Steel Warehouse Co. v. Abalone Shipping Ltd. , 141 F.3d 234 ( 1998 )

UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 97-30796
STEEL WAREHOUSE COMPANY, INCORPORATED,
Plaintiff-Appellee,
VERSUS
ABALONE SHIPPING LIMITED OF NICOSAI, ET AL,
Defendants,
ABALONE SHIPPING LIMITED OF NICOSAI,
LONDON STEAM-SHIP OWNERS’ MUTUAL
INSURANCE ASSOCIATION, AND
A. BILBROUGHS & CO., LIMITED,
Defendants-Appellants.
Appeal from the United States District Court
For the Eastern District of Louisiana
MAY 21, 1998
Before POLITZ, Chief Judge, REYNALDO G. GARZA, and DENNIS, Circuit
Judges.
REYNALDO G. GARZA, Circuit Judge:
This is an appeal from a ruling of the United States District
Court for the Eastern District of Louisiana. The district court
denied a motion to stay this case pending arbitration made by the
Defendants-Appellants, Abalone Shipping of Nicosai (“Abalone”), et
al. (collectively, “Appellants”). The district court held in favor
of the Plaintiff-Appellee, the Steel Warehouse Company (“Steel
Warehouse”). The Appellants timely appealed, and the matter now
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lies before this circuit.
Background
In May of 1994, Steel Warehouse entered into negotiations with
Mathan International Trading, Ltd. (“Mathan”), a British
corporation with offices and affiliates in London, Bulgaria, and
Kuwait, for the purchase of steel coils. These coils were to be
manufactured in Bulgaria. Under the terms of the purchase
agreement which resulted from these negotiations, Mathan was to
supply the steel coils and ship them to Indiana. In October of
1994, Mathan’s Kuwaiti affiliate entered into a charter party
agreement with Panoceanica SRL (“Panoceanica”), to charter the M/V
VICAL for a voyage from Bulgaria to New Orleans. Panoceanica was
acting as an agent for Abalone. Steel Warehouse states that it was
unaware of this arrangement.
In November of 1994, the cargo of steel coils was loaded
aboard the M/V VICAL in Bulgaria for carriage to New Orleans. This
ship was owned by Abalone at the time of this voyage and was under
time charter to Panoceanica. The M/V VICAL was under voyage
charter to Mathan.1 A bill of lading was presented by Mathan on
November 12, 1994, to Society National Bank for payment.2
1
Panoceanica is not a party. Mathan was named a defendant,
but never appeared. In July of 1996, Steel Warehouse obtained a
default judgment against Mathan, one of Mathan’s employees
(Christopher Mann), and Mathan’s London Agent (Ashley Shipping).
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The district court was presented with two bills of lading,
and there is a dispute as to which is the proper one. Appellants
argue that this dispute need not be addressed by the court because
the pertinent language in each bill of lading regarding
2
The M/V VICAL set sail for New Orleans, encountering rough
seas along the way. It arrived at its destination in December of
1994. It discharged its cargo of steel coils into river barges,
and these barges carried the coils to Burns Harbor, Indiana, where
they were received by Steel Warehouse. Steel Warehouse claims that
the steel coils were damaged by rust, and that the coils were
rejected by their customers. Steel Warehouse points out that
surveyors in New Orleans noted rusty streaks on the hatches of all
four cargo holds, and wetness was noted in three of the cargo
holds. These facts are indicative of seepage of sea water into the
holds.
On September 15, 1995, after an unsuccessful attempt to have
this dispute settled by voluntary arbitration in London, Steel
Warehouse filed suit in the United States District Court for the
Northern District of Indiana. In addition to the defendants named
in the instant case, Steel Warehouse filed suit against Steel
Warehouse’s cargo insurers, as well as Mathan, Ashley Shipping, and
Christopher Mann. Other than the Appellants, only Steel
Warehouse’s cargo insurers made an appearance, and they are no
longer before this court. The suit against them was dismissed on
the basis of a contractual forum selection clause which required
suits against them to be brought only in Britain.
Steel Warehouse’s claims against the Appellants are based on
the bill of lading and assert rights under the Carriage of Goods by
incorporation of the charter party is identical. The district
court disagreed, and we will discuss this issue shortly.
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Sea Act, 46 U.S.C. §1300, et seq. (“COGSA”). Steel Warehouse
claims that the coils did not meet contract specifications and were
damaged in transit. Steel Warehouse also claims that it had no
notice of the arbitration provisions which the Appellants claim are
incorporated into the bill of lading.
The first pleading filed by Appellants was their answer to the
complaint, and this was filed on December 29, 1995. This answer
included, among other things, a demand for a stay pending
arbitration in London. For several months following the filing of
Appellants’ answer, there was little substantive activity, other
than the aforementioned dismissal of Steel Warehouse’s cargo
insurers.
On July 31, 1996, Appellants filed motions in Indiana seeking
dismissal and/or a stay of the proceedings. Appellants claimed
that the district court did not have personal jurisdiction over
them, that the bill of lading incorporated a provision requiring
arbitration in London, that there was a failure to state a claim
upon which relief could be granted (as to the action against
Abalone’s insurer), and that summary judgment should be granted as
to A. Bilbrough on the grounds that it was not an insurer of
Abalone. Prior to the filing of the July 1996 motions, Appellants
sent Steel Warehouse one set of interrogatories and one set of
document requests. Appellants reserved their right to seek a stay
pending arbitration in these interrogatories and requests, and
Appellants moved the Indiana court to enter a protective order
staying further discovery until the dispositive motions were
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resolved. The district court did not rule on the Appellants’
motions until March of 1997, when it transferred the case to
Louisiana. The Indiana court only addressed the issue of
jurisdiction in its order.
Appellants re-urged their motion to dismiss and/or stay
pending arbitration before the Eastern District of Louisiana.
Their motion was refused, and the appeal of this refusal now lies
before this panel.
Standard of Review
This court reviews a district court order refusing to stay an
action pending arbitration under the de novo standard of review.
Mitsui & Co. (USA), Inc. v. M/V MIRA, 111 F.3d 33, 35 (5th Cir.
1997).
Analysis
The first issue we must deal with relates to the incorporation
of the terms of the charter party with the bill of lading, and
whether this incorporation, if it exists, binds Steel Warehouse to
the terms of the arbitration clause. In Mitsui & Co. (USA), Inc.
v. M/V MIRA, this court rejected the argument that a bill of lading
was a contract of adhesion, and held that the plaintiff in that
suit accepted the properly incorporated terms of the bill of lading
when it filed suit under the bill of lading. Mitsui, 111 F.3d at
36. The question turns on whether the charter party and its
arbitration clause were properly incorporated.
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Steel Warehouse argues that the key issue here should be
notice, actual or constructive, and it states that without notice,
it should not be bound by terms of the charter party. See e.g.:
Midland Tar Distillers, Inc. v. M/T LOTOS, 362 F. Supp. 1311, 1312-
13 (S.D.N.Y. 1973); Otto Wolff Handelsgeshellschaft v. Sheridan
Transp., 800 F. Supp. 1353, 1355 (E.D.Va. 1992). Abalone argues
that incorporation should be the sole issue, and that notice is
irrelevant. We believe that in this particular situation, this is
a distinction without a difference, and we decline to split this
particular doctrinal hair. Given the facts before us in the
instant case, proper incorporation yields constructive notice.
Constructive notice can be defined, crudely, as a rule in
which “if you should have known something, you’ll be held
responsible for what you should have known.” In this situation,
Steel Warehouse was a sophisticated party, and one of its own
agents testified that arbitration clauses of the type at issue are
standard operating procedure in this line of business. Also, the
bill of lading at issue was on a common, internationally recognized
form of bill of lading called a “Congen Bill.” In other words, if
the charter party clause was properly incorporated, given the facts
before us, Steel Warehouse should have known what was around the
corner, given the totality of the circumstances. Whether one
styles this as an issue of constructive notice or incorporation
alone, the analysis basically turns on incorporation.
The key point, then, is whether we believe the charter party
was properly incorporated. We hold that it was. The relevant part
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of the bill of lading (which was the same in both of the bills of
lading taken before the district court) stated:
Freight Payable as per CHARTER-PARTY dated 21 OCTOBER
1994 ALL TERMS AND CONDITIONS OF WHICH ARE INCORPORATED
IN THIS B/L.
(emphasis in original).
A plain language reading of this clause makes it clear that
“THIS B/L [bill of lading]” incorporates the terms of conditions of
the charter party, dated October 21, 1994, including, presumably,
its (industry standard) arbitration clause. While it would have
been preferable for this clause in the bill of lading to have been
more specific and detailed, it passes muster, given the facts of
this case. Also, precedent allows for quite a bit of leeway in the
drafting of such clauses, and does not require a punctilious degree
of specificity. See e.g.: The Silverbrook, 18 F.2d 144, 145
(E.D.La. 1927); Lowry & Co. v. S.S. LE MOYNE D’IBERVILLE, 253
F.Supp 396, 397 (S.D.N.Y. 1966).
The district court also held that the fact that one of the
bills of lading was stamped “Freight Prepaid” rendered the
incorporation language on that bill of lading to be ambiguous. We
disagree. First of all, whether or not the freight was prepaid has
nothing to do with the incorporation of the charter party,
particularly the arbitration clause. In order to support the
district court’s decision, we would have to assume that the
“Freight Prepaid” stamp somehow adds a clause to the bill of lading
which states that “if freight is prepaid, all previously
incorporated terms and conditions of the charter party are null,
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void, and superfluous.” This is illogical, and not required by
precedent. We therefore reverse the district court on this point
as well.
The district court did not rule on several other issues,
because of the result it reached on the points already mentioned.
We will deal with these issues now. First, Steel Warehouse argues
that the incorporation issue should be governed by British law,
because British law governs the charter party, and under British
law the incorporation of the charter party in the bill of lading
was inadequate. The Seventh Circuit rejected this type of analysis
in Duferco Steel, Inc. v. M/V KALISTI, 121 F.3d 321, 325 (7th Cir.
1997), and we adopt the Seventh Circuit’s view on this matter. As
the Seventh Circuit stated, such an analysis skips an important
initial question, namely, whose law governs the issue of
incorporation to begin with? The Seventh Circuit concluded that
“there is no reason to suppose that the incorporation issue should
be governed by English law” in Duferco, and we agree with this
method of analysis in the instant case. Id. Essentially, Steel
Warehouse is attempting to incorporate the arbitration clause into
the bill of lading at the beginning of its analysis, only to find
that the clause cannot be incorporated. This rather convoluted
analysis was rejected in Duferco, and we reject it here. See Id.
American law governs this agreement, for the purposes of
incorporation.
Steel Warehouse also contends that the scope of the
arbitration clause does not compel arbitration of disputes with
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third parties. We disagree. The relevant language in the charter
party is broad. It states that “all disputes from time to time
arising out of this contract shall...be referred to final
arbitration in London.” It is not limited merely to “Owners and
Charterers,” or any such language which requires a more limited
application of the clause. See e.g.: Otto Wolfe, 800 F. Supp. at
1357. The clause applies to Steel Warehouse.
Next, Steel Warehouse argues that the arbitration clause
violates Section 3(8) of COGSA, which prohibits a carrier from
limiting its liability to less than that provided in the Act. On
this issue, we direct Steel Warehouse to the Supreme Court’s
holding in Vimar Seguros y Reaseguros, S.A. v. M/V SKY REEFER, 115
S.Ct 2322, 2327-29 (1995) and to our holding in Mitsui. Mitsui,
111 F.3d at 36. Steel Warehouse’s substantive rights are not
violated in such a way as to allow this case to fall into possible
exceptions allowed by Vimar, because the Appellants have stipulated
that the applicable prescriptive period for this claim is twelve
months (as is required by COGSA), rather than nine months (the time
listed in the charter party). The part of the arbitration clause
which offends Steel Warehouse will not be enforced, by agreement of
the Appellants, so Steel Warehouse’s substantive rights are not
undermined.
Steel Warehouse also argues that the Appellants waived their
right to arbitrate by substantially participating in the litigation
process. There is a well-settled rule in this circuit that waiver
of arbitration is not a favored finding, and there is a presumption
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against it. Miller Brewing Co. v. Fort Worth Distrib. Co., 781
F.2d 494, 496 (5th Cir. 1986). This is particularly true when the
party seeking arbitration has included a demand for arbitration in
its answer, and the burden of proof then “falls even more heavily
on the party seeking to prove waiver.” Southwest Indus. Import &
Export, Inc. v. Wilmod Co., 524 F.2d 468, 470 (5th Cir. 1975).
Steel Warehouse has not overcome this presumption against waiver.
The Appellants had to participate in the litigation in order to
protect themselves if the district court chose not to stay the
proceedings. Appellants’ fears were justified, given the district
court’s ruling in this matter. Further, it was Steel Warehouse who
filed this case to begin with, and the Appellants haven’t done much
other than defend themselves in this case. Appellants have not
escalated this case, nor have they showered Steel Warehouse with
interrogatories and discovery requests. Given these facts, there
is no waiver in this case.
Conclusion
Based on the foregoing, we REVERSE the decision of the
district court in this matter, and order that this case be stayed
pending arbitration.
REVERSED.
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