12

- 1887

- cv

Donjon Marine Co. v. Water Quality Ins. Syndicate

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007 IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT ’ S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WIT H THE NOTATION “ SUMMARY ORDER ” ). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

1 At a stated term of the United States Court of Appeals for the Second Circuit, held at 2 the Thurgood Marshall United Stat es Courthouse, 40 Foley Square, in the City of New 3 York, on the 15 th day of April , two thousand thirteen. 4

5

PRESENT: RAYMOND J. LOHIER, JR., 6

SUSAN L. CARNEY, 7 Circuit Judges, 8 JED S. RAKOFF, 9 District Judge. * 10

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12 DONJON MARINE CO., INC.

, 13

14 Plaintiff

- Appellee

, 15

16

v. No. 1 2

- 1887

- cv 17

18 WATER QUALITY INSURANCE SYNDICATE

, 19

20 Defendant

- Appellant. 21

22

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25

26

27

* The Honorable Jed S. Rakoff, of the United States District Court for the Southern District of New York, sitting by designation.2

FOR APPELLANT: E LIZABETH A. M C C OY (James E. Forde, on the brief )

, 1 Hill, Betts & Nash LLP, New York, NY. 2

3
FOR APPELLEE: W ILLIAM M. F ENNELL (Terry L. Stoltz, on the brief )

, 4 Nicoletti Hornig & Sweeney

, New York , NY. 5
6

Appeal from a judgment of the United States District Court for the Sou thern District 7

of New York ( Alvin K. Hellerstein

, Judge ). 8

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, 9

AND DECREED that the judgment of the District Court is AFFIRMED in part , and 10

VACATED and REMANDED in part

. 11

Defendant

- a ppellant Water Quality Insurance Syndicate (“WQIS”) appeals from an 12

April 20, 2 012 judgment in favor of plaintiff

- appell ee Donjon Marine Co., Inc., 13

(“Donjon”) in the amount of $236,272.3 8

. Among other things, t he District Court 14

concluded that WQIS served as a guarantor to Abhe & Svoboda, Inc. (“A&S”) and as such 15

was required to pay the full amount invoiced by Donjon pursuant to its Wreck Removal 16

and Marine Services Agreement with A&S (the “Salvage Agreement”)

. We assume the 17

parties ’ familiarity with the facts and record of the prior proceedings, which we refer enc e 18

only as necessary to explain our decision. 19

I. WQIS’s Motion to Stay Pending Arbitration 20

WQIS argues that the District Court erred by failing to grant its motion to stay this 21

action pending arbitration between Donjon and A&S

. It asserted to the District C ourt that 22

the arbitration w ould resolve at least one issue that it described as central to th e federal 23

litigation , namely, whether Donjon failed to complete the work it contracted to perform 24

pursuant to the Salvage Agreement, which included recovering deck equipment that fell 25

within the general footprint of A&S’s sunken barge. 26

We review a district court’s decision to deny a stay pending arbitration for abuse of 27

discretion. See Nederlandse Erts

- Tankermaatschappij, N.V. v. Isbrandtsen Co. , 362 F.2d 283

205, 206 (2d Cir. 1966)

. Under its inherent power to manage its docket, a district court 1

can stay a c ase pending arbitration when the arbitration may determine issues involved in 2

the case , even when the parties to the stayed action are not the parties involve d in the 3

arbitration

. Nederlandse Erts

- Tankermaatschappij, N.V. v. Isbrandtsen Co. , 339 F.2d 4

440, 441 (2d Cir. 1964)

. The party seeking the stay has the “heavy burden ,” Sierra Rutile 5

Ltd. v. Katz , 937 F.2d 743, 750 (2d Cir. 1991)

, of establishing “that [ it has] not taken nor 6

will take any steps to hamper the progress of the arbitration proceeding, that the arbitration 7

may be expected to conclude within a reasonable time, and that such delay as may occ ur 8

will not work undue hardship,” Isbrandtsen

, 339 F.2d at 442

. 9

WQIS failed to meet this burden because it did not show that the arbitration would 10

likely conclude within a reasonable time. Although WQIS informed the District Court 11

that arbitration hearings would begin the week after the hearing on the parties’ dispositive 12

motions, it did not establish when the parties could expect a result. Events since then only 13

confirm that the District Court correctly refused to issue a stay. The parties informed us in 14

advance of oral argument that

, nearly one year after the motion was made , the arbitrators 15

have yet to render a decision ; indeed, they received supplemental submissions as recently 16

as February 26 , 2013

. Without some better assura nce at the time that A&S moved for a 17

stay that the arbitration could be expected to end expeditiously

– at least before the federal 18

litigation, including appeal, might conclude

– the District Court did not abuse its discretion 19

by declining to stay th is act ion. 20

II. Donjon’s Motion for Summary Judgment 21

WQIS ’s principal argument is that the District Court erred by granting Donjon’s 22

motion for summary judgment. First, WQIS contends that Donjon was not owed the lump 23

sum payment Donjon seeks because it failed to complete its obligations under the Salvage 24

Agreement . Second, it claims that Donjon overbilled for pollution prevention work

. For 25

264

the following reasons, we reject the first argument but remand to the District Court for 1

reconsi deration of the pollution prevention services agreement. 2

A. The Salvage Agreement 3

“We review a district court’ s grant of summary judgment de novo, construing the 4

evidence in the light most favorable to the nonmoving party and drawing all reas onable 5

inferences in that party’ s favor.” Kuebel v. Black & Decker Inc. , 643 F.3d 352, 358 (2d 6

Cir. 2011). Summary judgment is appropriate “if the movant shows that there is no 7

genuine dispute as to any material fact and the movant is entitled to judgment as a matter of 8

law.” Fed. R. Civ. P. 56(a). 9

There can be no genuine dispute that WQIS guaranteed A&S’s debts to Donjon for 10

salvage work completed under the Salvage Agreement. “For a plaintiff to establish a 11

prima facie case that it is entitled to recover on a guarantee under New York law, it must 12

show: (1) that it is owed a debt from a third party; (2) that the defendant made a guarantee 13

of payment of the debt; and (3) that the debt has not been paid by either the third party or 14

the defendant.” Chem. Bank v. Haseotes , 13 F.3d 569 , 573 (2d Cir. 1994). WQIS 15

challenges the first element, arguing that Donjon was not owed a d ebt from A&S under the 16

Salvage Agreement because Donjon failed to recover three pieces of equipment

– a 17

generator, a reclaimer, and a hopper

– that fell within the general footprint of the sunken 18

barge

. The parties agree that , under the contract, payment is due upon “ completion ” of the 19

work

. T hey disagree about what Donjon needed to do before the work would be deemed 20

“completed.” Both parties rely on Clause 18 of the Salvage Agreement, which provides: 21

The work will be dee med completed once the vessel an d al l attached 22 equipment is removed from the site. Donjon also agrees to recover any deck 23 equipme nt that may have fallen off the barge during the casualty as long as it 24 is within the general f ootprint of the vessel [’] s present sunken location. 25

WQIS argues that this clause

– particularly in conjunction with the agreement’s definition 26

of “vessel,” whi ch includes cargo “contained therein or thereon”

– required Donjon to 275

recover deck equipment that fell within the general footprint of the sunken barge before it 1

would be entitled to payment

. Donjon responds that Clause 18 entitled Donjon to 2

payment when it refloated and redelivered the barge; it urges that the second sentence of 3

Clause 18 is an additional promise th at need not be fulfilled to trigger A&S’s payment 4

obligation

. 5

Even if we accepted WQIS’s interpretation of Clause 18, w e would affirm the 6

Distr ict Court’s decision relating to the Salvage Agreement

. WQIS provided no 7

admissible evidence that Donjon failed to recover equipment in the general footprint of the 8

sunken vessel , while Donjon supplied affirmative evidence that it had done so . Donjon 9

submitt ed an affidavit from its Salvage Maste r, William E. Kratz, III, stating that he dove 10

on site and “confirmed that no equipment remained in the general footprint of the sunken 11

barge.” Kratz’s affidavit was supported on the record by an email from an other diver

, Eva 12

Longobardi, who wrote that she participated in the removal of equipment that had been 13

trapped underneath the barge, and that the additional items and equipment that remained 14

fell outside of the vessel’s general footprint. Having failed to provide evidence in its 15

favor , WQIS has also failed to raise a genuine dispute as to th e fact of Donjon’s completion 16

of the salvage work , and Donjon was entitled to judgment as a matter of law. See 17

Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 249 (1986 ) (“[T]here is no issue for trial 18

unless there is sufficient evidence favoring the nonmoving party for a jury to return a 19

verdict for that party.”). 20

WQIS alternatively maintains that its guarantee was not an unconditional guarantee 21

of payment, which permi ts a creditor to proceed directly against a guarantor if the debtor 22

fails to pay, but was instead a conditional guarantee of collection, which requires the 23

guarantor to pay if an d only if the debt cannot be collected from the debtor via legal 24

proceedings. See Thomas H. Lee Equity Fund V, L.P. v. Bennett (“ THL ”) , No . 05 Civ. 25

9608(GEL), 2007 WL 950133, at *3 (S.D.N.Y. Mar. 28, 2007) (Lynch, J. )

. We reject this 266

argument. “The language of the agreement . . . should guide the determination of which 1

kind of guarantee is involved.” Id. Donjon requested from A&S’s guarantors, WQIS 2

and Travelers, “agree[ment] to pay their portion of the total invoice in accordance with the 3

terms of the contract executed between Donjon and [A&S].” Travelers confirmed t hat it 4

would “ be responsible for 50% of the Don Jon contract,” and WQIS “confirm[ed] [its] 5

agreement to payment of the Don Jon contract . . . .” WQIS’s agreement “to payment” 6

contained no conditions, and WQIS did not explicitly agree “to pay only after al l attempts 7

to obtain payment from the debtor have failed.” Gen. Phoenix Corp. v. Cabot

, 300 N.Y. 8

87, 92 (1949). There is no basis for us to conclude, as WQIS urges, that by agreeing to 9

pay “in accordance with the terms of the” Salvage Agreement, WQIS imp licitly 10

conditioned payment on Donjon’s successful arbitration against A&S. By its terms, t he 11

Salvage Agreement does not require arbitration before payment; it require s payment upon 12

completion of Donjon’s work

. Indeed, the express terms of Part II, S ection 12 of the 13

Salvage Agreement confirm Donjon’s understanding and expectation that the security 14

A&S provided under the Salvage Agreement, through WQIS, would be “irrevocable and 15

unconditional,” and thus confirm that WQIS gave a guarantee of payment, no t of 16

collection. The District Court did not err in so concluding. 17

B. The Pollution Prevention Services Agreement 18

WQIS contends that although Donjon billed $130,900 for 34 hours of pollution 19

prevention services, WQIS satisfied its obligation to Donjon by paying $100,000. First, i t 20

argues that a significant portion of the amounts invoiced w as for time spent not on 21

pollution control services but on s alvage

- related services, which a re covered by the lump 22

sum payment under the Salvage Agreement . Second, it claims that Donjon Executive 23

Vice President John Witte agreed to accept $1 00,000 as full payment for the pollution 24

prevention services. Third, it argues that by agreeing to pay for pollution prevention 25

267

services “promptly on receipt of a recommended invoic e
, ” it implicitly conditioned 1

payment on A&S’s authorization , which A&S withheld

. 2

We vacate the District Court’s judgment with regard to th e pollution prevention 3

services agreement

. At the hearing on Donjon’s summary judgment motion, t he District 4

Court appears to have conflated the pollution prevention services agreement with WQIS’s 5

guarantee of the Salvage Agreement , stating that the emails comprising the agreement 6

were “the equivalent of a guarantee that was in existence before,” and justifying its 7

judgment against WQIS by stating that, “[t]he nature of the guarantee is to shift the risk 8

from the contract party to the guarantor.” However, it is far from clear that the pollution 9

prevention services agreement was a guarantee under th e s ame terms as the guarantee 10

related to the Salvage Agreement. WQIS argues that its promise to pay was a guarantee 11

conditioned on A&S’s recommendation or authorization to pay

. Because Donjon agreed 12

to accept payment upon WQIS’s receipt of a “recommended in voice,” we cannot say the 13

pollution prevention services agreement had “ a definite and precise meaning” favoring 14

Donjon’s position, “ concerning which there is no reasonable basis for a difference of 15

opinion.” Greenfield v. Philles Records, Inc. , 98 N.Y.2d 562, 569 (2002). Further, at 16

oral argument, Donjon represented that A&S argued to the arbitration panel that the 17

pollution prevention services agreement was not a guarantee but rather an independent 18

promise that WQIS would pay for the pollution prevention services. This reading is also 19

plausible, as WQIS initially stated unequivocally that it “agreed to pick up the pollution 20

related costs

, ” and A&S did not explicitly agree to pay for these services. In light of these 21

various plausible readings of the agr eement

, some of which favor WQIS, we cannot 22

construe that agreement in Donjon’s favor as a matter of law, and summary judgment was 23

inappropriate

. We therefore vacate the District Court’s decision granting summary 24

judgment for Donjon with regard to the pollution prevention services agreement

. 25

268

According to the parties, t he arbitration panel is currently considering whether A&S 1

has an obligation to pay the amount invoic ed for pollution prevention services , and under 2

the terms of the Salvage Agreement , its decision will bind A&S. We are aware that t he 3

arbitration panel’s decision may also resolve or clarify the issues presented here

. The 4

matter was fully briefed and sub mitted on February 26, 2013 , and the arbitrators may issue 5

a decision as early as the end of June 2013

. See Soc’y of Mar. Arbs., Inc., Maritime 6

Arbitration Rules § 28, http://www.smany.org/sma/about6

- 1.html . On remand, t he 7

District Court is of course fre e to decide to hold this matter in abeyance until the arbitrators 8

have issued a decision. If it does so, it can thereafter invite renewed motions for summary 9

judgment from the parties in light of the arbitration decision. 10

We have considered all of the par ties ’ remaining arguments and conclude that they 11

are without merit. For the foregoing reasons, the judgment of the District Court is 12

AFFIRMED with regard to the Salvage Agreement and VACATED and REMANDED 13

with regard to the pollution prevention services agreement

. 14

15

FOR THE COURT: 16

Catherine O = Hagan Wolfe, Clerk of Court 17

18