In the Superior Court of the State of Washington s1

IN THE SUPERIOR COURT OF THE STATE OF WASHINGTON

FOR PIERCE COUNTY

JUST DIRT, INC., a Washington Corporation, Plaintiff, Case No. 09 2 06536 1 vs. JODY MILLER CONSTRUCTION, INC., a Washington Corporation; and TRAVELERS CASUALTY AND INSURANCE COMPANY OF AMERICA, BOND NO. 104815498, a performance and payment bond, Defendant. ______

COMES NOW, Plaintiff Just Dirt, Incorporated (“JDI”) and asks Pierce County Superior

Court to vacate a January 11, 2010 AAA arbitration award based on JMC’s perjured testimony and outright fraud.

A. SUMMARY OF POSITION

In July 2009 this case was stayed pending arbitration initiated under the auspices of the American Arbitration Association. On January 11, 2010 the arbitrator awarded JDI roughly $275,000. JDI has uncovered undisputable proof that Jody Miller Construction

(“JMC”) presented perjured testimony pertaining to critical disputed damages issues. Under

Washington law, perjury is fraud sufficient to vacate an arbitration award. JDI asks that the award be vacated and sanctions ordered against JMC in the form of all fees paid by JDI to

AAA, and JDI’s costs and attorneys’ fees incurred to date.

B. FACTUAL BACKGROUND

This case was arbitrated before the American Arbitration Association Puyallup School District to demolish and rebuild the Aylen Junior High School. JDI contracted with JMC to perform the civil earthworks and demolition.

The contract between JDI and JMC contemplated that the owner may make changes to the project in the form of “contract change directives” or CCDs. JDI was contractually obligated to undertake the work, with the price adjustment—up or down—to be established later.

The primary dispute between JDI and JMC at arbitration was the pricing of two major contract change directives, referred to as CCDs. Combined, JDI priced the change orders at greater than $1.3 million. Arbitrator’s award, Talbot Declaration Exhibit A. At the hearing,

JMC provided in sworn testimony that

a. The fair value of Contract Change Directive (“CCD”) 183 was $83,000. JMC Arbitration Ex. 19. b. The fair value of CCD 184 was 484,000. Exhibit 20. c. The fair value of CCD 178 was a credit of $84,000. Ex. 18.

Talbot Declaration, Exhibit B. Thus JMC principals, Josh and Jody Miller, testified under oath that the fair value of CCDs 183 and 184 was $566,000, with a credit owed back to the school district of $84,000 for a CCD that lessened the contract price.

JDI has since learned that in fact JMC priced the two positive change orders significantly higher, and the credit lower. Its principals lied at the arbitration hearing.

Attached as Exhibit C are three applications for payment by JMC to the Puyallup School

District submitted after the arbitration hearing. In it JMC requested payment from the school district in amounts as follows:

183 $94,075 184 $636,021 178 $80,000

JMC seeks a total of $730,096 for CCDs 183 and 184, or $164,096 more than testified to in the arbitration hearing. For the credit on CCD 178, it actually priced it $4,000 less than testified to in arbitration. It is thus seeking to profit from its perjury by $168,096.

Applications for payment by JMC to the Puyallup School District are made under penalty of perjury. Deposition of Josh Miller at p. 80-81, Talbot Ex. D. JMC therefore School District. It seeks to put an additional $168,096 in its pockets at the expense of JDI.

Such conduct should not be tolerated.

C. ARGUMENT

1. The Arbitration Award Should Be Vacated.

JDI acknowledges that overturning an arbitration award should not be done lightly. Under

Washington law, however, an award should be overturned if it was based on fraud. RCW

7.04A.230 provides as follows:

Upon motion of a party to the arbitration proceeding, the court shall vacate an award if:

a. The award was procured by corruption, fraud or other undue means.

In interpreting this statute, the Washington Court of Appeals has ruled that providing false testimony constitutes fraud sufficient to vacate an arbitration award. Seattle Packaging Corp. v.

Barnard, 94 Wash.App. 481 (1994).

Whether or not perjury constitutes fraud for the purpose of vacating an arbitration award was a matter of first impression in Seattle Packaging. The court first looked to Section 10 of the

Federal Arbitration Act, which provides

In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration -

(1) Where the award was procured by corruption, fraud, or undue means[.]

9 U.S.C.A. § 10 (Supp.1997). Two federal courts had determined that perjury indeed constitutes fraud, and relying on that precedent, Division I of the Court of Appeals held that

an arbitration award procured by perjured testimony as to a material fact of consequence in the arbitration proceedings constitutes fraud within the meaning of RCW 7.04.160(1).

Seattle Packaging at 487 (citations omitted).

“Fraud not reasonably discoverable by the exercise of due diligence before the close of the arbitration hearing that prevents a party from fairly and fully presenting his or her case or defense constitutes prejudice of substantial rights of the party.” Seattle Packaging at 487. In the present dispute, JDI had no way of knowing JMC’s witnesses had perjured themselves, because it was not The Seattle Packaging court described the circumstances in which an arbitration award should be set aside, circumstances that unequivocally exist in this case.

Perjury materially related to an issue of consequence in an arbitration proceeding constitutes fraud in the procurement of an arbitration award within the meaning of RCW 7.04.160, and requires vacatur if substantial rights of a party were prejudiced thereby. A party seeking vacatur of an arbitration award on grounds of perjury must (1) show by clear and convincing evidence that perjury materially related to an issue of consequence in the arbitration proceeding was in fact committed; (2) demonstrate that the alleged perjury could not reasonably have been discovered in the exercise of due diligence before the close of the arbitration hearing; and (3) demonstrate that the alleged perjury operated to prevent the party from fully and fairly presenting his or her case or defense.

Id. at 483-84. The first element is obviously established. JMC’s witnesses falsely misrepresented what they believed to be the fair value of three disputed change orders, which deprived JDI of

$168,000 properly owing on the contract.

Once settlement discussions failed at mediation, the only numbers presented by JMC on the disputed CCDs were those presented in Exhibit 18, 19 and 20 (Talbot Decl., Ex. B). JMC never wavered from these numbers and perpetuated the perjury during the arbitration hearing.

There was no way JDI could know that JMC would lie on the stand until its true valuation was discovered on the School District’s web site nearly four weeks after the hearing concluded. The second element is established.

Finally, JMC’s false testimony to the tune of $168,000 prevented JDI from fairly presenting its case. Exhibits 18, 19 and 20 are actually the school district’s estimation of values.

If JMC had provided to JDI its valuation of the disputed CCDs, JDI’s attorney could have cross examined them on their numbers, JDI’s expert witness could have evaluated the cost estimation and testified on that topic, and justice could have been properly served. It was not. By failing to disclose its estimation of the values of the disputed change orders, JMC robbed JDI of its right to fully presenting its case.

JMC will undoubtedly point out that the Seattle Packaging Court declined to overturn the arbitration award, because in that case there were doubts as to whether perjury occurred, and there was no showing that the perjury prevented the selling party to fairly present its case. 94 Wash.

App. at 492. In Seattle Packaging the sellers of a business—and their expert witness—testified several declarations to the contrary. The court acknowledged that the sellers’ may have perjured themselves, but noted that the contrary views could have been discovered by the purchase with more due diligence prior to the hearing.

There is nothing JDI could have done to discover JMC’s perjury prior to the hearing.

JMC produced and relied solely on pricing proposed by the Puyallup School District. They apparently had done their own pricing, but refused to disclose it prior to or at the hearing. Not only is there clear evidence of perjury, but also it cannot be disputed that the false testimony prevented JDI from fairly presenting its case.

2. Alternately, the Award Should be Modified Pursuant to RCW 7.04A.240.

If the AAA is unwilling to set aside the verdict, it should modify it pursuant to

RCW 7.04A.240. The Cour should correct the award to recognize JMC’s revised pricing of

CCDs 178, 183 and 184 and increase the amount of the award by $168,096.

3. JDI Should Be Awarded its Costs and Fees as a Sanction.

JMC incurred significant fees and costs in pursuing its claim for breach of contract. In fact, attorneys’ fees and costs exceed $120,000. If the award is vacated, as it should, all that effort was for naught. Such misconduct should not be tolerated; JMC should be ordered to Pay

JDI’s attorneys fees as a sanction for its blatant perjury.

4. Alternately, JDI Is Entitled to Costs and Fees Incurred After the Award Pursuant to RCW 7.04A.250.

RCW 7.04A.250 allows a party who prevails in overturning an arbitration award to receive its attorneys’ fees incurred after the arbitration award:

On application of a prevailing party to a contested judicial proceeding under RCW 7.04A.220, 7.04A.230, or 7.04A.240, the court may add to a judgment confirming, vacating without directing a rehearing, modifying, or correcting an award, attorneys' fees and other reasonable expenses of litigation incurred in a judicial proceeding after the award is made.

JMC’s perjury has caused JDI to incur additional attorneys’ fees and costs after the Arbitrators’ award. JMC should be ordered to pay those fees and costs in an amount to be established after a decision is made on the merits.

D. CONCLUSION

JMC’s principals lied under oath. JMC withheld critical information from JDI that DATED this _____ day of April, 2010

LAW OFFICES OF JAMES W. TALBOT

James W. Talbot, WSBA #22082 Attorneys for plaintiff Just Dirt, Inc.