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February 13, 2002


The opinion of the court was delivered by: VICTOR Marrero, United States District Judge.


Plaintiff U.S. Ship Management, Inc. ("USSM") brought this action seeking to vacate an award issued in favor of defendant Maersk Line, Limited ("Maersk") in an arbitration proceeding between the parties. Now before the Court are several motions and cross-motions. Maersk moved for an order confirming the arbitration award and, pursuant to Fed. R. Civ. P. 12(b)(6), dismissing USSM's complaint, or alternatively, for summary judgment under Fed. R. Civ. P. 56. In response, USSM cross-moved to vacate the award. For the reasons set forth below, the Court grants Maersk's motion and denies USSM's.


Maersk is a part of A.P. Moller ("Moller"), a maritime company based in Denmark. In 1999, Moller purchased the international shipping assets of CSX/Sea-Land Services, Inc. ("Sea-Land"), a United States corporation. The sale included Sea-Land's interest in nineteen container vessels flying United Stated flags. As part of the transaction, fifteen of these vessels were then enrolled in operating agreements pursuant to the Maritime Security Program ("MSP") of the United States Maritime Administration ("MAPAD"). Participation of these vessels in the MSP required compliance with Section 2 ("Section 2") of the Shipping Act of 1916 (the "Shipping Act"), 46 App. U.S.C. § 1187 et. seq. Under that provision, only qualified United States citizens are eligible for enrollment in the MSP.*fn1 The MSP authorizes payment of an annual fee per ship to participants in return for the Government's right to operate the vessels when necessary for support of certain military uses and other public purposes.

Because Maersk was a foreign corporation, it did not qualify as a United States citizen as defined in Section 2 for the purposes of the MSP. To comply with this requirement, at the time of the Sea-Land/Maersk transaction, USSM was formed as a separate United States operating company qualifying as a Section 2 citizen. USSM chartered the nineteen vessels and acquired all other operating rights from Sea-Land, which, with the approval of MAPAD, assigned its fifteen MSP Operating Agreements to USSM. In turn, USSM entered into nineteen time-charter agreements with Maersk (the "Time Charters").*fn2 (See Affirmation of Radoje Vulovic in Support of Motion to Vacate an Arbitration Award, dated December 13, 2001 ("Vulovic Aff."), ¶ 10, Exs. C, D, E.) By the terms of the Time Charters, Maersk is entitled to direct the movement and use of the vessels, but USSM as owner remains in possession and control of them and responsible for providing the ships' crews, supplies and maintenance.

Article 33 of the Time Charters obligated USSM to provide Maersk periodic reports containing certain financial statements regarding USSM's business.*fn3 For reasons about which the parties disagree, the Time Charters' disclosure requirement respecting the four USSM vessels not participating in the MSP was broader than that pertaining to the fifteen MSP-enrolled.

Article 28 of the Time Charters contained an arbitration clause. Under this provision, the parties agreed to submit to arbitration any dispute between them arising out of or in connection with the Time Charters or their enforcement or interpretation. The arbitration provision requires that each of the three arbitrators "shall be a commercial person knowledgeable in the operation and chartering of container vessels and the operation of scheduled container services." (Vulovic Aff., ¶ 10, Ex. C at 41.)

In May 2001, a dispute arose between USSM and Maersk that eventually prompted the invocation of the arbitration clause and commencement of the instant case. As called for by the Time Charters, USSM provided Maersk certain financial information which USSM limited to the direct operational income to USSM and expenses of the nineteen vessels. By written notice dated May 2, 2001, Maersk asserted that the information USSM had supplied did not comply with the financial disclosure requirement of Article 33 and asked for additional material regarding USSM's profitability and executive compensation. USSM refused the request, responding that any additional financial disclosure was neither required by the Time Charters nor permitted by MAPAD regulations. (See Vulovic Aff., ¶ 23, Ex. M. at 1-2.)

In this regard, on June 21, 2001, Stuart R. Breidbart ("Breidbart"), USSM's General Counsel, wrote to Bruce J. Carlton, MAPAD's Acting Deputy Maritime Administrator, requesting MAPAD's confirmation that "USSM's interpretation of the financial reporting provisions of the Time Charters is correct and in compliance with U.S. citizenship requirements and the Operating Agreements." (Affidavit of Stuart M. Altman, dated Nov. 20, 2001 ("Altman Aff."), ¶ 12, Ex. 10 at 1.) William F. Trost, MAPAD's Acting Associate Administrator for National Security, answered by letter dated June 27, 2001 (the "MAPAD Letter"). Trost stated that the purpose of Article 33 of the Time Charters was to allow Maersk access "only to financial information related to operation and management of the vessels, separate and apart from all other financial information of USSM" and that providing the broader disclosure Maersk requested was inconsistent with the general purposes of the Time Charters and requirements of Section 2, and would "undermine the viability of USSM as a U.S. citizen operator of MSP vessels." (Altman Aff., ¶ 12, Ex. 11 at 1-2.) Maersk contends that it had no notice of USSM's June 21, 2001 letter nor of MAPAD's reply until the day of the arbitration proceeding here at issue.

Maersk countered USSM's refusal to supply the requested information by serving a Notice of Arbitration on July 5, 2001. Maersk thereby sought an order to compel USSM to furnish the information and named as its arbitrator Emery W. Harper ("Harper"). At that time Harper was President of Harper Consultants, Inc., a firm he had established in 1997 to provide services as a consultant and pursue business interests in matters relating to the shipping industry. Prior to 1997 Harper had worked full-time as a maritime lawyer with a large New York City firm.

USSM then designated Peter J. Finnerty ("Finnerty") as its party-arbitrator. After some delay during which USSM contended that the arbitration procedure's 45-day clock had not yet expired, the process recommenced under protest from USSM. Harper and Finnerty served as party arbitrators and the President of the Society of Marine Arbitrators selected A. J. Siciliano as the third meter and Chairman of the panel.

An arbitration hearing was held in New York on October 8, 2001. At the end of the proceeding the Panel deliberated and issued a preliminary ruling, supplemented as a Final Award on October 19, 2001, with a partial dissent by Finnerty. (See Altman Aff., Ex. 1 (the "Final Award").) The Final Award determined that Maersk was entitled to the additional financial statements in dispute and directed USSM to furnish them. (Final Award, at 14.) The Panel there stated that it was not persuaded that the release of the disputed financial information would violate MAPAD regulations. (Final Award, at 13-14.)

Addressing USSM's defense based on the MAPAD Letter, the Panel noted that there was no evidence that MAPAD had been informed that Maersk already had obtained nearly all of the financial information in dispute and that if "furnishing the additional financials to [Maersk] would cause USSM lose its Section 2 status, USSM's recourse, if any, would be to MAPAD, not to this panel." (Final Award, at 13.)

USSM refused to comply with the award. Instead, seeking MAPAD's guidance, USSM forwarded a copy of the arbitration panel's decision to MAPAD. On October 31, 2001, in a letter to Breidbart, MAPAD's Acting Deputy Administrator for Inland Waterways and Great Lakes endorsed the position expressed in the MAPAD Letter and directed that "USSM should not turn over its audited financial statements to [Maersk]." (Vulovic Aff., ¶ 41, Ex. V at 1 ("October Letter").) This letter expressed the view that "any inconsistency between the [financial disclosure provisions of the] MSP and non-MSP charters is due to inadvertence or misrepresentation". (October Letter, at 1.) It concluded that MAPAD's approval of the transaction allowing Maersk to charter the USSM ships subject to the MSP operating agreements was:

conditioned upon USSM maintaining its status as an independent Section 2 citizen. Interpretation of the clauses of any of the time charters which contradicts this condition, such as disclosing overall financial statements of USSM to [Maersk], would jeopardize USSM's status as a U.S. citizen within the meaning of Section 2.

(October Letter, at 2.)

Subsequently, on November 5, 2001 USSM commenced the instant action by serving a Complaint to Vacate an Arbitration Award.



Accordingly, Maersk endeavored to place this action in a proper procedural posture by responding to USSM's complaint with a motion to confirm the Panel's award. Alternatively, should the Court determine the case properly initiated by USSM's complaint, Maersk styled its response a motion to dismiss pursuant to Rule 12(b)(6), or for summary judgment under Rule 56, of the Federal Rules of Civil Procedure.

USSM concedes that an action to vacate an arbitration award is to be decided by motion practice, and contends it contemplated that such motions would proceed before the Court following Maersk's answer. (See Plaintiff's Memorandum of Law in Opposition to Motion to Confirm and in Support of Cross Motion to Vacate an Arbitration Award, dated December 14, 2001 ("Pltf.'s Mem."), at 13.) Because the action has now been fully presented to Court by the parties' motions and cross-motions, the Court now regards the matter as properly instituted under the FAA and proceeds to rule on this basis.

Under the FAA's motion procedure, the Court may consider an arbitration action by summary proceeding on the basis of the fully briefed motion papers and without the requirement of a hearing. See Rocket Jewelry Box, Inc. v. Noble Gift Packaging, Inc., 157 F.3d 174, 175 (2d Cir. 1998). Consistent with the general federal policy favoring arbitration as embodied in the FAA, absent a compelling reason or some manifest disregard of law, the court must confirm an arbitration award. See 9 U.S.C. ยง 9; Pompano-Windy City Partners Ltd. v. Bear Stearns & Co., Inc., ...

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