Court Opinion

ID: 815423
Source: CourtListenerOpinion
Date Created: 2013-01-16 15:31:55+00
Date Added: 2024-06-11T12:38:52.715133
License: Public Domain

11-4246-cv
NYKCool A.B. v. Pacific Fruit, Inc.

                           UNITED STATES COURT OF APPEALS
                               FOR THE SECOND CIRCUIT

                                      SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO
A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS
GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S
LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH
THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING
A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY
COUNSEL.

       At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Daniel Patrick Moynihan Courthouse, 500 Pearl Street, in the City of New York, on the 16th day
of January, two thousand thirteen.

Present:
         ROBERT A. KATZMANN,
         BARRINGTON D. PARKER,
         RICHARD C. WESLEY,
                     Circuit Judges,
________________________________________________

NYKCOOL A.B.,

           Plaintiff-Appellee

                  v.                                            No. 11-4246-cv

PACIFIC FRUIT, INC.,

           Defendant-Appellant,

KELSO ENTERPRISES LTD.,

           Defendant.

________________________________________________

For Plaintiff-Appellee:           GARTH S. WOLFSON (Edward A. Keane, on the brief),
                                  Mahoney & Keane, LLP, New York, N.Y.
For Defendant-Appellant:           JOSHUA R. WEISS, (Howard R. Hawkins, on the brief),
                                   Cadwalader, Wickersham & Taft LLP, New York, N.Y.

       Appeal from the United States District Court for the Southern District of New York
(Kaplan, J.).

       ON CONSIDERATION WHEREOF, it is hereby ORDERED, ADJUDGED, and

DECREED that the order of the district court be and hereby is AFFIRMED.

       Defendant-Appellant Pacific Fruit, Inc. (“Pacific Fruit”) appeals from a judgment entered

on September 14, 2011 by the United States District Court for the Southern District of New York

(Kaplan, J.) confirming an arbitration award issued by an arbitration panel of the Society of

Maritime Arbitrators (the “arbitration panel” or “panel”). The arbitration panel held Pacific

Fruit and its co-defendant in this action, Kelso Enterprises Ltd. (“Kelso”)1, jointly and severally

liable to Plaintiff-Appellee NYKCool A.B. (“NYKCool”) for $8,787,157 in damages for breach

of contract. We presume the parties’ familiarity with the underlying facts and procedural history

of this case, as well as with the issues on appeal.

       “In reviewing a district court’s confirmation of an arbitral award, we review legal issues

de novo and findings of fact for clear error.” Banco de Seguros del Estado v. Mutual Marine

Office, Inc., 344 F.3d 255, 260 (2d Cir. 2003). To ensure that “the twin goals of arbitration,

namely, settling disputes efficiently and avoiding long and expensive litigation” are met,

arbitration awards are subject to “very limited review.” Folkways Music Publishers, Inc. v.

Weiss, 989 F.2d 108, 111 (2d Cir. 1993); see also Porzig v. Dresdner, Kleinwort, Benson, N. Am.

       1
         Pacific Fruit and Kelso, represented by the same counsel below, jointly filed a timely
notice of appeal from the district court’s judgment on October 12, 2011. Subsequently, by letter
dated December 7, 2011, Kelso withdrew its appeal.

                                                  2
LLC, 497 F.3d 133, 138-39 (2d Cir. 2007) (“This Court has repeatedly recognized the strong

deference appropriately due arbitral awards and the arbitral process, and has limited its review of

arbitration awards in obeisance to that process.”). “[A]n arbitration award should be enforced,

despite a court’s disagreement with it on the merits, if there is a barely colorable justification for

the outcome reached.” Landy Michaels Realty Corp. v. Local 32B-32J, Serv. Employees Int’l

Union,, 954 F.2d 794, 797 (2d Cir. 1992) (internal quotation marks omitted).

       “A party petitioning a federal court to vacate an arbitral award bears the heavy burden

of showing that the award falls within a very narrow set of circumstances delineated by” the

Federal Arbitration Act (“FAA”). Duferco Int’l Steel Trading v. T. Klaveness Shipping A/S, 333
F.3d 383, 388 (2d Cir. 2003). Courts may vacate an arbitration award under the FAA where,

inter alia: (1) “the arbitrators were guilty of [any] misconduct . . . by which the rights of any

party have been prejudiced,” 9 U.S.C. § 10(a)(3), thereby “amount[ing] to a denial of [a party’s

right to] fundamental fairness of the arbitration proceeding,” Tempo Shain Corp. v. Bertek, Inc.,

120 F.3d 16, 19-20 (2d Cir. 1997) (internal quotation marks omitted); or (2) “the arbitrators

exceeded their powers” as delineated by the parties’ agreement to arbitrate, 9 U.S.C. § 10(a)(4).

In addition, we continue to recognize “manifest disregard of the law” as a “valid ground” for

vacatur as a “judicial gloss” on the grounds specified by Section 10 of the FAA. See, e.g., T.Co.

Metals, LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329, 339–40 (2d Cir. 2010) (internal

quotation marks omitted). Whether manifest disregard exists as an independent ground for

vacatur is uncertain. See Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758, 1768

n.3 (2010) (“We do not decide whether manifest disregard survives our decision in Hall Street

Associates, L.L.C. v. Mattel, Inc. [], as an independent ground for review or as a judicial gloss on

                                                  3
the enumerated grounds for vacatur set forth at 9 U.S.C. § 10.” (internal quotation marks

omitted)). That said, whether invoked as an independent basis for vacatur or merely as a

“judicial gloss” on the enumerated grounds for vacatur, Pacific Fruit cannot show that the panel

here manifestly disregarded the law.

       On appeal, Pacific Fruit first contends that the arbitration panel manifestly disregarded

the New York contract law by concluding that Pacific Fruit and Kelso (collectively,

“Charterers”) entered into an oral contract with NYKCool, under which NYKCool agreed to

transport weekly shipments of Charterers’ bananas from Ecuador to California and Japan for the

period between 2005 and 2008. In order to vacate an arbitration award for manifest disregard of

the law, a court must conclude that “the arbitrator knew of the relevant [legal] principle,

appreciated that this principle controlled the outcome of the disputed issue, and nonetheless

willfully flouted the governing law by refusing to apply it.” Westerbeke Corp. v. Daihatsu

Motor Co., Ltd., 304 F.3d 200, 217 (2d Cir. 2002); see also Stolt-Nielson SA, 130 S. Ct. at 1767

(“It is only when an arbitrator strays from interpretation and application of the agreement and

effectively dispenses his own brand of industrial justice that his decision may be unenforceable.”

(internal quotation marks and alteration omitted)). This rigorous standard ensures that “awards

are vacated on grounds of manifest disregard only in those exceedingly rare instances where

some egregious impropriety on the part of the arbitrator is apparent.” T.Co Metals, LLC, 592

F.3d at 339 (internal quotation marks and alteration omitted). As such, the “standard essentially

bars review of whether an arbitrator misconstrued a contract.” Id.

       Here, we detect no manifest disregard of the law in the arbitration panel’s conclusion that

the parties had entered into a binding oral contract for the period between 2005 and 2008. In

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particular, we agree with the panel’s conclusion that the parties’ substantial partial performance

on the contract weighs strongly in favor of contract formation. See R.G. Group, Inc. v. Horn &

Hardart Co., 751 F.2d 69, 75-76 (2d Cir. 1984) (“[P]artial performance is an unmistakable signal

that one party believes there is a contract; and the party who accepts performance signals, by that

act, that it also understands a contract to be in effect.”). It is undisputed that in 2005 and 2006

NYKCool transported 30 million boxes of cargo for Charterers on over 100 voyages, for which it

received $70 million dollars in payments even though there was no written contract in place.

Moreover, the parties’ behavior during 2005 and 2006 strongly suggests that they believed

themselves subject to a binding agreement. Notably, the parties engaged in extensive

renegotiation of the terms of the contract when Kelso began facing difficulties meeting its cargo

commitments. In these circumstances, the panel cannot be said to have engaged in “egregious

impropriety” in concluding that the parties intended to enter a binding oral agreement. T.Co

Metals, 592 F.3d at 339.

       Pacific Fruit next contends that the panel manifestly disregarded the law in holding

Charterers jointly and severally liable for all the damages arising out of their breach of contract.

Under New York law, it is settled that separate legal entities may not generally be subject to

liability for one another’s contractual obligations merely because they are corporate affiliates.

See In re Seagroatt Floral Co., Inc., 583 N.E.2d 287, 293 (N.Y. 1991). However, under New

York law and “[s]ettled rules governing the interpretation of contracts . . . when two or more

entities take on a[] [contractual] obligation . . . they [generally] do so jointly.” Wujin Nanxiashu

Secant Factory v. Ti-Well Int’l Corp., 22 A.D.3d 308, 310-11 (1st Dep’t 2005); see also

Restatement (Second) of Contracts § 289(1) (“Where two or more parties to a contract promise

                                                  5
the same performance to the same promisee, each is bound for the whole performance thereof,

whether his duty is joint, several, or joint and several.”).

       Here, we conclude that there is at least a “barely colorable justification” for the panel’s

conclusion that Pacific Fruit and Kelso were co-promisors on a single contract, and that they

therefore may be held jointly and severally liable for damages arising out of that contract. In

particular, the entities negotiated with NYKCool as a single unit; the terms of the parties’ initial

discussions related to a single “integrated around-the world service,” J. App’x 75; the parties’

negotiation documents refer to the parties’ unexecuted written contract as a single “agreement,”

see, e.g., J. App’x 365, and the parties presented a joint, indivisible counterclaim in the

arbitration proceeding, J. App’x 39. Further, it is well-established that:

       We will . . . not vacate an arbitral award for an erroneous application of the law if
       a proper application of law would have yielded the same result. In the same vein,
       where an arbitral award contains more than one plausible reading, manifest
       disregard cannot be found if at least one of the readings yields a legally correct
       justification for the outcome.

Duferco, 333 F.3d at 390; see also Stolt-Nielson, 548 F.3d at 93 (“Even where explanation for an

award is deficient or non-existent, we will confirm it if a justifiable ground for the decision can

be inferred from the facts of the case.”). While the arbitration award offers differing indications

as to the panel’s reasons for its decision, we conclude that it is plausible to read the award as

imposing joint and several liability on Charterers as the co-promisors of a single oral contract.

This would be a “legally correct justification for the outcome,” and therefore we will not vacate

the award. Duferco, 333 F.3d at 390.

       Next, Pacific Fruit argues that the arbitration panel exceeded its authority by holding

Charterers jointly and severally liable because the two entities were originally party to separate

                                                   6
written arbitration agreements with NYKCool. Arbitrators exceed their authority when they: (1)

“consider[] issues beyond those the parties have submitted for . . . consideration,” or (2) “reach[]

issues clearly prohibited by law or by the terms of the parties’ agreement.” Jock, 646 F.3d at

122; see Porzig, 497 F.3d at 140 (“The authority of the arbitral panel is established only through

the contract between the parties who have subjected themselves to arbitration, and a panel may

not exceed the power granted to it by the parties in the contract.”). However, “[w]e have . . .

consistently accorded the narrowest of readings” to our capacity to vacate an arbitration award

on the ground that the arbitrators lacked the authority to address an issue. Jock, 646 F.3d at 122

(internal quotations marks omitted). In particular, we have held that an arbitrator does not

exceed its authority so long as the “award draws its essence from the agreement to arbitrate” and

“is even arguably construing or applying the contract.” Id.

       Here, Pacific Fruit contends that the arbitration panel exceeded its authority in imposing

joint and several liability because Pacific Fruit and Kelso initially agreed to arbitrate their claims

in “two separate” written contracts with NYKCool, neither of which “authorize the Panel to

impose liability upon Pacific Fruit for Kelso’s contractual obligations, or vice versa.”

Appellant’s Br. at 26. This is unconvincing. The arbitration panel concluded that the instant

dispute arises out of the parties’ “binding and enforceable new contract” for the years 2005

through 2008. J. App’x 71. Further, the panel concluded that the terms of this single contract

“mirror[ those of the written agreements] that had been in force” prior to the inception of the new

agreement. Id. The parties’ prior written contracts contain arbitration clauses which provide for

arbitration of “any dispute aris[ing] out of this Contract.” J. App’x 639. As such, under the

panel’s interpretation of the parties’ new agreement, the parties agreed to arbitrate “any dispute”

                                                  7
arising out of their single oral contract covering the period between 2005 and 2008. See Hardy

v. Walsh Manning Sec., LLC, 341 F.3d 126, 131 (2d Cir. 2003) (“[A] reviewing court is bound to

accept the facts considered by an arbitrator as those fact have been determined by the arbitrator.”

(internal quotation mark and emphasis omitted)); cf. T.Co Metals, 592 F.3d at 339 (“[The

manifest disregard of the law] standard essentially bars review of whether an arbitrator

misconstrued a contract.”). Where, as here, “an arbitration clause is broad, . . . arbitrators have

the discretion to order remedies they determine appropriate, so long as they do not exceed the

power granted to them by the contract itself.” Banco de Seguros, 344 F.3d at 262. Accordingly,

we conclude that the parties’ agreement to arbitrate granted the panel the authority to impose

joint and several liability pursuant to the relevant oral contract covering the years between 2005

and 2008.

       Finally, Pacific Fruit contends that the arbitration panel denied it a fundamentally fair

hearing because it “had no opportunity to present evidence to the Panel that it should not be held

jointly and severally liable with Kelso.” Appellant’s Br. at 21. Section 10(a)(3) of the FAA

provides for vacatur of arbitration awards if “the arbitrators were guilty of misconduct” in

engaging in “any . . . misbehavior” that “amount[s] to a denial of fundamental fairness.” Tempo

Shain, 120 F.3d at 19-20 (internal quotation marks omitted). Although “arbitrator[s] need not

follow all the niceties observed by the federal courts,” they “must give each of the parties to the

dispute an adequate opportunity to present its evidence and argument.” Id. at 20 (internal

quotation marks omitted). However, where a party “has not identified in what way a[n]

[evidentiary] hearing would have benefitted [it],” due process is satisfied by the tribunal giving

the parties notice that it will be considering an issue and the “opportunity to respond in a written

                                                  8
presentation.” Karpova v. Snow, 497 F.3d 262, 271 (2d Cir. 2007) (upholding an agency’s

hearing procedures against a due process challenge).

       Here, we see no fundamental unfairness in the panel’s decision to impose joint and

several liability without first holding a supplemental evidentiary hearing specifically devoted to

the issue. While Pacific Fruit is correct that NYKCool never sought joint and several liability

against Charterers during the evidentiary phase of the arbitration panel’s proceedings, the

arbitration panel had a more than ample evidentiary record from which it could conclude that

Charterers were co-promisors on a single contract. Further, after the parties were given notice

that the panel would be addressing the issue of joint and several liability, they had the

opportunity to file written submissions with the panel setting forth their views on the issue.

Finally, Pacific Fruit identifies no reason on appeal why an evidentiary hearing would have

helped the arbitration panel resolve the issue of joint and several liability in Charterers’ favor.

       For the foregoing reasons, the Order of the district court confirming the arbitration award

is hereby AFFIRMED.

                                               FOR THE COURT:
                                               CATHERINE O’HAGAN WOLFE, CLERK

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