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NS United Kaiun Kaisha, Ltd. v. Cogent Fibre Inc.

United States District Court, S.D. New York

July 14, 2015

NS UNITED KAIUN KAISHA, LTD., Plaintiff,
v.
COGENT FIBRE INC., Defendant.

OPINION & ORDER

PAUL A. ENGELMAYER, District Judge.

NS United Kaiun Kaisha, Ltd. ("NSU") petitions to confirm an arbitration award (the "Award") pursuant to § 9 of the Federal Arbitration Act ("FAA" or "Act"), 9 U.S.C. § 9. Respondent Cogent Fibre Inc. ("Cogent") opposes the petition and cross-moves to vacate the Award under § 10 of the FAA. For the following reasons, NSU's petition to confirm the Award is granted, and Cogent's cross-motion to vacate the Award is denied.

I. Background

A. Factual Background[1]

NSU, headquartered in Japan, provides international maritime transportation services for raw materials. See NSU Aff., Ex. 3 ("Award"), at 2, Cogent, a Canadian company, exports woodchips and woodchip pellets from American producers to consumers in Europe, mainly in Turkey. Id. at 3.

On May 28, 2008, NSU and Cogent entered into a five-year continuous-voyage contract for Cogent to charter the Daishin Maru, a cargo ship owned by NSU. See NSU Aff., Ex. 1 ("Charter" or "CVC"). The CVC provided that the Daishin Maru would carry woodchips from Savannah, Georgia to Igsas, Turkey-or on any other route of Cogent's choosing, conditioned on NSU's approval - at a rate of $0.60 per cubic foot. Id. Cl. 1, 9. The CVC also detailed loading time allowances at the port of origin and set penalties to be incurued by Cogent for every day the ship would be delayed at port. Id. Cl. 4, 43. To resolve "any dispute or difference [that] should arise under th[e] Charter, " the parties agreed to submit to binding arbitration by "three parties in the City of New York, one to be appointed by each of the parties hereto, the third by the two so chosen." Id. Cl. 5.

The Charter also contained a dry-docking clause. It gave NSU the option to dry-dock the Daishin Maru during the period covered by the Charter, [2] on the conditions that Cogent be advised within six months of planned dry-docking and that the "period [] be mutually agreed between Owner and Charterers."[3] Id. Cl. 55. After delivery of the Daishin Maru to Cogent on February 19, 2009, and more than 15 successful transatlantic voyages, NSU notified Cogent that the Daishin Maru would require dry-docking in August and September 2011. Award at 5. A dispute arose between NSU and Cogent over the dry-docking schedule for the ship, and NSU, over Cogent's objections, eventually decided to dry-dock the Daishin Maru from September 7, 2011 to October 16, 2011 in Sevastopol, Ukraine. Id. at 6.

After dry-docking was complete, Cogent refused to provide NSU with cargo and stated that no cargo would be available until late November or mid-December 2011. Id. Cogent suggested that the Daishin Maru complete mitigation voyages, but NSU, relying on a clause in the contract providing that if no port declaration is made, the ship should be directed to Savannah, directed the Daishin Maru to Savannah to await Cogent's cargo. Id. at 6 n.12. The ship arrived in Savannah on November 5, 2011. Id. at 6. At that point, Cogent told NSU that no cargo would be available until mid-December. Id.

On December 21, 2011, after several weeks in Savannah and six requests to Cogent for assurance that a cargo would be nominated, NSU terminated the Charter and withdrew the Daishin Maru. Id. at 7. NSU performed a total of 10 mitigation voyages in the Atlantic Ocean between December 27, 2011 and June 29, 2013. Id. at 25. On June 29, 2013, NSU sold the Daishin Maru. Id. at 8.

B. Arbitration

On February 1, 2012, NSU commenced arbitration against Cogent and appointed Manfred Arnold as arbitrator. NSU Decl. ¶ 4. Cogent appointed Jack Berg as arbitrator, and in March 2012, the parties jointly appointed the chairman of the arbitration panel, David Martowski. Id. at ¶¶ 5-6.

Over the next year and a half, the parties engaged in extensive discovery, presented more than 650 exhibits to the arbitrators, and, between May 2013 and January 2014, conducted 10 evidentiary hearings. Id. at ¶¶ 19-10. In April and May 2014, the parties submitted final briefs. Id. at ¶ 12. NSU asserted a claim for $13, 780, 297.72 plus interest, attorneys' fees, and costs against Cogent, while Cogent brought a counterclaim for lost earnings of $15, 285, 951 or, in the alternative, $13, 645, 338 arising from NSU's alleged breach of the CVC. Award at 12.

On January 23, 2015, the panel issued its final (33-page) decision, unanimously finding that Cogent had breached the Charter in October 2011 when it refused to provide a cargo for the Daishin Maru, and that it was therefore liable for damages resulting from the breach. Id. at 18. The panel split two to one on the issue of damages. Id. The majority, consisting of Arnold and Martowski, id. at 33, awarded $11, 606, 421.51 to NSU, id. at 32. The award was composed of five elements: $9, 933, 900.60 in damages arising from Cogent's breach of the CVC, $571, 389.15 in interest on those damages, 597, 967.91 in arbitration costs borne by NSU, $113, 615.90 in arbitrators' fees, and $889, 547.95 in legal fees NSU paid during the arbitration. Id. Damages from the breach of the Charter were calculated for two separate periods: First, the majority awarded $1, 324, 836 in damages for the period between October 16, 2011 and December 26, 2011, when the ship left dry-docking and traveled to Savannah to wait for a cargo from Cogent. Id. at 25, Second, the majority awarded $8, 609, 064.60 in damages for the period between December 27, 2011 and June 29, 2013, when NSU performed mitigation voyages, which the majority found constituted reasonable mitigation efforts. Id. at 28.

Berg, although agreeing as to Cogent's liability, dissented as to the damages awarded. Dkt. 5, Ex. 3, Appendix A ("Berg Dissent"), at 1. First, Berg disagreed with the amount awarded to NSU for the first period, between October 16, 2011 and December 26, 2011. Id. at 3. Berg found that because Cogent had warned NSU that no cargo would be available, and NSU knew the Daishin Maru would sit and wait for a non-existent cargo if it was directed to Savannah after dry-docking, the ship should have been directed to conduct mitigation voyages immediately. Id. at 3-4. Accordingly, Berg found that the $1, 324, 836 in lost profits should have been reduced by the amount NSU could have saved in mitigation, rather than awarded in its entirety. Id. at 4.

Second, Berg dissented from the award of $8, 609, 064, 60 for the period between December 27, 2011 and June 29, 2013. Id. Berg explained that the evidence presented reflected that opportunities for voyages in the Pacific Ocean were more certain and profitable than in the Atlantic, and that NSU had purposefully kept the Daishin Maru in the Atlantic in anticipation of a future long-term charter with a third party. Id. Berg therefore concluded that NSU's mitigation efforts had been unreasonable, and that the damages awarded for the second time period should have been reduced by the amount NSU could have saved by engaging in reasonable mitigation. Id.

Finally, Berg dissented from the award of attorneys' fees. Reviewing the four potential exceptions to the American Rule, i.e., that each party pays its own fees regardless of the outcome in litigation, Berg found that none applied to the dispute, ...


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