Opinion
00 Civ. 2262 (BSJ)
April 24, 2001
Order and Opinion
The instant action is before this Court on Plaintiffs, Pan American and Zorra Transport's ("Pan American"), motion to vacate a partial final arbitration award and Defendant, Seaboard Trading Shipping's ("Seaboard"), motion to confirm the partial final arbitration award. For the reasons set forth below, Plaintiffs' motion to vacate the arbitration award is denied, and Defendant's motion to confirm and enforce the arbitration award is granted.
BACKGROUND
Pan American manufactures and sells grain products. In connection with its business, it owns and operates one ship, the ITB Zorra. The ITB Zorra primarily is used to transport Pan American's grain to its facility in San Juan, Puerto Rico. Seaboard is a multi-national corporation with several shipping and grain related subsidiaries, one of which is the Harinas Flour Mill in Guanica, Puerto Rico. The Harinas Flour Mill is serviced by the Progranos berth. Memorandum in Support of Motion to Vacate Partial Final Arbitration Award and in Opposition to Defendant's Motion to Affirm Partial Final Arbitration Award ("Plaintiffs' Mem.") at 2-3.
On March 13, 1995, Seaboard chartered the recently renovated ITB Zorra to carry a cargo of about 3,000 metric tons of wheat per month from the Davant/Electro Coal Berth, Mississippi River to San Juan, Puerto Rico and then to Guanica, Puerto Rico (the "Charter Party"). Affidavit of Vincent J. Foley in Support of Motion to Confirm Partial Award of Arbitrators ("Foley Aff.") ¶ 3.
Although under previous charters to Seaboard between mid 1994 and early March, 1995, the ITB Zorra had operated the same discharge port and berth without incident, on April 24, 1995, while departing from the Progranos berth at Guanica bay, fire broke out in the vessel's tug section. Pan American alleges that the fire was caused by the starboard propeller's collision with a wooden piling below the water's surface. The fire caused massive internal and external damage to the vessel. In addition, allegedly as a result of the collision, a portion of a blade of the starboard propeller broke off and other blades of that propeller were damaged. The harm to the ITB Zorra kept it out of service, and according to Pan American, resulted in over $20 million in damages and losses for Pan American. Plaintiffs' Mem. at 1-2.
An arbitration panel ("Panel") was constituted on October 16, 1995. On June 25, 1997, Seaboard moved the panel for a Partial Final Award. While the application requested outright dismissal of Pan American's liability claims against Seaboard, the Panel, on November 26, 1997, decided that the substance of Seaboard's application only concerned the existence of an express or implied Safe Port/Berth ("safe berth") Warranty in the Charter Party running from Seaboard to Pan American. The Panel conducted an evidentiary hearing on the issue on October 22 and 23, 1998. Numerous witnesses testified on behalf of both parties, and post-hearing briefs were filed. Decision and Partial Final Award ("Arbitration Award") at 2-4 (attached to Foley Aff. as Ex. 1).
On December 31, 1999 the Panel held that the Charter Party did not contain an express or implied safe berth warranty and thus granted Seaboard's application to dismiss that claim. See Arbitration Award. Pan American filed a Complaint in this Court seeking to vacate the arbitration award on March 24, 2000. The instant motions followed.
The Panel noted that this ruling did not preclude Pan American from pursuing its other damages claims against Seaboard. Arbitration Award at 21.
STANDARD OF REVIEW
The Federal Arbitration Act ("FAA") provides the framework for when an arbitration award may be vacated. Under the FAA, an arbitration award may be vacated on the grounds set forth in Section 10 of the Act including when "the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made." 9 U.S.C. § 10. In addition, an award may be vacated for manifest disregard of the law. See DiRussa v. Dean Witter Reynolds, Inc., 121 F.3d 818, 821 (2d Cir. 1997); Willemijin Houdstermaatschappij B.V. v. Standard Microsystems Corp., 103 F.3d 9, 12 (2d Cir. 1997). However, a party claiming that the arbitrators acted with manifest disregard of the law has a high burden to meet. Willemijin, 103 F.3d at 12. Indeed, the Second Circuit has held that this judicially-created ground for vacating an award is severely limited and "`clearly means more than error or misunderstanding with respect to the law.'" Di Russa, 121 F.3d at 821 (citations omitted). Accordingly, to vacate an award on this ground, this Court must find that the arbitrators knew of a well defined, explicit and clearly applicable governing legal principle but ignored it. Id.
In limited circumstances, an award also may be vacated when it is in manifest disregard of the terms of the agreement. Yusuf Ahmed Alghanim Sons, W.L.L v. Toys "R" Us, Inc., 126 F.3d 15, 23 (2d. Cir. 1997). The Second Circuit applies "a notion of "manifest disregard' to the terms of the agreement analogous to that employed in the context of manifest disregard of the law." Id. at 25.
DISCUSSION
Pan American argues that this Court should vacate the arbitration award on the following grounds: "(1) Seaboard judicially admitted its having a safe berth warranty in the charter party; (2) the Panel disregarded clearly applicable law to reach its conclusion; and (3) the ruling was so entirely inconsistent with the testimony and documentary evidence that it did not, in any way, draw its essence from the parties' agreement." Plaintiffs' Mem. at 1.
Seaboard's Alleged Judicial Admission
Pan American claims that Seaboard judicially admitted that the Charter Party contained a safe berth warranty running from Seaboard to Pan American. To support this contention, Pan American first relies on paragraphs 10 and 12 of Seaboard's Petition to Compel Arbitration. See Plaintiff's Mem. at 7; Plaintiffs' Reply Memorandum of Law in Support of its Motion to vacate Partial Final Award ("Plaintiffs' Reply") at 6-7. Paragraph 10 provides in pertinent part:
[i]n a facsimile dated May 9, 1995, attorneys for Respondent-Owner advised Seaboard of an alleged fire casualty aboard the ITB ZORRA on April 24, 1995 at Guanica, Puerto Rico. They advised that the alleged casualty may have been caused by an alleged unsafe condition at the berth used by the ITB ZORRA at the port of Guanica, which could subject Seaboard to possible legal liability for alleged damages under the Charter Party.
Petition to Compel Arbitration ¶ 10 (attached to Plaintiffs' Mem. as Ex. C). Paragraph 12 reads, "[t]he claims of [Pan American] in connection with the alleged fire casualty aboard the ITB ZORRA on April 24, 1995 represent disputes arising out of the Charter Party between Seaboard, as charterer, and [Pan American]. Pursuant to Clause 43 of the Charter party, these disputes. must be referred to arbitration in New York." Id. ¶ 12.
While it is clear that a party's submission to a court may be considered an admission, see Purgess v. Sharrock, 33 F.3d 134, 144 (2d Cir. 1994), there is no admission conceding liability here. To the contrary, the paragraphs in Seaboard's Petition to Compel Arbitration demonstrate only a request to arbitrate the safe berth warranty issue brought to its attention by Pan American in a letter dated May 9, 1995.
Second, Pan American argues that, after the accident and after it placed Seaboard on notice that it was responsible for the casualty, Seaboard conducted itself in a manner consistent with having a safe berth responsibility. This argument is without merit. As the arbitration panel correctly notes, Seaboard's conduct after being notified of its potential liability for the accident is the normal conduct of a properly concerned prospective respondent. Accordingly, this Court finds that Seaboard did not make a judicial admission that the Charter Party contained a safe berth warranty running from Seaboard to Pan American.
For instance, Seaboard did not contend that it had not given a safe berth warranty, retained Puerto Rican and New York counsel, hired a team of divers to inspect the vessel and the berth and demanding arbitration.
The Panel's Alleged Manifest Disregard of the Law
The arbitrators first examined the words of the Charter Party and decided that it was sufficiently ambiguous to admit parol evidence. Next, after analyzing Clause 1 of the Charter Party and listening to the parol evidence, the Panel concluded that the Charter Party did not contain a safe berth warranty. Pan American argues that the Charter Party was not ambiguous, and that the terms of Clause 1 — "or so near thereto as she may safely proceed and always lie afloat" — clearly created a safe berth warranty running from Seaboard to Pan American as a matter of law.
This Court has examined the Charter Party and agrees with the Panel's finding. The wording and construction of the Charter Party is sufficiently ambiguous to justify the Panel's consideration of parol evidence. In addition, this Court finds no fault with the arbitrators conclusion that Clause 1 of the Charter Party did not contain a safe berth warranty. Indeed, as the Panel correctly noted, while Clause 1 states that the berths were to be safe, neither party gave any assurance as to that condition.
The arbitrators next considered the fact that the Charter Party contained a named berth and, as a result, concluded that Pan American had accepted the berth as safe without a warranty from Seaboard. Accordingly, it found that Pan American was bound to the berth's existing conditions. Pan American objects to this finding. While acknowledging the general rule that "if the charter names the ports or berths the vessel will call at . . . the ports or berths will have been accepted by the owner as safe, such that the safe port/berth warranty is deemed to have been waived," Pan American contends it is inapplicable here as it applies only when the Master or shipowner has full and specific knowledge of the danger but nevertheless accepts a nominated berth. Plaintiffs' Mem. at 13 (citing J. Cooke, et al., Voyage Charters, at 93 (LLP, Inc. 1993)). Pan American asserts that it had no full or specific knowledge of danger at the Progranos berth because neither the Master nor the unberthing pilot knew the true conditions of the berth. Indeed, at the arbitration hearing, the pilot testified that neither an experienced mariner nor pilot would have been able to determine, from examination of the applicable navigational chart, or viewing the positions of the mooring dolphins, that the Progranos berth was unsafe or unsuitable for a vessel the size of the ITB Zorra. Plaintiffs' Mem. at 13-17.
Pan American claims that the navigational chart was inaccurate in several respects as the pilings were unmarked and the underwater conditions and mooring dolphin capacity could not be determined.
This Court finds that the Panel fully considered Pan American's argument regarding the named berth and correctly rejected it. It is well settled that "`[w]hen a charter names a port [or berth] and the master proceeds there without protest, the owner accepts the port [or berth] as a safe port, and is bound to the conditions that exist there.'" Pan Cargo Shipping Corp. v. United States of America, 234 F. Supp. 623, 638 (S.D.N.Y. 1964) (citations omitted). Here, there is no question that the Charter Party contained a named berth and that Pan American proceeded there without protest. The fact that Pan American insists that this "named berth" rule is inapplicable here because it had no knowledge of the conditions of the berth is unavailing because, as the Panel noted, the authorities that Pan American cited for its argument only hold that "an owner who proceeds with full knowledge of the existing conditions cannot recover from the charterer for damages it incurs as a result of those conditions."
Nonetheless, even if the Panel's conclusion was wrong, which this Court believes it is not, "`mere error in the law or failure on the part of the arbitrators to understand or apply the law' is not sufficient to establish manifest disregard of the law." Yusuf Ahmed Alghanim Sons, W.L.L. v. Toys "R" Us, Inc., 126 F.3d 15, 23 (2d. Cir. 1997); see also Willemijin, 103 F.3d at 13 (stating that even where there is barely a colorable justification for the outcome reached, a court must confirm the Panel's Award).
In sum, this Court finds that the Panel did not manifestly disregard applicable law. Accordingly, it will not vacate the Panel's award on this ground.
The Panel's Alleged Manifest Disregard of the Facts
Pan American also argues that the Panel's decision failed to draw its essence from the parties' agreement. Specifically, it states that the Panel disregarded the parol evidence witnesses' testimony and the facts it established. Indeed, Pan American contends that the parties' intent from the inception was that Seaboard would direct the ITB Zorra to a safe berth. it notes that the Charter Party's negotiators, Jose Gonzalez, Pan American's founder and President, Kevin Deuel, Pan American's Vice President for Trading, and Luis Rodriguez, Seaboard's Vice President for Trading, all testified at the arbitration hearing that from the beginning, their understanding of the transaction was to be "one safe berth load port and one safe berth discharge port" and that they relied upon Clause 1 in agreeing to and assigning the safe berth responsibility. Pan American argues that since this testimony demonstrated that the parties clearly intended for a safe berth warranty, the agreement was not subject to the Panel's interpretation.
Pan American alleges that Rodriguez was given full and final authority to negotiate the Charter Party and bind Seaboard. In addition, it asserts that his undisputed testimony demonstrated that Seaboard drafted the Charter party in line with the parties' negotiations and agreement. As drafter, according to Pan American, the Panel was required to construe any ambiguities against Seaboard. Plaintiffs' Mem. at 11-12.
In addition, Pan American notes that Deuel and Rodriguez also testified that although the Charter Party contained a named berth, they did not intend for Pan American to assume the risk. To the contrary, they testified that they intended for Seaboard to assume that risk because it had more knowledge, experience, ability and access to the existing conditions. Thus, the named berth was not intended to change the agreement regarding the safe berth warranty. Plaintiffs' Mem. at 9-11; 20-21.
It is axiomatic that an arbitrator's award must draw its essence from the agreement. Indeed, an arbitrator's authority is restricted by the parties' agreement such that it's interpretation and application of the agreement must be based on the explicit terms of the agreement and it cannot disregard or modify unambiguous provisions. In the matter of Arbitration between Carina International Shipping Corp. and Adam Maritime Corp., 961 F. Supp. 559, 565 (S.D.N.Y. 1997) (citations omitted) Nonetheless, it is also well established that interpretation of contract terms is within the province of the arbitrators and so long as the arbitrators arguably construed or applied the agreement, it should not be overruled because a court disagrees with the arbitrators' interpretation. Id.; Yusuf Ahmed Alghanim Sons, W.L.L., 126 F.3d at 23 (citing United Steelworkers v. Enterprise Wheel Car Corp., 363 U.S. 593, 599 (1960). Thus, it will only be overturned if the arbitrators ignore the clear meaning of the agreement's terms. Yusuf Ahmed Alghanim Sons, W.L.L., 126 F.3d at 23.
This Court finds that the Panel did not manifestly disregard the terms of the Charter Party. The Panel considered the terms of the agreement, as well as the testimony of Pan American's witnesses that the parties intended for Seaboard to assume the risk. They rejected the testimony as not credible and interpreted the terms of the agreement in Seaboard's favor. This Court can find no fault with this determination. Indeed, this Court has reviewed the reasons set forth by the Panel for its credibility findings and they are more than sufficient. See Arbitration Award at 17-19. In any event, this Court is not empowered to review the arbitrators' fact-finding and credibility determinations Acciardo v. Millennium Securities Corp., 83 F. Supp.2d 413, 417 (S.D.N.Y. 2000) (citing International Bhd. of Elec. Workers v. Niagra Mohawk Power Corp., 143 F.3d 704, 706, 725-26 (2d Cir. 1998)).
In addition, this Court notes that Pan American's argument that the Panel should have construed the ambiguities of the Charter Party, and testimony on a safe berth warranty against Seaboard, as drafter, is without merit. Indeed, the parties were engaged in the modification of a standard CoastWise form charter party. Thus, neither Pan American nor Seaboard can be considered the Charter Party's drafter.
Since Pan American has not demonstrated that the arbitrators manifestly disregarded the agreement, this Court will not disturb the Panel's interpretation of the Charter Party and, accordingly, will not vacate the Panel's award on this ground.
CONCLUSION
For the reasons set forth above, Plaintiffs' motion to vacate the partial final arbitration award is DENIED and Defendant's motion to confirm the partial final arbitration award is GRANTED. The Clerk of the Court is ORDERED to close this case.
SO ORDERED: