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Caribbean Steamship Co. v. A.S.

decided: May 17, 1979.

CARIBBEAN STEAMSHIP COMPANY, S.A., PETITIONER-APPELLEE,
v.
SONMEZ DENIZCILIK VE TICARET A.S., RESPONDENT-APPELLANT



Appeal from order of the United States District Court for the Southern District of New York, Motley, J., granting petition to compel arbitration.

Before Feinberg, Timbers and Meskill, Circuit Judges.

Author: Feinberg

In this unusual case, Sonmez Denizcilik Ve Ticaret A.S., a Turkish corporation, and owner of the vessel M/V Zeki, appeals from an order of the United States District Court for the Southern District of New York, Constance Baker Motley, J., compelling appellant to arbitrate a dispute with appellee Caribbean Steamship Company, S.A., a Panamanian corporation. For reasons set forth below, we affirm the judgment of the district court.

I

In October 1976, appellee Caribbean entered into a charter party with appellant shipowner for the transportation of a cargo of alumina ore aboard the M/V Zeki. The cargo was loaded on the ship in Germany in October 1976 but the vessel sank in the Atlantic Ocean on November 7. Although the crew was saved, there was a total loss of the almost $23/4 million worth of cargo. The claim that appellee, the charterer, seeks to press in arbitration relates to the cargo loss caused by that unfortunate event.

At the time of the sinking, the cargo was owned by Reynolds Metals Company, the parent company of appellee charterer. After Reynolds recovered for the loss from its insurer, the Insurance Company of North America, a petition in the cargo owner's name was filed in the United States District Court for the Southern District of New York to compel the shipowner to arbitrate the cargo owner's claim regarding the loss. Reynolds, as cargo owner, apparently relied on the standard New York Produce Exchange Arbitration Clause in the charter party between the shipowner and the charterer, which provided:

28. Should any dispute arise between Owners and 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; their decision or that of any two of them shall be final, and for the purpose of enforcing any award, this agreement may be made a rule of the Court. The arbitrators shall be commercial men.

The cargo owner's petition was assigned to Judge Charles L. Brieant, Jr., who refused to compel arbitration. In a memorandum opinion, the judge held that because the cargo owner, Reynolds Metals Company, was not a party to the charter party, and because Reynolds could not "pierce its own subsidiary's corporate veil," Reynolds's claim was "not a dispute between (ship)owner and charterer . . . which P 28 of the charter party compels respondent (shipowner) to arbitrate." No appeal was taken from that decision.

The insurer, which was subrogated to the cargo owner's rights, then executed two related documents styled "Assignment with Covenant Not To Sue" and "Covenant." For a purported good and valuable consideration, the insurer "assigned" all of its claims against the shipowner to Caribbean, the charterer, and covenanted not to sue the charterer. The "assignment," however, was primarily not a grant of rights, but rather imposed an obligation on the charterer to assert the "assigned" claim for the insurer's account. The document, after divesting the insurer of the right to present the cargo loss claim itself, reads as follows:

Caribbean Steamship Company S.A. agrees to present and prosecute any and all claims to which it has been assigned hereunder by any and all legal proceedings to which it may be entitled, including but not limited to arbitration. The expense of such proceedings, including the costs of arbitration, shall be solely at the expense of the assignor (the insurer). Caribbean further agrees that any recoveries that it may effect for the loss of the cargo by suit, arbitration proceedings or settlement will be for the account of the assignor.

Pursuant to these documents, appellee Caribbean filed a petition to compel the shipowner to arbitrate the cargo loss in the United States District Court for the Southern District of New York. Judge Motley, in a memorandum opinion, found

that there was an agreement to arbitrate between these two parties, that the respondent has refused to arbitrate and that petitioner's claim on its face is an arbitrable claim.

The judge thus granted the petition to compel arbitration. On this appeal, the shipowner challenges the finding ...


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