Cape Flattery Ltd. v. Titan Maritime LLC

• Decision Date: 19 March 2009
• Docket Number: Civil No. 08-00482 JMS/KSC.
• Citation: 607 F.Supp.2d 1179
• Parties: CAPE FLATTERY LIMITED, Plaintiff, v. TITAN MARITIME LLC dba Titan Salvage, A Crowley Company, Defendant.
• Court: U.S. District Court — District of Hawaii

607 F.Supp.2d 1179

CAPE FLATTERY LIMITED, Plaintiff, v. TITAN MARITIME LLC dba Titan Salvage, A Crowley Company, Defendant.

Civil No. 08-00482 JMS/KSC.

United States District Court, D. Hawai`i.

March 19, 2009.

COPYRIGHT MATERIAL OMITTED

Duane R. Miyashiro, Erika L. Lewis, Nenad Krek, Steven M. Egesdal, Carlsmith Ball, Honolulu, HI, Eugene J. O'Connor, Chalos O'Connor & Duffy LLP, Port Washington, NY, for Plaintiff.

Albert E. Peacock, III, Keesal Young & Logan, Long Beach, CA, John R. Lacy, Goodsill Anderson Quinn & Stifel LLLP, Honolulu, HI, for Defendant.

ORDER DENYING DEFENDANT'S MOTION TO COMPEL ARBITRATION

J. MICHAEL SEABRIGHT, District Judge.

I. INTRODUCTION

Plaintiff Cape Flattery Limited ("Plaintiff") alleges that Defendant Titan Maritime, LLC dba Titan Salvage, a Crowley Company ("Defendant") was grossly negligent in salvaging Plaintiff's boat, the M/V CAPE FLATTERY ("the Vessel"), and seeks indemnity or contribution from Defendant under the Oil and Pollution Act of 1990 ("OPA 90"), 33 U.S.C. § 2701 et seq.

Currently before the court is Defendant's Motion to Compel Arbitration. The parties had entered into an Agreement to salvage the Vessel (the "Agreement"), which provides that disputes arising under the Agreement shall be settled by arbitration in London, England with English law and practice to apply. Defendant argues that this dispute is subject to arbitration because, applying English law, this dispute "arises under" the Agreement. Based on the following, the court finds that federal law applies to determining arbitrability of this dispute and that the dispute does not "arise under" the Agreement. The court therefore DENIES Defendant's Motion to Compel Arbitration.

II. BACKGROUND

A. Factual Background

On February 2, 2005, the Vessel ran aground on a submerged reef off Barbers Point, Oahu, Hawaii. Compl. ¶ 4. In response, the United States Coast Guard issued a Notice of Federal Interest in connection with the grounding of the Vessel and activated United Command to respond to the threat of oil discharge. Id. ¶ 5. On February 4, 2005, Pacific Basin Shipping (HK) Ltd., acting on behalf of Plaintiff as owner of the Vessel, signed the Agreement for Defendant to salve the Vessel. See Def.'s Ex. A.

Pursuant to the Agreement, the parties agreed that Titan will "use its best endeavors to salve, as quickly as reasonably practicable, [the Vessel] ... and deliver the [Vessel] to a Place of Safety as aforesaid, and to perform such other services as may be mutually agreed upon by the Owners and Titan. . . ."¹ Id. ¶ 1. At paragraph 17, the Agreement provides:

Arbitration:

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.

Id. ¶ 17.

Subsequently, Defendant participated in removing the Vessel from the reef and eliminating the threat of oil discharge. Plaintiff alleges that Defendant acted with gross negligence by using tugs with submerged heavy tow lines which damaged the coral reef, even though Defendant was expressly warned not to use such tow lines and had previously used floating tow lines that would not cause coral damage. Compl. ¶¶ 8-11. On February 10, 2005, the United States Coast Guard designated Plaintiff, pursuant to OPA 90, the responsible party for costs and damages arising from the response to the oil spill threat.² Id. ¶ 13. On August 8, 2008, Plaintiff was informed that it may be liable for restoration of the coral in an amount in excess of $15 million. Id. ¶ 15.

B. Procedural Background

On October 24, 2008, Plaintiff filed its Complaint seeking indemnity and/or contribution from Defendant and injunctive relief enjoining Defendant from requesting arbitration of Plaintiff's claims. On December 17, 2008, Defendant filed its Motion to Compel Arbitration. Plaintiff filed its Opposition on January 9, 2009, and Defendant filed its Reply on January 16, 2009, where it raised for the first time that the Agreement and arbitrability provision must be construed pursuant to English law.

A hearing was held on January 20, 2009. During the hearing, the court ordered supplemental briefing regarding, among other issues, whether the court must apply English law to determine arbitrability of this dispute. Defendant submitted its Supplemental Brief on February 2, 2009, and Plaintiff submitted its Supplemental Opposition on February 17, 2009.

III. STANDARD OF REVIEW

The parties agree that the Agreement is governed by the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Convention"). See Def.'s Supplemental Br. 3; Pl.'s Supplemental Opp'n 2. The Convention must be enforced according to its terms pursuant to the enabling legislation adopted by Congress—Chapter 2 of the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 201-208, and any provisions of Chapter 1 of the FAA, 9 U.S.C. § 1 et seq., which do not conflict with the Convention.³ See 9 U.S.C. § 208; see also Rogers v. Royal Caribbean Cruise Line, 547 F.3d 1148, 1152-53 (9th Cir.2008) (describing the three chapters of the FAA).

Article II of the Convention provides:

Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.

Convention Art. II, ¶ 1, 9 U.S.C. § 201. Thus, the court may compel arbitration only if there is "an agreement in writing" and this agreement "undertake[s] to submit [the dispute] to arbitration."

"[T]he first task of a court asked to compel arbitration of a dispute is to determine whether the parties agreed to arbitrate that dispute. The court is to make this determination by applying the `federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act.'" Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp, 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)). In making this determination, "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Moses H. Cone Mem'l Hosp., 460 U.S. at 24-25, 103 S.Ct. 927; see also Mitsubishi Motors Corp., 473 U.S. at 631, 105 S.Ct. 3346 (noting that strong policy favoring arbitration "applies with special force in the field of international commerce"); Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n. 15, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974) (noting that the goal of the Convention as well as the purpose of its implementation by Congress is "to encourage the recognition and enforcement of commercial arbitration agreements in international contracts and to unify the standards by which agreements to arbitrate" are enforced). Factual allegations need only "`touch matters' covered by the contract containing the arbitration clause" for arbitration to be triggered. Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 721 (9th Cir.1999) (quoting Mitsubishi Motors Corp., 473 U.S. at 624 n. 13, 105 S.Ct. 3346).

Courts specifically determining arbitrability under the Convention ask four questions:

(i) Is there an agreement in writing to arbitrate the subject of the dispute? See Convention, Article II §§ 1-2; (ii) Does the agreement provide for arbitration in the territory of a signatory of the Convention? See Convention, Article I §§ 1 & 3; 9 U.S.C. § 206; (iii) Does the agreement arise out of a legal relationship, whether contractual or not, which is considered as commercial? See Convention, Article I § 3; 9 U.S.C. § 202; (iv) Is a party to the agreement not an American citizen, or does the commercial relationship have some reasonable relation with one or more foreign states? See 9 U.S.C. § 202.

Chloe Z Fishing Co. v. Odyssey Re (London) Ltd., 109 F.Supp.2d 1236, 1243 (S.D.Cal.2000) (collecting cases).⁴ If the answer to each of these questions is "yes," then the court "shall" refer the parties to arbitration. See Convention Art. II, ¶ 2, 9 U.S.C. § 201.

IV. DISCUSSION

The only issue the parties dispute is whether Plaintiff's claims fall within the scope of the arbitration clause of the Agreement.⁵ To address this question however, the court must first determine whether federal or English law applies to determining arbitrability, and then determine the scope of the arbitration clause under the applicable law.

A. Choice of Law

Defendant argues that the court must apply English law to determine whether the present dispute falls within the scope of the arbitration clause because the Agreement provides that English law should apply to any arbitration. Def.'s Supplemental Br. 2-6. In opposition, Plaintiff argues that federal law should apply because there is a strong presumption in favor of federal law which the Agreement does not rebut. Pl.'s Supplemental Opp'n 3-10. Based on the following, the court finds that federal law applies.

As a starting point, the court recognizes that in determining the scope of an agreement to arbitrate governed by the FAA, the court must apply the "`federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the [FAA].'" Mitsubishi Motors Corp., 473 U.S. at 626, 105 S.Ct. 3346 (quoting Moses H. Cone Mem'l Hosp., 460 U.S. at 24, 103 S.Ct. 927). A number of courts have applied this mandate "regardless of choice-of-law and arbitration clauses referencing foreign law." Sea Bowld Marine Group, LDC v. Oceanfast Pty, Ltd., 432 F.Supp.2d 1305, 1312 (S.D.Fla. 2006) (discussing and citing various cases); see also ...