Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca2-14-04036/USCOURTS-ca2-14-04036-0/pdf.json

Nature of Suit Code: 120
Nature of Suit: Marine Contract Actions
Cause of Action: 

---

14‐4036‐cv

Zurich Am. Ins. Co. v. Team Tankers A.S.  

In the 

United States Court of Appeals 

For the Second Circuit ________

AUGUST TERM 2015

No. 14‐4036‐cv

ZURICH AMERICAN INSURANCE CO., as subrogee of Vinmar

International, Ltd., AND VINMAR INTERNATIONAL, LTD.,

Petitioners‐Appellants,

v.

TEAM TANKERS A.S. AND EITZEN CHEMICAL USA, in personam, AND

THE M/T SITEAM EXPLORER, her engines, tackle, apparel, etc., in rem,

Respondents‐Appellees.

________

Appeal from the United States District Court

for the Southern District of New York

________

   

SUBMITTED: DECEMBER 8, 2015

DECIDED: JANUARY 28, 2016

________

Before: CABRANES, PARKER, and LOHIER, Circuit Judges.

________

Case 14-4036, Document 113-1, 01/28/2016, 1693195, Page1 of 15
2

This appeal presents two questions.    The first, which we

dispose of in relatively short order, is whether the District Court

erred in confirming an arbitration award.  The second, which merits

fuller discussion, is whether the party that prevailed in arbitration

was entitled, by contract or statute, to recoup the fees and costs it

incurred in seeking to confirm the arbitral award before the District

Court.

Petitioners‐appellants are Zurich American Insurance Co. and

Vinmar International, Ltd.  They challenge two orders of the United

States District Court for the Southern District of New York (William

H. Pauley III, Judge).    In the first, entered on June 30, 2014, the

District Court denied petitioners‐appellants’ motion to vacate an

arbitration award and granted the motion of respondents‐appellees  

Team Tankers A.S., Eitzen Chemical USA, and the M/T Siteam

Explorer to confirm it.  In the second, entered on September 29, 2014,

the District Court awarded respondents‐appellees their attorney’s

fees and costs.   

We AFFIRM the District Court’s June 30, 2014 order denying

petitioners‐appellants’ motion to vacate the arbitral award and

granting respondents‐appellees’ motion to confirm it but REVERSE

the District Court’s September 29, 2014 order awarding attorney’s

fees and costs to respondents‐appellees because the award was not

authorized under relevant law.

________

John T. Lillis, Jr., and Nathan T. Williams,

Kennedy Lillis Schmidt & English, New York,

NY, for Petitioners‐Appellants.

Case 14-4036, Document 113-1, 01/28/2016, 1693195, Page2 of 15
3

Michael J. Frevola and F. Robert Denig, Holland

& Knight LLP, New York, NY, for Respondents‐

Appellees.

________

JOSÉ A. CABRANES, Circuit Judge:

This appeal presents two questions.    The first, which we

dispose of in relatively short order, is whether the District Court

erred in confirming an arbitration award.  The second, which merits

fuller discussion, is whether the party that prevailed in arbitration

was entitled, by contract or statute, to recoup the fees and costs it

incurred in seeking to confirm the arbitral award before the District

Court.

Petitioners‐appellants are Zurich American Insurance Co.

(“Zurich”) and Vinmar International, Ltd. (“Vinmar”) (jointly, the

“petitioner” or the “shipper”).  The appeal challenges two orders of

the United States District Court for the Southern District of New

York (William H. Pauley III, Judge).  In the first, entered on June 30,

2014, the District Court denied the petitioner’s motion to vacate an

arbitration award and granted the motion of respondents‐appellees  

Team Tankers A.S. (“Team Tankers”), Eitzen Chemical USA

(“Eitzen”), and the M/T Siteam Explorer (the “Siteam Explorer”)

(jointly, the “respondent” or the “carrier”) to confirm it.    In the

second, entered on September 29, 2014, the District Court awarded

the respondent its attorney’s fees and costs.   

We AFFIRM the District Court’s June 30, 2014 order denying

the petitioner’s motion to vacate the arbitral award and granting the

Case 14-4036, Document 113-1, 01/28/2016, 1693195, Page3 of 15
4

respondent’s motion to confirm it but REVERSE the District Court’s

September 29, 2014 order awarding attorney’s fees and costs to the

respondent because the award was not authorized under relevant

law.

BACKGROUND

In June 2008, Vinmar chartered from Team Tankers a ship

called the M/T Siteam Explorer to move a large quantity of a

chemical called acrylonitrile (ACN) from Houston, Texas to Ulsan,

South Korea.  J.A. 365; Zurich Am. Ins. Co. v. Team Tankers A.S., No.

13‐CV‐8404 (WHP), 2014 WL 2945803, at *1 (S.D.N.Y. June 30, 2014).  

ACN is a versatile raw material that is, in its most valuable form,

colorless.   J.A. 368‐70; Zurich Am. Ins. Co., 2014 WL 2945803, at *1.  

Contact with other chemicals can cause ACN to “yellow” (i.e.,

become yellow in color), which is evidence of a change in

composition that reduces its value.  J.A. 365, 369‐70; Zurich Am. Ins.

Co., 2014 WL 2945803, at *1‐2.

Vinmar planned to find a buyer for its cargo in Ulsan, but the

ACN market dropped while the Siteam Explorer was at sea.  

Accordingly, when the ship arrived in port in August 2008, the ACN

was transferred into onshore tanks for storage.  J.A. 365‐66.  At that

time, the ACN remained “on specification” for color—that is, it had

not begun to yellow.  Zurich Am. Ins. Co., 2014 WL 2945803, at *1; see

J.A. 366.    

Six weeks later, Vinmar tested the stored ACN and learned

that it had yellowed beyond Vinmar’s quality standards. J.A. 366.  It

Case 14-4036, Document 113-1, 01/28/2016, 1693195, Page4 of 15
5

also tested a sample that had been carried on the Siteam Explorer

but never exposed to the Ulsan shore tanks; it too had yellowed.  

J.A. 370; Zurich Am. Ins. Co., 2014 WL 2945803, at *1.    A sample

pulled from tanks in Houston that had not been carried on the

Siteam Explorer had not yellowed at all.  J.A. 370.

Consistent with the charter agreement, Vinmar initiated

arbitration before the Society of Maritime Arbitrators, Inc. (“SMA”).  

J.A. 366; Zurich Am. Ins. Co., 2014 WL 2945803, at *2.    Vinmar

attempted to show that it had delivered the ACN to Houston in

good order but that it had arrived contaminated in Ulsan.  See J.A.

369‐71.    It argued that the ACN had been contaminated by a

chemical called “pygas” previously carried in the Siteam Explorer’s

tanks.  See J.A. 369.

On August 26, 2013, applying the Carriage of Goods by Sea

Act (“COGSA”), 46 U.S.C. § 30701 note, the arbitration panel

majority held that, for three reasons, Vinmar was not entitled to

relief.  It held, first, that Vinmar had not made out a prima facie case

that the ACN had been damaged while aboard the vessel, J.A. 370‐

73; second, that even if Vinmar had made out a prima facie case,

Team Tankers had shown that it exercised due diligence in

transporting the cargo, J.A. 373‐75; and third, that Vinmar had in

any event failed to prove damages, J.A. 375‐76.  

Following the panel’s decision, the shipper, Vinmar,

petitioned the District Court on November 25, 2013 to vacate the

award under section 10 of the Federal Arbitration Act (“FAA”), 9

Case 14-4036, Document 113-1, 01/28/2016, 1693195, Page5 of 15
6

U.S.C. § 1 et seq.,

1 arguing that the panel manifestly disregarded

COGSA in reaching each of the three conclusions described above.  

See J.A. 13‐16.   In January 2014, the shipper learned that the panel

chairman had died as a result of a brain tumor with which he had

been diagnosed during the arbitration, and of which he never

informed the parties.  Zurich Am. Ins. Co., 2014 WL 2945803, at *3, *8.  

Vinmar amended its petition to argue that that his failure to do so

constituted “corruption” or “misbehavior” as those terms are used

in the FAA.  J.A. 483‐86; see 9 U.S.C. § 10(a).

The District Court held that the arbitration panel had not

manifestly disregarded the law in determining that Vinmar had not

made out a prima facie case under COGSA; accordingly, the Court

 

1 Title 9, United States Code, Section 10 provides, in relevant part:

(a) In any of the following cases the United States court in and for the

district wherein the award was made may make an order vacating the

award upon the application of any party to the arbitration—

(1) where the award was procured by corruption, fraud, or undue

means;  

(2) where there was evident partiality or corruption in the

arbitrators, or either of them;

    (3) where the arbitrators were guilty of misconduct in refusing to  

    postpone the hearing, upon sufficient cause shown, or in refusing  

    to hear evidence pertinent and material to the controversy; or of  

    any other misbehavior by which the rights of any party have been  

    prejudiced; or

    (4) where the arbitrators exceeded their powers, or so imperfectly  

    executed them that a mutual, final, and definite award upon the  

    subject matter submitted was not made.

Case 14-4036, Document 113-1, 01/28/2016, 1693195, Page6 of 15
7

declined to address Vinmar’s other manifest‐disregard arguments.  

Zurich Am. Ins. Co., 2014 WL 2945803, at *8.  It likewise held that the

panel chairman had not been guilty of “corruption” or

“misbehavior.”  Id. at *8‐11.  On the authority of a provision in the

charter agreement stating that “[d]amages for breach of this Charter

shall include all provable damages, and all costs of suit and

attorneys [sic] fees incurred in any action hereunder,” the District

Court awarded the respondent carrier the fees and costs it incurred

in connection with the district court proceeding.  Id. at *11.

On appeal, the petitioner shipper argues that the District

Court erred in three respects: (1) concluding that the arbitral panel

did not manifestly disregard the law; (2) concluding that the panel

chairman had not been guilty of “corruption” or “misbehavior”; and

(3) awarding attorney’s fees and costs to the respondent carrier.  We

agree with the District Court’s decision to uphold the arbitral award.  

We conclude, however, that it erred in awarding the respondent

carrier its fees and costs.  

DISCUSSION

I. The Arbitral Award

“[T]o avoid undermining the twin goals of arbitration,

namely, settling disputes efficiently and avoiding long and

expensive litigation,” arbitral awards “are subject to very limited

review.”   Folkways Music Publishers, Inc. v. Weiss, 989 F.2d 108, 111

(2d Cir. 1993).    Under the United Nations Convention on the

Recognition and Enforcement of Foreign Arbitral Awards, June 10,

Case 14-4036, Document 113-1, 01/28/2016, 1693195, Page7 of 15
8

1958, 21 U.S.T. 2517, 330 U.N.T.S. 38 (the “New York Convention”),

which governs this dispute, a court must confirm an arbitral award

“unless it finds one of the grounds for refusal or deferral of

recognition or enforcement of the award specified in the said

Convention.”  9 U.S.C. § 207.2   

The award in this case having been rendered in the United

States, available grounds for vacatur include all the express grounds

for vacating an award under the FAA.  See Yusuf Ahmed Alghanim &

Sons v. Toys “R” Us, Inc., 126 F.3d 15, 23 (2d Cir. 1997) (“The [New

York] Convention specifically contemplates that the state in which

. . . the award is made, will be free to set aside or modify an award in

accordance with its domestic arbitral law and its full panoply of

express and implied grounds for relief.”).  As relevant here, the FAA

permits a court to vacate an arbitral award “where there was evident

partiality or corruption in the arbitrators,” 9 U.S.C. § 10(a)(2), or

“where the arbitrators were guilty . . . of any . . . misbehavior by

which the rights of any party have been prejudiced,” id. § 10(a)(3).  A

court may also “set aside an arbitration award if it was rendered in

 

2 Title 9, United States Code, Section 207—which is part of the statutory scheme

that “implements the . . . New York Convention,” Schneider v. Kingdom of

Thailand, 688 F.3d 68, 71 (2d Cir. 2012)—reads in full as follows:  

Within three years after an arbitral award falling under the

Convention is made, any party to the arbitration may apply to any

court having jurisdiction under this chapter for an order

confirming the award as against any other party to the arbitration.  

The court shall confirm the award unless it finds one of the

grounds for refusal or deferral of recognition or enforcement of

the award specified in the said Convention.

Case 14-4036, Document 113-1, 01/28/2016, 1693195, Page8 of 15
9

manifest disregard of the law.”  Schwartz v. Merrill Lynch & Co., Inc.,

665 F.3d 444, 451 (2d Cir. 2011) (internal quotation marks omitted).

We conclude that the shipper has not established any ground

for vacating the arbitral award.  On this point we agree entirely with

the District Court’s thorough analysis, see Zurich Am. Ins. Co., 2014

WL 2945803, and thus touch only briefly on the shipper’s arguments.

A. Manifest Disregard of the Law

The shipper’s first argument—that the arbitral panel

manifestly disregarded the substantive law of COGSA—is easily

rejected.  “A litigant seeking to vacate an arbitration award based on

alleged manifest disregard of the law bears a heavy burden . . . .”  

T.Co Metals, LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329, 339 (2d

Cir. 2010) (internal quotation marks omitted).  A court may vacate

an arbitral award on this ground only if the court “finds both that (1)

the arbitrators knew of a governing legal principle yet refused to

apply it or ignored it altogether, and (2) the law ignored by the

arbitrators was well defined, explicit, and clearly applicable to the

case.”  Wallace v. Buttar, 378 F.3d 182, 189 (2d Cir. 2004) (alterations

omitted).

The shipper’s basic argument, briefly stated, is that the

arbitration panel majority disregarded COGSA by requiring the

shipper to prove the cause of the damage to its cargo, rather than

properly applying COGSA’s burden‐shifting regime.    See

Transatlantic Marine Claims v. OOCL Inspiration, 137 F.3d 94, 98‐99

(2d Cir. 1998) (describing COGSA’s system of burdens and

Case 14-4036, Document 113-1, 01/28/2016, 1693195, Page9 of 15
10

presumptions).    We disagree.    As the District Court carefully

explained, the panel majority recognized that COGSA permits a

shipper to make a prima facie case by establishing that it delivered

goods to a carrier in sound condition, and that the goods arrived in

damaged condition following carriage.  See Zurich Am. Ins. Co., 2014

WL 2945803, at *5‐8.  The majority simply found that the shipper’s

evidence was insufficient to satisfy its initial burden under COGSA.  

See J.A. 373 (“Claimants have not shown, by a preponderance of

evidence or otherwise, that the alleged contamination took place

while the cargo was in the custody of the Siteam Explorer.”); J.A. 371

(discussing weaknesses in the shipper’s evidentiary showing).  It is

arguable that the shipper’s evidence could have supported a

contrary conclusion, but that does not show that the panel majority

manifestly disregarded the law.

B. “Corruption” and “Misbehavior”

The shipper’s second argument is that the panel chairman was

guilty of “corruption” or “misbehavior” because he failed to disclose

his illness to the parties; such disclosure, the shipper argues, was

required by the SMA Rules, which governed the conduct of the

arbitration.  We find this argument no more convincing than did the

District Court.  We will simply emphasize that the shipper’s attempt

to secure vacatur based on a violation of private arbitral rules runs

headlong into the principle that parties may not expand by contract

the FAA’s grounds for vacating an award.  See Hall St. Assocs., LLC v.

Mattel, Inc., 552 U.S. 576, 585‐88 (2008).    Parties may, of course,

“tailor some, even many, features of arbitration by contract,” id. at

Case 14-4036, Document 113-1, 01/28/2016, 1693195, Page10 of 15
11

586 (citation omitted); but if an arbitrator’s failure to comply with

arbitral rules, without more, could properly be considered

“corruption” or “misbehavior,” the FAA’s grounds for vacatur

would be precisely as varied and expansive as the rules private

parties might choose to adopt.  We accordingly reject this argument.

In sum, the shipper has established no ground on which to

vacate the arbitral award.   Accordingly, the District Court did not

err in denying the shipper’s motion to vacate the award and

granting the carrier’s motion to confirm it.  

II. The Award of Attorney’s Fees & Costs

We conclude, however, that the District Court erred in

awarding the respondent carrier the fees and costs it incurred in

seeking to confirm the award, and pause to explain why we think

the award untenable.

“Our basic point of reference when considering the award of

attorney’s fees is the bedrock principle known as the American Rule:

Each litigant pays his own attorney’s fees, win or lose, unless a

statute or contract provides otherwise.”    Baker Botts L.L.P. v.

ASARCO LLC, 135 S. Ct. 2158, 2164 (2015).  In the proceeding below,

the District Court determined that this “default rule,” id. at 2168,

was displaced by contract.  The Court awarded fees and costs to the

respondent carrier under a provision of the charter agreement which

reads: “BREACH.  Damages for breach of this Charter shall include

all provable damages, and all costs of suit and attorney fees incurred

in any action hereunder.”  J.A. 31.   

Case 14-4036, Document 113-1, 01/28/2016, 1693195, Page11 of 15
12

We hold that this result was in error.    By its terms, this

provision authorizes a fee award against a party that breaches the

charter agreement, as part of the non‐breaching party’s damages.  

There was no finding below, nor indeed any suggestion, that the

petitioner shipper breached the charter agreement.

The respondent carrier argues that the award may be

sustained on the theory that the shipper breached the parties’

contract not through any conduct related to the transport of the

shipper’s cargo to South Korea, but through its conduct in litigation.  

The carrier reasons that the parties agreed to be bound by the

arbitral panel’s decision, and the shipper breached that

understanding by resisting entry of judgment on the award.   

For two reasons, we are unconvinced.  First, the parties agreed

to arbitrate, but they also consented to confirmation of the arbitral

award in any court of competent jurisdiction.    See J.A. 31.    In so

doing, they agreed that a federal court would have authority to

confirm the award under the standards provided in the FAA.  See 9

U.S.C. § 9 (“If the parties in their agreement have agreed that a

judgment of the court shall be entered upon the award made

pursuant to arbitration, . . . any party to the arbitration may apply to

the court . . . for an order confirming the award, and thereupon the

court must grant such an order unless the award is vacated,

modified, or corrected as prescribed in sections 10 and 11 of this

title.”); Phoenix Aktiengesellschaft v. Ecoplas, Inc., 391 F.3d 433, 436 (2d

Cir. 2004).  The parties having effectively incorporated FAA review

into their contract, the argument that the shipper breached that

Case 14-4036, Document 113-1, 01/28/2016, 1693195, Page12 of 15
13

contract by making arguments the FAA permits is unconvincing.  

See I/S Stavborg v. Nat’l Metal Converters, Inc., 500 F.2d 424, 426 (2d

Cir. 1974) (“One purpose of [9 U.S.C. § 9] is to ensure that the parties

have affirmatively agreed to the application of the federal

substantive law contemplated by the Act to the interpretation of the

arbitration agreement into which they have entered.”).3

Second, even if the contract did oblige the shipper to forbear

from resisting confirmation of the award, it would be to that extent

unenforceable.    Read that way, the contract would authorize a

federal court to confirm the arbitral award while effectively

preventing that court from ensuring that the award complied with

the FAA.  We have held that “[p]arties seeking to enforce arbitration

awards through federal‐court confirmation judgments may not

divest the courts of their statutory and common‐law authority to

review both the substance of the awards and the arbitral process for

compliance with § 10(a) and the manifest disregard standard.”  Hoeft

v. MVL Grp., Inc., 343 F.3d 57, 66 (2d Cir. 2003), abrogated on other

grounds by Hall St. Assocs., 552 U.S. at 584–85.  Accordingly, we reject

 

3 This is not to suggest that the parties’ affirmative consent to

confirmation was required before a federal court could confirm the arbitral

award.  It was not: the award in this case fell under the New York Convention,

which (unlike the FAA) “does not in any way condition confirmation on express

or implicit consent.”  Phoenix Aktiengesellschaft, 391 F.3d at 436; see also 9 U.S.C. §

207, note 2, ante.    We simply conclude that the parties’ decision to expressly

include a consent‐to‐confirmation term in their contract convincingly

demonstrates their intent to incorporate principles of FAA review into their

agreement.

Case 14-4036, Document 113-1, 01/28/2016, 1693195, Page13 of 15
14

the argument that the shipper breached the charter agreement by

seeking to vacate the award.

The carrier argues in the alternative that the award can be

sustained under 28 U.S.C. § 1927,4 which authorizes a court to assess

“costs, expenses, and attorneys’ fees” against any attorney who “so

multiplies the proceedings in any case unreasonably and

vexatiously.”  But an award under § 1927 is proper only “when there

is a finding of conduct constituting or akin to bad faith.”  State St.

Bank v. Inversiones Errazuriz, 374 F.3d 158, 180 (2d Cir. 2004) (internal

quotation marks omitted).    The attorney’s actions must be “so

completely without merit as to require the conclusion that they must

have been undertaken for some improper purpose such as delay.”  

Id.    

A finding of bad faith or improper purpose is not warranted

on this record.  The petitioner shipper’s arguments on appeal (which

mirror its arguments below) are not convincing.  Yet the shipper ties

its reasoning, however flawed, to recognizable legal concepts.    Its

manifest‐disregard argument relies on the proposition, not on its

face absurd, that arbitrators manifestly disregard the law when the

facts they find flatly and obviously preclude the legal conclusions

they reach.  Its “corruption” and “misbehavior” arguments rely on

the disclosure‐based framework we have applied in evident‐

 

4 More accurately, the carrier states in conclusory fashion that the award

can be upheld under 28 U.S.C. § 1927.  See Respondent’s Br. 51.  

Case 14-4036, Document 113-1, 01/28/2016, 1693195, Page14 of 15
15

partiality cases.  See, e.g., Applied Indus. Materials Corp. v. Ovalar, 492

F.3d 132, 137‐38 (2d Cir. 2007).  These are, as we say, unconvincing

arguments, but not so unconvincing as to require the conclusion that

they are made for an improper purpose.

Perhaps something in the record could support a fee award

under § 1927.  But we have not found it, and the respondent carrier

has made no effort to identify it.  Accordingly, we must reverse the

District Court’s award of attorney’s fees and costs.

CONCLUSION

In sum, we hold that:

(1) The District Court did not err in denying the petitioner

shipper’s motion to vacate the arbitral award and granting the

respondent carrier’s motion to confirm it; but

(2) The District Court erred in awarding attorney’s fees and

costs to the respondent carrier.   

We thus AFFIRM the District Court’s order of June 30, 2014

confirming the arbitral award but REVERSE the District Court’s

order of September 29, 2014 awarding fees and costs.

Case 14-4036, Document 113-1, 01/28/2016, 1693195, Page15 of 15