Bailey Shipping Limited v. American Bureau of Shipping et al

Filing 61

OPINION AND ORDER re: 42 MOTION to Quash Subpoenas Seeking Testimony in an Arbitration of Atlantic Bank of New York filed by Atlantic Bank of New York, 47 MOTION to Compel Atlantic Bank of New York to to comply with subpoena duce s tecum filed by American Bureau of Shipping Hellas, American Bureau of Shipping, Pantelis Kalapetis, Christos Lambrou, Martha C. Adams, Ioannis Armenakis: For the reasons set out above, ABNY's motion to quash the subpoena is DENIED and Defendants' motion to compel compliance is GRANTED. The stay in this action imposed on August 27, 2012, remains in place pending arbitration. Bailey and ABS are reminded of the Court's requirement in its March 28, 2014 Order that they submit a joint letter by July 28, 2014, and every 120 days thereafter, advising the Court of the status of the arbitration. (Signed by Judge Katherine Polk Failla on 7/18/2014) (tn)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
BAILEY SHIPPING LIMITED,
:
:
Plaintiff,
:
:
v.
:
:
AMERICAN BUREAU OF SHIPPING, et al.,
:
:
Defendants.
:
:
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USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: ______________
July 18, 2014

12 Civ. 5959 (KPF)
OPINION AND ORDER

KATHERINE POLK FAILLA, District Judge:
Pending before the Court is a motion by a third party to this action, the
Atlantic Bank of New York (“ABNY”), to quash an arbitration subpoena served
on it, as well as a cross-motion by Defendants American Bureau of Shipping
and its affiliates and employees (collectively, “Defendants” or “ABS”) to compel
compliance with that subpoena. For the reasons set out below, ABNY’s motion
is denied and Defendants’ motion is granted.
BACKGROUND 1
The complicated history of this litigation and the underlying relationship
between the parties is fully set out in the Court’s Orders of September 23, 2013
(Dkt. #29, available at 2013 WL 5312540 (S.D.N.Y. Sept. 23, 2013)), and March

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The facts set forth in this Opinion are drawn from the transcript of the August 20, 2012
oral argument (“8/20/12 Tr.,” available at Dkt. #15), and from the exhibits attached to
counsel’s declarations in connection with the instant motion (referred to using the
convention “[Name] Ex.”). ABNY’s opening brief is referred to as “ABNY Br.”;
Defendants’ opening brief is referred to as “Def. Br.”; ABNY’s reply brief is referred to as
“ABNY Reply”; and Defendants’ reply brief is referred to as “Def. Reply.”

28, 2014 (Dkt. #40, available at 2014 WL 1282504 (S.D.N.Y. Mar. 28, 2014)).
Familiarity with the facts and the Court’s prior rulings is assumed.
The present dispute focuses on a subpoena issued by the arbitral panel
commanding ABNY’s testimony “as to all banking transactions surrounding
and involving” a National Bank of Greece check ostensibly used to acquire the
shipping vessel at the heart of this action, as well as “all communications,
notations, or instructions” issued by ABNY in connection with it, and further
ordering production of relevant documents. (Patel Ex. B, C). ABNY clarified
errors in that subpoena on March 4, 2014 (Ewig Ex. 9), and then responded to
a corrected subpoena by producing the responsive documents in its possession
on March 21, 2014 (id. at Ex. 10). These documents consisted of records of the
National Bank of Greece’s account at ABNY and a copy of an electronic record
ostensibly related to the negotiation of the check in question. (Id. at Ex. 10-A,
10-B, 10-C).
The arbitral panel inquired of the parties whether a hearing was required
despite the production of these records. (Ewig Ex. 14). Defendants insisted
that testimony would be required nonetheless to interpret the meaning of the
documents. (Id. at Ex. 16). Although Plaintiff Bailey argued that such
testimony would be unnecessary because “the banking documents speak for
themselves” (id. at Ex. 15), the panel refused to withdraw the subpoena (Dkt.
#54 Ex. 1).
ABNY thereupon filed a motion with the Court to quash the subpoena on
April 23, 2014. (Dkt. #42-45). Defendants filed papers opposing that motion
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and cross-moving to compel compliance with the subpoena on May 1, 2014.
(Dkt. #47-49). ABNY filed a reply in support of its motion to quash and an
opposition to Defendants’ motion to compel on May 22, 2014 (Dkt. #55-57),
and the motions were fully submitted with Defendants’ reply brief in further
support of their motion to compel on May 28, 2014 (Dkt. #59-60).
DISCUSSION
A.

Applicable Law
“[I]t is difficult to overstate the strong federal policy in favor of

arbitration,” and it is a policy courts in this Circuit “have often and
emphatically applied.’” Arciniaga v. Gen. Motors Corp., 460 F.3d 231, 234 (2d
Cir. 2006). “[C]ourts have an ‘extremely limited’ role in reviewing” the decisions
of arbitral panels under any circumstances. Rich v. Spartis, 516 F.3d 75, 81
(2d Cir. 2008) (quoting Wall Street Assoc., L.P. v. Becker Paribas, Inc., 27 F.3d
845, 849 (2d Cir. 1994)). The Supreme Court has explained that the limited
role of the courts in reviewing arbitral decisions “‘maintain[s] arbitration’s
essential virtue of resolving disputes straightaway.’” Oxford Health Plans LLC
v. Sutter, 133 S. Ct. 2064, 2068 (2013) (quoting Hall Street Assocs., L.L.C. v.
Mattel, Inc., 552 U.S. 576, 588 (2008)) (alteration in Oxford Health Plans).
B.

Application
The Court has already ruled earlier in this action, in the context of an

effort to vacate an arbitral decision about the status of the arbitration itself,
that the “cardinal principles” of deference that guide federal court review of
arbitral decisions do not permit review “of orders governing discovery, the
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introduction of evidence, or hearing format”; doing so would challenge the
“‘strong federal policy in favor of arbitration’” enshrined in the Federal
Arbitration Act (“FAA”). Bailey Shipping Ltd. v. Am. Bureau of Shipping, No. 12
Civ. 5959 (KPF), 2014 WL 1282504, at *8 (S.D.N.Y. Mar. 28, 2014) (quoting
Arciniaga, 460 F.3d at 234). The very same situation is presented here and so
the subpoena will remain undisturbed.
Section 7 of the FAA provides that “arbitrators … may summon in writing
any person to attend before them or any of them as a witness and in a proper
case to bring with him or them any book, record, document, or paper which
may be deemed material as evidence in the case.” 9 U.S.C. § 7. To begin with,
though ABNY at first argued to the contrary (ABNY Br. 8), there is now no
question that “arbitrators may, consistent with section 7 [of the FAA], order any
person to produce documents so long as that person is called as a witness at a
hearing.” Life Receivables Trust v. Syndicate 102 at Lloyd’s of London, 549
F.3d 210, 218 (2d Cir. 2008).
Relatedly, ABNY argued that the subpoena at issue here is defective
because it refers to an arbitration “proceeding” rather than a “hearing.” (ABNY
Br. 8). But this is a distinction without a difference, and ABNY unsurprisingly
offers no authority in support of the semantic line by which it would cabin the
panel’s powers under Section 7. ABNY does not and cannot argue that the
“proceeding” at which the subpoena commands them to appear would not be
held before the arbitration panel charged with adjudicating this dispute. And
the Second Circuit has held “that Section 7 unambiguously authorizes
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arbitrators to summon non-party witnesses to give testimony and provide
material evidence before an arbitration panel.” Stolt-Nielsen SA v. Celanese AG,
430 F.3d 567, 581 (2d Cir. 2005).
In addition to its doomed statutory argument, ABNY argues that
compliance with the arbitral subpoena would be unduly burdensome because
(i) none of its personnel possesses any knowledge beyond that represented in
the already-produced documents and (ii) the subject matter of the subpoenas is
irrelevant to the dispute. (ABNY Br. 4-8). It seems that at least the first claim
may not be true. ABNY insisted in its opening brief on its motion to quash that
the documents it produced had been obtained, at great trouble, from the
National Bank of Greece. (Id. at 3, 4, 6). Later, it acknowledged that those
documents in fact were ABNY’s own. (ABNY Reply 2 n.2). Given this aboutface, ABNY can hardly claim that its personnel have no knowledge on this topic
whatsoever: at the very least, they can offer testimony authenticating the
documents at issue. But more importantly, ABNY’s argument leaps over the
first, essential question that the Court must ask before considering any
application to disturb the decision of an arbitral panel: is that decision subject
to the Court’s review?
ABNY eventually argued that proper construction of the statutory phrase
“may be deemed material” requires the Court to determine whether the
evidence at issue is material in assessing the validity of an arbitral subpoena. 2

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ABNY cited as authority for this proposition a 1954 case of this District in which the
court quashed an arbitral subpoena because the sought evidence was immaterial.
Oceanic Transp. Corp of Monrovia v. Alcoa S S Co., 129 F. Supp. 160, 161 (S.D.N.Y.

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The Eighth Circuit has squarely rejected ABNY’s position as “antithetical to the
well-recognized federal policy favoring arbitration, and compromis[ing] the
panel’s presumed expertise in the matter at hand.” In re Sec. Life Ins. Co. of
Am., 228 F.3d 865, 871 (8th Cir. 2000). 3 And indeed the Eighth Circuit’s
conclusion accords better with the long line of precedents announcing that
“[o]nce it is determined that the parties are obligated to submit the subject
matter of a dispute to arbitration, procedural questions which grow out of the
dispute and bear on its final disposition should be left to the arbitrator.” John
Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 557 (1964). As the Second
Circuit has put it, “[i]t should not be the function of the District Court, after
having ordered an arbitration to proceed, to hold itself open as an appellate
tribunal to rule upon any questions of evidence that may arise in the course of
the arbitration.” Compania Panemena Maritima v. J.E. Hurley Lbr. Co., 244
F.2d 286, 288 (2d Cir. 1957); see also Stolt-Nielsen S.A., 559 U.S. at 686 (“In

1954). Defendants justifiably argue that this old conclusion is owed little respect, given
the sea change that has overtaken federal court review of arbitral decisionmaking in the
intervening decades. (Def. Reply 1-2). After all, only 10 months before the Oceanic
decision, the Supreme Court voided an agreement to arbitrate a dispute arising under
the Securities Act of 1933, finding that “arbitration lacks the certainty of a suit at law
under the Act to enforce [a plaintiff’s] rights.” Wilko v. Swan, 346 U.S. 427, 432, 435
(1953). The Wilko decision itself was later overruled by Rodriguez de Quijas v.
Shearson/Am. Exp., Inc., 490 U.S. 477, 480 (1989), with the Supreme Court recognizing
that its prior decision was “pervaded by … the old judicial hostility to arbitration”
(internal quotation marks and citation omitted).
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ABNY claims that the Second Circuit “expressly considered and rejected the holding of
the Eighth Circuit” in Life Receivables Trust, 549 F.3d 210. (ABNY Reply 6 n.7). This is
simply not the case. Life Receivables Trust considered whether arbitral panels could
command pre-hearing documentary production by non-parties, and rejected the Eighth
Circuit’s conclusion that such a power was “implicit” in the language of Section 7. Id.
at 215-18. The Eighth Circuit’s conclusion regarding the propriety of district court
second-guessing of an arbitrator’s assessment of materiality was a distinct holding, and
an issue neither raised nor decided by the Second Circuit in Life Receivables Trust.

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bilateral arbitration, parties forgo the procedural rigor and appellate review of
the courts in order to realize the benefits of private dispute resolution: lower
costs, greater efficiency and speed, and the ability to choose expert
adjudicators to resolve specialized disputes.”). “If parties could take ‘full-bore
legal and evidentiary appeals,’ arbitration would become ‘merely a prelude to a
more cumbersome and time-consuming judicial review process.’” Oxford
Health Plans, 133 S. Ct. at 2068 (quoting Hall Street Assocs., 552 U.S. at 588).
ABNY’s argument itself demonstrates why this conclusion must obtain
here. The Court has previously concluded that the only claim reserved to
arbitration is Plaintiff Bailey’s claim of negligent misrepresentation against
Defendants. See Bailey Shipping Ltd. v. Am. Bureau of Shipping, No. 12 Civ.
5959 (KPF), 2013 WL 5312540, at *5 (S.D.N.Y. Sept. 23, 2013); 8/20/12
Tr. 34:15-35:5. A claim of negligent misrepresentation requires the plaintiff to
show that he “reasonably relied … to his or her detriment” on a false
representation made in violation of the defendant’s duty to give correct
information. Hydro Investors, Inc. v. Trafalgar Power Inc., 227 F.3d 8, 20 (2d
Cir. 2000). Defendants believe that Plaintiff Bailey’s purchase of the ship was a
sham orchestrated by a parent entity that controls both Bailey and the ship’s
original seller, and it argues that the relationship between the parties vitiates,
as a matter of law, any reliance Bailey claims it placed on Defendants’
representations. (Def. Br. 2). By proving that Bailey never actually paid for the
ship, Defendants hope to demonstrate that Bailey and the seller were indeed
merely instruments of a single entity and thus invalidate Bailey’s reliance
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argument. (Id.). ABNY responds that there are “two major flaws in this
reasoning”: first, that Defendants wrongly interpret the case they cite for the
proposition that related parties do not rely on third-party representations in
transferring property; and second, that the documentary evidence already
produced establishes that the check was paid, rendering Defendants’ argument
moot. (ABNY Reply 4-5). Because Defendants are wrong, ABNY argues, the
evidence they seek is not material.
These are merits arguments. The evidence Defendants seek may
ultimately prove ineffectual on legal or factual grounds, as ABNY now
contends. But it is for the arbitral panel, not the Court, to construe the law
Defendants cite and evaluate the evidence Defendants adduce. The panel has
concluded that the evidence subject to this subpoena may affect the outcome of
its deliberation. For the Court to conclude otherwise now would require
drawing an independent conclusion on the same topic, and this the Court may
not do.
At the same time, it is not entirely clear that this is the substance of
ABNY’s objection. It would be difficult at best to contend, given the foregoing,
that the testimony Defendants seek would certainly not be material to the
dispute before the arbitral panel. And so ABNY raises several additional
objections: ABNY possesses no relevant knowledge beyond the content of the
documents it has furnished (ABNY Br. 5-6); ABNY will have to obtain
information from a fourth party to answer any questions at the hearing (ABNY
Reply 6-7); the hearing may last for a long time (id. at 7-8); Defendants may
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ask irrelevant questions at the hearing (id. at 8); and Defendants are really
trying to obtain free expert testimony via subpoena, a strategy that should not
be permitted (id. at 9-10). Every one of these complaints objects to events that
have not yet taken place. If Defendants ask questions ABNY cannot answer, or
subject ABNY to an unduly long hearing, or ask irrelevant questions, or ask
questions requiring the formation of an opinion rather than the report of a fact,
ABNY’s counsel can raise the relevant objection to the panel at that time. None
of these dilemmas has arisen, and so none of ABNY’s supplementary objections
is even ripe for consideration.
Accordingly, as the arbitral subpoena at issue is a straightforward
exercise of the panel’s power to command third parties to appear for testimony
before it and bring with them documents related to the subject of their
testimony, the Court has no basis on which to interfere with the subpoena’s
effect.
CONCLUSION
For the reasons set out above, ABNY’s motion to quash the subpoena is
DENIED and Defendants’ motion to compel compliance is GRANTED. The stay
in this action imposed on August 27, 2012, remains in place pending
arbitration. Bailey and ABS are reminded of the Court’s requirement in its

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March 28, 2014 Order that they submit a joint letter by July 28, 2014, and
every 120 days thereafter, advising the Court of the status of the arbitration.
SO ORDERED.
Dated:

July 18, 2014
New York, New York

__________________________________
KATHERINE POLK FAILLA
United States District Judge

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