Opinion ID: 772183
Heading Depth: 2
Heading Rank: 1

Heading: The Purported Agreements

Text: 75 The district court held that the parties did not enter into an ad hoc agreement to arbitrate whether they had formed a charter party, but did conclude that the parties had formed a charter party that included an arbitration clause requiring the parties to submit charter-related disputes to arbitration in London. As a result, the court granted Titan's motion to compel arbitration pursuant to the charter party and stayed the litigation pending such arbitration. On appeal, Zhen Hua argues that, as a matter of law, the parties' communications established an ad hoc arbitration agreement that, under the FAA and the Convention, delegated authority to an arbitrator in London to determine whether the parties had formed a charter party. We disagree.
76 Before addressing the merits of Zhen Hua's argument, we must resolve the parties' dispute over the standard of review applicable to the district court's conclusions about the existence, or lack thereof, of the two purported agreements. According to Zhen Hua, the district court decided the contractual formation issues as a matter of summary judgment and therefore our review is de novo. In response, Titan contends that the district court appropriately made findings of fact based on the parties' evidentiary submissions and that we review such findings, including the court's factual findings on formation, for clear error. 77 The determination of whether there was a meeting of the minds sufficient to constitute a contract is one of fact. See Interocean Shipping Co. v. National Shipping & Trading Corp., 523 F.2d 527, 534 (2d Cir. 1975). This remains true regardless of whether the contract at issue is an arbitration agreement, see Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 845 (2d Cir. 1987) (Based on [written] exchanges and after a detailed review of the voluminous evidentiary submissions, the district court found that [plaintiff] had agreed to arbitrate its disputes under both the signed and unsigned agreements with... defendants. We see no reason to disturb this factual finding.), or a charter party, see Great Circle Lines, Ltd. v. Matheson & Co., 681 F.2d 121, 125 (2d Cir. 1982) (Whether there was a meeting of the minds resulting in a charter party is a question of fact.). 78 When parties disagree about whether they entered into an arbitration agreement subject to the FAA, the FAA directs that the court shall proceed summarily to... trial of the issue. 9 U.S.C. §4. Contrary to Zhen Hua's characterization of the proceedings below, the district court's opinion and the record make clear that the district court did try the issue of whether the parties formed an agreement to arbitrate. Although the district court did not hold an evidentiary hearing, the parties filed multiple briefs and extensive evidence with the court over a two-year period. Most significantly, the parties submitted the telex and facsimile communications that were alleged to have formed the ad hoc arbitration agreement (according to Zhen Hua) and the charter party (according to Titan). No dispute existed as to the authenticity of these communications. Instead, the parties disagreed over the meaning of the communications. 79 In addition, Zhen Hua did not and does not now seek an evidentiary hearing. Nowhere in its briefs does Zhen Hua assert that it requested the district court to hold an evidentiary hearing. Furthermore, Zhen Hua does not contest (or even address) the district court's statement in footnote twelve of its first opinion that notwithstanding [s]ection 4 of the FAA..., no such hearing [was] required. See Titan I, 16 F. Supp.2d at 337 n.12 (internal citation omitted). Finally, Zhen Hua explicitly disclaims that the case should be remanded to the district court for such a hearing: 80 Neither Titan nor Zhen Hua seeks remand for a factual trial, nor is a trial appropriate when the sole issue is whether, as a matter of law and through application of the presumption favoring arbitration, the parties' communications reflect an enforceable agreement to arbitrate the issue of charter formation. 81 Appellant's Reply Br. at 12-13 (emphasis added). Consequently, under the circumstances of the matter sub judice, we hold that the district court tried the issue of formation (of both purported agreements) on the papers and that Zhen Hua has waived any right under the FAA to an evidentiary hearing. 82 The correct standard of review of the facts found by the trial court is contained in Rule 52(a) of the Federal Rules of Civil Procedure: Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous.... As stated in the rule, the clearly erroneous standard of review controls our consideration of the factual findings of the district court even though based upon a documentary record. See Anderson v. City of Bessemer City, North Carolina, 470 U.S. 564, 574 (1985). We are not permitted to find the district court's findings of fact to be clearly erroneous if the findings are one of two permissible views of the evidence. See id.
83 The Federal Arbitration Act creates a 'body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act.' PaineWebber Inc. v. Bybyk, 81 F.3d 1193, 1198 (2d Cir. 1996) (quoting Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). Arbitration agreements subject to the Convention are enforced in accordance with Chapter 2 of the FAA. See 9 U.S.C. §201. An agreement to arbitrate exists within the meaning of the Convention and the FAA if: (1) there is a written agreement; (2) the writing provides for arbitration in the territory of a signatory of the convention; (3) the subject matter is commercial; and (4) the subject matter is not entirely domestic in scope. See Smith/Enron Cogeneration Ltd. Partnership, Inc. v. Smith Cogeneration Int'l, Inc., 198 F.3d 88, 92 (2d Cir. 1999); see also 9 U.S.C. §202. Upon finding that such an agreement exists, a federal court must compel arbitration of any dispute falling within the scope of the agreement pursuant to the terms of the agreement. 84 Zhen Hua and Titan argue over whether the first requirement, i.e., the existence of a written agreement to arbitrate, has been met with regard to the ad hoc agreement and the charter party. Under the Convention a written agreement include[s] an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams. 9 U.S.C. §201, Convention on the Recognition and Enforcement of Foreign Arbitrable Awards, Art. II(2). 7 Notwithstanding the strong federal policy favoring arbitration as an alternative means of dispute resolution, see David L. Threlkeld & Co. v. Metallgesellschaft Ltd. (London), 923 F.2d 245, 248 (2d Cir. 1991), courts must treat agreements to arbitrate like any other contract, see Volt Info. Sciences, Inc. v. Board of Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 478 (1989); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n.12 (1967). A contract is formed when there is a meeting of the minds of the parties on the essential terms of an agreement. See Interocean Shipping, 523 F.2d at 534. A court must therefore examine the parties' written communications to determine whether they have formed an agreement to arbitrate enforceable under the FAA and the Convention. 85
86 The district court considered Zhen Hua's argument that in November 1995 the parties reached a separate, ad hoc agreement to arbitrate whether the parties had formed a binding charter party. Preliminarily, the court noted that the existence of an agreement to arbitrate is a threshold question for a court to resolve, absent a clear and unmistakable delegation of that authority to an arbitrator. Titan I, 16 F. Supp.2d at 337 (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995)). The court also observed that where the parties contest the formation of an agreement, 'any silence or ambiguity about whether such a question is arbitrable reverses the usual presumption that issues should be resolved in [arbitration's] favor.' Id. at 338 (quoting Abram Landau Real Estate v. Bevona, 123 F.3d 69, 72 (2d Cir. 1997) (citing First Options, 514 U.S. at 943)). The court then found that although the parties had begun negotiating such an ad hoc agreement around November 1, Zhen Hua cut off such negotiations on November 2 when it stated, There is no need for a separate arbitration agreement. Id. Therefore, the court concluded, the parties never formed a separate agreement to arbitrate whether they had formed a charter party. 87 On appeal, Zhen Hua argues that the district court erroneously relied on First Options to require evidence that the parties had clear[ly] and unmistakabl[y] delegated authority to an arbitrator to decide the question of charter formation. Instead, Zhen Hua contends, the district court should have applied the contract formation standards articulated by the Convention to find that the parties had formed an ad hoc agreement to arbitrate formation of the charter party. 88 In First Options, the Supreme Court addressed, inter alia, the narrow issue of the appropriate standard of review applied to an arbitrator's decision about arbitrability. 514 U.S. at 942. In defining this issue, the Court delineated the three types of disagreement between the parties: (1) whether the defendants were liable to the plaintiffs; (2) whether the parties agreed to arbitrate the issue of liability; and (3) whether the courts or the arbitrators possess the primary power to decide the second question. See id. The issue presented to the Supreme Court was the third question, which the Court reformulated as Does that power belong primarily to the arbitrators (because the court reviews their arbitrability decision deferentially) or to the court (because the court makes up its mind about arbitrability independently)? Id. Answering this question, the Supreme Court held that [c]ourts should not assume that the parties agreed to arbitrate arbitrability unless there is 'clea[r] and unmistakabl[e] evidence that they did so,' id. at 944 (second and third alterations in the original), and that any silence or ambiguity about whether such a question is arbitrable reverses the usual presumption that issues should be resolved in favor of arbitration, see id. at 944-45; Abram Landau, 123 F.3d at 72-73 (citing, inter alia, First Options, 514 U.S. at 943). 89 Zhen Hua is correct that the standard articulated by the Supreme Court in First Options is not apposite to the precise question presented to the district court. Unlike First Options, the instant case required the district court to determine whether the parties formed an ad hoc agreement to arbitrate whether they had formed a charter party--an issue analogous to the second of the three disagreements between the litigants in First Options. On appeal, neither Zhen Hua nor Titan contends that an arbitrator should resolve this question; instead the parties disagree as to whether the court below correctly answered this question. 90 Zhen Hua errs, however, in asserting that the district court applied the First Options standard in deciding whether the parties had formed an ad hoc arbitration agreement. When read in context, the passage of the district court's opinion relying on First Options (and Abram Landau) makes clear that the district court invoked the standard only to note preliminarily that the dispute over formation was properly before it rather than an arbitrator. See Titan I, 16 F. Supp.2d at 337-38. Furthermore, the ensuing analysis by the district court reveals that the district court correctly evaluated the written communications under general principles of the law of contract formation (consistent with the Convention) in finding that Zhen Hua had terminated negotiations over an ad hoc arbitration agreement. See Genesco, 815 F.2d at 845 ([Under the FAA] whether [a party] is bound by [an] arbitration clause... is determined under federal law, which comprises generally accepted principles of contract law.). 91 Having determined that the district court did not apply the First Options standard, we conclude further that the district court did not commit clear error in finding that the parties did not reach a binding ad hoc agreement to arbitrate the issue of formation of the charter party. On November 2, 1995, Zhen Hua rejected Titan's proposal to arbitrate the issue of charter formation in New York, stating: 92 PLS DO NOT DEVIATE BY INTRODUCING NEW FORUM SELECTION. SHELL TIME 4 CAMARO PROFORMA IS VERY CLEAR ON THE SIMPLIFIED ARBITRATION WHICH HAS BEEN AGREED BY U.S. TITAN AND AGREEABLE TO SOUTHERN SHIPPING AS WELL. THERE IS NO NEED FOR A SEPARATE [sic] ARBITRATION AGREEMENT AT AL [sic]. 93 The district court did not commit clear error in finding this statement to be a rejection of the idea of an arbitration agreement extraneous to the charter party. However, even if we were to interpret the statement to constitute an acceptance of the offer to arbitrate charter formation combined with a proposal that the parties employ the procedures set forth in the form agreement serving as the basis for the purported charter party, we could not override the factfinder's interpretation because the November 1 communication is certainly susceptible of both meanings. 94 Subsequent communications between the parties bolster our conclusion that the district court's findings were not clearly erroneous. The November 7 communication from Zhen Hua acknowledged Titan's notification of arbitration pursuant to Clause 41(c) of the charter party, and removed the confusion over previous references to Southern Shipping, but failed to specify that the parties were arbitrating the issue of the formation of the charter. Titan then requested confirmation that the parties were agreeing to arbitrate in accordance with the very charter party to which Titan believed Zhen Hua was bound. Although Zhen Hua replied that [o]wners... reiterate that both sides have an agreement to arbitrate in London via simplified procedure according to Shell Time 4 Clause 41(c) Camaro Proforma to ascertain whether there is a charter between Guangzhou Zhen Hua and U.S. Titan, Titan never responded to this suggestion that the parties were arbitrating the issue of the existence of the charter party. Instead, Titan responded that arbitration was acceptable per the agreement, which the district court reasonably construed to mean the charter party itself. See Titan I, 16 F. Supp. 2d at 338 n.13. From November 1995 until February 1996, the parties dickered over arbitrators, never clarifying what exactly they were arbitrating or which agreement bound them to arbitrate. As a result, we hold that the district court did not commit clear error by finding that the negotiations never resulted in a meeting of the minds sufficient to form a binding ad hoc agreement to arbitrate whether they had entered into a charter party. 95
96 Although the district court determined that the parties did not form an ad hoc arbitration agreement, the district court granted Titan's motion to compel arbitration on the ground that the parties had formed a binding charter party that included an arbitration clause. Specifically, the court concluded that the parties formed a charter party through their respective brokers no later than September 26, 1995, on which date Titan's broker (Seabrokers) confirmed the agreement by faxing both parties a recap or fixture. See id. at 339. Relying on this Court's decision in Great Circle Lines, the district observed that [a] 'recap' communication, or 'fixture,' is recognized throughout the shipping industry as an agreement to a charter party's essential terms. Titan I, 16 F. Supp.2d at 339 (citing Great Circle Lines, 681 F.2d at 125, 125 n.2). In the court's view, the recap embodied the charter party's main terms by incorporating the terms of Shell Time 4 Charter, a standard form charter, which included an arbitration clause. See id. 97 The court then rejected on two grounds Zhen Hua's argument that the charter party did not come into force due to the alleged failure of one of its subjects--the approval of the charter party by Titan's board of directors upon receipt of the inspection report. First, the court found that the weight of the evidence demonstrated that Titan's board did approve the charter party within the agreed time period. See id. Second, relying again on Great Circle Lines, the court held that a'subject detail' does not create a condition subsequent to a charter party. Id. As a result, the court ordered that the parties arbitrate in London pursuant to the charter party's arbitration clause any disputes arising under the charter party. See id. at 340. In a subsequent opinion the court clarified that the London arbitrators may determine whether the actions of either party, subsequent to the formation of the charter party, have vitiated the agreement. 8 Titan II, 182 F.R.D. at 101. 98 On appeal, Zhen Hua contends that the district court made an erroneous finding as to the existence of a charter party. Zhen Hua does not contest, however, that the district court's finding was in accordance with the standard set forth in Great Circle Lines, which holds that a recap communication, such as the one sent on September 26, 1995 in the instant case, represents an agreement as to the charter party's main terms, with the subject details being no more than an acknowledgment of an intention to continue negotiations. Instead, Zhen Hua calls for the overruling of Great Circle Lines, asserting that its holding conflicts with the laws of the United Kingdom and with the trade practices of the shipping industry at large. Unpopular though it may be, Great Circle Lines is binding precedent, and we will not overrule a prior decision of a panel of this Court absent a change in the law by higher authority or by way of an in banc proceeding of this Court. Samuels v. Mann, 13 F.3d 522, 526 (2d Cir. 1993). 99 Given that the district court (as well as this Court) is bound by Great Circle Lines, the district court correctly applied Great Circle Lines to find that the parties had formed a charter party. Under Great Circle Lines, the September 26, 1995 recap constituted proof of a binding agreement or fixture, which is a commitment that a voyage will be performed, and one which presupposes a final contract, with main terms set, and final details to be resolved subsequently. 681 F.2d at 125 n.2. As explicated in Great Circle Lines, 100 [c]harter parties are formed in two stages. First, significant main terms are negotiated through brokers. These terms usually include the name of the charterer, name of owner, ship, and its characteristics, time and place of delivery, duration of charter, place of redelivery, hire rate, printed form upon which the contract is based, and any other term that a party deems important. These are considered the bare- bones of the contract. The main terms when agreed upon are entitled a fixture. Second, after a fixture has been reached, the parties continue to negotiate details amending the form contract specified in the fixture. These minor or side issues flesh-out the original agreement or fixture. The details include a wide variety of matters, for example: fuel used, speed of vessel, condition of ship's holds, exact time of ship's delivery to charterer, brokerage, breakdown, bunkering, option to extend charter, cargo capacity, demurrage and whatever else is deemed by the parties to be of minor importance. 101 Id. at 25 (footnote omitted). In other words, Titan and Zhen Hua formed an enforceable agreement to charter the BIN HE, subject to certain conditions, including: (1) CP Details, i.e., future agreement between the parties about charter party terms other than those enumerated in the broker's recap; (2) a satisfactory inspection of the ship in drydock; (3) the ship's release from a time charter to a company called Camaro, to which it was still chartered at the time; and (4) approval by Titan's board of directors of the proposed charter within 3 days of receipt of the drydock inspection report. Consequently, even if Titan's board did fail to timely approve the charter, such failure would not prevent or undo formation of the charter party. Instead, the failure (if any occurred) would constitute a breach of the charter party for which the London arbitrator may impose a remedy consistent with the terms of the charter party and English law (which, under the charter party, controls the interpretation of the agreement). 9 102