A/S J. Ludwig Mowinckels Rederi v. Dow Chemical Co.

• Decision Date: 22 January 1970
• Citation: 25 N.Y.2d 576,307 N.Y.S.2d 660,255 N.E.2d 774
• Parties: , 255 N.E.2d 774, 1970 A.M.C. 729 In the Matter of the Arbitration between A/S J. LUDWIG MOWINCKELS REDERI, Appellant, and DOW CHEMICAL COMPANY et al., Respondents.
• Court: New York Court of Appeals Court of Appeals

Page 660

307 N.Y.S.2d 660

25 N.Y.2d 576, 255 N.E.2d 774, 1970

A.M.C. 729

In the Matter of the Arbitration between A/S J. LUDWIG MOWINCKELS REDERI, Appellant and DOW CHEMICAL COMPANY et al., Respondents.

Court of Appeals of New York.

Jan. 22, 1970.

R. Glenn Bauer and M. E. DeOrchis, New York City, for appellant.

Gray Williams and George B. Warburton, New York City, for respondents.

FULD, Chief Judge.

Dow Chemical and Dow Chemical International (respondents herein) are entitled to arbitration under the Federal Arbitration Act (F.A.A.). Under that statute, since there is a valid arbitration agreement, all other issues, including the issue of time limitations, are for the arbitrators and not the court.

The underlying controversy between the parties--arising as it does from a charter party, a maritime contract--is solely Federal in character and governed exclusively by Federal substantive law. This being so, the petitioner-appellant should not be permitted to come into our State courts and here institute a proceeding to enjoin enforcement of the arbitration provisions contained in the contract, on grounds concededly unavailable under Federal law. This consideration, in and of itself, is sufficient to dispose of the appeal and to require an affirmance.

However, we turn, first, to the question whether or not we are required by Prima Paint v. Flood & Conklin, 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 to apply the Federal Arbitration Act (U.S.Code, tit. 9) in deciding this case. We are inclined to the view that in a case, such as the present--involving as it does a maritime transaction--Prima Paint leaves no plausible alternative but application of the Federal statute in state courts as well as in Federal courts.

It is particularly important to apply Federal law in the present case, for, to hold otherwise would (1) permit, indeed encourage, forum shopping; (2) prevent and undermine the need for nationwide uniformity in the interpretation and application of arbitration clauses in foreign and interstate transactions; and (3) permit individuals to circumvent the national law relating to arbitration agreements as called for by the F.A.A.

The charter party, from which the present controversy stems, contains an exceedingly broad arbitration clause in which the parties agreed to submit all of the questions arising out of the contract to arbitration in New York. ¹ Accordingly, when agreement could not be reached, the respondents demanded arbitration. The appellant, although it recognized and acknowledged that the rights under the charter party are governed by Federal law, came into our State court and moved to stay the arbitration--pursuant to CPLR 7502 (subd. (b))--on the ground that the disputes are time barred under the Federal Carriage of Goods by Sea Act (U.S.Code, tit. 46, § 1303, subd. (6)). In opposing the application, respondents claimed that, since the disputes arise from a maritime contract, the F.A.A. governs and that, under that statute, once the arbitration clause itself is found to be valid, all questions, including that having to do with a time limitation, must be left to the arbitrators for ultimate decision.

Both courts below, noting that the agreement and its provision for arbitration are governed by Federal law, held that the F.A.A. controls and that, under that statute, a time limitation may not be invoked to prevent arbitration. The appellant asks us to reach a contrary conclusion, primarily because it believes that the Supreme Court in its opinion (per Fortas, J.) in Prima Paint, 388 U.S. 395, Supra, 87 S.Ct. 1801, 18 L.Ed.2d 1270, required that the F.A.A. be applied only in the Federal courts.

The arbitration clause with which we are concerned is in a Maritime charter party and it is important to emphasize, at the outset, that it is Federal substantive law exclusively which controls such an agreement. The Federal Judiciary Act vests the district courts of the United States with original jurisdiction over all admiralty and maritime cases (U.S.Code, tit. 28, § 1333). Although it provides that suitors may also pursue their remedies in the state courts, it is settled that, despite this grant of concurrent jurisdiction, the state courts are bound to apply Federal law in such disputes in order to secure a single and uniform body of maritime law. (See, e.g., Detroit Trust Co. v. The Barlum, 293 U.S. 21, 43, 55 S.Ct. 31, 79 L.Ed. 176; Garrett v. Moore-McCormack Co., 317 U.S. 239, 244--246, 63 S.Ct. 246, 87 L.Ed. 239; Romero v. International Term. Co., 358 U.S. 354, 79 S.Ct. 468, 3 L.Ed.2d 368.) In other words, although the saving clause in the statute permits actions under Federal maritime law to be brought in any state court, it cannot limit the substantive rights of parties, nor, it seems, can it apply its own rules of procedures if those rules would significantly affect the result of the litigation, i.e., would be outcome determinative. (See Garrett v. Moore-McCormack Co., 317 U.S. 239, 246--249, 63 S.Ct. 246, 87 L.Ed. 239, Supra; Guaranty Trust Co. v. York, 326 U.S. 99, 109, 65 S.Ct. 1464, 89 L.Ed. 2079; see, also, Hill, State FELA Actions, 17 Ohio St.L.J. 384.)

The appellant takes the position that CPLR 7502 (subd. (b))--which permits a court to stay arbitration if the dispute is barred by a limitation of time-- does not substantially alter any federally created substantive rights. Its argument is premised upon the assumption that arbitration is a mere procedural device and that any court is free to prevent enforcement of an arbitration clause according to the particular law of the forum. This is refuted by section 2 of the F.A.A. itself, which provides that a written provision for arbitration 'in any Maritime transaction or a contract evidencing a transaction involving commerce * * * shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.' Here, in unmistakable language, is evidence of the Congressional design that the arbitration clause in a maritime contract accords a Federal right to arbitration as a matter of Federal law, wholly apart from any provisions of the CPLR. (Cf. Red Cross Line v. Atlantic Fruit Co., 264 U.S. 109, 122--123, 44 S.Ct. 274, 68 L.Ed. 582.) Quite obviously, a state court which prevents arbitration on a ground not recognized under Federal law denies the full measure of enforceability provided for by the F.A.A. to arbitration clauses in maritime agreements.

Of course, if this were a contract involving a local transaction governed exclusively by New York law, and not a maritime contract, then, provisions such as CPLR 7502 (subd. (b)) would be available to stay arbitration even if the dispute arose in the Federal courts. (See Bernhardt v. Polygraphic Co., 350 U.S. 198, 76 S.Ct. 273, 100 L.Ed. 199.) The rationale underlying the decision in the Bernhardt case is that, regardless of whether a question under state arbitration law is classified by the state court as 'substantive' or 'procedural,' the Federal courts are to apply state arbitration law because--since it may significantly affect the result of the litigation--it is outsome determinative. (See Guaranty Trust Co. v. York, 326 U.S. 99, 109--110, 65 S.Ct. 1464, 89 L.Ed. 2079, Supra; cf. Hanna v. Plumer, 380 U.S. 460, 466--469, 85 S.Ct. 1136, 14 Ed.2d 8.) ²

The difficult question arises not in actions involving wholly intrastate transactions but in those based upon contracts, sought to be enforced in the state court, which concern interstate transactions to which the F.A.A., by its own terms, applies. In cases involving interstate transactions, the Federal courts have invoked the Federal Act to require arbitration, and preclude judicial determination, of questions not arbitrable under state law. (See Prima Paint v. Flood & Conklin, 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270, Supra; Robert Lawrence Co. v. Devonshire Fabrics, 271 F.2d 402.) In Lawrence, 271 F.2d 402, Supra, for instance, an action was brought in the Federal court to enforce an arbitration provision contained in a contract involving an interstate transaction. The Court of Appeals for the Second Circuit held that the arbitration clause must be enforced in accordance with the F.A.A., even though the state court, applying its own law, would have reached a contrary conclusion. And, in Prima Paint, 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270, Supra, the Supreme Court held that, since the contract evidenced a transaction involving interstate commerce, it came within the coverage of the F.A.A. Rejecting the contention that, since the case was in the Federal court solely by reason of diversity of citizenship, it was 'constitutionally' impermissible to apply the Federal Act, the court proceeded to stress that that statute was enacted by Congress with respect to matters--contracts involving maritime and interstate commerce transactions--over which it has incontestable legislative power (388 U.S., at p. 405, 87 S.Ct., at p. 1806):

'The question in this case * * * is not whether Congress may fashion federal substantive rules to govern questions arising in simple diversity cases. See Bernhardt v. Polygraphic Co., supra, 350 U.S., at 202, and concurring opinion, at 208, 76 S.Ct., at 275 and at 279. Rather, the question is whether Congress may prescribe how federal courts are to conduct themselves with respect to subject matter over which Congress plainly has power to legislate. The answer to that can only be in the affirmative. And it is clear beyond dispute that the federal arbitration statute is based upon and confined to the incontestable federal foundations of 'control over interstate commerce and over...