Opinion ID: 772183
Heading Depth: 4
Heading Rank: 1

Heading: The Ad Hoc Arbitration Agreement

Text: 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