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April 8, 1991


The opinion of the court was delivered by: Mukasey, District Judge.


Petitioner Sun Refining and Marketing Company moves pursuant to section 10 of the United States Arbitration Act, 9 U.S.C. § 10 (1990) (the "Act"), to vacate an arbitration award by two of three arbitrators on a panel in New York, pursuant to the Arbitration Rules of the Society of Marine Arbitrators, Inc. The award arose from an alleged shortage in a cargo of fuel oil loaded onto a tanker owned by respondent Statheros Shipping Corporation of Monrovia, Liberia and chartered by Sun. Petitioner seeks an order vacating that award because of the panel chairman's alleged "evident partiality" within the meaning of § 10 of the Act. For the reasons set forth below, the motion is granted.


Because the outcome of any inquiry into an arbitrator's alleged "evident partiality" depends on the particular facts and circumstances of each case, Morelite Const. Corp. v. New York City Dist. Council Carpenters Benefit Funds, 748 F.2d 79, 81 (2d Cir.1984), the events surrounding Sun's motion are set forth in detail below.

The contested arbitration award arose from Sun's allegation that Statheros was responsible for a shortage of fuel oil totalling 2,397 barrels — the amount Sun loaded on the tanker Statheros in Scotland on September 29, 1983 less the amount discharged in the United States on October 14, 1983. The parties submitted the dispute to arbitration pursuant to a clause in the charter party. That clause provided that each side select one arbitrator who would in turn select the third arbitrator. On September 28, 1984, Sun named Vincent E. Dour as arbitrator. On or about January 11, 1985, Statheros named Manfred Arnold.

Shortly thereafter, Dour encountered Arnold at a meeting of the Society of Maritime Arbitrators and suggested that they appoint Hans Proeller as the third arbitrator. He did not consult Sun before making this suggestion. Dour had known Proeller from "some past business relationships and felt that he was an experienced, competent person in the maritime field." Dour Affidavit ¶ 7. Arnold, who also knew Proeller, agreed to the choice. At the time, Proeller was President of Fritzen-Halcyon Lijn, Inc., which was the New York agent for an entity known as the Fritzen Group of Emden, Germany. Fritzen Group's business activities included the ownership of several oil tankers. Proeller Affidavit ¶ 1; Murphy Affidavit ¶ 5-6.

Shortly after their informal conversation at the Society meeting, but before January 19, 1985, either Dour or Arnold contacted Proeller to ask if he would accept appointment as Chairman of the panel to hear the dispute between Sun and Statheros. Neither Dour nor Proeller can recall whether Dour or Arnold contacted Proeller. Dour Affidavit ¶ 8; Proeller Affidavit ¶ 4. Dour contends that one or the other told Proeller the names of the parties and the nature of the dispute. Dour Affidavit ¶ 8. This assertion about the initial conversation with Proeller is curious and may well constitute inadmissible hearsay because Dour is not sure if he was the arbitrator who first spoke with Proeller. Id. Sun does not claim that Proeller actually was asked if he had any potential conflicts. Id. It asserts only that Proeller accepted the invitation without volunteering such information. Id. Proeller himself cannot recall the discussion in detail, but avers that he usually discloses potential conflicts only at the time of the first arbitration hearing, rather than at the time of the invitation, and directly to the parties, rather than to one of the partisan arbitrators. Proeller Affidavit ¶ 5. Thus, Proeller appears to concede that he did not disclose any potential conflicts before accepting the invitation to join the panel.

Dour confirmed Proeller's appointment as Chairman by letter dated January 19, 1985 with a carbon copy to Thomas Murphy, Esq. of Sun. Dour Affidavit, Exh. C. Murphy is Sun's in-house counsel responsible for international and maritime matters — including the dispute between Sun and Statheros. Murphy Affidavit ¶ 1. After receiving this letter, Murphy telephoned Dour and asked him whether he had been aware that Proeller was then involved in a separate arbitration between Sun and Fritzen Group. Dour told Murphy both that he was unaware of this fact and that, had he known, he would not have selected Proeller. Dour Affidavit ¶ 9; Murphy Affidavit ¶ 11.

The separate arbitration between Sun and Fritzen Group arose from Sun's alleged breach of a contract dated February 8, 1980 in which Sun had agreed to charter tankers owned by Fritzen Group for voyages between Africa and the United States. As noted above, Proeller was president of Fritzen-Halcyon Lijn, Inc., the New York agent of Fritzen Group. As agent, Proeller negotiated and signed the contract with Sun on behalf of Fritzen Group. Murphy Affidavit ¶ 5-6. Shortly thereafter, Sun decided that changed economic conditions in the oil business obviated its need for Fritzen Group's tankers. Id. A dispute then arose over whether Sun had breached the charter party and, if so, the extent of Fritzen Group's actual damages arising from that breach. Murphy Affidavit ¶ 7. Fritzen Group commenced an arbitration proceeding that lasted from March, 1982 until October, 1987. Id.

Proeller actively participated in that arbitration both as Fritzen Group's agent and as a witness. On September 8, 1982, he testified "at length concerning his involvement with, and extensive knowledge of, the charter and the reasons for the various clauses." Murphy Affidavit ¶ 7. In particular, Proeller informed Sun by letter dated March 5, 1985 — less than two months after accepting the invitation to chair the panel hearing the Sun-Statheros dispute — that Fritzen Group would seek total damages of $6,948,790. Murphy Affidavit, Exh. C. Proeller asserts that "[w]hile I was involved in managing some of the details of the charter between Sun and the German principal of my employer and participated in the Sun-Fritzen arbitration in New York, I had no personal financial interest or stake in the outcome of that arbitration and received no monetary benefit from Sun's performance of the charter or award against Sun." Proeller Affidavit ¶ 2. Sun asserts that Proeller's involvement in the arbitration was actually more extensive than the above quotation might indicate,*fn1 but the company does not dispute Proeller's claim that he had no direct financial stake in the outcome of that arbitration. In a unanimous opinion dated October 2, 1987, the Sun-Fritzen Group arbitration panel ultimately awarded Fritzen Group damages of $1,983,720.70 and interest of $688,808.65, for a total award of $2,672,529.35. Murphy Affidavit, Exh. A at 61. It appears that the panel previously had issued a "partial final award," but the papers submitted with this motion do not explain if that interim award contained damages separate from those set forth in the October 2, 1987 award. Id. at 39.

After learning of Proeller's appointment to the Sun-Statheros panel, Murphy telephoned Proeller and asked him to step aside because of his involvement in the separate, but ongoing, arbitration between Sun and Fritzen Group. Proeller refused to withdraw voluntarily because he saw no connection between the two matters and felt that he could hear the Sun-Statheros arbitration in a fair and unbiased manner. On March 13, 1985, approximately two months after Proeller accepted the appointment to the Sun-Statheros panel, but before those hearings commenced, Murphy wrote Proeller and again asked him to withdraw down from that panel. In this letter, Murphy cited both Proeller's "intimate[] involve[ment]" in the separate, but ongoing, Sun-Fritzen Group arbitration and the fact, discussed above, that Proeller had written Sun only a week earlier to inform the company that Fritzen Group would seek damages of more than $6.9 million in that arbitration. Murphy Affidavit, Exh. C. Murphy also noted, presciently, that because the Sun-Statheros arbitration had not yet commenced, Proeller could save the parties the time and expense of later litigation by withdrawing then. Id. By letter dated March 22, 1985, Proeller responded by again reiterating that he would be neutral and impartial in his capacity as arbitrator in the Sun-Statheros proceeding, notwithstanding his involvement in the ongoing Sun-Fritzen Group arbitration.

The first hearing of the Sun-Statheros arbitration panel was held on July 12, 1985. At the hearing, all three arbitrators fully disclosed their past and current relationships with the parties or their attorneys. Proeller formally and publicly disclosed his involvement in Sun's arbitration with Fritzen Group — of which Sun was already fully aware — but yet again reiterated his belief that he could serve as an unbiased and impartial arbitrator. Murphy affidavit, Exh. D, Transcript at 11. Murphy reiterated Sun's continued objection to Proeller's presence and also reserved the company's right to challenge any award in the future. Murphy affidavit, Exh. D, Transcript at 14-15.

When it became evident that Proeller's presence was still disputed, both Murphy and Statheros' attorney agreed to suspend the hearing so that the parties could seek judicial resolution of the matter. Murphy affidavit, Exh. D, Transcript at 15-16. On July 25, 1985, Statheros filed a motion to compel arbitration. Murphy Affidavit, Exh. E. However, on September 4, 1985, Statheros withdrew the motion without prejudice because it was premature.*fn2 Murphy Affidavit, Exh. F.

Thereafter, the Sun-Statheros arbitration continued with Proeller as Chairman. Before arbitration began, Sun had requested damages totalling $211,000. However, Sun's claim fluctuated from $84,065 at the beginning of the hearings, to $109,582, and then to a final request of $66,183. Petition to Vacate Arbitration Award, Exh. A at 3-4 & n. 3; Proeller Affidavit ¶ 5.

As mentioned, the Sun-Fritzen Group arbitration concluded on October 2, 1987 and that panel unanimously ordered Sun to pay Fritzen Group about $2.7 million in damages and interest. By letter dated September 23, 1988, Proeller reminded Murphy that the Sun-Fritzen Group arbitration was now complete and reiterated his intention to be unbiased in the separate Sun-Statheros hearing. Proeller Affidavit, Exh. 1. Murphy reiterated his objection. Proeller Affidavit, Exh. 2.

The Sun-Statheros panel deliberated on April 17, 1990 and rendered its award on September 28, 1990. Dour Affidavit ¶ 1, 12. As noted, Sun's final claim amounted to $66,183. In their majority decision, Proeller and Arnold awarded Sun damages of $20,022 and interest of $8,901. Petition to Vacate Arbitration Award, Exh. A at 26. In particular, the majority disallowed a portion of Sun's claim relating to 1,280 barrels of crude oil allegedly lost in transit and also found that Sun failed to prove that the tanker was unseaworthy. Dour heatedly dissented. He argued that Sun had proved both its claim for oil lost in transit and its claim that the ship was unseaworthy; Dour described the ship as a "real dog." At the end of the dissent, Dour alluded to what he perceived to be the pro-shipper bias of Arnold and Proeller,*fn3 but did not accuse Proeller of any particular bias against Sun. Petition to Vacate Arbitration Award, Exh. A, Dour dissent.

In addition to a majority and dissenting opinion, the final award also contained an appendix that detailed the panel's fee for rendering its award. The appendix fixed total fees of $19,950, payable to arbitrators Arnold and Proeller in the amount of $7,625 each, and to the dissenter Dour in the amount of $4,700. The appendix also directed that Sun pay 60% of the total fee, Statheros 40%. Petition to Vacate Arbitration Award, Exh. A, Appendix C. Sun contends that both orders were "contrary to the usual practice in this type of arbitration." Sun's Memorandum of Law at 6.

At the time he wrote his dissent, Dour was aware of the panel's findings with respect to damages, because Proeller had sent him a draft of the majority opinion on August 24, 1990. Dour Affidavit ¶ 14. Dour states that a cover letter that accompanied the draft indicated panel fees would be between $4,000 and $5,000 per arbitrator. Id. Dour told Proeller that he agreed with that estimate. Id. There was apparently no mention in the letter of how the fees would be allocated. On September 26, 1990, Proeller sent Dour a copy of the award to be signed. Dour Affidavit ¶ 15. That copy did not contain the appendix setting forth the Panel's fees. Id. However, Dour signed the opinion anyway and returned it to Proeller with his dissent attached. Id. Dour was "greatly surprised and chagrined" when, upon receiving a copy of the full decision actually mailed to the parties, he learned that the appendix contained both an upward adjustment — to $7,650 — in the fees of the other two arbitrators only, and a direction that Sun pay 60% of the total fees. Id. Dour insists that the other two arbitrators failed to inform him either of the increase in their individual fees or that Sun would be paying 60%, and that he would not have agreed to either action had he been consulted. Id. Dour also contends that Proeller's and Arnold's individual fees were not "reasonable given the amount of time and effort involved in deciding this relative [sic] routine claim." Id. Sun contends that both of the orders with respect to fees were "contrary to the usual practice in this type of arbitration." Sun's Memorandum of Law at 6.

In his own affidavit, Proeller alleges that he and Arnold decided to allocate the panel's fee unequally because Sun had made the proceedings "more lengthy" by repeatedly revising the amount of its claims against Statheros. Proeller Affidavit ¶ 5. Proeller also implies that he and Arnold deliberately failed to inform Dour of their intent to order an unequal fee allocation when he avers that "[g]iven the tone of Mr. Dour's dissent, he does not and would not have agreed to this unequal allocation of arbitrator's fees." Proeller Affidavit ¶ 5. Proeller does not explain in his affidavit exactly when the majority decided on the unequal allocation — before or after receiving Dour's dissenting opinion — nor does he explain when or why they decided to raise their own fees but not Dour's. However, Proeller leaves ...

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