Elmarina, Inc. v. COMEXAS, NV

• Decision Date: 18 February 1988
• Docket Number: No. 86 Civ 0249 (JMW).,86 Civ 0249 (JMW).
• Citation: 679 F. Supp. 388
• Parties: ELMARINA, INC., Plaintiff, v. COMEXAS, N.V., Defendant. KONINKLIJKE BUNGE, B.V., et al., Plaintiff, v. CIA DE NAVEGACAO LLOYD BRASILEIRO, Defendant, v. The SS MARINA L, her engines, boilers, etc, and Elmarina Inc., Third-party Defendant.
• Court: U.S. District Court — Southern District of New York

679 F. Supp. 388

ELMARINA, INC., Plaintiff, v. COMEXAS, N.V., Defendant.

KONINKLIJKE BUNGE, B.V., et al., Plaintiff, v. CIA DE NAVEGACAO LLOYD BRASILEIRO, Defendant, v. The SS MARINA L, her engines, boilers, etc, and Elmarina Inc., Third-party Defendant.

No. 86 Civ 0249 (JMW).

United States District Court, S.D. New York.

February 18, 1988.

George B. Freehill, Freehill, Hogan & Mahar, New York City, for Elmarina, Inc.

David L. Mazaroli, Yorkston W. Grist, P.C., New York City, for Comexas, N.V.

MEMORANDUM AND ORDER

WALKER, District Judge:

The disputes in this consolidated case arise out of the grounding of the Marina L ("Vessel") off the coast of Paranagua, Brazil. Elmarina Inc. ("Elmarina"), the owner of the Vessel, and Lloyd Brasileiro ("Lloyd"), time charterer of the Vessel, have filed a motion with this Court to consolidate certain arbitrations. Comexas, N.V. ("Comexas"), cargo insurer, and Koninklijke Bunge ("Bunge"), cargo owner, oppose the motion.¹ For the reasons stated herein, the motion is granted.

FACTS

In August 1985, Elmarina and Comexas executed a bill of lading ("Bill of Lading") for the shipment of soybean meal pellets from Paranagua to Ghent, Belgium. The Bill of Lading provides that "all disputes arising out of this Bill of Lading shall be arbitrated at London." With respect to the same shipment of cargo, Bunge and Lloyd entered into a charter party which provides for arbitration of disputes in New York. Lastly, the time charter between Elmarina and Lloyd contains a clause for arbitration of disputes in London.

Shortly after the Vessel left Paranagua on August 25, 1985, it grounded. To save the cargo on board, Elmarina and Comexas entered into a salvage agreement which provides, inter alia, that the cargo be removed from the boat and brought back to port, with the parties sharing the associated costs in fixed percentages. Although Comexas paid the fees it owed Elmarina while the cargo was being removed from the Vessel, it refused to make any payments once the entire cargo of soybean pellets had been salved. Consequently, Elmarina commenced an action in this Court. In turn, Comexas exercised its rights under the Bill of Lading to commence arbitration in London. The Court, in an order dated October 15, 1986, stayed all proceedings until the completion of the London arbitration.

In September 1986, Bunge commenced an action in this district, but assigned to another judge, also relating to the grounding of the Vessel, alleging that Lloyd unreasonably failed to fulfill certain obligations it owed Bunge. In this second case, Bunge is seeking the costs of salving the cargo and chartering another vessel to carry the soybean pellets on to Ghent. After answering the complaint, Lloyd filed a third-party complaint against Elmarina for indemnity of any possible liability to Bunge. Finally, Elmarina filed a counterclaim against Bunge consisting of the complaint in the first action. Upon the agreement of the parties, the second case was reassigned to me, and in September 1987, the two cases were consolidated.

Elmarina, with the support of Lloyd, has now moved the Court to consolidate the arbitrations between Bunge and Lloyd, on the one hand, and Lloyd and Elmarina, on the other, in New York. Although the agreement between Elmarina and Lloyd provides for arbitration in London, those parties have indicated that if the Court orders the arbitrations consolidated, they will modify the agreement to provide for arbitration in New York. Elmarina and Lloyd concede, however, that even if the Court orders the arbitrations consolidated, the Court is without power to stay the arbitration currently in progress in London.

Comexas/Bunge opposes the motion to consolidate the arbitrations. It contends that the issues to be resolved in the two disputes are different; thus, any consolidation would not be economical or result in a savings of judicial resources. Comexas/Bunge further argues that Elmarina is merely attempting to circumvent the Court's order staying the first suit while the London arbitration proceeds. Elmarina and Lloyd counter that consolidation is necessary because the two arbitrations involve the same and only issue at stake, the seaworthiness of the Vessel. Moreover, they argue that their interests are being prejudiced by the slow pace of the London arbitration.

DISCUSSION

There is currently a dispute within the Southern District whether a court can consolidate arbitrations. Nevertheless, the Second Circuit has not reversed its holding in Compania Espanola de Petroleos, S.A. v. Nereus Shipping, S.A., 527 F.2d 966, 974 (2d Cir.1975), that a district court does have the power to consolidate arbitrations in the appropriate circumstances. In that case, the Second Circuit ordered consolidation concluding that there existed "common questions of law and fact ... and the danger of conflicting findings." The court based its decision on the Federal Rules and the Arbitration Act:

We agree that Fed.R.Civ.P., Rules 42(a) and 81(a)(3), are applicable. Moreover, we think the liberal purposes of the Federal Arbitration Act clearly require that this act be interpreted so as to permit and even to encourage the consolidation of arbitration proceedings in proper cases, such as the one before us.

Id. at 975.

The source of the confusion in this District is the Ninth Circuit's decision in Weyerhaeuser Co. v. Western Seas Shipping Co., 743 F.2d 635 (1984), and the Supreme Court's holding in Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985). When the Ninth Circuit addressed the issue of the power of a district court to consolidate arbitrations, it rejected Nereus and concluded that there was no authority in either the Federal Rules or the Arbitration Act to consolidate arbitrations.

In Dean Witter, the Supreme Court held that a district court could not refuse to order arbitration of pendent state claims to a federal securities action where a valid agreement to arbitrate exists. The district court had concluded that the simultaneous arbitration and litigation concerning the same facts would result in inconsistent results and cause needless duplication and expenditure of scarce resources. The Supreme Court rejected this reasoning holding that "the Arbitration Act requires district courts to compel arbitration of pendent arbitrable claims when one of the parties files a motion to compel, even where the result would be the possibly inefficient maintenance of separate proceedings in different forums." Dean Witter, 470 U.S. at 217, 105 S.Ct. at 1241. The Court based its conclusion on the legislative history of the Arbitration Act:

We therefore are not persuaded by the argument that the conflict between two goals of the Arbitration Act — enforcement of private agreements and encouragement of efficient and speedy dispute resolution — must be resolved in favor of the latter in order to realize the intent of the drafters. The preeminent concern of Congress in passing the Act was to enforce private agreements into which parties had entered, and that concern requires that we rigorously enforce agreements to arbitrate, even if the result is "piecemeal" litigation, at least absent a countervailing policy manifested in another federal statute.

Id. at 221, 105 S.Ct. at 1242-43.

Although the Supreme Court did not address whether a district court had the requisite power to consolidate arbitrations, Judge Edelstein, based on the reasoning of the Court in Dean Witter together with the logic of the Ninth Circuit's decision, concluded that the Second Circuit would reverse its opinion in Nereus if faced with the issue. Ore & Chemical Corp. v. Stinnes Interoil, Inc., 606 F.Supp. 1510 (S.D.N.Y.1985). In reviewing cases since Nereus was decided, Judge Edelstein believed that the bases of the Second Circuit's decision had been undermined. He held that the legislative intent behind the Arbitration Act was the goal of strictly enforcing arbitration agreements, "not reforming them." Id. at 1513. Judge Edelstein also concluded that the Federal Rules were inapplicable to a motion for consolidation of arbitrations. Id. at 1513-15. Furthermore, the judge, acting on the assumption that he had the power to consolidate, refused to exercise his discretion holding that "procedural matters such as this are best suited for resolution by the arbitrator." Id. at 1515.

No other court in this district has reached the same conclusion as Judge Edelstein. Although Judge Lowe was sympathetic to the reasoning in Ore, she did not resolve the issue but refused to exercise her discretion to consolidate. In re Reefer Express Lines Pty. Ltd., 86 Civ. 4490 (S.D. N.Y.1987) (Mem.Op. and Order May 28, 1987) Available on WESTLAW, 1987 WL 11685. Both Judges Goettel and Knapp have rejected Ore and concluded that Nereus is still good law. In Sociedad Anonima de Navegacion Petrolera v. Cia. de Petroleos de Chile S.A., 634 F.Supp. 805, 809 (S.D.N.Y.1986), Judge Goettel concluded that "the efficient and speedy resolution of disputes was clearly among the desired effects of that legislation Arbitration Act." The court also emphasized that Dean Witter never addressed the issue of consolidation. Accord, In re Shoyo Shipping Co., Ltd., 1986 A.M.C. 2374 (S.D.N.Y. 1986) Available on WESTLAW, 1986 WL 11607.

Although the decisions of the Ninth Circuit in Weyerhaeuser and Judge Edelstein in Ore are compelling, the Court is inclined to agree with Judges Goettel and Knapp that this Court should abide by the Second Circuit's opinion in Nereus. In the absence of a new decision by that court on the issue of consolidation, the Court is bound to apply the law of this circuit. The Second Circuit has not addressed the issue since Nereus nor has any decision of the circuit indicated that the vitality of Nereus is questionable. The Court is not bound by the decision of the Ninth Circuit, and although the Dean Witter decision is instructive, it does not...