UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
M/V BUYALYK, Etc; ET AL,
NOBLE SEAFARER LTD; COMBINED ATLANTIC CARRIERS,
Appeal from the United States District Court
for the Southern District of Texas
November 11, 1999
Before SMITH, BARKSDALE, and PARKER, Circuit
ROBERT M. PARKER, Circuit Judge:
In this maritime cargo case, Plaintiff-Appellant
Fedmet Corporation ("Fedmet") brought suit against the M/V Buyalyk; her
owner, Noble Seafarer Ltd. ("Noble"); and the charterer and bill of lading
issuer, Combined Atlantic Carriers GmbH ("COMBAC"), for damage to a shipment
of steel coils. Defendants-Appellees moved separately for dismissal or
abatement of the action pending arbitration based on provisions in the
bill of lading. The district court granted the motions and dismissed the
case without prejudice to re-filing. On appeal, Plaintiff-Appellant argues
that the district court erred when it failed to stay rather than dismiss
the case. We affirm.
Defendant-Appellee COMBAC issued a bill of
lading for a shipment of steel coils that were loaded onto the ocean-going
vessel M/V Buyalyk at Sczecin, Poland in February 1997. The M/V Buyalyk
traveled to the United States and discharged its cargo in Houston, Texas,
and New Orleans, Louisiana in March and April 1997, respectively.
Plaintiff-Appellant Fedmet alleges that the
coils arrived in damaged condition. On March 16, 1998, Fedmet commenced
this suit in the United States District Court for the Southern District
of Texas, Houston Division, seeking to recover approximately $125,000 for
damage to the cargo. Although Fedmet named the M/V Buyalyk as a defendant
in this action, Fedmet did not arrest the vessel. Accordingly, the action
proceeded solely against COMBAC and Noble
On June 5, 1998, COMBAC moved to dismiss and/or
abate or stay the case primarily on the basis that the terms of the bill
of lading required the parties to resolve any dispute through arbitration
in Germany pursuant to the German Maritime Arbitration Association ("GMAA")
Rules. Noble filed a similar motion on June 30, 1998. Fedmet opposed these
motions on the basis that the arbitration clause was ambiguous and unworkable
for three parties under GMAA rules.
The district court determined that the arbitration
clause was enforceable and that all issues raised in the action were arbitrable.
The district court granted both motions on September 28, 1998, and dismissed
the case without prejudice in favor of arbitration in Germany. On October
5, 1998, Fedmet moved to alter or amend the judgment, pursuant to Federal
Rule of Civil Procedure 59(e), arguing that the case should have been stayed
rather than dismissed. Fedmet protested that a dismissal left it with no
effective remedy since the arbitration would likely be subject to a one-year
statute of limitations.(1) For the first
time, Fedmet argued that the matter was governed by the Federal Arbitration
Act ("FAA"), 9 U.S.C. § 1 (1994) et seq., and that pursuant
to § 3 of the FAA, the court should have exercised its discretion
to retain jurisdiction over the case pending arbitration. The district
court denied Fedmet's motion and Fedmet appealed. This appeal does not
challenge the validity of the arbitration clause; the only question before
us is whether the district court erred in its decision to dismiss without
prejudice rather than stay the case pending arbitration.
We have previously held that district courts
have discretion to dismiss cases in favor of arbitration under 9 U.S.C.
§ 3. See Alford v. Dean Witter Reynolds, Inc., 975 F.2d
1161, 1164 (5th Cir. 1992). Because a district court is afforded discretion
in this determination, we review the decision to dismiss for abuse of that
discretion. See id.
From the outset, it bears repeating that we
remain "mindful of the strong federal policy favoring arbitration." United
Offshore Company v. Southern Deepwater Pipeline Co., 899 F.2d 405,
408 (5th Cir. 1990). The preference for arbitration is such that any "[d]oubts
as to the availability of arbitration must be resolved in favor of arbitration."
Id. This partiality is reflected in § 3 of the FAA which provides:
If any suit or proceeding be brought in any
of the courts of the United States upon any issue referable to arbitration
under an agreement in writing for such arbitration, the court in which
such suit is pending, upon being satisfied that the issue involved in such
suit or proceeding is referable to arbitration under such an agreement,
shall on application of one of the parties stay the trial of the action
until such arbitration has been had in accordance with the terms of the
agreement, providing the applicant for the stay is not in default in proceeding
with such arbitration.
9 U.S.C. § 3 (1994).
In its Rule 59(e) motion, Plaintiff-Appellant
argued that § 3 governed this litigation. Now on appeal, Fedmet introduces
a new argument, namely that this is an admiralty case commenced in rem,
and therefore, it is § 8 of the FAA, not § 3, that controls.(2)
Previously, Fedmet argued that under § 3 the district court should
not have dismissed the case; Fedmet now argues that under § 8
the district court could not dismiss the case.(3)
Under the FAA, a party is entitled to commence
legal proceedings by libel and seizure of the vessel or other property.
See 9 U.S.C. § 8. Specifically, Section 8 of the FAA provides:
If the basis of jurisdiction be a cause of
action otherwise justiciable in admiralty, then, notwithstanding anything
herein to the contrary, the party claiming to be aggrieved may begin his
proceeding hereunder 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.
9 U.S.C. § 8 (1994). The purpose of this
section is to afford a measure of protection to the aggrieved party by
providing a means of obtaining security for arbitration. See The
Anaconda v. American Sugar Refining Co., 322 U.S. 42, 46 (1944). Under
the FAA scheme, the federal district court where the action is brought
retains jurisdiction over the vessel or other property until an arbitration
award is rendered and the award is satisfied. The important distinction
between § 3 and § 8 is that the latter does not appear to afford
the district court discretion to dismiss when the case is referred to arbitration.(4)
Of course, in this case there was no arrest
of the vessel. Therefore, Plaintiff-Appellant has failed to satisfy the
basic requirement found in the first portion of § 8 that the aggrieved
party "begin [its] proceeding hereunder by libel and seizure of the vessel."
9 U.S.C. § 8 (1994). Plaintiff-Appellant acknowledges this fact but
explains that it "was unable to arrest the vessel" or otherwise "obtain
jurisdiction over the vessel in this case." It is Fedmet's position that
its failure to arrest the vessel is not fatal to its argument because "this
Court has held in E.A.S.T., Inc. of Stamford, Conn. M/V ALAIA, 876
F.2d 1168, 1177-78 (5th Cir. 1989), that a lack of in rem jurisdiction
over the vessel does not affect the operation of Section 8 in an admiralty
case." We disagree.
In E.A.S.T., the parties agreed to
charter the M/V ALAIA, but upon inspection of the vessel, the charterer,
E.A.S.T., determined that she was unfit and unseaworthy. E.A.S.T. rejected
the ship and filed an action in rem under 9 U.S.C. § 8 in federal
district court to compel arbitration and to obtain security for the arbitration
award by arrest of the vessel. See id. at 1169-70. The vessel's
owners claimed that in rem jurisdiction was an insufficient basis
upon which to refer the parties to arbitration. We held that the owners
had submitted to the district court's in personam jurisdiction,
and therefore there was no need to reach the question of whether in
rem jurisdiction was in fact an adequate basis for referral. See
id. at 1178. We did not hold that parties were free to invoke §
8 without first satisfying its in rem jurisdiction requirement.
Plaintiff-Appellant's argument is based on
a misreading of our holding in E.A.S.T. Yet, even if a narrow equitable
exception were available, the facts of this case would not support its
application. This is not a case in which an aggrieved plaintiff was left
standing on the dock, complaint in hand, as the vessel escaped to sea.
The plaintiff in this case waited approximately 12 months to commence this
lawsuit. The fact that the M/V Buyalyk was not still waiting in port should
not have been a surprise.
Having discarded § 8 as inapplicable
to the case before us, we turn to the question of whether dismissal of
the case was proper under § 3 of the FAA.
Although the express terms of § 3 provide
that "a stay is mandatory upon a showing that the opposing party has commenced
suit upon any issue referable to arbitration under an agreement in writing
for such arbitration ...," Alford v. Dean Witter Reynolds, Inc.,
975 F.2d 1161, 1164 (5th Cir. 1992), we have interpreted this language
to mean only that the district court cannot deny a stay when one is properly
requested. Id. "This rule, however, was not intended to limit dismissal
of a case in the proper circumstances." Id. If all of the issues
raised before the district court are arbitrable, dismissal of the case
is not inappropriate. Id. As we explained in Alford:
Although we understand that plaintiff's motion
to compel arbitration must be granted, we do not believe the proper course
is to stay the action pending arbitration. Given our ruling that all issues
raised in this action are arbitrable and must be submitted to arbitration,
retaining jurisdiction and staying the action will serve no purpose. Any
post-arbitration remedies sought by the parties will not entail renewed
consideration and adjudication of the merits of the controversy but would
be circumscribed to a judicial review of the arbitrator's award in the
limited manner prescribed by law.
Id. (quoting Sea-Land Service, Inc.
v. Sea-Land of Puerto Rico, Inc., 636 F. Supp. 750, 757 (D. Puerto
In this case, any dispute arising from the
shipment of the steel coils was governed by the provisions of the bill
of lading and the contract of carriage. The bill of lading expressly provided
that all claims were to be brought and decided in Bremen, Germany by arbitration
under GMAA rules. Rather than comply with this provision, Fedmet chose
to file suit in federal court approximately one year after the allegedly
damaged cargo arrived at its destination ports. The prospect that the arbitration
may now be time-barred is simply a consequence of Fedmet's own making.
Had Fedmet not waited a year to act, and then to act in circumvention of
the express provisions of the bill of lading, the consequences of a dismissal
without prejudice would not be so potentially harmful. At this late juncture,
neither equity nor judicial economy favor Fedmet's position.
In the case at hand, the district court determined
that all of the claims and issues presented were subject to arbitration
under the provisions of the bill of lading. In light of this determination,
the district court concluded that dismissal without prejudice was the preferred
means of enforcing the governing provisions of the bill of lading and permitting
the parties to conduct arbitration in Germany. The district court acted
well within its discretion when it dismissed this case without prejudice
Accordingly, for the reasons set forth above,
we AFFIRM the judgment dismissing without prejudice Fedmet's claims.
1. 1 Although
Fedmet did not originally invoke the Carriage of Goods by Sea Act ("COSGA"),
46 U.S.C. § 1300 (1994) et seq., all parties agreed
that provisions of the bill of lading mandated that COSGA governed the
dispute. COSGA imposes a one-year statute of limitations on cargo damage
actions. See 46 U.S.C. § 1303(6).
2. 2 Initially,
Fedmet argued that the arbitration clause was defective and should not
be enforced at all.
3. 3 Naturally,
defendants-appellees object to the injection of this new argument as a
breach of the long standing rule that "a party may not present a wholly
new issue in a reviewing court." Crawford v. Falcon Drilling Co.,
131 F.3d 1120, 1123 (5th Cir. 1997) (quoting 9A Charles Alan Wright &
Arthur R. Miller, Federal Practice and Procedure § 2558, at 599 (2d
ed. 1995). Plaintiff-appellant claims that it argued broadly for a stay
rather than dismissal, and that we are free to review any legal theory
upon which the district could have relied. In this instance, the timeliness
of Plaintiff-Appellant's argument has no affect on the outcome of this
appeal since § 8 is inapplicable to this action.
4. 4 This circuit
has yet to address the question of whether a district court retains some
measure of discretion under § 8 and we need not take a definitive
position on the issue today.