State Establishment for Agr. Product Trading v. M/V Wesermunde

• Citation: 838 F.2d 1576
• Decision Date: 11 March 1988
• Docket Number: No. 87-3375,87-3375
• Parties: STATE ESTABLISHMENT FOR AGRICULTURAL PRODUCT TRADING, Plaintiff-Appellant, v. M/V WESERMUNDE, Her engines, tackle, apparel, furnishings, etc.; in rem: Marquis Compania Naviera, S.A.; The United Kingdom Mutual Steamship Assurance Association (Bermuda) Limited; Pateras Brothers, Ltd.; Pateras Investments, S.A.; and Kittiwake Compania Naviera, S.A., in personam, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1576

838 F.2d 1576

1988 A.M.C. 2328

STATE ESTABLISHMENT FOR AGRICULTURAL PRODUCT TRADING Plaintiff-Appellant, v. M/V WESERMUNDE, Her engines, tackle, apparel, furnishings etc.; in rem: Marquis Compania Naviera, S.A.; The United Kingdom Mutual Steamship Assurance Association (Bermuda) Limited; Pateras Brothers, Ltd.; Pateras Investments S.A.; and Kittiwake Compania Naviera, S.A., in personam Defendants-Appellees.

No. 87-3375.

United States Court of Appeals, Eleventh Circuit.

March 11, 1988.

David G. Hanlon, Shackleford, Farrior, Stallings & Evans, Tampa, Fla., for plaintiff-appellant.

Allen Von Spiegelfeld, Fowler, White, Gillen, Boggs, Villareal & Banker, P.A., Tampa, Fla., for defendants-appellees.

Appeal from the United States District Court for the Middle District of Florida.

Before VANCE and HATCHETT, Circuit Judges, and OWENS, ^* Chief District Judge.

OWENS, Chief District Judge:

In this latest appeal from a decision of the United States District Court for the Middle District of Florida, appellant, State Establishment For Agricultural Product Trading (hereinafter State Establishment), seeks to have this court reverse the decision of the district court that: (1) required it to arbitrate its dispute in London, England, and (2) stayed any further proceedings in the district court until that arbitration proceeding had been completed. State Establishment refused to comply with this order compelling arbitration, and as a result of its noncompliance, State Establishment now finds itself in the posture of having its case dismissed with prejudice for want of prosecution. The issue before this court is whether the district court erred in ordering arbitration in this case, and, if so, whether it was an abuse of discretion to dismiss State Establishment's case with prejudice for failure to comply with that arbitration order. Because we find that the district court did err in requiring arbitration and further, that there was available to the district court a less severe sanction other than outright dismissal with prejudice of State Establishment's claims, the court VACATES the district court's order dismissing State Establishment's action and REMANDS the case for further proceedings consistent with this opinion.

Background

On May 4, 1983, State Establishment instituted a multi-million dollar suit for damages arising out of the loss of a cargo of 82,073 cases of fresh eggs laden on board the M.V. Wesermunde in Tampa, Florida, for delivery to Aqaba, Jordan. Apparently before the eggs could be off-loaded in Aqaba, Jordan, they were destroyed by fire. Named in State Establishment's complaint as defendants were the M.V. Wesermunde, the vessel of foreign registry that carried the cargo of eggs to Aqaba, Jordan; Marquis Compania Naviera, S.A., and Kittiwake Compania Naviera, S.A., corporations engaged in the common carriage of cargo by sea; Pateras Brothers, Ltd. and Pateras Investment, S.A., corporations engaged in the management of ocean-going vessels including the M.V. Wesermunde; and the United Kingdom Mutual Steamship Assurance Association (Bermuda) Ltd. (U.K. Club), the liability underwriter for these defendants. State Establishment, owner of the cargo of eggs, is an agency of the government of Iraq incorporated and organized under the laws of that country.

U.K. Club, liability underwriter of the M.V. Wesermunde and for all of the named defendants, initially filed a motion to dismiss the complaint against it on the ground that State Establishment did not have a direct action under Florida law against a marine insurer. The district court granted U.K. Club's motion on December 20, 1983, and State Establishment took an appeal from this decision. We found, however, that our ruling in Steelmet Inc. v. Caribe Towing Corp., 779 F.2d 1485 (11th Cir.1986), was contrary to the district court's position and controlling under the facts of the case. We, therefore, reversed the decision of the district court and reinstated U.K. Club as a party to State Establishment's action. See State Establishment For Agricultural Product Trading v. M.V. Wesermunde, 785 F.2d 1035 (11th Cir.1986).

While this "direct action" issue concerning U.K. Club was still on appeal, the remaining defendants moved to have the underlying dispute between them and State Establishment referred to arbitration in London, England. These defendant supported their demand for arbitration by showing that on December 18, 1981, defendant Marquis Compania Naviera, S.A., the owner of the M.V. Wesermunde, entered into a charter party agreement with Murray Clayton Limited as charterer. A "charter party" is a specialized type of maritime contract for the hire of a vessel. The person who obtains the use and service of the ship is called the charterer, and the person hiring out the vessel is usually the shipowner. See Thomas J. Schoenbaum, Admiralty and Maritime Law, Section 10-1 at p. 381 (1987). Included in paragraph 34 of this charter party agreement was the language that "[a]ny dispute arising under this charter party to be settled by arbitration in London (not lawyers) according to the Arbitration Act." Defendants further showed that the bills of lading under which State Establishment was to have its cargo of eggs shipped contained the following language:

All the terms, conditions, liberties, and exceptions of the Charter-Party are herewith incorporated. AS PER CHARTER PARTY DATED DECEMBER 18TH, 1981.

Defendants additionally moved to stay the action before the district court during the pendency of any court ordered arbitration proceeding, pursuant to 9 U.S.C. Secs. 2 and 3 (1970). In response to that motion, State Establishment argued that it was not bound by the terms of the charter party since it was not a signatory to the charter party, nor did the dispute arise from the charter party agreement. It also argued that there was never any contractual agreement between the parties to arbitrate their disputes, and without such an agreement, there was no basis to order arbitration. See AT & T Technologies v. Communications Workers, 475 U.S. 643, 647, 106 S.Ct. 1415, 1418, 89 L.Ed.2d 648, 655 (1986). After reviewing the documents submitted by defendants in support of their motion, however, the district court ruled that the bill of lading given to State Establishment effectively incorporated by reference the arbitration clause found in the charter party, ordered arbitration, and stayed the proceedings before the district court.

Eager to have this ruling reversed, State Establishment filed a second appeal to this court. We found, however, in State Establishment for Agricultural Product Trading v. M.V. Wesermunde, 770 F.2d 987, 989 (11th Cir.1985), that the appeal was premature due to an antiquated, but still viable, admiralty law doctrine. This doctrine, as stated in Schoenamsgruber v. Hamburg American Line, 294 U.S. 454, 55 S.Ct. 475, 79 L.Ed. 989 (1935), provides that while proceeding in admiralty, an order compelling arbitration and staying the action pending arbitration pursuant to 9 U.S.C. Secs. 1-14 is:

(1) not a final order under 28 U.S.C. Sec. 225 (now Sec. 1291);

(2) not an injunction under 28 U.S.C. Sec. 227 (now Sec. 1292(a)(1)); and,

(3) not an appealable interlocutory decree under the present Sec. 1292(a)(3).

770 F.2d at 989. We, therefore, concluded that the court lacked jurisdiction to hear the appeal, and consequently dismissed it.

Frustrated that the district court's arbitration decision could not be appealed as a matter of right, State Establishment next proceeded to request the district court to reconsider its stay order, and, if it should refuse to do so, moved in the alternative to have the district court certify the question for immediate appeal, pursuant to Rule 54(b) of the Federal Rules of Civil Procedure. Both of these motions were denied.

Following the denial of these motions, State Establishment remained unable or unwilling to go to arbitration in London, England. All defendants except U.K. Club, which had just been reinstated as a party, then presented the district court with a motion to dismiss State Establishment's case. These defendants asserted that State Establishment's willful refusal to comply with the district court's order compelling arbitration constituted sufficient grounds to dismiss the complaint. The district court ordered State Establishment to show cause why its claims should not be dismissed for want of prosecution, and in response to this show cause order, State Establishment argued that the arbitration order was erroneous, and that if the district court would not reconsider its earlier decision, then it prayed for an order of dismissal with prejudice so that the arbitration issue could finally be resolved by the Court of Appeals. At oral argument, State Establishment further explained its refusal to arbitrate by stating that when the district court refused to reconsider its arbitration order, and also refused to certify the question for an immediate appeal, State Establishment was placed in, what it considered to be, a "Catch 22" position--State Establishment was now required to expend substantial time, effort, and funds to comply with a likely erroneous arbitration order, yet because of the Schoenamsgruber doctrine, it was necessary to complete the arbitration process before the validity of the arbitration proceeding could be tested on appeal. Faced with this dilemma, State Establishment believed that it was better to forego any damages it might potentially be able to recover from the arbitration process for the chance that the district court erred in ordering arbitration, that we would reverse this decision, and that ultimately, we would allow its claims to be tried before the district court. The inherent risk in taking such a position was, of course, that if the district court was correct in ordering arbitration, the dismissal with prejudice for failure to comply with that order would be...