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AT&T CORP. v. TYCO TELECOMMUNICATIONS

April 4, 2003

AT&T CORP., ON ITS OWN BEHALF AND IN ITS CAPACITY AS CO-MAINTENANCE AUTHORITY ON BEHALF OF THE CABLE OWNERS OF SUBMARINE CABLE SYSTEM TAT-10, PETITIONER
v.
TYCO TELECOMMUNICATIONS (U.S.) INC. (FORMERLY KNOWN AS TYCOM U.S. INC.), RESPONDENT



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

ORDER

An arbitration proceeding was conducted pursuant to an Agreement dated August 10, 1998 between Concert Global Network Services, Ltd. in its own capacity and as co-maintenance authority on behalf of the owners (the "Cable Owners") of submarine cable TAT-10 (the "TAT-10") and Tyco Telecommunications (U.S.) Inc. ("Tyco"), formerly known as Tycom U.S. Inc. The TAT-10 is a fiber optic underwater transatlantic telecommunications cable.

AT&T Corp. ("AT&T") is also a co-maintenance authority for the consortium of owners of the TAT-10. On September 17, 2002, AT&T, on its own behalf as well as in its capacity as co-maintenance authority for the Cable Owners, filed a Petition to Confirm Arbitration Award dated September 17, 2002 (the "Petition") and an accompanying Notice of Motion dated September 17, 2002 moving this Court for an Order confirming the arbitration award. Tyco opposes the Petition and notice of motion, and in a Notice of Cross-Motion to Vacate Arbitration Award dated October 2, 2002, Tyco seeks an Order vacating the award. In an Order dated March 31, 2003, this Court confirmed the arbitration award in all respects and indicated that its findings, conclusions, and reasoning would be set forth separately. For the reasons explained below, the arbitration award is confirmed in all respects, and AT&T is entitled to judgment accordingly.

I. BACKGROUND

Submarine transatlantic cable systems are owned by consortia of telecommunications companies, some of which own stakes in more than one such cable system.*fn1 Each consortium is

governed by various organizational agreements negotiated among its member companies and influenced by industry-wide recommendations about operational procedures, to the extent these recommendations are incorporated into the organizational agreements. Pursuant to these consortium agreements, certain members of these consortia are delegated maintenance, administrative, and operations tasks and, accordingly, are referred to as "co-maintenance authorities." AT&T is a co-maintenance authority for the TAT-10 Cable Owners.

Because these cable systems, which bridge the communications pipeline across the Atlantic Ocean, are limited in number, the various consortia of cable owners apparently find it in their respective interests to arrange with one another and, indeed, other telecommunications companies generally, for contingency measures in the event of unforseen network traffic increases or disruption in traffic flow. These contingency measures are referred to as "restoration plans" and provide for the rerouting of one cable system's traffic over another network under various conditions negotiated between or among the entities involved.

On July 31, 1998, telecommunications on the TAT-10 stopped when a section of the cable in the North Sea was severed by a ship, the M/V Dock Express 20, that operated under a long term charter to a subsidiary of Tyco, which was in the process of plowing a bed and laying an underwater AC-1 cable. When the TAT-10 was severed, contingency measures were initiated for rerouting the affected cable traffic over and across other networks in accordance with the applicable restoration plans. Also, repairs of the damaged cable commenced immediately. The TAT-10 was restored to full operational capacity as of August 14, 1998.

The restoration scheme that was triggered in this case was somewhat involved. In essence, the restoration can be divided into two categories: so-called "wet" restoration, that portion of the rerouting which occurred under and across the Atlantic Ocean; and so-called "backhaul" or "terrestrial" restoration, that portion which occurred over dry land. In this case, wet restoration entailed the rerouting of TAT-10 traffic over another transatlantic submarine cable, the TAT-12/13. Backhaul restoration occurred over three additional networks — owned and operated by AT&T, Deutsche Telekon AG ("DTAG"), British Telecom ("BT"), and Cable & Wireless ("CW"), respectively — at various portions of the cable route. In addition, the various restoration plans in effect at the time of the July 31, 1998 incident involved a prepaid annual allotment of emergency or overflow traffic volume (so-called "annual restoration") with provisions for additional bandwidth as needed in accordance with prenegotiated price schedules (so-called "ad hoc restoration"). The restoration capacity needed during the period in which the TAT-10 was not operational exceeded the annual restoration allotments.

In an exchange of letters in and around August 1998 between Tyco and the Cable Owners concerning settlement of the matter, Tyco admitted liability but reserved its right to contest damages via an arbitration process. An arbitration panel was constituted as of December 2000 (the "Panel"), and arbitration proceedings commenced soon thereafter. The arbitration proceedings entailed discovery process including the taking of depositions and documentary exchanges, briefing of issues, and seven evidentiary hearings including live witness testimony over the course of approximately one year. The proceedings closed on April 10, 2002. The Panel issued a unanimous Final Award dated September 12, 2002 (the "Panel Decision" or "Final Award") in favor of the Cable Owners in the amount of $5,798,075.83 plus interest at a rate of 4.75 percent accruing on the principal amount of $4,373,101.18 from October 15, 2002, the date by which payment was due. This figure reflects costs incurred both in repairing the damaged TAT-10 and in restoring the affected traffic by rerouting it across other networks during the period in which the TAT-10 was not operational, as well as attorneys' fees and costs. In addition, the Panel's fee for services rendered amounted to $136,000, and the Panel Decision allocated three-quarters of this sum to be paid by Tyco and one-quarter by the Cable Owners.

II. DISCUSSION

A. CLAIMS OF LEGAL ERROR

Tyco presents several challenges to the Panel's interpretation and application of relevant legal principles in determining the Final Award. Specifically, Tyco argues that the Panel improperly interpreted the International Convention for the Protection of Submarine Cables (the "Cable Convention"), March 14, 1884, 24 Stat. 989-1000, December 1, 1886, 25 Stat. 1424, July 7, 1887, 25 Stat. 1425, 1 Bevans 89, as authorizing a private cause of action and allowing the recovery of restoration damages; that the Panel disregarded the co-ownership doctrine expressed by the United States Supreme Court in Brooklyn E. Dist. Terminal v. United States, 207 U.S. 170 (1932); and that the Panel misconstrued the law of proximate causation in compensating the Cable Owners for prorated annual restoration costs. The Court finds that each of Tyco's claims is without merit.

1. Standard of Review

Tyco faces a very rigorous burden as it endeavors to disturb an arbitration award based on claims that the arbitrators misapplied the law. The Second Circuit has noted that "[t]he showing required to avoid summary confirmation of an arbitration award is high. . . ." Willemin Houdstermaatschappiji, BV v. Standard Microsyscems Corp., 103 F.3d 9, 12 (2nd Cir. 1997). Indeed, the Second Circuit recently had occasion to propound on the requirements for vacatur of an arbitration award, instructing that

an arbitral decision may be vacated when an arbitrator has exhibited a "manifest disregard of law." . . . Our standard of review under this judicially created doctrine is "severely limited." . . . To vacate the award, we must find something beyond and different from a mere error in the law or failure on the part of the arbitrators to understand or apply the law. . . . The party seeking vacatur bears the burden of proving manifest disregard.
Westerbeke Corp. v. Daihatsu Motor Co., Ltd., 304 F.3d 200, 208-209 (2nd Cir. 2002) (citations omitted; internal quotations omitted). With respect to the meaning of "manifest disregard," the Second Circuit added that
[t]he two-prong test for ascertaining whether an arbitrator has manifestly disregarded the law has both an objective and a subjective component. We first consider whether the governing law alleged to have been ignored by the arbitrators was well defined, explicit, and clearly applicable. . . . We then look to the knowledge actually possessed by the arbitrator. The arbitrator must appreciate the existence of a clearly governing legal principle but decide to ignore or pay no attention to it. . . . Both of these prongs must be met before a court may find that there has been a manifest disregard of law.
Id. at 209 (citations omitted; internal quotations omitted). "As long as the arbitrator is even arguably construing or applying the [relevant legal principles] and acting within the scope of his authority, that a court is convinced he committed serious error does not suffice to overturn his decision." United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 36 (1987); Local 1199, Drug, Hosp., and Health Care Employees Union, RWDSU, AFL-CIO v. Brooks Drug Co., 956 F.2d 22, 25 (2nd Cir. 1992). A reviewing court "`is forbidden to substitute its own interpretation even if convinced that the arbitrator's interpretation was not only wrong, but plainly wrong.'" Brooks Drug Co., 956 F.2d at 25 (quoting Chicago Typographical Union No. 16 v. Chicago Sun-Times, Inc., 935 F.2d 1501, 1505 (7th Cir. 1991)).

2. Cable Convention

Tyco first argues that there is no U.S. case law that interprets the Cable Convention to allow a civil cause of action and the recovery of restoration costs. The relevant inquiry for this Court, in light of the deference to be accorded arbitration proceedings, is not whether any case law interprets the Cable Convention to authorize such an action and recovery but, rather, ...


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