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Applied Industrial Materials Corp. v. Sanayi

June 28, 2006


The opinion of the court was delivered by: Robert P. Patterson, Jr., U.S.D.J.


On February 15, 2006, pursuant to a Stipulated Order of this Court dated January 17, 2006, Petitioner Applied Industrial Materials Corp. ("Aimcor") filed a motion to confirm the arbitration award issued September 22, 2005, and Respondents Ovalar Makine Ticaret Ve Sanayi, A.S. ("Ovalar") and Mr. Ural Ataman ("Ataman") filed a motion to vacate the September 22, 2005 arbitral award. Respondents' motion to vacate is affirmed and Petitioner's motion to confirm is denied.


Aimcor and Ovalar commenced arbitration in 1997 to resolve a dispute over their rights to profits from a joint venture in which Aimcor would purchase and transport to Turkey petroleum coke, which Ovalar would distribute and sell in Turkey. The parties signed a Submission Agreement, which recites that Section 16 of the Joint Venture Agreement provided that any disputes arising during the joint venture be resolved by arbitrators who are "'commercial men' and qualified by the New York Arbitration Society [sic] or its equivalent"*fn1 and that the parties had "agreed to submit any disputes arising out of the J.V. Agreement to arbitration in New York." Submission Agmt., Resp. Ex. 2 at 1.

Paragraph 1 of the Submission Agreement provides that each party select an arbitrator and that the two party-appointed arbitrators select a third arbitrator to serve as Chairman of a Tripartite Arbitration Panel. Id. ¶ 1.

Paragraph 3 of the Submission Agreement provides that: Prior to the first hearing or initial submissions, all the arbitrators are required to disclose any circumstance which could impair their ability to render an unbiased award based solely upon an objective and impartial consideration of the evidence presented to the Panel. . . .

Such disclosure shall include relations with any one of:

(a) the parties to the arbitration;

(b) other affiliates or associated companies of the parties

(c) counsel for the parties

(d) the other arbitrators on the Panel

No arbitrator shall accept an appointment or sit on a Panel, where the arbitrator or the arbitrator's current employer has a direct or indirect interest in the outcome of the arbitration.

All such disclosed relationships, experience and/or interests must be objected to by the parties at or before the first procedural hearing, or they shall be deemed waived as creating a bias, prejudice or conflict of interest which would warrant overturning the final award in this matter. If a challenge is made to one or more of the arbitrators, the grounds shall be made known to the arbitrators who may withdraw from the Panel and be replaced pursuant to Clause 5 below. If, however, the challenged arbitrator considers the challenge to be without merit and declines to withdraw, the arbitration shall proceed with due reservation of the challenger's right to seek recourse in accordance with Title 9 of the United States Code.

Id. ¶ 3.

Paragraph 4 of the Submission Agreement states: "No person shall serve as an arbitrator who has or who has had a financial or personal interest in the outcome of the arbitration or who has acquired from an interested source detailed prior knowledge of the matter in dispute." Id. ¶ 4.

The parties each appointed one arbitrator who selected Mr. Charles Fabrikant as the third arbitrator and Chairman. At an initial preliminary hearing held at the American Arbitration Association on September 3, 2003, the Chairman announced that "formal disclosure by the arbitrators will be made subsequent to this hearing." Sept. 3, 2003 Hearing Tr. at 3, lines 14-15, Resp. Ex. 3. On September 3, 2003, the arbitrators were also advised that Aimcor was being sold, that its principal suitor was Oxbow Industries, and that this might be "relevant to the disclosure issue." Id. at 48:21-49:11.*fn2

On September 25, 2003, Fabrikant submitted his formal disclosure statement to the parties, stating that:

The Submission Agreement provides for the arbitrators to fully disclose prior to the first hearing those circumstances that would impair and affect their ability to render an objective and impartial decision. . . . I have had no personal or business relationship with any of the parties to this proceeding, or their affiliates. . . . I have no personal or financial interest in the outcome of this proceeding and see no impediment to my serving on this panel. I reserve the right to amend or add to this disclosure should future circumstances warrant it. . . .

Fabrikant Sept. 25, 2003 letter, Resp. Ex. 4.

During a March 4, 2005 hearing, the Panel suggested and the parties agreed that the proper interpretation of the joint venture agreement should be addressed before consideration of the issue of damages. Mar. 4, 2005 Hearing Tr. at 1364-1371, Pet. Ex., Goldman Aff. Ex. F.

On April 16, 2005, Fabrikant sent an email to the parties, stating: Gentlemen: it came to my attention yesterday, or day before yesterday that my St. Louis office, which runs our barge operation under the name SCF, has recently been engaged in discussions with Ox-Bow of Palm Beach. The subject of conversation is a contract for the carriage of petroleum coke. I had no knowledge of such conversations taking place prior to the past week. I do not participate in contract negotiations or get involved in day to day operations of SCF.

I would like to amend my prior disclosures. At that time I did ask if there had been contacts between my group and these parties and there were none.

I do not plan to become involved in discussions between SCF and Ox-Bow, should there be further conversations between them.

I do not feel my ability to decide this case on the merits is impaired.

Fabrikant Apr. 16, 2005 letter, Resp. Ex. 6.

Prior to the panel's decision on the proper interpretation of the Joint Venture Agreement, Fabrikant made no subsequent disclosures to the parties about his possible conflicts of interest.

On September 22, 2005, the Panel issued an opinion in favor of Aimcor in a vote of 2-1, with Fabrikant casting a majority vote with Aimcor's appointed arbitrator. Sept. 22, 2005 Op., Resp. Ex 7. Ovalar's appointed arbitrator dissented, claiming the opinion was "counter-intuitive." Id. at ...

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