Opinion
No. 00 Civ. 7985 (RLC).
April 8, 2001
APPEARANCES:
Attorneys for Plaintiffs: NICOLETTI HORNIG CAMPISE SWEENEY; New York, New York. LAWRENCE C. GLYNN Of Counsel.
Attorneys for Defendant: HEALY BAILLIE, LLP; Marksailor Navigation Co., Ltd., New York, New York. LEROY LANBERT and THOMAS H. BELENAP, JR.,Of Counsel.
OPINION
Defendant Marksailor Navigation Co., Ltd. moves, pursuant to the Federal Arbitration Act, 9 U.S.C. § 1-16, for an order to stay or dismiss an action filed against it by plaintiffs Seco Steel Trading, Inc. and Continental Insurance Company, pending arbitration. Plaintiffs oppose the motion on grounds that they are not obligated to arbitrate under the terms of the contract of carriage, and that even if they are, Marksailor has waived any rights in this regard. For the reasons set forth below, defendant's motion is granted and plaintiffs' action before the court is accordingly stayed.
BACKGROUND
Since plaintiffs do not include any statement of facts in their memorandum, all background facts are, unless otherwise indicated, taken from defendant's memoranda.
This motion arises out of an admiralty action brought by plaintiffs Seco Steel Trading, Inc. ("Seco") and Continental Insurance Company ("Continental"), Seco's subrogated underwriter. Plaintiffs' action, which was filed pursuant to the Carriage of Goods by Sea Act ("COGSA"), 46 U.S.C. § 1300-1315, seeks some $4000 for alleged damage to a cargo of cold-rolled steel shipped in coils aboard the M/V NIKOS N from Ventspils, Latvia to New Orleans, Louisiana and Houston, Texas. The cargo was carried pursuant to three bills of lading: WBCA OSLO 00020777 and WBCA OSLO 00020804, both for discharge in New Orleans, and WBCA OSLO 00020783, for discharge in Houston. All three bills of lading were dated October 15, 1999.
The NIKOS N was owned by Marksailor Navigation Company, Ltd. ("Marksailor") and, at the time the coils were shipped, was on charter to Western Bulk Carriers K/S ("Western Bulk") pursuant to a time charter. Western Bulk, in turn, entered a "renegotiated/amended" voyage charter with Seco Steel Company ("Seco") pursuant to a fixture recap dated July 20, 1999. Under this latter agreement ("the subcharter"), Western Bulk agreed to carry three cargoes from Ventspils, Latvia to various ports in the United States. The subcharter superceded a pre-existing charterparty agreement between Seco and Western Bulk, dated May 26, 1999, and provided that:
Under a time charter, the charterer to hire the ship for a set period of time. The charterer specifies the ports of call, etc., but the owner retains control of the vessel's day to day operations.
Under a voyage charter, the charterer hires the vessel for a specific voyage. As with a time charter, the owner retains control of the actual operation of the vessel.
C/P details as per Seco/WBC pro forma C/P to be agreed to in conformance with logical alterations as per main terms and conditions.
(Belknap Aff., Ex. C.) The "details" referred to in the foregoing provision were supplied in the form of the earlier charterparty between Seco and Western Bulk, dated February 4, 1997, and were entered with 53 added clauses, on a so-called "Gencon" uniform charterparty form issued by the Baltic International Maritime Conference. These details were attached to, and made part of, the subcharter.
The bills of lading for the shipment in question were issued on the commonly utilized "Congenbill" form, edition 1978. At the top of each bill was printed: "For conditions of carriage see overleaf." Clause 1 of the conditions of carriage, which were printed on the back of the bills, provided in relevant part:
(1) All terms and conditions, liberties and exceptions of the CharterParty, dated as overleaf, are herewith incorporated.
(Belknap Aff., Ex. B.) The subcharter was specifically referenced on the face of the bills of lading by the notation: "freight" payable as per charter party dated July 20, 1999. Id. Clause 30 of the subcharter provided:
Clause 30
Arbitration shall be in accordance with rules for arbitration procedures of the Society of Maritime Arbitrators, London.
The two arbitrators appointed by the Owners and Charterers shall be commercial persons familiar with maritime business and the third arbitrator, shall also be commercial men [sic] who shall also be the chairman of the panel.
If one fails to appoint an arbitrator either originally or by way of substitution for thirty (30) clear days after the order [sic] party having appointing his arbitrator has served the party making default with notice to make the appointment, the party who has appointed an arbitrator, may appoint the arbitrator to act as sole arbitrator in the reference and his award shall be binding upon both parties as if he had been appointed by consent. If the two arbitrators fail to agree upon a third arbitrator, the third arbitrator shall be determined by the English court. English law to apply.
Any award hereunder shall include attorneys' fees and costs. Belknap Aff., Ex. C.).
Plaintiffs' complaint was originally filed on October 19, 2000. An amended complaint was filed on December 14, 2000, followed by a second amended complaint on August 3, 2001. On November 6, 2001, Marksailor moved, pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1-16, for an order staying plaintiffs' action, pending arbitration in London, in accordance with the terms of the subcharter. On November 14, 2001, Western Bulk also moved for the same. Plaintiffs opposed, bringing events to where they now stand.
Section 3 of the FAA provides:
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the application for the stay is not in default in proceeding with such arbitration.9 U.S.C. § 3.
DISCUSSION
At the outset, the court notes the strong federal preference, articulated in countless cases, for "resolution of disputes through arbitration rather than litigation." Chevron USA, Inc. v. Consol. Edison Co. of New York, Inc., 872 F.2d 534, 537 (2d Cir. 1989). This "federal policy favoring arbitration" means that "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration . . . ."Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985) (internal quotations omitted). In light of the foregoing, plaintiffs wisely concede that "[a]rbitration should thus be compelled `unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.'" Pls. Opp'n Mem. at 2 (quoting McAllister Bros., Inc. v. A S Transp. Co., 621 F.2d 519, 522 (2d Cir. 1980)). Plaintiffs insist, however, for reasons detailed below, that this is the exceptional case where the arbitration clause in question cannot be said to apply to their suit against defendant. Pls.' Opp'n Mem. at 4.
In assessing plaintiffs' claim, the court must first determine whether the arbitration clause was ever actually incorporated into the governing contract of carriage. 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 to so submit." ATT Tech., Inc. v. Communications Workers of Am., 475 U.S. 643, 648 (1986). In this case, the clause that defendant relies upon to compel arbitration is contained in the subcharter, an instrument that is distinct from the bills of lading. However, "the terms of a charterparty, including an arbitration clause, may, by appropriate reference, be incorporated into a bill of lading." Coastal States Trading, Inc. v. Zenith Navigation S.A., 446 F. Supp. 330, 338 (S.D.N.Y. 1977) (Motley, J.). "The bill of lading will be found to incorporate an arbitration clause contained in the charterparty and will be made subject to it when the bill clearly refers to the charterparty and the holder of the bill has either actual or constructive notice of the incorporation." Midland Tar Distillers, Inc. v. M/T LOTOS, 362 F. Supp. 1311, 1313 (S.D.N.Y. 1973) (Cannella, J.).
Here, the bills of lading that Seco signed and sues under expressly state: "All terms and conditions, liberties and exceptions of the Charterparty, dated as overleaf, are herewith incorporated." (Belknap Aff., Ex. B.) The overleaf of the bills specifically reference the "Charterparty dated July 20, 1999," which is the charter between Seco and Western Bulk for the NIKOS N. (Id.) This reference in the bills of lading to the date of the subcharter is specific enough to have given Seco notice of the incorporation of the subcharter's terms. See Thyssen, Inc. v. M/V MARCOS N, 97 Civ. 6181 (MBM), 1999 U.S. Dist. LEXIS 12578, at *7 (S.D.N.Y August 16, 1999) (Mukasey, J.). And if the foregoing were not enough, Clause 33 of the subcharter states that "all terms and conditions of [the] charterparty to be considered fully incorporated in the bills of lading," Belknap Aff., Ex. C), further evidencing Seco's intent to be bound by the subcharter's terms even in disputes over the bill of lading.
Plaintiffs suggest, in passing, that the lack of any language in the bills of lading referring explicitly to the arbitration clause renders its incorporation suspect. See Pls. Opp'n Mem. at 7. However, the reference to "[a]ll terms and conditions" is plainly broad enough to encompass the arbitration clause, which was a term of the original subcharter. And courts have not hesitated to find incorporation where such general language is utilized, even where the arbitration clause is not referenced explicitly. See, e.g., Midland Tar Distillers, Inc., 362 F. Supp. at 1313 (finding that "subject to all terms, liberties and conditions of the CHARTERPARTY" was sufficient to incorporate an arbitration clause into the contract of carriage). The court thus finds that the terms of the subcharter, including its arbitration clause, were incorporated by reference into the bills of lading, and are binding upon plaintiffs for purposes of this suit.
The foregoing, however, does not end the discussion. Even if the subcharter's arbitration clause has been successfully incorporated, the court must still decide whether "the parties' exercise of [that power] violates the arbitration clause's terms." Salim Oleochemicals, Inc. v. M/V Shropshire, 169 F. Supp.2d 194, 198 (S.D.N.Y. 2001) (Buchwald, J.). In making this determination "courts have consistently drawn a distinction between [an] arbitration clause specifically identifying the parties to which it applies, and a broader form of arbitration clause which does not restrict the parties." In re Southwind Shipping Co., 709 F. Supp. 79, 82 (S.D.N.Y. 1989) (Leval, J.); see also Salim Oleochemicals, Inc., 169 F. Supp.2d at 198-99 (collecting cases). The distinction is important because an arbitration clause that is specifically restricted to the immediate parties cannot be expanded to include a non-party, incorporation notwithstanding. See Progressive Cas. Ins. Co. v. C.A. Reaseguradora Nacional De Venezuela, 991 F.2d 42, 47 (2d Cir. 1993); Import Export Steel Corp. v. Mississippi Valley Barge Line, 351 F.2d 503, 506 (2d Cir. 1965).
The quintessential "broad" arbitration clause applies, by its terms, to "`all disputes' arising under the charterparty." Salim Oleochemicals, Inc., 169 F. Supp.2d at 198 (citing Son Shipping Co. v. De Fosse Tanghe, 199 F.2d 687 (2d Cir. 1952) Kaystone Chemical, Inc. v. Bow Sun, No. 88 Civ. 5859 (MBM), 1989 U.S. Dist. LEXIS 4384 (S.D.N.Y. April 19, 1989) (Mukasey, J.); Continental U.K. Ltd. v. Anagel Confidence Compania Naviera, 658 F. Supp. 809, 814 (S.D.N.Y. 1987) (Tenney, J.); Midland Tar Distillers, 362 F. Supp. at 1311). The typical "narrow" clause, by contrast, refers specifically to disputes "between owners and charters," and thus "applies only to disputes between the particular parties identified in the clause." Thyssen, Inc., 1999 U.S. Dist. LEXIS 12578 at *13 (citing Import Export Steel Corp., 351 F.2d at 505-06; Sohtorik Shipping Trading, Inc. v. Peter Cremer Befrachtungskontor, GMBH. Co., 502 F. Supp. 143, 144-45 (S.D.N.Y. 1980) (Motley, J.); Production Steel Co. v. S.S. Francois L.D., 294 F. Supp. 200, 201-02 (S.D.N.Y. 1968) (Mansfield, J.)). Since Marksailor, as a nonsignatory, was not a party to the subcharter, the question of its right to compel arbitration "turns on whether the arbitration clause in the contract is `narrow' or `broad.'"Salim Oleochemicals, Inc., 169 F. Supp.2d at 199.
However, language of the clause in this case does not fit neatly into either of the aforementioned categories. The subcharter states simply: "Arbitration shall be in accordance with rules for arbitration procedures of the Society of Maritime Arbitrators, London." (Belknap Aff., Ex. C.) The clause does not contain the reference to "any" or "all" disputes that is characteristic of the broad clause, nor does it have the "between owners and charters" language of the narrow. A similar clause was at issue in Salim Oleochemicals, Inc. v. M/V Shropshire, 169 F. Supp.2d 194, 198 (S.D.N.Y. 2001) (Buchwald, J.) The clause there stated: "Law General average and charterparty arbitration to be conducted in London." Id. at 196. The court noted the difficulty of classifying such an ambiguous clause, but concluded it was "more akin to the `broad'" type, Id. at 199, since the wording of the clause did "not restrict its application to specific parties or problems." Id. This result, the court reasoned, was particularly appropriate in light of the "strong preference" for resolving all doubts in favor of arbitration. Id.
The court agrees with the approach articulated in Salim Oleochemicals, Inc., and finds that the clause in this case is also properly classified as "broad." Such an expansive reading finds support in the wording of the subcharter, which places no qualification on the requirement to arbitrate. Plaintiffs suggest that the lack of any language like "arising out of" or "relating to" means that the clause cannot be interpreted to apply mandatorily to any and all disputes. Pls' Opp'n Mem. at 5. A more reasonable reading, they argue, is that the "clause is merely a guideline. . . . [I]n the event arbitration is chosen, it will be conducted according to the terms set forth therein." Id. at 4. There are at least two problems with this reasoning. First, although the clause inSalim Oleochemicals, Inc., whose reasoning the court has adopted, did not contain any of plaintiffs' preferred language, it was still categorized as broad. Second, plaintiffs' approach is clearly at odds with the federal policy favoring arbitration. As the court in Salim Oleochemicals, Inc. noted, "where ambiguity exists the question is whether the language is broad enough to allow [the parties'] disputes to be brought within its terms, not whether the terms could be construed as narrow enough to exclude them." Salim Oleochemicals, Inc., 169 F. Supp. 2d at 199 (internal quotations omitted).
Plaintiffs also argue that the arbitration clause must be narrowly construed because "where the arbitration clause refers to disputes `between Owners and the Charterers,' such a clause is restrictive and arbitration may not be compelled by a nonsignatory." Pls.' Opp'n Mem. at 6 (quoting Import Export Steel Corp., 351 F.2d at 506). However the clause in this case makes no reference whatsoever to disputes between owners and charterers. The only specific mention of such parties comes in the provision mandating that arbitrators be "appointed by the Owners and Charterers." Courts have consistently held that such language governing the appointment of arbitrators, even if it specifically refers to owners and charterers, is insufficient to render the clause restrictive.Kaystone Chem., Inc., 1989 U.S. Dist. LEXIS 4384, at *10 ("[T]he reference to owners and charterers appointing arbitrators does not indicate that the clause is limited to disputes between owners and charterers. Rather, I find that the clause encompasses the instant dispute."); Midland Tar Distillers, Inc., 362 F. Supp. at 1315 (finding that reference to "owners and charterers" appointing arbitrators was not meant to limit application of the clause to those parties).
Plaintiffs strive unsuccessfully to distinguish the foregoing cases on grounds that the bills of lading therein clearly specified that "any dispute" between the bill's "holder" and "the carrier" would be subject to arbitration. Pls.' Opp'n Mem. at 7. Plaintiffs cite Midland Tar in support of this proposition, but their reliance is misplaced. In fact, the bill of lading at issue in that case contained no specific reference to arbitration, disputes, holders, or carriers. As suggested previous, incorporation of the arbitration clause was achieved solely by broad reference to "all terms, liberties and conditions" of the subcharter.Midland Tar Distillers, Inc., 362 F. Supp. at 1315 ("The parties' use of the words all terms, liberties and conditions' allows the court no inference of contrary intent."). In this case, of course, the court has already determined that the subcharter's arbitration clause was incorporated into the bills of lading by similarly unrestricted language, thereby "expand[ing] the scope of that clause to embrace persons other than the two parties extant at the time of its drafting."Id.
Plaintiffs' final argument is that even if the arbitration clause is applicable to the dispute and parties in this case, Marksailor has, by its actions, waived any right to invoke arbitration. Pls.' Opp'n Mem. at 8-9. Courts confronted with such a claim of waiver typically consider three factors: "(1) the time elapsed from the commencement of litigation to the request for arbitration; (2) the amount of litigation (including exchanges of pleadings, any substantive motions, and discovery) and (3) proof of prejudice, including taking advantage of pretrial discovery not available in arbitration, delay, and expense." Kingston v. Latona Trucking Inc., 159 F.3d 80, 83 (2d Cir. 1998). The "strong presumption in favor of arbitration" applies to this inquiry as well, meaning that "waiver of the right to arbitration is not to be lightly inferred,"Cotton v. Slone, 4 F.3d 176, 179 (2d Cir. 1993) (internal quotations omitted).
Regarding the first two factors, plaintiffs argue that defendants "have chosen to wait in excess of one year from the date the litigation was commenced, having engaged in extensive pretrial discovery all the while." Pls.' Opp'n Mem. at 8. Marksailor challenges this version of events, insisting that there has been no "extensive pretrial discovery," only a few informal requests for documents relating specifically to the question of arbitrability. Def.'s Reply Mem. at 6. Marksailor also points out that its motion was submitted less than one week after plaintiffs finally delivered a copy of the subcharter, a document Marksailor says it first requested some seven months before. Id. Both stories are plausible, and neither side presents any evidence to corroborate its version of events. Resolving all ambiguities in favor of arbitration, however, the court cannot say that these particular actions by Marksailor constitute a waiver of its right to compel arbitration.
This conclusion is confirmed when one compares Marksailor's alleged behavior to that by parties in other cases where waiver has been found.See, e.g., Kingston, 159 F.3d at 83-84 (holding that the right arbitration could not be invoked on the eve of trial, after extensive discovery and 15-month delay); Cotton, 4 F.3d at 179-80 (holding that a party could not compel arbitration after actively litigating its claim, including filing motions and taking at least two depositions, and losing on the merits); Kramer v. Hammond, 943 F.2d 176 (2d Cir. 1991) (holding that a party could not invoke its right to arbitrate in federal district court after having participated in over four years of litigation of two different parallel cases in two different state courts); Com-Tech Assocs. v. Computer Assocs. Int'l, Inc., 938 F.2d 1574 (2d Cir. 1991) (holding that defendants had waived any arbitration right by causing eighteen month delay, and engaging in extensive deposition of plaintiffs); Demsey Assocs., Inc. v. S.S. Sea Star, 461 F.2d 1009 (2d Cir. 1972) (holding that a party had waived its right to arbitrate by answering on the merits, asserting a cross-claim that was answered, participating in discovery, failing to move for a stay, and going to trial on the merits). The parties' actions in these cited cases seem significantly more unreasonable.
As to the third and final factor, plaintiffs argue that they have been prejudiced because their claims against defendants may now be time barred in London. Pls.' Opp'n Mem. at 9. Defendants respond that "the time bar date in London . . . passed long before Defendant even received notice of Plaintiff's suit in New York." Def.'s Reply Mem. at 6. Regardless of which narrative is correct, the court is reluctant, at this point, to delve into the merits of the parties' underlying dispute. Moreover, the fact remains that plaintiffs filed suit in New York despite an arbitration clause directing that they bring their action in London. The Supreme Court has stated that "foreign arbitration clauses are . . . a subset of foreign forum selection clauses in general." Vimar Seguros y Reaseguros, S. A. v. M/V Sky Reefer, 515 U.S. 528 (1995). And at least one court in this Circuit has stated:
To allow plaintiff to choose the forum of this Court in the face of a mandatory forum selection clause requiring suit in another country and argue, based on the subsequent running of the statute of limitations in the foreign forum, that the foreign forum is not adequate would be to permit counsel to circumvent the Sky Reefer decision.3 P.P.D. Int'l v. M/V Cast Muskox, 95 Civ. 4184 (RPP), 1995 U.S. Dist. LEXIS 18200, at *3 (S.D.N.Y. December 8, 1995) (Patterson, J.). Indeed, the general rule is that "when a plaintiff initially files in an improper forum despite a contractual obligation, plaintiff and not defendant should bear the burden of the running of the statute of limitations."Great American Ins. Co. v. "Kapitan Byankin", No. C-96-0258 EFL (ARB), 1996 U.S. Dist. LEXIS 22394, at *10 (N.D. Cal. August 1, 1996). These cases, which are about the reasonability of foreign forum selection clauses, do not, of course, deal specifically with the question of prejudice. However, the principles articulated therein are general, suggesting that plaintiffs' claim of prejudice is unavailing.
CONCLUSION
In conclusion, Marksailor has demonstrated to the court's satisfaction that the arbitration clause was successfully incorporated into plaintiffs' contract of carriage, thereby expanding the scope of that clause to include the parties in the case at bar. Furthermore, the court is not persuaded that Marksailor's actions thus far are sufficient to constitute a waiver of its right to compel arbitration. Accordingly1 plaintiffs' action against defendants is stayed pending arbitration, in accordance with the terms of the governing contract of carriage.