Cape Flattery Ltd. v. Titan Mar. Llc

• Decision Date: 26 July 2011
• Docket Number: No. 09–15682.,09–15682.
• Citation: 647 F.3d 914
• Parties: CAPE FLATTERY LIMITED, Plaintiff–Appellee,v.TITAN MARITIME, LLC, a Crowley Company, DBA Titan Salvage, Defendant–Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

647 F.3d 914

11 Cal. Daily Op. Serv. 9337

2011 Daily Journal D.A.R. 11,210

CAPE FLATTERY LIMITED, Plaintiff–Appellee,

v.TITAN MARITIME, LLC, a Crowley Company, DBA Titan Salvage, Defendant–Appellant.

No. 09–15682.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Feb. 17, 2011.Filed July 26, 2011.

Steven M. Egesdal, Nenad Krek, Erika Leina Togashi Lewis, Duane Richard Miyashiro, Carlsmith Ball LLP, Honolulu, HI, Eugene J. O'Connor, Chalos O'Connor & Duffy LLP, Port Washington, NY, for the appellee.John Robert Lacy, Goodsill Anderson Quinn & Stifel, Honolulu, HI, Albert E. Peacock III, James Arthur Henry Marissen, Keesal, Young & Logan, Long Beach, CA, for the appellant.Appeal from the United States District Court for the District of Hawaii, J. Michael Seabright, District Judge, Presiding. D.C. No. 1:08–cv–00482–JMS–KSC.Before: A. WALLACE TASHIMA, WILLIAM A. FLETCHER, and MARSHA S. BERZON, Circuit Judges.

OPINION

W. FLETCHER, Circuit Judge:

Plaintiff Cape Flattery Limited (“Cape Flattery”) sued Defendant Titan Maritime (“Titan”) for gross negligence in its salvage of Cape Flattery's vessel, the M/V Cape Flattery. Titan appeals the district court's decision denying its motion to compel arbitration of the dispute under the Federal Arbitration Act (“FAA”). Titan argues that the district court erred in refusing to apply English arbitrability law. Titan further argues that even under federal arbitrability law, the dispute is arbitrable. We conclude that federal arbitrability law applies, and that under federal arbitrability law the dispute is not arbitrable. We therefore affirm the district court.

I. Background

On February 2, 2005, the M/V Cape Flattery ran aground on a submerged coral reef off Barbers Point, Oahu, Hawai‘i. Cape Flattery Ltd. v. Titan Maritime LLC, 607 F.Supp.2d 1179, 1181 (D.Hawai‘i 2009). In response, the U.S. Coast Guard issued a Notice of Federal Interest in connection with the vessel's grounding and activated Unified Command to respond to the threat of potential oil discharge. Id. Under 33 U.S.C. § 2702, Cape Flattery, as the vessel's owner, was liable for the cost of removing the vessel from the reef. 33 U.S.C. §§ 2701(32)(A); 2702(a). Cape Flattery entered into an agreement with Titan Maritime to salvage the vessel (the “Agreement”). Cape Flattery, 607 F.Supp.2d at 1181.

Under the Agreement, Titan agreed:

to use its best endeavors to salve, as quickly as reasonably practicable, the [M/V Cape Flattery] by means of the personnel and equipment specified in Schedule 2, and/or such other personnel and/or equipment as may from time to time be agreed between Titan and the on-site Owners' Representative ... and deliver the [M/V Cape Flattery] to a Place of Safety.

Schedule 2 provides a list of Titan's “Typical Daily Personnel & Equipment Rates.”

The Agreement also contains an arbitration clause. The clause, titled “Arbitration,” provides:

Any dispute arising under this Agreement shall be settled by arbitration in London, England, in accordance with the English Arbitration Act 1996 and any amendments thereto, English law and practice to apply.

Titan succeeded in removing the M/V Cape Flattery from the reef and eliminating the threat of oil discharge. Id. at 1181. At some point in the M/V Cape Flattery's grounding or removal, however, serious damage was inflicted on the reef. Under 33 U.S.C. § 2702(b)(2), Cape Flattery is liable to the United States government for all damage to natural resources resulting from the grounding. See id. § 2702(a) (“[E]ach responsible party for a vessel ... which poses the substantial threat of a discharge of oil ... is liable for the damages specified in subsection (b) of this section that result from such incident.”); id. § 2701(32)(A) (owner of vessel is a responsible party); id. § 2702(b)(2)(A) (damages recoverable under § 2702(a) include “[d]amages for injury to [or] destruction of ... natural resources ..., which shall be recoverable by a United States trustee”). On August 8, 2008, the government informed Cape Flattery that it would likely be liable for damages in excess of $15 million. Cape Flattery, 607 F.Supp.2d at 1182.

On October 24, 2008, Cape Flattery filed a complaint in the federal district court for the District of Hawai‘i against Titan, seeking indemnity and/or contribution based on the damage Titan allegedly caused through gross negligence in removing the M/V Cape Flattery from the reef. See 33 U.S.C. § 2709 (“A person may bring a civil action for contribution against any other person who is liable or potentially liable under this Act or another law.”); id. § 1321(c)(4) (parties rendering “care, assistance, or advice” in removing vessels only liable when “grossly negligent”). The complaint also sought to enjoin Titan from requesting arbitration.

On December 17, 2008, Titan filed a motion to compel arbitration based on the arbitration clause in the Agreement. Cape Flattery, 607 F.Supp.2d at 1182. On March 19, 2009, after several rounds of briefing and a hearing, the district court denied the motion. The court first rejected Titan's argument that English law governed the arbitrability of the dispute. Id. at 1184–85. The court concluded that under Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985), federal arbitrability law applies to determine arbitrability. Cape Flattery, 607 F.Supp.2d at 1184. The court noted the legal uncertainty concerning whether federal arbitrability law allows parties to agree to apply non-federal arbitrability law. Id. It concluded that even if parties are allowed to contract out of federal arbitrability law, the parties in this case had not done so. Id. at 1185.

The district court then concluded that under federal arbitrability law, the current dispute did not “aris[e] under” the Agreement. Id. at 1185–92. It first concluded that under our decisions in Mediterranean Enterprises, Inc. v. Ssangyong Construction Co., 708 F.2d 1458 (9th Cir.1983), and Tracer Research Corp. v. National Environmental Services Co., 42 F.3d 1292 (9th Cir.1994), the “arising under” language in the Agreement signifies a narrow arbitration agreement. Cape Flattery, 607 F.Supp.2d at 1185–86. Under these cases, claims that relate “only peripherally” to the Agreement are not arbitrable. Id. at 1188 (quoting Tracer, 42 F.3d at 1295). The district court then held that because Titan's duty to prevent foreseeable damage to the coral reef is based on a federal statute and is thus “separate from and above and beyond Defendant's duties under the Agreement,” id. at 1190–91, Cape Flattery's tort claims against Titan are not arbitrable.

Denials of motions to compel arbitration are immediately appealable under 9 U.S.C. § 16(a)(1)(B) and (C). Titan timely appealed.

II. Standard of Review

We review the district court's decision on a motion to compel arbitration de novo. Bushley v. Credit Suisse First Boston, 360 F.3d 1149, 1152 (9th Cir.2004). We review a district court's choice-of-law decision de novo. Ticknor v. Choice Hotels Int'l, Inc., 265 F.3d 931, 936 (9th Cir.2001). We also review the validity and scope of an arbitration clause de novo. Moore v. Local 569 of Int'l Bhd. of Elec. Workers, 53 F.3d 1054, 1055 (9th Cir.1995). We review the factual findings underlying the district court's decision for clear error. Bradley v. Harris Research Inc., 275 F.3d 884, 888 (9th Cir.2001).

III. Discussion

Titan argues that the district court erred in deciding that federal arbitrability law applies, and in its application of that law. We address Titan's arguments in turn.

A. Choice of Arbitrability Law

The first issue is what law applies to determine the arbitrability of the dispute. Titan argues that the Agreement's provision that “[a]ny dispute arising under this Agreement shall be settled by arbitration in London, England, in accordance with the English Arbitration Act 1996 and any amendments thereto, English law and practice to apply” constitutes an agreement that English law applies to determine the arbitrability of a dispute. Cape Flattery argues that parties cannot contract out of federal arbitrability law, and that even if they can, the parties did not do so in the Agreement.

The Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., creates “a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act.” Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Neither the Supreme Court nor this court has decided whether federal arbitrability law allows contracting parties to agree to apply a non-federal law of arbitrability to interpret a given arbitration agreement. If the parties can agree to apply a non-federal arbitrability law, it is also undecided how courts should determine whether the parties have so agreed.

1. Parties' Power To Agree To Non–Federal Arbitrability Law

In defending their respective positions regarding the power of contracting parties to agree to a non-federal arbitrability law, Cape Flattery and Titan rely on different Supreme Court decisions. Cape Flattery relies on Mitsubishi Motors. Mitsubishi and Soler entered into a sales agreement that included the following arbitration clause: “All disputes, controversies or differences which may arise between [Mitsubishi] and [Soler] out of or in relation to ... this Agreement or for the breach thereof, shall be finally settled by arbitration in Japan in accordance with the rules and regulations of the Japan Commercial Arbitration Association.” 473 U.S. at 617, 105 S.Ct. 3346 (first two alterations in original). When a dispute arose, Soler sued Mitsubishi alleging, among other things, violations of the Sherman Act. Id. at 619–20, 105 S.Ct. 3346. In determining whether the dispute was arbitrable, the Supreme Court stated: “[T]he first task of a court asked to compel arbitration of a dispute is to...