Case Information
‐ ‐ cv v. Team Tankers A.S. In the
United States Court of Appeals
For the Second Circuit
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A UGUST T ERM No. ‐ ‐ cv
Z URICH A MERICAN I NSURANCE C O ., subrogee Vinmar International, Ltd., AND V INMAR I NTERNATIONAL , L TD ., Petitioners Appellants, T EAM T ANKERS A.S. AND E ITZEN C HEMICAL USA, personam , AND THE M/T S ITEAM E XPLORER , her engines, tackle, apparel, etc., rem ,
Respondents Appellees.
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Appeal from United States Southern New York ________
S UBMITTED : D ECEMBER D ECIDED : J ANUARY ________
Before: C ABRANES P ARKER L OHIER , Circuit Judges .
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This appeal presents two questions. first, which dispose relatively short order, whether District Court erred confirming an arbitration second, merits fuller discussion, whether party prevailed arbitration entitled, contract statute, to recoup fees and costs it incurred seeking confirm award before District Court.
Petitioners ‐ appellants are American Insurance and Vinmar International, Ltd. They challenge two orders United States District Court for Southern District New York (William H. Pauley III, Judge ). In first, entered June 30, 2014, District Court denied petitioners ‐ appellants’ motion vacate and granted motion respondents ‐ appellees Team Tankers A.S., Eitzen Chemical USA, and M/T Siteam Explorer confirm it. second, entered September District awarded respondents ‐ appellees their attorney’s fees costs. AFFIRM Court’s June order denying
petitioners ‐ appellants’ motion granting respondents ‐ appellees’ motion REVERSE Court’s September awarding fees costs respondents appellees because authorized relevant law.
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John T. Lillis, Jr., Nathan T. Williams, Kennedy Lillis Schmidt & English, New York, NY, Petitioners Appellants.
Michael J. Frevola and F. Robert Denig, Holland & Knight LLP, New York, NY, for Respondents ‐ Appellees.
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J OSÉ A. C ABRANES Circuit Judge :
This appeal presents two questions. The first, which dispose relatively short order, whether the District Court erred confirming an arbitration second, merits fuller discussion, whether the party prevailed arbitration entitled, contract or statute, recoup the fees and costs incurred seeking confirm before District Court.
Petitioners appellants are American Insurance (“Zurich”) and Vinmar International, Ltd. (“Vinmar”) (jointly, “petitioner” “shipper”). appeal challenges two orders United States District Court Southern District New York (William H. Pauley III, Judge ). In first, entered June 30, District Court denied petitioner’s motion vacate granted motion respondents appellees Team Tankers A.S. (“Team Tankers”), Eitzen Chemical USA (“Eitzen”), M/T Siteam Explorer (the “Siteam Explorer”) (jointly, “respondent” “carrier”) it. second, entered September awarded respondent fees costs. AFFIRM Court’s June denying petitioner’s motion granting *4 respondent’s motion to it but REVERSE Court’s September 29, 2014 awarding fees costs respondent because was authorized relevant law.
BACKGROUND June 2008, Vinmar chartered from Team Tankers a ship
called M/T Siteam Explorer move a large quantity a chemical called acrylonitrile (ACN) from Houston, Texas Ulsan, South Korea. J.A. 365; Zurich Am. Ins. Co. Team Tankers A.S. , No. ‐ CV ‐ 8404 (WHP), 2014 WL 2945803, at *1 (S.D.N.Y. June 30, 2014). ACN a versatile raw material is, in its most valuable form, colorless. J.A. ‐ 70; Zurich Am. Ins. Co. , WL 2945803, at *1. Contact other chemicals can cause ACN “yellow” (i.e., become yellow color), evidence change in composition reduces its value. J.A. ‐ 70; Zurich Am. Ins. Co. WL at *1 2.
Vinmar planned find buyer for cargo Ulsan, ACN market dropped while Siteam Explorer at sea. Accordingly, when ship arrived port August ACN transferred into onshore tanks for storage. J.A. 66. At time, ACN remained “on specification” color—that is, it had begun yellow. WL *1; see J.A. 366.
Six weeks later, Vinmar tested stored ACN learned had yellowed beyond Vinmar’s quality standards. J.A. It *5 also tested a sample that had been carried on Siteam Explorer but never exposed Ulsan shore tanks; it too had yellowed. J.A. 370; Zurich Am. Ins. Co. 2014 WL 2945803, at *1. A sample pulled from tanks in Houston that had not been carried Siteam Explorer had yellowed at all. J.A. 370.
Consistent charter agreement, Vinmar initiated arbitration before Society Maritime Arbitrators, (“SMA”). J.A. 366; 2014 WL *2. Vinmar attempted show that it had delivered ACN Houston in good that it had arrived contaminated Ulsan. See J.A. 369 ‐ 71. It argued that ACN had been contaminated by a chemical called “pygas” previously carried Siteam Explorer’s tanks. J.A. 369.
On August applying Carriage Goods Sea Act (“COGSA”), U.S.C. 30701 note, panel majority held that, three reasons, Vinmar entitled relief. It held, first, Vinmar had made out prima facie case ACN had been damaged while aboard vessel, J.A. ‐ 73; second, even if Vinmar had made out prima facie case, Team Tankers had shown exercised due diligence transporting cargo, J.A. 75; third, Vinmar had event failed prove damages, J.A.
Following panel’s decision, shipper, Vinmar, petitioned November section Federal Arbitration Act (“FAA”), *6 U.S.C. § et seq. [1] arguing that the panel manifestly disregarded COGSA in reaching each of the three conclusions described above. J.A. In January the learned that the panel chairman had died as a result of a brain tumor which he had been diagnosed during the arbitration, which he never informed parties. WL *3, *8. Vinmar amended petition argue his failure do so constituted “corruption” or “misbehavior” those terms are used in FAA. J.A. 86; see U.S.C. 10(a). Court held panel had
manifestly disregarded law in determining Vinmar had made out prima facie case COGSA; accordingly, *7 declined address Vinmar’s other manifest disregard arguments. WL at *8. It likewise held that panel chairman had been guilty “corruption” “misbehavior.” Id. at *8 On authority provision in charter agreement stating “[d]amages breach Charter shall include all provable damages, and all costs suit and attorneys [sic] fees incurred action hereunder,” District Court awarded respondent carrier fees and costs it incurred connection with district proceeding. Id. *11.
On appeal, petitioner argues erred three respects: (1) concluding arbitral panel did manifestly disregard law; (2) concluding panel chairman had been guilty “corruption” “misbehavior”; and (3) awarding fees and costs respondent carrier. We agree Court’s decision uphold conclude, however, erred awarding respondent carrier fees costs.
DISCUSSION
I. Arbitral Award “[T]o avoid undermining twin goals arbitration, namely, settling disputes efficiently avoiding long expensive litigation,” awards “are subject very limited review.” Folkways Music Publishers, Weiss 1993). Under United Nations Convention Recognition Enforcement Foreign Arbitral Awards, June 21 U.S.T. 2517, 330 U.N.T.S. 38 (the “New York Convention”), which governs this dispute, court must confirm an arbitral award “unless it finds one of the grounds for refusal or deferral of recognition or enforcement of award specified in the said Convention.” U.S.C. § [2] award in this case having been rendered in United
States, available grounds for vacatur include all express grounds for vacating an award under FAA. Yusuf Ahmed Alghanim & Sons v. Toys “R” Us, F.3d (2d Cir. 1997) (“The [New York] Convention specifically contemplates state in which . . . award is made, will be free set aside or modify an award in accordance domestic arbitral law its full panoply of express implied grounds for relief.”). As relevant here, FAA permits court an award “where there evident partiality or corruption arbitrators,” U.S.C. § 10(a)(2), or “where arbitrators were guilty . . . any . . . misbehavior rights any party been prejudiced,” id. 10(a)(3). A court may also “set aside an arbitration award if it rendered *9 manifest disregard law.” Schwartz v. Merrill Lynch & Co., Inc. , 665 F.3d 444, 451 (2d Cir. 2011) (internal quotation marks omitted). conclude shipper has established ground vacating arbitral On this point agree entirely Court’s thorough analysis, see , 2014 WL thus touch only briefly on shipper’s arguments.
A. Manifest Disregard Law shipper’s first argument—that panel manifestly disregarded substantive law COGSA—is easily rejected. “A litigant seeking vacate an arbitration based alleged manifest disregard law bears heavy burden . . . .” T.Co Metals, LLC v. Dempsey Pipe & Supply, , F.3d (2d Cir. 2010) (internal quotation marks omitted). A court may ground only if “finds both (1) arbitrators knew governing legal principle yet refused apply ignored it altogether, (2) law ignored by arbitrators well defined, explicit, clearly applicable case.” Wallace v. Buttar F.3d (2d Cir. 2004) (alterations omitted). shipper’s basic argument, briefly stated, panel majority disregarded COGSA requiring prove cause damage cargo, rather than
properly applying COGSA’s burden shifting regime. Transatlantic Marine Claims OOCL Inspiration 1998) (describing COGSA’s system burdens *10 presumptions). We disagree. As the carefully explained, the panel majority recognized that COGSA permits a shipper make a prima facie case by establishing that delivered goods a carrier sound condition, that goods arrived damaged condition following carriage. See WL at *5 majority simply found that shipper’s evidence was insufficient satisfy initial burden COGSA. See J.A. (“Claimants have shown, by a preponderance evidence otherwise, that alleged contamination took place while cargo was custody Siteam Explorer.”); J.A. (discussing weaknesses shipper’s evidentiary showing). It arguable that shipper’s evidence could supported contrary conclusion, does show panel majority manifestly disregarded law.
B. “Corruption” “Misbehavior” shipper’s second argument panel chairman guilty “corruption” “misbehavior” because he failed disclose his illness parties; such disclosure, argues, required by SMA Rules, governed conduct arbitration. We find argument no more convincing than did Court. will simply emphasize shipper’s attempt secure vacatur based violation private rules runs headlong into principle parties may expand by contract FAA’s grounds vacating Hall St. Assocs., LLC Mattel, U.S. (2008). Parties may, course, “tailor some, even many, features contract,” id. (citation omitted); if arbitrator’s failure to comply rules, without more, could properly be considered “corruption” or “misbehavior,” FAA’s grounds for vacatur would be precisely as varied and expansive as rules private parties might choose to adopt. We accordingly reject this argument.
In sum, has established no ground which vacate Accordingly, District Court did err denying shipper’s motion and granting carrier’s motion confirm it.
II. Award Attorney’s Fees & Costs conclude, however, Court erred awarding respondent carrier fees and costs incurred seeking award, pause explain why think untenable.
“Our basic point reference when considering attorney’s fees bedrock principle known American Rule: Each litigant pays his own fees, win lose, unless statute contract provides otherwise.” Baker Botts L.L.P. ASARCO LLC S. Ct. (2015). proceeding below, Court determined this “default rule,” id. displaced contract. awarded fees costs respondent carrier provision charter agreement reads: “BREACH. Damages breach Charter shall include all provable damages, all costs suit attorney fees incurred action hereunder.” J.A. hold that this result in error. By its terms, this provision authorizes a fee award against a party that breaches the charter agreement, as part the non breaching party’s damages. There no finding below, nor indeed any suggestion, that the petitioner shipper breached the charter agreement.
The respondent carrier argues that the award may be sustained the theory that the shipper breached the parties’ contract through any conduct related to transport the shipper’s cargo to South Korea, but through conduct in litigation. carrier reasons that parties agreed to be bound by panel’s decision, shipper breached understanding resisting entry judgment
For two reasons, are unconvinced. First, parties agreed arbitrate, they also consented confirmation award any court competent jurisdiction. See J.A. so doing, they agreed federal court would have authority standards provided FAA. U.S.C. (“If parties their agreement agreed judgment court shall be entered upon made pursuant arbitration, . . . party may apply court . . . an order confirming award, thereupon must grant such unless vacated, modified, corrected prescribed sections title.”); Phoenix Aktiengesellschaft Ecoplas, 2004). parties having effectively incorporated FAA review into their contract, argument breached *13 contract by making arguments the FAA permits is unconvincing. I/S Stavborg v. Nat’l Metal Converters, Inc. , 500 F.2d 426 (2d Cir. 1974) (“One purpose [9 U.S.C. § 9] to ensure that the parties have affirmatively agreed to the application the federal substantive law contemplated by Act to interpretation the arbitration agreement into which they have entered.”).
Second, even if contract did oblige to forbear from resisting confirmation award, would be to that extent unenforceable. Read that way, contract would authorize a federal court to confirm arbitral while effectively preventing court from ensuring complied with FAA. We held “[p]arties seeking to enforce awards through federal ‐ court confirmation judgments may divest courts their statutory common ‐ law authority review both substance awards process compliance § 10(a) manifest disregard standard.” Hoeft MVL Grp., , F.3d 2003), abrogated other grounds Hall St. Assocs. U.S. at 584–85. Accordingly, reject argument shipper breached charter agreement seeking
The carrier argues alternative can be sustained under U.S.C. § authorizes assess “costs, expenses, attorneys’ fees” against any attorney who “so multiplies proceedings case unreasonably vexatiously.” But under § is proper only “when there finding conduct constituting akin bad faith.” State St. Bank Inversiones Errazuriz 2004) (internal quotation marks omitted). actions must be “so completely without merit as require conclusion they must have been undertaken some improper purpose such delay.” Id.
A finding bad faith improper purpose warranted on record. petitioner shipper’s arguments on appeal (which mirror its arguments below) are convincing. Yet ties its reasoning, however flawed, recognizable legal concepts. Its manifest disregard argument relies proposition, on face absurd, arbitrators manifestly disregard law when facts they find flatly obviously preclude legal conclusions they reach. Its “corruption” “misbehavior” arguments rely disclosure based framework applied evident ‐ *15 partiality cases. See, e.g. Applied Indus. Materials Corp. Ovalar 2007). These are, as we say, unconvincing arguments, but so unconvincing require conclusion they are made improper purpose.
Perhaps something record could support fee award But we found it, and respondent carrier has made no effort identify it. Accordingly, we must reverse District Court’s attorney’s fees costs.
CONCLUSION sum, hold that:
(1) District Court did err denying petitioner shipper’s motion granting respondent carrier’s motion it; but (2) District erred awarding fees costs respondent carrier. thus AFFIRM Court’s order June
confirming REVERSE Court’s September awarding fees costs.
[1] Title United States Code, Section provides, in relevant part: (a) any following cases United States district wherein award was made may make vacating upon application any party arbitration— (1) where was procured by corruption, fraud, or undue means; (2) where there evident partiality or corruption arbitrators, or either them; (3) where arbitrators were guilty misconduct refusing postpone hearing, upon sufficient cause shown, or refusing hear evidence pertinent material controversy; or other misbehavior rights any party been prejudiced; (4) where arbitrators exceeded their powers, so imperfectly executed them mutual, final, definite upon subject matter submitted made.
[2] Title United States Code, Section 207—which part statutory scheme “implements . . . New York Convention,” Schneider Kingdom Thailand 2012)—reads full as follows: Within three years after an award falling under Convention made, any party may apply any court having jurisdiction chapter for confirming against other party arbitration. shall unless finds one grounds refusal deferral recognition enforcement specified said Convention.
[3] This suggest parties’ affirmative consent confirmation required before federal could It not: case fell New York Convention, (unlike FAA) “does way condition confirmation express implicit consent.” Phoenix Aktiengesellschaft 436; see also U.S.C. note ante . simply conclude parties’ decision expressly include consent confirmation term their contract convincingly demonstrates their intent incorporate principles FAA review into their agreement.
[4] More accurately, carrier states conclusory fashion can be upheld U.S.C. Respondent’s Br. 51.