Kingsbury Navigation Ltd. v. Koch Supply & Trading, LP
Filing
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ORDER granting 10 Motion to Compel Arbitration. Case is DISMISSED..(Signed by Judge Melinda Harmon) Parties notified.(rvazquez)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
KINGSBURY NAVIGATION LTD.,
Plaintiff,
VS.
KOCH SUPPLY & TRADING, LP,
Defendant.
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CIVIL ACTION NO. 4:12-CV-1851
OPINION AND ORDER
Pending before the Court is the Motion to Compel Arbitration (Doc. 10) filed by
Defendant Koch Supply & Trading, LP. For the reasons explained below, the Court concludes
that the motion should be granted.
I.
Background
The dispute underlying this case involves three business entities, two signatories to a
maritime contract, and one contested arbitration clause. The three business entities are Plaintiff
Kingsbury Navigation, Ltd. (“Kingsbury”), owner and operator of the Motor Tanker
SEADANCER (the “Seadancer”); Defendant Koch Supply & Trading, LP (“KS&T”); and
nonparty Koch Shipping, Inc. (“Koch Shipping”). Plaintiff Kingsbury and nonparty Koch
Shipping were signatories to a November 21, 2007, ASBATANKVOY tanker voyage charter
party (the “Charter”) (Doc. 10-1); Defendant KS&T was not.
Pursuant to the Charter, Kingsbury agreed to Koch Shipping’s use of the Seadancer to
transport fuel from the Baltic region to the U.S. Gulf Coast. (Compl. ¶¶ 9, 12, Doc. 1). As is
customary in the tanker trade, Kingsbury entered into a follow-on contract with another entity for
employment of the Seadancer after the discharge of its cargo under the Charter, (Doc. 1 ¶ 13),
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but Koch Shipping’s failure to discharge the cargo in a reasonable time contributed to the
cancellation of that follow-on contract, (Doc. 1 ¶¶ 20, 23, 28). Consequently, on or about April 2,
2008, Kingsbury invoked the Charter’s arbitration clause to pursue maritime arbitration against
Koch Shipping in New York, seeking damages both for the delay in discharging the Seadancer’s
cargo and for lost profits from the cancelled follow-on contract. (Doc. 1 ¶¶ 26-27). That
arbitration clause, the same one that is the subject of the motion before this Court, reads as
follows:
Any and all differences and disputes of whatsoever nature arising out of this
Charter shall be put to arbitration in the City of New York or in the City of
London whichever place is specified in Part I of this charter pursuant to the laws
relating to arbitration there in force …. Until such time as the arbitrators finally
close the hearings either party shall have the right by written notice served on the
arbitrators and on an officer of the other party to specify further disputes or
differences under this Charter for hearing and determination. Awards made in
pursuance to this clause may include costs, including a reasonable allowance for
attorney’s fees, and judgment may be entered upon any award made hereunder in
any Court having jurisdiction in the premises.
(Doc. 10-1, Part II ¶ 24). During the arbitration proceedings, Koch Shipping agreed to pay
Kingsbury $827,116.05 in demurrage and detention charges, plus interest, resulting from the
delay, but opposed Kingsbury’s demand for $2,025,639.00 in lost profits suffered as a result of
the cancellation of the follow-on contract. (Final Award 3, 7, June 24, 2011, Doc. 10-2). The
arbitration panel agreed with Koch Shipping, denying Kingsbury’s claim for lost profits, (Doc.
10-2 at 17), and the U.S. District Court for the Southern District of New York subsequently
denied Kingsbury’s petition to vacate the final arbitration award and granted Koch Shipping’s
cross-motion to confirm the award, Kingsbury Navigation Ltd. v. Koch Shipping Inc., No. 11CV-6575-DAB, 2012 WL 2345170, at *7 (S.D.N.Y. June 14, 2012).
During arbitration, Kingsbury first learned of the role of KS&T, an affiliate of Koch
Shipping, in the delayed discharge of cargo. (Doc. 1 ¶ 29). According to Kingsbury, testimony
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from an employee of KS&T, which was not a party to the arbitration proceedings, revealed that it
was actually KS&T that caused the delay by using the Seadancer as “cheap floating storage” and
inducing Koch Shipping to breach the Charter. (Pl.’s Resp. 4-7, Doc. 13) (internal quotation
marks omitted). As a result, Kingsbury initiated this action against KS&T for its “unlawful
interference with the [Charter].” (Doc. 1 ¶ 19).
KS&T’s motion does not address the substance of this claim; rather, it addresses the
procedure for its adjudication: by litigation in this Court or by arbitration.
II.
Discussion
It is undisputed that Kingsbury and Koch Shipping signed a Charter with an arbitration
clause providing that “[a]ny and all differences and disputes … arising out of [the] Charter shall
be put to arbitration,” (Doc. 10-1, Part II ¶ 24); thus, the only question is whether that arbitration
clause also applies to Kingsbury’s claim against nonsignatory KS&T. A nonsignatory to an
arbitration agreement may invoke that agreement “only in rare circumstances.” Westmoreland v.
Sadoux, 299 F.3d 462, 465 (5th Cir. 2002). One such circumstance exists under the theory of
equitable estoppel:
First, equitable estoppel applies when the signatory to a written agreement
containing an arbitration clause must rely on the terms of the written agreement in
asserting its claims against the nonsignatory. When each of a signatory’s claims
against a nonsignatory makes reference to or presumes the existence of the written
agreement, the signatory’s claims arise out of and relate directly to the written
agreement, and arbitration is appropriate. Second, application of equitable
estoppel is warranted when the signatory to the contract containing an arbitration
clause raises allegations of substantially interdependent and concerted misconduct
by both the nonsignatory and one or more of the signatories to the contract.
Otherwise the arbitration proceedings between the two signatories would be
rendered meaningless and the federal policy in favor of arbitration effectively
thwarted.
Grigson v. Creative Artists Agency L.L.C., 210 F.3d 524, 527 (5th Cir. 2000) (internal quotation
marks and emphasis omitted) (adopting the “intertwined-claims” test formulated by the Eleventh
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Circuit). The rationale behind this rule is simple fairness: “[The plaintiff] cannot, on the one
hand, seek to hold the nonsignatory liable pursuant to duties imposed by the agreement, which
contains an arbitration provision, but, on the other hand, deny arbitration’s applicability because
the defendant is a nonsignatory.” Bridas S.A.P.I.C. v. Gov’t of Turkm., 345 F.3d 347, 361 (5th
Cir. 2003) (quoting Grigson, 210 F.3d at 528).
In this case, Kingsbury, claims that “KS&T willfully interfered with the timely discharge
of the SEADANCER in order to use the ship as storage [for its own commercial purposes],”
(Doc. 1 ¶ 21), and seeks compensation for lost profits under the follow-on contract, (Doc. 1 ¶
35). Kingsbury further argues that its claim (A) neither relies on the terms of the Charter (B) nor
raises allegations of substantially interdependent and concerted misconduct by KS&T and Koch
Shipping, thus preventing KS&T from invoking the Charter’s arbitration clause under the theory
of equitable estoppel. A reading of Kingsbury’s own filings, however, proves this position to be
untenable.
A.
Terms of the Written Agreement
Kingsbury’s argument regarding the first prong of the intertwined-claims test is that its
“claim against KS&T did not arise out of the [Charter]; it arose in spite of it out of [KS&T’s]
obstruction of the discharge of the vessel.” (Doc. 13 at 15) (emphasis added). But the discharge
of the vessel was governed by the terms of the Charter, and Kingsbury’s claim rests on the
proposition that the delay in discharge was impermissible under those terms:
10.
The [Charter] did not contain any provisions whatsoever allowing use of
the vessel as floating storage for the cargoes to be laden onboard. It included only
provisions for the loading, transportation and delivery of the cargo at the
destinations to be nominated by Charterer.
….
19.
To accomplish this unlawful interference with the [Charter]—i.e. use of
[Kingsbury’s] vessel as interim floating storage for its own commercial
purposes—KS&T required [Koch Shipping] (an affiliated corporation that
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regularly and closely collaborates with KS&T) to stall, delay, and postpone the
SEADANCER and to “park” the vessel with the 75,000 metric tons of M-100
onboard in order to take advantage of the “cheap” demurrage rate of the vessel
under the [Charter].
20.
[Koch Shipping] readily complied with the unlawful demands of KS&T to
breach and withhold good faith performance of the [Charter] and actually failed to
arrange for the discharge of the cargo remaining onboard the SEADANCER
within a reasonable time.
(Doc. 1 ¶¶ 10, 19-20). In sum, Kingsbury claims that KS&T “frustrate[ed] the timely discharge
of the vessel,” (Doc. 1 ¶ 23), and such timeliness cannot be determined without reference to the
Charter. Kingsbury cannot have it both ways: it cannot argue that the use of the Seadancer as
floating storage was wrongful because it violated the terms of the Charter, and, at the same time,
that KS&T’s role in these acts was impermissible in spite of the Charter. Kingsbury inadvertently
acknowledges the incoherence of this logic, stating that “KS&T had decided to use the
SEADANCER as floating storage, an impermissible use under the Charter.” (Doc. 13 at 5-6)
(emphasis added). Accordingly, Kingsbury’s claim “makes reference to or presumes the
existence of the written agreement, [it] arise[s] out of and relate[s] directly to the written
agreement, and arbitration is appropriate.” Grigson, 210 F.3d at 527.
B.
Interdependent and Concerted Misconduct
Alternatively, under the second Grigson prong, arbitration can be compelled “when the
signatory to the contract containing an arbitration clause raises allegations of substantially
interdependent and concerted misconduct by both the nonsignatory and one or more of the
signatories to the contract.” 210 F.3d at 527. Once again, whether KS&T and Koch Shipping’s
alleged misconduct was “substantially interdependent and concerted” can be answered by
reference to Kingsbury’s own words. Kingsbury’s original complaint against Koch Shipping was
based on the “alleg[ation] that it suffered damages as a result of [Koch Shipping’s] deliberate
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choice to use the [Seadancer] as floating storage outside of the terms of the Agreement.”
Kingsbury Navigation, 2012 WL 2345170, at *2. During the arbitration proceedings, Kingsbury
learned that “it was actually KS&T” that was “calling the shots” by “decid[ing] to use the
SEADANCER as ‘cheap floating storage’ ” despite the fact “that there was no contractual right”
to do so. (Doc. 13 at 5). It is this information that forms the basis of Kingsbury’s current
complaint, and, given that the two complaints allege the same wrongful acts perpetrated jointly
by the signatory and nonsignatory, it is difficult to see how the alleged misconduct was not
interdependent and concerted. Moreover, Kingsbury’s attempt to draw a distinction between the
two by arguing that one is grounded in tort and the other, in contract, is unavailing. See Grigson,
210 F.3d at 529 (compelling arbitration where claims of tortious interference with contract were
“intertwined with, and dependent upon, the [terms of the contract]”). Therefore, application of
equitable estoppel is also warranted under the second Grigson prong, and arbitration is
appropriate.
III.
Conclusion
“The weight of authority clearly supports dismissal of the case when all of the issues
raised in the district court must be submitted to arbitration.” Alford v. Dean Witter Reynolds,
Inc., 975 F.2d 1161, 1164 (5th Cir. 1992) (collecting cases). In this case, there is but one issue,
and that issue should be decided by arbitration, not litigation. Accordingly, it is hereby
ORDERED that the Motion to Compel Arbitration (Doc. 10) is GRANTED and this
case is DISMISSED.
SIGNED at Houston, Texas, this 24th day of August, 2013.
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MELINDA HARMON
UNITED STATES DISTRICT JUDGE
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