Mosaic Underwriting Service, Inc. v. Moncla Marine Operations, L.L.C.

Citations: 926 F. Supp. 2d 865; 2013 WL 632960; 2013 U.S. Dist. LEXIS 22953Docket: Civil Action No. 12-2183

Court: District Court, E.D. Louisiana; February 19, 2013; Federal District Court

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The Court granted the third-party defendants’ motion to stay proceedings and compel arbitration in a case concerning the salvage of the MONCLA 101, a work-over barge owned by Monda Marine Operators, LLC. The vessel was deliberately flooded for stability during operations but became stranded due to hull damage. After unsuccessful attempts to deballast the vessel, Monda Marine hired Inland Salvage, Inc. under a $3.55 million "no cure-no pay" contract to raise it. The salvage was successfully completed, and the vessel was towed to Bollinger Shipyard. Monda Marine had multiple insurance policies covering the vessel, with costs for the removal paid by the Primary Protection and Excess Protection and Indemnity Underwriters.

On August 31, 2012, the Excess P. I Underwriters initiated a lawsuit seeking a declaratory judgment regarding their rights to the vessel. Monda Marine counterclaimed on November 13, 2012, asserting multiple allegations against the Excess P. I Underwriters, including negligence and fraud, and sought punitive damages. On the same day, Monda Marine filed a third-party complaint against Osprey Underwriting and the other underwriters, alleging similar claims.

The third-party defendants moved to compel arbitration based on the arbitration clauses in the insurance policies, referencing the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The Court concurred with their position, thus granting the motion to stay proceedings and compel arbitration.

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards is a treaty linked to the Constitution’s treaty power, and the U.S. is a party to it, implemented through 9 U.S.C. 201, making it a supreme law. The Fifth Circuit emphasizes that the Convention aims to ensure predictable enforcement of arbitral contracts and awards for U.S. citizens by foreign governments. Section 202 outlines that an arbitration agreement or award related to a commercial legal relationship falls under the Convention, except when parties are U.S. citizens and the matter does not involve foreign property or enforcement.

To determine if the Convention mandates arbitration, the Fifth Circuit requires a limited inquiry, establishing four conditions: (1) a written arbitration agreement exists; (2) it stipulates arbitration in a Convention signatory nation; (3) it arises from a commercial relationship; and (4) at least one party is not a U.S. citizen. If these criteria are met, the Convention compels arbitration unless the agreement is deemed null or unperformable.

The contracts between Monda Marine and the Hull and Primary P. I Underwriters include an Osprey Law and Practice Clause, specifying that disputes are subject to English law and to arbitration in London, with one arbitrator nominated by each party. The arbitration will be overseen exclusively by the English High Court of Justice, and if arbitrators disagree, an umpire will decide. This clause takes precedence over conflicting provisions and limits the right to initiate proceedings in other jurisdictions strictly to the enforcement of arbitration awards.

Four elements necessary for an agreement to fall under the Convention are satisfied in this case. Both the Hull and Primary P. I policies are written documents that include an arbitration clause for disputes arising from the insurance. Arbitration is designated to occur in London, a signatory nation to the Convention. The agreements stem from a commercial relationship, as marine insurance contracts are categorized as such in arbitration contexts. Furthermore, none of the third-party defendants are U.S. citizens; Osprey and the underwriters are based in London.

The Court must now ascertain whether Monda Marine's claims fall within the arbitration clause. The Fifth Circuit emphasizes a presumption in favor of arbitration, stating that arbitration should only be denied if it can be positively assured that the clause does not cover the dispute. The evaluation centers on the factual allegations in the complaint rather than the legal causes of action. 

Monda Marine's claims center on allegations that the third-party defendants conspired to settle under the Primary P. I policy instead of the Hull policy, which would allow them to claim salvage value under the Primary P. I terms. The core of Monda Marine's claims asserts that the insurance policies cover the loss of the MONCLA 101. For the claims to fall under the arbitration agreement, they must relate to any dispute regarding this insurance. The Fifth Circuit’s interpretation affirms that “any dispute” is broadly defined, and the phrase “in connection” further extends the scope of the arbitration clause. Consequently, the Court concludes that a valid arbitration agreement exists under the Convention and that Monda Marine’s claims are indeed covered by this agreement.

D Monda Marine argues against the appropriateness of arbitration, claiming that the insurance policy does not mandate it. The company references the 'Risk Details' section, which states that jurisdiction is governed by the 'Osprey Service of Suit Clause' and that any conflicting provisions are deemed deleted. Monda Marine asserts that the Osprey Law and Practice Clause is thus eliminated, leaving no requirement for arbitration. The Court finds this interpretation unconvincing, as the language in the Risk Details explicitly preserves the Osprey clauses from deletion.

Additionally, Monda Marine contends that the Service of Suit Clause supersedes the Osprey Law and Practice Clause, suggesting that jurisdiction should be determined solely by the Service of Suit Clause, which pertains to legal action in U.S. courts. However, Monda Marine overlooks that the Service of Suit Clause is explicitly subject to the Osprey Law and Practice Clause. Citing the Fifth Circuit case McDermott International, Inc. v. Lloyds Underwriters of London, the Court underscores that the Service of Suit clause does not nullify the arbitration provision; rather, it exists to facilitate jurisdiction for enforcing arbitration awards or litigating disputes not covered by arbitration. Thus, the arguments presented by Monda Marine fail to demonstrate that arbitration is inappropriate under the terms of the policy.

In Ochsner/Sisters of Charity Health Plan, Inc. v. Certain Underwriters at Lloyd’s London, the Fifth Circuit emphasized the importance of arbitration clauses in maintaining the integrity of arbitration agreements in the face of Congressional support for arbitration. The court held that arbitration clauses must govern all disputes arising from the policy, and that service of suit clauses do not independently resolve disputes covered by arbitration. Monda Marine's argument regarding third-party defendants under Federal Rule of Civil Procedure 14(c) was addressed, highlighting that this rule creates direct liability to the plaintiff, unlike Rule 14(a). Despite Monda Marine's assertions that arbitration is inappropriate due to potential third-party liability and concerns over piecemeal litigation, the Fifth Circuit has ruled that the policy favoring arbitration and the potential for duplication of efforts are inherent risks that parties accept. The court affirmed that the presence of nonsignatories does not undermine the arbitration agreement, and it is permissible to stay the third-party complaint pending arbitration, even if this leads to piecemeal litigation.

Monda Marine acknowledges in its submissions that 'piecemeal litigation is sometimes acceptable.' The potential waiver of arbitration rights by third-party defendants in an unrelated 2007 case is irrelevant, as this case involves distinct insurance contracts binding Monda Marine. Consequently, the motion by the third-party defendants to stay proceedings and compel arbitration is granted. This includes several Lloyds Syndicates associated with Hull and Machinery Policy Number B0702HA037000b and Primary Protection and Indemnity Policy Number B0702PA018140b, as well as Mosaic Underwriting Service and Navigators Insurance Company for the Excess Protection and Indemnity Policy Number MUS334191-12-1, with Navigators subscribing 50%. 

Title 9 of the United States Code encompasses both the Federal Arbitration Act (FAA) and the implementation legislation for the Convention, which governs arbitration agreements. The FAA applies unless it conflicts with the Convention. The Fifth Circuit recognizes that both the FAA and the Convention mandate that if a lawsuit involves an arbitrable dispute, the district court must stay proceedings and direct arbitration. The Convention also allows for arbitration orders beyond the U.S. borders. Monda Marine does not contest this aspect in its opposition, instead addressing alternative issues if a valid arbitration clause is confirmed. 

Additionally, service-of-suit clauses do not negate arbitration clauses but may support them by facilitating judicial enforcement of arbitration. Relevant case law affirms that such clauses do not undermine agreements to arbitrate all disputes. The Convention's incorporation of the FAA reflects its broader applicability. The Court notes that Magistrate Judge Roby has yet to decide on Monda Marine's ability to file a supplemental third-party complaint to clarify its intent regarding the Excess P. I Underwriters under Rule 14(c).