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WÄRTSILÄ NSD NORTH AMERICA v. HILL INTERNATIONAL

March 30, 2004.

WÄRTSILÄ NSD NORTH AMERICA, INC., Plaintiff,
v.
HILL INTERNATIONAL, INC., Defendant/Third-Party Plaintiff, v. JOHN H. CLEGG, ESQUIRE, DAPHNE McNUTT, ESQUIRE, and CHAFFE, McCALL, PHILLIPS, TOLER & SARPY, L.L.P., Third-Party Defendants



The opinion of the court was delivered by: STANLEY BROTMAN, Senior District Judge

OPINION REGARDING DEFENDANT'S MOTION FOR RULE 11 SANCTIONS
Presently before the Court is a motion for sanctions pursuant to Rule 11 of the Federal Rules of Civil Procedure filed by Defendant Hill International Inc. ("Hill"). For the reasons discussed below, Defendant's motion will be denied. As the prevailing party, the Plaintiff will be awarded the reasonable expenses and attorney's fees incurred in opposing Hill's motion, pursuant to Rule 11(c)(1)(A).

 I. INTRODUCTION

  This litigation arises out of a business relationship between Wärtsilä Diesel, an engineering and construction company and the predecessor to Plaintiff Wartsila NSD North America, Inc ("Wärtsilä"), and Hill International, construction consulting firm in the business of providing expert advice and project management for major construction projects. Richard LeFebvre, one of Hill's "expert" employees, was assigned to the Wärtsilä project, first as a Hill employee but later as an independent contractor on the Wärtsilä payroll. As it would turn out, LeFebvre lacked the credentials claimed in his resume. Namely, he did not hold either the engineering degrees or the professional certifications represented. Wärtsilä's complaint alleges that the late discovery of these defects in LeFebvre's resume ultimately caused the company to lose millions of dollars in arbitration claims and related litigation.

  Hill has brought the present motion for Rule 11 sanctions contending that two crucial allegations in Wärtsilä's Complaint are "completely false" and were submitted with knowledge of their falsity: (1) "That Hill intentionally gave plaintiff a false resume for LeFebvre;" and, (2) that "plaintiff relied on incorrect information in Richard LeFebvre's resume concerning his college degrees when plaintiff entered into the January 1995 consulting agreement." According to Hill, information gleaned from the deposition of Kevin Curran, a Wärtsilä manager who had previously known LeFebvre, "indisputably" demonstrates the falsity of the allegations contained in Wärtsilä's complaint. Moreover, Hill asserts that Wärtsilä's negligence claim is without evidentiary foundation. For Wärtsilä's reluctance to withdraw its claims against Hill in the face of this evidence, or the lack thereof, Hill seeks (among other things) to strike the relevant allegations by way of a Rule 11 sanction, an action that would lead inevitably to a dismissal of all remaining claims against it.

 II. FACTUAL AND PROCEDURAL BACKGROUND

  In July 1994, Wärtsilä entered into a contract with Coastal Salvadorian Ltd. ("Coastal") wherein Wärtsilä agreed to design, engineer, procure, construct, start up and test a diesel engine power plant in Nejapa, El Salvador ("the Project"). Wärtsilä, whose business had up to that point focused primarily on the sale and maintenance of diesel engines, in turn subcontracted much of the plant's construction to a variety of other entities, including Black & Veatch International ("BVI"). Within a matter of months, the Project fell behind schedule, resulting in numerous contractual disputes between Wartsila, BVI, and Coastal. In an effort to get the project back on track, Wartsila sought the services of the Defendant, Hill International.

  According to Wärtsilä's first amended complaint, Hill submitted a proposal for the consulting position on January 18, 1995. (Pl.'s First Amended Compl. at ¶ 31.) In its proposal, Hill recommended that Richard LeFebvre, one of the firm's senior consultants, be assigned to the Project to "collect, organize and evaluate . . . factual information and report . . . his findings as to the best way to proceed with the completion of the project." (Id. at ¶ 33.) LeFebvre's responsibilities were to include gathering information and materials related to the construction project, visiting the project site "to evaluate the adequacy of the plans and specifications," and comparing the actual performance of the construction work to Wartsila's obligations under its contract with Coastal. (Id.) Attached to the proposal was a copy of LeFebvre's professional resume which represented that he: (a) had received a B.S. in electrical engineering from Penn State in 1966; (b) had earned a B.A. in business administration from Duquesne University in 1969; (c) had taken courses in business law at the University of North Florida in 1983; and (d) was registered and licensed as a professional engineer in Pennsylvania, New York, and Massachusetts. (Id. at ¶ 32.)

  On January 24, 1995, Wärtsilä and Hill International entered into a written consulting agreement that incorporated by reference the January 18 proposal. (Id. at ¶ 34.) Pursuant to the terms of the agreement, Hill assigned Richard LeFebvre to work as a senior consultant on the Project. (Id. at ¶ 35.) LeFebvre was quickly promoted by Wärtsilä to the position of Project Manager and continued to work on the Project as a Hill employee until May 25, 1995. (Id. at ¶¶ 37, 40.) Among his responsibilities was the task of analyzing issues bearing on potential claims and defenses in contractual disputes between Wärtsilä and BVI. (Id. at ¶¶ 38-39.)

  On June 1, 1995, with Hill's approval, Wärtsilä hired LeFebvre "as an independent contractor to provide assistance with construction and claims management on the Project." (Id. at ¶ 41.) Allegedly acting in reliance on LeFebvre's analysis and recommendations, Wärtsilä in May 1996 decided to pursue claims against BVI before the American Arbitration Association and retained the Louisiana law firm of Chaffe, McCall, Phillips, Toler & Sarpy, L.L.P., and two of its attorneys, John H. Clegg, Esq., and Daphne McNutt, Esq., to initiate arbitration proceedings against BVI in Charlotte, North Carolina. (Id. at ¶ 43; Third Party Complaint at ¶ 11.) LeFebvre was considered a "key witness" in the proceedings due to his intimate and extensive knowledge of the facts underlying the points of contention between the two parties and his participation in the drafting of various "claim support" documents. (Pl.'s First Amended Compl. at ¶¶ 43-44.)

  At the arbitration proceedings in September 1997, LeFebvre offered testimony regarding the academic and professional credentials listed on his resume. (Id. at ¶ 47.) On September 8, 1997, toward the end of his direct testimony, Wärtsilä became aware, "for the first time," that there were questions concerning LeFebvre's educational and professional credentials when counsel for BVI requested that LeFebvre execute a release for background academic information. (Id. at ¶ 48.) Later that day, after the proceedings had been adjourned, LeFebvre admitted to Wärtsilä's attorneys that the statements on his resume concerning a business degree from Duquesne University were not accurate. (Id. at ¶ 49.) He allegedly told Wärtsilä that Hill had asked him to overstate the extent of his training at Duquesne. (Id.)

  The next morning, LeFebvre requested and received from Hill a revised resume which omitted any reference to a business degree from Duquesne or business law courses at North Florida and modified the date on which he claimed to have received an electrical engineering degree from Penn State. (Id. at ¶ 50.) When the proceedings resumed later that day, BVI's attorneys subjected LeFebvre to a vigorous cross-examination, forcing him to acknowledge the obvious inconsistencies between the two resumes. LeFebvre nevertheless insisted that the revised resume was entirely accurate and truthful. (Id. at ¶ 50(b).) However, by the conclusion of the day's proceedings, Wärtsilä's attorneys were forced to concede that a hasty investigation into LeFebvre's academic credentials had uncovered no evidence that he had ever received an engineering degree from Penn State or attended any of the other schools listed on his resume. (Id. at ¶ 51.) Wärtsilä also found no evidence that LeFebvre had ever been licensed as a professional engineer in either New York, Pennsylvania, or Massachusetts. (Id.)

  In light of LeFebvre's perjury, Wärtsilä's counsel withdrew his testimony, and the arbitration panel granted Wärtsilä a short recess to restructure its case based on new witnesses. (Id. at ¶ 53.) During that time, the company re-examined materials prepared by LeFebvre and allegedly discovered that he had improperly altered original "claim support" documents. (Id. at ¶ 53.) Consequently, Wärtsilä claims it was forced to withdraw certain claims. (Id.) On March 5, 1998, the arbitration panel issued a judgment of $4.65 million in favor of BVI. Wärtsilä attributes the arbitration award to the complete loss of credibility it allegedly suffered as a result of LeFebvre's blatant misrepresentations, both on his resume and in his testimony before the arbitration panel. (Id. at ¶ 52.)

  In November 1997, shortly after LeFebvre was exposed as a fraud and a perjurer, BVI brought claims in tort and contract against Wärtsilä in the United States District Court for the District of Kansas ("Kansas litigation"). (Id. at ¶ 58, 60.) The lawsuit was based on Wärtsilä's "placement of an individual lacking in the necessary education, skills, professional licenses and trustworthiness as Project Manager charged with oversight of BVI's work." (Id. at ¶ 59.) Wärtsilä ultimately settled this dispute with BVI for $850,000. Wartsila subsequently initiated the present litigation against Hill in the United States District Court for the District of New Jersey.*fn1

  Wärtsilä's Original Complaint asserted claims for negligence (count I), fraud (count II), consumer fraud (count III), and breach of contract (count IV). On September 29, 2000, the Court dismissed Counts I (negligence) and III (consumer fraud) for failure to state a claim on which relief may be granted. Wärtsilä NSD North America, Inc. v. Hill ...


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