Steel Warehouse Co. v. Abalone Shipping Ltd.

UNITED STATES COURT OF APPEALS
For the Fifth Circuit

No. 97-30796

STEEL WAREHOUSE COMPANY, INCORPORATED,
Plaintiff-Appellee,

VERSUS

ABALONE SHIPPING LIMITED OF NICOSAI, ET AL,
Defendants,

ABALONE SHIPPING LIMITED OF NICOSAI,
LONDON STEAM-SHIP OWNERS’ MUTUAL
INSURANCE ASSOCIATION, AND
A. BILBROUGHS & CO., LIMITED,
Defendants-Appellants.

Appeal from the United States District Court
For the Eastern District of Louisiana

MAY 21, 1998

Before POLITZ, Chief Judge, REYNALDO G. GARZA, and DENNIS, Circuit
Judges.

REYNALDO G. GARZA, Circuit Judge:

This is an appeal from a ruling of the United States District

Court for the Eastern District of Louisiana. The district court

denied a motion to stay this case pending arbitration made by the

Defendants-Appellants, Abalone Shipping of Nicosai (“Abalone”), et

al. (collectively, “Appellants”). The district court held in favor

of the Plaintiff-Appellee, the Steel Warehouse Company (“Steel

Warehouse”). The Appellants timely appealed, and the matter now

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lies before this circuit.

Background

In May of 1994, Steel Warehouse entered into negotiations with

Mathan International Trading, Ltd. (“Mathan”), a British

corporation with offices and affiliates in London, Bulgaria, and

Kuwait, for the purchase of steel coils. These coils were to be

manufactured in Bulgaria. Under the terms of the purchase

agreement which resulted from these negotiations, Mathan was to

supply the steel coils and ship them to Indiana. In October of

1994, Mathan’s Kuwaiti affiliate entered into a charter party

agreement with Panoceanica SRL (“Panoceanica”), to charter the M/V

VICAL for a voyage from Bulgaria to New Orleans. Panoceanica was

acting as an agent for Abalone. Steel Warehouse states that it was

unaware of this arrangement.

In November of 1994, the cargo of steel coils was loaded

aboard the M/V VICAL in Bulgaria for carriage to New Orleans. This

ship was owned by Abalone at the time of this voyage and was under

time charter to Panoceanica. The M/V VICAL was under voyage

charter to Mathan.1 A bill of lading was presented by Mathan on

November 12, 1994, to Society National Bank for payment.2

1
Panoceanica is not a party. Mathan was named a defendant,
but never appeared. In July of 1996, Steel Warehouse obtained a
default judgment against Mathan, one of Mathan’s employees
(Christopher Mann), and Mathan’s London Agent (Ashley Shipping).
2
The district court was presented with two bills of lading,
and there is a dispute as to which is the proper one. Appellants
argue that this dispute need not be addressed by the court because
the pertinent language in each bill of lading regarding

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 The M/V VICAL set sail for New Orleans, encountering rough

seas along the way. It arrived at its destination in December of

1994. It discharged its cargo of steel coils into river barges,

and these barges carried the coils to Burns Harbor, Indiana, where

they were received by Steel Warehouse. Steel Warehouse claims that

the steel coils were damaged by rust, and that the coils were

rejected by their customers. Steel Warehouse points out that

surveyors in New Orleans noted rusty streaks on the hatches of all

four cargo holds, and wetness was noted in three of the cargo

holds. These facts are indicative of seepage of sea water into the

holds.

On September 15, 1995, after an unsuccessful attempt to have

this dispute settled by voluntary arbitration in London, Steel

Warehouse filed suit in the United States District Court for the

Northern District of Indiana. In addition to the defendants named

in the instant case, Steel Warehouse filed suit against Steel

Warehouse’s cargo insurers, as well as Mathan, Ashley Shipping, and

Christopher Mann. Other than the Appellants, only Steel

Warehouse’s cargo insurers made an appearance, and they are no

longer before this court. The suit against them was dismissed on

the basis of a contractual forum selection clause which required

suits against them to be brought only in Britain.

Steel Warehouse’s claims against the Appellants are based on

the bill of lading and assert rights under the Carriage of Goods by

incorporation of the charter party is identical. The district
court disagreed, and we will discuss this issue shortly.

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Sea Act, 46 U.S.C. §1300, et seq. (“COGSA”). Steel Warehouse

claims that the coils did not meet contract specifications and were

damaged in transit. Steel Warehouse also claims that it had no

notice of the arbitration provisions which the Appellants claim are

incorporated into the bill of lading.

The first pleading filed by Appellants was their answer to the

complaint, and this was filed on December 29, 1995. This answer

included, among other things, a demand for a stay pending

arbitration in London. For several months following the filing of

Appellants’ answer, there was little substantive activity, other

than the aforementioned dismissal of Steel Warehouse’s cargo

insurers.

On July 31, 1996, Appellants filed motions in Indiana seeking

dismissal and/or a stay of the proceedings. Appellants claimed

that the district court did not have personal jurisdiction over

them, that the bill of lading incorporated a provision requiring

arbitration in London, that there was a failure to state a claim

upon which relief could be granted (as to the action against

Abalone’s insurer), and that summary judgment should be granted as

to A. Bilbrough on the grounds that it was not an insurer of

Abalone. Prior to the filing of the July 1996 motions, Appellants

sent Steel Warehouse one set of interrogatories and one set of

document requests. Appellants reserved their right to seek a stay

pending arbitration in these interrogatories and requests, and

Appellants moved the Indiana court to enter a protective order

staying further discovery until the dispositive motions were

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resolved. The district court did not rule on the Appellants’

motions until March of 1997, when it transferred the case to

Louisiana. The Indiana court only addressed the issue of

jurisdiction in its order.

Appellants re-urged their motion to dismiss and/or stay

pending arbitration before the Eastern District of Louisiana.

Their motion was refused, and the appeal of this refusal now lies

before this panel.

Standard of Review

This court reviews a district court order refusing to stay an

action pending arbitration under the de novo standard of review.

Mitsui & Co. (USA), Inc. v. M/V MIRA, 111 F.3d 33, 35 (5th Cir.

1997).

Analysis

The first issue we must deal with relates to the incorporation

of the terms of the charter party with the bill of lading, and

whether this incorporation, if it exists, binds Steel Warehouse to

the terms of the arbitration clause. In Mitsui & Co. (USA), Inc.

v. M/V MIRA, this court rejected the argument that a bill of lading

was a contract of adhesion, and held that the plaintiff in that

suit accepted the properly incorporated terms of the bill of lading

when it filed suit under the bill of lading. Mitsui, 111 F.3d at

36. The question turns on whether the charter party and its

arbitration clause were properly incorporated.

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 Steel Warehouse argues that the key issue here should be

notice, actual or constructive, and it states that without notice,

it should not be bound by terms of the charter party. See e.g.:

Midland Tar Distillers, Inc. v. M/T LOTOS, 362 F.Supp. 1311, 1312-

13 (S.D.N.Y. 1973); Otto Wolff Handelsgeshellschaft v. Sheridan

Transp., 800 F.Supp. 1353, 1355 (E.D.Va. 1992). Abalone argues

that incorporation should be the sole issue, and that notice is

irrelevant. We believe that in this particular situation, this is

a distinction without a difference, and we decline to split this

particular doctrinal hair. Given the facts before us in the

instant case, proper incorporation yields constructive notice.

Constructive notice can be defined, crudely, as a rule in

which “if you should have known something, you’ll be held

responsible for what you should have known.” In this situation,

Steel Warehouse was a sophisticated party, and one of its own

agents testified that arbitration clauses of the type at issue are

standard operating procedure in this line of business. Also, the

bill of lading at issue was on a common, internationally recognized

form of bill of lading called a “Congen Bill.” In other words, if

the charter party clause was properly incorporated, given the facts

before us, Steel Warehouse should have known what was around the

corner, given the totality of the circumstances. Whether one

styles this as an issue of constructive notice or incorporation

alone, the analysis basically turns on incorporation.

The key point, then, is whether we believe the charter party

was properly incorporated. We hold that it was. The relevant part

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of the bill of lading (which was the same in both of the bills of

lading taken before the district court) stated:

Freight Payable as per CHARTER-PARTY dated 21 OCTOBER
1994 ALL TERMS AND CONDITIONS OF WHICH ARE INCORPORATED
IN THIS B/L.

(emphasis in original).

A plain language reading of this clause makes it clear that

“THIS B/L [bill of lading]” incorporates the terms of conditions of

the charter party, dated October 21, 1994, including, presumably,

its (industry standard) arbitration clause. While it would have

been preferable for this clause in the bill of lading to have been

more specific and detailed, it passes muster, given the facts of

this case. Also, precedent allows for quite a bit of leeway in the

drafting of such clauses, and does not require a punctilious degree

of specificity. See e.g.: The Silverbrook, 18 F.2d 144, 145

(E.D.La. 1927); Lowry & Co. v. S.S. LE MOYNE D’IBERVILLE, 253

F.Supp 396, 397 (S.D.N.Y. 1966).

The district court also held that the fact that one of the

bills of lading was stamped “Freight Prepaid” rendered the

incorporation language on that bill of lading to be ambiguous. We

disagree. First of all, whether or not the freight was prepaid has

nothing to do with the incorporation of the charter party,

particularly the arbitration clause. In order to support the

district court’s decision, we would have to assume that the

“Freight Prepaid” stamp somehow adds a clause to the bill of lading

which states that “if freight is prepaid, all previously

incorporated terms and conditions of the charter party are null,

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void, and superfluous.” This is illogical, and not required by

precedent. We therefore reverse the district court on this point

as well.

The district court did not rule on several other issues,

because of the result it reached on the points already mentioned.

We will deal with these issues now. First, Steel Warehouse argues

that the incorporation issue should be governed by British law,

because British law governs the charter party, and under British

law the incorporation of the charter party in the bill of lading

was inadequate. The Seventh Circuit rejected this type of analysis

in Duferco Steel, Inc. v. M/V KALISTI, 121 F.3d 321, 325 (7th Cir.

1997), and we adopt the Seventh Circuit’s view on this matter. As

the Seventh Circuit stated, such an analysis skips an important

initial question, namely, whose law governs the issue of

incorporation to begin with? The Seventh Circuit concluded that

“there is no reason to suppose that the incorporation issue should

be governed by English law” in Duferco, and we agree with this

method of analysis in the instant case. Id. Essentially, Steel

Warehouse is attempting to incorporate the arbitration clause into

the bill of lading at the beginning of its analysis, only to find

that the clause cannot be incorporated. This rather convoluted

analysis was rejected in Duferco, and we reject it here. See Id.

American law governs this agreement, for the purposes of

incorporation.

Steel Warehouse also contends that the scope of the

arbitration clause does not compel arbitration of disputes with

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third parties. We disagree. The relevant language in the charter

party is broad. It states that “all disputes from time to time

arising out of this contract shall...be referred to final

arbitration in London.” It is not limited merely to “Owners and

Charterers,” or any such language which requires a more limited

application of the clause. See e.g.: Otto Wolfe, 800 F.Supp. at

1357. The clause applies to Steel Warehouse.

Next, Steel Warehouse argues that the arbitration clause

violates Section 3(8) of COGSA, which prohibits a carrier from

limiting its liability to less than that provided in the Act. On

this issue, we direct Steel Warehouse to the Supreme Court’s

holding in Vimar Seguros y Reaseguros, S.A. v. M/V SKY REEFER, 115

S.Ct 2322, 2327-29 (1995) and to our holding in Mitsui. Mitsui,

111 F.3d at 36. Steel Warehouse’s substantive rights are not

violated in such a way as to allow this case to fall into possible

exceptions allowed by Vimar, because the Appellants have stipulated

that the applicable prescriptive period for this claim is twelve

months (as is required by COGSA), rather than nine months (the time

listed in the charter party). The part of the arbitration clause

which offends Steel Warehouse will not be enforced, by agreement of

the Appellants, so Steel Warehouse’s substantive rights are not

undermined.

Steel Warehouse also argues that the Appellants waived their

right to arbitrate by substantially participating in the litigation

process. There is a well-settled rule in this circuit that waiver

of arbitration is not a favored finding, and there is a presumption

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against it. Miller Brewing Co. v. Fort Worth Distrib. Co., 781

F.2d 494, 496 (5th Cir. 1986). This is particularly true when the

party seeking arbitration has included a demand for arbitration in

its answer, and the burden of proof then “falls even more heavily

on the party seeking to prove waiver.” Southwest Indus. Import &

Export, Inc. v. Wilmod Co., 524 F.2d 468, 470 (5th Cir. 1975).

Steel Warehouse has not overcome this presumption against waiver.

The Appellants had to participate in the litigation in order to

protect themselves if the district court chose not to stay the

proceedings. Appellants’ fears were justified, given the district

court’s ruling in this matter. Further, it was Steel Warehouse who

filed this case to begin with, and the Appellants haven’t done much

other than defend themselves in this case. Appellants have not

escalated this case, nor have they showered Steel Warehouse with

interrogatories and discovery requests. Given these facts, there

is no waiver in this case.

Conclusion

Based on the foregoing, we REVERSE the decision of the

district court in this matter, and order that this case be stayed

pending arbitration.

REVERSED.

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