The Rice Corp. filed a lawsuit in the U.S. District Court, Southern District of New York (SDNY) seeking to enforce an arbitration award it obtained against Express Sea Transport Corp. and several alleged alter-egos following an alleged breach of contract and settlement dispute between the two companies.
SDNY directed the parties to brief the question of whether it had subject matter jurisdiction in light of a 2014 2nd Circuit Court of Appeals decision, D’Amico Dry Limited v. Primera Maritime (Hellas) Limited, 756 F.3d. 151.
After review SDNY found it lacked subject matter and dismissed the case. (The Rice Corp. et al. v. Express Sea Transport Corp. et al. SDNY. No. 14-CV-5671. May 26.)
In 2007 The Rice Corp. (TRC) chartered a bulk carrier from Express Sea Transport Corp. (ESTC), the disponent owner (a charterer who has control of the vessel).
Disputes arose regarding the timeliness of TRC’s payments. When ESTC withdrew the vessel, TRC claimed ESTC had breached the charter agreement.
Prior to the arbitrators reaching a decision on the merits of TRC’s breach of contract claim, ESTC offered to settle the claim for $1.275 million. The offer specified that it would remain open only until the “close of business” on April 29, 2009. TRC accepted the offer by email sent at 5:21 p.m. on April 29, 2009. Asserting that TRC’s acceptance was untimely, ESTC purported to withdraw the offer.
TRC then asked the arbitration panel to determine whether ESTC was bound by its settlement offer and the panel found TRC was entitled to the settlement amount.
ESTC did not pay the arbitration award. TRC brought the matter before the High Court of Justice in London and obtained an order to enforce the arbitral award as a judgment.
After TRC’s efforts to enforce its English judgment against ESTC failed, it obtained a judgment against ESTC in the SDNY.
In this case it sought to enforce that judgment against the alleged alter-egos of ESTC.
Federal law gives district courts the power to decide “any civil case of admiralty or maritime jurisdiction,” and a charter-party agreement is a maritime contract subject to federal admiralty jurisdiction.
“On the other hand, the 2nd Circuit has consistently suggested that an agreement to settle a claim that arises under a charter agreement is not a maritime contract,” the judge writing this decision explained. “Accordingly, lawsuits regarding such agreements are not within the court’s admiralty jurisdiction.”
In D’Amico, the plaintiff sued to enforce a judgment entered by the English commercial division court on a forward freight agreement (FFA) between itself and the defendant. The District Court dismissed that action, finding that it did not have subject matter jurisdiction because the English judgment was not rendered by an admiralty court and the underlying claim did not sound in admiralty under English law.
On appeal, the 2nd Circuit vacated the judgment and remanded, holding U.S. courts “have jurisdiction to enforce a judgment of a foreign non-admiralty court if the claim underlying that judgment would be deemed maritime under the standards of U.S. law.”
In reaching that conclusion, the 2nd Circuit distinguished cases involving settlement agreements or guarantees from D’Amico.
The 2nd Circuit wrote: “In the settlement context, agreement between the parties does not legitimate the original maritime claim. There is no telling whether the defendant who agrees to pay money in settlement of the claim is in any way by doing so acknowledging validity of the claim, or in contrast is continuing to deny it categorically while agreeing to pay some money to avoid the inconvenience, expense, and risk of further litigation. The settlement extinguishes that claim through private contract without validating it.”
In contrast, in cases “where a court has rendered a final judgment on the claim, the claim has been validated. If that claim was of maritime nature, the maritime nature of the claim has been validated, furnishing good reason for the dispute over the enforceability of the judgment to be heard as a maritime matter in the admiralty jurisdiction of the federal court.”
In this case, TRC argued that even though it was seeking to enforce a judgment arising from a settlement, as opposed to a judgment arising from its underlying breach of contract claim, its case fell within the court’s admiralty jurisdiction because it had a specific claim arising from ESTC’s refusal to honor the settlement agreement that arose under the charter party, “which was itself unquestionably a maritime contract.”
Because the English arbitration panel explicitly concluded ESTC had breached the charter party, it argued its action was not merely seeking to enforce a settlement agreement.
But SDNY said, “Plaintiff reads too much into the arbitration panel’s decision. The arbitration panel did not conclude that ESTC had breached the charter agreement but only that it had jurisdiction to hear the dispute over whether there was a settlement because the charter agreement’s arbitration clause gave it jurisdiction to hear disputes that arose in connection with the charter party.
“In essence, plaintiff argues that, because the arbitration panel relied on the charter agreement for jurisdiction to hear the settlement dispute, its determination that ESTC ‘breached’ the settlement agreement equates to a determination that ESTC breached the underlying charter agreement, thereby rendering this dispute a maritime claim under English law.”
The SDNY judge disagreed with TRC.
“The panel never made any determination whether ESTC had breached the underlying charter agreement; it decided only that ESTC and TRC had a settlement agreement and that ESTC breached it. In addition, neither the panel nor the High Court of Justice made a finding that the settlement dispute constituted a maritime claim under English law.”
Even if the judge was to accept TRC’s argument that the arbitration panel’s decision, as affirmed by the High Court of Justice, constituted a final judgment on a claim that is considered maritime under principles of English law, “that would not necessarily confer admiralty jurisdiction over the suit under United States law.
“Under United States law,” the judge explained, “the claim underlying plaintiff’s foreign judgment is a claim to enforce a settlement agreement. As such, it is not an admiralty claim.”
This column was published in the July 2015 issue of American Shipper.