Opinion
CASE NO. 1:18-CV-00178-MAC
04-24-2019
PSARA ENERGY, LTD., Plaintiff, v. SPACE SHIPPING, LTD., et al., Defendants.
ORDER OVERRULING PLAINTIFF'S OBJECTIONS TO REPORT AND RECOMMENDATION DENYING PLAINTIFF'S MOTION TO STAY PENDING APPEAL
The court referred this case to the Honorable Zack Hawthorn, United States Magistrate Judge, for pretrial management. Doc. No. 9. Pending before the court is Plaintiff Psara Energy, Ltd.'s (Psara) "Motion to Stay Pending Appeal of Order Referring Parties to Arbitration." Doc. No. 42. On March 29, 2019, Judge Hawthorn entered a report (Doc. No. 50) recommending the court deny Psara's motion because Psara did not meet its burden of showing that the circumstances justify imposing a stay. Judge Hawthorn also recommended denying as moot Psara's "Motion to Strike." Doc. No. 51.
A party who files timely, written objections to a magistrate judge's report and recommendation is entitled to a de novo determination of those findings or recommendations to which the party specifically objects. 28 U.S.C. § 636(b)(1)(C) ; FED. R. CIV. P. 72(b)(2)-(3). "Parties filing objections must specifically identify those findings [to which they object]. Frivolous, conclusive or general objections need not be considered by the district court." Nettles v. Wainwright , 677 F.2d 404, 410 n.8 (5th Cir. 1982) (en banc), overruled on other grounds by Douglass v. United Servs. Auto. Ass'n , 79 F.3d 1415 (5th Cir. 1996) (en banc).
Psara raises several objections to Judge Hawthorn's report, but these objections are largely a restatement of the arguments asserted in the pending motion (Doc. No. 42) and in Psara's previous response to the Advantage Defendants "Motion for Referral to Arbitration." Doc. No. 30. Accordingly, after considering Psara's objections, the court finds they are without merit and that Judge Hawthorn's findings and ultimate conclusion are correct.
It is, therefore, ORDERED that the report and recommendation of the magistrate judge (Doc. No. 50) is ADOPTED , Psara's "Motion to Stay Pending Appeal of Order Referring Parties to Arbitration" (Doc. No. 42) is DENIED , and that Psara's "Motion to Strike" (Doc. No. 48) is DENIED as MOOT.
REPORT AND RECOMMENDATION DENYING PLAINTIFF PSARA ENERGY'S MOTION TO STAY PENDING APPEAL OF REFERRAL TO ARBITRATION
Zack Hawthorn, United States Magistrate Judge This case is assigned to the Honorable Marcia A. Crone, United States District Judge, and is referred to the undersigned United States Magistrate Judge for pretrial management. On January 4, 2019, the court adopted the undersigned's Report and Recommendation directing the parties to arbitrate their dispute as outlined in the charter party, but retaining jurisdiction to enforce any arbitration award. Doc. Nos. 37, 40. Pending before the court is Plaintiff Psara Energy, LTD.'s, (Psara) "Motion to Stay Pending Appeal of Referral to Arbitration." Doc. No. 42. On February 11, 2019, Defendants Advantage Arrow Shipping, LLC, Advantage Holdings, LLC, Advantage Tankers, LLC, and Forward Holdings, LLC (collectively, the Advantage Defendants) filed a response. Doc. No. 45. On February 14, 2019, Psara filed a reply. Doc. No. 46. On February 20, 2019, the Advantage Defendants filed a sur-reply. Doc. No. 47. Subsequently, Psara filed a "Motion to Strike Defendants' Sur-reply" (Doc. No. 48) which the Advantage Defendants filed a response to on February 22, 2019. Doc. No. 49.
I. BACKGROUND
On April 20, 2018, Psara filed suit for breach of contract against the Advantage Defendants, pursuant to FED. R. CIV. P. 9(h), Rule B of the Supplemental Rules for Certain Admiralty and Maritime Claims (Rule B), and the Federal Arbitration Act, 9 U.S.C. §§ 4, 8 in aid of maritime arbitration. Doc. No. 1 at 1–2. On June 15, 2018, the Advantage Defendants filed their "Opposed Motion for Referral to Arbitration." Doc. No. 29. On October 11, 2018, the undersigned held a hearing on the motion and subsequently entered a "Report and Recommendation" granting the motion to compel arbitration. Doc. No. 37. Over Psara's objections, this court adopted the report and recommendation and directed the parties to arbitrate their dispute as outlined in the charter party. See Doc. Nos. 1-1; 40. Psara now requests a stay of the court's order granting the referral to arbitration, pending appeal. Doc. No. 42.
II. LEGAL STANDARD
"A stay is an intrusion into the ordinary processes of administration and judicial review, and accordingly is not a matter of right, even if irreparable injury might otherwise result to the appellant." Nken v. Holder , 556 U.S. 418, 427, 129 S.Ct. 1749, 173 L.Ed.2d 550 (2009) (quotation marks and citation omitted). "It is instead an exercise of judicial discretion, and the propriety of its issue is dependent upon the circumstances of the particular case. The party requesting a stay bears the burden of showing that the circumstances justify an exercise of that discretion." Id. at 433–34, 129 S.Ct. 1749 (quotation marks, citations, and brackets omitted). In determining a motion to stay pending appeal, the court considers four factors: (1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies. Veasey v. Perry , 769 F.3d 890, 892 (5th Cir. 2014) (citing Nken v. Holder , 556 U.S. 418, 429, 129 S. Ct. 1749, 173 L.Ed.2d 550 (2009) ). "The first two factors of the traditional standard are the most critical." Id. , (quoting Nken at 434, 129 S. Ct. 1749.) 1. Psara has not shown that it is likely to succeed on the merits.
The stay applicant must make a strong showing that it is likely to succeed on the merits. Moore v. Tangipahoa Par. Sch. Bd. , 507 F. App'x 389, 393 (5th Cir. 2013) (citing Hilton v. Braunskill , 481 U.S. 770, 776, 107 S.Ct. 2113, 95 L.Ed.2d 724 (1987) ). This does not necessarily mean that the applicant needs to always show a "probability" of success on the merits. Ruiz v. Estelle , 650 F.2d 555, 565 (5th Cir. 1981). Instead, the applicant needs to only "present a substantial case on the merits when a serious legal question is involved and show that the balance of the equities weighs heavily in favor of granting the stay." Id. (citation omitted). If the consideration of the other three factors is not heavily tilted in the applicant's favor, the applicant must then make a more substantial showing of likelihood of success on the merits in order to obtain a stay pending appeal. Ruiz , 650 F.2d at 565–66.
For reasons explained below, Psara has not shown the remaining three factors weigh heavily in its favor. Thus, Psara must make "a more substantial showing" of a likelihood of success on the merits on appeal. In its motion, Psara first contends the district court erred in finding that it waived the argument that it is suing the Advantage Defendants under a performance guarantee rather than the charter party that contains a binding arbitration clause. Doc. No. 42 at 11–12. Yet, the district court stated in the alternative, that even if Psara did not waive such an argument, it still had no merit. See Doc. No. 40 at 2.
Secondly, Psara argues that the Advantage Defendants "did not cite a single case in which a court of the United States has referred to arbitration the decision of the corporate identity of the owner of an asset seized in Rule B proceedings or the issue of such an owner as a fraudulent transferee." Doc. No. 42 at 12. Citation to a case to these exact specific facts is unnecessary because the arbitration clause within the charter party at issue is straightforward: "This Contract shall be governed by and construed in accordance with English law and any dispute arising out of or in connection with this Contract shall be referred to arbitration in London ..." Doc. No. 1-1 (emphasis added). Psara can not credibly argue that the dispute over whether the Advantage Defendants are fraudulent transferees of Space Shipping is not a dispute arising out of or in connection with Space Shipping's alleged breach of the charter party.
2. Psara will not be irreparably injured absent a stay.
Psara alleges that the "risk of irreparable harm to Plaintiff arises not from an imminent release of the security, but from the very submission of the non-arbitrable issues to an arbitration tribunal for resolution under English law." Doc. No. 42 at 8. Therefore, Psara contends that this court will have secondary jurisdiction only on whether to enforce any arbitral award and "has virtually bound itself to accept the arbitration award." Id. at 10. Psara further states that "[a] likely direct consequence of this may be that if the arbitrators decide under English law—which they are required to apply under the arbitration clause of the charter—the Advantage Defendants are neither successor corporations nor fraudulent transferees of the assets attached, the Court would be bound to release the substitute security." Id. The potential for not succeeding on the merits of a claim—under the choice of law specifically agreed to by Psara—is not considered an irreparable injury. In any event, should Psara succeed on appeal before the Fifth Circuit, any injury suffered in arbitration will be ameliorated by the Court of Appeals' mandate. Thus, such an injury cannot be characterized as "irreparable."
3. Issuance of the stay will injure other parties interested in the proceeding.
Psara asserts that a stay will not result in any harm to the Advantage Defendants because the surety bonds posted as substitute security will continue to remain in place throughout the arbitration, and allowing the security to remain in place for this appeal will not materially extend the time that the substitute security must remain available. Doc. No. 42 at 11. The Advantage Defendants argue that not only must they pay the annual premiums totaling $ 48,450 per year on the surety bonds, but they are also deprived of utilizing the $ 4.8 million in counter-security in the interim and until the bonds are released by the Court at the conclusion of this action. Doc. No. 45 at 9. While Psara believes that the nature, amount, and duration of the security will not be materially impacted by the granting of the stay, the undersigned finds that the Advantage Defendants would be injured by staying these proceedings.
Should the claims between Psara and the Advantage Defendants resolve in arbitration before the appeal is disposed in the Fifth Circuit, the undersigned will likely keep the substitute security in place until such time as the Fifth Circuit has decided the appeal.
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4. Public interest lies in directing to arbitration.
The Advantage Defendants argue that the public interest lies in directing the parties to arbitration because the Supreme Court has held that it is an abuse of discretion to enter a stay that has the effect of delaying "the prompt arbitration that Congress envisaged." See Moses H. Cone Mem. Hosp. v. Mercury Const. Corp. , 460 U.S. 1, 22, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Psara responds that public policy does not favor "bundling cases, parties and issues off to arbitration without first deciding who agreed to arbitrate and what issues." Doc. No. 46 at 5. Yet, the undersigned already conducted analysis on who agreed to arbitrate in the previous report and recommendation. See Doc. No. 37. The undersigned also determined that the current claims against the Advantage Defendants should be arbitrated based upon the arbitration clause's broad language that "any dispute arising out of or in connection with the Contract." Id. Because the undersigned found that Psara's claims against the Advantage Defendants relate to the charter party, and Psara even conceded that the issues "touch[ ] upon the charter party" (Doc. No. 45-1 at 7), the public interest lies in not delaying arbitration.
Moreover, Psara cites to the idea that "ensuring parties are able to enforce judgments is in the public interest." Castleton Commodities Shipping Co. PTE v. HSL Shipping & Logistics NA, Inc. , 2016 WL 5231844, *6, 2016 U.S. Dist. LEXIS 129557, *18 (E.D. La. Sept. 22, 2016). The undersigned's report and recommendation explicitly stated that the Rule B attachment will remain in effect in this court and apply as valid security for the claim. Doc. No. 37 at 16. Therefore, the parties will still be able to enforce judgments, but only following arbitration.
III. RECOMMENDATION
The undersigned recommends DENYING Psara's "Motion to Stay Pending Appeal of Order Referring Parties to Arbitration (Doc. No. 42) because Psara did not meet its burden of showing that the circumstances justify imposing a stay.
The undersigned also recommends DENYING as MOOT Psara's "Motion to Strike." Doc. No. 48. As a result of the pending motion to strike, the undersigned did not consider the "new arguments to which Plaintiff is not allowed to respond under the Local Rules" in the Advantage Defendants' sur-reply. Only previously addressed arguments were considered.
IV. OBJECTIONS
Pursuant to 28 U.S.C. § 636(b)(1)(c) (Supp. IV 2011), each party to this action has the right to file objections to this report and recommendation. Objections to this report must (1) be in writing, (2) specifically identify those findings or recommendations to which the party objects, (3) be served and filed within fourteen days after being served with a copy of this report, and (4) be no more than eight pages in length. See 28 U.S.C. § 636(b)(1)(c) ; FED. R. CIV. P. 72(b)(2) ; LOCAL RULE CV-72(c). A party who objects to this report is entitled to a de novo determination by the United States District Judge of those proposed findings and recommendations to which a specific objection is timely made. See 28 U.S.C. § 636(b)(1)(c) ; FED. R. CIV. P. 72(b)(3).
A party's failure to file specific, written objections to the proposed findings of fact and conclusions of law contained in this report, within fourteen days of being served with a copy of this report, bars that party from: (1) entitlement to de novo review by the United States District Judge of the findings of fact and conclusions of law, see Rodriguez v. Bowen , 857 F.2d 275, 276–77 (5th Cir. 1988), and (2) appellate review, except on grounds of plain error, of any such findings of fact and conclusions of law accepted by the United States District Judge. See Douglass v. United Servs. Auto. Ass'n , 79 F.3d 1415, 1428–29 (5th Cir. 1996).