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BS Sun Shipping Monrovia v. Citgo Petroleum Corp.

August 8, 2006


The opinion of the court was delivered by: Hon. Harold Baer, Jr., District Judge


Petitioner BS Sun Shipping Monrovia ("BS Sun") brought this action seeking a declaratory judgment and stay of arbitration against respondent Citgo Petroleum Corporation ("Citgo"). Citgo now moves to dismiss pursuant to Rule 12(b)(6) and to compel arbitration. For the following reasons, Citgo's motion is denied.


BS Sun is the owner of the "M/V STINICE (hereinafter referred to as the "STINICE" or the "vessel"), a commercial tanker. (Pet.*fn1 ¶ 5). On April 4, 2002, BS Sun entered into a "time charter party" (hereinafter referred to as the "time charter") i.e., a charter for a finite period of time, with Pilot Enterprises, Inc. ("Pilot"). (Declaration of Zlatko Kabic,*fn2 dated March 27, 2006 ("Kabic Dec."), Ex. 2). Under the time charter, Pilot hired the vessel for two years, renewable at Pilot's option for up to two additional twelve month periods. (Kabic Dec., Ex. 2 ¶ 1). Although BS Sun has submitted no evidence of any extension of the time charter, it alleges that the vessel remained under charter to Pilot in November 2004, long after the initial term had expired. (Pet. ¶ 5).*fn3 The time charter provided for English jurisdiction over disputes arising thereunder, and allowed either party to elect arbitration before a single arbitrator in London. (Kabic Dec., Ex. 2 ¶ 57).

On November 24, 2004, European Product Carriers ("EPC"), "an apparent corporate alter ego" of Pilot, acting through Elka Ship Brokerage & Trading ("Elka"), a shipping agent, entered into a voyage charter with Citgo to transport a quantity of diesel oil. (Pet. ¶ 5, Ex. A). The voyage charter was not reduced to a signed writing, but was rather embodied in a "Final Recapitulation" of terms (hereinafter referred to as the "fixture recap" or "voyage charter"). (Pet. ¶ 6, Ex. A). The fixture recap incorporated "ASBATANKVOY" form charter party terms. (Id.) The voyage charter also provided for arbitration of any disputes arising thereunder in New York. (Pet., Ex. A).*fn4

Whether BS Sun was actually a party to, or authorized, this voyage charter is at the core of the question presented by this motion. The fixture recap lists BS Sun as the vessel's "owner[]." (Id.) However, under "Owner's Mailing Address/ Phone/Etc." the fixture recap lists contact information for EPC and Elka rather than for BS Sun. (Id.) Furthermore, the fixture recap provides for payment by Citgo to a bank account in Pilot's name. (Id.) According to BS Sun, it "never participated in the negotiation or issuance of the fixture recap" and Pilot, Elka and EPC "were never provided with actual or apparent authority to act" on BS Sun's behalf. (Pet. ¶ 8). In addition, Kabic, a former BS Sun employee, attests that BS Sun never entered into any voyage charter with Citgo (the respondent herein whose oil was allegedly contaminated in the hold) and that "neither Pilot nor Elka have ever acted as broker or agent for" BS Sun. (Kabic Dec. ¶ 7). Nonetheless, according to the bill of lading signed by the vessel's master, the STINICE was loaded with oil at St. Croix on December 15, 2004 and sailed for Linden, New Jersey pursuant to the terms of the voyage charter. (Pet., Ex. B).

By letter dated December 8, 2005, Citgo demanded arbitration with BS Sun seeking damages arising from the alleged contamination of the diesel oil. (Pet. ¶ 10, Ex. C). On December 28, 2005, to preserve its rights in arbitration, BS Sun nominated an arbitrator. (Pet. ¶ 11, Ex. D). On February 2, 2006, BS Sun filed this petition seeking a declaratory judgment that no valid arbitration agreement exists between BS Sun and Citgo as well as a permanent stay of the pending arbitration.


In general, when ruling on a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, a court must construe all factual allegations in the complaint in favor of the non-moving party. See Krimstock v. Kelly, 306 F.3d 40, 47 - 48 (2d Cir. 2002). The Court's consideration is normally limited to facts alleged in the complaint, documents appended to the complaint or incorporated in the complaint by reference, and to matters of which judicial notice may be taken. See Allen v. WestPoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir. 1991). A motion to dismiss should not be granted "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Shakur v. Selsky, 391 F.3d 106, 112 (2d Cir. 2004) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).

The Federal Arbitration Act, 9 U.S.C. § 1, et seq., establishes a "strong presumption of arbitrability." Sphere Drake Ins. Ltd. v. Clarendon Nat'l Ins. Co., 263 F.3d 26, 29 (2d Cir. 2001). Generally, "'any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. . .'" Id. at 30 (quoting Moses H. Cone Memorial Hosp. v. Mercury Construction Corp., 460 U.S. 1, 24-25 (1983)). However, "[i]f the making of the agreement to arbitrate is placed in issue . . . the court must set the issue for trial." Sphere Drake, 263 F.3d at 30. To necessitate a trial on the question of arbitrability, "the party putting the agreement to arbitrate in issue must present 'some evidence' in support of its claim before a trial is warranted." Id. (citing Interocean Shipping Co. v. Nat'l Shipping & Trading Corp., 462 F.2d 673, 676 (2d Cir. 1972)). See also Denney v. BDO Seidman, L.L.P., 412 F.3d 58, 68 (2d Cir. 2005) ("We may not compel a party to arbitrate a dispute where there is a genuine issue as to whether the nonmoving party actually agreed to arbitrate.")

To avoid arbitration, a party must allege that the contract containing the arbitration provision is "void," rather than merely "voidable." Id. at 32. "A void contract is one that produces no legal obligation[,]" such as "when parties fail to agree to essential . . . terms. . ." Id. at 31. "[A] voidable contract is an agreement that 'unless rescinded . . . imposes on parties the same obligations as if it were not voidable.'" Id. (quoting Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts § 1:20, at 50 (4th ed. 1990)). For example, "an allegation of fraud in the inducement is a defense that renders contracts voidable, but not void." Id. As the Second Circuit explained in Sphere Drake:

If a party alleges that a contract is void and provides some evidence in support, then the party need not specifically allege that the arbitration clause in that contract is void, and the party is entitled to a trial on the arbitrability issue pursuant to 9 U.S.C.A. § 4*fn5 . . . . However, . . . if a party merely alleges that a contract is voidable, then, for the party to receive a trial on the validity of the arbitration clause, the party must specifically allege that the arbitration clause is itself voidable.

Id. at 32. See also Denney, 412 F.3d at 67-68.

"[A] nonsignatory party may be bound to an arbitration agreement if so dictated by the ordinary principles of contract and agency." Thomson-CSF, S.A. v. American Arbitration Association, 64 F.3d 773, 776 (2d Cir. 1995). To bind a principal to a contract, a putative agent must be vested with actual or apparent authority. See Herlofson Mgmt. A/S v. Ministry of Supply, Kingdom of Jordan, No. 88 Civ. 7542, 1991 U.S. Dist. LEXIS 6966, *18 (S.D.N.Y. May 22, 1991). If an agent lacks such authority, any agreement entered into on behalf of a principal "is void – 'it never came into legal existence.'" Ministry of ...

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