Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.


July 13, 1978

In the Matter of the arbitration between POLLUX MARINE AGENCIES, INC., as Agents for the Owners of the M.V. CAPTAIN DEMOSTHENES, Petitioner, and LOUIS DREYFUS CORP., Respondent

The opinion of the court was delivered by: WARD

Petitioner, Pollux Marine Agencies, Inc., agent for the owners of the vessel M.V. "CAPTAIN DEMOSTHENES", moves pursuant to 9 U.S.C. §§ 4 & 5 for an order appointing an arbitrator and directing respondent Louis Dreyfus Corp. to proceed to arbitration in accordance with an arbitration clause contained in a time charter party allegedly entered into on July 30, 1976 by petitioner, as agent for the owners of the M.V. "CAPTAIN DEMOSTHENES," and respondent as charterer. For the reasons hereinafter stated, the portion of the motion which seeks to compel arbitration under § 4 is granted, but the portion which seeks to compel the appointment of an arbitrator under § 5 is denied as moot.

The issue in this suit is whether there was a binding fixture of the M.V. "CAPTAIN DEMOSTHENES" on July 30, 1976. If there was, then presumably the only question remaining would be what damages, if any, petitioner incurred as a result of respondent's alleged breach.

Petitioner asserts that on July 30, 1976 a time charter party arose by virtue of the parties' reaching a binding agreement on the "main terms" of the charter party, subject to the inclusion of certain "pro forma details" to be negotiated later. In support of this assertion it cites a "fixture recap" telex sent to respondent's broker on July 30, 1976, which reads in part: "We confirm having fixed the foll with you today subject details of Eldece Time." *fn1" It is undisputed that "Eldece Time" refers to respondent Louis Dreyfus Corp.'s (I. e., "LDC") pro forma time charter. *fn2"

 It is petitioner's contention that so long as there was a meeting of the minds on the main terms, and allegedly there was, there was a contract; the negotiation of pro forma details was merely a condition subsequent and therefore even if the parties could not agree on all of the details there would nonetheless be a contract. In any event, petitioner claims that the parties did agree on all of the pro forma details as well.

 One of the pro forma details of the Eldece Time was clause 17 of the New York Produce Exchange form which provides in pertinent part: "should any dispute arise between Owners and the Charterers, the matter in dispute shall be referred to three persons at New York, one to be appointed by each of the parties hereto, and the third by the two so chosen . . .." Petitioner invokes this clause, contending that it became effective on July 30, 1976 as part and parcel of an integrated contract of charter party which arose on that date.

 Respondent has maintained and continues to maintain that there was no fixture and therefore it did not repudiate it. Essentially, respondent's position has been that because the telex of July 30, 1976 indicated that the fixture was subject to details of Eldece Time, no binding agreement could arise until all of the details were agreed upon, and so long as any term was left open each party was free to renegotiate any term previously agreed to or back out entirely; pursuant to respondent's request, it allegedly was agreed that all details must be agreed upon by August 2, 1976; there allegedly was not an agreement on each and every detail by August 2, 1976; therefore, no binding fixture ever occurred and respondent was entitled to back out of the agreement.

 Consistent with this position that no charter party came into existence, until quite recently respondent staunchly contended that the arbitration clause within the charter party likewise never came into existence. *fn3" Consequently, from December 12, 1977, the date on which petitioner first demanded arbitration, until June 8, 1978, respondent refused to arbitrate and actively opposed the instant petition, through extensive discovery, briefings, affidavits and several court appearances. The upshot of all this was that the parties' submissions raised disputed issues of fact. Accordingly, at a pre-trial conference held on June 2, 1978, the Court set the matter down for trial on Monday June 12, 1978, as both sides at that time agreed was necessary under the controlling authority in this circuit. E. g., A/S Custodia v. Lessin International, Inc., 503 F.2d 318 (2d Cir. 1974); Interocean Shipping Co. v. National Shipping & Trading Corp., 462 F.2d 673 (2d Cir. 1972).

 On June 8, 1978, however, respondent suddenly shifted gears and decided to admit the existence of the arbitration agreement while continuing to deny the existence of the charter party which contained the arbitration agreement. On that date, counsel for respondent wrote a letter, which was hand-delivered to the Court and petitioner's attorneys on Friday, June 9, 1978, in which it nominated an arbitrator in response to petitioner's December 12, 1977 demand for arbitration. *fn4" On June 9th, at a pre-trial conference convened in response to this letter, respondent articulated the position that the arbitration clause somehow constituted a separate agreement, *fn5" pursuant to which it was now appointing an arbitrator and was willing to arbitrate so long as the arbitrators would decide the question of the existence Vel non of the alleged charter party.

 Petitioner opposed submitting this question to the arbitrators, asserting that the existence or non-existence of a charter party was a threshold question of law for the Court. On June 9th the Court indicated its tentative agreement with petitioner's view that the contract question was one for the Court. In addition, the Court noted that the new position being espoused by respondent was inconsistent with the Answer it had filed, and was inconsistent with its argument that there could be no contract on any of the terms so long as there was non-agreement on any other term. As to the former inconsistency, counsel suggested that it could be alleviated by amending its Answer, although the Court notes it did not seek leave to do so. As to the latter inconsistency, counsel made no response. Leave was requested to brief the question of whether the existence or non-existence of the charter party was arbitrable, or, as respondent would phrase it, whether respondent's consent to appoint an arbitrator and arbitrate robs this Court of jurisdiction to act further under 9 U.S.C. § 4. The Court acceded to this request, scheduled briefs for the following week, and tentatively scheduled a trial for Monday June 19, 1978 in the event that the Court remained unpersuaded by respondent's argument.

 Prior to and on June 19, 1978, the parties did submit briefs on the question of the arbitrability of the existence of the alleged contract. In addition, on June 13, 1978, without obtaining the necessary leave of Court or written consent of petitioner, *fn6" respondent filed an amended answer reflecting its new position.

 1. The Amended Answer

 On June 19, 1978, in open Court, petitioner confirmed that it was opposed to the filing of the amended Answer, whereupon respondent moved orally for leave of court nunc pro tunc. Leave was denied and the filed amended Answer was stricken.

 The Court is well aware that leave to replead "shall be freely given when justice so requires." Rule 15(a), Fed.R.Civ.P. Although this standard is liberal, the proviso "when justice so requires" necessarily implies justice to both parties. Thus, the Court must "examine the effect and timing of the proposed amendments (to the Answer) to determine whether they would prejudice the rights of . . . the other part(y) to the suit." 6 C. Wright and A. Miller, Federal Practice & Procedure, § 1484, at 420 (1971).

 Petitioner would be prejudiced by respondent's late change of heart. Four months have elapsed since issue was joined in this case and six months have elapsed since petitioner demanded arbitration. Thus, there has been significant delay in resolving whether petitioner has a right to arbitrate its alleged damages. *fn7" However, this delay in itself is not dispositive of whether or not petitioner would be prejudiced by the respondent's shift in position, inasmuch as petitioner has indicated that, if it is determined that there was a charter party and that the damages, if any, will be arbitrated, it would be willing to postpone the arbitration on damages for approximately six months so that the parties can observe whatever price fluctuations may occur in the charter market during the balance of the alleged time charter. Besides the delay, however, respondent's initial position and its current position have caused petitioner to incur substantial costs. In connection with the motion to compel, which respondent hoped to moot by the proposed amended Answer, three depositions were taken, numerous briefs and affidavits were submitted, and several court appearances were required. In addition, another Court appearance and a round of briefings resulted from respondent's sudden reluctance to have the Court decide whether or not a charter party exists. These costs, the delay and the resultant uncertainty as to whether or not there was a charter party on which petitioner can base a right to arbitrate damages, have prejudiced petitioner. For this reason, unconditional leave under Rule 15(a) for respondent to amend its Answer would be unfair to petitioner. Accordingly, unconditional leave was properly denied.

 Because the Court has found unconditional leave to amend inappropriate inasmuch as it would be unfair and prejudicial to petitioner, respondent likewise should be estopped to change its position after inducing petitioner to file suit, move to compel, conduct discovery and otherwise actively litigate the question of whether there was a charter party that included a provision for arbitration. See Avila Group v. Norma J. of California, 426 F. Supp. 537, 541-42 (S.D.N.Y.1977) (Weinfeld, J.).

 The Court is not unmindful that much of the prejudice to petitioner could be alleviated by taxing respondent for all of the costs, including petitioner's attorney's fees, incurred to date in this action. Therefore, the Court briefly considered the possibility of granting leave to amend on the condition that these costs be paid promptly by respondent. See Wright & Miller, Supra § 1486. However, the Court discarded this alternative without discussing it with the parties or determining whether respondent would be willing to accept such leave, because the Court had already reviewed the briefs and researched the law on who should decide whether there was a charter party, and had come to the conclusion that it is a question for the Court. Thus, it concluded that even if it were to permit respondent to amend its Answer on the condition that it bear all of petitioner's costs, and then if it were to find that the resultant diminution in prejudice to petitioner would be so significant that respondent should not be estopped from changing its position, the respondent would have gained nothing because the Court would hold as a matter of law that the charter party question was one for the Court and would not be affected by respondent's concession that there was an agreement to arbitrate.

 2. The Court has Jurisdiction to Decide Whether There was a Charter Party, Regardless of Whether Respondent Concedes that There was an Agreement to Arbitrate, and in the Absence of Consent from Petitioner the Arbitrators Do Not Have Jurisdiction Over the Question

 Section 4 of Title 9 of the United States Code provides in pertinent part:

A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court . . . for an order directing that such arbitration proceed in the manner provided for in such agreement. . . . If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof.

 Although, as respondent correctly asserts, the Court's power to hear under 9 U.S.C. § 4 essentially is limited to the issue of whether or not the parties agreed to arbitrate, in A/S Custodia, supra, and Interocean Shipping Co., supra, the Court of Appeals reversed the district courts for failing to conduct a hearing on the disputed issue of whether or not a charter party existed. Respondent asserts that in those cases the courts had to resolve a dispute as to the existence of a charter party only because that dispute was incidental to the primary dispute as to the existence of an arbitration clause. It attempts to distinguish those cases by arguing that in the instant case the contract question is not incidental to a dispute for judicial resolution inasmuch as there is purportedly no longer a dispute as to the existence of an arbitration clause: now that respondent has appointed an arbitrator there allegedly is no longer a "failure, neglect, or refusal . . . to arbitrate" and now that respondent asserts that there is an arbitration agreement, which is either severable from or arose independently of any charter party, there allegedly is no longer any issue as to "the making of the arbitration agreement or the failure, neglect, or refusal to perform the same." Assuming arguendo that the distinction drawn between this case and Custodia and Interocean is correct, the Court nevertheless finds that there is still a dispute as to "the making of the arbitration agreement or the failure, neglect, or refusal to perform the same." Therefore, A/S Custodia and Interocean are controlling.

 There are two reasons why respondent is incorrect in asserting that there is no issue "as to the making of the arbitration agreement." First, it contends, but did not prove, that an arbitration agreement was reached on July 27, 1976, *fn8" whereas petitioner contends that the arbitration provision came into being on July 30, 1976 as part of an integrated contract of charter party. Thus, there is a disputed issue as to the time of "the making of the arbitration agreement." Second, respondent contends that a dispute as to the existence of the charter party comes within the scope of the disputes covered by the arbitration clause; petitioner contends that it does not. Thus, there is an issue as to which disputes the parties intended the arbitration clause to cover, which would be an issue "as to the making of the arbitration agreement." See International Union of Operating Engineers Local 139 v. Carl A. Morse, Inc., 387 F. Supp. 153, 157 (E.D.Wis.1974), Aff'd, 529 F.2d 574, 579 (7th Cir. 1976). Given the existence of these issues as to the making of the arbitration agreement, there is a live controversy for this Court to adjudicate pursuant to 9 U.S.C. § 4, despite respondent's eleventh hour concession that there was an agreement to arbitrate.

 That these issues are for the Court, rather than the arbitrators, to determine flows from the fact that the duty to arbitrate is contractual and a Court cannot compel a party to arbitrate a dispute it did not contractually agree to arbitrate. United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S. Ct. 1347, 4 L. Ed. 2d 1409 (1960); Humble Oil & Refining Co. v. Local 866, International Brotherhood of Teamsters, 321 F. Supp. 374, 379 (S.D.N.Y.1970), Aff'd, 447 F.2d 229 (2d Cir. 1971). Inasmuch as petitioner has opposed arbitrating the contract question on the grounds that it is beyond the scope of the arbitration clause it agreed to, it is incumbent upon this Court to determine the scope of the arbitration clause, lest it improperly compel petitioner to arbitrate a question it did not agree to arbitrate.

 Thus, the scope of the arbitration clause is the issue before the Court. Although respondent has, quite ingeniously, managed to characterize the issue as one of jurisdiction, in fact it is simply a question of the arbitrability of a dispute respondent wishes to submit to arbitration. Absent an agreement to the contrary, arbitrability is clearly a question for the Court, International Union of Operating Engineers Local 139, supra, 529 F.2d at 580; Humble Oil & Refining Co., supra, 321 F. Supp. at 379, to be determined by reference to the intent of the parties as reflected in the scope of the arbitration clause. See Drake Bakeries, Inc. v. Local 50, American Bakery & Confectionery Workers, 370 U.S. 254, 256, 82 S. Ct. 1346, 8 L. Ed. 2d 474 (1962).

 Here the language of the arbitration clause clearly demonstrates that the parties did not intend the arbitration clause to cover disputes as to the very existence of the contract containing the arbitration clause. Although the arbitration clause is broad, as is argued by respondent, it is limited to disputes "between Owners and The Charterers." If it had covered all disputes between Owners and "Louis Dreyfus Corp.", then it could be argued that it was broad enough to cover a dispute as to the existence of the charter party. However, the use of the word "Charterers" presupposes the existence of a charter and necessarily implies that the existence of the charter was not one of the potential disputes subject to arbitration. Accordingly, the Court finds that the parties did not intend the arbitration clause to cover a dispute as to the existence of the charter party. *fn9" Therefore, the Court cannot compel the parties to arbitrate this issue.

 Respondent attempts to confuse matters by its misplaced reliance on Prima Paint v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 87 S. Ct. 1801, 18 L. Ed. 2d 1270 (1967), and Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402, 409 (2d Cir. 1959), Cert. dismissed pursuant to stip., 364 U.S. 801, 81 S. Ct. 27, 5 L. Ed. 2d 37 (1961). The crux of Prima Paint and Devonshire was whether the respective arbitration clauses involved were broad enough to cover a defense of fraud in the inducement a question of what the parties intended the arbitration clause to cover. That it was found that those parties intended that issue, which is extremely different from the issue involved in this case, to come within the scope of an arbitration clause different from the one involved in this case is of no help to respondent. This Court must analyze the parties' intent vis-a-vis the issue and arbitration clause involved in this case. *fn10"

 The issue in Prima Paint and Devonshire, fraud in the inducement, differs from the issue in dispute here in that fraud in the inducement affects only the validity, legality or enforceability of a contract; it does not negate the existence of a contract and thereby raise a question as to the existence, validity, legality or enforceability of the arbitration clause therein. Prima Paint specifically stated that "if the claim is fraud in the inducement of the arbitration clause itself an issue which goes to the "making' of the agreement to arbitrate the federal court may proceed to adjudicate it." 388 U.S. at 403-04, 87 S. Ct. at 1806; Accord, Devonshire, supra at 411. By a parity of reasoning, here the dispute as to the making of the charter party, as opposed to a fraud defense to its legality, validity or enforceability, raises an issue for trial as to the making of the arbitration clause contained therein. Interocean Shipping, supra.

 Respondent's answer is that either the arbitration clause is severable or else there was an independent arbitration agreement. It argues that in either case, the making of the charter party would be a separate issue from the making of the arbitration clause and therefore a dispute as to the former would not necessitate a dispute as to the latter.

 Turning first to severability, it does seem to the Court *fn11" that something can be severed only from something else that exists. How can the Court "sever" an arbitration clause from a non-existent charter party? Despite its inability to conceptualize respondent's argument, the Court will address it.

 On the severability question, respondent cites as dispositive abstract language from Prima Paint and Devonshire. *fn12" However, it does not cite the applicable language from Devonshire, namely: "Certainly this is not a case like Kulukundis (126 F.2d 978 (2d Cir. 1942)) . . . where the defendant denied ever agreeing to (a charter party). Naturally such a question had first to be settled before arbitration could be directed." 271 F.2d at 411 (emphasis added). Respondent also does not cite the similar language of In re Kinoshita & Co., 287 F.2d 951, 953 (2d Cir. 1961), that "(t)here would be . . . an obstacle (to severing) if it was claimed . . . that (a) signature to the contract was a forgery, or that for any other valid reason there had at no time existed as between the parties any contractual relation whatever. In such an event a trial of this issue would be required before an order could be issued directing the parties to proceed to arbitration." *fn13" Kinoshita and Devonshire ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.