Fedmet Corporation v. M/V Buyalyk

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

No. 99-20017
Summary Calendar

FEDMET CORPORATION,

Plaintiff-Appellant,

VERSUS

M/V BUYALYK, Etc; ET AL,

Defendants,

NOBLE SEAFARER LTD; COMBINED ATLANTIC CARRIERS,

Defendants-Appellees.

Appeal from the United States District Court
for the Southern District of Texas
November 11, 1999
Before SMITH, BARKSDALE, and PARKER, Circuit Judges:

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.
 I.

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

in personam.

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

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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.

II.

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

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).

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discretion. See id.

III.

A.

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

2
Initially, Fedmet argued that the arbitration clause was
defective and should not be enforced at all.

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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

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.

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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

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.

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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.

B.

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

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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 Rico 1986)).

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

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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

to re-filing.

IV.

Accordingly, for the reasons set forth above, we AFFIRM the

judgment dismissing without prejudice Fedmet’s claims.

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