Am. Chung Nam, LLC v. Mitsui O.S.K. Lines, Ltd.
| Docket Number | 2:23-cv-07676-SB-JPR |
| Decision Date | 19 December 2023 |
| Parties | AMERICA CHUNG NAM, LLC et al., Plaintiff, v. MITSUI O.S.K. LINES, LTD. et al., Defendants. |
| Court | U.S. District Court — Central District of California |
ORDER DENYING MOTION TO REMAND [DKT. NO. 30] AND GRANTING MOTION TO COMPEL ARBITRATION [DKT. NO 23-3]
Plaintiff America Chung Nam (ACN) exports wood chips from the United States to China. Because wood chips lose their usefulness if they dry out, ACN chartered several specialized humidity-controlled ships designed for transporting these products from Defendants Mitsui O.S.K. Lines, MOL (Americas) LLC, and MOL Drybulk, Ltd. (collectively MOL). Then COVID surged in China. China shut down several cities, including Dongguan, ACN's intended destination. Unable to ship to Dongguan, ACN no longer needed the ships. But under the terms of the charter agreements (called “Charter Parties”), ACN was still obligated to pay MOL-and at rates ACN claims exploited the global crisis. So ACN sued MOL in California state court, alleging violations of California's Business and Professions Code, fraud misrepresentation, negligence, and unjust enrichment.
MOL removed the case to federal court, asserting jurisdiction under the Federal Arbitration Act (FAA), diversity jurisdiction, and admiralty jurisdiction. MOL also filed a motion to compel arbitration based on the clauses in the Charter Parties. ACN moves to remand the case, challenging each ground for jurisdiction and separately arguing that Younger abstention applies. The Court heard argument on both motions on December 19, 2023. Because this Court has jurisdiction under the FAA and ACN's abstention argument lacks merit, the Court denies the motion to remand. And because the Charter Parties contain an enforceable arbitration provision covering the claims at issue, the Court grants the motion to compel arbitration. provision covering the claims at issue, the Court grants the motion to compel arbitration.
ACN and MOL entered into two Charter Parties at issue here-the first signed on July 21, 2021, and the second signed on April 1, 2022-for seven different ships. Dkt. Nos. 23-1, 23-2. Both agreements contained arbitration provisions (Dkt. No. 23-1 ¶ 47; Dkt. No. 23-2 ¶ 47), and both were subsequently amended several times (Dkt No. 23-1 at 19-44; Dkt. No. 23-2 at 18-28). During negotiations, MOL represented that it was committed to safety and working with ACN to mitigate pandemic-related challenges.[1] Dkt. No. 1-1 ¶ 4. ACN agreed to pay nearly $45 million to charter the wood chip vessels, a price that was “dramatically higher” than what MOL had charged prior to the pandemic. Id.¶¶ 33-35.
In late 2021, after ACN and MOL had entered into the agreements, China experienced multiple surges of COVID-19. Id. ¶ 6. China issued widespread lockdowns, implemented “zero-COVID-19” laws, and restricted the movement of people and goods. Id. ACN could no longer use the ships to export wood chips to China without jeopardizing the health of its employees and potentially violating China's COVID laws. Id. ACN stopped using the ships and asked MOL to suspend the agreement because it was impossible for ACN to use the ships. Id.¶ 42. MOL refused, demanding full payment of the contract price. Id. ¶ 43. ACN claims it lost tens of millions of dollars as a result of its inability to use the ships while still being required to pay for them. Id.
ACN sued MOL in California state court on September 11, 2023, for violations of California's unfair competition law (UCL), false and misleading statements, promissory fraud, negligent misrepresentation, negligence, and unjust enrichment. MOL removed the case on September 14. ACN moves to remand, and MOL moves to compel arbitration.
As one of three independent bases for removal, MOL contends the Convention provides this Court with subject-matter jurisdiction because both Charter Parties contain international arbitration provisions.[2] Dkt. No. 1 ¶¶ 5-12. Because this Court is required to decide gateway questions of arbitrability, and because the determination of arbitrability is relevant to both pending motions, the Court begins there.
The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (aka “the New York Convention”) governs the enforcement of international arbitration agreements. Section 203 grants federal courts subject-matter jurisdiction over any “action or proceeding falling under the Convention.” 9 U.S.C. § 203. Section 205 grants federal courts removal jurisdiction over state court actions that “relate[] to an arbitration agreement or award falling under the Convention.” Id. § 205. Under the Convention, “the ground for removal . . . need not appear on the face of the complaint but may be shown in the petition for removal.” Id.
As a threshold matter, MOL argues that an arbitrator, not the Court, should decide whether there is an arbitration agreement in this case. Generally, a court determines whether there is an agreement to arbitrate and whether the agreement covers the dispute, unless the arbitration clause “clearly and unmistakably” delegates those questions to the arbitrator. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002).
An arbitration clause can clearly and unmistakably delegate those questions by expressly incorporating a set of rules that do so. Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015) (); see also Portland Gen. Elec. Co. v. Liberty Mut. Ins. Co., 862 F.3d 981, 985 (9th Cir. 2017), as amended (Aug. 28, 2017) (ICC Rules constitute delegation). Here, the clause states that arbitration is to be conducted in accordance with London Maritime Arbitrators Association (LMAA) Terms. MOL does not identify any authority holding that LMAA Terms constitute a clear and unmistakable delegation. Instead, MOL quotes portions of the LMAA Terms and the AAA rules and argues that they are materially similar. The quoted portion of the LMAA Terms states that “jurisdiction of the tribunal shall extend to determining all disputes arising under or in connection with the transaction the subject of the reference.” Dkt. No. 23-3 at 9-10. By contrast, AAA rules state that “the arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the . . . validity of the arbitration agreement.” Id. at 10. These terms are materially different: the AAA rules clearly contemplate the ability of the arbitrator to rule on arbitrability challenges, whereas the LMAA Terms merely discuss the scope of disputes subject to arbitration (without specifying who will decide arbitrability challenges). Because the selected rules do not reflect a clear and unmistakable delegation, the Court must decide whether an arbitration agreement exists.
ACN argues that an arbitration agreement does not exist because an amendment to the Charter Parties, requiring the parties to consult about any ambiguities in or omissions from the agreements, superseded the original arbitration clause.[3] The original arbitration clauses state:
Dispute Resolution[]
Any dispute arising from this Charter shall be submitted to arbitration .... [A]ny dispute arising out of or in connection with this Contract shall be referred to arbitration in London ....”
Dkt. No. 23-1 ¶ 47; accord Dkt. No. 23-2 ¶ 47 (same). But Addendum No. 11 to the 2021 Charter Party and Addendum No. 6 to the 2022 Charter Party both state:
Consultation
Any matters not addressed in this Agreement, or any doubt or uncertainty with respect to this Agreement, shall be determined or resolved through good faith consultation between the Parties.
Dkt. No. 23-1 at 39-40 of 44; accord Dkt. No. 23-2 at 27 of 28 (same).
ACN conclusorily asserts that the parties “drop[ped] the arbitration provision” by amending the agreement to include the consultation requirement. Dkt. No. 29 at 6-7. ACN does not explain how this amendment, which does not mention arbitration, serves that purpose. In its opposition to the motion to compel arbitration, ACN provides no analysis or legal standard for evaluating whether the amendment supersedes the original Charter Party provision.[4] Instead, in its reply in support of its motion to remand, ACN states that the “Addenda created a new mechanism by which the Charter Parties were to resolve any disputes arising from the Charter Parties,” and that the Court must apply California law to decide whether the provisions survived the addenda.[5]ACN then invokes the general principle under California law that when parties enter into two successive contracts covering the same subject matter, the contracts should be interpreted together if they can be read harmoniously, with the latter agreement prevailing if the two are inconsistent. Dkt. No. 36 at 5-6 (). MOL, for its part, cites case law standing for the proposition that a superseding amendment must demonstrate an explicit intent to rescind an arbitration clause. Dkt. No. 34 at 2-3 (citing Homestake Lead Co. of Missouri v. Doe Run Res. Corp., 282 F.Supp.2d 1131, 1142 (N.D. Cal. 2003); UBS Fin.Servs. v. Carilion Clinic, 706 F.3d 319, 329 (4th Cir. 2013)).
The Court need not determine which body of law applies here because even under ACN's proffered standard, the addenda reasonably cannot be read to conflict with and thus displace the arbitration provision. See Castillo v. Stanley, No. 19-cv-7072, 2020 WL 5038611 at *2 n.1 (S.D.N.Y. Aug. 26, 2020) (...
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