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In re Arbitration Between National Bulk Carriers Inc.

decided: April 3, 1979.


National Bulk Carriers, Inc., appeals from a judgment of the United States District Court for the Southern District of New York, Leonard B. Sand, District Judge, confirming a $2 million arbitration award in favor of Princess Management Co., Ltd., and Walter Sommer. E.W. Westgate Co., Inc., appeals from an interlocutory order denying its motion to intervene as of right under Fed. R. Civ. P. 24(a)(2). The judgment is affirmed, and the appeal from the denial of the motion to intervene is dismissed as moot.

Before Kaufman, Chief Judge, Gurfein, Circuit Judge, Mishler, District Judge.*fn*

Author: Kaufman

On this appeal, we are once again confronted with "a classic example of a losing party seizing upon "a pretext for invalidating (an) arbitration award,' " In re Arbitration between Andros Compania Maritima, S.A., and Marc Rich & Co. A.G., 579 F.2d 691, 702 (2d Cir. 1978). National Bulk Carriers, Inc. (NBC) lost a $2 million award in favor of Princess Management Co. (PMC) and immediately shifted the scene of battle from the halls of the American Arbitration Association to the United States District Court for the Southern District of New York. Finding no solace there, it has pressed onward to the Court of Appeals. Because we believe that NBC has completely failed in its quest to establish sufficient grounds under the Federal Arbitration Act to vacate the award, we affirm the judgment of the district court.


For many years, NBC has, through its affiliate, Princess Properties International (PPI),*fn1 operated a chain of "Princess" luxury hotels in Mexico, Bermuda, and the Bahamas. In January 1976, appellee Walter Sommer, then Chief Executive Officer of PPI, proposed that he be empowered to seek developers or hotel operators to whom NBC could license its "Princess" and "P" trademarks. NBC consented, and an agreement was drafted whereby Sommer would resign from PPI and, for a nominal sum, purchase PMC, then a dormant subsidiary of PPI. Prospects discovered by Sommer would be licensed directly by NBC, and PMC would operate the hotels for the licensee, remitting 25% Of its net profit to NBC. In addition, NBC would perform reservations and sales services for the licensee and pay PMC 10% Of the fees derived. In short, the parties expected to combine Sommer's experience as a hotelier with NBC's trademarks and reservations system to obtain an expanded chain of profitable resort hotels.

Sommer began searching for possible licensees shortly after the agreement was executed on March 1, 1976, and, by August, he had secured two prospects. E. W. Westgate Co. proposed to build a hotel in Hawaii called the Waikoloa Princess, and Mitsubishi International Corp. discussed transforming its Palm Springs hotel, the Canyon Inn, into the "Canyon Princess." Although PMC and Westgate concluded an agreement whereby Westgate would build the Waikoloa hotel and PMC would operate it, the Mitsubishi negotiations bogged down, apparently because Mitsubishi was concerned about the relationship between PMC and NBC and sought additional assurances that NBC would service the Canyon Princess on a par with the other members of the Princess chain.

Mitsubishi was not the only party having second thoughts about the PMC-NBC arrangements. By October 1976, NBC itself determined to terminate the March 1 agreement. Whether this decision resulted from violations by Sommer of his duties as an agent,*fn2 or whether NBC was merely unhappy with the bargain it had struck, was a hotly contested issue in the arbitration proceeding. But for whatever reason, NBC refused to grant Westgate a license for the Princess trademarks, and, in early November, it notified Sommer that their relationship was at an end.

PMC responded by demanding arbitration under paragraph 9 of the March 1 agreement,*fn3 claiming damages in excess of $2 million (later raised to $30 million) and, pursuant to the agreement, appointing as its arbitrator David Weicholz, Esq., a respected member of the New York Bar. NBC impleaded Sommer personally and counterclaimed for prior breach, designating Stuart Summit, Esq., also a distinguished lawyer, as its arbitrator. The American Arbitration Association named Hon. Isidore Dollinger, a retired Justice of the New York Supreme Court, to be the impartial arbitrator, and the arbitration proceedings began in July 1977. The hearings stretched over two months, comprising 22 days of testimony, 3500 pages of transcript, and more than 200 exhibits. In addition, the parties submitted lengthy post-arbitration memoranda.

Following oral argument, the arbitrators met on November 7, 14, and 22 to consider their award. At the third meeting, Weicholz and Dollinger concluded that NBC was liable to PMC in the amount of $2 million, and they signed an award to that effect the next day. Summit dissented, arguing (as NBC had throughout the proceedings) that Sommer had breached the agreement by engaging in outside hotel activities that conflicted with his duties to NBC and that, in any event, the evidence as to damages was too speculative to support any award, let alone a substantial one. In addition, Summit charged Weicholz and Dollinger with improper conduct during the course of the arbitrators' deliberations.

Summit's allegations concerning Weicholz and Dollinger provide the framework for this appeal. He asserted that

(1) at the third meeting, Dollinger abdicated his responsibility to exercise his independent judgment by announcing that he would sign an award for any sum between $1.5 million and $2 million, the amount to be chosen by whichever of Summit and Weicholz would first agree to an award in that range;

(2) at the second meeting, Weicholz claimed that NBC had offered PMC "one million, two, tax free" to settle before the arbitration began, although the record was devoid of evidence of such an offer, and none in fact had been made;

(3) Weicholz made repeated references to the wealth of D. K. Ludwig, NBC's sole shareholder. Ludwig's pioneering ventures in building a fleet of oil tankships have made him a leader in the world of finance.

Immediately after Summit filed his dissent, NBC commenced the instant action. The complaint repeated Summit's allegations and charged, in the language of § 10 of the Federal Arbitration Act, 9 U.S.C. § 10, that Weicholz and Dollinger had demonstrated such "evident corruption, misbehavior, and misconduct," and they had "so imperfectly executed their powers," that the award was ...

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