Opinion ID: 773520
Heading Depth: 2
Heading Rank: 1

Heading: Blystad's Claim Is Within the Scope of Clause 31

Text: 20 We review de novo a district court's ruling regarding the scope of an arbitration clause. CPR (USA) Inc. v. Spray, 187 F.3d 245, 254 (2d Cir. 1999). It is familiar law that the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (1994) (Arbitration Act), expresses a liberal federal policy favoring arbitration agreements and that any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). Arbitration is especially favored in resolving disputes involving international commerce, Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (1985), although the rationale of comity with foreign arbitral fora that undergirds this preference is not presently implicated, as the arbitration is set in New York. Cf. Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 853 (2d Cir. 1987). 21 While federal policy generally favors arbitration, the obligation to arbitrate nevertheless remains a creature of contract. Because arbitrators' authority arises only when the parties agree in advance to that forum, a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit. AT&T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 648 (1986) (quoting Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (1960)).
22 To determine whether a particular dispute falls within the scope of an agreement's arbitration clause, a court should undertake a three-part inquiry. First, recognizing there is some range in the breadth of arbitration clauses, a court should classify the particular clause as either broad or narrow. See Mehler v. Terminix Int'l Co., 205 F.3d 44, 49 (2d Cir. 2000); Peerless Imps., Inc. v. Wine, Liquor & Distillery Workers Union Local One, 903 F.2d 924, 927 (2d Cir. 1990); McDonnell Douglas Fin. Corp. v. Pa. Power & Light Co., 858 F.2d 825, 832 (2d Cir. 1988). Next, if reviewing a narrow clause, the court must determine whether the dispute is over an issue that is on its face within the purview of the clause, or over a collateral issue that is somehow connected to the main agreement that contains the arbitration clause. Rochdale Vill., Inc. v. Pub. Serv. Employees Union, 605 F.2d 1290, 1295 (2d Cir. 1979); see also Prudential Lines, Inc. v. Exxon Corp., 704 F.2d 59, 64 (2d Cir. 1983). Where the arbitration clause is narrow, a collateral matter will generally be ruled beyond its purview. See Cornell Univ. v. UAW Local 2300, 942 F.2d 138, 140 (2d Cir. 1991). Where the arbitration clause is broad, there arises a presumption of arbitrability and arbitration of even a collateral matter will be ordered if the claim alleged implicates issues of contract construction or the parties' rights and obligations under it. Collins & Aikman Prods. Co. v. Bldg. Sys., Inc., 58 F.3d 16, 23 (2d Cir. 1995). 23 The district court failed to classify the charter's arbitration clause before holding that the letters of indemnity, as collateral agreements, were still within the scope of the arbitration clause. In doing so, it relied upon our decision in WorldCrisa Corp. v. Armstrong, 129 F.3d 71, 75 (2d Cir. 1997), which, in turn, purportedly relied upon our holding in Collins. WorldCrisa, while distinguishing broad arbitration clauses from narrow ones, extended the language of Collins beyond the meaning originally intended. We held in Collins: 24 [I]f the arbitration clause is broad, there arises a presumption of arbitrability; if, however, the dispute is in respect of a matter that, on its face, is clearly collateral to the contract, then a court should test the presumption by reviewing the allegations underlying the dispute and by asking whether the claim alleged implicates issues of contract construction or the parties' rights and obligations under it. 25 Collins, 58 F.3d at 23 (emphasis added). 26 But in WorldCrisa we implied that this same test should apply to a narrowly worded arbitration clause, 129 F.3d at 74-75, despite precedent in which we consistently held that matters collateral to an agreement fall outside the scope of a narrow arbitration clause. See, e.g., Peerless Imps., 903 F.2d at 927; McDonnell Douglas Fin. Corp., 858 F.2d at 832; Prudential Lines, 704 F.2d at 63-64; McAllister Bros., Inc. v. A & S Transp. Co., 621 F.2d 519, 522 (2d Cir. 1980); Rochdale Vill., 605 F.2d at 1295. Yet, because we explicitly held in WorldCrisa that the arbitration clause at issue was broad enough to justify a presumption of arbitrability, 129 F.3d at 75, its language regarding narrow arbitration clauses is dicta, which we are not obliged to extend to the case at hand. See CFTC v. Dunn, 58 F.3d 50, 53-54 (2d Cir. 1995) (When a prior decision makes statements in a line of reasoning that are broader than necessary to the affirmance or reversal of a judgment, a later panel may confine the precedential effect to a narrower ground within the line of reasoning.), rev'd on other grounds, 519 U.S. 465 (1997). 27 We think making a distinction between broad and narrow arbitration clauses is necessary and sound, as the scope of an arbitration clause, like any contract provision, is a question of the intent of the parties. S.A. Mineracao da Trindade-Samitri v. Utah Int'l, Inc., 745 F.2d 190, 193 (2d Cir. 1984). When parties use expansive language in drafting an arbitration clause, presumably they intend all issues that touch matters within the main agreement to be arbitrated, Genesco, 815 F.2d at 846, while the intended scope of a narrow arbitration clause is obviously more limited.
28 Appellant maintains that clause 31 is a narrow arbitration clause, but provides scant support for this contention. No fixed rules govern the determination of an arbitration clause's scope; while very expansive language will generally suggest a broad arbitration clause, see, e.g., Collins, 58 F.3d at 18 (Any claim or controversy arising out of or relating to this agreement shall be settled by arbitration.), we have also found broad clauses when examining phrasing slightly more limited, see, e.g., Abram Landau Real Estate v. Benova, 123 F.3d 69, 71 (2d Cir. 1997) (Contract Arbitrator shall have the power to decide all differences arising between the parties to this agreement as to interpretation, application or performance of any part of this agreement.). In the end, a court must determine whether, on the one hand, the language of the clause, taken as a whole, evidences the parties' intent to have arbitration serve as the primary recourse for disputes connected to the agreement containing the clause, or if, on the other hand, arbitration was designed to play a more limited role in any future dispute. See Mitsubishi Motors Corp., 473 U.S. at 626 ([T]he first task of a court asked to compel arbitration of a dispute is to determine whether the parties agreed to arbitrate that dispute. . . . [A]s with any other contract, the parties' intentions control, but those intentions are generously construed as to issues of arbitrability.). 29 Clause 31 of the charter, although not unlimited, Rochdale Vill., 605 F.2d at 1296, is a broad clause. It mandates that [a]ny dispute arising from the making, performance or termination of this Charter Party be arbitrated. The clause contains two parts that bear upon the determination of its breadth, neither of which indicates that the parties intended to limit the scope of arbitration narrowly. The first part of the clause provides that it covers all disputes arising from the charter. In In re Kinoshita & Co., 287 F.2d 951, 953 (2d Cir. 1961), an early decision dealing with the scope of arbitration clauses under the Arbitration Act, we intimated that the use of the phrase arising under an agreement, in an arbitration clause, indicated that the parties intended the clause be narrowly applied. We have, however, since limited this holding to its facts, declaring that absent further limitation, only the precise language in Kinoshita would evince a narrow clause. S.A. Mineracao, 745 F.2d at 194 (holding that language of aris[ing] or occur[ring] under the agreement did not indicate a narrow arbitration clause) (alterations in original). The parties in this case did not utilize such precise language. To the extent a distinction exists between the present language of arising from and Kinoshita's language of arising under, we believe the distinction is more than just a semantic one, and only the latter phrase limits arbitration to a literal interpretation or performance of the contract. See Roby v. Corp. of Lloyd's, 996 F.2d 1353, 1361 (2d Cir. 1993) (holding relevant language indicated a broader forum selection clause, and stating that [w]e find no substantive difference in the present context between the phrases 'relating to,' 'in connection with' or 'arising from') (emphasis added); see also J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, S.A., 863 F.2d 315, 321 (4th Cir. 1988) (holding that language of arising in connection with indicated a more expansive arbitration clause). 30 Neither does the language of the second part of clause 31, the making, performance or termination of this Charter Party, suggest an intention by the parties to limit the scope of the clause. While declaring that the overall tone of the arbitration clause controlled its scope, we held in Prudential Lines that [s]pecific words or phrases alone may not be determinative although words of limitation would indicate a narrower clause. 704 F.2d at 64; see also Cornell Univ., 942 F.2d at 140 (considering narrow arbitration clause that provided for arbitration of any matter involving the interpretation or application of this Agreement which alleges a violation of the rights of an employee or the Union under the terms of this Agreement); McDonnell Douglas Fin. Corp., 858 F.2d at 832 (holding that clause providing for arbitration in the case of disagreement over computation of the amount of the required indemnity payment or refund thereof is narrow). Dreyfus believes that because clause 31 contains what is alleged to be language of limitation, arbitration is limited to disputes directly under the charter. We do not adopt that view. 31 The charter governed a single shipment of soyabean oil aboard the vessel M.T. THORSFREDDY. It is difficult to perceive how the language used, i.e., the making, performance or termination of the charter could be construed as other than intending to cover all disputes connected to this lone voyage. See Coors Brewing Co. v. Molson Breweries, 51 F.3d 1511, 1515 (10th Cir. 1995) (holding that language of arising in connection with the implementation, interpretation or enforcement of agreement was broad); Nat'l R.R. Passenger Corp. v. Boston & Me. Corp., 850 F.2d 756, 760 (D.C. Cir. 1988) (holding that language of [a]ny claim or controversy between [parties] concerning the interpretation, application or implementation of agreement was broad) (first alteration in original); Armada Coal Exp., Inc. v. Interbulk, Ltd., 726 F.2d 1566, 1568 (11th Cir. 1984) (parties admit that clause providing [a]ny dispute arising during the execution of the Charter Party is broad) (alteration in original). 32 The present language is sweeping, covering the full panoply of events, from the time of contracting (making), through execution under the terms of the charter (performance), until the eventual expiration of the agreement (termination). Contrary to appellant's argument, it is more likely these words were included to reflect the desire by the parties to ensure that the entire duration of the agreement be covered, especially since the issue of whether a clause covers an agreement's termination is a common source of litigation. See, e.g., Abram Landau Real Estate, 123 F.3d at 73; Rochdale Vill., 605 F.2d at 1296-97. We hold, accordingly, that clause 31 is a broad arbitration clause. 33
34 The next step in deciding whether Blystad's claim is arbitrable is to determine whether the claim arises directly under the charter party or is collateral to it. In its March 13, 1997 letter demanding arbitration, Blystad sought compensation for the damages it has suffered directly, and an indemnity for any and all liability it has or may suffer to third parties, as a result of Dreyfus' breach. The claim for direct damages is brought under the agreement, but the claim for indemnification under the letters of indemnity is collateral to the arbitration agreement. 35 In Blystad's submissions to the district court, it pointed to a number of provisions of the charter -- separate from the letters of indemnity -- under which it will seek relief before the arbitration panel. These include, inter alia: (1) Part I, clause D, governing discharge ports; (2) Part II, clauses 6(a)-(c), governing safe berths, shifting to other berths, liability for customs overtime and fees for shifting berths, and liability for costs upon a change of discharge ports; (3) Part II, clause 7, governing the pumping of cargo in and out of the vessel; (4) Part II, clause 12, governing expenses at loading and discharge ports; and (5) Part II, clause 24, providing for the charterer's obligation to indemnify the vessel owner for any liabilities resulting from signing bills of lading or other documents inconsistent with this Charter or from any irregularity in papers supplied by the Charterer or its agents, or from complying with any orders of the Charterer or its agents. Blystad has also asserted that it may make a claim before the arbitrators for an indemnity by operation of law, see, e.g., Nissho-Iwai Co. v. M/T Stolt Lion, 617 F.2d 907, 913-14 (2d Cir. 1980), based on the order to change discharge ports and to deliver the cargo without the original bills of lading. 36 Appellant raises two principal objections to these parts of Blystad's claim that are purportedly brought directly under the charter party. The first is the assertion that Dreyfus' alleged breach does not implicate the particular provisions of the agreement referenced by Blystad. This objection conflates the question of whether the dispute is within the scope of the arbitration clause with the potential merits of the claim. It is established that under a broad arbitration clause, a dispute under the contract must be arbitrated [w]hether 'arguable' or not, indeed even if it appears to the court to be frivolous. AT&T Techs., 475 U.S. 649-50; accord Coca-Cola Bottling Co. v. Soft Drink & Brewery Workers Union, Local 812, 39 F.3d 408, 410 (2d Cir. 1994). As the parties have contractually agreed that disputes brought directly under the charter should be arbitrated, it is not the task of a court to explore their merits. 37 The second objection to Blystad's claim under the charter provisions is Dreyfus' assertion that performance under the charter, as provided by the arbitration clause, was completed upon the original issuance of the bills of lading. Dreyfus insists that once the original bills of lading specified that delivery was to be to Qingdao, neither Blystad nor Dreyfus could unilaterally change the discharge port. Since the vessel could not be compelled to change discharge ports, any change in destination would have to be under a separate agreement -- here, the letters of indemnity -- and only this separate agreement would govern delivery to Qin Huang Dao, the newly designated port. 38 Dreyfus' argument does not follow logically. We see no reason to view performance, as provided in clause 31, so narrowly as to encompass only the agreement to proceed to Qingdao, when the obvious purpose of the agreement was to transport soyabean oil from a port in the United States to a port in China. The fact that neither party could unilaterally change the discharge port after the issuance of the bills of lading does not suggest that performance was completed at the point of issuance. Rather, performance under the charter continued until the eventual discharge of the cargo at Qin Huang Dao, notwithstanding the letters of indemnity. 39 Absent evidence that the parties intended the letters should supersede the charter party, both agreements were in effect at the conclusion of the voyage, with the former merely supplementing the latter. As Professor Corbin explained: 40 It happens very frequently that a party to a valid contract attempts, either as plaintiff or as defendant, to show that a new contract has been substituted, either as a total discharge or as a partial modification and discharge. The existence of such a new contract of substitution or modification must be established in the same way as is any other contract. No one will be held to have surrendered or modified any of his contract rights unless he is shown to have assented thereto in a manner that satisfies the requirements of a valid contract. 41 6 Arthur Linton Corbin, Corbin on Contracts § 1293 (1962) (emphasis added). 42 While the letters of indemnity may constitute a fully executed contract, there is no indication that they were intended to supplant the charter party, rather than simply provide added protection for Blystad in return for agreeing to the change in discharge ports. In fact, clause 6(c) of the charter specifically envisioned such a change, directing that any change be in writing, and mandating that the Charterer shall assume all cost incident to such change, including the value of the vessel's time if the voyage is prolonged thereby. Accordingly, since the charter remained in effect through the voyage to Qin Huang Dao, any claim under that agreement is subject to arbitration. 43 D. The Claim Under the Letters of Indemnity Is Within the Scope of the Arbitration Clause 44 Blystad's claim for indemnification under the letters of indemnity is not brought directly under the charter agreement, but is made under a collateral agreement. We have explained that for purposes of arbitration, a collateral agreement is a separate, side agreement, connected with the principal contract which contains the arbitration clause. Prudential Lines, 704 F.2d at 64. The letters were issued subsequent to the charter party and are not specifically incorporated or even referenced by that agreement. While clause 6(c) mandates that all changes in discharge ports be in writing, and provides for compensation for costs incident to this change, it does not explicitly provide for indemnification. Absent any reference by the charter party to the letters, or language indicating that the letters themselves incorporated the charter, these claims must be deemed collateral to the main agreement. See Fairmont Shipping (H.K.), Ltd. v. Primary Indus. Corp., No. 86 Civ. 3668, 1988 WL 7805, at  (S.D.N.Y. Jan. 25, 1988) (finding letters of indemnity collateral to charter party), aff'd, 940 F.2d 649 (2d Cir. 1991) (table). 45 Accordingly, under Collins, we test the presumption of arbitrability associated with a broad arbitration clause by asking whether claims under letters of indemnity -- as claims under a collateral agreement --implicate[] issues of contract construction or the parties' rights and obligations under it. Collins, 58 F.3d at 23. This test is more expansive than the one we apply for a narrow arbitration clause, in which the claim must on its face be brought under the terms of the agreement. Rochdale Vill., 605 F.2d at 1295. The letters of indemnity clearly implicate at least two clauses of the charter: clause 6(c), providing for a writing and payment of costs upon a change in discharge ports; and clause 24, providing for indemnification for compliance with the orders of the charterer. By implicating the rights of Blystad and the duties of Dreyfus under the charter party, the letters of indemnity are within the scope of the broad arbitration clause. 46