The opinion of the court was delivered by: WARD
Plaintiff moves pursuant to section 10 of the United States Arbitration Act of 1925, 9 U.S.C. § 10, to vacate the arbitration award issued in this matter on July 23, 1980. Holt Hauling & Warehousing Systems, Inc. ("Holt Hauling"), Holt Marine Terminal, Inc., and B.H. Sobelman, Inc. ("Sobelman"), three of the eight named defendants, cross-move pursuant to section 9 of the Act, 9 U.S.C. § 9, for an order confirming the award. For the reasons that follow, the motion to confirm is granted and the motion to vacate is denied.
In addition, nonparty Charles Nisi, one of the three arbitrators herein, moves pursuant to Rule 45(b), Fed.R.Civ.P., to quash the subpoena duces tecum issued at plaintiff's behest to compel Nisi's testimony in connection with the award. By separate motion, defendants Waterside Ocean Navigation of Pennsylvania and Thomas Holt join in Nisi's application. Defendants Holt Hauling, Holt Marine Terminal and Sobelman also join in this application and further move to quash similar subpoenas duces tecum issued to the other two arbitrators. Inasmuch as the Court finds that the arbitration award is properly confirmed on the basis of the record before it, the subpoenas issued to the arbitrators are quashed.
Plaintiff, the owner of the merchant vessel ANDREA GRITTI, entered into a charter party dated September 25, 1975, with Waterside Ocean Navigation, Inc. ("Waterside-New York"), as agent. When certain charter hire payments were not made, plaintiff, contending that defendants were the undisclosed principals of Waterside-New York, successfully petitioned this Court to compel defendants to submit to an arbitration proceeding to resolve the disputes arising out of these nonpayments. Sidarma Societa Italiana di Armamento Spa, Venice v. Holt Marine Industries, Inc., 75 Civ. 6265 (S.D.N.Y. June 27, 1977), appeal dismissed, 573 F.2d 1295 (1977). In dismissing the appeal of this Court's earlier decision as not an appealable final decision pursuant to 28 U.S.C. § 1291, the court of appeals carefully noted that the order and decision compelling arbitration only determined that defendants were bound by the agreement to arbitrate contained in the charter party and did not constitute a decision on the merits of plaintiff's claim that defendants were liable for the charter hire payments. Indeed, in its order dismissing the appeal the court of appeals expressly stated that the arbitrators were "free to reconsider the agency issue."
After the court of appeals' decision was handed down, the parties proceeded to constitute an arbitration panel to consider their dispute. Plaintiff appointed Michael O'Riordan to the three-arbitrator panel, and defendants appointed Constantine Gratsos. O'Riordan and Gratsos then selected Nisi to occupy the third seat on the panel.
The panel began its hearings on August 3, 1978, and after nine sessions concluded the proceedings on June 26, 1979. As noted above, the panel issued its award some thirteen months later, on July 23, 1980. By the end of 1980, just over three years after the court of appeals ordered them to arbitration, the parties were once again before this Court in connection with their dispute.
Arbitrators Nisi and Gratsos joined in a majority decision, issued over a strong dissent by O'Riordan, that denied plaintiff's claim for damages against defendants and rejected plaintiff's argument that defendants were either undisclosed principals of or joint venturers with Waterside-New York. Although it found as an undisputed fact that the charter party had been breached, the majority held that none of the defendants were liable for the damages suffered by plaintiff. Arbitrators Nisi and Gratsos determined that none of the defendants had participated in any acts of fraud. Finally, the majority opinion stated:
However sympathetic we are to the substantial loss suffered by this Owner, after painstaking re-analysis of all evidence and testimony, the majority of the panel could not avoid the final conclusion that at the time of fixing, the Owner of the ANDREA GRITTI obviously accepted the risk of relying on the name of Waterside Ocean Navigation Inc. of New York and apparently made no efforts to determine for whom they were acting as agents, did not require an escrow payment or a Letter of Credit, assignments of freights or any of the normal financial protective moves an owner should make to avoid such a catastrophe. It appears now that the Owner is seeking to hold liable, parties with whom it never bargained and of whom it had no previous knowledge.
In his dissent, arbitrator O'Riordan, after listing twenty paragraphs of what he considered to be "important facts," concluded that defendants "used the corporate form (Waterside-New York) for an illegitimate end that caused substantial damages to the owners of the Andrea Gritti." As O'Riordan recounted it, in its deliberations the panel unanimously agreed with this conclusion but could not decide on what legal theory to base a holding ascribing liability to defendants. In the dissenter's view, the two majority arbitrators ultimately rejected this "proper result" solely because their "personal business considerations caused them to overlook the use of the corporate form to intentionally avoid proper liability." O'Riordan characterized the majority's decision as "a gross miscarriage of justice."
Plaintiff maintains that the arbitration award should be vacated because the majority arbitrators (1) displayed partiality against the ship owner and (2) acted in manifest disregard of law. The Court deals with each of these two grounds in the paragraphs that follow. At the outset, however, it is important to note that in reviewing an arbitration award, a federal court's function is limited. An award will be vacated only on one of the grounds specified in section 10 of the Arbitration Act, 9 U.S.C. § 10, Office of Supply, Republic of Korea v. New York Navigation Co., 469 F.2d 377, 379 (2d Cir. 1972), or if the conduct of the arbitrators constituted a "manifest disregard" of applicable law. Wilko v. Swan, 346 U.S. 427, 436-37, 74 S. Ct. 182, 187-88, 98 L. Ed. 168 (1953). Moreover, this second, nonstatutory basis for upsetting an award, as an exception to the limitations of section 10, "must be severely limited, because extensive judicial review frustrates the basic purpose of arbitration, which is to dispose of disputes quickly and avoid the expense and delay of extended court proceedings." Saxis Steamship Co. v. Multifacs International Traders, Inc., 375 F.2d 577, 582 (2d Cir. 1967).
1. The claim of evident partiality. As its only statutory attack on the validity of the arbitration award, plaintiff alleges that the majority arbitrators exhibited such "evident partiality" against plaintiff's interests that section 10(b), 9 U.S.C. § 10(b), compels that the award be vacated. Section 10(b) authorizes the vacating of an award "(w)here there was evident partiality or corruption in the arbitrators, or either of them." In asserting such a claim plaintiff bears the burden of proof, and in determining whether plaintiff has met its burden the Court must "scan the record to see if it demonstrates "evident partiality' on the part of the arbitrators." Saxis Steamship Co. v. Multifacs International Traders, Inc., supra, 375 F.2d at 582. The Court has done so and finds plaintiff's claim of arbitrator partiality to be without support in the record.
Plaintiff bases its allegations of partiality on the dissenting opinion of arbitrator O'Riordan, as supplemented by an affidavit sworn by O'Riordan on December 9, 1980, submitted in support of plaintiff's motion to vacate. As noted briefly above, O'Riordan charges that the majority arbitrators, Nisi and Gratsos, placed their personal business interests ahead of their responsibility as arbitrators to be fair and impartial. In O'Riordan's view, as amplified by plaintiff in its arguments here, the other two arbitrators, to protect their own business interests, consciously chose not to reach the result they knew was correct in this case. As evidence of this, O'Riordan refers to a letter sent by Gratsos to Nisi during the period of the arbitrators' deliberations. In this letter, Gratsos referred to the three arbitrators' unanimous decision not to find one or more defendants liable to plaintiff by piercing the corporate veil or veils of defendants a decision ...