Opinion ID: 779782
Heading Depth: 3
Heading Rank: 1

Heading: FAA Section 8 Precludes Thyssen's In Rem Claim.

Text: 19 Thyssen argues that the district court erred in dismissing its in rem claim because the arbitrator ruled only on the in personam claim. English law does not grant arbitrators in rem jurisdiction, and, Thyssen argues, this means that the dismissal of the in personam claim should have no bearing on its in rem action. Section 8 of The Federal Arbitration Act (FAA), however, addresses this concern directly, making clear that where there is an arbitration clause in a contract, in rem proceedings serve to provide a plaintiff with security while the in personam claim awaits arbitration. See 9 U.S.C. § 8. The very applicability of the FAA to maritime contracts rests on this point. Almost all maritime disputes generate both an in personam and an in rem claim; if plaintiffs were able to bring in rem claims in court after the failure of their in personam claims before an arbitrator, parties would have no incentive to arbitrate maritime matters. 20 The FAA provides that the Act applies to arbitration agreements in maritime transactions, which include charter parties, bills of lading of water carriers ... collisions, or any other matters in foreign commerce which, if the subject controversy, would be embraced within admiralty jurisdiction. 9 U.S.C § 1. All of these transactions give rise to in rem claims against ships. Section 8 of the Act explains clearly how such in rem claims must be handled: 21 If the basis of jurisdiction be a cause of action otherwise justiciable in admiralty, then ... the party claiming to be aggrieved may begin his proceeding here-under by libel and seizure of the vessel or other property of the other party according to the usual course of admiralty proceedings, and the court shall then have jurisdiction to direct the parties to proceed with the arbitration and shall retain jurisdiction to enter its decree upon the award. 22 Id. § 8. Under § 8, the plaintiff may seize the ship in rem, obtain a bond, and proceed with arbitration. If the plaintiff wins but cannot recover against the owner of the vessel, it can recover against the vessel itself. See Diana Compania Maritima, S.A. v. The Subfreights of the S.S. Admiralty Flyer, 280 F.Supp. 607, 615 (S.D.N.Y. 1968). The in rem claim serves as a way of making sure that a plaintiff can recover if it wins in arbitration. Any interpretation of the FAA that allowed an in rem claim to proceed after the failure of an in personam claim would undermine the purpose of the Act with respect to maritime proceedings. All maritime contracts that called for arbitration of in personam claims could be sidestepped simply by bringing in rem claims. The FAA clearly states that it controls maritime transactions, and we must interpret it in a way that furthers that purpose. 2 23 B. Referral of Thyssen's In Rem Claim to a London Arbitrator Does Not Violate COGSA § 3(8). 24 COGSA § 3(8) states that [a]ny clause, covenant, or agreement in a contract of carriage relieving the carrier of the ship from liability for loss or damage to or in connection with goods, arising from negligence, fault or failure ... shall be null and void and of no effect. 46 U.S.C. § 1303(8). Thyssen argues that, given the London arbitrator's lack of in rem jurisdiction, the arbitration clause in the charter party operated as such a clause, and hence upholding the arbitrator's decision violates § 1303(8). Even assuming arguendo that the lack of an in rem cause of action could be considered a violation of COGSA (a ruling that would contradict most case law on the matter, see, e.g., Fireman's Fund Ins. Co. v. M.V. DSR Atlantic, 131 F.3d 1336, 1339-40 (9th Cir.1998)), there was no violation in the instant case, because Thyssen's in rem rights were protected. Thyssen accepted from the owner of the MARKOS N a Club Letter of Undertaking for $600,000 as full security for its claims. Had it won in arbitration and had the owner of the MARKOS N tried to avoid the court's order, Thyssen could have recovered against the Club Letter. A letter of undertaking replaces the vessel as the res and moots the question of the need for separate in rem claim. See, e.g., Salim Oleochemicals, Inc. v. M/V Shropshire, 169 F.Supp.2d 194, 200 (S.D.N.Y.2001); Macsteel Int'l USA Corp. v. M/V Spar Two, 2002 WL 472018, 2002 U.S. Dist. LEXIS 5127, at  (2002); Reed & Barton Corp. v. M/V Tokio Express, 1999 WL 92608, 1999 U.S. Dist. LEXIS 1807, at , (1999). It follows therefore that the district court was correct in its conclusion that § 1303(8) did not render the charter party's arbitration clause invalid. 25 III. Applicability of the Arbitration Clause to Non-signatories of the Charter Party Ignorant of the Charter Party's Contents 26 Thyssen does not dispute that it can be bound to arbitrate its claims by signing a document that incorporates another document by reference. Rather, it claims it had no actual or constructive notice of the terms of the charter party that was incorporated and hence that it could not be deemed to be a signatory of that agreement. For all of the reasons stated by the district court, we agree that the charter party provisions were properly incorporated into the bill of lading and that the charter party bound both Thyssen and Calypso.