Zurich American Insurnce v. Team Tankers A.S.
811 F.3d 584
2d Cir.2016Background
- In June 2008 Vinmar chartered the M/T Siteam Explorer from Team Tankers to ship acrylonitrile (ACN) from Houston to Ulsan; cargo was fine on delivery but later found yellowed in Ulsan storage.
- Vinmar initiated SMA arbitration alleging contamination aboard the vessel (pygas residue); arbitration panel (majority) denied relief under COGSA, finding no prima facie showing of damage aboard the ship, that carrier exercised due diligence, and no proven damages.
- Vinmar petitioned the Southern District of New York to vacate the award under the FAA, later amending to assert the panel chairman’s undisclosed fatal illness constituted "corruption" or "misbehavior."
- The District Court confirmed the arbitration award and awarded Team Tankers its attorneys’ fees and costs based on a charter provision allowing fees for breach of the charter.
- On appeal the Second Circuit affirmed confirmation (denial of vacatur) but reversed the District Court’s award of attorneys’ fees and costs as unauthorized by law or the contract’s scope.
Issues
| Issue | Plaintiff's Argument (Vinmar/Zurich) | Defendant's Argument (Team Tankers) | Held |
|---|---|---|---|
| Whether the arbitration award should be vacated for manifest disregard of COGSA | Panel required proof of causation rather than applying COGSA’s burden‑shifting; thus manifest disregard | Panel applied COGSA and found petitioner’s evidence insufficient; no manifest disregard | Affirmed: no manifest disregard — petitioner failed heavy burden |
| Whether panel chairman’s undisclosed illness constituted "corruption" or "misbehavior" under FAA §10 | Non‑disclosure of illness violated SMA rules and was misbehavior/corruption warranting vacatur | Private arbitral‑rule violations do not expand FAA vacatur grounds; no corruption/misbehavior proved | Affirmed: no corruption/misbehavior; FAA grounds not expanded by SMA rules |
| Whether charter clause permits fee award for resisting confirmation (i.e., breach by litigating) | Party breached by resisting confirmation, so clause authorizes fees as damages | Clause covers fees for breach of the charter in relation to charter obligations; does not bar FAA review or penalize FAA‑permitted litigation | Reversed: clause authorizes fees for contractual breach only; resistance to FAA review not a contract breach enforceable to strip judicial review |
| Whether fees may be awarded under 28 U.S.C. § 1927 for multiply proceedings | N/A (plaintiff) | If litigation was vexatious/bad‑faith, §1927 would permit fees | Reversed: no factual basis of bad faith or objectively baseless conduct to warrant §1927 award |
Key Cases Cited
- Folkways Music Publishers, Inc. v. Weiss, 989 F.2d 108 (2d Cir.) (arbitral awards subject to limited review)
- Yusuf Ahmed Alghanim & Sons v. Toys “R” Us, Inc., 126 F.3d 15 (2d Cir.) (New York Convention permits domestic vacatur grounds)
- T.Co Metals, LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329 (2d Cir.) (heavy burden to show manifest disregard)
- Wallace v. Buttar, 378 F.3d 182 (2d Cir.) (two‑part test for manifest disregard)
- Transatlantic Marine Claims v. OOCL Inspiration, 137 F.3d 94 (2d Cir.) (COGSA burden‑shifting explained)
- Hall St. Assocs., LLC v. Mattel, Inc., 552 U.S. 576 (Sup. Ct.) (parties may not expand FAA vacatur grounds by contract)
- Hoeft v. MVL Grp., Inc., 343 F.3d 57 (2d Cir.) (federal courts retain statutory/common‑law review of awards)
- Baker Botts L.L.P. v. ASARCO LLC, 135 S. Ct. 2158 (Sup. Ct.) (American Rule: fees only by statute or contract)
- State St. Bank v. Inversiones Errazuriz, 374 F.3d 158 (2d Cir.) (§1927 requires conduct akin to bad faith)