1 United States Court of Appeals

Fifth Circuit



## FILED

March 23, 2005

Charles R. Fulbruge III

Clerk IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

__________________________

No. 04-30370

__________________________

KEYTRADE USA, INC.,

Plaintiff - Appellee,

versus

AIN TEMOUCHENT M/V, in rem; et al.,

Defendants,

SOCIETE NATIONALE DE TRANSPORTS MARITIME & COMPAGNIE NATIONALE

ALBERIENNE DE NAVIGATION MARITIME, in personam,

Defendant - Appellant.

___________________________________________________

Appeal from the United States District Court

For the Eastern District of Louisiana

___________________________________________________

Before JOLLY, DAVIS, and CLEMENT, Circuit Judges.

EDITH BROWN CLEMENT, Circuit Judge:

We must address whether a bill of lading incorporates a voyage charter’s arbitration clause.

We hold that it does, and reverse and remand with instructions to compel arbitration.

I.

A misguided and fateful shipment of urea set in motion a series of events that culminated in

this appeal. Societe Nationale de Transports Maritimes & Compagnie Nationale Algerienne de1 A charter party is “a specialized form of contract for the hire of an entire ship, specified

by name.” S CHOENBAUM

, T HOMAS J., A DMIRALTY AND M ARITIME L AW , § 11-1 (4th ed. 2001).

There are two types of charter parties that will be referenced regularly in this opinion: voyage

charters and time charters. As their names suggest, a time charter provides for the charterer to

obtain the vessel for a fixed period of time, and under a voyage charter, the charterer obtains the

vessel for the length of a voyage. Id.

2 Navigation Maritime (“CNAN”) is the owner of the bulk carrier Ain Temouchent M/V

. On December

4, 20 0 0, CNAN entered into a charter party with Progress Bulk Carriers, Inc. (“Progress Bulk”),

providing the Ain Temouchent to Progress Bulk for a period of six to ten months at a cost of $6,000

per day. 1 The time charter contained a number of clauses and conditions, among them Clause 48,

which states that “[a]ll disputes arising out of this contract

. . . shall be r eferred to arbi trati on i n

London.”

Progress Bulk was to use the Ain Temouchent to tra nsport cargo for other com pani es. In

March, 2001, three months after it entered into the time charter, Progress Bulk agreed to a voyage

charter with one such company, Keytrade A.G. (“KAG”). KAG is a Swiss corporation and the parent

company of Keytrade USA (“KUSA”), a Chicago-based subsidiary that sells fertilizer to customers

in the United States. When KUSA needed to ship cargo, it aut horized KAG t o negotiate for and

obtain on its behalf the necessary transportation. The voyage charter between KAG and Progress

Bulk was for the shipment o f ro ughly 22,000 metric tons of prilled urea, to be sent from Shuaiba,

Kuwait to New Orleans, Louisiana. Among the many provisions of the voyage charter was Clause

45, pursuant to which “[a]ny dispute arising under this Charter Par ty [was] to be referred to

Arbitration in London.” The voyage charter also specified that a “Congen” bill of lading was to be

utilized.

Per the Progress Bulk/KAG voyage charter, the urea was loaded onto the Ain Temouchent

,3

and KUSA was given a Congen bill of lading acknowledging such, on March 26, 2001. The bill of

lading was signed by the master of the Ain Temouchent on beha lf o f CNAN. Among the many

features of a Congen bill of lading is an arbitration incorporation clause, which states that “[a]ll terms

and conditions, liberties and exceptions of the Charter Party, dated as overleaf, including the Law and

Arbitration Clause , are herewith incorporated.” (emphasis added).

Shortly thereafter, the Ain Temouchent departed for the sched u led 42-day journey—the

shipment was to arri ve befo re the beginning of the farming season, by May 10, 2001—to New

Orleans. The trip took longer than planned. Among the delays that befell the A in Temouchent were

a seizure of the vessel by a creditor-s upplier during a stop for repairs, and an unscheduled crew

change. In all, the trip was delayed 16 days—the A in Temouchent ultimately arrived in New Orleans

on May 26, 2001.

Before the Ain Temouchent had docked in New Orleans, KUSA filed this lawsuit against both

Progress Bulk and CNAN in personam

, and against the A in Temouchent in rem

. KUSA alleged

breaches of the contract of carriage (the bill of lading) and of defendants’ Carriage of Goods at Sea

Act obligations, seeking damages it suffered from the drop in market value of prilled urea. Progress

Bulk, invoking Clause 45 of its voyage charter with KAG, moved the district court to dismiss the

case and to compel arbitration. Because KUSA, and not KAG, filed the suit, the district court denied

Progress Bulk’s motion unless and until Progress Bulk could produce sufficient evidence to establish

an agency relationship between KAG and KUSA.

Progress Bulk ultimately produced that evidence, and reurged its motion to compel arbitration

in November, 2002. On this second motion, the district court determined that KUSA and KAG do

indeed have an agency relationship—a ruling that is not contested on appeal—and that, under the4

voyage charter, arbitration was proper between Progress Bulk and KUSA. Also in November, 2002,

CNAN moved, for the first time, to compel arbitration on theories of equitable estoppel. The district

court denied CNAN’s motion pending the conclusion of the KUSA-Progress Bulk arbitration, but

the court did not rule on the merits of the motion.

After KUSA settled its disp ut e with Progress Bulk, CNAN reurged its motion to compel

arbitration. In this second motion, CNAN abandoned its equitable estoppel rationale, instead pressing

an argument based on Cargill Ferrous International v. SEA PHOENIX M/V

, 325 F.3d 695 (5th Cir.

2003), a case that had been decided after CNAN’s init ial motion to compel arbitration. Under S EA

PHOENIX

, a bill of lading may be found to incorporate an arbitration clause of the charter party, even

if one of the parties to the bill of lading was a nonsignatory to the charter party. The district court

denied the motion on the merits, finding SEA PHOENIX factually distinguishable. CNAN timely

appeals that ruling.

II.

This Court has jurisdiction pursuant to §§ 4 and 16 of the Federal Arbitration Act, 9 U.S.C.

§§ 4, 16(a)(1)(C) (2002), and § 28 U.S.C. 1291. The district court’s refusal to compel arbitration

is reviewed de novo

. S ee, e.g.

, Banc One Acceptance Corp. v. Hill

, 367 F.3d 426, 428–29 (5th Cir.

2004).

III.

We must first consider whether CNAN had a right to compel arbitration with KUSA. After

concluding that it did, we address whether CNAN waived that right.

A.

As a general matter, an agreement to arbitrate must be in writing. S ee Sedco, Inc. v. Petroleos5

Mexicanos Nat’l Oil Co.

, 767 F.2d 1140, 1144–45 (5th Cir. 1985); see also T HE C ONVENTION ON

THE R ECOGNITION AND E NFORCE MENT OF F OREIGN A RBITRAL A WARDS

, reprinted as Note to 9

U.S .C. § 201. CNAN concedes, as it must, that no such agreement exists between CNAN and

KUSA: although the time and voyage charters each include an arbitration clause, neither was between

CNAN and KUSA; while the bill of lading was an agreement between KUSA and CNAN, it did not

contain an arbitration clause.

Thus, CNAN’s only available argument is that the bill of lading incorporated the arbitration

clause from a charter party. Generally, “[a] bill of lading can incorporate a charter party if the bill of

lading specifically refers to the charter party.” C argill v. GOLDEN CHARIOT M/V , 31 F.3d 316,

318 (5th Cir. 1994). Here, the bill of lading included an incorporation clause, but it did not specify

the charter party that it sought to incorporate, leaving bot h the name and date blanks empty.

Recently, this Court in SEA PHOENIX provided the analytical framework for situations where the

charter party is not explicitly identified. 325 F.3d at 698–99. In SEA PHOENIX , we held that,

where, as here, an incorporation clause is present in the bill of lading, the correct test is whether “the

bills of lading are in the hands of the charterer, and [] there is no confusion concerning who was the

charterer or which charter party the bills of lading sought to incorporate.” I d. (citing State Trading

Corp. of India v. Grunstad Shipping , 582 F. Supp. 1523, 1524 (S.D.N.Y. 1984)).

As an init ial matter, we address, and reject, KUSA’s argument that the bill of lading was not

in the hands of the charter party. In S EA PHOENIX

, the holder of the bill of lading was also a party

to the voyage charter. 325 F.3d at 697–98. Because KAG was a party to the voyage charter, but

KUSA was listed on the bill of lading, KUSA argues that the bill of lading did not “remain in the

hands of the charterer” as required under SEA PHOENIX

. It is true that two different entities were6

parties to the bill of lading and the voyage charter. Due to the district court’s finding concerning the

KUSA/KAG agency relationship, however, KUSA’s argument presents a dis tinction wi thout a

difference. KAG was empowered, among other things, to seek out and procure transport for

KUSA’s goods. As the district court found, KUSA does not charter its own vessels, rather, it relies

on KAG to negotiate transportation. In short, because the district court found that KAG and KUSA

were legally intertwined entities—a decision that KUSA does not now appeal—the fact that KUSA,

and not KAG, held onto the bill of lading has no legal import.

Therefore, the precise question we are left with is whether there is “no confusion” from the

bill of lading as to which charter party governed the rights of the parties. In order to answer thi s

question, it is helpful to look at the parallel facts of SEA PHOENIX

. In S EA PHOENIX

, Serene was

the owner of the vessel, the M/V Sea Phoenix

, which it time chartered to Western. Western, in turn,

entered into a voyage charter with Cargill to use the Sea Phoenix to transport a sh ipment of steel

coils. I d. at 698. The only contract between Serene and Cargill was the bill of lading, which Serene

transferred to Cargill when the shipment of coils was loaded. I d. The voyage charter included an

arbitration clause, but the bill of lading did not. The bill of lading did co nt ain the following

incorporation clause, identical to the one in this case: “All terms and conditions, liber t ies and

exceptions of the Charter Party, dated as overleaf, including the Law and Arbitration Clauses, are

herewith incorporated.” Id.

The Court found that there was no confusion as to the charter party it sought to incorporate.

As the Court stated:

First, Cargil l received and continued to hold bills of lading issued pursuant to the CargillWestern Bulk voyage charter. Second, the agent who signed the bills of lading . . . received

its agency authority solely from a term in the voy age chart er. Third, the bills of lading

indicate freight is to be paid pursuant t o the charter party. This provision depends on the7

incorporation of the Cargill-Western Bulk voyage charter to retain any meaning. Fourth, the

Cargill-Western Bulk voyage charter, the only charter party that Cargill signed

, requires all

bills of lading issued under the voyage charter to incorporate, among other things, the voyage

charter’s arbitration clause.

Id. at 699 (internal citations omitted) (emphasis added). There is a similar factual basis here. It is

the voyage charter that specifies a Congen bill of lading was to be us ed. See Clause 9. It i s the

voyage charter that describes how the bill of lading should be marked vis-a-vis freight. See Clause

18 (mandating markings of “CLEAN ‘ON BOARD’/ FREIGHT PAYABLE AS PER CHARTER

PARTY”). It is the voyage charter that grants the captain of the Ain Temouchent the authority to

sign t he bill of lading. S ee Clause 9. Indeed, there is nothing in the CNAN/Progress Bulk t ime

charter that speaks of the bill of lading. With only one (of two) charter parties speaking to shipment

and the bill of lading, it is difficult to discern how there could be “confusion” as to which charter party

the bill of lading’s incorporation clause referred.

KUSA offers nothing to rebut these facts. Instead, KUSA focuses primarily on the fourth

factor from Cargill— i.e.

, that the voyage charter does not include provisions requiring incorporation

of the arbitration clause into the bills of lading. Parroting the district court, KUSA contends that the

Progress Bulk/KAG voyage charter does not require the incorporation of an arbitration provision into

any bills of lading issued under that charter party. For example, Clauses 44 and 45 discuss

incorporation and arbitration, respectively, but neither discusses incorporation of arbitration into the

bills of lading issued under the voyage charter. Therefore, KUSA concludes that “there i s confusion

concerning who in fact was the charterer o r which charter party the bills of lading sought to

incorporate.”

Only if this Court were to look solely at the voyage charter, and ignore the language of the2 Even if our holding were to rest entirely on whether the voyage charter authorized

incorporation, the issue is not nearly as clear as KUSA contends. For example, the voyage

charter explicitly mandates the use of a Congen bill of lading, a form which includes the

incorporation language. See Clause 9. Given the negotiations that are evident from the face of

the voyage charter—numerous pre-printed clauses are edited or deleted, and other supplemental

clauses are added—Clause 9 is not mere boilerplate. Because these are sophisticated parties, if

we were to look solely at the intention of the parties from the voyage charter, we would be apt to

conclude that they intended the incorporation. Steel Warehouse Co. v. Abalone Shipping Ltd. of

Nicosai , 141 F.3d 234, 237 (5th Cir. 1998) (noting that the Congen bill of lading is a “common,

internationally recognized” instrument).

8 bill of lading, could this interpre t at ion be valid. 2 Such a narrow inquiry, however, is not justified

under SEA PHOENIX and its predecessor s. Analyzing the substance of the bill of lading is a

fundamental component of our analysis; as noted above, this Court has held that if a bill of lading

specifically refers to the charter party, then the charter party is deemed incorporated (to the extent

referenced in the bill of lading). G OLDEN CHARIOT, 31 F.3d at 318. The underlying concern for

the “no confusion” requirement is that a third party, which did not participate in the formation of, or

is otherwise unaware of, the charter party, should not be held to terms of which it had no notice. S EA

PHOENIX , 325 F.3d at 698 (quoting Cargill B.V. v. S/S OCEAN TRAVELLER

, 726 F. Supp. 56,

59 (S.D.N.Y. 1989)); see also Associated Metals & Minerals Corp. v. M/V Venture , 554 F. Supp.

281, 283 (D.C. La. 1983) (“[T]hird parties, since they are strangers to the charter party, should be

able to rely on clean bills of lading free from the restraint of agreements between the shipowner and

charterer, as to which the third parties have no notice.”). The original charter party, by itself, is poor

evidence of whether a third-party was aware of the charter party’s terms, as many third-parties will

be aware of the charter party only after the charter party’s formation, if at all. S EA PHOENIX

, with

its factual discussion resting in large part on the bill of lading, is an example of this bill-centric inquiry.

325 F.3d at 698; s ee also id. at 698–99 (noting that there is incorporation when there is “n o3 In some circumstances, not applicable here, the parties may explicitly state in the charter

party that the bill of lading should be issued “without prejudice to the charter party.”

S CHOENBAUM , A DMIRALTY AND M ARITIME L AW at § 11-6.

9 confusion concerning .

. . which charter party the bill of lading sought to incorporate ”) (emphasis

added). There are situati ons, present i n S EA PHOENIX

, State Trade

, as well as here, where the

examination of the charter party is relevant and necessary. Nevertheless, in such situations, it must

be compared with the terms of the bill of lading and cannot rest solely on the charter’s terms.

Thus, whether t he vo yage charter provides that all bills of lading should incorporate

arbitration provisions—the thrust of both KUSA’s and the district court’s analyses—may be relevant,

but it is typically not dispositive. 3 As shown above, it is clear that the March 26, 2001 bill of lading

refers back to the Progress Bulk/KAG voyage charter. While that determination would be buttressed

if the voyage charter included provisions regarding the incorporation of arbitration, see State Trading

,

582 F. Supp. at 1524, the lack of such clauses does not change our fundamental conclusion.

Finally, KUSA argues that Bridas S.A.P.I.C. v. Gov’t of Turkmenistan

, 345 F.3d 347 (5th Cir.

2003), changes the SEA PHOENIX calculus. Although KUSA superficially stresses B ridas ’s

importance, it provides little substantive analysis as to the case’s impact. In fact, B ridas neither

mentions SEA PHOENIX

, nor deals with bills of lading or other contracts of carriage—indeed, it is

not a marit ime case at all. B ridas does discuss arbitration agreements, and as far as we can discern,

the following porti on of KUSA’s brief captures the essence of its Bridas argument: “‘[Under Bridas ,]

who is actually bound by an arbitration agreement

. . . [is] expressed in the terms of the agreement,’

and [one] only looks to the four corners of the document in finding the answer.” Appellee Brief at

18 (quoting Bridas , 345 F.3d at 355). This can hardly be stated as a novel proposition of law, for,

as we have noted, a first principle of determining the existence of a right to compel arbitration is to10

look for a written agreement. S ee, e.g.

, Sedco

, 767 F.2d at 1144–45. Moreover, to the extent that

KUSA argues that an agreement to arbitrate may only b e found from the four corners of the

document, it s faith is misplaced. As the court in B ridas wrote, there are exceptions to the four

corners rule, one of which is for the inclusion of nonsignatory principals/agents. B ridas

, 345 F.3d

at 356 (noting that, among the “[s]ix theories for binding a nonsignatory to an arbitration agreement

[that] have been recognized” is the presence of an agency relationship). Here, the district court, in

an unappealed order, found that KAG and KUSA had an agency relationship.

Because there was no confusi o n as to which charter party the bill of lading sought to

incorporate, we hold that the Progress Bulk/KAG voyage charter’s arbitration clause established in

CNAN a right to compel arbitration with KUSA.

B.

Having determined that the bill of lading provided CNAN a right to compel arbitration, we

next turn to the question of whether CNAN has waived that right. S ee, e.g.

, Williams v. Cigna Fin.

Advisors, Inc.

, 56 F.3d 656, 661 (5th Cir. 1995) (“‘[T]he right to arbitration, like any other contract

right, can be waived.’”) (quoting Miller Brewing Co. v. Fort Worth Distrib. Co., Inc.

, 781 F.2d 494,

497 (5th Cir. 1986)).

A party waives its right to arbitration whe n, among other things, it invokes the judicial

machinery to “the detriment or prejudice of the other party.” R epublic Ins. Co. v. PAICO

Receivables, LLC

, 383 F.3d 341, 344 (5th Cir. 2004). “[T]he party must, at the very least, engage

in some overt act in court that evinces a desire to resolve t h e arbitrable dispute through litigation

rather than arbitration.” I d. (quoting Subway Equip. Leasing Cor. v. Forte

, 169 F.3d 324, 329 (5th

Cir. 1999).4 KUSA does make other, frivolous arguments. For example, KUSA argues that because

CNAN’s second motion to compel was based entirely on SEA PHOENIX , a case that was decided

after Progress Bulk’s motion for arbitration, it waived its right to arbitration. Even had CNAN,

for the first time, asked for arbitration on a newly developed basis some months or years after the

initial complaint, that would not speak to waiver. Rather, CNAN would merely be exercising a

newly vested right. One need not consider that scenario, however, as it is true both that CNAN

(i) included a claim for arbitration in its original answer, and (ii) filed an initial motion to compel

arbitration based on theories of equitable estoppel.

11 Despite the possibility of waiver, “[t]here is a well-settled rule in this circuit that waiver of

arbitration is not a favored finding, and there is a presumption against it.” Steel Warehouse Co. v.

Abalone Shipping Ltd. of Nicosai

, 141 F.3d 234, 238 (5th Cir. 1998); see also Miller Brewing

, 781

F.2d at 496–97 (“[Q]uestions of arbitrability must be addressed with a healthy regard for the federal

policy favoring arbitration.”) (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Co.

, 460

U.S. 1, 24 (1983)) (internal quotati ons omitted). That burden “falls even more heavily” when the

party seeking arbitration “has included a demand for arbitration in its answer.” S teel Warehouse

, 141

F.3d at 238 (quoting Southwest Indus. Import & Export, Inc. v. Wilmod Co.

, 524 F.2d 468, 470 (5th

Cir. 1975)). In the Eighth Defense of its answer to KUSA’s complaint, CNAN specifically called on

the district court to refer the case to arbitration. Consequently, KUSA must overcome a particularly

heavy presumption against waiver.

KUSA contends that CNAN “invoked” the judicial machinery for two reasons, neither of

which is persuasive. 4 First, KUSA argues that CNAN waived its right because it filed an extensive

summary judgment motion—in excess of 100 pages—with little evidence o f an indication for

arbitration. KUSA offers no legal authority for why a motion for summary judgment, filed from a

d efensive posture, can be characterized as an invocation of judicial process. Even assuming,

arguendo

, that it is, CNAN concurrently filed a motion to compel arbitration in the alternative to its12

motion for summary judgment, removing any doubt as to waiver. Second, KUSA argues that CNAN

participated in a number of discovery requests. Although CNAN did comply, sometimes under court

order, with KUSA’s requests for discovery, a party may participate in the discovery process so long

as it does not “showe r[] [the opposing party] with interrogatories and discovery requests.” S teel

Warehouse

, 141 F.3d at 238. Our review of the record reveals that the only evidence of CNAN’s

affirmative participation was its submission of a witness list should the case go to trial. This hardly

constitutes evidence of waiver.

IV.

The judgment of the district court is REVERSED and REMANDED, with instructions to

enter an order granting CNAN’s motion to compel arbitration.