The case of the day is Tamimi Global Co. v. Kellogg Brown & Root LLC (S.D. Tex. 2011). In 2001, the United States government contracted with KBR to provide “dining facility services” to the military. In 2003, KBR subcontracted with Tamimi for food services at Camp Anaconda in Iraq. The subcontract contained an arbitration clause providing for arbitration of disputes in London in the LCIA.
The United States claimed that a KBR employee, Petsche, whom KBR later fired, had reported to his superiors that there were “irregularities” in the procurement of the Tamimi subcontract. The gist was that the subcontract had been procured by fraud, because KBR’s head of food services in Iraq and Kuwait and his deputy had received kickbacks from Tamimi. As a result, the United States refused to pay KBR, and KBR refused to pay Tamimi. KBR sued the government in the Court of Federal Claims for payment, and the government counterclaimed, asserting violations of the False Claims Act and the Anti-Kickback Act.
Meanwhile, Tamimi commenced an arbitration in London seeking payment. KBR admitted the non-payment but claimed it was not required to pay Tamimi until the government paid KBR. The tribunal issued an award in favor of Tamimi for more than $34 million. In the case of the day, Tamimi sought to confirm the award, and KBR resisted confirmation and sought a stay pending the resolution of the case in the Court of Federal Claims.
KBR argued that the award was contrary to US public policy (Article V(2)(b) of the New York convention permits a court to refuse recognition and enforcement on public policy grounds, as does Section 207 of the FAA). But the court rejected this argument. It reasoned that even if the United States proved, in the Court of Federal Claims case, that the contract was procured by fraud, KBR, as the recipient of the kickbacks (through its managerial employees), would be just as guilty of the fraud as Tamimi. Thus recognition and enforcement would not “violate the most basic notions of morality and justice,” which is the prerequisite for application of the public policy objection.
The court also noted that KBR knew of the allegations of fraud in time to raise them in the arbitration, but that it failed to do so. KBR’s reluctance to seek to show that its own contract with Tamimi was procured by fraud is easy to understand, but “public policy does not favor allowing a party that engaged in fraud from concealing that fraud and then—when the fraud is later discovered by a third party—attempting to use the fraud as a defense to a valid arbitration award in favor of its alleged co-conspirator.”