Opinion
00 Civ. 7120 (RLC)
January 11, 2001
Marisa Marinelli Francesca Morris Haight Gardner Holland Knight A Law Office of Holland Knight LLP New York, New York Attorneys for Petitioner
Steven G. Storch Storch Amini Munves, P.C. New York, New York Attorneys for Respondent
OPINION
Petitioner, P.M.I. Trading Limited ("PMI"), seeks an order from the court, pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("Convention"), 9 U.S.C. § 201, et seq., confirming an arbitration award signed on May 19, 2000. Petitioner also seeks prejudgment and post-judgment interest on the award as well as reimbursement for costs and attorneys' fees incurred in bringing this petition. Respondent, Farstad Oil, Inc. ("Farstad"), opposes this petition and demands that the arbitration award be vacated and that the court remand the matter to arbitration with instructions for further proceedings.
BACKGROUND
PMI and Farstad entered a contractual relationship whereby Farstad would supply PMI with certain quantities of liquified petroleum gas ("LPG"). (Verified Petition To Confirm Award of Arbitration ("Petition") ¶ 5.) Farstad delivered the LPG via railcar to a PMI terminal located in Mexico. Id. PMI paid for the shipments in advance based upon invoices supplied by Farstad. Id., ¶ 6. An independent inspector in Mexico would determine the actual quantity of LPG delivered and PMI would be credited for any amount for which it paid but did not receive. Id. This extra amount is referred to as "volume remaining on board." (Resp't. Mem. at 3.)
In arriving at the amount of credit to which it was due, PMI (and the inspector) included vapor product which remained in the railcar in calculating the volume remaining on board. Id. Farstad contended that only liquid — and not vapor — product should be included in the calculation. Id. As a result, Farstad's position is that PMI is only owed $71,207.07 as opposed to the $763,206.50 demanded by PMI. Id.
Pursuant to the relevant contracts, all disputes arising out of these transactions were to be submitted to arbitration in New York and be governed by the laws of New York. (Petition ¶ 8.) An arbitration panel reviewed this matter and determined, with one dissent, that PMI was entitled to $631,015.78 ($628,515.78 as an award amount plus $2500 in administrative fees). (Petition Ex. B.) The panel noted that the "term `volume' as used in both contracts includes both liquid and vapor LPG Mix." Id. Farstad refused to honor the award and PMI brought this action to confirm the arbitrators' decision. (Petition ¶¶ 14, 15.) Farstad contends that by failing to consider the common trade usage of the term "volume," the arbitration panel exhibited a manifest disregard of the law such that the court should vacate the award. (Resp't. Mem. at 8-9.)
DISCUSSION
The court has federal question jurisdiction pursuant to the Convention, 9 U.S.C. § 203. The Convention applies in this case for several reasons. First, PMI is a foreign party. See Bergesen v. Joseph Muller Corp., 710 F.2d 928, 932 (2d Cir. 1983) (holding that arbitration awards are subject to the Convention if they involve "parties domiciled or having their principal place of business outside the enforcing jurisdiction"). Second, the performance at issue occurred in Mexico. See 9 U.S.C. § 202 (stating that an arbitration award arising out of a commercial relationship even between two citizens of the United States is subject to the Convention if "that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states") Finally, PMI appears to have complied with all of the procedural requirements for bringing a petition to confirm under the Convention, and Farstad raises no argument to the contrary.
PMI is organized under the laws of Ireland and has its principal place of business in Mexico. (Petition ¶ 3.)
The grounds for vacating an arbitration award under the Convention are limited; a court may only look to the justifications supplied by Article V of the Convention. Article V(1)(e) of the Convention provides that a court shall not recognize an arbitration award which is subject to the Convention if the award "has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made." 9 U.S.C. § 201. Farstad's contention that the arbitration panel exhibited a manifest disregard of the law finds support, not in the text of the Convention, but rather in the case law interpreting § 10 of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 10. Because this award was rendered in the United States and both confirmation and vacatur are now sought in the United States, the court may look to § 10 of the FAA in resolving this dispute so long as it does not directly conflict with the Convention. See Yusuf Ahmed Alghanim Sons, W.L.L. v. Toys "R" Us, Inc., 126 F.3d 15, 21 (2d Cir. 1997). Manifest disregard of the law by the arbitrators can, therefore, be a valid reason for vacating this award.
Farstad's argument is, nevertheless, a difficult one to sustain. In Merrill Lynch, Pierce, Fenner Smith v. Bobker, 808 F.2d 930 (2d Cir. 1986), the Court of Appeals provided guidance for this analysis:
Farstad's contention that the arbitration award should be vacated appears to be time barred. The arbitrators' award was signed on May 19, 2000. PMI did not file its Notice of Petition to Confirm until September 20, 2000. Farstad requests the court to vacate the award for the first time in response to PMI's petition. Under § 12 of the FAA (which applies in this respect since it is not in conflict with the Convention,see Yusuf Ahmed, 126 F.3d at 20), a motion to vacate must be made within "three months after the award is filed or delivered." 9 U.S.C. § 12. Furthermore, a "defendant's failure to move to vacate the award within the three month time provided precludes him from later seeking that relief when a motion is made to confirm the award." See Florasynth, Inc. v. Pickholz, 750 F.2d 171, 175 (2d Cir. 1984). PMI has not raised this argument, however, and the court therefore will not consider it further.
"Manifest disregard of the law" by arbitrators is a judicially-created ground for vacating their arbitration award. . . . Although the bounds of this ground have never been defined, it clearly means more than error or misunderstanding with respect to the law. The error must have been obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator. Moreover, the term "disregard" implies that the arbitrator appreciates the existence of a clearly governing legal principle but decides to ignore or pay no attention to it.Id. at 933 (citations omitted)
Farstad argues that the majority of the arbitration panel manifestly disregarded the law by refusing to consider that the common trade practice is to exclude vapor product in determining volume. Farstad points to Article 28.2 of the American Arbitration Association's International Arbitration Rules which states that, "[i]n arbitrations involving the application of contracts, the tribunal shall decide in accordance with the terms of the contract and shall take into account usages of the trade applicable to the contract." Farstad contends that the arbitration panel was aware of this provision because it is a part of the rules which govern their conduct as arbitrators and because it was cited by the dissent in an opinion which was dated prior to the majority rendering its opinion.
The court is unpersuaded by Farstad's analysis. The two contracts at issue each provide that the volume determination will be made by an independent inspector. (Marinelli Reply Aff. Ex. B.) The independent inspector in this case decided that both liquid product and vapor product constituted volume remaining on board. Thus, even if the trade custom was to not include vapor product, the contract provided for a unique method of volume calculation. The provision of the Arbitration Rules cited by Farstad states that arbitrators "shall take into account usages of the trade applicable to the contract." American Arbitration Assoc.'s Internat'l Arbitration Rules, Art. 28.2 (emphasis added). Since the parties explicitly contracted for how volume would be determined, the customary procedure for such a calculation is irrelevant and therefore inapplicable to the contract.
The mere fact that the arbitration panel did not specifically address the issue of trade custom does not suggest a manifest disregard of the law. See Fahnestock Co., Inc. v. Waltman, 935 F.2d 512, 516 (2d Cir. 1991) ("[I]t is axiomatic that arbitrators need not disclose the rationale for their award."). The majority decision did note that "[t]he term `Volume' as used in both contracts includes both liquid and vapor LPG Mix. The parties failed to define and clarify these terms. Inchcape Testing Services/Caleb Brett was the mutually agreed independent inspector to measure the `Volume' at the discharge (unloading) terminal." (Petition Ex. B.) One can infer from this that because of the contracts' unique method of calculating volume, the majority found the industry practice to be inapplicable. The award in this case does not demonstrate a manifest disregard of the law and is therefore confirmed. See Sobel v. Hertz, Warner Co., 469 F.2d 1211, 1216 (2d Cir. 1972) ("[I]f a ground for the arbitrator's decision can be inferred from the facts of the case, the award should be confirmed.").
The only remaining issues are whether PMI is entitled to prejudgment and post-judgment interest and/or costs and fees. Absent persuasive argument to the contrary, post-award, prejudgment interest is available for judgments rendered under the Convention and is presumed to be appropriate. See Waterside Ocean Nav. v. International Nav. Ltd., 737 F.2d 150, 153-54 (2d Cir. 1984)
Farstad has not provided a persuasive basis for rebuttal of this presumption of propriety. Seeming content to defy the arbitration award without making any legitimate move to contest it, Farstad allowed its judicial remedy to lapse by letting the time period expire for moving the court to vacate the award. See supra note 2. It cannot be said that Farstad acted in good faith in contesting PMI's petition to confirm. Indeed, it thwarted the purpose of the federal arbitration law which promotes a "quick and final resolution of . . . disputes." See Florasynth, 750 F.2d at 177. PMI is therefore entitled to interest to compensate it for the amount by which inflation may have reduced the present day value of its award.
The mere fact that the arbitrators chose not to award post-ward, prejudgment interest does not control this analysis. See Moran v. Arcano, No. 89 Civ. 6717, 1990 WL 113121, at *2-3 (S.D.N.Y. July 27, 1990) (Haight, J.) (holding that post-award, prejudgment interest was the province of the district court, not the arbitrator).
The arbitrators intended payment of the award to be made within thirty days from the date of transmittal of the award to the parties. (Petition ¶ 13.) Since Farstad was not required to make payment until the end of that thirty day period, and the arbitration panel did not impose post-award interest, the court will only require that interest be paid from June 22, 2000, the date when the payment was due.
As for the rate of interest, the federal rate, 28 U.S.C. § 1961, is appropriate for calculating post-award, prejudgment interest in cases arising under the Convention. See Industrial Risk v. M.A.N. Gutehoffnungshutte, 141 F.3d 1434, 1447 (11th Cir. 1998) (holding that where a court has subject matter jurisdiction pursuant to the Convention, the rate of post-award, prejudgment interest is controlled by federal law). The calculation of post-judgment interest is also governed by 28 U.S.C. § 1961. See Carte Blanche (Singapore) Pte., Ltd. v. Carte Blanche Internat'l, Ltd., 888 F.2d 260, 269 (2d Cir. 1989)
At least one court has held that a state law rate of interest should apply to post-award, prejudgment interest. See Northrop Corp. v. Trian Internat'l Marketing, 842 F.2d 1154, 1155 (9th Cir. 1988).Northrop, however, was apparently not decided under the Convention, but rather under Chapter 1 of the FAA which the court concluded did not confer federal question subject matter jurisdiction. Since jurisdiction was predicated on diversity grounds, the court found that state law controlled the rate of interest. This case, however, is governed by the Convention which specifically confers federal question jurisdiction. 9 U.S.C. § 203.
Finally, PMI urges the court to invoke its inherent equitable power to order an award of costs and attorneys' fees arguing that Farstad "has acted in `bad faith, vexatiously, wantonly or for oppressive reasons.'" (Pet'r Mem. at 6 (quoting Chambers v. Nasco, Inc., 501 U.S. 32, 45-46 (1991)). Here, not only are Farstad's arguments incorrect, but they were not raised in a timely fashion. Because Farstad had no legitimate basis for contesting the confirmation of the arbitration award, PMI is entitled to reimbursement for the costs and attorneys' fees incurred in pursuit of this petition.
CONCLUSION
The arbitration award is confirmed and Farstad is ordered to pay PMI immediately $628,515.78 plus post-award, prejudgment interest and post-judgment interest. The interest rate shall be calculated in accordance with 28 U.S.C. § 1961 starting from June 22, 2000. Farstad is also ordered to pay PMI immediately the $2500 in administrative fees awarded by the arbitration panel.
In addition, Farstad is ordered to pay PMI's costs and expenses incurred in confirming the award, including PMI's reasonable attorneys' fees. Petitioner's counsel shall submit, on notice, an affidavit of costs and attorneys' fees that PMI has incurred in pursuing this petition, accompanied by contemporaneous attorney time records, the names of the attorneys who have worked on this petition, how long those attorneys have practiced law, those attorneys' regular hourly billing rates and any other appropriate documentation. Farstad may file papers in opposition to PMI's assessment of costs and attorneys' fees.
IT IS SO ORDERED.