Luzar Trading S.A. v. Tradiverse Corporation

Background

Luzar Trading, S.A., a commodity merchant, and Tradiverse Corporation, a grain provider, entered into contracts for soybean meal and yellow soybean. The contracts required arbitration in New York under the International Arbitration Rules of the International Centre for Dispute Resolution. The disputes produced two arbitration proceedings and two awards.

The December 2019 arbitration concerned a contract for 20,000 metric tons of soymeal. Tradiverse demanded a 10 percent deposit of $700,530, declared Luzar in default after the payment was sent and received, and later claimed that Luzar had breached the contract by failing to nominate a vessel. The December 2019 arbitration panel found that Tradiverse’s default declarations gave Luzar an objective basis to request adequate assurances of performance. It concluded that Tradiverse’s failure to provide those assurances repudiated the contract and that Tradiverse had no contractual basis to keep the deposit. The panel ordered Tradiverse to pay Luzar $900,492.12 plus interest, including the returned deposit, legal fees, and arbitration costs. It rejected Luzar’s claims for lost profits and punitive damages.

The March 2020 arbitration concerned three contracts for soybean products. A fire and explosion at the loading terminal on June 28, 2018, stopped loading, and the local fire chief ordered that power to the terminal be shut off. Tradiverse invoked Clause 20 of the contracts, which could suspend its delivery obligation for certain interruptions or government actions if the required certificate was obtained. A North American Export Grain Association panel denied Tradiverse’s application, but the March 2020 arbitration panel later found that Tradiverse satisfied Clause 20’s requirements for the period of the interruption. The arbitration panel nevertheless found Tradiverse responsible for demurrage after loading resumed, and it awarded Luzar $755,821.03 plus interest. That amount included $365,040.29 in demurrage, $37,820.39 in dead freight, $9,580 in separation charges, portions of Luzar’s attorney’s fees and costs, and arbitration fees. The panel denied several other claims by Luzar.

Tradiverse’s challenges

Tradiverse petitioned under Section 10 of the Federal Arbitration Act to vacate both awards. It argued that Luzar had obtained the awards through fraud or improper conduct, that the arbitrators were evidently partial or corrupt, that the panels engaged in misconduct, that they exceeded their authority, and that the March 2020 panel manifestly disregarded the law or the contracts.

Tradiverse relied in part on Luzar’s $100,000 settlement payment to Archer Daniels Midland Company, the employer of Michael Kaye, who had served on the North American Export Grain Association’s Clause 20 panel. The court held that Tradiverse offered no evidence that the payment was fraudulent or improper, and that the payment was not materially related to the March 2020 arbitration because it was made to settle older, unrelated accounts and was not made to a member of that arbitration panel.

Tradiverse also argued that the arbitrators were biased because they awarded demurrage and attorney’s fees, participated in a North American Export Grain Association-related trip to Japan, or were connected to North American Export Grain Association officials. The court rejected these arguments as speculative. It found that the March 2020 panel explained its reasons for awarding demurrage and fees, that two arbitrators on the trip had been selected by Tradiverse, and that Tradiverse identified no specific evidence showing that the panels were partial to Luzar.

Tradiverse further argued that the December 2019 panel improperly considered settlement communications. The court held that arbitrators have substantial discretion over evidence and that Tradiverse had objected to the communications and received consideration of its objections. The court also rejected challenges to the March 2020 panel’s awards of separation charges and attorney’s fees because the arbitration clause and applicable arbitration rules gave the panel authority to decide contract-related claims and allocate reasonable legal and other costs.

Finally, Tradiverse argued that the March 2020 panel violated the contracts by awarding $365,040.29 in demurrage despite contract language stating, “Demurrage not to exceed $20,000 total.” Luzar disagreed with Tradiverse’s interpretation of that language. The court held that Tradiverse had not met the demanding standard for showing that the panel knowingly and improperly disregarded clear law or contract terms. The court found at least a minimally plausible justification for the panel’s interpretation and emphasized that courts generally do not replace an arbitrator’s contract interpretation with their own.

Ruling

Judge Kimba M. Wood granted Luzar’s petitions to confirm each arbitration award. The court denied Tradiverse’s corresponding petitions to vacate the awards and denied Tradiverse’s requests for oral argument. The Clerk of Court was directed to terminate the two petitions. Confirmation converted the arbitration awards into court judgments; the opinion did not alter the amounts awarded by the arbitration panels.