Interchem Asia 2000 v. Oceana Petrochemicals

373 F.Supp.2d 340

In the Matter of the Arbitration Between INTERCHEM ASIA 2000 PTE. LTD., Claimant, v. OCEANA PETROCHEMICALS AG, Respondent.

Oceana Petrochemicals AG, Claimant, v. InterChem Chemicals Pte. Ltd., Respondent.

No. 04 Civ. 8439(VM).

United States District Court, S.D. New York.

May 31, 2005.

COPYRIGHT MATERIAL OMITTED

Richard Allen Didonna, Darien, CT, for Respondent.

Joseph Austin Kilbourn, Cone & Kilbourn, Mt. Kisco, NY, for Claimant.

DECISION AND ORDER

MARRERO, District Judge.

On October 27, 2004, InterChem Asia 2000 Pte. Ltd. and InterChem Chemicals Pte. Ltd. (collectively "InterChem") petitioned this Court to confirm an arbitration award ("Arbitration Award" or "Award") issued against Oceana Petrochemicals AG ("Oceana") following an arbitration proceeding conducted before the Hon. Harold R. Tyler, Jr. ("Arbitrator"), an arbitrator from the American Arbitration Association ("AAA"). On November 17, 2004, Oceana, on its own behalf and that of its attorney, Richard A. DiDonna ("DiDonna"), opposed InterChem's petition to confirm the Arbitration Award and moved to vacate the Award in part.¹ On January 6, 2005, InterChem submitted a brief in opposition to Oceana's motion. Filed with the brief were affidavits from InterChem's counsel, Joseph A. Kilbourn and John E. Cone, Jr. ("Cone"), and the Arbitrator. On January 29, 2005, DiDonna submitted an affidavit supporting Oceana's motion. Finally, on February 3, 2005, Cone filed an affidavit in support of InterChem's opposition to Oceana's motion. The parties attached exhibits from the arbitration to some of these affidavits.

Having considered these submissions, and in light of the limited scope of review afforded to district courts in confirming arbitral awards, the Court confirms the Arbitration Award in part, and grants Oceana's motion to vacate the Arbitration Award in part. Specifically, the Court confirms the Arbitration Award except to the extent that it awards attorney's fees in the amount of $70,000 against DiDonna personally.

I. BACKGROUND²

Oceana and InterChem entered into a contract ("Contract") for the purchase of paraxylene, a petrochemical. As part of this transaction, InterChem was to sell Oceana 5,000 metric tons of paraxylene. Oceana asked for an expedited partial delivery of 4,000 metric tons on behalf of a customer, Polysindo, to be delivered by InterChem in Korea between April 1 and 3, 2003.³ When InterChem tendered delivery of the 4,000 metric tons, Oceana claimed that the shipment was late and that InterChem had, therefore, breached the Contract.

As for the remaining 1,000 metric tons, although two ships were designated by Oceana for delivery, the transaction was never completed. On May 8, 2003, Oceana notified InterChem that it would not accept delivery of the remaining 1,000 metric tons. The Arbitrator found that this cancellation by Oceana was in response to Polysindo's cancellation of that part of its order with Oceana, and not the result of any breach by InterChem.

The parties' Contract stipulated that "[a]ny controversy or claim arising out of or relating to the Contract shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association.... Each party consents to the non-exclusive jurisdiction of the Federal and State Courts within the State of New York." (Contract, attached as Ex. A to DiDonna's Aff. in Opp'n to Pet. to Confirm Arbitration Award and in Support of Cross-Motion to Vacate Award in Part, dated November 12, 2004 ("DiDonna Aff.")). Pursuant to this provision, InterChem filed a petition for arbitration on March 7, 2003 claiming damages for the 1,000 metric tons of paraxylene that were never picked up. Oceana filed a claim against InterChem on March 18, 2004 for damages associated with the late delivery of the 4,000 metric tons and the nondelivery of the 1,000 metric tons. The two claims were consolidated into a single proceeding by the AAA.

The arbitration was presided over by Arbitrator Harold R. Tyler, Jr., a former Judge of the United States District Court for the Southern District of New York.⁴ The arbitration consisted of two hearings on May 24, 2004 and August 3, 2004. Both parties requested attorney's fees in their pleadings submitted as a part of the arbitration. (See InterChem's Pet. to Confirm Arbitration Award, dated October 21, 2004 ("InterChem Pet.") ¶¶ 6, 8.)⁵

During the arbitration, there arose an issue regarding document production by Oceana.⁶ The Arbitrator ordered Oceana and InterChem to produce documents by April 9, 2004 in response to questions posed by InterChem to Oceana by letter dated March 24, 2004, and by Oceana to InterChem by letter dated March 31, 2004. The Arbitrator also stated in that order that counsel for Oceana was "to submit in detail the exact damages and the bases therefore as sought by his client no later than Thursday, April 15, 2004." (Arbitrator's Mem. and Order, dated March 31, 2004 ("March 31st Order") ¶¶ 2, 4, attached as Ex. C to DiDonna Aff.) Oceana produced forty-three pages of documents on April 15, 2004. In response to a subsequent order by the Arbitrator on May 4, 2004 to produce all documents that the parties intended to submit at the hearing, Oceana produced an additional one hundred forty-three documents on May 17, 2004. At the May 24 Hearing, the Arbitrator requested that Oceana produce additional documents, in particular concerning damages (see May 24 Tr. at 320-22), which Oceana produced on June 1, 2004. (See DiDonna Aff. ¶¶ 28-30, Ex. G at 2-3.) Some of the documents produced on June 1, 2004 were deemed by the Arbitrator to have been highly relevant to the May 24th Hearing. (Tr. at 336-39 ("Aug. 3 Tr."), attached as Ex. B to Kilbourn Aff.; Award, Am. Arbitration Ass'n No. 50T1320043603, at 5 ("Arbitration Award"), attached to InterChem Pet.) Oceana claimed that it produced the required documents requested by InterChem, and that the documents produced by Oceana after the May 24 Hearing were not required to be produced earlier under the AAA Commercial Rules.⁷ (Aug. 3 Tr. at 345-55.) The Arbitrator found that Oceana's document production prior to the May 24 Hearing was "peculiarly sparse and unrevealing," and that the production on June 1, 2004 revealed critical documents and evinced "patently dilatory and evasive document production carried out by Mr. DiDonna for his client." (Arbitration Award at 13-14.) These dilatory document production tactics served as the basis for InterChem's request for and the Arbitrator's imposition of sanctions against Oceana and DiDonna individually.

Furthermore, throughout the arbitration proceedings, the Arbitrator made remarks aimed at DiDonna and Oceana that Oceana claims were derogatory and exhibited bias. A review of the transcripts from the hearings reveals that there was a great deal of tension between the Arbitrator and DiDonna and that each made negative comments toward the other. Examples of the remarks made by the Arbitrator include calling DiDonna inexperienced and accusing him of behaving badly during the proceedings. See infra Part III.A. Oceana complained to the AAA on two occasions about the Arbitrator, and sought his removal as arbitrator over the matter.⁸ Both of these requests were denied, and the AAA did not inform the Arbitrator of Oceana's motions for his removal.

The Arbitrator ultimately found that Oceana's claims had no merit, that InterChem's shipment of 4,000 tons was timely and that Oceana's claim likely lies not against InterChem, but against its customer, Polysindo, which had financial difficulties during the transaction and was unable to secure a timely letter of credit for the shipment. The Arbitrator also found that Oceana's post-hearing production of documents, which were deemed by the Arbitrator to have been "exceedingly important," was sanctionable conduct, and imposed sanctions by granting InterChem's request for attorney's fees. (Arbitration Award at 12-14.)

The Arbitrator rendered his award on September 9, 2004.⁹ The "Award of Arbitrator" stated that the Arbitrator, "having heard the evidence and arguments of [the] parties, ... award[ed] the following":

(1) Oceana Petrochemicals AG shall recover no damages.

(2) Within thirty (30) days from the date of the transmittal of this Award to the parties, Oceana Petrochemicals AG shall pay to InterChem Chemicals Pte. Ltd. the sum of $405,000.00 plus interest thereon at the rate of 9% from May 8, 2003 to and including September 9, 2004.

(3) Legal fees to the extent of $70,000.00 of counsel for InterChem are to be paid by Oceana and its counsel within thirty (30) days from the date of transmittal of this Award to the parties.

(4) The compensation and expenses of the arbitrator ... shall be borne equally by the parties....

(5) The administrative fees and expenses of the [arbitration]... are to be borne to the extent of 75% thereof by Oceana and the balance of 25% thereof by InterChem.¹⁰

(Arbitration Award at 14-15.)

Oceana moved the Court to vacate the parts of the award ordering Oceana to pay damages in the amount of $405,000 plus interest to InterChem, and the $70,000 in legal fees imposed as sanctions against Oceana and DiDonna. (See Respondent's Mem. in Opp'n to Pet. to Confirm Arbitration Award and in Support of Cross-Motion to Vacate Award in Part, dated November 12, 2004 ("Oceana Mem.").) Oceana set out six claims in its request to vacate this award: (1) that the Arbitrator applied no known legal standard in imposing substantial sanctions, (2) that the Arbitrator did not afford Oceana and DiDonna due process prior to his imposition of substantial sanctions, (3) that sanctions should not have been awarded unless the Arbitrator found that the challenged actions were entirely without color and motivated by improper purposes, (4) that sanctions were particularly inappropriate where imposed by an arbitrator and should have been subject to judicial review, (5) that the...