Case of the Day: Phoenix Bulk Carriers v. American Metals Trading

I have a guest post today from Andrew Jacobs, who recently joined Murphy & King’s litigation department following a clerkship for a federal judge in Miami.

I’m honored to have a brief moment in the limelight as guest poster of the case of the day.  As a former federal law clerk and a federal court practitioner before that, I have a particular interest in federal practice and procedure that includes the laws, conventions, and treaties governing international judicial assistance.  It’s true that I had to bribe Ted with the offer of doing light site maintenance (or maybe he suggested it as payment), but my post is not without precedent—you may recall previous guest posts by Charles Kotuby, Albéniz Couret, Chris Bray, Antonin I. Pribetić, or the space given to Noel Doran on the curious case of Anthony McIntyre.

Enough about why you are hearing from me…anchors away for the case of the day, Phoenix Bulk Carriers, Ltd. v. American Metals Trading, LLP (S.D.N.Y. 2013), which takes us to four continents and reminds us of the resilience of pesky foreign arbitration awards when their enforcement is challenged in U.S. courts.

Phoenix Bulk Carriers, Ltd. (a Liberian entity) was under contract with American Metals Trading, LLP (a British entity) to transport some unspecified, but apparently enormous, amount of pig iron from Brazil to the mighty Mississippi.  Phoenix evidently failed to nominate a vessel to carry the materials so that AMT could work with the dock operator to accept the ship.  For its part, AMT was evidently having problems with its dock operator, which obtained a local court order to permit it to cease dock operations.  Although the parties discussed alternative loading locations, communications broke down.  AMT subsequently declared Phoenix in breach and used another carrier at a rate roughly 25% higher.

An arbitration panel comprised of three maritime experts concluded that Phoenix had technically breached the contract by failing to timely designate a carrier vessel before the dock fiasco occurred.  Nevertheless, this was not a source of any damages, since a clause in the contract negated Phoenix’s duty to supply vessels if the parties could not confirm the loading with the dock operator, and the operator here had serious issues with the dock.  In the end, not only did AMT lose on its claim, but Phoenix was awarded $160,000 in arbitration costs and fees.

This award in favor of Phoenix and a motion by AMT for vacatur came before the esteemed Naomi Reice Buchwald of the Southern District of New York.  AMT argued that under Section 10(a)(4) of the Federal Arbitration Act, the panel exceeded its authority by manifestly disregarding the law – since no one consenting to arbitration in a contract agrees to a misapplication of the law.

(This is somewhat facetious.  The parties and Judge Buchwald actually treated “manifest disregard” as a judicially-created and distinct ground from exceeding authority under Section 10(a)(4) of the FAA, presumably following the Second Circuit decision in Stolt-Nielsen SA v. AnimalFeeds Int’l Corp., 548 F.3d 85, 93-95 (2d Cir. 2008).  Although not at issue in our case, the Supreme Court’s 2008 decision in Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576, 585 (2008) casts doubt on that practice, since it held that “§§ 10 and 11 respectively provide the FAA’s exclusive grounds for expedited vacatur and modification.”  There is currently a circuit split of great interest to many observers, and many courts – most recently the First Circuit—have suggested that manifest disregard is no longer an independent ground for vacatur under the FAASee Bangor Gas Co., LLC v. H.Q. Energy Servs. (U.S.) Inc., 695 F.3d 181, 187 & n.3 (2012).)

Correctly, Judge Buchwald noted the “heavy burden” such challengers face in showing not just a “wrong call on the law,” but the complete absence of any “colorable justification for the outcome reached.”  Because longstanding principles of law require a party complaining of a breach to show that it was able to perform (as well as damages resulting from the other party’s non-performance), the panel properly applied the law to the facts of the case.  Nor could AMT claim that the panel exceeded its authority since the contract called for the arbitration of “any dispute” and the claims clearly stemmed from the parties’ contractual relationship.

This would have been a cinch for anyone, but especially the judge known for a 160 page order of dismissal in the LIBOR scandal.

About Andrew Jacobs

Andrew Jacobs is an associate at Murphy & King in Boston. Before joining the firm, he was law clerk to Judge Kathleen M. Williams of the US District Court for the Southern District of Florida, and he practiced law in New York City.

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