The opinion of the court was delivered by: RAKOFF
In law, as in medicine, there are many nostrums but no panaceas. Ironically, the vaunted informality of arbitration may invite the arbitrator to be arbitrary -- for who will ever know the difference? Still, businesses know what they are getting when they agree to arbitrate and cannot be heard to complain unless the results plainly manifest disregard of law and reason. In the instant case, two components of an arbitration award fail to survive even this modest scrutiny, but the rest pass muster.
The issue comes before this Court upon the petition of Asturiana De Zinc Marketing, Inc. ("Asturiana"), which sells and trades metals, to confirm an arbitration award of $ 359,534.62 against LaSalle Rolling Mills, Inc. ("LaSalle"), which manufactures metal products. LaSalle, in turn, seeks to vacate or modify the award.
The dispute that was the subject of the arbitration concerns LaSalle's alleged failure to promptly pay Asturiana for several deliveries of zinc. Under each contract, LaSalle was obligated to make payment to Asturiana thirty days after delivery, and interest on late payments was assessed at the published prime rate plus 2%. Each of these contracts also contained the following arbitration clause:
Any dispute relating to or arising out of this sale shall be submitted to arbitration before the American Arbitration Association in New York City and shall be subject to the substantive laws of New York State without reference to conflict of law principles.
Over the course of several years, LaSalle repeatedly failed to make full payments on time, but made periodic partial payments. When the parties were unable to resolve how much was still due, the matter was referred to a duly appointed arbitrator of the American Arbitration Association ("AAA"), who conducted an evidentiary hearing on June 18, 1997. No contemporaneous record was made of the hearing, and the parties have submitted varying sworn accounts of what occurred and of what arrangements were made for post-hearing submissions. It is undisputed, however, that Asturiana's post-hearing submission recalculated the amount of principal and interest previously demanded and requested an award of $ 223,262.92 principal and $ 15,747.70 interest, an increase of more than $ 30,000 over the amount Asturiana had requested at the hearing. Asturiana's post-hearing submission also altered its method of calculating contango charges
and thereby slightly increased its claim for such charges from $ 55,524.00 to $ 56,904.40. In response to these recalculations, LaSalle sent a letter to the arbitrator on July 3, 1997, objecting to any consideration of Asturiana's post-hearing submission on the ground that all evidence should have been submitted at the hearing and that LaSalle was denied the opportunity to cross-examine anyone about Asturiana's increased claims.
The Arbitration Award issued on August 6, 1997. The arbitrator accepted Asturiana's recalculated claims for principal and interest, awarding $ 223,262.92 for "product delivered and unpaid" and $ 15,747.70 for "interest on amount due for the periods ending June 30, 1997." However, the arbitrator rejected the recalculation of the contango charges and awarded the originally-requested $ 55,524.00 for such charges. Finally, the arbitrator awarded Asturiana $ 65,000.00 in attorneys' fees, resulting in a total award of $ 359,534.62.
This action followed.
Under the Federal Arbitration Act, 9 U.S.C. §§ 1-16, the Court's "function in confirming or vacating an arbitration award is severally limited" so that the "ostensible purpose for resort to arbitration, i.e., avoidance of litigation, [is not] frustrated." Synergy Gas Co. v. Sasso, 853 F.2d 59, 63 (2d Cir. 1988) (citation and internal quotation marks omitted). However, there are several statutory and judge-made grounds for vacating or modifying an arbitration award, and LaSalle invokes many of them, claiming that the arbitrator "exceeded [his] powers," 9 U.S.C. § 10(a)(4), was guilty of "manifest disregard of the law," Halligan v. Piper Jaffray, Inc., 148 F.3d 197, 1998 WL 385539 (2d Cir. 1998), made an "evident material miscalculation of figures" and "awarded upon a matter not submitted to him," 9 U.S.C. § 11(a)-(b), and "refused to hear evidence pertinent and material to the controversy" or engaged in "other misbehavior by which [respondent's] rights . . . have been prejudiced," id. § 10(a)(3). LaSalle's contentions will be considered separately with respect to (a) principal and interest, (b) contango charges, and (c) attorneys' fees.
Principal and Interest. LaSalle's argument for modifying or vacating the arbitrator's award of principal and interest centers on his acceptance of Asturiana's new calculations after the hearing, when LaSalle lacked an opportunity to cross-examine or to present new evidence. According to LaSalle, in permitting this irregular procedure the arbitrator exceeded his powers and violated Rule 31 of the AAA's Commercial Arbitration Rules, which requires that "all evidence shall be taken in the presence of all of the arbitrators and all of the parties."
However, AAA Rule 32 permits the arbitrator to direct "that documents or other evidence be submitted to the arbitrator after the hearing" as long as "all parties [are] afforded an opportunity to examine such documents or other evidence." Additionally, under AAA Rule 36, a hearing may be reopened at the arbitrator's initiative.
Therefore, the real question is not whether the arbitrator violated his own organization's rules of fair play but rather whether he violated fundamental rules of due process. "Although not required to hear all the evidence proffered by a party, an arbitrator must give each of the parties to the dispute an adequate opportunity to present its evidence and argument. Federal courts do not superintend arbitration proceedings. Our review is restricted to determining whether the procedure was fundamentally unfair." Tempo Shain Corp. v. Bertek, Inc., 120 F.3d 16, 20 (2d Cir. 1997); see also Konkar Maritime Enterprises, S.A. v. Compagnie Belge D'Affretement, 668 F. Supp. 267, 271 (S.D.N.Y. 1987) ("All parties in an arbitration proceeding are entitled to notice and an opportunity to be heard." (citation and internal quotation marks omitted)).
Regardless of which party's view of what the arbitrator ordered to be submitted after the hearing is the correct one, the Court does not discern any fundamental unfairness or "misbehavior by which the rights of [the respondent] have been prejudiced," 9 U.S.C. § 10(a)(3), in the procedure followed here with respect to the award of principal and interest. The new amounts of principal and interest proposed by Asturiana after the hearing were not based on new evidence: they were old evidence simply subjected to a new mathematical calculation, a calculation that the arbitrator presumably could have performed on his own. Further, the evidence of a contrary prior custom of the parties in calculating such charges that LaSalle claims it would have submitted in response to the new calculations was largely already before the arbitrator at the hearing. Accordingly, there is no basis for vacatur or modification on this ground.
Contango Charges. Even though the arbitrator did not accept Asturiana's post-hearing recalculation of the contango charges, the amount of contango charges awarded must be modified downward on the basis of an "evident material miscalculation of figures" and an award on a "matter not submitted" to the arbitrator. 9 U.S.C. § 11(a)-(b). At the hearing, Asturiana claimed that LaSalle owed $ 55,524.00. In response, LaSalle pointed out some mathematical errors in Asturiana's calculations and called the arbitrator's attention to the fact that $ 1,890.00 of the amount requested was based on a shipment under a contract that was not part of the arbitration, a point that was explicitly conceded by ...