It is well settled in this circuit that an arbitration agreement restricted to the immediate parties does not bind a non-party, notwithstanding words of incorporation or reference in a separate contract by which that non-party is bound. See Compania Espanola de Petroleos, S.A. v. Nereus Shipping, S.A., 527 F.2d 966, 973 (2d Cir. 1975); Import Export Steel Corp. v. Mississippi Valley Barge Line Co., 351 F.2d 503, 505-06 (2d Cir. 1965); Lowry & Co. v. S.S. le Moyne D'Iberville, 253 F. Supp. 396 (S.D.N.Y. 1966), appeal dismissed, 372 F.2d 123 (2d Cir. 1967); Production Steel Company of Illinois v. S.S. Francois L.D., 294 F. Supp. 200, 201-02 (S.D.N.Y. 1968).
Nereus involved a long term contract of affreightment taking the form of a charter party. The contract contained an arbitration clause. Arbitration was sought against a company which not only guaranteed the performance of one of the parties to that contract, but also agreed to "assume the rights and obligations" of that party. The second circuit concluded that "the duty to arbitrate was indeed one of the rights and obligations under the contract which Cepsa, as guarantor, agreed to assume." 527 F.2d at 974. Judge Medina's opinion prefaces that conclusion with this discussion:
The determination of whether a guarantor is bound by an arbitration clause contained in the original contract necessarily turns on the language chosen by the parties in the guaranty. We are aided in our construction of the language here by prior decisions which make clear that where an arbitration clause is applicable by its own terms to all disputes and is not limited to those arising between the Owner and Charterer, the agreement to arbitrate binds "not only the original parties, but also all those who subsequently consent to be bound by [the terms of the contract]." Lowry & Co. v. S.S. Le Moyne D'Iberville, 253 F. Supp. 396, 398 (S.D.N.Y. 966), appeal dismissed, 372 F.2d 123 (2d Cir. 1967). See also Son Shipping Co. v. De Fosse & Tanghe, 199 F.2d 687, 688 (2d Cir. 1952). Id. at 973
In Lowry, cited and quoted by the Second Circuit in Nereus, Judge Weinfeld dealt with a bill of lading which provided: "All conditions and exceptions as per charter party dated Paris 17th September, 1963." The charter party in turn incorporated an arbitration clause providing that "all disputes . . arising out of this contract shall . . . be referred to" arbitration. Judge Weinfeld held that the charter party arbitration clause was binding upon the non-party transferee of the bill of lading, reasoning that the arbitration clause" is broad enough to bind [the bill of lading transferee] as well as the original parties to the charter party, provided it was effectively incorporated into the bills of lading." 253 at 398. Judge Weinfeld distinguished the cases upon which the plaintiff, seeking to avoid arbitration, relied:
It is true that a charter party provision for arbitration of disputes which is restricted to the immediate parties or limited to disputes "between the * * * Owners and the Charterers," as was the case in Import Export Steel v. Mississippi Valley Barge Line Co., so heavily relied upon by libelant, does not bind any but the named persons. On the other hand, an agreement to arbitrate all "disputes * * * arising out of this charter" binds not only the original parties, but also all those who subsequently consent to be bound by its terms. Id. at 398.
Import Export Steel Corp. v. Mississippi Valley Barge Line Co., 351 F.2d 503 (2d Cir. 1965), which Judge Weinfeld distinguished in Lowry, more closely resembles the case at bar. In Import Export the Second Circuit refused to compel the cargo owner and bill of lading holder to arbitrate with the ship owner and charterer where the arbitration clause in the charter party, incorporated by reference in the bill of lading, was limited to disputes between those specified parties. The Second Circuit said at 505-06:
Furthermore, the language of the arbitration clause incorporated in the bills of lading is restrictive in scope in that it is limited to disputes "between the Disponet Owners and the Charterers." It is narrower than the corresponding provision in Son Shipping Co. v. De Fosse & Tanghe, 199 F.2d 687 (2 Cir. 1952), which referred to arbitration "Any and all differences and disputes of whatsoever nature arising out of this charter * * *." Since the bill of lading is the only document which regulates the relations of transferee of the bill of lading with the owner, its terms, including those incorporated therein, should be carefully if not restrictively construed. See Gilmore and Black, Law of Admiralty, at 194 (1957). It would be unduly stretching the language of this arbitration clause to say that Impex, a mere notify party, or even owner of the cargo as it claims to be, is one of the "Disponent Owners" or "Charterers."
District Judge Mansfield (as he then was) reached the same conclusion in Production Steel. The case is illuminating because, as in the case at bar, the words of alleged incorporation began with the phrase "subject to." The cargo bill of lading provided: "Subject To All Terms, Conditions and Exceptions of Charter Party Dated 2nd, November, 1964 at New York." The arbitration clause contained in the charter party required arbitration "should any dispute arise between the Owners and the Charterers . . ." The court held that the cargo owner could not be compelled to arbitrate a claim for damage suffered during the ocean voyage. Judge Mansfield regarded as "doubtful" the claim that the "subject to" language should be "treated as an incorporation by reference," id. at 201, but in any event rejected the shipowner's motion for a stay pending arbitration:
The arbitration clause, as its terms expressly and unequivocally provide, was limited to the parties to the charter party, Jordan and Federal, and to arbitration of any disputes that might arise between "the Owners" (Federal) and "the Charterers" (Jordan), not to disputes with third parties, such as the shipper or consignee of goods. Plaintiff is neither an Owner nor a Charterer of the ship and the dispute it presents is not one "between the Owners and Charterers." Federal's attempt to expand the arbitration clause beyond its plain meaning not only violates fundamental contract principles but ignores the plain and limited language used by the parties. Id at 201-02.
Under the rationale of these cases, plaintiffs at bar cannot be compelled to arbitrate because the arbitration clause in the FRA is limited to the direct insurers and English reinsurers who were parties to that agreement. Plaintiffs are non-parties, and a phrase like "subject to" is not sufficient to bind them to the arbitration clause.
Seeing to avoid the impact of this authority, RNV argues in its reply brief at 26 n. 11 that the cases deal with "one specialized factual situation -- where a charter party that includes an arbitration provision is incorporated by reference into a bill of lading." According to RNV, the cases articulate "special" rules, which RNV says have never been imposed "to defeat arbitration outside that factual context." Furthermore, RNV argues, the cases "were decided under federal admiralty law" (that notorious source of jurisprudential aberrations), and have not been applied "in any case decided under New York law."
I do not agree that the cited cases can be so limited or distinguished. Judge Mansfield correctly observed in Production Steel that the issue involves "fundamental contract principles," the particular principle being that arbitration is consensual. The Second Circuit has not limited this analysis to bill of lading cases; Nereus turned upon the proper construction of a long-term contract of charter party. Furthermore, the Second Circuit employed the same analysis in Continental Group, supra, construing New York law. The Second Circuit said of the underlying contract at 873 F.2d 613 n.3:
This language, when viewed in context, falls far short of that "express, unequivocal agreement" by Corp. to arbitrate its obligations as guarantor that New York law requires. Marlene Industries Corp. supra. The "parties" embraced by paragraph 6 are identified in its first sentence: the "manager", i.e. communications, and CGI. Paragraph 6 goes on to vest Communications and CGI (but not Corp.) with the power to request arbitration and agree upon the arbitrator; it casts arbitration expenses "equally" upon Communications and CGI (not Corp.). The preamble to the agreement recites that it is between CGI and Communications. An agreement by Corp. to arbitrate its obligations under the guarantee cannot be fashioned out of such stuff as this.
While this discussion may be regarded as dictum, it is consistent with the requirement, in both federal and New York law, that a party's agreement to arbitrate be express and unequivocal.
Finding no such agreement binding upon plaintiffs in the case at bar, I deny RNV's petition to compel arbitration and grant plaintiffs' cross-motion to enjoin it.
RNV's motion to compel arbitration is denied. Plaintiff's cross-motion to enjoin arbitration is granted. The case will be litigated in this Court. An initial scheduling order will be entered concurrently herewith.
It is SO ORDERED
Dated: New York, New York
September 30, 1992
CHARLES S. HAIGHT, JR.