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NCL (Bahamas) Ltd. v. O.W. Bunker USA Inc.

United States District Court, D. Connecticut

November 29, 2017

NCL (BAHAMAS) LTD., d/b/a NORWEGIAN CRUISE LINE, Plaintiff,
v.
O.W. BUNKER USA, INC. and KELLY BEAUDIN STAPLETON, Liquidating Trustee of the OWB USA Liquidating Trust, Defendants.

          RULING ON PLAINTIFF'S MOTION TO STAY OR ENJOIN ARBITRATION

          CHARLES S. HAIGHT, JR. SENIOR UNITED STATES DISTRICT JUDGE

         This declaratory action pits the owner of a Bahamas-flag ocean going passenger ship against the American affiliate of a Danish supplier of marine fuel oils who contracted with the shipowner to fuel the vessel at a Greek port, and initiated arbitration proceedings in London when the shipowner refused to pay the invoice for that fueling.

         The shipowner, invoking the Declaratory Judgment Act, 28 U.S.C. § 2201, seeks a declaration that it is not liable to pay that invoice and is not obligated to arbitrate the supplier's claim that it should do so, and now moves [Doc. 2] for an order of this Court staying or enjoining the arbitration, in London or elsewhere. The American supplier resists that motion. This Ruling resolves it.

         I

         The means of propelling ships across the world's oceans has changed over the centuries. In the age of sail shipowners utilized the winds, free of charge but subject to uncontrollable vagaries; in May 1588, for example, the Spanish Armada was bound for England but "the wind was blowing hard off the sea, right down the throat of the passage, " and "blockaded by the elements, the Armada lay for almost three weeks anchored off Belem" in Portugal. Garrett Mattingly, The Armada 245-46 (1959). That complication changed when "in the 1840s, steam propulsion began to seriously compete with sail on the high seas." Alex Roland, W. Jeffrey Bolster, & Alexander Keyssar, The Way of the Ship 158(2008). "The introduction of steam gave rise to a new naval requirement - coal - which soon became vital. Commerce under steam quickly settled down upon fixed routes, and depots of coal were established to meet its needs." Encyclopedia Britannica (1911 edition).

         The limitations and disadvantages of coal gave rise in turn to its replacement by fuel oil as the means of propulsion for ocean-going ships. "Bunker fuel, " the name commonly acquainted with marine use, is descended from the days of coal. This general term for marine fuel oil "is a legacy from the early days of shipping when coal was the main source of fuel and the coal was loaded into coal bunkers." 5 Paul A. Russell & E.A. Stokoe Reeds Marine Engineering and Technology: Ship Construction for Marine Engineers 9 (6thed. 2016). Liquid bunker fuel is now stored aboard ship in "bunker tanks." Id. The word "bunker" is also used as a verb: "[t]he operation of filling or replenishing a ship's bunker with fuel is known as bunkering." The Oxford Companion to Ships and the Sea 119 (Peter Kemp ed., 1st ed. 1976). The use of bunker fuel remains to this day the means of propelling the world's merchant fleets. While naval nuclear propulsion is used within naval warships such as supercarriers and submarines, nuclear-powered non-combatant vessels have not developed beyond a few experimental ships. J.P. Ghose & R.P. Gokarn, Basic Ship Propulsion 3 (2004).

         II

         Until very recently, a leading company in the global business of refueling ships was O.W. Bunker, a Danish company founded in 1980, and by October of 2014 the world's largest bunker supplier.[1] According to publicly available business publications, O.W. Bunker owned and directly supplied to vessels some deliveries of bunkers, but for the most part the Danish entity conducted its world-wide business by setting up regional affiliated corporations, which would in turn sub-contract with local suppliers to fuel a particular ship on a particular date at a particular port. That commercial practice is illustrated by the case at bar, which arises in the following manner.

         Plaintiff NCL (Bahamas) Ltd., doing business as Norwegian Cruise Lines ("NCL"), is, despite its nordic name, a Bahamas corporation with its principal place of business in Miami, Florida. At the pertinent times, NCL owned and operated, among other vessels, the passenger ship M/V NORWEGIAN SPIRIT, a 75, 904 gross ton vessel flying the Bahamas flag with a guest capacity of 2, 018 (double occupancy). A time came in October, 2014 when the NORWEGIAN SPIRIT required refueling at the port of Pireaus, Greece.

         On October 8, 2014, NCL ordered bunkers to be delivered to the NORWEGIAN SPIRIT (hereafter sometimes "the Vessel") at Pireaus on October 18, 2014. NCL placed that order with Defendant O.W. Bunker USA Inc. ("O.W. USA"), a Texas corporation and a wholly owned affiliate of a Danish company, O.W. Bunker. O.W. USA's sales order confirmation, dated October 8, 2014, and addressed to NCL [Doc. 2-2], recited under the caption "Terms":

The sale and delivery of the marine fuels described above are subject to the OW Bunker Group's Terms and Conditions of sale(s) for Marine Bunkers. The acceptance of the marine bunkers by the vessel named above shall be deemed to constitute acceptance of the said general terms applicable to you as "Buyer" and to O.W. Bunker USA Inc. as "Seller."

         O.W. USA thereupon placed an order for the bunkers destined for the NORWEGIAN SPIRIT with O.W. Bunker Malta Ltd. ("O.W. Malta"), another affiliate of the Danish company. O.W. Malta's sales order confirmation, on the same terms and addressed to O.W. USA, is dated October 9, 2014 [Doc. 34-1].

         O.W. Malta thereupon placed an order for the bunkers destined for the NORWEGIAN SPIRIT with the company that would physically deliver the bunkers to the Vessel. This was a Greek company called EKO. EKO delivered the bunkers to the Vessel without incident as she lay at Pireaus on October 18, 2014. The NORWEGIAN SPIRIT then departed the port, refueled and presumably refreshed. It appears to be undisputed that EKO sent its invoice for the bunkers it supplied to O.W. Malta, which had ordered the bunkers from EKO, and O.W. Malta sent its invoice to O.W. USA, which had ordered the same bunkers from O.W. Malta. O.W. USA sent its invoice for the same bunkers to NCL. That invoice, dated October 18, 2014 [Doc. 2-4], was in the amount of $694, 548.44. The due date was November 17, 2014.

         Thus, as October yielded to November in 2014, and the NORWEGIAN SPIRIT continued on her voyage, there were three outstanding invoices for the bunkers delivered to the Vessel at Pireaus on October 8. In a well-ordered world these invoices would have been promptly paid, but disorder intruded when, on November 7, the parent company, O.W. Bunker, filed insolvency proceedings in Denmark. The global O.W. Bunker group stopped paying invoices submitted by local physical suppliers like EKO, resulting in a tsunami-like tidal wave of multi-jurisdiction litigation, of which the case at bar is one.

         III

         On November 13, 2014, after all three bunker invoices had been issued, but before payment became due or was made on any of them, O.W. USA filed in this District a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code.[2] Compl. ¶ 5. See also Bankr. Petition, Case No. 14-51720. The OWB USA Liquidating Trust was created by the Debtors' First Modified Liquidation Plans, confirmed by the Bankruptcy Court for this District. Compl. ¶ 6. Defendant Kelly Beaudin Stapleton ("Beaudin Stapleton" or "the Trustee"), a citizen of Pennsylvania, was named the Liquidating Trustee. Id. ¶¶ 6-7.

         Following the O.W. group bankruptcy filings, EKO reached the sensible conclusion that if it wished its invoice for bunkers delivered to the NORWEGIAN SPIRIT to be paid, it would have to look elsewhere than an O.W. Bunker company. EKO's gaze fell upon NCL in personam and the NORWEGIAN SPIRIT in rem. According to the sworn declaration of Ioannis A. Voskos, legal counsel to EKO [Doc. 2-8], EKO made demand on NCL for payment of EKO's invoice, and informed NCL that EKO would "immediately arrest the NORWEGIAN SPIRIT, if the O.W. debt was not paid in full." Voskos Decl. paragraph 5. In order to avoid the arrest and detention of the Vessel, laden with passengers and the crew serving them, NCL paid EKO $729, 929.09, the total amount of the invoices EKO rendered to O.W. Malta for the bunkers delivered to the Vessel at Pireaus on October 8, 2014. Beaudin Stapleton, the O.W. USA Liquidating Trustee, whose functions include collecting debts owed to O.W. USA, takes the position that NCL must pay O.W. USA's invoice for the same bunkers, in the amount of $694, 548.44. The Trustee professes herself to be unmoved by the fact that NCL has previously paid EKO a slightly larger amount for the same bunkers. NCL made that payment, the Trustee contends through counsel, as a volunteer, without effect upon NCL's obligation to pay the O.W. USA invoice. NCL responds that in the circumstances of the case, it is not liable to pay that invoice.

         To resolve that dispute, the O.W. Liquidating Trust has instructed United Kingdom counsel to commence arbitration proceedings against NCL in London. The Trust contends that an arbitration clause in the underlying sales contract between NCL and O.W. USA obligates NCL to participate in the London arbitration. NCL makes two responses. The first is that by virtue of its prior payment to EKO for these bunkers, it is under no liability to pay O.W. USA for them. That is a substantive question of law and equity. NCL's second response is that on a proper construction of the underlying contract, it has not agreed to arbitrate this dispute, in London or anywhere else. That is a question of contract law, as are all issues of whether a party has agreed to arbitrate a particular dispute.

         While NCL initially sought to raise these questions in the Bankruptcy Court, Chief Judge Manning concluded that Court lacked subject matter jurisdiction, and dismissed NCL's adversary proceeding without prejudice. See Order of Dismissal, Adversary Proceeding No. 17-05008 (JAM) Doc. 55, Aug. 16, 2017. This action in this Court followed. NCL's complaint prays for a declaration of non-liability with respect to the O.W. USA bunkers invoice, and an injunction against arbitrating that issue.

         The case is now before the Court on NCL's self-styled "emergency" motion to stay or enjoin the London arbitration. The parties stipulated to stay the arbitration (for which the parties have appointed arbitrators) until the Court decides the motion. The issues have been elaborately briefed and counsel presented oral arguments at a hearing.

         IV

         If NCL agreed to arbitrate this dispute with O.W. USA (as O.W. USA contends and NCL denies), it is because of the "OW Bunker Group Terms and Conditions for Sale of Marine Bunkers" [Doc. 2-5] (sometimes referred to herein as "the OWB T&C"), which were incorporated by reference in the sales order confirmation sent by O.W. USA to NCL on October 8, 2014.

         Article B, the "Definitions" section of the OWB T&C, specifies at subparagraph B.1 that for purposes of the contracted-for bunkers delivery, O.W. USA is the "Seller" and NCL is the "Buyer." Article P, captioned "Law and Jurisdiction, " provides in pertinent part:

P.1 This Agreement shall be governed and construed in accordance with English law. . . . Except for circumstance referred to in Clause P.5 below all disputes arising in connection with this Agreement or any agreement relating thereto, save where the Seller decides otherwise in its sole discretion, shall be finally settled by arbitration in London, England in accordance with the Arbitration Act of 1996 (or any subsequent amendment).[3]
P.2 In the event that the Seller determines to refer any dispute to arbitration it shall be referred to a tribunal of three arbitrators consisting of one arbitrator to be appointed by the Seller, one by the Buyer, and one by the two arbitrators already appointed. . . .

         These provisions are preceded and governed by Article L, captioned "Exemptions and Force Majeure, " which provides in Article L.4 in pertinent part:

(a) These Terms and Conditions are subject to variation in circumstances where the physical supply of the Bunkers is being undertaken by a third party which insists that the Buyer is also bound by its own terms and conditions. In such circumstances, these Terms and Conditions shall be varied accordingly, and the Buyer shall be deemed to have read and accepted the terms and conditions imposed by the said third party.
(b) Without prejudice or limitation to the generality of the foregoing, in the event that the third party terms include: . . . .
(iii) A different law and/or forum selection for disputes to be determined, then such law selection and/or forum shall be incorporated into these terms and conditions.[4]

         NCL contends that "the physical supply of the Bunkers" to the NORWEGIAN SPIRIT was "undertaken" by EKO, "a third party" which "insists that the Buyer [NCL] is also bound by its terms and conditions, " all within the meaning of Article L.4 (a) of the OWB T&C. In those circumstances, NCL's argument emphasizes, the O.W. Bunker "Terms and Conditions shall be varied accordingly, " Article L.4 (a), and, because EKO's terms and conditions provide for the exclusive jurisdiction of "Pireaus Courts" over any dispute in connection with this bunkering, the OWB T&C provision for arbitration in London is abrogated, pursuant to Article L.4 (b)(iii).

         O.W. USA and the Trustee contend that the factual predicate for NCL's contentions does not exist, and in any event, those contentions misread the provision for London arbitration contained in the contract between O.W. USA and NCL.

         V

         NCL begins its complaint [Doc. 1] with the assertion that it is filed "pursuant to 28 U.S.C. § 2201, " the Declaratory Judgment Act. The Court must at the threshold consider its jurisdiction, since it is well established that "the Declaratory Judgment Act does not by itself confer subject matter jurisdiction on the federal courts. Rather, there must be an independent basis of jurisdiction before a district court may issue a declaratory judgment." Correspondent Servs. Corp. v. First Equities Corp. of Florida, 442 F.3d 767, 769 (2d Cir. 2006) (citation omitted).

         In this case, there are ample bases for the Court's subject matter jurisdiction. The complaint alleges diversity of citizenship pursuant to 28 U.S.C. § 1332. Diversity is adequately alleged. In addition, O.W. USA invoked federal jurisdiction by filing a voluntary Chapter 11 bankruptcy petition in this District. This Court's jurisdiction of bankruptcy cases is conferred by 28 U.S.C. § 1334, which extends to the Liquidating Trustee's attempted enforcement of the bunkers invoice as an asset of the debtor's estate. Moreover, O.W. USA, an American supplier of necessaries to a vessel in navigation on the order of her owner, has a maritime lien on the vessel pursuant to 46 U.S.C. § 31342(a), and the case falls within the Court's admiralty and maritime jurisdiction under 28 U.S.C. § 1333. See Garanti Finansal Kiralama A.S. v. Aqua Marine and Trading Inc., 697 F.3d 59, 71 (2d Cir. 2012) (where federal court would have admiralty jurisdiction over contract to deliver bunkers to vessels, "we have jurisdiction over this declaratory judgment action as well.").

         Any one of these three bases for the Court's subject matter jurisdiction would suffice. All three are present. The Court may therefore consider the merits of the present motion, by which NCL seeks to stay or enjoin the London arbitration initiated by O.W. USA.

         VI

         Arbitration is frequently praised as a salutary alternative to litigation. However, there are occasions when arbitration generates litigation. One such occasion arises when a party, confronted by another party's demand for arbitration of a dispute between them, responds that there is no arbitration agreement justifying the demand.

         This case presents that situation. O.W. USA demands that NCL participate in an arbitration in London to determine NCL's liability as to payment of the invoice O.W. USA sent to NCL for the value of the bunkers delivered to the NORWEGIAN SPIRIT by the Greek supplier EKO at the port of Pireaus on October 18, 2014. NCL responds that, in the particular circumstances attending that bunkering, there is no contract between O.W. USA and NCL obligating NCL to arbitrate O.W. USA's claim in London. NCL bases that contention upon its interpretation of certain provisions in the OWB T&C, which both parties agree were incorporated by reference in the sales order for the bunkers delivery in question. O.W. USA contends that on a proper construction of the OWB T&C, the parties' contractual obligation to arbitrate disputes in London is not affected by events at the bunkers delivery port of Pireaus.

         The case turns, then, upon whether NCL agreed to a contract which obligates it to participate in a London arbitration. That is a decisive element in light of the principle declared by the Supreme Court in United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960): "[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." While Steelworkers was decided in the context of the federal labor management relations statute, its concept of arbitration as a creation of contract, broadly stated, is broadly applied. See, e.g., In re Am. Express Fin. Advisors Sec. Litig., 672 F.3d 113, 127 (2d Cir. 2011) (citing and quoting Steelworkers in an action brought by investors against a financial services company).

         A related and equally established principle is stated in Granite Rock Co. v. International Brotherhood of Teamsters, 561 U.S. 287, 296 (2010): "It is well settled in both commercial and labor cases that whether parties have agreed to submit a particular dispute to arbitration is typically an issue for judicial determination." (citations and internal quotation marks omitted). Supreme Court decisions uniformly reach that conclusion. "Unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator." AT & T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 649 (1986). In John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543 (1964), the threshold question was whether the court or an arbitrator should decide if arbitration provisions in a collective-bargaining contract survived a corporate merger so as to bind the surviving corporation. The Court reasoned that this question was for the courts:

Under our decisions, whether or not the company was bound to arbitrate, as well as what issues it must arbitrate, is a matter to be determined by the Court on the basis of the contract entered into by the parties. . . . The duty to arbitrate being of contractual origin, a compulsory submission to arbitration cannot precede judicial determination that the collective bargaining agreement does in fact create such a duty.

Id. at 546-47 (ellipsis omitted).

         In the case at bar, it is for this Court, whose subject matter jurisdiction is manifest, and not for London arbitrators (however distinguished), to decide whether (as NCL contends) Article L.4 of OWB T&C operates to vary and supersede the London arbitration clause contained in Article P.1 of that document; or whether (as O.W. USA contends) the London arbitration clause is unaffected and remains fully enforceable. Under these Supreme Court cases and their progeny, that question of contractual construction falls to this Court to decide.

         VII

         As noted supra, the O.W. Bunker Group Terms and Conditions provide in Article P.1: "This Agreement shall be governed and construed in accordance with English law." The parties' submissions assume that this choice of law applies to the decision this Court must make. The assumption is warranted. The contractual choice of English law was made by two substantial and sophisticated parties. I do not suggest the choice of law was negotiated. It is clear enough from the record that O.W. imposed its Terms and Conditions upon shipowners needing bunkers, and a shipowner unwilling to accept the choice of English law would probably have to find a different bunkers broker or supplier. But there is no reason to reject this choice of law. I accept that English law governs the contract between O.W. USA and NCL, and in addressing the question posed in Part VI of this Ruling, this Court must construe the contract according to English law.

         The competence of this United States district court to decide that question of foreign law is declared and governed by Federal Rule of Civil Procedure 44.1, which provides: "In determining foreign law, the court may consider any relevant material or source, including testimony, whether or not submitted by a party or admissible under the Federal Rules of Evidence. The court's determination must be treated as a ruling on a question of law." The Advisory Committee's Notes to the Rule state: "In further recognition of the peculiar nature of the issue of foreign law, the new rule provides that in determining this law the court is not limited by material presented by the parties; it may engage in its own research and consider any relevant material thus found. . . . Rather, the rule provides flexible procedures for presenting and utilizing material on issues of foreign law by which a sound result can be reached with fairness to the parties."

         In Faggionato v. Lerner, 500 F.Supp.2d 237 (S.D.N.Y. 2007), Judge Preska said:

Ultimately, the responsibility for correctly identifying and applying foreign law rests with the court. In acting under Rule 44.1, a court may reject even uncontradicted expert testimony and reach its own decisions on the basis of independent examination of foreign legal authorities. The Court of Appeals has urged district courts to invoke the flexible provisions of Rule 44.1 . . . .

Id. at 244-45 (citations and internal quotation marks omitted).

         While district judges are endowed with broad flexibility in determining foreign law, one is also acutely aware of the provision in the last sentence of Rule 44.1 that the district court's "determination must be treated as a ruling on a question of law." The intended distinction is between a "finding of fact, " where the less demanding standard of review on appeal is "clearly erroneous, " and a "question of law, " which the court of appeals considers de novo. District judges may enjoy the flexibility of research the Rule provides, but they know their determinations of foreign law will receive no deference from circuit judges if the case sails from the shallows into deeper appellate waters.

         In the case at bar, I have the benefit of opinions submitted by two English barristers, each with notable litigation and arbitration experience in the relevant areas of international trade, commerce and shipping. C. Marcus Mander is instructed on behalf of O.W. USA and the Liquidating Trustee. Chirag Karia QC is instructed on behalf of NCL. Messrs. Mander and Karia exchanged a series of expert declarations which began when the case was before the Bankruptcy Court and continued after it moved to this Court. Specifically, I have considered the following declarations, signed on the indicated dates: Mander, June 6, 2017; Karia, June 16, 2017; Mander, June 23, 2017; Karia, September 14, 2017; and Mander, September 22, 2017.[5] Some declarations answer or criticize opposing declarations. English appellate decisions and pages ...


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