### IN THE UNI TED STAT ES COURT OFAPPEALS FOR THE FIF TH CIRCU IT

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”) a p p eals the district court’s grant of Wartsila North Ame r i c a , 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 t o arb itr ati o n agreements applies here. I. FACTUAL AND PROCEDURAL BACKGROUND U n i te d S ta te s C o u rt o f A p p ea l s

F i ft h C i rc u i t 

### F I L E D Februa ry 8, 201 3 Lyle W . Cayce Clerk

Pursua nt to 5 T H C IR

. R. 47.5 , the cour t has d ete rm inedt hat this op inion s houldnot * be publ ish ed and is not pr ece dent excep t unde r the lim ite d cir cum st ance s se t for th in 5 T H C IR

. R. 47.5 .4. Case: 12-60051 Document: 00512139208 Page: 1 Date Filed: 02/08/2013No. 12-60051

A. Factual Background This case concerns three parties, two contracts, and o n e arb itr ation clause. Third-party ship operator Vessel M a n a gement Services, Inc. (“Vessel Management”) contra c ted with Plaintiff–Appellant VTHM (the “Construction Contract”) to cons t r u c t several vessels, including the M/V Pride (the “Pride”). Under the Const ru c ti o n C o ntr a c t , Ve s s e l M a n a g e m e nt w o u ld supply VTHM with various components for the vessels, including the main engines, shaft, hub, and blades. VTHM would receive and store t h o s e parts at its shipyard pending installation in a vessel for Vessel Management. Vessel Management also entered into a contract w ith D e fendant–Appellee W art sila (the “Sales Contract”), unde r wh i c h W art s il a w o u l d p r o vi d e c o m p o n e nt s for Vessel Management’s vessels. T he Sales Contract between Wartsila and Vessel Management includes a mandatory arbitration clause, which states, This Agreement shall be construed in accordance w i t h the laws of the State of New York, without reference to its c o n f lict of laws provisions. Any dispute between the parties arisin g o u t o f 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 “nonsignator y” w i t h r espect to it; VTHM and Wartsila have not entered into any contract with each other. Pursuant to the Sales C o ntract, Vessel Management bought propulsion systems (a/k/a shaft/hub assemblies) from Wartsila for the vessels VTHM was building, including the Pride

. Wartsila delivered th e p r o p u l s i o n s y s t e m s directly to VTHM at its shipyard for storage until they could be installed. VTHM later installed a propulsion sys tem in the Pride

. Thereafter, the Pride ’s propulsion

2 Case: 12-60051 Document: 00512139208 Page: 2 Date Filed: 02/08/2013No. 12-60051

system failed inspection. VTHM claims that Warts i la represented to Vessel Management that VTHM’s poor workmanship caused the failure. B a s e d o n 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 d a m a g e s under the Construction Contract. B. Procedural Background VTHM sued Wart s i l a , 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) tortiou s i n t e r f

erence with contractual relations. First, as to the breach of warranty claim, VTHM contends that although it is n o t a p a r ty to the Sales Contrac t , it has the right, as an “equitable subrogee,” to stand in the shoes of Vessel Management to enforce Wartsila’s o b l i g a t ion to replace the failed propulsion system under the Sales Contract’s warranty. As to the second claim, VT H M asserted that Wartsila tortiously interfered with VTHM’s contractual

r e l ati o n s h i p w ith Ve s s el Management ( viz ., the Construction Co ntr a c t) b y f al s e ly telling Vessel Managemen t that VTHM incorrectly installed the propulsion system. Wartsila moved to compel arbitration as to both claims. VTHM conceded that its first claim, b r e a c h o f warranty, was subject to mandatory arbitration because the breach of warranty claim was derived from Vessel Managemen t ’s rights under its Sales Contract with Wartsila, whic h h ad 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

3 Case: 12-60051 Document: 00512139208 Page: 3 Date Filed: 02/08/2013claims to arbitra t i on 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 Fif

t h Circuit reviews the grant or denial of a motion to compel arbitration de novo. Noble Drilling Servs., Inc. v. Certex USA, Inc ., 620 F

. 3 d 469, 472 n.4 (5th Cir. 2010). But, when a district court applies eq u i t a b l e 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 re l y o n 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

cour t m u s t 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 t h r ee-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 distri c t c o urt’s order that it applied equitable estoppel, we assume that it did not.

4 Case: 12-60051 Document: 00512139208 Page: 4 Date Filed: 02/08/2013III. DISCUSSION

Arbitration i s 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 & Pro d. Co. v. Ramco Energy Ltd. , 139 F.3d 106 1 , 1 0 6 4 (5th Cir. 1998) (citing AT&T Techs., Inc. v. Commc’ns Workers , 475 U.S. 643, 648 (1986)) ; s e e a lso 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 arbitr a t ion 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 g e n e r al requirements for compelling a party to arbitrate a particul ar di s p u t e : th e court must determine both that (1) the two parties h a v e a valid agreement to arbitrate, and (2) t h e d i spute 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 S a l e s C o n tract containing the arbitration clause. The district court cited Pennzoil as the basis for its analysis, suggesting that it would evaluat e f irst, whether the two parties had a valid agreement to arbitrate, and second, whether the dispute in question fell within the s c ope of that arbitration agreement. See id. However, the district court

a p p e a r s to have skipped the first requirement (did the parties have a vali d agreement to arbitrate?) and instead jumpe d straight to the second (did the dispute in question fall within the scope of the agreement?). There are two i n d i c ations that the district court overlooked the first requirement. First, the cour t ’ s o r d e r cited the part of Pennzoil that addresses the second requirement. See Pennzoil , 139 F.3d at 1067. Moreover, the district court’s discussion includ e s references to two cases that addressed Pennzoil’s second step. The first case, Brandom v. Gulf Coast Bank & Trust Co . , N o . 00-

5 Case: 12-60051 Document: 00512139208 Page: 5 Date Filed: 02/08/201311119, 2001 WL 498720 (5th Cir. Apr. 16, 2001) ( u n p u blished), 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 distri c t court, the threshold inquiry of whether the parties agreed to arbitrate in the first place was undisputed. Second, the order’s language focuse s only on the broad scope of the arbitration agreement: “[t]his Court mu s t r e s o lve any doubts concerning the
scope of coverage of a con t ractual arbitration clause in favor of arbitration”; “[t]he arbitra t ion 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 h a v e concluded that they did not, ending the inquiry at requirement on e ; t h e 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 Contr a c t b e t ween Vessel Manageme nt a n d W art s il a c o nt ai n e d a p r e s u m ably 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 betw e e n VT H M and Wartsila that would compel VTHM to arbitrate its tortious interferenc e c l a i m . The district court’s order never articulates a distinction between the two contracts. In fact, the district court references “the Arbitratio n A g r eement at issue [10-1],” but that agreement is not be t w e e n the two parties to the suit, Wartsila and VTHM. Rather, it i s b e t w een Wartsila and third-party Vessel Management. This ref erence suggests that the district did not contemplate that there were two separate contracts at issue. The ci t a t ion evidence, coupled with the order’s

6 Case: 12-60051 Document: 00512139208 Page: 6 Date Filed: 02/08/2013language, 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 agre e m e n t 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, w e r e m a n d 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 c o mpels arbitration.

There wa s one par t of the dis tri ct cour t’s ord er that coul d be read to indi cat e that the * *
cour t real ized ther e we re tw o se par ate cont rac ts

. The fina l page of the ord er s t a t es “th e [c ]ou rt is of the viewthat Plaint iff ’s tort ious inter fer ence claim ‘aros e out of or in connec tio n wi th’ the c o n tra ct betw een Wart sil a and Vess el Man agem ent. ” The dis tri ct cour t cor rec tly ide ntif ies the tw o par tie s to the Sale s Contr act cont aining the arbit rat ion agree me nt. It is not clea r, how ever, that the cour t real ized that “th e P l a i ntif f” —as it is ref

err ed thr oughout the ord er—is VTHM

.
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