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C.T. SHIPPING, LTD. v. DMI

September 6, 1991

C.T. SHIPPING, LTD., PETITIONER,
v.
DMI (U.S.A.) LTD., RESPONDENT. DMI (U.S.A.) LTD., PETITIONER, V. C.T. SHIPPING, LTD., RESPONDENT.



The opinion of the court was delivered by: Robert L. Carter, District Judge.

OPINION

FACTUAL BACKGROUND

The dispute arises under a New York Produce Exchange time charter party, dated January 27, 1988, between C.T. as owner of the M/V China Trident and DMI as charterer. See Amended Verified Petition to Vacate, exhibit 1 (Time Charter) [hereinafter "C/P"]. The China Trident was also the subject of a subcharter between DMI as disponent owner and Anglo-Canadian Shipping Company ("Anglo-Canadian") as charterer. Before the vessel was to receive its intended cargo of lumber at Prince Rupert, British Columbia, the Canadian Coast Guard prohibited the further use of the vessel in Canada until the cargo gear was repaired and recertified. Anglo-Canadian thereupon refused to accept the vessel. The gear was not repaired in time to satisfy the subcharter laycan. Anglo-Canadian then cancelled the subcharter, and commenced arbitration against DMI at London, England (the "London arbitration"). In the London arbitration, DMI was found liable to Anglo-Canadian for roughly $160,000 in damages.

DMI then commenced the arbitration at issue in this case (the "New York arbitration") under the head charter, contending that C.T. failed to provide the vessel with "machinery and equipment in a thoroughly efficient state" and "in every way fitted for ordinary cargo service," as required by the charter. See C/P, lines 6, 22. Pursuant to a provision in the charter, id. ¶ 17, lines 107-09, the dispute was heard before a panel of three arbitrators: Jack Berg, appointed by DMI; Alexis Nichols, appointed by C.T.; and Donald Laing, Jr., the chairman, appointed by the other two arbitrators. To secure execution of any eventual judgment on the arbitration award, DMI successfully commenced attachment proceedings against C.T. in the United States District Courts for the Eastern and Northern Districts of California.

After hearing evidence, the panel majority, over Arbitrator Nichols' dissent, found on April 19, 1991, that C.T. had breached the charter. The panel awarded DMI a total of $481,490.83, consisting of lost profits, indemnity for the liability imposed in the London arbitration, interest on the foregoing items, costs and legal fees of the London arbitration, costs and legal fees of the attachment proceeding, and costs of the New York arbitration. Final Award 21. The award also stated that interest would continue to run at specified rates (ranging from zero to 15% per annum for various parts of the award) if the award was not paid within thirty days. Id. at 24. The arbitrators' fee, which was "deemed to be a part of [the] award," id., was fixed at $41,850.00, to be paid equally by the parties to the arbitrators in the first instance. Id. app. B.

Subsequently, C.T. filed a petition in this court, No. 91 Civ. 2748 (RLC), to vacate the award on various grounds pursuant to 9 U.S.C. § 10 and N.Y. CPLR 7511. DMI filed a petition, No. 91 Civ. 2811 (RLC), to confirm the award pursuant to 9 U.S.C. § 9. By order of the court, the actions were consolidated. Because of the maritime subject matter of the case, the court has jurisdiction over the petitions under 28 U.S.C. § 1333.

DISCUSSION

I.  Choice of Law

C.T. bases its petition to vacate both on a federal statute, 9 U.S.C. § 10, and on a New York statute, CPLR 7511. In addition, much of C.T.'s argument relies on New York cases.

However, in enacting the Federal Arbitration Act, 9 U.S.C. § 1, Congress established a national policy favoring arbitration pertaining to maritime transactions and to interstate and foreign commerce. Southland Corp. v. Keating, 465 U.S. 1, 10, 104 S.Ct. 852, 858, 79 L.Ed.2d 1 (1984). It is therefore clear that the federal statute, when it is applicable, preempts state statutes purporting to create alternative grounds for confirming or vacating arbitration awards. See id. at 10-16, 104 S.Ct. at 858-861; I/S Stavborg v. National Metal Converters, Inc., 500 F.2d 424, 429-30 (2d Cir. 1974). Accordingly, CPLR 7511 is inapplicable to this case.

Moreover, a federal court exercising its admiralty jurisdiction will apply federal maritime law, and not state law. See, e.g., Offshore Logistics, Inc. v. Tallentire, 477 U.S. 207, 227, 106 S.Ct. 2485, 2496, 91 L.Ed.2d 174 (1986); Herlofson Management A/S v. Ministry of Supply, Kingdom of Jordan, 765 F. Supp. 78, 85 n. 7 (S.D.N.Y. 1991) (Carter, J.). All issues in this case, therefore, are governed not by New York state law but by federal maritime law.

II. Alleged Grounds for Vacating the Arbitration Award

A.  Refusal to Postpone Hearing or to Hear Evidence

C.T. challenges the arbitrators' decision on the grounds that the arbitrators refused to grant an adjournment of the hearing to allow C.T. to call as a witness a surveyor for Bureau Veritas in Singapore (the "B.V. surveyor") who had certified the China Trident's cargo gear before that vessel proceeded to Canada. The court is authorized to vacate an arbitration award "[w]here the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced." 9 U.S.C. § 10(a)(3).

Contrary to C.T.'s interpretation, § 10(a)(3) does not "expressly provide[ ] that arbitrators who . . . refuse an adjournment [are] guilty of misconduct." Poles Affirmation ¶ 17. Rather, the granting or denying of an adjournment falls within the broad discretion of the arbitrators. Storey v. Searle Blatt Ltd., 685 F. Supp. 80, 82 (S.D.N.Y. 1988) (Sweet, J.); see also Fairchild & Co. v. Richmond F. & P.R.R., 516 F. Supp. 1305, 1313 (D.D.C. 1981); Dan River, Inc. v. Cal-Togs, Inc., 451 F. Supp. 497, 503-04 (S.D.N.Y. 1978) (Duffy, J.). Section 10(a)(3) limits the court's review of the arbitrator's refusal to adjourn the hearing to a determination of whether the arbitrators were guilty of misconduct. Storey, supra, 685 F. Supp. at 82. The court will not interfere with an award on these grounds as long as there exists a reasonable basis for the arbitrators' refusal to grant a postponement. Id.; see also Fairchild, supra, 516 F. Supp. at 1313-1314.

By C.T.'s own admission, C.T.'s counsel did not advise the arbitration panel of its intention to call the B.V. surveyor until the conclusion of the fourth evidentiary hearing on May 14, 1990, which was over a month after the arbitrators were sworn in, and nearly nine months after DMI had demanded arbitration. See Poles Affirmation ¶¶ 10, 12. On May 30, 1990, C.T.'s counsel informed the panel chairman that the B.V. surveyor was not immediately available to testify, and requested an unspecified amount of additional time. Id. ¶ 13. On June 8, 1990, the panel majority (over Nichols' dissent) agreed to hold an additional evidentiary hearing on July 10 and 11, 1990 — nearly two months from C.T.'s initial announcement of its intent to call the witness — with the understanding that all remaining witnesses would be presented at that hearing. Id. exhibit 11. C.T. produced one additional witness at that hearing, but did not produce the B.V. surveyor.

On this basis, it is clear that C.T. has not satisfied its burden of proving that the arbitrators were guilty of misconduct in refusing to postpone the hearing further. The arbitrators could reasonably have concluded that C.T. was attempting to delay the hearings unnecessarily. They were under no obligation to grant C.T. an indefinite postponement to allow it to call a particular witness. The purpose of arbitration is to provide a speedy and inexpensive determination, without the extended delays inherent in a court proceeding. The fact that the panel subsequently took over six months to render its decision is not sufficient on these facts to establish that the panel's refusal to grant an adjournment was unreasonable.

Moreover, C.T. has not indicated to this court when, if ever, it would have been able to produce the B.V. surveyor as a witness. Consequently, C.T. cannot say that its rights were prejudiced by the panel's refusal to grant the requested ...


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