Coastal (Bermuda) Ltd. v. E.W. Saybolt & Co., Inc.

• Decision Date: 23 May 1985
• Docket Number: No. 84-3313,84-3313
• Citation: 761 F.2d 198
• Parties: COASTAL (BERMUDA) LTD., Plaintiff-Appellant, v. E.W. SAYBOLT & CO., INC., Defendant, Third Party Plaintiff-Appellee, and Equity Shipping Corp., Third Party Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 198

761 F.2d 198

COASTAL (BERMUDA) LTD., Plaintiff-Appellant, v. E.W. SAYBOLT & CO., INC., Defendant, Third Party Plaintiff-Appellee and Equity Shipping Corp., Third Party Defendant-Appellee.

No. 84-3313.

United States Court of Appeals Fifth Circuit.

May 23, 1985.

Robert M. Contois, Jr., New Orleans, La., for plaintiff-appellant.

Stanley Renneker, James M. Tompkins, John E. Galloway, New Orleans, La., for E.W. Saybolt & Co., Inc.

M.D. Yager, New Orleans, La., for Equity Shipping Corp.

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

Before GOLDBERG, POLITZ and WILLIAMS, Circuit Judges.

GOLDBERG, Circuit Judge:

This appeal forces us to acknowledge a lumbering, antedeluvian concept that remains embedded in the judicial esse. A district court has stayed its proceedings in admiralty pending the outcome of an arbitration involving, among others, the plaintiff and third-party defendant. Although we would like in general to pass on the validity of such deferrals, we are as a rule bound to the mummified notion that stays in admiralty are nonappealable interlocutory orders. We accordingly dismiss the appeal.

It has been said that "[i]nnumerable and remarkable are the ways in which cargo may be damaged on a voyage at sea." 1 E. Jhirad, A. Sann, B. Chase, & M. Chynsky, Benedict on Admiralty Sec. 222, at 14-11 (7th ed. 1985). How chillingly true. It all started on a fatal day in December of 1981, when the Equity Shipping Corporation ("Equity"), owner of the M/T Halki, chartered its vessel to the GHR Energy Corporation ("GHR"). GHR loaded a cargo of fuel oil aboard the Halki in Louisiana and issued a tanker bill of lading for delivery of the cargo to the Armada Transport and Refining Company, Ltd. ("Armada"), in Amsterdam, Holland. Armada had hired E.W. Saybolt and Company, Inc. ("Saybolt"), to survey the cargo and to report its properties and quantity. While the Halki was en route to Amsterdam, Coastal (Bermuda) Ltd. ("Coastal") purchased the cargo from Armada, in at least partial reliance on Saybolt's report to Armada.

This appeal arises out of Coastal's suit against Saybolt in the Eastern District of Louisiana pursuant to Fed.R.Civ.P. 9(h). ¹ Coastal's complaint alleged that Saybolt had contracted with Armada to survey and analyze the fuel oil, that Saybolt had issued reports of its findings knowing that purchasers of the cargo would rely on those reports, that Coastal had purchased the cargo from Armada in reliance on Saybolt's reports, and that Saybolt's reported specifications had proved to be materially erroneous. That is, Coastal sought damages as a third-party beneficiary of the Armada-Saybolt contract.

Instead of allowing Coastal to press its claim, however, the district court stayed suit pending the outcome of an arguably related arbitration involving all of the relevant actors--all, that is, except Saybolt. When the Halki arrived in Amsterdam and the cargo had been off-loaded, Equity sought from GHR demurrage, costs, expenses, and interest, demanding arbitration pursuant to the charter party. Seeking redress in its own right from Armada and Coastal, GHR filed suit in the Southern District of New York and obtained an order compelling and consolidating arbitration among itself, Equity, Armada, and Coastal. If it ever comes to pass, the arbitration will in theory resolve, among other things, Coastal's claim for damage to the cargo allegedly caused by deficiencies in the Halki's steam coils, but since Saybolt cannot be made a party to the arbitration, that proceeding will not include any claims against Saybolt for negligent surveyance of the cargo. We now need more than a spyglass to see the arbitration's end, though, since in January of 1983, GHR filed a petition pursuant to Chapter 11 of the Bankruptcy Act--a step which automatically stayed the arbitration. Now over two years later, the parties are no closer to resolution than they were in the opening days of 1983.

Interestingly, Saybolt never moved to stay this lawsuit. Responding to Coastal's complaint, Saybolt's answer included a third-party demand against the Halki and against Equity as the Halki's owner, alleging fault in the handling and transportation of the cargo, seeking indemnity or contribution for any liability Saybolt had to Coastal, and further seeking recovery on behalf of Coastal against Equity pursuant to Fed.R.Civ.P. 14(c). ² Equity responded with a motion to dismiss Saybolt's theories of indemnification and contribution, and moved to dismiss the 14(c) claim between Coastal and Equity or, alternatively, to stay proceedings on the 14(c) claim pending the outcome of the New York arbitration. The third-party defendant's motion to stay Saybolt's 14(c) claim was the only such motion before the district court.

While Equity's motion was awaiting resolution, counsel for Equity and Coastal agreed and reported to the court that the appropriate disposition of the 14(c) claim was to dismiss it without prejudice to Coastal's rights in the pending arbitration. In addition, at the hearing on Equity's motion for stay, Saybolt conceded that its third-party complaint had been filed for the sole purpose of interposing the 14(c) claim on behalf of Coastal. Nonetheless, even though Saybolt's third-party complaint could have been readily dismissed, and even though Equity's motion for stay of the third-party complaint was the only such motion before the district court, the trial judge sua sponte stayed all proceedings with respect to all parties pursuant to section 3 of the Arbitration Act, 9 U.S.C. Sec. 3 (1982). The order stated that the case was closed "pending arbitration," and that "the case shall be restored to the trial docket upon motion of a party if circumstances change." On April 25, 1984, the court denied Coastal's motion to vacate the stay, and the next day Coastal filed a notice of appeal, thereby divesting the district court of jurisdiction. ³

Coastal appeals from the district court's order on the grounds that (1) section 3 of the Arbitration Act does not empower a federal court to stay litigation against a defendant who was not party to any relevant agreement to arbitrate, and (2) absent section 3's authorization, the district court abused its discretion in staying Coastal's claim against Saybolt where no party had moved for such action and where the suit would eventually proceed regardless of the arbitration's outcome.

As meritorious as either of these arguments might be, we lack jurisdiction to hear an appeal from a district court's stay of admiralty proceedings pending arbitration. ⁴ In Schoenamsgruber v. Hamburg American Line, 294 U.S. 454, 55 S.Ct. 475, 79 L.Ed. 989 (1935), the Supreme Court held that such stays are not final orders under what is now 28 U.S.C. Sec. 1291, that they are not injunctions under what is now 28 U.S.C. Sec. 1292(a)(1), and that they are not appealable interlocutory decrees under what is now 28 U.S.C. Sec. 1292(a)(3). Id. at 456-58, 55 S.Ct. at 476-77. In reaching its decision, the Court employed an analytical framework premised on the differences among actions at law, in equity, or in admiralty. Because in the hallowed days of yore parties seeking to stay their proceedings in an action at law had to cross the street into a court of equity for an injunction, such stays, when self-imposed by a latter-day court to allow for the presentation of an equitable defense such as arbitration, were deemed appealable injunctions. Shanferoke Coal & Supply Corp. v. Westchester Service Corp., 293 U.S. 449, 55 S.Ct. 313, 79 L.Ed. 583 (1935); Enelow v. New York Life Ins. Co., 293 U.S. 379, 55 S.Ct. 310, 79 L.Ed. 440 (1935); see also Ettelson v. Metropolitan Life Insurance Co., 317 U.S. 188, 63 S.Ct. 163, 87 L.Ed. 176 (1942) (reaffirming Enelow rationale in aftermath of single form of action). Admiralty courts, however, could not issue injunctions because these tribunals, while capable of applying equitable principles, foundered in the waters of a general equitable jurisdiction. Stays in admiralty were deemed mere calendar orders and, under Schoenamsgruber, were therefore nonappealable.

We do not seize this occasion to criticize at length a logic we would spurn as outdated. This others have done. See, e.g., Mar-Len of Louisiana, Inc. v. Parsons-Gilbane, 732 F.2d 444, 445-47 (5th Cir.1984) (Rubin, J., dissenting); 9 Moore's Federal Practice p 110.20, at 240-46 (2d ed. 1985); 11 C. Wright & A. Miller, Federal Practice & Procedure Sec. 2962 (1973). Instead, we reaffirm both our allegiance to the longstanding rule in this circuit as well as our alliance with those courts of appeals that have reluctantly followed the mandate of Schoenamsgruber in a more contemporary context. See Constructora Subacuatica Diavaz, S.A. v. M/V. Hiryu, 718 F.2d 690, 692-93 (5th Cir.1983); Texaco, Inc. v. American Trading Transportation Co., 644 F.2d 1152, 1154 (5th Cir.1981); W.R. Grace & Co. v. Trawler Crustamar, 571 F.2d 318, 319 (5th Cir.1978); Seaboard & Caribbean Transport Corp. v. Hafen-Dampfschiffahrt A.G. Hapag-Hadac Seebaderdienst, 329 F.2d 538, 540-41 (5th Cir.1964); Gave Shipping Co., S.A. v. Parcel Tankers, Inc., 634 F.2d 1156, 1158 (9th Cir.1980); Tradax Ltd. v. M.V. Holendrecht, 550 F.2d 1337, 1339-41 (2d Cir.1977); see also Mar-Len, 732 F.2d at 445 n. 1. But cf. Treasure Salvors, Inc. v. Unidentified Wrecked & Abandoned Sailing Vessel, 640 F.2d 560, 564-65 (5th Cir.1981) (holding that Sec. 1292(a)(3) did not limit application of Sec. 1292(a)(1) in admiralty action where district court had enjoined defendants from interfering with plaintiff's salvage operations). Since the Supreme Court has reaffirmed its own allegiance to the rules of Enelow-Ettelson and of Schoenamsgruber, see Baltimore Contractors, Inc. v. Bodinger, 348 U.S. 176, 182-85, 75 S.Ct. 249, 253-54, 99 L.Ed. 233 (1955), a more palatable approach must orginate, if at all, in that Court or in Congress. ⁵

Nor will we treat...