Court Opinion

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Opinions of the United
2006 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

5-23-2006

Salvino Steel Iron v. Safeco Ins Co Amer
Precedential or Non-Precedential: Non-Precedential

Docket No. 05-1449

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Recommended Citation
"Salvino Steel Iron v. Safeco Ins Co Amer" (2006). 2006 Decisions. Paper 1061.
http://digitalcommons.law.villanova.edu/thirdcircuit_2006/1061

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                                                          NOT PRECEDENTIAL

                    UNITED STATES COURT OF APPEALS
                         FOR THE THIRD CIRCUIT

                                   No. 05-1449
                                     ______

           THE UNITED STATES OF AMERICA FOR THE USE AND
            BENEFIT OF SALVINO STEEL & IRON WORKS, INC.

                                         v.

               SAFECO INSURANCE COMPANY OF AMERICA;
                     STRUCTURAL CONCEPTS, INC.

                             Structural Concepts, Inc.,

                                              Appellant

                  On Appeal from the United States District Court
                           for the District of New Jersey
                              (D.C. No. 02-cv-00817)
                    District Judge: Honorable Joseph E. Irenas

                    Submitted Under Third Circuit LAR 34.1(a)
                                  May 9, 2006

             Before: BARRY, SMITH and ALDISERT, Circuit Judges.

                               (Filed May 23, 2006)

                           OPINION OF THE COURT

ALDISERT, Circuit Judge.

                                         1
       The United States District Court for the District of New Jersey held Appellant

Structural Concepts, Inc. (“SCI”) in contempt for failure to comply with an order

enforcing an arbitration award against SCI. On appeal, SCI disputes both the finding of

contempt and the legality of the contempt decree issued against it. We have jurisdiction

to hear this appeal pursuant to 28 U.S.C. § 1291. We will vacate and reverse.

                                             I.

       The parties are familiar with the facts and proceedings in the District Court, so we

will only briefly revisit them here. The present action arose from a payment dispute

between SCI and Salvino Steel & Iron Works, Inc. SCI had hired Salvino to provide steel

and steel erection services for construction of a golf clubhouse for the U.S. Army Corps

of Engineers at McGuire Air Force Base. The parties entered into the contract in 2000,

and Salvino performed its work in 2000 and 2001.

       On February 26, 2002, Salvino filed a complaint alleging breach of contract and

bond claims pursuant to the Miller Act, 40 U.S.C. § 270, against SCI and surety Safeco

Insurance Company of America in the United States District Court for the District of New

Jersey.1 On May 9, 2003, the parties agreed to binding arbitration of their dispute. An

arbitration award was later issued on June 22, 2004, in favor of Salvino.

       The arbitration award had two different requirements. First, it ordered SCI to pay

       1
        Safeco is a party to this suit because in June 2000, SCI had obtained from Safeco
a payment bond pertaining to the golf clubhouse construction for the protection of SCI’s
subcontractors, which included Salvino.

                                             2
Salvino $63,597.61 within 30 days of the award’s issuance date. Second, it mandated that

SCI submit four specific monetary claims to the U.S. Army Corps of Engineers. Pursuant

to that directive, any recovery made on the claims mentioned in paragraphs 2A, 2C and

2D of the award (hereinafter referred to as claims “2A”, “2C” and “2D”) would be the

property of Salvino, and any recovery upon the claim mentioned in paragraph 2B

(hereinafter referred to as claim “2B”) would be the property of SCI. The submission of

these claims was to occur within 30 days of the issuance of the arbitration award. The

award, however, provided an exception to this 30-day time requirement, stating that: “if

[SCI] is actively negotiating a settlement with the U.S. Army Corps of Engineers, the

claims . . . may be incorporated in those negotiations, provided that such claims can be

identified (for payment purposes) in any final settlement.”

       On September 8, 2004, the District Court issued an order (the “September 8

order”) entering and confirming the arbitration award. Aside from ordering SCI to pay

Salvino $63,597.61, the Court also awarded attorney’s fees to Salvino for the costs of

bringing the motion for confirmation of the arbitration award. On October 12, 2004, the

Court amended the September 8 order to include those attorney’s fees, which totaled

$2,047.65, bringing the full amount owed by SCI to $65,645.26.

       On October 27, 2004, Salvino filed a petition for contempt against SCI. Therein,

Salvino alleged that (1) SCI “has failed to make any payment in compliance with the

Order issuing a monetary judgment against them,” and (2) SCI “has also failed to submit

                                             3
the claims ordered by the arbitrator and confirmed [by the District Court].” (Petition for

Contempt, app. at 59a-60a.) In support of the latter allegation, Salvino stated that it had

been in contact with the District Counsel for the Department of the Army and the counsel

for the U.S. Army Corps of Engineers and that it had not received confirmation from

either party that SCI had submitted the required monetary claims. Finally, Salvino

requested an award of reasonable attorney’s fees pursuant to N.J. Stat. Ann. § 2A:23B-25

to compensate it for the cost of bringing the petition.

         On November 12, 2004, the District Court acknowledged receipt of this petition

and gave SCI until November 19, 2004 to file a response. It indicated that if no response

was received by that date, “the Court will assume that there is no opposition.” The Court

also stated that if no response was received by November 19, “Plaintiff [Salvino] is

directed to submit by November 24, 2004, an affidavit setting forth the monetary amount

[SCI] would recover from the U.S. Army Corps of Engineers were it to pursue the four

claims described in the Arbitrator’s Award, dated June 22, 2004, and in this Court’s

Order Confirming the Arbitration Award and Entering Judgment, dated September 8,

2004.”

         SCI let the November 19, 2004 deadline pass without filing a response.2 On

November 23, 2004, however, it submitted an affidavit from its president, George Moutis,

         2
         Sometime around this date, in a check dated November 3, 2004, SCI paid
Salvino the $65,645.26 owed pursuant to the October 12, 2004 order.

                                              4
in which Moutis outlined the status of claims 2A-2D. As for claim 2A, he indicated that

SCI had forwarded that claim to the U.S. Army Corps of Engineers and that negotiations

with the Corps on this claim had not concluded. As for claim 2B, he indicated that SCI

had settled this claim. As for claim 2C, he indicated that SCI had already submitted this

claim, but that the Corps rejected it. He further stated that SCI had retained counsel to

prosecute this claim before the U.S. Court of Claims. Finally, as for claim 2D, he

indicated that “Salvino’s lawsuit did not include such a claim, [but that SCI] is still in

negotiations with the U.S. Corps of Engineers regarding this claim.”

       On December 10, 2004, the District Court entered an order granting Salvino’s

petition for contempt. Although it noted that SCI’s affidavit response was not timely

made by the November 19, 2004 deadline, the District Court nonetheless considered and

rejected the contentions made in the affidavit. In addressing SCI’s response regarding

claim 2A, the Court held that it was “vague” and “tells the court very little about the

status of the claim and SCI’s efforts in pursuing it.” (December 10, 2004 order, app. at

16a-17a.) It similarly described SCI’s depiction of the status of claim 2D as being “a

vague reference to ongoing negotiations with the U.S. Corps of Engineers” and that SCI

provided “no real information regarding its efforts to pursue this claim.” (Id. at 17a.)

Consequently, the Court found SCI to be in contempt of the Court’s September 8 order.3

       3
         The Court did accept SCI’s response that claim 2B had been settled and thus
assessed no penalty for that claim, because under the arbitration award any recovery
under this claim was the property of SCI. Likewise, the Court also accepted SCI’s

                                              5
The Court also awarded a monetary judgment of $15,600 to cover the amount of potential

recovery for claims 2A and 2D and attorney’s fees, with the amount to be determined

later, as compensation to Salvino for its costs of bringing the petition for contempt.

       On January 7, 2005, the Court entered an order amending the monetary judgment

of $15,600 to include $1,182 in attorney’s fees. In this order, the Court also rejected

SCI’s motion for reconsideration, stating that SCI has “not alleged any new facts or

decisions of law that were previously ‘overlooked’ and that ‘might reasonably have

resulted in a different conclusion.’” This appeal followed.

                                              II.

       “The imposition of contempt is reviewed under an abuse of discretion standard and

will only be disturbed if there is an error of law or a clearly erroneous finding of fact.”

Harris v. City of Philadelphia, 47 F.3d 1342, 1349 (3d Cir. 1995) (citations omitted). We

review questions of law de novo. Id. We also decide on a plenary basis whether the

terms of the arbitration award are ambiguous, construing all perceived ambiguities in

favor of the party charged with contempt. Id. at 1350. “In other words, a contempt

citation should not be granted if there is ground to doubt the wrongfulness of the

defendant’s conduct.” Id. (citations and quotations omitted).

       “To prove civil contempt the court must find that (1) a valid court order existed,

representation that claim 2C had been rejected by the Corps, and accordingly assessed no
penalty based on that claim.

                                               6
(2) the defendant had knowledge of the order, and (3) the defendant disobeyed the order.”

John T. ex rel. Paul T. v. Delaware County Intermediate Unit, 318 F.3d 545, 552 (3d Cir.

2003) (citations and quotations omitted). These “elements must be proven by clear and

convincing evidence, and ambiguities must be resolved in favor of the party charged with

contempt.” Id. (citations and quotations omitted). Here, because the first two contempt

elements incontrovertibly exist, only the third is at issue, whether SCI disobeyed a court

order.

                                             III.

         SCI contends that the District Court exceeded the permissible bounds of its

discretion in granting the contempt decree because Salvino failed to prove by clear and

convincing evidence that SCI violated the Court’s September 8 order. It argues that the

Court erred by disregarding SCI’s contention that it was currently in negotiations with the

U.S. Army Corps of Engineers over claims 2A and 2D, and asserts that these ongoing

negotiations meant that SCI was in compliance with the terms of the arbitration award. It

also challenges the contempt decree by arguing that the decree’s monetary judgment

constitutes an arbitrary and punitive criminal sanction. The imposition of this sanction, it

then contends, violated SCI’s due process rights because SCI was not afforded the correct

procedural safeguards necessary for a finding of criminal contempt.

         Upon examining the record, we conclude that the Court exceeded the permissible

bounds of its discretion when it held SCI in contempt for failure to submit claims 2A and

                                              7
2D to the U.S. Army Corps of Engineers.4 Under the terms of the arbitration award, SCI

was required to submit claims 2A and 2D within 30 days of the date of that award. That

time period, however, could be tolled should SCI enter into negotiations that included

those claims. Salvino’s petition for contempt focused solely on SCI’s failure to submit

the claims, and that was the basis for the Court’s finding of contempt.5 In its November

23, 2004 affidavit, however, SCI asserted that it was in negotiations over these claims,

and Salvino never disputed that such negotiations were ongoing.6

       4
          Notwithstanding Salvino’s other allegation in its petition for contempt that SCI
had not yet paid the monetary judgment portion of the Arbitration Award, we conclude
that this contention formed no part of the Court’s December 10, 2004 contempt decree.
First, although the amount had not been paid at the time of the petition, it had been paid
prior to the December 10, 2004 entry date of the contempt decree. Second, the Court
makes no mention of this nonpayment in its discussion of Salvino’s petition, stating only
that the issue of the nonsubmission of the claims “is the main subject of the Plaintiff’s
petition.” Finally, the Court failed to specify any relief in its order regarding the
delinquent payment of the arbitration award’s monetary judgment. The contempt decree
thus solely concerned the nonsubmission of the claims.
       5
         Salvino relies upon an August 25, 2004 letter from the District Counsel for the
Department of the Army and an October 25, 2004 conversation with the counsel for the
Corps of Engineers for the proposition that SCI had not submitted the claims. The
District Counsel stated that the Department of the Army had received no claims from SCI
corresponding to those in the arbitration award, and the counsel for the Corps similarly
confirmed a nonsubmission. Neither counsel, however, makes mention as to whether SCI
was in negotiations over these claims with the U.S. Army Corps of Engineers as asserted
in SCI’s affidavit reply.
       6
         Even though in its November 12, 2004 letter to the parties the Court had
indicated that it would assume the facts in Salvino’s petition to be true if a timely
response were not filed by SCI, the Court’s ensuing consideration of SCI’s affidavit,
which it acknowledged was filed late, necessitates that we consider it in our abuse of
discretion analysis.

                                             8
       In holding SCI in contempt, the District Court acknowledged that SCI had stated

that it was in negotiations over these claims, but nevertheless discounted these responses

as being vague and inadequate. We do not agree that SCI’s uncontroverted statements

that it was in negotiations should have been so quickly dismissed. A contempt decree

should only be entered upon a showing of clear and convincing evidence of a violation of

a valid court order, John T. ex rel. Paul T., 318 F.3d at 552, and here there was no

evidence demonstrating SCI to be in noncompliance with this portion of the September 8

order. The statements in SCI’s affidavit that it was in negotiations with the U.S. Army

Corps of Engineers may have been “vague,” but Salvino provided no evidence that those

statements were false. In fact, in its petition for contempt, Salvino never addressed

whether negotiations were ongoing.

       As we stated in Harris, “a contempt decree should not be granted if there is a

ground to doubt the wrongfulness of the defendant’s conduct.” Harris, 47 F.3d at 1350

(citations and quotations omitted). Here, where SCI has stated that it is in negotiations,

and Salvino has said nothing to the contrary, there is just such a ground to doubt whether

SCI was in contempt of the District Court’s order regarding the actions to be taken on

claims 2A and 2D. What is more, inasmuch as the arbitration award clause allowing

negotiations is ambiguous (i.e., by failing to indicate either the differences between

submission and negotiation, or the required substance and procedure of these

negotiations), the District Court erred by not construing those ambiguities in favor of SCI.

                                              9
See id. ( “The resolution of ambiguities ought to favor the party charged with

contempt.”). Accordingly, it was beyond the permissible scope of the Court’s discretion

for it to have found SCI in contempt for failure to take action upon claims 2A and 2D.

For this same reason, the Court’s resulting monetary award of $15,600, granted to Salvino

as the potential value of these two claims, must also be vacated.7

       Finally, because we are reversing the District Court’s grant of Salvino’s petition

for contempt, Salvino is no longer the prevailing party and as such we must vacate the

Court’s award of attorney’s fees to Salvino to cover its costs of bringing that petition.

See N.J. Stat. Ann. § 2A:23B-25(b) (stating that a court may award attorney’s fees to a

“prevailing party” to compensate the party for its costs of enforcing the court’s entry of an

arbitration award in subsequent judicial proceedings); Tarr v. Ciasulli, 853 A.2d 921, 930

(N.J. 2004) (citations and quotations omitted) (“We have cited with approval the federal

view that a prevailing party is one who succeeds on any significant issue in litigation

[that] achieves some of the benefit the parties sought in bringing suit.”); Buckhannon Bd.

and Care Home, Inc. v. West Virginia, 532 U.S. 598, 603 (2001) (stating that the term

“prevailing party”in a fee-shifting statute is a legal term of art meaning “one who has

been awarded some relief by the court ”).

       7
          Because we conclude that it was error for the Court to hold SCI in contempt for
failure to submit claims 2A and 2D, we do not need to address whether its monetary
judgment of $15,600 for those claims and its award to Salvino of attorney’s fees for
Salvino’s costs of bringing the petition for contempt were criminal contempt sanctions or
an abuse of SCI’s due process rights.

                                             10
                                             IV.

       We have considered all contentions raised by the parties and conclude that no

further discussion is necessary. We will reverse the District Court’s contempt decree

holding SCI in contempt and awarding a monetary judgment to Salvino for SCI’s

purported failure to submit claims 2A and 2D of the arbitration award to the U.S. Army

Corps of Engineers. We will also vacate the Court’s award of attorney’s fees to Salvino

to cover Salvino’s costs of bringing the petition.

______________________________

                                             11