IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 12-60051

VT HALTER MARINE, INCORPORATED, 

Plaintiff–Appellant

v.

WARTSILA NORTH AMERICA, INCORPORATED, 

Defendant–Appellee

Appeal from the United States District Court

for the Southern District of Mississippi 

1:11-CV-250

Before WIENER, CLEMENT, and PRADO, Circuit Judges.

PER CURIAM:*

VT Halter Marine, Inc. (“VTHM”) appeals the district court’s grant of

Wartsila North America, Inc.’s (“Wartsila”) motion to compel arbitration. 

Because we hold that VTHM did not agree to arbitrate disputes with Wartsila,

we REVERSE and REMAND to the district court for a determination of whether

one of the exceptions that bind non-signatories to arbitration agreements applies

here. 

I. FACTUAL AND PROCEDURAL BACKGROUND

United States Court of Appeals

Fifth Circuit

F I L E D

February 8, 2013

Lyle W. Cayce

Clerk

 Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not *

be published and is not precedent except under the limited circumstances set forth in 5TH CIR.

R. 47.5.4.

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No. 12-60051

A. Factual Background

This case concerns three parties, two contracts, and one arbitration clause. 

Third-party ship operator Vessel Management Services, Inc. (“Vessel

Management”) contracted with Plaintiff–Appellant VTHM (the “Construction

Contract”) to construct several vessels, including the M/V Pride (the “Pride”). 

Under the Construction Contract, VesselManagementwould supply VTHM with

various components for the vessels, including the main engines, shaft, hub, and

blades. VTHM would receive and store those parts at its shipyard pending

installation in a vessel for Vessel Management. 

Vessel Management also entered into a contract with Defendant–Appellee 

Wartsila (the “Sales Contract”), under whichWartsilawould provide components

for Vessel Management’s vessels. The Sales Contract between Wartsila and

Vessel Management includes a mandatory arbitration clause, which states,

This Agreement shall be construed in accordance with the laws of

the State of New York, without reference to its conflict of laws

provisions. Any dispute between the parties arising out of or in

connection with this Agreement shall be finally settled under the

Rules of Arbitration of the American Arbitration Association by one

or more arbitrators appointed in accordance with the said rules, in

New York, New York. 

To be clear, VTHM is not a party to the Sales Contract, and is thus a “nonsignatory” with respect to it; VTHM and Wartsila have not entered into any

contract with each other. 

Pursuant to the Sales Contract, Vessel Management bought propulsion

systems (a/k/a shaft/hub assemblies) from Wartsila for the vessels VTHM was

building, including the Pride. Wartsila delivered the propulsion systems directly

to VTHM at its shipyard for storage until they could be installed. VTHM later

installed a propulsion system in the Pride. Thereafter, the Pride’s propulsion

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No. 12-60051

system failed inspection. VTHM claims that Wartsila represented to Vessel

Management that VTHM’s poor workmanship caused the failure. Based on

Wartsila’s representation, Vessel Management demanded that VTHM purchase

a replacement propulsion system for the Pride. VTHM states that although it

believed that Wartsila’s representation about VTHM’s workmanship was false,

it purchased a new propulsion system to avoid liquidated damages under the

Construction Contract. 

B. Procedural Background

VTHM sued Wartsila, seeking to recover damages that it alleges it

sustained through having to replace Wartsila’s defective propulsion system and

through Wartsila’s representation that VTHM was responsible for the Pride’s

failure. VTHM alleges two causes of action: (1) breach of warranty and (2)

tortious interference with contractual relations. First, as to the breach of

warranty claim, VTHM contends that although it is not a party to the Sales

Contract, it has the right, as an “equitable subrogee,” to stand in the shoes of

Vessel Management to enforce Wartsila’s obligation to replace the failed

propulsion system under the Sales Contract’s warranty. As to the second claim,

VTHM asserted that Wartsila tortiously interfered with VTHM’s contractual

relationship with Vessel Management (viz., the Construction Contract) by falsely

telling Vessel Management that VTHM incorrectly installed the propulsion

system. 

Wartsila moved to compel arbitration as to both claims. VTHM conceded

that its first claim, breach of warranty, was subject to mandatory arbitration

because the breach of warranty claim was derived from Vessel Management’s

rights under its Sales Contract with Wartsila, which had a mandatory

arbitration clause. VTHM made no such concession, however, as to its tortious

interference claim. The district court granted Wartsila’s motion, ordering both

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claims to arbitration and dismissing both. VTHM appealed to this Court,

arguing that, as a non-signatory to the arbitration agreement between Wartsila

and Vessel Management, it is not bound by it. VTHM argues, further, that none

of the exceptions that bind non-signatories to arbitration agreements applies in

this case. 

II. JURISDICTION AND STANDARD OF REVIEW

The district court entered final judgment on this matter on December 14,

2011. This Court has jurisdiction pursuant to 28 U.S.C. § 1291. 

Generally, the Fifth Circuit reviews the grant or denial of a motion to

compel arbitration de novo. Noble Drilling Servs., Inc. v. Certex USA, Inc., 620

F.3d 469, 472 n.4 (5th Cir. 2010). But, when a district court applies equitable

estoppel to compel arbitration, this Court determines only whether the district

court has abused its discretion. Id.; see also Grigson v. Creative Artists Agency

L.L.C., 210 F.3d 524, 528 (5th Cir. 2000). VTHM argues that the district court

did not rely on equitable estoppel, and so de novo review must be applied. 

Wartsila seeks to avoid de novo review by contending that although the

district court did not expressly refer to equitable estoppel, it nevertheless relied

on it. For Wartsila, because “[equitable] estoppel doctrine is the only basis by

which VTHM could have been compelled to arbitrate its claims,” the district

court must have relied on it without stating so. Wartsila fails to consider,

however, that the district court may simply have erred in compelling arbitration

on the tortious interference claim. The district court, in a three-page opinion,

never refers to equitable estoppel or appeals to the policy justifications behind

equitable estoppel. 

Wartsila provides no case, and we can find none, where this Court

reviewed for abuse of discretion a district court order compelling arbitration that

did not clearly apply equitable estoppel. Because there is no indication from the

district court’s order that it applied equitable estoppel, we assume that it did

not. 

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III. DISCUSSION

Arbitration is a contract matter between parties, and a court generally

cannot compel a party to arbitrate a dispute unless the parties agreed to

arbitrate the dispute in question. Pennzoil Exploration & Prod. Co. v. Ramco

Energy Ltd., 139 F.3d 1061, 1064 (5th Cir. 1998) (citing AT&T Techs., Inc. v.

Commc’ns Workers, 475 U.S. 643, 648 (1986)); see also Stolt–Nielsen S.A. v.

AnimalFeeds Int’l Corp., 130 S. Ct. 1758, 1774 (2010) (“We think it is also clear

from our precedents and the contractual nature of arbitration that parties may

specify with whom they choose to arbitrate their disputes . . . . Nothing in the

FAA authorizes a court to compel arbitration of any issues, or by any parties,

that are not already covered in the agreement.” (internal quotation marks,

citations, and alterations omitted)). This Court in Pennzoil articulated the two

general requirements for compelling a party to arbitrate a particular dispute:the

court must determine both that (1) the two parties have a valid agreement to

arbitrate, and (2) the dispute in question falls within the scope of that

arbitration agreement. 139 F.3d at 1065. The district court most likely

overlooked that VTHM is not a party to the Sales Contract containing the

arbitration clause. The district court cited Pennzoil as the basis for its analysis,

suggesting that it would evaluate first, whether the two parties had a valid

agreement to arbitrate, and second, whether the dispute in question fell within

the scope of that arbitration agreement. See id. However, the district court

appears to have skipped the first requirement (did the parties have a valid

agreement to arbitrate?) and instead jumped straight to the second (did the

dispute in question fall within the scope of the agreement?). 

There are two indications that the district court overlooked the first

requirement. First, the court’s order cited the part of Pennzoil that addresses

the second requirement. See Pennzoil, 139 F.3d at 1067. Moreover, the district

court’s discussion includes references to two cases that addressed Pennzoil’s

second step. The first case, Brandom v. Gulf Coast Bank & Trust Co., No. 00-

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11119, 2001 WL 498720 (5th Cir. Apr. 16, 2001) (unpublished), concerns the

“scope of the arbitration clause.” Id. at *1. The second case, Prima Paint Corp.

v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 396–98 (1967), deals with

whether fraud was within the scope of an arbitration agreement. In both cases

cited by the district court, the threshold inquiry of whether the parties agreed

to arbitrate in the first place was undisputed. 

Second, the order’s language focuses only on the broad scope of the

arbitration agreement: “[t]his Court must resolve any doubts concerning the

scope of coverage of a contractual arbitration clause in favor of arbitration”;

“[t]he arbitration clause in this case encompasses ‘any dispute’ between the

parties ‘arising out of’ or ‘in connection with’ the Agreement.” This focus on

scope suggests the court evaluated only the second step. The district court never

determined whether VTHM and Wartsila had a valid agreement to arbitrate in

the first place. If the district court had undertaken that determination it would

have concluded that they did not, ending the inquiry at requirement one; the

district court should not have reached requirement two. 

The district court seems to have overlooked that there were two separate

contracts mentioned in VTHM’s claims. The Sales Contract between Vessel

Management andWartsila contained a presumably valid agreement to arbitrate. 

VTHM acknowledges that because its breach of warranty claim is derived from

the Sales Contract between Vessel Management and Wartsila, it must arbitrate

that claim. But there is no contract between VTHM and Wartsila that would

compel VTHM to arbitrate its tortious interference claim. The district court’s

order never articulates a distinction between the two contracts. In fact, the

district court references “the Arbitration Agreement at issue [10-1],” but that

agreement is not between the two parties to the suit, Wartsila and VTHM. 

Rather, it is between Wartsila and third-party Vessel Management. This

reference suggests that the district did not contemplate that there were two

separate contracts at issue. The citation evidence, coupled with the order’s

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language, indicates that the court incorrectly assumed VTHM was the second

party to the arbitration agreement, not Vessel Management.**

Ultimately, regardless of whether the district court correctly understood

the nature of the contracts between the parties, Wartsila concedes that it has no

valid agreement to arbitrate with VTHM. Thus, the first requirement of 

Pennzoil cannot be satisfied; VTHM cannot be compelled to arbitrate under

general arbitration principles and the district court erred in so holding. 

We decline to determine whether equitable estoppel compels arbitration

at this point. Instead, we remand this case to the district court to determine

whether direct benefits equitable estoppel applies, as Wartsila urges. 

For the foregoing reasons, we REVERSE the district court’s order and

REMAND for further determination of whether equitable estoppel compels

arbitration. 

There was one part of the district court’s order that could be read to indicate that the **

court realized there were two separate contracts. The final page of the order states “the

[c]ourt is of the view that Plaintiff’s tortious interference claim ‘arose out of or in connection

with’ the contract between Wartsila and Vessel Management.” The district court correctly

identifies the two parties to the Sales Contract containing the arbitration agreement. It is not

clear, however, that the court realized that “the Plaintiff”—as it is referred throughout the

order—is VTHM.

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