International Produce, Inc. v. A/S Rosshavet

• Citation: 638 F.2d 548
• Decision Date: 08 January 1981
• Docket Number: D,No. 132,132
• Parties: INTERNATIONAL PRODUCE, INC., Petitioner and Cross-Respondent-Appellee, v. A/S ROSSHAVET, Owners of the S.S. Ross Isle, Respondent and Cross- Petitioner-Appellant. ocket 80-7387.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 548

638 F.2d 548

INTERNATIONAL PRODUCE, INC., Petitioner and Cross-Respondent-Appellee, v. A/S ROSSHAVET, Owners of the S.S. Ross Isle, Respondent and

Cross- Petitioner-Appellant.

No. 132, Docket 80-7387.

United States Court of Appeals, Second Circuit.

Argued Oct. 15, 1980.

Decided Jan. 8, 1981.

John C. Moore, New York City (Haight, Gardner, Poor & Havens, Mark C. Flavin, New York City, of counsel), for respondent and cross-petitioner-appellant, A/S Rosshavet.

Patrick V. Martin, New York City (Hill, Rivkins, Carey, Loesberg, O'Brien & Mulroy, J. Edwin Carey, Anthony J. Mavronicolas, New York City, of counsel), for petitioner and cross-respondent-appellee, International Produce.

Before LUMBARD, MANSFIELD and MESKILL, Circuit Judges.

LUMBARD, Circuit Judge:

A/S Rosshavet appeals from an order of the Southern District of New York vacating an arbitration award. A unanimous three-member arbitration panel awarded Rosshavet.$1.2 million as damages arising from a ship's charter agreement. The opposing party, International Produce, Inc., petitioned the district court under 9 U.S.C. § 10 (1976) for an order vacating that award on the ground that one of the arbitrators, Hammond L. Cederholm, should have recused himself because of his role in an unrelated arbitration. Rosshavet cross-petitioned for an order confirming the award. The district court granted International's petition to vacate the award, finding that the arbitrator's appearance of bias toward one of the law firms in the arbitration violated 9 U.S.C. § 10(b). ¹ We reverse that order and remand with direction to confirm the award.

At the time of the incident leading to the challenged arbitration, Rosshavet owned a vessel named the S.S. Ross Isle. International chartered it through a charter party dated March 7, 1974. At International's direction, the Ross Isle was loaded with corn and soybeans at Destrehan, Louisiana on March 22, 1974 and proceeded downriver on the evening of March 24. Seven and one-half hours later, on March 25, the vessel ran aground in the Southwest Pass of the Mississippi River. Invoking the arbitration clause of the charter party, each party asserted claims against the other arising from the grounding and the related delay.

As provided in the arbitration clause, Rosshavet and International each appointed an arbitrator, and the two arbitrators then appointed a third. Rosshavet appointed Lloyd C. Nelson; International appointed Mack G. Klosty; and Nelson and Klosty then selected Hammond L. Cederholm, to act as a third arbitrator and chairman. Cederholm is, and was at the time of his selection, a Vice-President of James W. Elwell & Co., Inc. (Elwell), a management firm retained by owners of various commercial vessels.

At the initial September 8, 1977 hearing, each of the arbitrators disclosed possible conflicts of interest. Nelson, Rosshavet's appointee, stated that his firm had a long-standing business relationship with International's parent corporation. Klosty, International's appointee, disclosed that he had previously been appointed as an arbitrator by International and that he had done business with them as a broker. International's counsel, Hill, Rivkins, Carey, Loesberg, O'Brien & Mulroy (Hill Rivkins), accepted Nelson's and Klosty's participation. Cederholm stated that, although he had no dealing with Rosshavet or International, Haight, Gardner, Poor & Havens (Haight Gardner) who was representing Rosshavet was also handling a Protection and Indemnity Club matter (the Mary S. Arbitration # 1) for one of Elwell's clients. Cederholm then invited questions from both counsel. International's counsel, J. Edwin Carey, of Hill Rivkins, stated that he had no questions and that the panel was acceptable to International. He did not ask Cederholm the name of the vessel involved in Haight Gardner's representation; if he had, he would have learned that it was the Mary S.

One of Elwell's clients, World Carrier Corporation owned the Mary S. Neither Cederholm nor Elwell had any financial interest in World Carrier, and Elwell received a fixed fee regardless of the Mary S.'s profitability. The Mary S. was protected by a Freight, Defense and Demurrage policy of the Protection and Indemnity Club Assuranceforeningen Gard (Gard), a common type of maritime insurance that covers the legal expenses of any claims involving the vessel but not any ultimate liability on such claims. The law firm of Haight Gardner had represented the Gard in New York since 1936; and when the first arbitration hearing in the Ross Isle dispute was held, Haight Gardner was already representing World Carrier as owner of the Mary S. in an unrelated dispute, the Mary S. Arbitration # 1. The dispute which led to the Mary S. Arbitration # 2 had not yet arisen.

On December 6, 1977, Rosshavet presented its witnesses in the arbitration, which was held in New York: Captain Hjarand Sem, the Master of the Ross Isle, and Captain Walter Durabb, the Branch Pilot in control of the Ross Isle when it went aground. Sem had come from Norway for the hearing and Durabb from Louisiana. The previous afternoon, however, Arbitrator Nelson had become ill and was unable to attend the hearings. Because of the expense of bringing the witnesses to New York and the uncertainty of their future availability, the parties agreed to proceed with only two arbitrators on the understanding that the missing arbitrator would read the transcript.

Two days later, on December 8, 1977, the Mary S. became involved in a dispute related to the closing of the St. Lawrence Seaway. Cederholm, as an officer of the firm that managed the Mary S., was involved in the negotiations which preceded the impasse. The owners of the Mary S. again retained Haight Gardner as recommended by the Gard's New York representatives; the charterers retained Hill Rivkins. Thus, the choice of law firms in the Mary S. Arbitration # 2 left Cederholm in the position of being a non-party witness in a suit between parties who were represented by the same law firms that were appearing before him in the Ross Isle arbitration.

On January 5, 1978, Carey of Hill Rivkins telephoned Cederholm and suggested that he should resign from the Ross Isle panel because a Haight Gardner attorney would "in all likelihood" call Cederholm and prepare him to testify in the Mary S. arbitration and a Hill Rivkins attorney would then cross-examine him. However, only one attorney Howard Miller, an associate at Haight Gardner was involved in both the Mary S. and the Ross Isle disputes. That same day, Cederholm wrote to his fellow arbitrators and to both counsel in the Ross Isle arbitration, informing them of the alleged conflict of interest and seeking their recommendations.

Rosshavet's counsel urged that Cederholm stay on the panel to avoid prejudicing their client: if Cederholm withdrew, there would be only one arbitrator who had observed Rosshavet's witnesses. Both of the other arbitrators strongly discouraged Cederholm's resignation, stressing Cederholm's personal integrity as well as the difficulty of finding any arbitrator in the relatively small maritime community without some possible speculative conflict. Carey, however, formally requested Cederholm's withdrawal, although he simultaneously expressed confidence that Cederholm could "continue to act judiciously and objectively without partiality or bias."

On January 13, 1978, Cederholm informed Carey that he was remaining on the panel because no aspect of the Mary S. Arbitration # 2 threatened his impartiality in the Ross Isle arbitration: "they are entirely dissimilar cases and there are no inter-relationships between the principals of both cases." Cederholm did condition his decision on the removal of the one attorney working on both cases, Howard Miller of Haight Gardner, from one case or the other. Haight Gardner immediately removed Miller from the Mary S. case. Carey acknowledged Cederholm's decision and announced his intention to proceed with the introduction of evidence at the January 17 hearing. Cederholm wrote to Carey on January 26 and proposed that, since Carey had not conceded or acknowledged the propriety of his remaining on the panel, Hill Rivkins should consider withdrawing from the Mary S. arbitration if it perceived a conflict. Carey did not reply.

Thereafter, on May 16, 1978, Cederholm gave 80 pages of testimony in the Mary S. Arbitration # 2, including cross-examination by a Hill Rivkins attorney. One final hearing was held in the Ross Isle arbitration on June 6, 1978. Over a year later, on July 1, 1979, the Ross Isle panel unanimously held that the vessel's grounding was caused by International's breach of its warranty of safe port and awarded Rosshavet $1,194,535.57, including interest to the date of the award, with further annual interest...