Chloe Z Fishing Co. v. Odyssey re (London) Ltd.

• Decision Date: 26 April 2000
• Docket Number: No. 99-2521-IEG RBB.,99-2521-IEG RBB.
• Citation: 109 F.Supp.2d 1236
• Parties: CHLOE Z FISHING CO., INC., et al., Plaintiffs, v. ODYSSEY RE (LONDON) LIMITED, formerly known as Sphere Drake Insurance, P.L.C., et al., Defendants.
• Court: U.S. District Court — Southern District of California

109 F.Supp.2d 1236

CHLOE Z FISHING CO., INC., et al., Plaintiffs, v. ODYSSEY RE (LONDON) LIMITED, formerly known as Sphere Drake Insurance, P.L.C., et al., Defendants.

No. 99-2521-IEG RBB.

United States District Court, S.D. California.

April 26, 2000.

COPYRIGHT MATERIAL OMITTED

Edward C. Walton, Walton and Associates, San Diego, CA, for Plaintiffs.

Elizabeth Ann Kendrick, Keesal Young and Logan, Long Beach, CA, Robert J. Bocko, Keesal Young and Logan, Seattle, WA, for Defendant.

ORDER GRANTING DEFENDANTS' MOTION TO COMPEL ARBITRATION AND STAY PLAINTIFFS' ACTION [Doc. No. 3]

GONZALEZ, District Judge.

Presently before the Court is defendants' motion to compel arbitration and stay the above-referenced proceedings. For the reasons discussed below, the Court hereby grants the defendants' motion to compel arbitration and orders that the action be stayed pending arbitration.

BACKGROUND

On September 24, 1999, Chloe Z Fishing Co., Inc., and eighteen other named plaintiffs (the "plaintiffs") filed an action in the Superior Court of the State of California for the County of San Diego, against two London based insurers — Odyssey Re (London) Ltd. and Sphere Drake Underwriting Management — and several Doe defendants (the "defendants"). On November 29, 1999, defendants removed the action to this Court pursuant to 28 U.S.C. § 1441(b) and 9 U.S.C. § 205 based on original federal question jurisdiction under 28 U.S.C. § 1331, as well as diversity jurisdiction under 28 U.S.C. § 1332. (See Defs.' Not. of Removal (11/29/99) at 2.)

1. The Parties

Plaintiffs are various corporate entities and individuals associated with the tuna-fishing operation established by the Zuanich family over the course of the twentieth century, (see Compl. at ¶ 31), who can be categorized into four groups. First, the twelve "Z Boat Companies" are corporations existing under the laws of various states and territories of the United States with their principal places of business in San Pedro, California, each of which owns a commercial tuna-fishing vessel as its principal asset. (See id. at ¶¶ 1-12.) The commercial fleet of twelve tuna-fishing vessels is itself known as the "Zee Fleet." (See id. at ¶ 14.) Second, the two "Z Management Companies," which exist under the laws of the states or territories of the United States and have their principal place of business in San Pedro, California, provide management services for the Zee Fleet. (See id. at ¶¶ 16-18.) Third, plaintiff Big Eye Helicopters, Inc. ("Big Eye"), is a corporation existing under the laws of Guam with its principal place of business in San Pedro, California, which has provided helicopters for hire and various support services for use in the fishing operations of the Zee Fleet. (See id. at ¶ 15.) Finally, the four "Z Owners" are individual members of the Zuanich family who are shareholders, officers, and/or directors in some or all of the Z Boat Companies, the Z Management Companies, and Big Eye. (See id. at ¶¶ 19-23.)

Defendants Odyssey Re (London) Ltd., formerly known as Sphere Drake Insurance, P.L.C. ("SDI"), and Sphere Drake Underwriting Management Ltd. ("SDUM"), are corporate and business entities organized and existing under the laws of England and Wales. (See id. at ¶¶ 24-25.) Defendants SDI and SDUM provide, respectively, insurance and underwriting services to various commercial enterprises, including marine insurance services to plaintiffs. (See id., at ¶¶ 35-38.)

2. The Insurance Relationship Between Plaintiffs And Defendants

Plaintiffs purchased marine insurance coverage contracts from defendants in the form of "Protection and Indemnity Policies" (the "P & I policies") for the relevant six year period from February 20, 1991 to May 20, 1996. (See id. at ¶ 38). First, P & I policy SAAWK00005 (the " '005 P & I policy") was in effect between the parties from February 20, 1991 through and including May 20, 1992. (See id.; see also Defs.' Attach. Entitled "1991 (SD 350)" and "1992 (SD 350)" to Decl. of Mark Jones ("Jones Decl.") (12/17/99).) Upon termination of the '005 P & I Policy, plaintiffs purchased P & I policy SAAWK00437 (the " '437 P & I Policy") effective from May 20, 1992 to May 20, 1993, and renewed annually through May 20, 1996. (See Compl. at ¶ 38; see also Defs.' Attach. Entitled "1993(SD350)," "1994(SD 350)," and "1995(SD 352)" to Jones Decl.) Both sets of policies issued by defendants broadly provide insurance protection to plaintiffs in the event of personal injury claims by fishermen and crew members injured on board any of the vessels in the Zee Fleet. (See id. at ¶¶ 39-40 (citation omitted).)

3. Actions Giving Rise To This Litigation

Due to various fluctuations in the international tuna market and the resulting financial instability, plaintiffs liquidated most of the vessels in the Zee Fleet (see id. at ¶¶ 33 & 42), and ceased the majority of their operations in 1996 (see id. at ¶ 34). However, pending against the plaintiffs are claims by various fishermen employed by the Zee Fleet (the "Fishermen Claimants") for personal injuries arising from their work on vessels in the Zee Fleet during the 1991 to 1996 period covered by the P & I policies. (See id. at ¶ 44.) Since each of the claims by the Fisherman Claimants pursuant to the general maritime law of the United States seek recovery in amounts exceeding the deductible specified in the applicable P & I insurance polices (see id.), plaintiffs reported the legal actions by the Fisherman to defendants (see id. at ¶ 46). Defendants then took over the control and direction of the defense being provided to the various Z Boat Companies and the Zee Fleet vessels named in the claims filed by the Fishermen Claimants. (See id. at ¶¶ 47-48.) Alleging that the manner in which defendants directed the handling of the claims lodged by the Fishermen Claimants "changed significantly" to plaintiffs' detriment once plaintiffs began experiencing financial difficulties (see id. at ¶ 50), plaintiffs filed this action for breach of the implied covenant of good faith and fair dealing, unfair business practices, intentional interference with contractual relations, and declaratory relief (see id. at ¶¶ 29a-c, 56-60, 62-66, 68-79, 81-88, and 90-92).

4. The Present Motions

After removing the plaintiffs' action from state court pursuant to 28 U.S.C. § 1441(b) and 9 U.S.C. § 205, the defendants filed the instant motion to compel arbitration and to stay the action pending arbitration on December 6, 1999. (See generally Defs.' Mot. to Compel (12/6/99).) Relying on the arbitration clauses in the P & I policies of insurance referenced in the plaintiffs' complaint, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and the Federal Arbitration Act in support of their motion, defendants argue that the Court must compel plaintiffs to submit their claims to arbitration in London. (See Defs.' Mem. P. & A. in Supp. of Motion to Compel ("Defs.' Mot. to Compel") (12/6/99) at 4-5, 7-8, 10-12.) Plaintiffs filed their opposition on December 27, 1999, challenging the scope of the arbitration clauses based on both the Convention on the Regulation and Enforcement of Foreign Arbitral awards and principles of contract formation under California law. (See Pls.' Opp'n to Defs.' Mot. to Compel ("Pls.' Opp'n") (1/27/99) at 3.) In their reply, filed on January 12, 2000, defendants dismiss plaintiffs' "frontal assault" on the formation of the insurance contracts as erroneous and argue that the arbitration clauses encompass the present litigation because all the causes of action alleged by plaintiffs involve construing the parties' contractual rights and duties. (See Defs.' Reply (1/12/00) at 1-2, 4-6, & 11.)

On February 17, 2000, the Court requested the parties to submit supplemental briefing on certain factual and legal issues raised in the determination of the scope and enforceability of the arbitration clauses at issue. (See Order Scheduling Oral Arguments and Requesting Supp. Briefing (2/17/00) at 1-6.) Based on the entire record, including the declarations and supplemental memoranda submitted by the parties, as well as oral argument presented at the hearing on April 4, 2000, the Court turns to the merits of defendants' motion.

DISCUSSION

A. APPLICABLE LAW

I. MOTION TO COMPEL ARBITRATION

An arbitration provision in an international commercial agreement, such as the P & I marine insurance policies at issue in the present case, is governed by the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Convention"), foll. 9 U.S.C. § 201.¹ 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, see 9 U.S.C. § 208. See generally Sedco, Inc. v. Petroleos Mexicanos Mexican Nat. Oil Co., 767 F.2d 1140 (5th Cir.1985) (recognizing enforceability of the terms of the Convention due to its negotiations pursuant to the Constitution's treaty power and Congress's adoption of "enabling" legislation which makes the Convention "the highest law of the land.")

Once a party in a suit subject to the Convention moves to compel arbitration pursuant to 9 U.S.C. § 206, the substantive provisions of Chapter 2 of the FAA direct a court to perform a two-step analysis before referring the dispute to arbitration. See Ledee v. Ceramiche Ragno, 684 F.2d 184, 186-87 (1st Cir.1982); accord Prograph Intern. Inc. v. Barhydt, 928 F.Supp. 983 (N.D.Cal.1996); Hoogovens Ijmuiden Verkoopkantoor, B.V. v. M.V. Sea Cattleya, 852 F.Supp. 6 (S.D.N.Y.1994). At the first stage of the analysis, the Court makes a limited inquiry based on four preliminary questions to determine the existence of an arbitration agreement which falls under the Convention. See Ledee, 684 F.2d at 186-87 (citations altered); ...