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IN RE HOUSEHOLD MFG.

March 1, 1993

IN THE MATTER OF THE ARBITRATION BETWEEN HOUSEHOLD MANUFACTURING, INC., and KOWIN DEVELOPMENT CORP.

MORAN


The opinion of the court was delivered by: JAMES B. MORAN

In March 1988, Kowin Development Corporation (Kowin) sued Household Manufacturing, Inc. (Household), now called Eljer Manufacturing, Inc. *fn1" (Eljer), in a United States District Court in California, alleging fraud and breach of contract in relation to the formation and operation of the joint venture between Kowin-Simonds and the Beijing Steel Files Plant of Beijing, China (the Chinese joint venture). Household invoked an arbitration clause in a contract between Kowin and Household. In December 1989, the California district court stayed the action and ordered arbitration. The arbitration hearing was conducted in June 1992, before Joseph Kostner (Kostner). On October 30, 1992, Kostner issued an award in favor of Kowin. Before us now is Household's motion to vacate or modify the arbitration award as permitted in the Federal Arbitration Act, 9 U.S.C. §§ 10-11, and Kowin's motion to confirm the award. 9 U.S.C. § 9. For the reasons stated below, the arbitration award is modified in part and confirmed in part.

 FACTS

 Our review in this case is confined to determining whether or not the arbitration award should be confirmed. The arbitrator's findings of fact and conclusions with respect to liability have not been challenged and are presumed to be true. Many of the facts are therefore irrelevant and we include here only those that concern the damages award and those that have a direct bearing on our decision.

 In 1984, Simonds Cutting Tools, N.A. (Simonds), a division of Household, entered into an agreement with Kowin to form a new corporation, Kowin-Simonds, Inc. (Kowin-Simonds). In turn, Kowin-Simonds entered into a joint venture with the Beijing Steel Files Plant of Beijing, China.

 In November 1985, Kowin-Simonds obtained a loan of $ 2.5 million from the Bank of America (the Kowin-Simonds loan). The Kowin-Simonds loan took the form of two separate notes, each in the amount of $ 1.25 million. Kowin guaranteed one note (Note A) and Household guaranteed the other note (Note B). The Bank of China also agreed to pay $ 1 million for certain manufacturing equipment which the Bank of China would lease to the Chinese joint venture.

 Simonds received $ 3.5 million (the $ 2.5 million Kowin-Simonds loan and $ 1 million from the Bank of China) for its equipment. Specified equipment was transferred to the Bank of China in return for its $ 1 million payment, and the bank leased this equipment to the Chinese joint venture. Kowin-Simonds purchased the balance of the equipment from Simonds and contributed the equipment to the Chinese joint venture.

 The Chinese joint venture failed to make a profit. After the Kowin-Simonds loan became due Kowin and Household each paid off the principal and interest on their respective notes.

 On March 17, 1992, Kowin sued Household and Simonds in the United States District Court for the Central District of California, alleging fraud and breach of contract claims related to the formation and operation of the Chinese joint venture. On December 27, 1989, the district court stayed the lawsuit and ordered arbitration to proceed. *fn2"

 Kostner conducted the arbitration hearing during the week of June 22, 1992. On October 30, 1992, Kostner issued his award. The arbitration award did not identify the cause (or causes) of action upon which Kostner found liability against Household and in favor of Kowin. However, there were three separate award amounts (numbered 1-3). The award in part reads as follows:

 
1. Household shall pay to the Kos *fn3" as successors-in-interest to [Kowin] the sum of TWO MILLION NINE HUNDRED SIXTY THOUSAND FIVE HUNDRED FORTY-TWO DOLLARS AND NO CENTS ($ 2,960,542.00) plus interest at the rate of 10% per annum subsequent to August 1, 1992.
 
2. Household shall pay to the Kos as successors-in-interest to [Kowin] the sum of EIGHT MILLION THREE HUNDRED EIGHTY-FOUR THOUSAND THREE HUNDRED SIXTEEN DOLLARS AND NO CENTS ($ 8,384,316.00) with interest at the rate of 10% per annum subsequent to the date hereof.
 
3. Household shall pay to the Kos as successors-in-interest to [Kowin] the sum of THREE MILLION FIVE HUNDRED THOUSAND DOLLARS AND NO CENTS ($ 3,500,000.00) with interest at the ...

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