Case of the Day: SEI Societa Esplosivi Industriali v. L-3 Fuzing and Ordinance Systems

B-2 dropping bombsThe case of the day is SEI Societa Esplosivi Industriali SpA v. L-3 Fuzing and Ordinance Systems, Inc. (D. Del. 2012). L-3 and SEI were defense contractors involved in a contract for fuzes for “aircraft-delivered attack munitions.” L-3 was to deliver electric components to SEI, but L-3’s electronics “presented a safety issue”: they allowed the fuze to arm earlier than the pilot intended. Therefore, L-3 did not deliver the components to SEI, which in turn was unable to meet its obligations to other defense contractors. SEI terminated its contract with L-3, and the parties arbitrated their dispute in Geneva.

The tribunal awarded SEI $7 million in damages and rejected L-3’s claim for lost profits. SEI sought confirmation in Delaware. Much of L-3’s argument was an argument of legal error, for which the judge had little patience. The judge held that in the Third Circuit at least, manifest disregard of law is not an available defense in a New York Convention case. Nor did the argument that the award violated public policy carry weight: the judge concluded that it was simply a reworking of L-3’s claim of legal error.

The only interesting claim was that because SEI’s notice of termination had specified that the termination was for non-delivery rather than for another default or non-performance, the tribunal exceeded its authority. The judge rejected this argument, too. The agreement to arbitrate used broad and standard language (“arising out of or connected with”), and the language of the termination notice did not affect the scope of the clause. Moreover, L-3 itself made arguments to the tribunal that were inconsistent with the narrow view of the scope of the arbitration it espoused in court.

Photo Credit: U.S. Air Force

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