Opinion
No. 01 Civ. 11296 (LTS)(HBP)
November 5, 2002
MEMORANDUM OPINION AND ORDER
This matter comes before the Court on the application (the "Application") of Petitioner Astra Oil Company, Inc. ("Astra Oil") for an order directing respondent Rover Navigation LTD ("Rover Navigation"), as owner of the MV Emerald (the "Emerald"), to proceed with arbitration pursuant to 9 U.S.C. § 4. The dispute Petitioner seeks to arbitrate concerns a claim for damages due to late delivery of a cargo of "gasoil." The Court's jurisdiction is invoked with respect to an admiralty claim pursuant to 28 U.S.C. § 1333.
The Court has considered thoroughly all submissions and argument related to this motion. For the following reasons, Astra Oil's application for an order compelling arbitration is denied.
BACKGROUND
The following facts are undisputed.
On or about November 10, 2000, Respondent Rover Navigation, the owner of the Emerald, entered into a voyage charterparty (the "Charterparty") with AOT Trading AG ("AOT Trading") providing for the shipment of gasoil. Pursuant to the Charterparty, the Emerald was engaged to transport the gasoil cargo to various ports in the United States.
A voyage charter party "describes a form of `private carriage', which is distinguished from so-called `common carriage' agreements by two factors: (1) the entire ship is usually engaged to carry the charterer's cargo on a single voyage, and (2) the vessel is typically navigated by its owner." Associated Metals Minerals Corp., v. S/S Jasmine. et al., 983 F.2d 410, 411 (2d Cir. 1993).
The Charterparty entered into between Rover Navigation and AOT Trading contains an arbitration clause which provides, in pertinent part:
Any and all differences and disputes of whatsoever nature arising out of this Charter shall be put to arbitration in New York . . . before a board of three persons, consisting of one arbitrator to be appointed by the Owner [Rover Navigation], and one by the Charterer [AOT Trading], and by one by the two so chosen. . . . Either party hereto may call for such arbitration by service upon any officer of the other . . . .
Charterparty, at ¶ 24, Ex. 1 to Petitioner's Application.
The Charterparty also provides, inter alia
The Master shall, upon request, sign Bills of Lading in the form appearing below for all cargo shipped but without prejudice to the rights of the Owner [Rover Navigation] and Charterer [AOT Trading] under the terms of this Charter.
Petitioner's Ex. 1, ¶ 20. The specified bill of lading form includes a provision referring to the terms of the Charterparty:
This shipment is carried under and pursuant to the terms of the Charter dated [blank space for date and names of parties] as Charterer, and all the terms whatsoever of the said Charter except the rate and payment freight specified therein apply to and govern the rights of the parties concerned in this shipment.
Petitioner's Ex. 2, Bill of Lading.
The Charterparty also provided that "AOT Trading AG Clauses 1-42, as attached and amended, are hereby incorporated in this charter party." Charterparty, ¶ M. The attached AG Clauses 1-42 are entitled, "AOT Trading AG/Astra Oil Company Inc. Standard Chartering Terms January 15, 1988, " and relate to additional standard terms governing the performance of the Charterparty.
On or about November 13, 2000, Astra Oil entered into a sales contract with Sprague Energy Corporation ("Sprague") wherein Sprague purchased a certain quantity of gasoil. See Astra Oil's contract for sale of gasoil to Sprague, (Ex. B to Affidavit of Richard Ziccardi in Opposition to Petitioner's Motion to Compel Arbitration, sworn to December 20, 2001 (the "Ziccardi Aft")). Astra Oil's contract with Sprague contained terms specifying the quality of the product and price, and provided for safe delivery of the cargo to its destination. The Sprague contract did not contain provisions concerning the timing of the delivery.
On or about November 28, 2000, subsequent to the execution of the Charterparty, the vessel master executed a bill of lading (the "Bill of Lading") for the cargo to the order of ING Bank N.V. Geneva Branch. On January 8, 2001, ING Bank endorsed the Bill of Lading to the benefit of Astra Oil.
The executed Bill of Lading was in the form provided for in the Charterparty and included the Charterparty incorporation provision quoted earlier. The Bill of Lading provisions concerning the date of the Charterparty and the names of the parties to Charterparty, however, were left blank.
On or about December 22, 2000, while the cargo was in transport, AOT Trading entered into a written agreement for the sale of the gasoil cargo to Astra Oil. The contract between AOT Trading and Astra Oil does not refer to the Charterparty.
The Emerald arrived in Boston on January 25, 2001 and discharged a portion of the cargo. The United States Coast Guard then detained the Emerald and required that a hairline fissure on a weld of the vessel's main deck be repaired. In anticipation of the cargo's late delivery, Rover Navigation delivered a letter of undertaking ("LOU") addressed to both AOT Trading and Astra Oil in the amount of $196, 209.57. The LOU provided that Rover Navigation would appear to defend claims in the United States Court for the District of Maine, or alternatively, would proceed, "in accordance with the arbitration clause" in the Charterparty, to arbitrate any damages dispute in New York.
After repairs to the weld fissure were completed, the Emerald sailed to its final destination, Portland, Maine, and discharged the remainder of its cargo on February 9, 2001. Astra Oil submitted to Rover Navigation a claim for damages arising from the late delivery of the cargo.
Subsequently, Astra Oil demanded arbitration of the late delivery claim. While the parties proceeded with the appointment of an arbitrator and Petitioner submitted documentation in support of its claim to the arbitration panel in New York, Respondent Rover Navigation reserved its rights to challenge the standing of Astra Oil to pursue its claim in arbitration. See Ziccardi Aft ¶¶ 18-26; id Ex. K.
In this proceeding, Astra Oil seeks to compel Rover Navigation to arbitrate the late delivery claim in New York pursuant to the arbitration provision of the Charterparty. Rover Navigation denies that it has any obligation to arbitrate Astra Oil's claim under the Charterparty, because Astra Oil is not a signatory to the Charterparty.
Astra Oil does not contend that the Bill of Lading, which contained the Charterparty's form of incorporation by reference language but did not include information identifying the Charterparty, constitutes a separate contract obligating Rover Navigation to arbitrate claims arising from carriage of the gasoil cargo. Rather, both Astra Oil and Rover Navigation agree that the Bill of Lading operated merely in this case as a receipt and that the only relevant contract is the Charterparty itself
DISCUSSION
Section 4 of 9 U.S.C. provides that, if the "making of the arbitration agreement be in issue [on an application to compel arbitration] . . . [and] if the matter in dispute is within admiralty jurisdiction, the court shall hear and determine such issue." 9 U.S.C.A. § 4 (West 2002).
The Federal Arbitration Act's purpose is to ensure "that private agreements to arbitrate are enforced according to their terms." Volt Info. Sciences. Inc. v. Board of Trustees of Leland Stanford. Jr. Univ., 489 U.S. 468, 479 (1989). "Arbitration under the Act is a matter of consent, not coercion, and parties are generally free to structure their agreements as they see fit." Id. Further, it is well established that "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit."'AT T Technologies. Inc. v. Communications Workers of America, 475 U.S. 643, 648 (1986) (quoting United Steelworkers v. Warrior Gulf Navig. Co., 363 U.S. 574, 582 (1960)).
Nevertheless, "[i]t does not follow . . . that under the [Federal Arbitration] Act an obligation to arbitrate attaches only to one who has personally signed the written arbitration provision." Thomson-CSF. S.A., American Arbitration Association, 64 F.3d 773, 776 (2d Cir. 1995) (citingFisser v. International Bank, 282 F.2d 231, 233 (2d Cir. 1960)); Deloitte Noraudit A/S v. Deloitte Haskins Sells. U.S., 9 F.3d 1060, 1064 (2d Cir. 1993).
The common law principles of contract and agency law under which a nonsignatory may be bound to an arbitration agreement include 1) incorporation by reference; 2) assumption; 3) agency; 4) veil-piercing/alter ego; and 5) estoppel. See Thomson, 64 F.3d at 776.
In Thomson, the issue was whether a signatory could compel a nonsignatory to arbitrate. Here the situation is the reverse, but the basic principles still apply.
The party seeking to compel arbitration has the burden of demonstrating by a preponderance of the evidence the existence of an agreement to arbitrate. Progressive Cas. v. C.A. Reaseguradora Nacional, 991 F.2d 42, 46 (2nd Cir. 1993).
Incorporation by Reference
An arbitration clause can validly be incorporated by reference into an agreement, and on that basis bind the parties to the agreement to arbitrate their disputes. Cf. Thomson, at 777. "A nonsignatory may compel arbitration against a party to an arbitration agreement when that party has entered into a separate contractual relationship with the nonsignatory which incorporates the existing arbitration clause." Id. (citing Import Export Steel Corp. v. Mississippi Valley Barge Line Co., 351 F.2d 503, 505-506 (2d Cir. 1965) (separate agreement with nonsignatory expressly "assum[ing] all the obligations and privileges of [signatory party] under the . . . subcharter" constitutes grounds for enforcement of arbitration clause by nonsignatory)); Matter of Arbitration Between Keystone Shipping Co. and Texport Oil Co., 782 F. Supp. 28, 31 (S.D.N.Y. 1992); Continental U.K. Ltd. v. Anagel Confidence Compania Naviera. S.A., 658 F. Supp. 809, 813 (S.D.N.Y. 1987).
As noted above, the parties agree that the Bill of Lading is not such a separate contract. See Attorney's Reply Affidavit in Support of Petitioner's Motion to Compel Arbitration, sworn to January 4, 2002, at ¶ 16 ("For the subject late delivery claim, the contract of carriage for the cargo is the voyage charter party, not the [b]ill of [l]ading."); February 5, 2002 Letter from Respondent, at 1-2 (noting that Petitioner conceded that the Bill of Lading was not a contract of carriage and thus did not incorporate the arbitration clause in the Charterparty). See also Vanol USA. Inc. v. M/T Coronado. et al., 663 F. Supp. 79, 81 (S.D.N.Y. 1987) (bills of lading issued by agents of the charterer in private carriage contracts, which remain in the possession of the charterer, are receipts and rights and liabilities of the parties are governed by the terms of the charterparty); Associated Metals Minerals Corp. v. S/S Jasmine. et al., 983 F.2d 410, 413 (2d Cir. 1993) ("[b]ills of lading . . . have less significance in private carriage agreements, in which the parties look primarily to the charter party to determine their rights and responsibilities.") The parties also agree that the use of the form language specified in the Charterparty was insufficient, in the absence of language identifying the particular Charterparty, to incorporate the Charterparty's arbitration clause in the Bill of Lading by reference. No other facts having been proffered to support a finding that the Charterparty's arbitration clause was incorporated by reference into a contract between Astra Oil and Rover Navigation, incorporation by reference provides no basis for a finding that Astra Oil has the right to compel Rover Navigation to arbitrate the late delivery dispute.
Assumption
A party may be bound to arbitrate with another if its conduct indicates that the party is assuming the obligation to arbitrate. See Gvozdenovic v. United Air Lines. Inc., 933 F.2d 1100, 1105 (2d Cir.) cert. denied, 502 U.S. 910, 112 (1991) (flight attendants manifested a clear intention to arbitrate by sending a representative to act on their behalf in arbitration process); In re Keystone Shipping, 782 F. Supp. 28, 31 (S.D.N.Y. 1992); In re Transrol Navegacao S.A., 782 F. Supp. 848, 851 (S.D.N.Y. 1991). Other than asserting that Rover Navigation knew that it was required to arbitrate because it appointed an arbitrator, Astra Oil does not argue that Rover Navigation's conduct indicates that it assumed the obligation to arbitrate.
In any event, participation in the arbitration process does not always constitute a waiver of a party's right to object to arbitration. See Necchi Sewing Machine Sales Corp., v. Necchi, 369 F.2d 579, 581 (2d Cir. 1966) (a party's assertion of counterclaims in an arbitration proceeding did not waive that party's right to object to arbitration.) Here, Rover Navigation, while appointing an arbitrator, expressly reserved its right to object to Astra Oil's demand for arbitration. (See Ziccardi Aff, ¶ 18-26). Accordingly, the Court finds no basis in the record before it to conclude that Rover Navigation assumed an obligation to arbitrate.
Agency
Principles of agency law also may bind a nonsignatory to an arbitration agreement. See Interbras Cayman Co. v. Orient Victory Shipping Co., S.A., 663 F.2d 4, 6-7 (2d Cir. 1981); A/S Custodia v. Lessin International Inc., 503 F.2d 318, 320 (2d Cir. 1974); Fisser v. International Bank, 282 F.2d 231, 233-38 (2d Cir. 1960); Keystone Shipping, 782 F. Supp. at 31-32. Astra Oil does not specifically argue that agency principles apply in this case but, in support of its motion to compel arbitration, supplies the Affidavit of Irek Kotula, sworn to January 3, 2002. Mr. Kotula is an employee of Astra Oil. In his affidavit he asserts that AOT Trading is an "affiliate" of Astra Oil. See Kotula Affidavit at ¶¶ 12, 14, 16 and 22. He further asserts that "Astra has been buying/selling bulk petroleum cargoes and chartering tankers in the name of AOT Trading for at least 20 years." Id. at ¶ 17, and that "in commercial transactions in which Astra either purchases a cargo from AOT Trading AG and/or Astra lifts FOB barrels at a load port, the voyage charterer appearing in the tanker charter party contract is predominately AOT Trading AG." Id. at ¶ 16.
Rover Navigation contends Mr. Kotula's affidavit is insufficient evidence of AOT Trading and Astra Oil's affiliation because he is an employee, not a director or officer, of Astra Oil and does not make his assertions based on personal knowledge. Whether or not Mr. Kotula's affidavit is competent evidence, the conclusory statements contained in the affidavit do not sufficiently set forth facts establishing that, for purposes of the Charterparty at issue, AOT Trading was acting as Astra Oil's agent in executing the Charterparty. Accordingly, the Court concludes that, based on the record before it, there is no basis for finding that the parties agreed to arbitrate under an agency theory.
Veil Piercing/Alter Ego
Generally a corporate relationship alone is insufficient to bind a nonsignatory to an arbitration agreement. Thomson-CSF, at 777 (citingKeystone Shipping, 782 F. Supp. at 30-31. In some circumstances, courts will pierce the corporate veil "to prevent fraud or other wrong, or where a parent dominates and controls a subsidiary." Id. (citing Carte Blanche (Singapore) Pte. Ltd. v. Diners Club Int'l. Inc., 2 F.3d 24, 26 (2d Cir. 1993); Wm. Passalacqua Builders. Inc. v. Resnick Developers S., Inc., 933 F.2d 131, 138-39 (2d Cir. 1991). Here, the record reflects that Astra Oil and AOT Trading are affiliated, but nonetheless separate, entities and no facts have been proffered that would support piercing the corporate veil between the two.
Estoppel
Astra Oil has not contended that the Rover Navigation is obligated to arbitrate under a theory of estoppel, or offered any factual basis for compelling Rover Navigation to arbitrate under the estoppel theory. The Second Circuit has "been willing to estop a signatory from avoiding arbitration with a nonsignatory when the issues the nonsignatory is seeking to resolve in arbitration are intertwined with the agreement that the estopped party has signed." Thomson, supra, 64 F.3d at 779 (citingSunkist Soft Drinks. Inc. v. Sunkist Growers. Inc., 10 F.3d 753, 757-58 (11th Cir. 1993); J.J. Ryan Sons. Inc. v. Rhone Poulenc Textile. S.A., 863 F.2d 315, 320-21 (4th Cir. 1988)). In determining whether the claims brought against the nonsignatory are sufficiently related to the underlying agreement in order to compel arbitration, courts examine (i) the relationship of the entities involved, and (ii) the relationship of the alleged wrongs to the nonsignatory's obligations and duties under the agreement at issue. See Fluor Daniel Intercontimental. Inc. v. General Electric Co., No. 98 Civ. 7181, 1999 WL 637236, at *6 (citing Sunkist, supra, 10 F.3d at 757-58).
The Charterparty provides that Rover Navigation will ship the gasoil cargo to destinations on the East Coast of the United States, but is silent concerning any damages, liquidated or otherwise for late delivery of the cargo. As noted above, the record reflects that Astra Oil and AOT Trading are affiliated, but separate entities, moreover, the issues that Astra Oil and Rover Navigation seek to resolve appear to arise out of the Astra Oil's dealings with its customer Sprague Energy Corporation rather than from the Charterparty. Thus, the determination of Rover Navigation's liability for late delivery of the cargo does not appear to be contemplated by the Charterparty. Given this, Astra Oil's claims against Rover Navigation are not so "intimately founded in and intertwined with the Charterparty such that Rover Navigation should be compelled to arbitrate those claims. See Cosmotek Mumessillik Ve Ticaret Ltd. Sirkketi v. Cosmotek USA. Inc., 942 F. Supp. 757, 760 n. 3 (D.Conn. 1996) (stating that interrelatedness of issues alone is not sufficient to compel a signatory to arbitrate with a nonsignatory).
Astra Oil has thus failed to carry its burden of showing by a preponderance of the evidence that Rover Navigation has agreed to arbitrate the instant dispute.
CONCLUSION
Petitioner having failed to articulate a basis for compelling Rover Navigation to arbitrate under the Charterparty, the Court finds that Rover Navigation should not be compelled to arbitrate. Accordingly, the petition is denied and the case is dismissed.