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ENERGY TRANSPORT, LTD. v. SEBASTIAN

December 9, 2004.

ENERGY TRANSPORT, LTD. and PT CABOT INDONESIA, Plaintiffs,
v.
M.V. SAN SEBASTIAN, her freights etc. in rem, OILMAR CO., LTD., in personam, Defendants.



The opinion of the court was delivered by: PETER LEISURE, District Judge

OPINION AND ORDER

Defendant, Oilmar Co. Ltd. ("Oilmar"), petitions the Court to compel plaintiff, Energy Transport, Ltd. ("ETL"), to arbitrate pursuant to Chapter 1 of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq.; The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention" or "Chapter 2"), June 10, 1958, 21 U.S.T. 2517 (codified at Chapter 2 of the FAA, 9 U.S.C. § 201 et seq.); The Inter-American Convention on International Commercial Arbitration (the "Inter-American Convention" or "Chapter 3"), January 30, 1975, O.A.S.T.S. No. 42 (codified at Chapter 3 of the FAA, 9 U.S.C. § 301 et seq.); and The Declaratory Judgment Act, 28 U.S.C. § 2201. Plaintiffs, ETL and PT Cabot Indonesia ("PT Cabot"), cross-move to compel Oilmar to arbitrate pursuant to Chapter 1 of the FAA only, and also seek a stay of this action pending arbitration pursuant to 9 U.S.C. § 3.*fn1

  BACKGROUND

  I. Factual History

  This dispute arises out of a failed attempt to ship a cargo of carbon black feedstock, a low-grade fuel oil residue used for industrial purposes, from the United States to Singapore and Thailand. On March 7, 2003, ETL, a United States corporation, entered into a charter party agreement (the "Charter") with Oilmar, a corporation based in Panama and the owner of the vessel, M.V. San Sebastian. (Defendant's Memorandum of Law in Support of Order Compelling Plaintiff Energy Transport, Ltd. to Arbitrate and for Related Relief ("Def. Mem.") at 1; Affidavit of Jeremy J.O. Harwood, Esq. dated March 9, 2004 ("Harwood Aff.") at 2, attached to Notice of Motion to Compel Plaintiff Energy Transport, Ltd. to Arbitrate and for Related Relief.) As the charterer, ETL agreed to pay Oilmar a certain "freight rate" for the use of the M.V. San Sebastian in shipping the cargo. (Harwood Aff., Ex. 2.) The cargo consisted of three separate parcels of carbon black feedstock, which ETL and Oilmar agreed to ship to three different parties pursuant to three bills of lading.*fn2 (Def. Mem. at 4.) Under the bills of lading, ETL and Oilmar agreed to ship the parcels to Thai Carbon Black Public Company, Glencore Limited, and PT Cabot. (Def. Mem. at 4-6.)

  It should be noted that ETL was at all relevant times a wholly owned subsidiary of the Cabot Corporation ("Cabot") and PT Cabot was at all relevant times approximately 85% owned by Cabot. (Declaration of Kenneth F. Burnes dated May 27, 2004 ¶¶ 3-4, attached as Exhibit A to Affidavit of Edward C. Radzik, Esq. in Support of ETL's and PT Cabot's Reply.) Headquartered in Boston, Massachusetts, Cabot is a global specialty chemicals and materials company that produces, sells and distributes carbon black. (Id. ¶¶ 7-8.) Carbon black, produced using carbon black feedstocks, is used in the manufacture of tires, industrial rubber products, plastics and other products. (Id. ¶¶ 8-9.) As a subsidiary of Cabot, ETL buys and sells carbon black feedstock and charters marine vessels for its transport. (Id. ¶ 12.) PT Cabot owns and operates two carbon black production facilities in Indonesia. (Id. ¶ 11.)

  On or about May 2, 2003, while crossing the Red Sea, the M.V. San Sebastian suffered a fire and explosion, which caused the deaths of three crew members and extensive damage to the ship and its cargo. (Def. Mem. at 3.) The parties agreed to transfer the cargo to another vessel for delivery on to Singapore and Thailand. (Id.)

  II. Procedural History

  On June 10, 2003, ETL commenced the underlying action in the Southern District of New York, alleging that Oilmar was negligent and breached the contracts of carriage. In the Complaint, ETL sought a maritime attachment of funds payable to Oilmar under Rule B(1) of the Supplemental Rules for Certain Admiralty and Maritime Claims. On June 18, 2003, this Court vacated the initial attachment because it was not served on the proper garnishee and it could not be served on the proper garnishee because the proper garnishee was located in Connecticut. See Energy Transp., Ltd. v. M.V. San Sebastian, No. 03-4193, 2003 U.S. Dist. LEXIS 10306, at *5 (S.D.N.Y. June 18, 2003).

  On June 26, 2003, ETL filed an amended complaint, which added PT Cabot as the second plaintiff, and renewed the motion for attachment of Oilmar funds pursuant to Rule B(1), and added a petition for attachment pursuant to Rule C(3) of the Supplemental Rules for Certain Admiralty and Maritime Claims. In this Court's absence, Judge Jed S. Rakoff denied plaintiffs' motion for attachment under Rule B(1) the same day, concluding that attachment was not warranted because Oilmar conducted sufficient business activity in New York. See Rakoff Opinion and Order dated June 26, 2003 (unpublished). On June 28, 2003, Judge Rakoff rejected plaintiffs' request for a Rule C(3) arrest of unpaid freights because the freights at issue had already been paid to Oilmar. See Energy Transp., Ltd. v. M.V. San Sebastian, 269 F. Supp. 2d 416, 418-19 (S.D.N.Y. 2003).*fn3

  On July 1, 2003, PT Cabot (without ETL) filed a complaint in the District of Connecticut against Oilmar and also sought attachment of certain Oilmar funds, premised on the same theories of negligence and breach as the New York action. Notably, the complaint addressed the damages incurred by PT Cabot only and did not reference ETL. At this time, the parties with interests in the other two parcels of carbon black feedstock aboard the M.V. San Sebastian instituted similar suits in Connecticut. On August 18, 2003, Chief Judge Christopher F. Droney of the District of Connecticut, after consolidating all of the related actions, ruled that Rule B attachments were proper for PT Cabot and the other interested parties because Oilmar did not conduct sufficient business activity within the state. See Oilmar v. Energy Transp., Ltd., 2003 U.S. Dist. LEXIS 14350, at *10 (D. Conn. Aug. 18, 2003).

  On September 3, 2003, Edward Radzik, counsel for both ETL and PT Cabot, sent a letter to Jeremy Harwood, counsel for Oilmar. In the letter, Mr. Radzik stated that he was writing on behalf of PT Cabot and its cargo underwriters and formally demanded arbitration of PT Cabot's claims against Oilmar pursuant to the arbitration clause in the Charter, which, Mr. Radzik asserted, was incorporated into the bill of lading issued to PT Cabot. (Affidavit of Edward C. Radzik, Esq. in Support of ETL and PT Cabot's Motion to Compel Arbitration dated April 26, 2004 ("April 26 Radzik Aff."), Ex. 3.) Further, Mr. Radzik provided the name of their selection for the arbitration panel and requested that Oilmar appoint an arbitrator so that the two nominees could select a third arbitrator pursuant to the terms of the arbitration clause. Id.

  On September 23, 2003, Mr. Harwood responded to Mr. Radzik's letter. In his letter, Mr. Harwood specifically objected to being served with the arbitration demand because, he maintained, the arbitration clause requires that the demand be served on an officer of Oilmar. (Harwood Aff., Ex. 10.) However, "solely to avoid the potential for a default arbitration," Mr. Harwood provided Mr. Radzik with the name of the arbitrator nominated by Oilmar. Id. Finally, Mr. Harwood specifically reserved Oilmar's right to demand arbitration of its claims against ETL arising out of ETL's alleged failure to pay freight and demurrage.*fn4

  On January 20, 2004, in a letter addressed to Mr. Radzik and Kenneth F. Burnes, Chairman of ETL, Mr. Harwood, on behalf of Oilmar, demanded arbitration of Oilmar's claim against ETL for freight and demurrage. (Harwood Aff., Ex. 11.) In the letter, Oilmar indicated that it had appointed a different arbitrator to consider this claim than the one it had previously appointed in response to PT Cabot's demand, revealing its position that a second arbitration panel was appropriate for Oilmar's claims. (Id.)

  In a letter dated January 23, 2004, Mr. Radzik challenged Oilmar's attempt to initiate a second arbitration proceeding, relying upon the language of the arbitration clause, which allegedly permits only a single proceeding. (April 26 Radzik Aff., Ex. 8.) Further, Mr. Radzik contended that any claims Oilmar may have against ETL should be addressed by the first panel because PT Cabot "stood in the shoes" of ETL when it made the arbitration demand upon Oilmar. (Id.)

  Over the course of the following weeks, Messrs. Harwood and Radzik engaged in an exchange of letters concerning the competing arbitration demands that appears to have been entirely unproductive and below the standard of professionalism, which is the hallmark of the maritime bar. Indeed, on more than one occasion, Charles L. Trowbridge, Esq., who was appointed chairman of the first arbitration panel and who has performed admirably in that role, found it necessary to chastise counsel for not treating one another and the panel with sufficient courtesy and respect. (April 26 Radzik Aff., Exs. 10, 13.) Although arbitration hearing dates were set, ultimately, the parties decided it was preferable to turn to the Court for resolution.

  On March 9, 2004, Oilmar filed the present petition to compel arbitration of its claims against ETL for freight and demurrage. Oilmar argues, inter alia, that PT Cabot's arbitration demand concerned only PT Cabot's claims against Oilmar arising under the bill of lading. The demand did not include any claims that ETL may have had against Oilmar arising under the Charter because PT Cabot made the demand in its own name (and the name of its cargo underwriters) and PT Cabot's bill of lading is separate and distinct from the Charter between ETL and Oilmar. Thus, Oilmar maintains that a second arbitration panel is appropriate to consider Oilmar's Charter-based claims and asks the Court to ensure that panel's independence from the first panel, which should only consider PT Cabot's bill of lading-based claims. On April 26, 2004, ETL and PT Cabot filed their opposition to Oilmar's petition and their cross-motion to compel Oilmar to arbitrate PT Cabot's claims against Oilmar and Oilmar's claims against ETL before a single arbitration panel.*fn5 ETL and PT Cabot assert, inter alia, that, as subsidiaries of Cabot, they are affiliated companies and as such, they maintain a "unity of interest" with respect to their claims against Oilmar. (April 26 Radzik Aff., Ex. 8.) Moreover, they contend that the arbitration clause provides for a single arbitration panel to consider any and all disputes arising out of the Charter. Therefore, plaintiffs request a stay of the underlying action so that the arbitration panel that has already been formed may rule on the claims against Oilmar and ETL.

  DISCUSSION

  The parties' competing motions to compel arbitration raise several issues for the Court to decide. In particular, the Court must determine (1) whether ETL and PT Cabot have standing to bring the underlying claim and the instant cross-motion; (2) the proper basis for the Court's power to compel the parties to arbitrate each set of claims; and (3) whether the two sets of claims should be arbitrated before a single panel or two different panels.

  I. Standing

  As a threshold matter, defendant argues that neither ETL nor PT Cabot have standing to bring the underlying action. Section 2 of Article III of the United States Constitution states that the authority of the federal judiciary "shall extend to" certain described "Cases" and "Controversies." To implement effectively the case-or-controversy requirement, the courts have developed the doctrine of standing, which limits a plaintiff's ability to invoke the power of the federal courts. "The question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues." Warth v. Seldin, 4 ...


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