Sedco, Inc. v. Petroleos Mexicanos Mexican Nat. Oil Co. (Pemex)

• Decision Date: 12 August 1985
• Docket Number: No. 84-2512,84-2512
• Citation: 767 F.2d 1140
• Parties: In The Matter of the Complaint of SEDCO, INC., as owner of the MOBILE DRILLING UNIT SEDCO 135, its engines, tackle, apparel, etc., in the cause of Exoneration from or limitation of Liability, Plaintiff-Appellee, v. PETROLEOS MEXICANOS MEXICAN NATIONAL OIL CO., (PEMEX), Defendant, Performaciones Marinas Del Golfo, S.A. (Permargo), Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1140

767 F.2d 1140

1986 A.M.C. 706

In The Matter of the Complaint of SEDCO, INC., as owner of

the MOBILE DRILLING UNIT SEDCO 135, its engines, tackle,

apparel, etc., in the cause of Exoneration from or

limitation of Liability, Plaintiff-Appellee, v. PETROLEOS MEXICANOS MEXICAN NATIONAL OIL CO., (PEMEX), Defendant,

Performaciones Marinas Del Golfo, S.A. (Permargo),

Defendant-Appellant.

No. 84-2512.

United States Court of Appeals, Fifth Circuit.

Aug. 12, 1985.

Hirtz & McDonough, Ted Hirtz, Lawrence A. Lynn, Houston, Tex., Michael Marks Cohen, New York City, for Perforaciones Marinas Del Golfo, S.A.

Vinson & Elkins, Theodore G. Dimitry, Henry S. Morgan, Jr., Houston, Tex., Jim Mattox, Atty. Gen., Austin, Tex., Crady & Peden, Douglas S. Johnston, Houston, for plaintiff-appellee.

Daniel K. Hedges, U.S. Atty., Houston, Tex., Wells D. Burgess, Atty. Gen. Litigation Section, Washington, D.C., for U.S.A.--other interested party.

Appeals from the United States District Court for the Southern District of Texas.

Before BROWN, POLITZ and JOLLY, Circuit Judges.

JOHN R. BROWN, Circuit Judge:

Before us is an appeal from the district court's order, 610 F.Supp. 306, refusing to order arbitration in a major lawsuit flowing out of the world's largest oil spill. ¹ Presently plaguing the long suffering mariners on their litigious voyage is an historically hatched rule of admiralty which often rears its head like a leviathan from the deep in order to founder those who seek interlocutory relief. ² Today, however, possessed with recent chartings by the Supreme Court and Congress, we are able to keep hands steady on the helm past the Schoenamsgruber peril. ³ As pilots, we have often groused about the treacherous course compelled by these instructions from astronautical heights. ⁴ But as mariners of all ages, until such time as the wrecks and shoals disappear, we must ply our course with the navigational aids at our disposal. We hope our log which follows makes the voyage easier for those who must travel after us. The prizes secured on our voyage--judicial economy and the promotion of arbitration--are recompense for the perils. Safely ashore, we remand for the district court to order that Sedco and Permargo proceed to arbitration in accordance with their contract. Upon remand, the district court should consider whether the remaining litigation should be stayed pending arbitration. ⁵

I. The Voyagers

In June of 1979 the semi-submersible drilling vessel, SEDCO 135, owned by Sedco, Inc. (Sedco), was in the bay of Campeche, Gulf of Mexico, under bareboat charter to Perforaciones Marinas del Golfo, S.A. (Permargo), a Mexican drilling company. Permargo had contracted with Petroleous Mexicanos (Pemex), the Mexican state owned oil company, to drill oil wells. On June 3, a massive blowout took place. The SEDCO 135 was a total loss; the flow of oil into the Gulf became the largest oil spill in history. ⁶

On September 11, 1979, Sedco filed a petition under the Limitation of Shipowners Liability Act, 46 U.S.C. Sec. 181 et seq. All litigation by shrimpers, hotel owners, and governmental entities against Sedco, Permargo, and Pemex was consolidated into the limitation proceeding. ⁷ On September 23, Sedco tendered its defense to Permargo pursuant to an indemnity clause in the charter party. In part, the bareboat charter party stated that Permargo would:

assume all responsibility for, including control and removal of, and to protect, and indemnify and hold harmless the owner [Sedco] and the vessel [SEDCO 135] from loss or damage arising from pollution or contamination, regardless of cause and without regard to the negligence of any party.

Permargo refused to defend Sedco. In the limitation proceeding Sedco then filed a third-party claim against Permargo and Pemex alleging that Permargo had breached its obligation to hold Sedco harmless under the charter. Sedco sought damages for the breach, indemnity for any sums Sedco was found liable to pay to third-parties, and attorneys' fees. The district court originally dismissed Pemex under the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. Sec. 1602 et seq., but denied Permargo's motion to dismiss. Sedco then settled with the United States and certain class action plaintiffs. Sedco demands indemnity from Permargo for these payments.

Throughout the district court proceedings, Permargo has made extensive efforts to resist discovery on jurisdictional grounds. As a result of this jurisdictional jousting, Permargo did not file its first answer to Sedco's third party complaint until April 8, 1983; Permargo's answer thus came almost three years after being sued by Sedco. This answer raised as a defense an arbitration clause in the charter party between Sedco and Permargo. Then, on April 12, 1983, Permargo filed motions (i) for a stay pending arbitration and (ii) a mandatory order to direct arbitration. On August 24, 1984, the district court issued an order reconsidering its dismissal of Pemex. The same order summarily denied both Permargo's motions regarding arbitration with the statement that "Pemex is now a party to the pending litigation and complete resolution of the matters before this court cannot be had without Permargo's participation as a party to this litigation." The questions for us to decide in this appeal are: (1) whether the district court's order refusing to order arbitration (with a stay of proceedings pending arbitration) is appealable; and, (2) if so, whether Permargo has waived its right to arbitration.

II. Arbitration

A. The Party's Agreement

Clause 21 of the charter party between Sedco and Permargo provides that they would submit "any dispute or difference between the parties" to arbitration in New York under the rules of the International Chamber of Commerce. ⁸ Sedco is a Texas company; Permargo is a Mexican company. Both Mexico and the United States are signatories to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Convention), 3 U.S.T. 2517, T.I.A.S. No. 6957, 330 U.N.T.S. 38 [1970], republished as a note following 9 U.S.C. Sec. 201. ⁹ The Convention contemplates a very limited inquiry by courts when considering a motion to compel arbitration:

1) is there an agreement in writing to arbitrate the dispute; in other words is the arbitration agreement broad or narrow; ¹⁰

2) does the agreement provide for arbitration in the territory of a Convention signatory;

3) does the agreement to arbitrate arise out of a commercial legal relationship;

4) is a party to the agreement not an American citizen?

Ledee v. Ceramiche Ragno, 684 F.2d 184, 185-86 (1st Cir.1982).

If these requirements are met, the Convention requires district courts to order arbitration. Language similar to that used in the charter party arbitration clause between Sedco and Permargo has been described by the Court in Caribbean Steamship Co. v. Sonmez Denizcilik Ve Ticaret, 598 F.2d 1264, 1266 (2d Cir.1979). The court said "[i]t is difficult to imagine broader general language than that contained in the charter party's arbitration clause, 'any dispute'...." ¹¹ Additionally, when confronted with arbitration agreements, we presume that arbitration should not be denied "unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue...." Commerce Park of DFW Freeport v. Mardian Construction Co., 729 F.2d 334, 338 (5th Cir.1984), quoting Wick v. Atlantic Marine, Inc., 605 F.2d 166, 168 (5th Cir.1979). Thus, as a general rule, whenever the scope of an arbitration clause is in question, the court should construe the clause in favor of arbitration. United Steel Workers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 80 S.Ct. 1347, 1353, 4 L.Ed.2d 1409 (1960); City of Meridian, Miss. v. Algernon Blair, Inc., 721 F.2d 525, 527 (5th Cir.1983). We hold that the arbitration agreement between Sedco and Permargo is of the broad type.

B. The Arbitration Convention

The Convention was negotiated pursuant to the Constitution's Treaty power. Congress then adopted enabling legislation to make the Convention the highest law of the land. As such, the Convention must be enforced according to its terms over all prior inconsistent rules of law.

Congress' implementing legislation for the Convention is found as part of the Arbitration Act. 9 U.S.C. Sec. 1 et seq. Chapter 1 of Title 9 is the Federal Arbitration Act passed long ago to overcome American courts' common law hostility to the arbitration of disputes. ¹² Chapter 2 of Title 9 is devoted entirely to the Convention and Congress' enabling legislation. Thus, Sec. 201 provides that the Convention "shall be enforced" by United States courts. ¹³ In substance, the Convention replicates the Federal Arbitration Act. Indeed, Sec. 208 of the enabling legislation for the Convention incorporates all of the Convention into Chapter 1 of Title 9. ¹⁴ But while the Convention requires courts of the United States to enforce arbitration clauses along lines similar to those specified in the Arbitration Act, its reach is broader than the Arbitration Act. Both the Arbitration Act and the Convention provide that if a dispute in a pending lawsuit is subject to arbitration, the district court "shall on application of one of the parties stay the trial of the action until such arbitration has been had." ¹⁵ Both provide that the district court "shall make an order directing the parties to proceed to arbitration" when the site for arbitration is within the district. ¹⁶ But Sec. 206 of the enabling legislation for the Convention also authorizes district courts to order parties to proceed with a Convention arbitration even outside the United States. ¹⁷

C. The Policy of Encouraging Arbitration and the End of

the Intertwining Doctrine

The Supreme Court leaves no doubt that:

The goal of the convention, and the principal purpose underlying American adoption and implementation of it, was...