Totem Marine Tug & Barge, Inc. v. North American Towing, Inc.

• Decision Date: 27 November 1979
• Docket Number: No. 77-2298,77-2298
• Citation: 607 F.2d 649
• Parties: TOTEM MARINE TUG & BARGE, INC., Plaintiff-Appellant, v. NORTH AMERICAN TOWING, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 649

607 F.2d 649

TOTEM MARINE TUG & BARGE, INC., Plaintiff-Appellant, v. NORTH AMERICAN TOWING, INC., Defendant-Appellee.

No. 77-2298.

United States Court of Appeals Fifth Circuit.

Nov. 27, 1979.

Joseph V. Ferguson, II, Joseph V. Ferguson, III, New Orleans, La., Roy Morrow Bell, San Diego, Cal., for plaintiff-appellant.

Jerald P. Block, Thibodaux, La., for defendant-appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before GEWIN, AINSWORTH and REAVLEY, Circuit Judges.

REAVLEY, Circuit Judge:

North American Towing, Inc. (North American) applied for confirmation of an arbitration award against Totem Marine Tug and Barge, Inc. (Totem), which sought to vacate or modify the award. The arbitrators' decision held that Totem had breached the charter agreement between the parties and awarded North American damages of $74,568.08. The district court confirmed the award. 429 F.Supp. 452 (E.D.La.1977). Because of irregularities in the conduct of the arbitration hearing which materially prejudiced Totem, we reverse.

FACTS

On June 19, 1975, Totem and North American entered a six month time charter agreement for the M/V KIRT CHOUEST owned by North American. The vessel was Although North American never requested damages for charter hire, the contract amount for use of the vessel between October 19 (the date of Totem's alleged breach) and December 19 (the end of the charter term), the arbitration panel awarded it nonetheless. The panel stated: "North American erroneously asked only for its return expense (plus some miscellaneous accounting items) in damages. The proper measure of North American's damages was the balance of charter hire due under the charter less the earnings of the vessel during that period." (R. at 118). Totem contends that by this action the arbitrators exceeded their powers and awarded on a matter not submitted to them, thereby impairing the award under the provisions of 9 U.S.C.A. § 10(d) and § 11(b) (1970). ¹

to be delivered to Totem at Galliano, Louisiana, and to be returned there or to any other mutually agreed port at the expiration of the charter term. Totem was to use the vessel to tow a loaded barge from Houston through the Panama Canal and into the Pacific, to Los Angeles and then Seattle, and finally to Anchorage, Alaska. On October 19, 1975, Totem terminated the charter allegedly because of excessive repairs and delays caused by the vessel. North American requested arbitration. Totem responded by seeking a clarification of North American's claim. North American provided an itemized statement of the claim, the first and largest item being the "Specific contract amount for returning vessel $45,000.00" (R. at 29). Totem counterclaimed alleging that the vessel was unfit for the purposes of the charter and that the vessel had been redelivered at a mutually agreed port: Anchorage.

The panel then computed North American's damages as the charter hire due under the contract from October 19 to December 19, less the earnings of the KIRT CHOUEST during the same time period, plus some miscellaneous expenses. It is undisputed that after the close of the arbitration proceedings, during deliberations, the arbitrators realized that each had a different figure in his notes on the earnings of the KIRT CHOUEST from October to December. The arbitrator appointed by North American then telephoned North American's counsel who supplied the figure which the arbitrators used to complete their computations. Totem was neither notified of this telephone conversation nor given any opportunity to respond to the figure provided by North American. Totem contends that this ex parte communication constituted prejudicial misconduct by the arbitrators in violation of 9 U.S.C.A. § 10(c).

UNLAWFUL EXTENSION OF SUBJECT MATTER

Totem contends that the issue of charter hire was never placed in issue in the arbitration proceeding and that an award on that basis denied it due process. North American acknowledges that it never specifically requested damages for charter hire but claims that the matter was naturally intertwined in the general scope of the breach of contract claim.

An arbitration proceeding is much less formal than a trial in court. "In handling evidence an arbitrator need not follow all the niceties observed by the federal courts. He need only grant the parties a fundamentally fair hearing." Bell Aerospace Co. Div. of Textron, Inc. v. Local 516, UAW,500 F.2d 921, 923 (2nd Cir. 1974). All parties in an arbitration proceeding are entitled to notice and an opportunity to be heard. Citizens Bldg. of West Palm Beach, Inc. v. Western Union Tel. Co., 120 F.2d 982, 984 (5th Cir. 1941); Seldner Corp. v. W. R. Grace & Co., 22 F.Supp. 388, 391-93 (D.Maryland, 1938). Although arbitrators enjoy a broad grant of authority to fashion remedies (Commercial Arbitration Rules of the American Arbitration Association § 42), ² arbitrators are restricted to those issues submitted. Retail Store Employees Union Local 782 v. Sav-on-Groceries, 508 F.2d 500, 503 (10th Cir. 1975); Kansas City Luggage and Novelty Workers Union, Local No. 66 v. Neevel Luggage Mfg. Co., 325 F.2d 992 (8th Cir. 1964).

Arbitration is contractual and arbitrators derive their authority from the scope of the contractual agreement. United Steelworkers of America v. Enterprise Wheel and Car Corp., 363 U.S. 593, 597, 80 S.Ct. 1358, 4 L.Ed.2d 1424 (1960); Gulf and South America Steamship Co., Inc. v. National Maritime Union of America, 360 F.2d 63, 65 (5th Cir. 1966). The award of an arbitration panel may be vacated where the arbitrators exceed their powers. 9 U.S.C.A. § 10(d) (1970); E. g., Retail Store Employees Union Local 782 v. Sav-on-Groceries, supra, 508 F.2d at 502-03; Delta Lines, Inc. v. Brotherhood of Teamsters and Auto Truck Drivers, Local 85, 409 F.Supp. 873, 876 (N.D.Calif., 1976).

The arbitration panel exceeded its powers by awarding damages for charter hire to North American. Not only did North American fail to list charter hire in its itemized statement of damages submitted to Totem, but in its brief submitted to the arbitration panel, North American conceded that charter hire was not an issue in the arbitration. Totem prepared and argued a case in which return expenses, and not charter hire, was the main issue. North American originally claimed damages totalling.$74,713.63, later amended to a total of $87,047.82, the first and largest item claimed being $45,000.00 for return of the vessel. With the exception of the $45,000 claim for returning the vessel, and a few other very minor exceptions totalling less than $1,000, the arbitration panel fully upheld North American's claim. In place of the $45,000 North American requested for return of the vessel, the arbitrators awarded charter hire totalling $117,440.00, bringing the total damages due North American to $157,887.63, before Totem's offsets and counterclaims. It is anomalous for the arbitration panel to award an unrequested item of damages three times larger than any item claimed by North American and then to hear the panel action supported with an argument that the awarded item was naturally intertwined within the scope of the arbitration.

In its letter of February 4, 1976, responding to Totem's request for a clarification of the matters to be submitted to arbitration, North American set forth the nature of the dispute and the amount involved

                by itemizing its damages.  3  Although return expenses were specifically listed, damages for charter hire were not.  By awarding charter hire, the arbitrators ignored the arbitral dispute submitted by the parties and dispensed their "own brand of industrial justice."  United Steelworkers of America v. Enterprise Wheel and Car Corp., supra, 363 U.S. at 597, 80 S.Ct. 1358
                

EX PARTE COMMUNICATION

After the arbitrators decided to base North American's damages on charter hire instead of the expenses of returning the vessel, it became necessary to determine the earnings of the KIRT CHOUEST between October and December as an offset. Because charter hire had never been placed in issue and the vessel's earnings had arisen only as related to the issue of whether the vessel had been returned to North American at Anchorage, each of the arbitrators had a different figure in his notes and none were confident that he had the correct figure. Consequently, although the hearings had been closed several days earlier, and despite the fact that the office of Totem's counsel was in the same building in which the arbitrators were deliberating, a long distance call was placed to North American's counsel to ascertain the earnings of the KIRT CHOUEST. The figure supplied by North American's counsel was adopted by the panel although it matched none of their figures. Totem was never notified of the call or given any opportunity to contest the figure supplied.

In clause twenty-four of the charter agreement, Totem and North American incorporated the Commercial Arbitration Rules of the American Arbitration Association for the resolution of any dispute between them. ⁴ Section thirty of the Arbitration Rules states that "(a)ll evidence shall be taken in the presence of all the parties, except where any of the parties is absent in default or has waived his right to be present." ⁵ Evidence was received from North American's counsel out of Totem's presence when the telephone call was made and the figure given by North American was adopted by the arbitrators as the basis for their computations. Totem neither defaulted nor waived its rights, but instead, timely filed a motion to vacate in district court. ⁶ The arbitration rules provide specific procedures for the receipt of evidence ⁷ and the close of hearings, ⁸ procedures violated by the ex parte communication with North American.

After the arbitration panel improperly extended the scope of arbitration to include charter hire, the extent of Totem's liability hinged on the determination...