Koch Oil, S.A. v. Transocean Gulf Oil Co., 371

• Decision Date: 07 January 1985
• Docket Number: D,No. 371,371
• Citation: 751 F.2d 551
• Parties: In the Matter of the Arbitration between KOCH OIL, S.A., Petitioner-Appellee, and TRANSOCEAN GULF OIL COMPANY, Respondent-Appellant. ocket 84-7613.
• Court: U.S. Court of Appeals — Second Circuit

Page 551

751 F.2d 551

In the Matter of the Arbitration between KOCH OIL, S.A. Petitioner-Appellee and TRANSOCEAN GULF OIL COMPANY, Respondent-Appellant.

No. 371, Docket 84-7613.

United States Court of Appeals Second Circuit.

Argued Oct. 24, 1984.

Decided Jan. 7, 1985.

Mark C. Flavin, New York City (Haight, Gardner, Poor & Havens, Donald J. Kennedy, New York City, of counsel), for petitioner-appellee.

Herbert M. Lord, New York City (Burlingham Underwood & Lord, Lizabeth L. Burrell, Stephen P. Sheehan, New York City, of counsel), for respondent-appellant.

Before LUMBARD, FRIENDLY and PRATT, Circuit Judges.

LUMBARD, Circuit Judge:

Transocean Gulf Oil Co. appeals from a June 22, 1984 judgment of the District Court for the Southern District, John E. Sprizzo, Judge, confirming an arbitration award upon the motion of Koch Oil, S.A. pursuant to the Federal Arbitration Act, 9 U.S.C. Sec. 9 (1982). Gulf claims: 1) that the lump sum award ordering it to pay Koch $1,670,000 is invalid because it was filed after the expiration of the arbitrators' authority; 2) that the arbitrators exceeded their power by substituting higher prices than those agreed upon in the contract, by awarding consequential damages and by adopting a measure of damages that Gulf had rejected during contract negotiations; and 3) that the dispute at issue is an improper subject of arbitration. Koch, on the other hand, claims that Gulf's appeal is frivolous and seeks damages and costs, including double attorneys' fees, under 28 U.S.C. Sec. 1912 and Fed.R.App.P. 38.

Because the arbitrators rendered a timely award under the arbitration agreement, and because, as Judge Sprizzo noted, there is no indication that they manifestly disregarded the law in doing so, we affirm the judgment of the district court confirming the award. We do not, however, find Gulf's claims sufficiently frivolous to warrant awarding Koch damages.

This litigation arises out of two crude oil exchange contracts which Koch and Gulf executed in January 1980. In the first contract, Koch agreed to sell Gulf approximately 900,000 barrels of Forcados (Nigerian) crude oil at $34.50 a barrel in return for Gulf's agreement to sell it an equal number of barrels of Kuwait crude oil at $31 a barrel. In the second contract, Koch agreed to sell Gulf 225,000 barrels of Amna (Libyan) crude at $29.30 a barrel, and Gulf agreed to sell Koch the same number of barrels of Kuwait crude at $27.40 a barrel. Because all prices were below the spot market prices, a crucial element of the contracts was the agreement to exchange equal amounts of similarly discounted oil. Recognizing the possibility that Gulf might have trouble performing fully, the parties included the following special provision in the contracts:

In the event that Gulf is prevented from supplying the Kuwait crude to Koch for any reason including Force Majeure, Gulf will supply other mutually agreeable crude oil to Koch. In the event that Koch and Gulf are unable to reach agreement on an alternate crude supply, Koch and Gulf will negotiate in good faith to arrive at an equitable settlement.

Koch's representative testified in a deposition that, prior to the parties' agreeing on the above special provision, Gulf rejected an alternate proposal that would have required it, through a procedure referred to as reinvoicing, to pay the full market price for each barrel of oil it received from Koch in excess of the number of barrels of Kuwait crude that it delivered.

Koch has fully performed its obligations under the contracts, but Gulf, alleging that the Kuwait government restricted resale of Kuwait oil, has only delivered 645,505 barrels of Kuwait crude. Pursuant to the terms of the special provision, Gulf has also delivered approximately 500,000 barrels of Arab light crude, at a slightly discounted price, in an attempt to satisfy Koch. In accepting that oil, Koch reserved its rights to seek an additional settlement, arguing that it had not been fully compensated for the loss it suffered because of Gulf's default.

When settlement negotiations between the parties failed, Koch requested arbitration pursuant to the following term in the contracts:

All controversies and claims arising out of or relating to this Agreement, or the alleged breach thereof, shall be settled by arbitration ... in accordance with the Rules of the American Arbitration Association.

Koch sought to recover either $1,393,121.76 or $1,597,391.76 plus interest. The first figure represents the difference between the contract price of the Forcados and Amna crude that Koch delivered to Gulf, for which it received no Kuwait oil, and the market price of that crude at the time of contracting, reduced by Koch's gain from Gulf's discounted sale to it of 500,000 barrels of Arab light crude. The second figure equals Koch's lost profits, similarly reduced, under a contract it had to resell the undelivered Kuwait crude to a Japanese buyer.

After unsuccessfully resisting Koch's request for arbitration in the New York Supreme Court, Gulf participated in arbitration hearings, and, along with Koch, submitted final briefs to the American Arbitration Association ("AAA") arbitrators on September 23, 1983. That submission normally...