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IN RE PRUDENTIAL LINES

March 31, 1982

In the Matter of the Arbitration Between PRUDENTIAL LINES, INC., Petitioner, and EXXON CORPORATION, Respondent


The opinion of the court was delivered by: HAIGHT

MEMORANDUM OPINION AND ORDER

Reargument of this Court's June 17, 1981 memorandum was granted to further consider the question of whether the authority vel non, actual or apparent, of petitioner's surveyor to execute the certificate of redelivery was an arbitrable dispute. The briefs and oral arguments have focused upon whether that issue is collateral to the agreement between the parties and the disputes arising thereunder, Rochdale Village, Inc. v. Public Service Employees Union, 605 F.2d 1290, 1296 (2d Cir. 1979), or whether the issue "is inextricably tied up with the merits of the underlying dispute," and thus "wholly derivative of issues that fall within the scope of the arbitration clause." McAllister Bros. v. A & S Transportation Co., 621 F.2d 519, 523 (2d Cir. 1980).

As the cited cases, the most recent Second Circuit authority in the field, demonstrate, the nature of the particular arbitration clause (broad or narrow) and the nature of the particular dispute (collateral or not) must be evaluated by the Court, if it is to apply the proper criteria for arbitrability. Reargument of the Court's endorsement of June 17, 1981, refusing to compel arbitration of petitioner's claim, was granted because the last paragraph of that order assumed without analysis that the issue of the surveyor's authority could be decided by the Court on the motion papers, and need not be submitted to the arbitrators. That assumption now receives further analysis.

 Before considering in greater detail the Second Circuit's decisions in Rochdale and McAllister, it will be useful to briefly review the agreement between the present parties, and the dispute concerning which petitioner Prudential Lines, Inc. seeks arbitration.

 Prudential's vessel was bareboat chartered for a term of years to respondent Exxon Corporation. (The names of the owner and the charterer in the charter party are those of the present parties' corporate predecessors.) At the end of the charter term, Exxon was obligated to redeliver the vessel to Prudential "in the same or as good order, condition and class" as at delivery, "unless the lack of good order, condition and class is due solely to ordinary wear and tear." Clause 16(a). Prudential seeks arbitration of its claim that Exxon redelivered the vessel in a substantially damaged condition, in breach of that obligation. Exxon contends that no arbitrable claim exists because Clause 16(b) and (c) provided, in essence, that at the time of redelivery surveyors appointed by the parties would jointly agree upon the repairs necessary to satisfy Exxon's obligation, and that Exxon would perform all such repairs before redelivery, Clause 16(d) then going on to provide:

 
"Acceptance of the vessel by Owner shall be conclusive evidence of Charterer's compliance with any and all of the Charterer's obligations under this charter with respect to the vessel's class and condition at the time of redelivery."

 A joint survey did in fact take place at the redelivery port. Exxon relies particularly upon a Certificate of Acceptance and Redelivery, executed by its surveyor and the surveyor representing Prudential, one Morrell. Execution of that certificate, in the light of Clause 16, Exxon argues, extinguishes any claim for damage to the vessel. Prudential responds that Morrell lacked the authority, actual or apparent, to renounce or waive the substantial claim now sought to be submitted to arbitration.

 Arbitration is provided for in two separate clauses of the charter party. The first reference to arbitration appears in Clause 13(d), the first sentence of which reads as follows:

 
"Should any dispute arise between the Owner and the Charterer in respect to the responsibility for repairs, renewals or replacements, or as to the condition of the vessel at the time of redelivery, the matter shall be decided by arbitration as provided in Clause 25."

 The balance of Clause 13(d) relates to the manner in which repairs are to be effected in the event that arbitration results in a decision of charterer's liability. These provisions are not pertinent to the present issue.

 Clause 25, referred to in the first sentence of Clause 13(d), provides:

 
"Should any dispute arise under this agreement, the matter in dispute shall be referred to three persons, one to be appointed by Owner, one by Charterer, and the third by the two so chosen; and their decision or that of any two of them shall be final, and their award may be made a rule of court and a judgment or decree entered thereon."

 McAllister, supra, summarizes the first inquiry which a court must make in cases of this nature, and the consequences which flow from the answer. In determining whether a particular issue is arbitrable, Judge Feinberg wrote:

 
"... a court must first examine the potential scope of the agreement to arbitrate. If the arbitration clause is broad and arguably covers disputes concerning contract termination, arbitration should be compelled and the arbitrator should decide any claim that the arbitration agreement, because of substantive or temporal limitations, does not cover the underlying dispute. See, e.g., Nolde Bros., Inc. v. Local 358, Bakery & Confectionery Workers Union, 430 U.S. 243, 254, 97 S. Ct. 1067, 1073, 51 L. Ed. 2d 300 (1977) (arbitration clause requiring arbitration of all disputes between parties construed to require arbitration of Union claims for severance pay first raised after termination of contract). However, as we recently noted in Rochdale Village, Inc. v. Public Service Employees Union, 605 F.2d 1290, 1295 (2d Cir. 1979), when "dealing with a narrower arbitration clause, a court's inquiry is not so circumscribed, and it will be proper to consider whether the conduct in issue is ...

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