876 F.2d 1168 (5th Cir. 1989), 88-3136, E.A.S.T. Inc. of Stamford, Ct. v. M/V Alaia

Docket Nº:88-3136.
Citation:876 F.2d 1168
Party Name:E.A.S.T., INC. OF STAMFORD, CONNECTICUT, Plaintiff-Appellee, v. M/V ALAIA, et al., Defendants, Advance Co., Inc., Claimant-Appellant.
Case Date:June 26, 1989
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

Page 1168

876 F.2d 1168 (5th Cir. 1989)

E.A.S.T., INC. OF STAMFORD, CONNECTICUT, Plaintiff-Appellee,


M/V ALAIA, et al., Defendants,

Advance Co., Inc., Claimant-Appellant.

No. 88-3136.

United States Court of Appeals, Fifth Circuit

June 26, 1989

        Rehearing and Rehearing En Banc Denied July 27, 1989.

Page 1169

        Robert B. Deane, Kenneth Servay, New Orleans, La., for claimant-appellant.

        Kenneth W. Heard, New York City, Antonio Rodriguez, Mary C. Hubbard, New Orleans, La., for plaintiff-appellee.

        Appeal from the United States District Court for the Eastern District of Louisiana.

        Before THORNBERRY, KING and JONES, Circuit Judges.

        KING, Circuit Judge:

        Claimant-appellant Advance Co. appeals from the district court's order refusing to vacate the arrest of the M/V ALAIA and referring the parties to arbitration of their dispute in London pursuant to the terms of their charter party. We affirm the order of the district court.


  1. Facts

            The underlying facts of this case are essentially undisputed and are set forth fully in the district court opinion. E.A.S.T. of Stamford v. M/V ALAIA, 673 F.Supp. 796 (E.D.La.1987).

            Briefly, plaintiff-appellee E.A.S.T. ("EAST") agreed in October of 1987 to charter the M/V ALAIA ("ALAIA"), owned by defendant-appellant Advance, Co. ("Advance"). The charter was on a New York Produce Exchange time charter form and provided that the ALAIA would be delivered to EAST at New Orleans for "A timechartertrip via port(s) in/out geographical rotation--always afloat--always within I.W.I. duration about 20/25 days without guarantee." The charter party also stated that EAST's intention was to carry milk carton stock on pallets and soda ash in bulk from New Orleans and Port Arthur to Puerto Cabello, Venezuela. The charter party also contained an arbitration clause and specified that the place of arbitration would be London rather than New York and that the contract would be governed by English law.

            EAST simultaneously entered into two voyage subcharters--one to carry milk carton stock and wood pulp on pallets from New Orleans to Puerto Cabello and one to carry bulk soda ash from Port Arthur to Puerto Cabello. EAST paid Advance $26,700 in advance charter hire. EAST also engaged Navios Ship Agencies, Inc. ("Navios")

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    to see to the vessel's needs and forwarded $15,000 to Navios to cover port charges, agency fees and other expenses. EAST ordered bunkers for the vessel and through its agent instructed the ALAIA to proceed to New Orleans to load the milk carton stock and wood pulp. EAST also engaged, through its agent, a pilot to bring the vessel up the Mississippi river to the port of New Orleans, tugs to maneuver the ship into its berth, and line handlers to secure the vessel to the dock. EAST's agent also arranged and paid for dockage, permitting the vessel to tie up and lie alongside the wharf.

            The ALAIA was delivered under the time charter and went "on hire" at 001 hours on October 20, 1987. Pursuant to the terms of the charter, EAST had engaged a surveyor to inspect the vessel when it arrived in New Orleans. The vessel was also inspected by surveyors for each of the two subcharterers and by a surveyor for Advance. On October 20 and 21, 1987, EAST's surveyor inspected the ALAIA and concluded that it was not suitable to carry the intended cargo. The surveyors for the subcharterers agreed.

            EAST's surveyor found that rust, dirt, and debris made the vessel unfit to carry soda ash, that the vessel was not suitable for "grab discharge"--in violation of a specific warranty in the time charter, and that the hatch covers were so severely rusted that the vessel was unseaworthy. As a result of these findings, EAST rejected the ship and filed an in rem action, under the Federal Arbitration Act, 9 U.S.C. Sec. 8, and Supplemental Admiralty Rule C, in the Federal District Court for the Eastern District of Louisiana to compel arbitration under the charter party and to obtain security for the arbitration award through the arrest of the vessel.

            Two days after the arrest of the vessel, Advance filed a notice of appearance in personam, an answer and a counter-claim, and moved to vacate the arrest on the grounds first, that no valid time charter had come into existence and second, that no maritime lien could arise from the breach of the charter party as no cargo had yet been loaded on the vessel. Advance also argued that the district court could not order the parties to arbitration on the basis of in rem jurisdiction.

  2. District Court Decision

            After a post-seizure hearing, the district court first rejected the argument that no valid time charter existed. Then, relying primarily on the reasoning of International Marine Towing v. Southern Leasing Partners, Ltd., 722 F.2d 126 (5th Cir.1983), cert. denied, 469 U.S. 821, 105 S.Ct. 94, 83 L.Ed.2d 40 (1984), the district court held that a maritime lien could arise from the breach of a time charter even when the breach occurs before the cargo has been loaded. Accordingly, the court found that the seizure was proper. Finally, the district court held that in rem jurisdiction provided a sufficient basis to refer the parties to arbitration under Section 8 of the Federal Arbitration Act. The district court noted that if there was any defect in its jurisdiction to refer the parties to arbitration, it was cured by the fact that Advance appeared in personam, not only to defend the action brought by EAST, but also to pursue a counterclaim against EAST. The district court ordered each of the parties to post security for arbitration, ordered the parties to proceed to arbitration in London, and retained jurisdiction for purposes of enforcing any arbitration award. Advance filed a timely notice of appeal from the order of the district court.

  3. Issues on Appeal

            Relying on three separate theories, Advance argues that the district court erred in finding that EAST had a maritime lien against the ALAIA. Advance asserts first that there is no maritime lien for breach of a time charter. Alternatively, Advance argues that a time charter is a contract of affreightment and therefore may not give rise to a lien unless the cargo has been loaded or otherwise placed in the possession or control of the vessel. Third, Advance urges that even if time charters are not ordinarily deemed contracts of affreightment, voyage charters are contracts

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    of affreightment, and this particular charter, although it appears on a time charter form, is in fact a voyage charter and should be treated as such. Finally, Advance argues that even if the district court had in rem jurisdiction, the court erred in holding that in rem jurisdiction is a sufficient basis on which to refer parties to arbitration and furthermore, that pre-arbitration attachment is inconsistent with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 9 U.S.C. Secs. 201-08.

            For the reasons set forth below, we reject each of these contentions.

  4. Standard of Review

            In admiralty cases, as in other cases, the district court's findings of fact are subject to the clearly erroneous standard of review under Rule 52(a), while questions of law are subject to de novo review. Dow Chemical Co. v. M/V Roberta Tabor, 815 F.2d 1037, 1042 (5th Cir.1987). The questions presented in this case are entirely legal and are therefore reviewed de novo.


  5. Appealability of the District Court Order

            As a preliminary matter, we note that although an order upholding a pre-arbitration attachment under 9 U.S.C. Sec. 8 is generally not considered a final judgment appealable under 28 U.S.C. Sec. 1291, Section 1292(b) authorizes appellate review of interlocutory orders where the district court determines that "the order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation." Constructora Subacuatica Diavaz v. M/V Hiryu, 718 F.2d 690, 692 (5th Cir.1983). Because the district court in this case amended its original orders to certify them for appeal under Section 1292(b), the order upholding the pre-arbitration arrest of the ALAIA is appealable. 1

  6. The District Court's Jurisdiction

            Before proceeding to the central issue of this case--whether there is a maritime lien arising from the alleged breach of a time charter--we must address another threshold question. Advance asserts on appeal that the pre-arbitration arrest of the ALAIA is inconsistent with the terms of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards as implemented by 9 U.S.C. Secs. 201-08. Although Advance apparently did not raise this argument below, we will address it because the resolution of this issue could bear on the jurisdiction of the district court to permit prejudgment attachment of the ALAIA.

            Advance relies on the Third Circuit's decision in McCreary Tire & Rubber Co. v. CEAT S.p.A., 501 F.2d 1032 (3d Cir.1974). In McCreary, the court held that resort to prejudgment attachment under state law was in violation of the parties' agreement to arbitrate their disputes and was therefore precluded by the Convention which "forbids the courts of a contracting state from entertaining a suit which violates an agreement to arbitrate." Id. at 1038. The court reasoned that the Convention's language directing a court to "refer parties to arbitration" is stronger than the Act's requirement that a court simply "stay the trial of the action," id., and ousts the district court of all jurisdiction over a dispute subject to arbitration under the Convention. The court reasoned further that the removal provision...

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