U.S. Ship Management, Inc. v. Maersk Line, Ltd.

Citation357 F.Supp.2d 924
Decision Date11 February 2005
Docket NumberNo. CIV.A. 1:05MC001.,CIV.A. 1:05MC001.
CourtU.S. District Court — Eastern District of Virginia
PartiesU.S. SHIP MANAGEMENT, INC., Petitioner, v. MAERSK LINE, LIMITED, Respondent.

Gordon A. Coffee, Winston & Strawn LLP, Washington, DC, for Plaintiff.

Rolf Marshall, Preston, Gates, Ellis & Rouvelas Meeds, Washington, DC, for Defendant.

MEMORANDUM OPINION

ELLIS, District Judge.

This petition to confirm an arbitration award is the most recent volley in a protracted battle between petitioner and respondent regarding the operating rights to certain commercial ships enrolled in the Maritime Security Program. Other skirmishes in this battle have erupted in various venues, including New York, North Carolina, and the District of Columbia. At issue on a threshold motion to transfer the matter to the District Court for the District of Columbia are the following questions:

(i) whether, as required under 28 U.S.C. § 1404(a), this case might have been brought in the District of Columbia, i.e., whether venue and jurisdiction over the defendant are proper there; and

(ii) whether the case should be transferred to the District of Columbia "in the interest of justice," under 28 U.S.C. § 1404(a), so that it may be heard and decided by the judge already considering two related cases pending there.

For the reasons that follow, transfer of this case to the District Court for the District of Columbia is warranted.

I.

U.S. Ship Management ("USSM"), a Delaware corporation headquartered in Charlotte, North Carolina, brings this action pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 6 & 9, for an order confirming an arbitration award in an arbitration initiated against respondent Maersk Line, Ltd. ("MLL"). MLL, a Delaware corporation headquartered in Norfolk, Virginia, is a subsidiary of A.P. Moller-Maersk, A/S ("Moller"), a maritime company based in Denmark.

In a short time, a deceptively simple contract dispute has sprouted multiple lawsuits, arbitrations, and administrative agency proceedings. A summary of the underlying dispute and the procedural history of the various related cases is necessary to frame the issues raised by the motion at bar.

A. The Underlying Dispute

At the heart of this litigation is a contract dispute between MLL and USSM regarding operating rights to fifteen vessels enrolled in the Maritime Security Program ("MSP"). The MSP, administered jointly by the United States Maritime Administration ("MARAD") and the Department of Defense, is intended to ensure the availability of U.S. commercial ships for U.S. military use in the event of a national emergency. See 46 U.S.C. app. § 1187 et seq. More specifically, the MSP authorizes the federal government, through MARAD, to enter into MSP operating agreements to pay private contractors an annual fee of $2.1 million per vessel in exchange for the vessels' availability to the military if required for national defense or other security needs. See 46 U.S.C. app. § 1187a. The ships otherwise operate as commercial vessels sailing under the U.S. flag. The award of MSP contracts is made pursuant to a priority system based in part on the citizenship status of the petitioning company.1

In 1999, Moller (MLL's parent) acquired the international shipping business of Sea-Land Services, Inc., which included the operating rights to fifteen MSP-enrolled vessels. Given the financial benefits of being an MSP contractor, MLL desired to become the MSP contractor for the transferred vessels. Yet, at the time, it was unclear whether MLL was eligible to become a transferee of these additional MSP operating agreements.2 Thus, to facilitate the overall regulatory approval of the acquisition of Sea-Land, MARAD proposed an arrangement modeled on a previous acquisition.3 In essence, the arrangement was as follows:

• Sea-Land owned "bareboat charters" to these vessels, which required the vessel owner (in this case various financial institutions) to retain passive title but to relinquish possession, command, and navigation of the vessels to Sea-Land • USSM was created to assume Sea-Land's MSP operating agreements and to operate the vessels as the bareboat charterer; and

• These same ships were in turn chartered by USSM to MLL under "time charters," which permitted MLL to use the vessels, but required USSM, as owner and operator, to furnish a crew and to maintain the vessels.

With USSM as an intermediary, MLL could retain the vessels in its commercial fleet while also ensuring their eligibility for the MSP program. Also of note in this agreement is that MLL negotiated a further provision, which, according to MLL, permits it to elect to terminate the arrangement and become the MSP contractor, rather than continuing to use USSM as an intermediary, if "permitted by applicable laws and regulations" to do so.4

The negotiations required to settle these agreements5 were extensive and took place chiefly in the District of Columbia. See Declaration of Kenneth C. Gaulden. Significantly, USSM and MLL conducted at least twenty-five (25) negotiating sessions, nineteen (19) of which were held within the District of Columbia. Id. At these sessions, representatives of both parties were physically present in the District and MLL's President and CEO testified in the arbitration proceedings that he was present at one session in Washington D.C. with "senior officers of USSM" that went "an entire day and through until the middle of the night," during which the framework for the time charter agreements was hammered out. Id.

B. Litigation History

On April 29, 2003, MARAD, responding to an MLL request, issued an opinion letter stating that MLL was eligible to become the MSP contractor for the fifteen vessels.6 Although the letter found MLL to be an eligible transferee, MARAD did not guarantee that approval would be granted if such an application were submitted. On April 30, 2003, in response to MARAD's finding that MLL was an eligible transferee, MLL attempted to exercise its alleged contractual right to terminate the time charter agreements and to become the MSP contractor for the fifteen vessels. Yet, USSM rejected MLL's election and refused to file the application to initiate the transfer proceeding.

Following USSM's refusal, MLL notified USSM that MLL considered USSM to be in default of the time charters. Exercising a provision in the time charters that permitted MLL to act as USSM's attorney-in-fact upon default, MLL filed a transfer application on both its own and USSM's behalf. Following the submission of this application, MARAD (i) issued a final order on June 7, 2004 approving the transfer of the MSP operating agreements to MLL, subject to certain conditions precedent, and (ii) on October 1, 2004, approved the execution of certain addenda to six of the MSP operating agreements to permit MLL to substitute six of MLL's own vessels for six of the vessels operated by USSM.

These actions have led to a series of civil actions and arbitrations as USSM has attempted to block the transfer of the operating agreements. Specifically, USSM has initiated at least two arbitrations, filed two Administrative Procedure Act ("APA") actions, and filed two petitions to confirm or vacate the arbitrations awards, as follows:

First arbitration — In an arbitration brought by USSM against MLL and held in New York on January 20, 2004, the panel ruled by decision dated March 10, 2004(i) that MLL's election to become the MSP contractor was proper, (ii) that USSM was in default of the time charters, and (iii) that MLL had the right to submit the transfer application to MARAD, acting on behalf of USSM as its attorney-in-fact;

Petition to vacate — USSM filed a petition to vacate the arbitration award on March 31, 2004 in the Southern District of New York. The petition was denied and the arbitration award was confirmed. No appeal was filed.

Second arbitration — A second New York arbitration initiated by USSM against MLL on October 25, 2004 also resulted in a decision by an arbitration panel on December 20, 2004, although the panel's decision is not entirely clear.7 It appears that the panel, while adopting the holding of the March 10, 2004 arbitration decision, also ruled that USSM had a contractual right to veto MLL's election to become the MSP contractor under these agreements. It is this second arbitration decision that USSM seeks confirmation of here.

First APA action (filed in D.C.)8 — USSM filed an action against MARAD in the District Court for the District of Columbia in April 2003. MLL was permitted to intervene. In this action, USSM sought to enjoin MARAD's transfer of the operating agreements first by challenging MARAD's April 29, 2003 opinion letter under the APA and later by amending its complaint to challenge on APA grounds MARAD's June 7, 2004 final order. The D.C. District Court rejected USSM's request for a preliminary injunction to enjoin MARAD from transferring the operating agreements. USSM appealed the denial of this preliminary relief to the Court of Appeals for the District of Columbia Circuit. Both this appeal and the underlying action in the D.C. District Court remain pending.

Second APA action (filed in North Carolina)9 — USSM filed a second action against MARAD in the Western District of North Carolina. In that case, USSM sought to enjoin MARAD's approval of the October 1, 2004 transfer of six MSP operating agreements from USSM to MLL. Initially, the North Carolina District Court denied MLL's motion to intervene and issued a preliminary injunction enjoining MARAD from taking any action to transfer the six MSP agreements pending resolution of the second arbitration. The Fourth Circuit granted MLL's motion to intervene, vacated the preliminary injunction, and remanded the case to the District Court to consider any other issues arising in the case "including the pending motion to transfer filed by MARAD."10 Shortly...

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