Respondents Brief — Clark Oil & Refining Corp. v. Alpine Shipping Co.

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IN THE ak STEVAS,

—— Court of the United —_—

Octroser TERM, 1984

CLARK OIL « REFINING CORPORATION,

Petitioner,

— against —

UNDERWRITER'S AT LLOYD'S UNDER POLICY NO.

KL9576986 and ALPINE SHIPPING COMPANY

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

SECOND CIRCUIT

BRIEF FOR RESPONDENT

LLOYD’S UNDERWRITERS

UNDER POLICY NO. KL9576986

IN OPPOSITION

James D. KLEINER

Attorney for Respondents

Lloyd’s Underwriters

Under Policy No. KL9576986

The Chrysler Building

405 Lexington Avenue

Of Counsel: New York, New York 10174

Leo G. Karas (212) 867-6660

The Chrysler Building

405 Lexington Avenue

New York, New York 10174

(212) 867-6660

QUESTION PRESENTED FOR REVIEW

Is there any basis for this Court to review a question of ar-

bitrability where the district court found, as a matter of fact,

that the parties had expressly agreed to submit the question to

arbitration and where other valid bases exist for sustaining the

arbitration award?

TABLE OF CONTENTS

Question Presented for Review .................

ESSE ee Pee

Counter-Statement of the Case.................

1. The District Court Decision .................

2. The Court of Appeals Decision...............

REASONS FOR NOT GRANTING CERTIORARI

POINT I. None of the Traditional

Considerations for Granting

Certiorari is Present in This Case ....

POINT II. The Confirmation of the Arbitration

Award was Plainly Correct .........

SO eae Sec ee

Page

TABLE OF AUTHORITIES

Cases: Page

Christman v. Maristella Compania Naviera, 349

F. Supp. 845 (S.D.N.Y. 1071) ............... 6

Cook Industries, Inc. v. C. Itoh ¢ Co. (America),

Inc., 449 F.2d 106 (2d Cir. 1971), cert. denied,

I rr re 7

Davis v. Chevy Chase Financial Ltd., 667 F.2d

ne NY I Gh vo Wed hc dw ecca be css 5,6

Federal Commerce & Navigation Co. v.

Kanematsu-Gosho, Ltd., 457 F.2d 387 (2d Cir.

PEP Pe Se re a Le te an 4

Fisser v. International Bank, 282 F.2d 231 (2d

ia SAN a55 cio 6

Interocean Shipping Co. v. National Shipping and

Trading Corp., 523 F.2d 527 (2d Cir. 1975),

cert. denied, 423 U.S. 1054 (1976) ........... 6

John T. Brady & Co. v. Form-Eze Systems, Inc.

623 F.2d 261 (2d Cir.), cert. denied, 449 U.S.

Ms inn saad s cg pa eee ad a «'s 7

Kodiak Oil Field Haulers, Inc. v. Teamsters

Union Local No. 959, 611 F.2d 1286 (9th Cir.

I pratense: rd iy et 7

United Steelworkers, Etc. v. Smoke-Craft, Inc.,

652 F.2d 1356, 1360 (9th Cir. 1981).......... 7

Statutes:

WO EE vn ess cad nuked s Nene bassecuenis 3

IN THE

Supreme Court of the United States

OcrosBER TERM, 1984

CLARK OIL « REFINING CORPORATION

Petitioner,

— against —

UNDERWRITER'S AT LLOYD’S UNDER POLICY NO.

KL9576986 and ALPINE SHIPPING COMPANY

Respondent.

COUNTER-STATEMENT OF THE CASE

The record facts are recited in the opinion of the district judge.

(App 6-9)! The underlying dispute concerned a cargo claim by

Marc Rich & Co. A.G. (“Mare Rich”) as bill of lading holder,

against petitioner, Clark Oil & Refining Corp. (“Clark”), as car-

rier and disponent owner of the vessel VOLERE, in respect of

a voyage performed in 1979 from Dubai to Bonaire.

Clark never denied the unexplained disappearance of 5,000

barrels — or approximately 210,000 gallons — of Marc Rich’s

cargo; nor the subsequent increase of Clark’s own cargo, also

carried on VOLERE. Respondent, Lloyd’s Underwriters Under

Policy No. K19576989 (“Lloyd's”), insured the cargo, paid the

insurance and became subrogated to the claim.

! References to material included in the Appendices to Clark’s petition for

certiorari will be identified by “App” followed by the appropriate page

reference.

The terms under which Marc Rich’s cargo was carried, were

embodied in the October 11, 1979 charter party negotiated by

Marc Rich’s chartering affiliate, Alpine Shipping Company

(“Alpine”), with Clark. The charter party contained an arbitra-

tion provision of the broadest possible scope.* The charter also

specifically contemplated issuance of a bill of lading — the

agreement between the carrier and the cargo interest — upon

terms identical with the charter party and its arbitration

provision.

Clark successfully delayed prosecution of arbitration by agree-

ing to review and respond to Marc Rich’s claim. After nearly

one year, Marc Rich and Alpine each demanded arbitration with

Clark and advised that the demand was also intended to

safeguard against the one-year time bar for such claims. Marc

Rich’s arbitration demand was stated to be made “under the

terms of the charter party as incorporated into the Bill of

Lading.” Clark, through its counsel, agreed to proceed to ar-

bitration and, after seeking and being granted further adjourn-

ments, nominated an arbitrator without reserving any rights.

Alpine’s right to arbitrate under its charter party with Clark

has never been called into question. However, midway through

the first hearing and long after expiry of the one-year time bar,

Clark, for the first time, questioned the right of Lloyd’s/Marc

Rich to arbitrate along with Alpine in the proceedings. Clark

relied on the self-evident fact that there were no words in the

bill of lading expressly incorporating the terms of the charter

party or its arbitration provision. This challenge was immediate-

ly met with several grounds advanced by Lloyd’s in support of

“the right of Marc Rich, as bill of lading holder” to arbitrate

with Clark. These included Clark’s subsequent agreement to

arbitrate, waiver and estoppel as well as implied incorporation

of charter terms into the bill of lading.’

* The charter party called for arbitration in New York of “[a}ny and all

differences and disputes of whatsoever nature” arising thereunder.

*In addition to these grounds for arbitrating directly against Clark, Marc

Rich had separately demanded arbitration, against Alpine, and Alpine, in

turn, made a claim against Clark for indemnity in respect of any liability

to Marc Rich.

The arbitrators refused to proceed unless the parties agreed

to waive their right to try the issue of Marc Rich’s standing and

to submit it to the panel for final determination.

Clark, after further significant delay, agreed with Lloyd’s,

in the submission agreement, to submit the issue to the ar-

bitrators. Clark further agreed, that it would not seek to vacate

or amend the arbitrators’ award on the ground that the ar-

bitrators lacked power to make their determination. The sub-

mission agreement provided:

“The parties agree that the arbitrators have the power

to determine these issues and that they will not ap-

peal nor seek to vacate or modify the panel's deter-

minations of these issues except, as the case may be,

on the following grounds, namely:”

There follows a list of the grounds in section 10 of the Federal

Arbitration Act, 9 U.S.C. 10, subsections (a)-(d). Deliberately

omitted were the following words in subsection (d): “Where the

arbitrators exceeded their powers.” The panel — including the

most experienced and respected of New York arbitrators — con-

cluded as follows: “. . . that Claimants have presented a

thoroughly documented cargo loss claim for which Clark may

be found responsible.” The award states that “it is the Panel's

unanimous decision that Rich is a proper party to this arbitra-

tion proceeding and may, along with Alpine, present its claim

to this Panel.”

1. The District Court Decision

Clark petitioned the District Court to vacate the award on

the very ground it had agreed would not be a basis for challenge,

namely, that the arbitrators’ were not empowered to make their

determination that “Rich is a proper party to this arbitration.”.

Clark contended, as it does now, that the submission agreement

presented a very narrow and limited issue to the arbitrators,

namely, whether the terms of the charter party and arbitra-

tion clause were incorporated into the bill of lading (Clark Brief

6/7); and that the arbitrators exceeded their jurisdiction because

they allegedly based their conclusion upon Marc Rich’s

affiliation with Alpine — an issue which Clark claims it “would

never have consented to submit.” (Clark Brief 7) In confirm-

ing the award, the district court disagreed and found:

“Moreover, it is clear from the foregoing recitation

of facts that Clark never indicated during the arbitra-

tion that the submission restricted the panel to a sim-

ple consideration of Marc Rich’s rights as a bill of

lading holder.” (App 10(a))

The court also found a number of additional valid bases for the

arbitrators’ conclusion, including implicit incorporation of

charter terms, subsequent agreement by Clark to arbitrate, cor-

porate affiliation, waiver and estoppel. (App 9A)

Finally, the court concluded that Clark “by its own agree-

ment, precluded itself from making the argument that the ar-

bitrators have exceeded their power.” (App 10a)

2. The Court of Appeals Decision

The court of appeals affirmed the district court, and award-

ed Lloyd’s double costs indicating that the appeal had been

frivolous. (App 2-3a)

The court of appeals relied upon the following findings of

the district court: first, Clark’s counsel agreed to submit to the

arbitrators the issue “whether Marc Rich was entitled to ar-

bitrate with Clark and whether the claims of Marc Rich or

Lloyd’s could be asserted by Alpine”; second, one of the issues

presented in writing to the arbitrators was “whether Marc Rich,

as the alleged bill of lading holder ... is entitled to arbitrate

its claims in these proceedings directly with Clark” and third,

the parties “specifically agreed that they would not challenge

the arbitrators’ award on the ground that the panel of arbitrators

had exceeded its power in deciding whether Marc Rich was a

proper party to the arbitration.” (App 2a)

Noting that the basic purpose of arbitration should not be

frustrated by “overly technical judicial review of arbitration

awards,” and that “it has long been the rule to resolve any doubt

as to the submission agreement in favor of coverage” (Federal

Commerce & Navigation Co. v. Kanematsu-Gosho, Ltd., 457

F.2d 387, 389-390 (2d Cir. 1972)), the Court of Appeals

concluded that the district court did not err in holding that Clark

was precluded from challenging the arbitration award on the

ground the arbitrators exceeded their power. (App 3a)

REASONS FOR NOT GRANTING CERTIORARI

POINT I

None of the Traditional Considerations For Granting

Certiorari is Present in This Case

The holding of the courts below that Clark was precluded

from challenging the arbitration award on the ground that the

arbitrators had exceeded their power is entirely consistent with

the express written agreement of Clark and, hence, raises no

issue of such national importance as to require consideration

by this Court on the merits.

Furthermore, Clark is plainly wrong to urge that the deci-

sion of the Second Circuit is in conflict with the decision of the

District of Columbia Circuit in Davis v. Chevy Chase Finan-

cial Ltd., 667 F.2d 160 (D.C. Cir. 1981). Davis stands for the

proposition that where the arbitrators’ authority to decide an

issue is called into question the reviewing court can determine

the issue de novo. The district court’s decision clearly address-

ed the issue of arbitrability and held that the parties agreed to

submit the issue of Marc Rich's standing to the arbitrators for

determination.

The facts before the district court in Davis were radically dif-

ferent than those in the instant case. Unlike the broad arbitra-

tion clause in this case, the arbitration clause in Davis was

limited to determining the fair market value of the tendered

shares and the demand for arbitration “defined the dispute as

involving only the valuation of the shares.” 667 F.2d at 165 (Em-

phasis by the court). The district court in this case found that

the submission agreement contained no language, whatsoever,

which restricted the arbitrators’ authority solely to considera-

tion of the question of whether the bill of lading technically

incorporated the charter party terms.

The respondent in Davis did not, as Clark did here, express-

ly waive the right to challenge the award on the very ground

which later became the basis for appeal. In fact, from the incep-

tion of arbitration, the Davis respondent repeatedly objected that

no arbitrable dispute existed. Clark, on the other hand, waited

over a year and a half after receiving the demand for arbitration

before suggesting that it might object to arbitrating with Marc

Rich. Thereafter, it never advised the arbitrators of its present

restrictive interpretation of the submission agreement. As the

district court specifically found, “Clark never indicated during

the arbitration that the submission restricted the panel to a sim-

ple consideration of Marc Rich’s rights as a bill of lading holder.”*

(App 10a)

POINT I

The Confirmation of the Arbitration Award was Plainly

Correct

As the district court also found, even taking Clark’s artifically

narrow reading of the submission agreement, the arbitrators could

have concluded that the bill of lading implicitly adopted and was

consistent with the charter party and its arbitration clause under

the circumstances of this case. (App 9a)*

* Clark’s own post-hearing Reply Brief in the arbitration argued that the en-

tire standing issue was before the arbitrators: “[Lloyd’s) then negotiated with

Clark to waive its right to submit the issues of the parties standing and their

right to arbitrate to the appropriate court, in return for their agreement to sub-

mit these issues to the panel.” Appendix on Appeal at A-440.

* Contrary to Clark’s argument (Brief 9 fn. 4), express incorporation was not

required. And there were numerous facts supporting the conclusion of implied

incorporation. Fundamental federal maritime law relating to contracts of car-

riage and to arbitration recognizes that a charter party or any other contract

of affreightment, need not be agreed to in writing, that it may be agreed orally

and that an oral fixture for a voyage may validly incorporate an arbitration agree-

ment, so long as the provision incorporated is, itself, in writing. Interocean Ship-

ping Co. v. National Shipping and Trading Corp. 523 F.2d 527, 539 (2d Cir.

1975), cert. denied, 423 U.S. 1054 (1976); Christman v. Maristella Compania

Noviera, 349 F. Supp. 845, 854 (S.D.N.Y. 1971) (“Since the fixture was made

orally and was binding ... written document drawn up later was without im-

port, except as a memorandum of the terms ... agreed to orally with vespect

to the fixture.”). “It is not surprising then to find a long series of decisions which

recognize that the variety of ways in which a party may become bound by a

written arbitration provision is limited only by generally operative principles of

contract law.” Fisser v. International Bank, 282 F.2d 231, 233 (2d Cir. 1960).

In addition, the district court found other valid bases for the

arbitrators’ holding that Marc Rich was entitled to arbitrate with

Clark:

“There are other possible bases [besides the affiliation

between Marc Rich and Alpine] for the arbitrators’

conclusions, e.g., that Clark had implicitly agreed to

arbitrate with Marc Rich by participating in the ar-

bitration and responding to the bill of lading holder’s

demand, or that it was estopped from denying the

arbitration demand after the one-year time bar for

suits had expired, or that the failure to contest the

arbitration demand in a timely fashion had waived

any later dispute. It is uncontested that a party who

submits a dispute to arbitration can be bound by the

results, even though it was not legally required to ar-

bitrate in the first instance.” (App 9a)*

It is also clear that Clark’s failure to advise the arbitrators

of its present restrictive interpretation of the submission agree-

ment constituted a waiver of any objection that the arbitrators

exceeded their authority. It is fundamental that:

“Parties to arbitration proceedings cannot sit idle

while an arbitration decision is rendered and then,

if the decision is adverse, seek to attack the award col-

laterally on the grounds not raised before the ar-

bitrator.”

United Steelworkers, Etc. v. Smoke-Craft, Inc., 652 F.2d 1356,

1360 (9th Cir. 1981) (failure to object to arbitrating with non-

party to arbitration waived the issue). See Cook Industries, Inc.

v. C. Itoh & Co. (America), Inc., 449 F.2d 106, 107-108 (2d Cir.

1971), cert. denied, 405 U.S. 921 (1972); Kodiak Oil Field

Haulers, Inc. v. Teamsters Union Local No. 959, 611 F.2d 1286,

1290 (9th Cir. 1980) (failure to object to arbitrator’s bias in ar-

bitration proceeding waived issue).

* It is well settled that an award must be construed in favor of confirma-

tion and to avoid vacatur. John T. Brady & Co. v. Form-Eze Systems, Inc.

623 F.2d 261 (2d Cir.), cert. denied, 449 U.S. 1062 (1980).

Manifestly, the arbitrators were empowered to render their

decision that Marc Rich was entitled to arbitrate with Clark.

CONCLUSION

For the foregoing reasons, respondent Lloyd’s respectfully re-

quests that the petition of Clark for a writ of certiorari be denied.

Respectfully submitted,

JAMES D. KLEINER

Attorney for Respondents

Lloyd’s Underwriters

under Policy No. KL9576986

The Chrysler Building

405 Lexington Avenue

New York, New York 10174

(212) 867-6660

Of Counsel:

Leo G. Kalas