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CHESHIRE PLACE ASSOCS. v. THE WEST OF ENGLAND SHIP

March 5, 1993

CHESHIRE PLACE ASSOCIATES; MARINE MOVEMENTS, INC.; STANDARD MARINE TRANSPORT SERVICES, INC.; STANDARD MARINE TOWING SERVICES, INC.; and STANDARD MARINE SERVICES, INC.; Plaintiffs,
v.
THE WEST OF ENGLAND SHIP OWNERS MUTUAL INSURANCE ASSOCIATION (LUXEMBOURG) and THE WEST OF ENGLAND SHIP OWNERS INSURANCE SERVICES LIMITED, Defendants.


Nickerson


The opinion of the court was delivered by: EUGENE H. NICKERSON

NICKERSON, District Judge:

 Plaintiffs, vessel and marine equipment owners and related corporations, brought this action against defendants, a "protection and indemnity" mutual insurance association (the Association) organized under the laws of Luxembourg, and its English management company, alleging (1) breach of contracts providing for insurance, (2) fraud, and (3) violations of the securities laws of the United States.

 Defendants moved pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1-307, to dismiss the complaint in favor of arbitration, or, in the alternative, to dismiss the fraud claims for failure to plead with sufficient particularity, and to dismiss the claims under the securities laws for failure to plead the existence of a security.

 This court advised the parties by order dated September 3, 1992 that it proposed to treat the matter as one for summary judgment and invited them to file additional papers.

 I.

 The Association is comprised of its members -- owners, charterers, operators, and managers of vessels -- who mutually insure certain of each others' risks. Members are entitled to insurance but are also subject to "Calls," money paid to the Association to cover the cost of claims by other members. The Association's relations with its members are governed primarily by its "Constitution" and its "Rules."

 The Constitution provides in § 7(a) that every "Owner" who "enters" a vessel for insurance in the Association becomes a "Member" from the commencement of the period of insurance, "provided that there shall be no more than one Member" as to each vessel. If there is more than one Owner, such Owners "shall be deemed to be Joint Members and together constitute but a single Member." Notice to any one Joint Member is deemed notice to all, and the Joint Member whose name first appears in the Register of Members is "entitled to exercise all voting and other rights of the Joint Members."

 Section 2(a) of the Constitution defines "Owner" as an "owner, owner in partnership, owner holding separate shares in severalty, part owner, mortgagee, trustee, charterer, operator, manager or builder of any vessel and any other person whatsoever interested in or in possession of any vessel."

 Under Rule 31, a person wishing to become a Member must apply to enter the vessel. If the application is accepted, the vessel is entered as insured by the Association, which issues a Certificate of Entry to the applicant. Rule 33.

 On July 16, 1986 "General Marine Transport Corporation, et" (General Marine), styling itself as "Owner/Operator" of thirty vessels, including the two concerned here, namely, the barge Leo Frank and the tug Emily S, filed with the Association an application to enter the vessels "for insurance in your Association."

 The printed application provides, among other things, that

 
if this application for insurance is accepted by the Association the applicant owner will be bound by the Constitution and the Rules of the Association in force from time to time, except in so far as such Rules may have been modified by any special terms set out in the Certificate of Entry.

 It is undisputed that a Certificate of Entry was issued by the Association to General Marine as a "Member" (although the original of the Certificate has not been produced). It is also undisputed that the Certificate provides that the terms and conditions of the insurance afforded by the Association with respect to the vessels "are upon and in accordance with the Rules of the Association for the time being in force" except to the extent that they are modified by special terms set out in the Certificate. There is no contention that there were such special terms in the Certificate.

 The complaint alleges plaintiff Cheshire Place Associates (Cheshire) is the owner of the Emily S, and plaintiff Standard Marine Transport Services, Inc. (Transport) the owner of the Leo Frank. Although the complaint says that plaintiffs are "entitled to insurance rights," neither the complaint nor any other papers filed by plaintiffs state the source of these rights.

 Plainly under the Constitution and Rules of the Association plaintiffs came to be entitled to whatever insurance rights they may have only by reason of the Association's acceptance of General Marine's application to enter the Emily S and Leo Frank as insured.

 Rule 62 in effect for the policy years 1986-87 through 1988-89 provides for referral to arbitration in London if

 
any difference or dispute shall arise between a Member or former Member and the Association out of or in connection with these Rules or arising out of any contract between the Member or former Member and the Association or as to the rights or obligations of the Association or the Member or former Member thereunder or in connection therewith or as to any other matter whatsoever.

 The Rule also provides: "No Member or former Member may bring or maintain any action, suit or other legal proceedings against the Association in connection with any such difference or dispute unless he has first obtained an Arbitration Award in accordance with this Rule."

 General Marine remained a member of the Association from 1986 until 1990, when the Association sought to cancel the insurance contract. Whether that cancellation was valid is the subject of pending arbitration proceedings in England in which all plaintiffs are participating.

 II.

 The issues on the motion are governed by Chapter Two of the Federal Arbitration Act (the Act), 9 U.S.C. §§ 201 et seq., which implemented the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the Convention), entered into force for the United States December 29, 1970, 21 U.S.T. ...


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