Result Shipping Co., Ltd. v. Ferruzzi Trading USA Inc., 1474

• Decision Date: 25 May 1995
• Docket Number: D,No. 1474,1474
• Citation: 56 F.3d 394
• Parties: RESULT SHIPPING CO., LTD., Plaintiff-Appellee, v. FERRUZZI TRADING USA INC., Defendant-Appellant. ocket 94-7955.
• Court: U.S. Court of Appeals — Second Circuit

Page 394

56 F.3d 394

1995 A.M.C. 2446

RESULT SHIPPING CO., LTD., Plaintiff-Appellee, v. FERRUZZI TRADING USA INC., Defendant-Appellant.

No. 1474, Docket 94-7955.

United States Court of Appeals Second Circuit.

Argued April 6, 1995.

Decided May 25, 1995.

David A. Botwinik, New York City (Steven Skulnik, Debra J. Guzov, Pavia & Harcourt, on the brief), for defendant-appellant.

Peter Skoufalos, Skoufalos & Proios, New York City, for plaintiff-appellee.

Before: NEWMAN, Chief Judge, WINTER and MAHONEY, Circuit Judges.

JON O. NEWMAN, Chief Judge:

This appeal concerns the scope of the District Court's discretion in deciding whether to grant security and/or countersecurity to a defendant-counterclaimant in an admiralty proceeding brought in aid of arbitration. The issue arises on an appeal by defendant Ferruzzi Trading USA Inc. ("Ferruzzi") from an order entered on August 24, 1994, by the United States District Court for the District of Connecticut (Alan H. Nevas, Judge). Plaintiff Result Shipping Co. ("Result") commenced the action by attaching Ferruzzi's property to secure an in personam admiralty claim against Ferruzzi. In its August 24 order, the District Court denied Ferruzzi's motion for security for costs related to the attachment and for countersecurity on its counterclaims against Result, and granted Result's motion to stay the proceedings pending arbitration of the dispute between the parties.

On appeal, Ferruzzi contends that the District Court denied its motion for security and countersecurity solely because the underlying dispute was to be resolved in arbitration, and that denying the motion on this basis represented a reversible failure to exercise the Court's discretion. Ferruzzi also contends that the District Court's denial of security to cover its costs related to the attachment fails to comport with the requirements of due process. With respect to the denial of security for costs, we reject Ferruzzi's arguments and affirm that part of the District Court's order. We find more merit, however, in Ferruzzi's argument that the District Court denied its motion for countersecurity solely because the underlying dispute was subject to arbitration. Because we hold that the arbitrability of a dispute is not relevant to a decision whether to grant countersecurity to a defendant under these circumstances, we vacate and remand this part of the District Court's order.

Background

This dispute arose out of a shipment of grain from the United States to Jordan pursuant to a contract between Ferruzzi and the Jordanian Ministry of Supply. In order to ship the grain, Ferruzzi chartered the M/V Bulk Topaz from Result. The charter party between Ferruzzi and Result provided that all disputes arising out of the charter would be subject to arbitration in London.

When the grain was loaded onto the Bulk Topaz in Baltimore, it was certified by the U.S. Grain Inspection Service as being of the grade and quality called for in the contract between Ferruzzi and the Jordanian Ministry. When the vessel arrived in Jordan, however, the Ministry rejected the grain in two of the vessel's holds as damaged. The Ministry therefore took two steps that were costly to both Result and Ferruzzi: it seized the Bulk Topaz, temporarily depriving Result of the use of its ship and forcing it to post a bond to obtain the release of the vessel, and it required payment under a performance bond posted by Ferruzzi.

Result subsequently commenced this action in the District Court with a complaint alleging that Ferruzzi had loaded damaged grain onto the Bulk Topaz and otherwise failed to perform under the charter party with respect to the handling of the damaged grain in Jordan, and claiming total damages of $1,082,139.30. Pursuant to Rule B(1) of the Supplemental Rules for Certain Admiralty and Maritime Claims (the "Supplemental Rules"), Result sought to secure these in personam claims by attaching Ferruzzi's property in the District of Connecticut, consisting primarily of a $66,000 mortgage on residential property owned by two Ferruzzi employees. The District Court authorized the attachment, which Ferruzzi has never attempted to vacate in a post-attachment hearing, as provided for by Supplemental Rule E(4)(f).

In its answer, Ferruzzi asserted a counterclaim alleging that Result's crew was responsible for damaging the grain after it had been loaded onto the Bulk Topaz, and that Result was therefore liable to Ferruzzi for damages totalling $375,000. Ferruzzi also contended that by initiating the litigation in the District Court, Result had acted in a manner inconsistent with arbitration and had thereby waived its right to arbitration. Finally, Ferruzzi moved for security for all costs and expenses that might be ordered against Result in the trial court or on appeal, and for countersecurity on its counterclaim. Result thereafter moved, pursuant to section 8 of the Arbitration Act, 9 U.S.C. Sec. 8 (1988), for the litigation to be stayed pending arbitration of the merits in London.

On August 24, 1994, Judge Nevas granted, "for the reasons stated on the record at the hearing held this date," Result's motion to stay the proceedings pending arbitration in London, and denied Ferruzzi's motion for security and countersecurity. Ferruzzi appeals from the order denying its motion.

Discussion

I. Appellate Jurisdiction

Initially, we must consider the matter of our jurisdiction, which arises because this appeal is not from a final judgment concluding the proceedings in the District Court. See 28 U.S.C. Sec. 1291 (1988). Ferruzzi contends that we have jurisdiction to hear the appeal under the collateral order doctrine of Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 545-47, 69 S.Ct. 1221, 1225, 93 L.Ed. 1528 (1949). To be appealable under the Cohen doctrine,

an order must at a minimum satisfy three conditions: It must (1) conclusively determine the disputed question, (2) resolve an important issue completely separate from the merits of the action, and (3) be effectively unreviewable on appeal from a final judgment.

Banque Nordeurope S.A. v. Banker, 970 F.2d 1129, 1131 (2d Cir.1992) (internal quotation marks omitted); see also Richardson-Merrell, Inc. v. Koller, 472 U.S. 424, 431, 105 S.Ct. 2757, 2761, 86 L.Ed.2d 340 (1985). Cohen itself concerned an appeal from an order denying security, see 337 U.S. at 545, 69 S.Ct. at 1225, as it illustrates, such orders are paradigms of final collateral orders that are unreviewable on appeal from a final judgment.

Result argues, however, that an order denying security may be appealed under the Cohen doctrine only when the trial judge mistakenly believed that he lacked the power to grant the requested relief, but not when the judge recognized his discretion to grant the relief but denied it in an exercise of that discretion. Since it is not claimed in this case that Judge Nevas thought he lacked the power to grant Ferruzzi's motion for security and countersecurity, Result contends that the attempted appeal must be dismissed. This argument construes the scope of the Cohen doctrine too narrowly. It is true that we have dismissed appeals for lack of jurisdiction when they raise only a fact-specific challenge to the trial court's exercise of its discretion in granting, denying, or setting the amount of security. See Donlon Industries, Inc. v. Forte, 402 F.2d 935, 937 (2d Cir.1968); Bancroft Navigation Co. v. Chadade Steamship Co., 349 F.2d 527, 530 (2d Cir.1965); see also Cohen, 337 U.S. at 547, 69 S.Ct. at 1226. However, even if the trial court does not completely misapprehend the existence of its discretion in the matter, orders denying security may be appealable, particularly when "the appeal presents an important question of law whose resolution will guide courts in other cases." Banque Nordeurope, 970 F.2d at 1131. ¹

The instant appeal presents issues concerning the interplay of the Arbitration Act, on the one hand, and the Supplemental Rules governing the availability of security and countersecurity, on the other. Because our Circuit has not previously had occasion to consider this relatively unexplored region of the law, the resolution of these issues will provide necessary guidance to trial courts in this potentially recurring context. Since the other requirements of the Cohen doctrine are clearly satisfied, we will decide the appeal on the merits.

II. The Merits

This case is governed by section 8 of the Arbitration Act, 9 U.S.C. Sec. 8 (1988), which provides that when the basis for jurisdiction is a cause of action in admiralty,

the party claiming to be aggrieved may begin his proceeding hereunder by libel and seizure of the vessel or other property of the other party according to the usual course of admiralty proceedings, and the court shall then have jurisdiction to direct the parties to proceed with the arbitration and shall retain jurisdiction to enter its decree upon the award.

The purpose of this statute "is to relieve a party from making an election between the libel-cum-seizure remedy, on the one hand, and the order-to-arbitrate remedy, on the other hand...." Greenwich Marine, Inc. v. S.S. Alexandra, 339 F.2d 901, 904 (2d Cir.1965); see also The Anaconda v. American Sugar Refining Co., 322 U.S. 42, 46, 64 S.Ct. 863, 865, 88 L.Ed. 1117 (1944). The statute plainly allows a plaintiff such as Result to invoke the admiralty jurisdiction of federal courts to attach the defendant's property "according to the usual course of admiralty proceedings," such as the procedure authorized by Supplemental Rule B, and at the same time to have the merits of the dispute resolved in arbitration. ²

The issue in this case is whether, notwithstanding the arbitration of the underlying dispute, a defendant such as Ferruzzi also has a right to security "according to the usual course of admiralty proceedings." Ferruzzi attempted to avail itself of two forms of security allowed defendants by the Supplemental Rules:...