International Chartering Services, Inc. et al v. Eagle Bulk Shipping Inc. et al
Filing
82
OPINION AND ORDER. For the foregoing reasons, the Defendants' motion to compel arbitration is GRANTED in part. Further briefing is ordered as described above. (Signed by Judge Alison J. Nathan on 10/8/2015) (rjm)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
USDCSDNY
OOCUM,f:NT
ELECTRON I CALL y FILED
DOC #: _ _ _ _ ~--Q1°5
DATE FlLED:QCL.0 _8.JQ .._
International Chartering Services, Inc., et al.,
Plaintiffs,
12-cv-3463 (AJN)
-vOPINION & ORDER
Eagle Bulk Shipping Inc., et al.,
Defendants.
ALISON J. NATHAN, District Judge:
This is a maritime action for breach of contract and unjust enrichment based on
Defendants' alleged failure to pay brokerage commissions in connection with thi1ieen contracts,
called charter parties. Before the Court on remand from the Second Circuit is Defendants'
renewed request to compel arbitration on Plaintiffs' claims. For the following reasons,
Defendants' motion is GRANTED in part. The Court requires additional briefing from the
parties as to whether Plaintiffs have any claims independent of the charter parties.
I.
Background
The Court assumes familiarity with its previous order, Dkt. No. 33, and the Second
Circuit's summary order, Dkt. No. 65. This opinion contains only the facts relevant to the
questions currently before the Court.
A. Pacts
Plaintiffs International Chartering Services ("ICS") and Peraco Chartering (USA) LLC
("Peraco") are shipbrokers, ship managers, and transportation consultants. Compl.
~~
13-15.
Thirteen defendants in this case are limited liability companies that each own a single dry bulk
shipping vessel ("ship-owning Defendants"). Id. ir~ 19-20. The ship-owning Defendants are all
wholly owned subsidiaries of Defendant Anemi Maritime Services, S.A. ("Anemi"). Id.
~
2. At
the time the charter parties (that is, contracts) at issue in this case were signed, Anemi was a
wholly owned subsidiary of non-party Kyrini Shipping, Inc. Id. A few months after the
contracts were complete, Anemi and its subsidiaries were purchased by Eagle Bulk Shipping Inc.
("Eagle"). Id.
~
4. Eagle and its wholly owned subsidiaries comprise all the defendants in this
case.
ICS's brokerage relationship with Anemi dates back to 2005, and Peraco's brokerage
relationship with Anemi, secured through ICS, began in 2006. Id.
~~
25-26. Plaintiffs
introduced Anemi to non-party Korea Line Corporation ("Korea Line"), who chartered one of
Anemi's vessels. Dushas Aff.
~
16; Hammond Aff.
~~
15-17; Stavnes Aff.
~
4. In late 2006,
Plaintiffs arranged further discussions between Anemi and Korea Line-discussions that resulted
in agreements to charter the thirteen vessels at issue in this case. Dushas Aff.
Aff.
~
23; Hammond
if 19.
Korea Line entered into the thirteen charter parties underlying the dispute in 2007 by
signing four master charter parties (each chattering multiple ships). Comp!.
ir 4; Weller Deel.
Exs. A-D. The charter parties were formally between Charterers and Owners. "Charterers" was
defined as Korea Line, and "Owners" was defined as ship owners to be designated by Anemi.
Comp!.
ir 20.
The owners that Anemi selected are the ship-owning Defendants. Id. Plaintiffs
were not signatories to the charter parties. Weller Deel. Exs. A-D. However, they served as
deal brokers and participated in negotiations. The charter parties set forth commission rates
payable to Plaintiffs, but Plaintiffs allege that they separately negotiated commission rates with
Anemi according to the parties' previous custom, and that the final commission rates were
2
memorialized in an email dated May 4, 2007. Compl.
Aff.
~iJ
20-22; Dushas Aff.
~
26; Stavnes Aff.
~
~
30; Weller Deel. Exs. A-D; Hammond
8. Each of the four master charter parties
contains an identical arbitration provision, which states that "should any dispute arise between
Owners and the Charterers, the matter in dispute shall be referred to three persons at London."
Weller Deel. Exs. A-D. They also each contain the same choice-of-law provision stating that
"[t]his Charter Party shall be governed by the English Law." Id. Eagle purchased Anemi and its
subsidiaries (including all ship-owning Defendants) in July 2007, shortly after the charter parties
were signed. Comp!.
ir~
35-36.
Korea Line fell into financial difficulties as a result of a market downturn, and in 2011 it
entered rehabilitation proceedings (a form of insolvency proceeding) in the Seoul Central District
Court.
Comp!.~
39; Weller
Deel.~
17. To preserve the charter parties, Korea Line, Anemi, and
the ship-owning Defendants (i.e., all parties other than Eagle), negotiated modifications to their
agreements. The modifications were implemented as part of a Master Agreement and addenda
executed by the ship-owning Defendants and the receivers for Korea Line on March 3, 2011.
Weller
Deel.~
20, Exs. H, I; Compl.
~~
41, 44. The net result of these modifications was to
create a "suspension period" of approximately one year during which Defendants would seek
other employment for their vessels, with Korea Line guaranteeing a minimum income of $17,000
per vessel per day. Weller Deel.~ 19; Stavnes Aff.
~
19. At the end of the suspension period,
Defendants would resume their work for Korea Line at a reduced rate of hire, but subject to a
profit-sharing agreement. Weller Deel.
~
19.
B. This Litigation
In December 2011, Eagle informed Plaintiffs that it would not pay their commissions
during the suspension period.
Comp!.~
68. Plaintiffs responded by bringing this suit for breach
3
of contract, breach of maritime contract, willful frustration of contract, unjust enrichment, and
accounting in the Supreme Court of New York for New York County.
Defendants removed to this Court and filed a motion to compel arbitration under the
charter parties. See Dkt. No. 2. Plaintiffs raised two lines of argument in response. See Dkt. No.
12. First, they argued that their claims did not arise under the charter parties at all, but rather
stemmed from a separate contract memorialized in the May 4, 2007, emails. Second, they
argued that even if their claims did arise under the charter parties, they were not bound by the
arbitration clauses. The Court denied Defendants' motion to compel arbitration on March 6,
2013. The parties did not raise the choice of law issue, and this Court determined that under
federal common law, Plaintiffs were neither "owners" nor "charterers,'' and thus were not
covered by the charter parties' arbitration clauses. See Dkt. No. 33. The Court did not reach the
question of the independence of Plaintiffs' claims.
Despite noting that the choice-of-law issue was likely waived, the Second Circuit
reversed this Comi's denial on interlocutory appeal and remanded for a choice-of-law analysis.
See Dkt. No. 65, Int 'l Chartering Servs., Inc. v. Eagle Bulk Shipping Inc., 557 Fed. App'x 81, 83
& n.3 (2d Cir. 2014). Specifically, the Court of Appeals held that ifthe charter parties'
arbitration clauses were interpreted under English law, Plaintiffs would be included in the phrase
"Owners and the Charterers" as assignees from the original parties. Id. at 83. The charter parties
would therefore require arbitration of Plaintiffs' claims. But, as this Court held and the Second
Circuit did not reverse, under federal law Plaintiffs are not included in the phrase "Owners and
the Charterers,'' and thus their claims under the charter parties would not be arbitrable. See id.
Having concluded that the choice-of-law analysis would be outcome determinative, the Court of
Appeals remanded the case to this Court with instructions to determine (1) whether federal or
4
English maritime law should apply under federal maritime choice-of-law rules to the question of
whether Plaintiffs' claims under the charter parties must be arbitrated, and if so, (2) whether
Plaintiffs have claims that are independent of the charter parties and need not be arbitrated. See
id. After the parties had fully briefed these questions on remand, Eagle filed a notice of
suggestion of bankruptcy, and the case was stayed. That stay has now been lifted, and the parties
agree that the pending questions should be decided. See Dkt. No. 80.
II.
Whether English or Federal Law Determines if Plaintiffs' Claims Under the
Charter Parties Must Be Arbitrated
Adopting the Second Circuit's ordering of the issues, the Court first turns to whether
English law or federal law governs the question of whether Plaintiffs' claims under the charter
parties must be arbitrated. As noted above, the Second Circuit determined that English law
would give an interpretation to the phrase "Owners and the Charterers" in the charter parties that
included Plaintiffs as assignees, thus folding them into the arbitration clauses. Int'! Chartering,
557 Fed. App'x at 83. This Court previously determined that under federal law, the charter
parties' arbitration clauses-which by their terms apply only to "Owners and the Charterers"did not apply to Plaintiffs. The Second Circuit did not reverse that conclusion. Id. ("Were
substantive federal maritime law to apply, [the District Court's holding] might be correct.").
Thus, as the Second Circuit held, "[s]ince English law and federal law produce different results,
the choice of law analysis is essential." Id
As a preliminary matter, Plaintiffs argue that Defendants have consented to the
application of federal maritime law for the interpretation of the charter parties, and therefore a
choice-of-law analysis is unnecessary. This argument is foreclosed by the Second Circuit's
order, which found the choice-of-law question sufficiently preserved, see id at 83 n.3. It would
5
be anomalous to find that Defendants preserved the question of whether English law should
apply, and nevertheless conceded that federal maritime law applies. While the Second Circuit
acknowledged that the preservation issue was a "close question," its conclusion that the issue
should be considered preserved was unequivocal. Plaintiffs' evidence of statements to the
contrary cannot alter that conclusion at this point. The Court therefore turns to the choice-of-law
analysis.
In assessing this issue, the Comt is guided by the background principle that "when parties
properly invoke admiralty jurisdiction, comts apply federal maritime choice-of-law rules." Blue
Whale Corp. v. Grand China Shipping Dev. Co., 722 F.3d 488, 498 (2d Cir. 2013). With this
rule in mind, the Court's analysis proceeds in three steps: First, the Court considers whether the
choice-of-law clauses in the charter parties can bind Plaintiffs, even though they are not
signatories to the contract. Second, the Court discusses the legal standard employed to determine
if a choice-of-law clause will control how the underlying contract is interpreted. Third, the Court
applies the standard to the facts of this case.
A. Whether the Choice-of-law Clauses Bind Plaintiffs Despite Their Status
as Non-signatories to the Charter Parties
The four master charter parties in this case each contain a choice-of-law clause that states
"[t]his Charter Party shall be governed by the English Law." Weller Deel. Exs. A-D. In
litigation over a contract containing a choice-of-law clause, the first step in a choice-of-law
analysis is to consider the import of that clause. See, e.g., Roby v. Corp. of Lloyd's, 996 F.2d
1353, 1362-63 (2d Cir. 1993). Plaintiffs argue that the choice-of-law clauses cannot be used in
determining arbitrability because Plaintiffs are not signatories to the charter parties. This claim
6
runs parallel to their American-law argument that they should not be bound to arbitrate under a
contract they did not sign. The Court disagrees on both counts.
Plaintiffs invoke the framework set out in Republic of Ecuador v. ChevronTexaco Corp.,
376 F. Supp. 2d 334, 355 (S.D.N.Y. 2005) (Sand, J.), arguing that a choice-of-law clause
governs when a non-signatory attempts to force a signatory to arbitrate, but not when the
positions are reversed, as they are here. The district court in Republic of Ecuador devised this
rule to reconcile two seemingly conflicting authorities: Motorola Credit Corp. v. Uzan, 388 F.3d
39, 51 (2d Cir. 2004), which applied choice-of-law clauses to an arbitrability dispute, and
Sarhank Group v. Oracle Corp., 404 F.3d 657, 661 (2d Cir. 2005), which applied federal
common law in a similar situation. The Republic of Ecuador framework has been criticized by
other district courts for promoting forum shopping, and for having no basis in the reasoning of
Motorola. FR 8 Singapore Pte. Ltd v. Albacore Mar. Inc., 754 F. Supp. 2d 628, 635-36
(S.D.N.Y. 2010) (Holwell, J.).
The Court declines Plaintiffs' invitation to adopt the Republic of Ecuador framework.
Any apparent tension between Motorola and Sarhank dissipates when the two cases are properly
understood. In Sarhank, the Sarhank Group engaged in arbitration in Egypt with a Cyprus-based
Oracle subsidiary. Sarhank, 404 F.3d at 658. The dispute stemmed from an agreement between
the two entities that selected Egyptian law. Id The arbitrators determined that Egyptian law
bound the non-signatory Oracle to arbitrate as well, and entered a large award against the
American corporation. Id at 658-59. The Sarhank Group sought enforcement of the arbitral
award in New York. Id at 659. The Second Circuit refused to enforce the award, holding that
as an American non-signatory Oracle could not be bound to arbitrate in the absence of "an
articulable theory based on American contract law or American agency law." Id. at 662.
7
Arbitration requires consent. JLM Indus., Inc. v. Stolt-Nielsen SA, 387 F.3d 163, 171 (2d Cir.
2004). Under American law, there are only five theories under which a non-signatory can be
forced into arbitration: "1) incorporation by reference; 2) assumption; 3) agency; 4) veilpiercing/alter ego; and 5) estoppel." Merrill Lynch Inv. Managers v. Op ti base, Ltd, 33 7 F.3d
125, 129 (2d Cir. 2003). Sarhank rejected the contract's choice of Egyptian law of arbitrability
because its broad-brush willingness to bind a non-signatory to arbitration was "contrary to
American public policy." Sarhank, 404 F.3d at 661. As the comi explained:
To hold otherwise would defeat the ordinary and customary expectations of experienced
business persons. The principal reason corporations form wholly owned foreign
subsidiaries is to insulate themselves from liability for the torts and contracts of the
subsidiary and from the jurisdiction of foreign courts. The practice of dealing through a
subsidiary is entirely appropriate and essential to our nation's conduct of foreign trade.
Id at 662. It is a maxim of the law of conflicts that American courts will not enforce parties'
choice of law or forum if it "contravene[ s] a strong public policy of the forum state." Roby, 996
F.2d at 1363; see also, e.g., Restatement (Second) of Conflict of Laws§ 187 (Am. Law Inst.
1971 ). Sar hank does not represent a novel blanket rule about signatories and non-signatories,
but merely an articulation of this longstanding principle.
Motorola, by contrast, presented no such challenge to American arbitral policy. In that
case, Motorola had contracts with Turkish telecom companies that contained arbitration clauses.
Motorola, 388 F.3d at 43. Motorola sued the non-signatory individuals who owned the
companies. Id at 44. The individuals attempted to force Motorola into arbitration under the
telecom contracts. Id The Second Circuit applied the Swiss choice-of-law clauses in the
contracts to interpret the arbitration clauses, against the defendants' wishes. Id at 51. The court
explained that there were no concerns about binding the non-signatory defendants, because if
they "wish to invoke the arbitration clauses in the agreements at issue, they must also accept the
8
Swiss choice-of-law clauses that govern those agreements." Id In other words, Defendants
were bound to the choice-of-law clauses by estoppel, a theory rooted in traditional contract
principles and acceptable to American public policy.
Although Plaintiffs are not signatories to the charter parties, and they are not seeking to
invoke the arbitration provisions in the contracts as were the defendants in Motorola, applying
English law and requiring Plaintiffs to arbitrate does not go against American public policy.
Like the Motorola defendants, Plaintiffs are estopped from denying the choice-of-law provisions
insofar as their claims arise under the contract. This is because "[a] party is estopped from
denying its obligation to arbitrate when it receives a 'direct benefit' from a contract containing
an arbitration clause," even if it is not a signatory to the agreement. Am. Bureau o.f"Shipping v.
Tencara Shipyard SP.A., 170 F.3d 349, 353 (2d Cir. 1999). Importantly, the same principle
applies to bind non-signatories to choice-of-law clauses. Am. S.S. Owners Mut. Prat. & lndem.
Ass"n v. Henderson, Nos. 10-cv-8033, 11-cv-3869, 2013 WL 1245451, at *4 (S.D.N.Y. Mar. 26,
2013). Under this doctrine of direct benefit estoppel, "a non-signatory who claims entitlement to
payment based on the contractual obligations of a signatory is seeking a benefit under the
contract." Id.; see World Omni Fin. Corp. v. Ace Capital Re Inc., 64 Fed. App'x 809, 812-13
(2d Cir. 2003) (insurance claimant received direct benefit from reinsurance policy to which it
was not a signatory).
Robinson Brog Leinwand Greene Genovese & Gluck, P. C. v. John M 0 'Quinn &
Assocs., L.l.P., 523 Fed. App'x 761 (2d Cir. 2013), is instructive. Robinson Brog, one of
several law firms representing a group of plaintiffs, sued its co-counsel seeking its share of
attorneys' fees. The Second Circuit held that the firm was bound by direct benefit estoppel to an
arbitration clause in the client representation agreement, to which it was not a signatory.
9
"Without a client to represent," the court explained, "there could be no net settlement or recovery
and thus no basis for distributing attorneys' fees." Id. at 763. Accordingly, Robinson Brog "may
not seek to benefit from the portion of the Client Agreement that creates the pool of funds for
payment of attorneys' fees without also subjecting itself to the arbitration clause contained in that
same agreement." Id.
A similar result obtained in the choice-of-law context in Henderson. In that case, an
injured sailor sought to enforce a judgment rendered against a vessel owner directly against the
vessel's insurer using the insurance contract between the two entities. Henderson, 2013 WL
1245451, at * 1-2. The court held that the non-signatory sailor was estopped from denying the
contract's choice-of-law provision. Id. at *4. Its rationale was that "the relief [Plaintiff] seeks,"
meaning payment on the judgment, "is a benefit that depends on the existence of the insurance
contract." Id.
The facts of this case place Plaintiffs in the same position as the law firm in Robinson
Brog and the sailor in Henderson. The relief Plaintiffs seek-a declaratory judgment that
Defendants are liable for commissions payable under the brokerage agreements and damages in
the amount of such commissions, see Compl. at 26-is a benefit that depends on the charter
parties for its existence. Without the charter parties, no right to commission would exist.
Indeed, the charter parties themselves incorporate the commission rates that Plaintiffs negotiated.
As Plaintiffs stated in the Complaint, Plaintiffs were "retained by [Defendant] Anemi prior to
their 2007 retention to perform brokerage services in connection with the subject [Korea Line]
charterparties herein." Compl.
parties. Compl.
~
~
24. Such negotiated rates "typically" later appear in the charter
29. Plaintiffs negotiated their brokerage commissions "[w]ith respect to the
2007 [Korea Line] charters." Compl.
~
30. The lengths of the brokerage agreements were in
10
step with that of the charter parties. Compl.
~
33. Plaintiffs allege that they were instrumental in
persuading Defendants not to terminate the chaiier parties when Korea Line went into
rehabilitation proceedings, Compl.
~
58, and it is clear that Plaintiffs' payments depended on the
continued existence of the charter parties. In fact, Plaintiffs' role as negotiators and deal brokers
makes estoppel particularly appropriate in this case (even more so than in cases like Henderson
where the plaintiff is a stranger to the original transaction). Plaintiffs here were present and
involved in the transaction since its inception. Unlike the Henderson plaintiff, they had the
opportunity to make their preference for resolving disputes in American courts under federal law
known to the contracting parties.
Plaintiffs do not appear to seriously dispute that they are third-party beneficiaries. See PI.
Reply Mem. at 8. Their only argument on this point is that their claims arise out of a "prior
independent agreement." See id. at 8 n.8. But this is the issue to be settled in response to the
Second Circuit's second question on remand. As a result, the Court will analyze the choice-oflaw question for Plaintiffs' claims arising under the charter parties as if the Plaintiffs had
formally consented to the choice-of-law clauses in those contracts.
B. Legal Standard for Evaluating the Choice-of-law Provisions
Having determined that the choice-of-law provisions in the charter parties apply to
Plaintiffs' claims that arise under the charter parties, the next question is whether those clauses
determine the outcome of the choice-of-law analysis. "The Supreme Court certainly has
indicated that forum selection and choice-of-law clauses are presumptively valid where the
underlying transaction is fundamentally international in character." Roby, 996 F.2d at 1362
(citing MIS Bremen v. Zapata OffShore Co., 407 U.S. 1, 15 (1972)). The Court articulated this
rule in Bremen, 407 U.S. 1, a maritime contract case upholding a forum selection provision, and
11
its reasoning applies in equal force to choice-of-law clauses. Phillips v. Audio Active Ltd., 494
F.3d 378, 384 (2d Cir. 2007); see also State Trading Corp. ofindia, Ltd. v. Assuranceforeningen
Skuld, 921 F.2d 409, 417 (2d Cir. 1990) (stating in the maritime context that "a contractual
choice-of-law clause generally takes precedence over choice-of-law rules"). A strong preference
for upholding choice-of-law clauses in such cases is necessary because "agreeing in advance on a
forum acceptable to both parties is an indispensable element in international trade, commerce,
and contracting." Bremen, 407 U.S. at 13-14. Such provisions "eliminate uncertainty in
international commerce and insure that the parties are not unexpectedly subjected to hostile
forums and laws." Roby, 996 F.2d at 1363. American courts also enforce such clauses for
reasons of international comity. Id. Moreover, choice-of-law clauses should be enforced
because they are an important part of contract negotiations, and their presence or absence affects
other terms and the value of the contract as a whole. Id.
When a court must select a governing body of law to interpret an arbitration agreement,
an additional concern comes into play: the strong policy favoring a uniform body of law on
arbitrability. See Motorola, 388 F.3d at 51. In dealing with arbitration agreements between
transnational parties, "applying the pai1ies' choice of law is the only way to ensure uniform
application of arbitration clauses within the numerous countries that have signed the New York
Convention." Id. Following the parties' choice of law under such circumstances is thus "fully
consistent with the purposes" of the Federal Arbitration Act. Id.; see also Mitsubishi Motors
Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (1985) (presumption in favor of
choice of forum clause "is reinforced by the emphatic federal policy in favor of arbitral dispute
resolution").
12
All this is not to say that the presumptive validity of a choice-of-law clause cannot be
overcome. Courts will not enforce a choice-of-law clause that is unreasonable under the
circumstances. Roby, 996 F.2d at 1363. Choice-of-law and forum selection clauses are
unreasonable:
( 1) if their incorporation into the agreement was the result of fraud or overreaching; (2) if
the complaining party will for all practical purposes be deprived of his day in court, due
to the grave inconvenience or unfairness of the selected forum; (3) if the fundamental
unfairness of the chosen law may deprive the plaintiff of a remedy; or (4) if the clauses
contravene a strong public policy of the forum state.
Id. (citations and internal quotation marks omitted). Sarhank, analyzed above, is best understood
as a case in which the fourth prong of this test was met and the contract's choice oflaw and
forum were overridden.
Roby holds its presumption in favor ofreasonable choice-of-law clauses in common with
other circuits. See, e.g., Great Lakes Reinsurance (UK) PLC v. Durham Auctions, Inc., 585 F.3d
236, 242-243 (5th Cir. 2009) (maritime jurisdiction); Chan v. Society Expeditions, Inc., 123 F.3d
1287, 1296-97 (9th Cir. 1997) (same); Milanovich v. Costa Crociere, Sp.A., 954 F.2d 763, 767
(D.C. Cir. 1992) (same); see also Thomas J. Schoenbaum, 2 Admiralty & Mar. Law§ 11-19 (5th
ed. 2011) ("All forms of charter parties routinely provide for dispute settlement by arbitration,
and this is generally upheld .... Choice of law clauses in charter parties are likewise valid."
(footnotes omitted)). This approach is congruent with that of the Restatement, which states that
choice-of-law provisions are binding unless (a) "the chosen state has no substantial relationship
to the parties or the transaction and there is no other reasonable basis for the parties' choice," or
(b) the chosen law would contradict fundamental public policy of otherwise-applicable law.
Restatement (Second) of Conflict of Laws § 187 (emphasis added). In using the phrase "other
reasonable basis," the Restatement specifically contemplates that parties to a multistate maritime
13
agreement "should be permitted to submit their contract to some well-known and highly
elaborated commercial law" with no other connection to the transaction. Id. cmt. f. The
Restatement is a major source of federal choice-of-law principles. Pescatore v. Pan Am. World
Airways, Inc., 97 F.3d 1, 14 (2d Cir. 1996).
Plaintiffs emphasize Advani Enterprises v. Underwriters at Lloyds, 140 F.3d 157 (2d Cir.
1998), but it is not to the contrary. That case characterizes the federal maritime contract choiceof-law test as an assessment of a series of contacts:
(1) any choice-of-law provision contained in the contract; (2) the place where the contract
was negotiated, issued, and signed; (3) the place of performance; (4) the location of the
subject matter of the contract; and (5) the domicile, residence, nationality, place of
incorporation, and place of business of the parties.
Id at 162. This type of contacts analysis, a variant of the test laid down by the Supreme Court in
the maritime tort context in Lauritzen v. Larsen, 345 U.S. 571 (1953), is commonly employed by
courts in this Circuit when examining maritime contracts. See, e.g., Blue Whale, 722 F.3d 488.
However, in other such cases, the Second Circuit typically determines whether any choice-of-law
provision binds the parties, and only proceeds to a contacts analysis if the answer is no. See id
at 495-500 (rejecting choice-of-law clause, then proceeding to contacts analysis). If the court
does employ contacts analysis, the choice-of-law clause does not factor into discussion of what
law should apply. See id at 499-500 & n.11 (enumerating and applying maritime choice-of-law
factors without including the choice-of-law clause); Skuld, 921 F.2d at 417 (same). This method
follows dicta in Lauritzen itself that "[e]xcept as forbidden by some public policy, the tendency
of the law is to apply in contract matters the law which the parties intended to apply." Lauritzen,
345 U.S. at 588-89. Accordingly, the Circuit has flaggedAdvani's incorporation of the choiceof-law provision as a factor in the contacts analysis as an outlier. See Philips. 494 F.3d at 384.
14
Despite this tension, Advani need not be read to contradict Roby and the Supreme Court
cases underlying the latter case. Like Roby, Advani begins its analysis with the choice-of-law
clause, and ultimately concludes that the law selected by the clause governs the case. Advani,
140 F.3d at 162-63. Nor does it treat all factors equally. The choice-of-law provision, after
suitable probing, is awarded "considerable weight." Id. at 162. If the choice-of-law clause
factor is treated as primus inter pares, then the other factors can be understood as going to the
fairness or unfairness of the parties' selected law-or as concerns that come into play if the
choice-of-law clause turns out not to be binding. Thus, Advani can be harmonized with the
Roby/Bremen framework. This reading is supported by the relevant post-Bremen case law cited
by Advani in support of its formulation of the contacts test, which analyzes choice-of-law clauses
prior to and separately from other contacts. See Sundance Cruises Corp. v. Am. Bureau of
Shipping, 7 F.3d 1077, 1081 (2d Cir. 1993); Milanovich, 954 F.2d at 767. Subsequent district
court opinions applying Advani to choice-of-law clauses have proceeded similarly. See
Henderson, 2013 WL 1245451, at *3; Thomas v. NASL Corp., No. 99-cv-11901, 2000 WL
1725011, at *8 (S.D.N. Y. Nov. 20, 2000); N. Y Marine & Gen. Ins. Co. v. Trade line (LLC), No.
98-cv-7840, 1999 WL 1277244, at *3 (S.D.N.Y. Nov. 29, 1999). Each of these cases considers
the Advani factors, but states that the choice-of-law clause factor governs unless narrow
exceptions are met. This is the most analytically sound way to integrate the two bodies of
precedent.
Additionally, the Court notes that the instant case is distinguishable from Advani because
this case concerns an international arbitration agreement. As discussed above, Motorola makes
clear that it is especially important for a court to uphold a choice-of-law clause in the
international arbitration context. Motorola, 388 F.3d at 51. In Motorola itself, the court upheld
15
choice-of-law clauses selecting Swiss law without performing contacts analysis, in a dispute with
no apparent connection to Switzerland. It would therefore be especially inappropriate to rely on
an overly cramped reading of Advani as justification for refusing to give appropriate weight to
the choice-of-law clauses in the present case.
Given the above analysis, the Court will apply the following test to determine what
nation's law should be used to interpret the charter parties: A choice-of-law clause in a contract
is presumptively valid where the underlying transaction is fundamentally international in
character. The presumption of validity will be overcome if application of the choice-of-law
clause would be unreasonable under the circumstances. Applying a choice-of-law clause is
unreasonable under the circumstances if (1) the incorporation of the choice-of-law clause into
the agreement was the result of fraud or overreaching; (2) if the complaining party will for all
practical purposes be deprived of his day in court, due to the grave inconvenience or unfairness
of the selected forum; (3) if the fundamental unfairness of the chosen law may deprive the
plaintiff of a remedy; or (4) if the clause contravenes a strong public policy of the forum state.
Roby, 996 F.2d at 1363. In evaluating whether any of these four conditions have been met, the
Court will look to (among other things) the following factors: (1) any choice-of-law provision
contained in the contract; (2) the place where the contract was negotiated, issued, and signed; (3)
the place of performance; (4) the location of the subject matter of the contract; and (5) the
domicile, residence, nationality, place of incorporation, and place of business of the parties.
Advani, 140 F.3d at 162.
C. The Choice-of-law Clauses Govern the Contract
Applying this test here, the Court concludes that Plaintiffs have failed to demonstrate that
enforcement of the choice-of-law clauses would be unreasonable. On the first Roby factor,
16
Plaintiffs do not allege that the provisions were introduced into the charter parties by fraud, or
that they were somehow misled about the operative law or the effect of the arbitration provisions
when they accepted their commissions. As to the second factor, nothing in the record suggests
that an English forum would be gravely inconvenient for Plaintiffs, sophisticated firms that
regularly participate in complex international maritime transactions. Nor is there any reason to
think that the English arbitrators would be biased or unfair. Indeed, in Bremen, the Supreme
Court observed that England was a natural choice for parties seeking "a neutral forum with
expertise" in admiralty litigation. Bremen, 407 U.S. at 12. As to the third factor, "it is not
enough that the foreign law or procedure merely be different or less favorable than that of the
United States." Roby, 996 F.2d at 1363. To prevent the application of the choice-of-law clauses,
English law would need to treat Plaintiffs unfairly or deprive them of any remedy for their
claims. Id Plaintiffs have not suggested that this would come to pass, nor can this Court see any
reason why it should. Finally, the fourth factor asks whether applying the choice-of-law clauses
would be contrary to a strong public policy of this forum. As discussed above, the fact that
Plaintiffs are not signatories to the charter parties does not generate relevant public policy
concerns. Plaintiffs have not brought any other public policy issues to the Court's attention.
Although the Court is not convinced that the remaining Advani factors should receive
attention in a case concerning valid choice-of-law clauses in international arbitration agreements,
it is notewo1ihy that the contacts with the United States are not so significant as to call into
question the presumption that the English law clauses govern the contracts. Plaintiffs present an
America-centric account of the case: their commissions were negotiated, issued, and signed in
the United States; their payments were due in the United States; the subject matter of the contract
17
(their commissions) relates to the United States; Plaintiffs are incorporated in the United States,
and Defendants have their principal place of business here. Pl.'s Br. on Remand at 4-5.
To accept this analysis would be to let the tail wag the dog. The contracts subject to
contacts analysis are the charter parties in their entirety, not merely the minor provisions relating
to Plaintiffs' commissions-and certainly not the May 4, 2007 emails, which Plaintiffs argue
form an entirely separate contract. See, e.g., Henderson, 2013 WL 1245451, at *4 (applying
Advani factors to entire underlying contract between original parties in suit by non-signatory
beneficiary). Once this is understood, the place of performance and subject matter of the
contract factors become neutral. The charter parties concern the hire of a small fleet of
oceangoing cargo vessels. The location of their subject matter and the place of performance are
therefore "numerous ports around the world" rather than the United States. Tradeline, 1999 WL
1277244, at *3 n.1; see also Iroquois Gas Transmission Sys. v. Associated Elec. & Gas Ins.
Servs., No. 05-cv-2149, 2006 WL 903223, at *2 (S.D.N.Y. Apr. 5, 2006) ("As to the third factor,
the place of performance was 'worldwide,' and therefore is neutral."). The law of the flag for
each of the thirteen vessels involved in the charter parties is the Marshall Islands.
Comp!.~
20.
Similarly, when considering the domicile, residence, nationality, place of incorporation,
and place of business of the parties, the Court looks primarily at the parties to the contract, not
the parties to this lawsuit. See, e.g., Iroquois, 2006 WL 903223, at *2. ICS is a New York
corporation with its principal place of business in New Jersey, and Peraco is incorporated and
has its principle place of business in Connecticut. Comp!.
~~
12, 14. However, despite their role
in the contract negotiations, Plaintiffs are not parties to the contracts, and thus their locations are
less significant than those of the other participants. Korea Line, the charterer, is a Korean
corporation with its principal place of business in Korea. Weller Deel.
18
i! 2.
A third nonparty
broker that participated in the transaction, Overseas Shipping Corporation ("Overseas"), is also
Korean. Dushas Aff.
~
15. Anemi, Korea Line's counterparty in the contracts, was a Liberian
corporation whose primary place of business appears to have been Greece (despite the presence
of an authorized agent in New York). See Compl.
Dushas Reply Aff.
ii~
~
18; Weller Remand
Deel.~
4 (Dkt. No. 61);
5-7. The individual ship-owning Defendants are all Marshall Islands
corporations, as is Eagle (the eventual acquirer of the other Defendants), though Eagle's
principal place of business is in the United States. See
Comp!.~~
16, 20. This factor therefore
does not point strongly in any particular direction. At the time the charter parties were signed,
the diversity of the parties involved made the selection of a neutral, reliable forum and law in
which to resolve disputes natural and desirable. Hammond Reply Aff.
~
1O; see Bremen, 407
U.S. at 11-12.
This leaves only the place of contracting. This is the factor that points most strongly
towards the United States, but even this does so weakly. The charter parties themselves state that
they were "made and concluded" in Jersey City, New Jersey. See Weller Deel. Ex. A at 1 (Dkt.
No. 4-1 ). The signature line for Korea Line indicates that it was located in Seoul, South Korea,
id at 4, although Plaintiffs have presented an affidavit stating that Korea Line, too, signed the
charter parties in New York, see Dushas Reply Aff.
~
9. The evidence in the record does not
explicitly address the place of negotiations for all parties. Plaintiffs and Anemi' s authorized
agent were in the United States during the negotiation period, and seem to have negotiated from
there. Plaintiffs' affidavit intimates that Korea Line flew to New York for several "important
meetings," but presumably they (and Overseas) conducted any discussions outside of such
meetings from Korea. Id. This factor alone is not enough to establish a sufficient interest on
behalf of the United States to outweigh the otherwise-valid choice-of-law clauses in the
19
contracts. See Restatement (Second) of Conflict of Laws § 188 cmt. e ("This contact is of less
importance when there is no one single place of negotiation and agreement[.]").
The Court therefore concludes that the law of England governs claims under the charter
parties. The choice-of-law clauses control the outcome here, and Plaintiffs as non-signatories are
nonetheless bound by those provisions. As the Second Circuit determined, under English law,
Plaintiffs are considered to be covered by the phrase "Owners and the Charterers" under a theory
of assignment. They therefore fall within the scope of the arbitration clauses, and are bound to
bring any claims arising under the charter parties to arbitration in London.
III.
Additional Briefing is Necessary to Determine Whether Plaintiffs Have
Claims Independent of the Charter Parties
The Co mi now turns to the question of whether Plaintiffs have claims that are
independent of the charter parties-claims that therefore would not be subject to the charter
parties' arbitration clauses. Although the parties briefed the issue on remand, the Court's
decision in Part II of this order, supra, vitiates many of the arguments deployed. Furthermore,
the question of independence raises several difficult legal questions, particularly questions of
choice of law, which have not been adequately addressed. The Court therefore orders the parties
to file briefs addressing the following questions:
1. Should the question of whether Plaintiffs have claims independent of the charter
parties-claims that cannot be arbitrated-be determined by this Comi, or by the
arbitrators in England?
2. If the Court should make the determination, then as a matter of contract law, do
Plaintiffs have claims against Defendants independent of the charter parties?
20
3. If Plaintiffs' claims are independent as a matter of contract law, is there any reason
why they must still arbitrate such claims under the charter parties?
For each of these questions, the parties should (a) address whether English or federal law
applies, (b) explain how the question should be resolved under English law, and (c) explain how
the question should be resolved under federal law.
4. Finally, the parties should address what would happen if the Court, applying federal
law, determines that Plaintiffs must arbitrate all of their claims in London-yet under
English law, the arbitrators would refuse to hear some or all of those claims.
Defendants' brief of no more than 15 pages will be due on October 29, 2015. Plaintiffs'
response brief of no more than 15 pages will be due on November 12, 2015. Defendants' reply
brief of no more than 5 pages will be due on November 19, 2015.
IV.
Conclusion
For the foregoing reasons, the Defendants' motion to compel arbitration is GRANTED in
part. Further briefing is ordered as described above.
SO ORDERED.
i ,
2015
Dated: October
New York, New York
ALISON J. NA THAN
United States District Judge
21
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