Scac Transport (Usa) Inc. And United Nations Development Programme Office for Projects Execution v. S.S. "Danaos," Her Engines, Boilers, Etc., and Big Lift Usa, Inc., Big Lift Shipping Company (n.a.) Inc. D/B/A Big Lift and Danais Shipping Company, Defendants-Appellants-Cross-Appellees, Danais Shipping Company, Third-Party v. Universal Maritime Service Corp., Third-Party Defendant-Appellee-Cross-Appellant
Docket: 187
Court: Court of Appeals for the Second Circuit; April 25, 1988; Federal Appellate Court
An indemnity claim arose from an accident during the loading of a truck on the S.S. DANAOS, leading to an appeal and cross-appeal in the United States Court of Appeals, Second Circuit. The central issue was whether a stevedore, Universal Maritime Service Corp., could be compelled to participate in arbitration without its consent. Following a settlement between the vessel owner, Danais Shipping Company, and cargo interests, Danais and its charterer, Big Lift USA, Inc., submitted their dispute to London arbitration per their charter agreement. Big Lift attempted to involve Universal in its defense, which Universal refused. The arbitrators ultimately found in favor of Danais, prompting Big Lift to seek indemnification from Universal based on findings of Universal's negligence in unloading the cargo.
Judge Keenan denied Big Lift's motion for summary judgment, ruling that a party not consenting to arbitration could not be compelled to participate. After trial, the district court found Universal negligent and ordered it to indemnify Big Lift but denied full reimbursement for costs and attorney's fees from the London arbitration.
Big Lift appealed the denial of summary judgment and full indemnity. Universal cross-appealed, arguing the district court erred in finding liability and awarding any costs to Big Lift. The court concluded that the district court erred by denying Big Lift's motion to bind Universal to the London arbitration results and by not granting full indemnity. Consequently, the award to Big Lift was modified to include $129,393.42 in interest and $77,319.58 for costs and attorney's fees from the London arbitration, along with prejudgment interest. Universal's cross-appeal was deemed meritless. The incident leading to the claims occurred on December 23, 1977, when the vessel's Stulken Boom collapsed, damaging the truck and parts of the vessel during loading at Port Newark, New Jersey.
On December 22, 1978, SCAC Transport (USA) Inc. and the United Nations Development Programme Office for Projects Execution initiated an admiralty action against the DANAOS, Danais, and Big Lift in the Southern District of New York. Danais cross-claimed against Big Lift for indemnification and filed a third-party claim against Universal. Big Lift countered with a cross-claim against Universal for indemnity regarding its obligations to Danais, while Universal counterclaimed against Danais and Big Lift, attributing damages to their failure to provide a seaworthy vessel. Before discovery, Danais settled SCAC's claim for $10,000, and remaining claims were stayed pending arbitration as dictated by Clause 17 of their charter party, which mandated arbitration in London, excluding Universal.
On September 30, 1980, Big Lift notified Universal of the arbitration initiated by Danais, demanding that Universal appear and defend against the claim, warning that refusal would limit Universal's ability to contest the arbitration outcome. Universal acknowledged the notice but declined to participate. On August 11, 1982, the London arbitrators ruled in favor of Danais, identifying the stevedore's negligence as the proximate cause of the incident, not any equipment defect. They held the charterer liable, awarding Danais $149,539.24 (including repair costs and withheld charter hire) plus interest. Preaward interest totaled $106,455.54, and Danais also received $10,000 from the earlier settlement with interest of $3,118.36. Post-award interest of $19,819.52 was awarded on the total amount from the date of the arbitration award until Big Lift's payment on March 23, 1983. Additionally, Big Lift was ordered to cover the costs and fees incurred by Danais' London solicitors and arbitration costs, amounting to $32,822.56, paid on March 23, 1983.
On September 24, 1982, Big Lift informed Universal about the London arbitrators' award and offered to tender the defense of the claim and the prosecution of a "special case" in the Commercial Court, which Universal declined. As a result, Big Lift instructed its solicitors to terminate the appeal, leading to litigation resuming in the Southern District of New York. Danais sought summary dismissal of Universal's counterclaims, while Big Lift sought indemnification for amounts paid under the arbitration award. Both parties argued that the arbitrators' findings regarding the Stulken Boom's collapse were conclusive, but Judge Keenan ruled that Universal was not estopped from contesting these issues since it did not participate in the arbitration.
Following a six-day bench trial, Judge Keenan determined that the collapse was due to Universal's winch operator's negligence, while both the design of the boom and Danais’s maintenance were not negligent. These findings mirrored those of the London arbitrators. Consequently, he dismissed Universal's counterclaim against Danais and granted Big Lift indemnity from Universal for several expenses totaling $267,942.38, which included various repair costs and fees with interest. However, Judge Keenan denied Big Lift’s claims for London attorney's fees and other costs associated with the arbitration, stating they exceeded what Universal could reasonably foresee when initially hired. Prejudgment interest was granted on the principal sums from March 23, 1983, the date Big Lift satisfied the arbitration award, but not on the total interest paid to Danais.
The discussion addresses whether Universal is bound by the London arbitration award in light of Big Lift's motion for summary judgment. Under common law, a defendant seeking indemnification from a third party must serve a notice to defend, allowing the indemnitor the chance to participate in the action. If the indemnitor accepts, it is bound by the outcome. Should the indemnitor decline to defend and the defendant loses the original case, the defendant may pursue a separate action for indemnification, where the indemnitor can contest the indemnity’s existence and scope. However, the indemnitor is barred from relitigating issues resolved in the original action due to principles akin to collateral estoppel. Although vouching, an older common-law practice, has largely been replaced by modern impleader rules, it remains valid in certain circumstances, particularly when impleader is not feasible due to jurisdictional limitations. Vouching serves to mitigate relitigation costs and protect against inconsistent outcomes, but impleader is generally preferred as it compels the indemnitor’s participation, reducing potential delays.
When an indemnitor uses vouching but declines to defend an action, they are only bound by the outcome if their interests were adequately represented by the indemnitee in the original case. The Restatement (Second) of Judgments Sec. 57 (1982) applies here, as does the principle of offensive collateral estoppel which states that it would be unjust to prevent a vouched party from litigating issues decided previously if they had procedural opportunities that could yield different results. Courts must assess whether impleader was possible in the prior action and whether the indemnitee adequately represented the indemnitor's interests, as well as consider procedural opportunities in the current action that might lead to a different outcome.
Furthermore, personal jurisdiction over the indemnitor is necessary in the indemnification action. The indemnitor can also contest the adequacy of the notice to defend. In this case, Judge Keenan determined that the vouching notice from the London arbitration lacked preclusive effect, citing insufficient procedural safeguards and Universal's lack of consent to the arbitration. However, this decision is challenged, arguing that the procedural differences between arbitration and judicial processes do not inherently negate vouching. Arbitration is presented as an effective dispute resolution method in maritime contexts, and it is argued that the procedures in this instance did not vary significantly from those of courts, particularly since the arbitration involved experienced arbitrators, extensive evidence, and a detailed opinion reviewable by the London Commercial Court. Universal has not substantiated claims of prejudice from the arbitration procedures or shown that Big Lift failed to represent its interests adequately. Without evidence of harm, procedural differences alone do not justify denying preclusive effect to the vouching-in notice.
The document asserts that a party does not necessarily need to consent to arbitration to be vouchered into it, paralleling the principle in judicial proceedings where consent is required for jurisdiction. In cases lacking personal jurisdiction, a party may still be vouchered into arbitration for efficiency, as in maritime disputes. The ruling emphasizes that stevedores, aware of arbitration clauses in charter parties, can be vouchered into arbitration by charterers when indemnity obligations exist. The court holds that, absent specific prejudice, a stevedore is bound by arbitration findings regarding negligence. Thus, Universal is held to the London arbitrators' ruling on negligence, and its cross-appeal regarding liability findings is deemed unnecessary. The document references established case law that supports the stevedore's indemnity obligations to shipowners or charterers for breaches of contractual duties. Big Lift demonstrates its potential liability to Danais, effectively binding Universal to the arbitration outcome.
Both parties on appeal challenge Judge Keenan's indemnity award. Big Lift contends that the judge erred by not awarding $129,393.42 in interest paid to Danais from the arbitration and $77,319.58 in associated costs and attorney's fees, including prejudgment interest. Conversely, Universal argues that the judge incorrectly awarded Big Lift $25,319.95 in attorney's fees for its New York counsel. Indemnity is described as the transfer of responsibility for losses from one party to another, particularly in admiralty law, where it resembles property damage claims due to liquidated amounts. The key issue is determining which party bears the loss, with the principle that a third party liable for payment should reimburse the party that incurred the cost unless special circumstances exist. Indemnity in admiralty generally includes litigation expenses, supported by several court cases, but may exclude fees if they pertain to claims against other defendants or if the case complexity renders indemnification unjust.
In this case, Judge Keenan's refusal to award Big Lift its London arbitration costs and attorney's fees was deemed erroneous. The court emphasized that Big Lift should be indemnified for these costs since there was no evidence that the expenses were unreasonable, and Big Lift was obligated to pay Danais' fees as per the arbitration award. Additionally, the refusal to award the $129,393.42 in interest was also a mistake, as this interest became part of Big Lift’s fixed damages once determined by the arbitrators and could not be discretionary. The arbitrators' choice of interest rate was beyond the district court’s review.
The district court's denial of summary judgment is reversed, and the award is modified to include $129,393.42 in interest paid to Danais from the arbitration award, as well as $77,319.58 for costs and attorney's fees related to the London arbitration. Additionally, prejudgment interest on these amounts will be applied at a nine percent rate, commencing from the dates Big Lift made payments. The case of Humble Oil Ref. Co. v. Philadelphia Ship Maintenance Co. is referenced to support the decision, noting that the Third Circuit did not grant preclusive effect in a scenario where a shipowner sought indemnification from a stevedore after the stevedore declined to defend against an action brought by an injured longshoreman, as the liabilities of the two parties were not coextensive. The distinction is emphasized by the availability of impleader in that case.
