elect. That is essentially what happened here. Celestial declared a breach on April 6, 2009, and AAC did not promptly offer an effective cure for the defects. Paragraph 23(2)(a) provides that in such a situation AAC is entitled to payment for the value of the partial work completed by it but is responsible to Celestial for any excess cost that may be incurred, above the amount that would have been paid to AAC, in arranging for an alternative completion.
Accordingly, the Tribunal finds that AAC breached the MMA and is responsible for damages caused by those breaches in accordance with application of the principles of Paragraph 23. Celestial has not breached the MMA, and Celestial is not limited to the cure remedy provided by Paragraph 18. The Tribunal has considered and rejects AAC’s various defenses based on impossibility and/or impracticability, excuse, release, estoppel, waiver and/or laches, statute of limitations and the economic loss doctrine, none of which is applicable in this case.

F. Damages for Breach of Contract

As noted above, Celestial is entitled to liquidated damages of $200,000 for AAC’s delay in completing and redelivering the Aircraft. Celestial’s claims for damages based on the other breaches of the MMA are based primarily on alternative theories of (a) cost of obtaining "alternative lift" or (b) the estimated cost of completion of the work on the Aircraft by Comlux.
The claim for "alternative lift" is defective for three reasons. First, it is based on delay in redelivery of the Aircraft, the damages for which the Parties agreed in their Letter Agreement would be limited to the liquidated sum of $200,000. Second, it seeks consequential or incidental damages that are barred by Paragraph 18(e) of the MMA. Third, most or all of the "alternative lift" expenses were not incurred by Celestial but instead by one or more related companies affiliated with Mr. Chandler.
Celestial is entitled instead to recover its direct damages arising from breach of contract, namely the amount necessary to give Celestial the benefit of the bargain that it was promised in the MMA. This is the difference between the expected cost to complete the Aircraft as it should have been, within the anticipated weight parameters and "to highest industry standards" of quality, and the amount that Celestial would have been required to pay AAC for completion of Project Electra under the MMA but did not pay. The latter amount, which would have been due to AAC if Project Electra had been completed under the MMA, is $7,151,443.62 (Ex. 5615 at para. 19).
The Tribunal concludes that the amount necessary now to complete the Aircraft in substantially the form envisaged by Project Electra at AAC is the amount of the original Comlux bid for that work, which was $ 18,750,000. This bid and a similarly priced bid of $19,950,000 from another aircraft completion firm were submitted in the absence of access to all of the IP Work Product and involved contingencies that could cause the price of substitute work to rise higher. The Comlux bid, which is the only evidence timely submitted by Celestial concerning the actual price to be paid for completion and correction work, was expected to exceed the initial bid price. However, the bid documentation (Ex. 6008) also included a limited number of items described as upgrading of electronic systems (including an entertainment system and associated gear) to newer models than those installed by AAC and the addition of a new security system composed of four directional cameras, all of which is work in addition to that encompassed by the original MMA. Celestial provided no breakout of the cost of the upgraded or additional equipment being added by Comlux.
The Tribunal has determined to offset any additional cost that Celestial may incur above the bid price of $18,750,000 against the similarly unspecified cost of the items included in that bid that represent payment for upgrades or additional systems. Mr. Chandler described the likely additional costs as amounting to $2 million to $6 million, and the upgrades and additions to electronics are unlikely to involve costs of that magnitude. However, Celestial has failed to offer specific proof of the amounts of either the actual increase in costs above the bid or the amount that should be deducted from the original bid to take account of such upgrades. In these circumstances, the Tribunal concludes that the best available evidence of the minimum cost to correct defects is the amount of the bid itself, $18,750,000.
In the view of Celestial’s expert Mr. Hinebaugh, the final cost could be as much as $40,000,000. Be that as it may, the Tribunal finds that the Comlux bid contemplated essentially the work that would have been expected to complete the project in a proper fashion, given the overweight situation and the CH1 0 problems, and is an appropriate starting point for the measurement of damages.
AAC criticizes reliance on the Comlux bid primarily because it appears to contemplate some weight reduction steps that are similar to those suggested by AAC to Celestial and rejected by Celestial. That rejection, however, occurred when Celestial was being advised by AAC that the weight estimates based on AAC’s work to date were within reasonable bounds and did not make it necessary to alter the design or redo work that was in place aboard the Aircraft. Now, as a result of the weight and CH 10 problems, some degree of corrective action is necessary and would have been needed if AAC had agreed to correct the deficiencies in March of 2009.
The Tribunal does not consider Mr. Hinebaugh’s $40,000,000 estimate reliable because it is impossible to determine the extent to which additional work by Comlux beyond the original bid is the result of additional defects discovered, if any, as opposed to decisions by Celestial now to change the completion work so that it involves more than was contemplated by the MMA. Celestial must bear some responsibility for the fact that this additional work being done by Comlux is too tardy to establish a benchmark for damages. The Tribunal entered an Interim Award precisely in order to enable Celestial to move forward with completion of work on the Aircraft as promptly as possible and mitigate any damages caused by delay. While it is true that AAC dragged its feet and did not comply in timely fashion with that award and subsequent orders for the turnover of IP Work Product and the delivery of physical property belonging to Celestial, Celestial failed to move forward expeditiously either to submit a motion for that relief in the first instance or to press AAC for compliance and bring non-compliance to the attention of the Tribunal for remedy.
The Tribunal also does not consider that the lower estimates offered for the cost of merely "finishing the job" of putting the Aircraft in flyable condition without redoing much of AAC’s work, which ranged from $500,000 to $6,700,000, provide relevant damage standards. Because of the weight and CH10 problems, and the absence of original documentation required by the FAA, it is necessary to do more than merely finish AAC’s uncompleted work in order to deliver the Aircraft as originally intended.
Just as Celestial is entitled to receive the benefit of the bargain for which it contracted, AAC is entitled to be compensated for the work that it completed under the MMA and to have credit for any unpaid portion of that amount as a setoff against the damages awarded to Celestial. (Although the MMA included a mechanism by which the Parties could ask an appraiser to value the work completed if only part of the work were completed by AAC, the Parties did not elect to invoke that mechanism.)
Celestial’s damages for breach of the MMA attributable to weight management, quality and flame retardant defects thus are measured by the difference between the Comlux bid of $18,750,000 and the unpaid price under the MMA of $7,151,443.62, which is $1 1,598,556.38. To this $200,000 should be added as liquidated damages for delay.
This calculation differs from the one that would have been made under Paragraph 23(2)(a) of the MMA, which envisaged determination of a "Partial Work Value" of work completed that would not require reworking. The Parties did not employ the contractual mechanism provided to find a "Partial Work Value," and that would have been difficult to determine and perhaps would not have been useful in the present case because the portion of the work completed by AAC contains defects and additional weight. The Panel concludes that the remedy awarded herein fairly implements the contractual intent of the Parties in these circumstances.
Celestial has sought damages alternatively on the basis of the diminution in value of the Aircraft if it had been accepted on the basis of completion of AAC’s work, as opposed to the value that Celestial claims the Aircraft should have had were it completed properly. The evidence on any such diminution was speculative, however, and does not provide a suitable basis for an award of damages. Possible diminution of value has been covered by the computation of damages herein in the form of the award of damages sufficient to compensate for proper completion of the work on the Aircraft essentially as it should have been done.
The Aircraft is owned by Wells Fargo Bank in trust for Talos, a company also affiliated with Mr. Chandler. The diminution in value ultimately is suffered by Talos rather than Celestial, which is an additional reason why Celestial should not be awarded damages on the basis of a diminution in value.
AAC suggested in post-hearing briefing that Celestial lacks standing to pursue any claim in this arbitration because it is not the same entity as Legatum; but Celestial established at the post-hearing argument that Celestial is the same entity as Legatum, after a simple name change. Celestial was the contracting Party with AAC and is entitled to the benefit of an Aircraft completed in accordance with the agreed Specification and is the appropriate party to receive the damages awarded herein.

G. Fraud

Celestial seeks additional damages based on its fraud claims, which as noted above are asserted under a variety of legal theories. At the base of all of them is Celestial’s contention that AAC fraudulently induced Celestial’s agreement to the MMA and the Letter Agreement by failing to disclose the extent of other work that AAC was undertaking at the same time as Project Electra and the effects that work load was likely to have and as time progressed did have on the work being done for Celestial. Celestial also alleges that /AAC did not intend to perform in accordance with the MMA or the Letter Agreement in various respects at the time these agreements were entered into because AAC managers knew that it could not do so.
The MMA is governed by the law of the State of New York, but the representations made and work done by AAC all took place in the State of Texas. The Parties disagree over which state’s law is applicable to Celestial’s tort claims.
The MMA’s choice of law clause, quoted above, states that the MMA is to be governed and construed in accordance with New York law, including a statutory provision of New York law allowing parties to choose it without regard to whether otherwise relevant activities occur elsewhere, "but excluding any other conflict of law rules that lead to the application of the law of another jurisdiction." The Parties therefore elected the "whole" law of New York, without any choice of law principles that would direct the Tribunal to the law of Texas. Their choice includes any applicable New York tort law but does not include the Texas Theft Liability Act or Texas common law fraud doctrines.
Under the law of New York, claims for breach of a contract may not also form a basis for a tort claim based on the breaching party’s misrepresentation of its intention or capability to perform unless the breaching party owed and breached some separate duty to the complaining party outside of the contract. Bridgestone/Fireslone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13, 20 (2d Cir. 1996); DynCorp v. GTE Corp., 215 F.Supp.2d 308, 324 (S.D.N.Y. 2007). Here, there was no such duty and can be no separate claim for tort.
In addition, Celestial was aware of the essential reasons for AAC’s delays when it negotiated the Letter Agreement and compromised its claims by agreeing to liquidated damages for further delay. See Keywell Corp. v. Weinstein, 33 F.3d 159, 164 (2d Cir. 1994).

H. AAC’s Counterclaims

AAC’s principal counterclaim is for the unpaid amounts otherwise due under the MMA, based on Celestial’s alleged breach by not returning the Aircraft to Love Field. The Tribunal has concluded that Celestial did not commit breach by refusing to return the Aircraft but has taken the unpaid contract amount into consideration in the computation of damages as described above. Celestial is not responsible for any losses that AAC may have suffered by holding a "slot" for the Aircraft for a period of time while the Parties negotiated whether the Aircraft would be returned.
AAC’s counterclaim for breach of Paragraph 27 of the MMA, headed "AAC’s Employees." is based on a variety of claims of interference with AAC’s contracts with its employees, but the only former AAC employee hired by Celestial was Eric Castillo. He testified that his employment was terminated by AAC and he was hired by Celestial thereafter. Mr. Castillo testified that he never was contracted by Celestial to perform work for Celestial on the Aircraft while he was employed by AAC. (Tr. 852-53) There was no persuasive evidence of interference of any sort with any other AAC employee.

I. Costs, Attorneys’ Fees and Interest

The MMA makes the AAA International Arbitration Rules applicable to this arbitration, and Article 31 of those Rules authorizes a tribunal to allocate the costs of an arbitration, including reasonable attorneys’ fees, between or among parties in its discretion. In addition, in this case both Celestial and AAC have sought an award of costs and attorneys’ fees from the opposing side and thereby have placed that issue before this Tribunal. Celestial seeks $6,520,307.77, and AAC requests $3,081,609.50.
As part of its costs request, Celestial seeks an award of $707,777.26 as attorneys’ fees and other costs attributable to Celestial’s November 2011 application and subsequent efforts to secure AAC’s compliance with the Tribunal’s orders that AAC grant Celestial access to the IP Work Product (for which Celestial had posted a bond of $6 million) and that AAC return Celestial’s physical property to Celestial.
Both Parties have maintained their positions in this arbitration in good faith. Celestial has established the right to a substantial recovery, but in a much lower amount than it sought. AAC has resisted and delayed compliance with an Interim Award and related Procedural Orders concerning the IP Work Product and return of Celestial’s physical property, in part on the basis of a claim that it was entitled to do so in order to maintain "business leverage," which is a legally untenable argument. This has caused the costs of the arbitration to exceed what they otherwise would have been. For its part, Celestial has contributed to delay of the proceeding by failing to arrange for witness availability, but a greater portion of the resulting costs are the result of AAC’s actions.
Taking all of these matters into consideration, the Tribunal has decided, pursuant to Article 31 of the AAA International Arbitration Rules, that it is appropriate that AAC bear 60 percent of the costs of arbitration in the form of administrative fees and expenses and compensation and expenses of the Tribunal and that AAC pay Celestial $600,000.00 as a reasonable portion of Celestial’s attorneys’ fees and costs attributable to efforts to secure AAC’s compliance with the Tribunal’s Interim Award and orders after having obtained that Interim Award.
The MMA contains no provisions for the payment of interest on late payments. Both Parties bear some responsibility for the fact that this Award has been delayed. It therefore is not appropriate to provide for interest to be payable on the Award for any period prior to 30 days after the Award is delivered to the Parties. At that time, if the Award has not been paid, simple interest should begin to run at a commercially reasonable rate of 5 percent per annum.

J. Other Claims

All other claims and counterclaims are denied.


Within thirty (30) days from the transmittal of this Award to the Parties, Associated Air Center, L.P. and/or DAE Aviation Holdings, Inc. shall pay to Celestial:

a. The sum of $11,798,556.38 as damages;

b. The sum of $600,000.00 as a portion of Celestial’s attorneys’ fees and costs; and

c. Simple interest from a date thirty (30) days after the delivery of this Award on $12,398,556.38 at a rate of five (5) percent per annum until the date of payment.

Celestial Airways Limited is released from the requirement to post security of $6,000,000 required by the Interim Measures Award in this case, and the bond is hereby ordered released.
The administrative fees and expenses of the International Centre for Dispute Resolution (ICDR), totaling $39,407.00, and the compensation and expenses of the Tribunal, totaling $438,847.86, shall be borne 60 percent by Associated Air Center, L.P. and DAE Aviation Holdings, Inc. and 40 percent by Celestial Airways Limited. Therefore, Associated Air Center, L.P. and DAE Aviation Holding shall reimburse Celestial Airways Limited the sum of $52,092.06, representing that portion of said fees and expenses in excess of the apportioned costs previously incurred by Celestial Airways Limited.
This Award is in full settlement of all claims and counterclaims submitted to this Arbitration.
This Award may be executed in any number of counterparts, each of which shall be deemed an original, and all of which together shall constitute the Award of this Tribunal.
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