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MONTAUK OIL TRANSP. CORP. v. STEAMSHIP MUT. UNDERW

April 4, 1994

In the Matter of Montauk Oil Transportation Corp., as Owner of the Barge CIBRO SAVANNAH, Plaintiff and Third-Party Plaintiff, For Exoneration from or Limitation of Liability
v.
The Steamship Mutual Underwriting Association (Bermuda) Limited, Third-Party Defendant.


Wood


The opinion of the court was delivered by: KIMBA M. WOOD

WOOD, D.J.

 This action was brought by Montauk Oil Transportation Corporation ("Montauk") pursuant to 46 U.S.C. 183 et seq., to limit liability for damages resulting from a series of explosions and an oil spill aboard the vessel CIBRO SAVANNAH. The court has jurisdiction over the action pursuant to 28 U.S.C. § 1333. Third-party defendant Steamship Mutual Underwriting Association (Bermuda) Limited ("Steamship" or "the Club") moves to dismiss a third-party complaint filed by Montauk, which demands judgment against Steamship in favor of the United States and the States of New York and New Jersey pursuant to Federal Rule of Civil Procedure 14(c). Steamship argues that the third-party complaint fails to state a claim upon which relief may be granted. Alternatively, Steamship moves for an order staying the third-party action pending the outcome of arbitration between Montauk and Steamship in London, pursuant to the Federal Arbitration Act, 9 U.S.C. § 3 et seq., and the Convention on the Regulation and Enforcement of Foreign Arbitral Awards, 9 U.S.C. § 210 et seq.. For the reasons stated below, Steamship's motion to dismiss is granted, to the extent that the third-party complaint demands judgment against Steamship in favor of the States of New York and New Jersey; this portion of the complaint is dismissed without prejudice to Montauk's right to amend. Steamship's motion is denied, to the extent that the third-party complaint demands judgment against Steamship in favor of the United States. Steamship's motion to stay the third-party action pending arbitration is denied.

 Background

 Steamship is a Bermuda-based association of shipowners known as a protection and indemnity club, providing marine protection and indemnity insurance to its members. Montauk is the owner and operator of the tank barge CIBRO SAVANNAH, which for several years was covered by Steamship for protection and indemnity risks. Montauk renewed its membership with Steamship on February 20, 1990, for the 1990-91 policy year.

 Among the risks for which the CIBRO SAVANNAH was insured were risks of liability arising from pollution due to oil spills. Under the Federal Water Pollution Control Act, 33 U.S.C. § 1321 ("FWPCA" or "the Act"), all tanker owners are required to carry insurance for pollution liabilities imposed by the Act. Subsection 311(p)(1) of the Act (now repealed) *fn1" requires tanker operators to establish and maintain "evidence of financial responsibility" sufficient to meet potential liabilities. 33 U.S.C. § 1321(p)(3). Pursuant to regulations promulgated under the Act, evidence of financial responsibility may take the form of a "certificate of financial responsibility" issued by the insurer to the United States, in which the insurer certifies directly to the United States that the vessel identified in the certificate is insured up to the statutory limit. 33 C.F.R. 130.51. Subsection 311(p)(3) of the Act authorizes a direct action against the insurer for "any claim for costs" for which the insured vessel is responsible under the Act. In addition, the certificate, the form of which is dictated by the regulation, includes a statement that the insurer "consents to be sued directly in respect of any claim against any of the operators arising under subsections 311(f) and (g) of the Act." Insurance Form CG-5358-9 Furnished as Evidence of Responsibility Under Subsection 311(p) of the Water Pollution Control Act, as Amended (hereinafter Form CG-5358-9). Termination of the undertaking represented by the certificate becomes effective "30 days after the date of receipt of written notice by the U.S. Coast Guard (USCG) that the Insurer has elected to terminate the insurance evidenced by this undertaking, and has so notified the vessel operator." Id.. Steamship provided a certificate of financial responsibility ("the Certificate") to the United States on behalf of Montauk's CIBRO SAVANNAH on February 20, 1986.

 On March 6, 1990, a series of explosions took place on the CIBRO SAVANNAH, causing an oil spill into the waters of the Arthur Kill between New York and New Jersey. Shortly thereafter, Steamship informed Montauk that Montauk's insurance was void as of its renewal on February 20, 1990, due to Montauk's alleged failure to disclose a material fact at that time. Steamship notified the Coast Guard of the termination on June 13, 1990.

 On June 4, 1990, Montauk brought suit against Steamship in the United States District Court for the Southern District of New York, contesting the retroactive cancellation of its insurance and seeking recovery under the policy for clean-up costs incurred as a result of the March oil spill. 90 Civ. 3792 (DNE). In response, Steamship filed a motion to stay the action pending arbitration, arguing that Montauk was bound by a Club rule requiring that disputes between Steamship and its members be submitted first, to Steamship's directors, and then to arbitration. Judge Edelstein granted Steamship's motion on March 20, 1991. Montauk Oil Transportation Corp. v. Steamship Mutual Underwriting Ass'n (Bermuda) Ltd., 1991 U.S. Dist. LEXIS 3452, 1991 WL 41657 at * 1-2 (S.D.N.Y.). *fn2"

 On September 5, 1990, Montauk initiated this limitation of liability proceeding, pursuant to 46 U.S.C. § 183 and Rule F of the Supplemental Rules Governing Admiralty and Maritime Claims. Section 183 authorizes the owner of a vessel to limit its liability for losses incurred without its "privity or knowledge" to an amount equal to its interest in the vessel. Pursuant to Rule F(4), an Order was issued by this court on September 5, 1990, giving notice of the proceeding to potential claimants and ordering them to file their claims. Among the parties filing claims were the United States and the States of New York and New Jersey. On February 19, 1993, with the permission of the court, *fn3" Montauk impleaded Steamship in the proceeding pursuant to Rule 14(c) of the Federal Rules of Civil Procedure. Steamship then filed the instant motion to dismiss or stay.

 Analysis

 Federal Rule of Civil Procedure 14(c) provides:

 
When a plaintiff asserts an admiralty or maritime claim within the meaning of Rule 9(h), the defendant or a claimant, as a third-party plaintiff, may bring in a third-party defendant who may be wholly or partly liable, either to the plaintiff or to the third-party plaintiff, by way of remedy over, contribution, or otherwise on account of the same transaction, occurrence, or series of occurrences. In such a case the third-party plaintiff may also demand judgment against the third-party defendant in favor of the plaintiff . . . and the action shall proceed as if the plaintiff had commenced it against the third party defendant as well as the third-party plaintiff. (Emphasis added).

 Here Montauk, defendant and third-party plaintiff, argues that imp leader is proper because Steamship may be wholly or partly liable to the United States and to the States of New York and New Jersey (the "government claimants"). Montauk's theory of liability rests on both subsection 311(p)(3) of the FWPCA, which authorizes a direct action against an insurer for liabilities incurred by the shipowner, and the Certificate provided by Steamship to the United States, which states that the insurer "consents to be sued directly in respect of any claim against any of the operators arising under subsections 311(f) and (g) of the Act." Form CG-5358-9. Steamship responds that the third-party complaint fails to state a claim on which relief may be granted. First, Steamship argues that neither the FWPCA nor the Certificate creates a cause of action against Steamship on behalf of the States of New York and New Jersey. Thus the existence of claims by these States cannot serve as a basis for a third-party complaint pursuant to Rule 14(c). Even if the FWPCA and the Certificate do give rise to a cause of action on behalf of the States, Steamship argues, both sources of law give Steamship the right to assert any defense against the government claimants that it could assert against Montauk. 33 U.S.C. § 1321(p)(3); Form CG-5358-9. Because the arbitration clause that formed the basis for Judge Edelstein's Order is a "defense" Steamship may assert against the government claimants, Steamship reasons, the third-party complaint fails to state a claim on which relief may be granted. In the event that its motion to dismiss is denied, Steamship moves to stay the third-party proceedings pending the outcome of the arbitration between Montauk and ...


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