Court: Court of Appeals for the Second Circuit; September 26, 2002; Federal Appellate Court
Thyssen, Inc. entered into a contract with Metalsrussia on October 26, 1996, for the delivery of steel coils to the U.S., with a completion date set for January 31, 1997. Metalsrussia arranged shipment via subchartering the MARKOS N from Western Bulk Carriers, which had chartered the vessel from Calypso Shipping Corp. A key issue in the dispute involves the charter agreement between Metalsrussia and Western Bulk Carriers, referenced in two bills of lading issued on January 23 and 24, 1997, which incorporated the charter's terms, including a law and arbitration clause.
Upon arrival, the coils were found damaged due to rust. Despite this, Thyssen paid Metalsrussia, which had already compensated Western Bulk Carriers. Thyssen filed a lawsuit in the Southern District of Texas on March 5, 1997, leading to an arrest warrant for the MARKOS N. Thyssen accepted a “Club Letter of Undertaking” from the ship's insurer for potential damages up to $600,000, while reserving defenses. The case was transferred to the Southern District of New York in August 1997.
Calypso filed an answer on March 11, 1998, asserting a defense limiting its liability to $500 per package under the Carriage of Goods by Sea Act (COGSA), but did not mention the arbitration clause. Thyssen sought partial summary judgment to dismiss this defense, prompting Calypso to cross-move for a stay, citing the arbitration clause. The district court stayed the proceedings, ruling that Thyssen’s bill of lading incorporated the arbitration clause from the charter party, that the clause was broad enough to bind nonsignatories, and that the in rem action was arbitrable. The court also determined that Calypso had not waived its arbitration rights and that the issue of time-barred claims should be decided by an arbitrator.
Arbitrators were appointed; however, the parties allowed the Commercial Court in London to address the time-bar issue. The court ruled that Thyssen’s claims were time-barred, attributing the delay to Thyssen and denying an extension under the English Arbitration Act. Consequently, Thyssen's claims were dismissed, and no appeal was filed.
The federal district court confirmed the arbitration award, dismissing all claims made by Thyssen. The court rejected Thyssen's arguments that the arbitration should be voided due to alleged abandonment (per 9 U.S.C. 10(a)(4)) and that the arbitration clause for in rem claims was void under COGSA (46 U.S.C. 1303(8)) because arbitrators lack in rem jurisdiction under English law. Thyssen is appealing these decisions on four grounds: (1) Calypso allegedly waived its right to arbitration by delaying its assertion; (2) the dismissal of Thyssen’s in rem action against the MARKOS N deprived Thyssen of a remedy; (3) requiring arbitration in London for in rem claims violates COGSA; and (4) the arbitration clause in the charter party should not be enforced because Thyssen was unaware of its contents and neither party to the bill of lading signed the charter party.
In assessing the waiver of arbitration rights, the review is de novo for legal conclusions, while factual findings are reviewed for clear error. There is a strong presumption favoring arbitration, and waiver is not easily inferred. The evaluation of waiver is fact-specific, often reliant on the degree of litigation activity and any resulting prejudice to the opposing party. Two types of prejudice are recognized: substantive prejudice and prejudice due to excessive costs or delays. In this case, Thyssen did not demonstrate excessive costs, as there was minimal discovery or substantive motions from Calypso despite the delay in asserting the right to arbitrate. Thyssen's claim of substantive prejudice, based on the requirement under Fed. R. Civ. P. 8(c) to plead arbitration as an affirmative defense, was dismissed as insufficient without evidence of prejudice. The court maintained that simply filing an answer does not support a waiver claim without demonstrable prejudice to the defendant.
Waiver of arbitration does not require pleading in the answer, although failure to do so can indicate waiver. The Federal Rules of Civil Procedure do not question the necessity of showing prejudice for a waiver claim. Thyssen argued that it was prejudiced because its claim was time-barred by the time arbitration occurred; however, Calypso countered that the one-year limitation had expired before Thyssen's answer, negating any substantive prejudice. The district court found no waiver.
Regarding Thyssen's in rem claims, it contends that these claims are distinct from its in personam rights and should not be contingent upon arbitration in London, as the arbitrators lack in rem jurisdiction under English law. However, the Federal Arbitration Act (FAA) Section 8 clarifies that in rem claims provide security while in personam claims are arbitrated. The FAA applies to maritime contracts and prevents in rem claims from proceeding if in personam claims fail, as this would undermine arbitration incentives.
Thyssen also argued that referring its in rem claim to a London arbitrator violates the Carriage of Goods by Sea Act (COGSA), which nullifies any contract clause that limits a carrier's liability for losses due to negligence. Thyssen believes that the arbitration clause in the charter party should be considered such a clause, but the argument hinges on the lack of in rem jurisdiction, which COGSA addresses.
The document asserts that even if the absence of an in rem cause of action could be considered a violation of the Carriage of Goods by Sea Act (COGSA), no violation occurred in this case because Thyssen’s in rem rights were adequately protected. Thyssen received a Club Letter of Undertaking for $600,000 from the owner of the MARKOS N as full security for its claims. This arrangement would allow Thyssen to recover against the Club Letter if it prevailed in arbitration and the owner attempted to defy the court’s ruling. The letter of undertaking effectively replaces the vessel as the res, negating the necessity for a distinct in rem claim. Consequently, the district court correctly determined that COGSA did not invalidate the arbitration clause in the charter party.
Regarding the applicability of the arbitration clause to non-signatories unaware of the charter party's contents, Thyssen acknowledges it can be bound to arbitration through documents that incorporate other agreements. However, it contends it lacked actual or constructive notice of the charter party’s terms and, therefore, could not be treated as a signatory. The court agreed with the district court's conclusion that the charter party provisions were properly incorporated into the bill of lading, binding both Thyssen and Calypso. After reviewing all of Thyssen’s claims and finding them meritless, the court affirmed the district court’s summary judgment in favor of the Defendant-appellees, including A.M. Nomikos, Son Ltd., which manages the ship. The court did not address whether admiralty in rem claims can survive the dismissal of in personam claims.
