USCA1 Opinion
United States Court of Appeals
For the First Circuit
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No. 96-1800
KEYSTONE SHIPPING COMPANY,
Plaintiff - Appellant,
v.
NEW ENGLAND POWER COMPANY,
Defendant - Appellee.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. George A. O'Toole, Jr., U.S. District Judge]
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Before
Cyr, Circuit Judge,
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Campbell, Senior Circuit Judge,
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and Stahl, Circuit Judge.
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Joseph D. Steinfield with whom Joshua A. Davis, C. Dylan Sanders,
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and Hill & Barlow were on brief for appellant.
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Stanley McDermott, III, with whom James D. Kleiner, Piper &
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Marbury L.L.P., and John F. Sherman, III, were on brief for appellee.
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March 20, 1997
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STAHL, Circuit Judge. This case involving an
STAHL, Circuit Judge.
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underlying dispute over who is to pay for some $14 million in
repairs to a coal cargo ship requires us to resolve one
question: whether claims asserted by defendant-appellee New
England Power Company ("NEP") against plaintiff-appellant
Keystone Shipping Co. ("Keystone") are arbitrable. We reach
two conclusions pointing to the same result. First, because
the issue has already been litigated by the parties in
Massachusetts state court, it is precluded from relitigation
under the doctrine of issue preclusion. Second, even if the
issue were not precluded, we find that Keystone and NEP have
a legally-enforceable agreement to arbitrate disputes like
the one here. We thus affirm.
Background and Prior Proceedings
Background and Prior Proceedings
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In order to resolve this appeal we must consider a
long series of agreements and disputes between Keystone and
NEP concerning the S.S. Energy Independence, now named the
S.S. Energy Enterprise ("the Vessel"). The Vessel was
constructed in the early 1980s by the New England Collier
Company ("NECCO"), an unincorporated joint venture between
Keystone and an NEP affiliate, New England Energy
Incorporated ("NEEI"). NEP, in turn, chartered the Vessel
from NECCO to deliver coal to its electric power plants. The
joint venture agreement and the NEP time charter both
contained arbitration provisions.
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The relationship was not an entirely happy one and
a dispute between the parties followed. In 1987, Keystone
commenced arbitration against NEEI under the joint venture
agreement, while NEP commenced arbitration against NECCO
under the time charter. In a previous appeal to this Court,
we held that the two arbitrations were amenable to
consolidation by federal court order. See New England Energy
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Inc. v. Keystone Shipping Co., 855 F.2d 1, 8 (1st Cir. 1988),
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cert. denied, 489 U.S. 1077 (1989).
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Before the arbitration was concluded, the parties
settled their differences through a settlement agreement
signed by Keystone, NEP, and NEEI in October 1989 ("the 1989
settlement agreement"). Under the agreement's terms,
ownership of the Vessel was to pass from NECCO to Keystone or
a Keystone nominee. The parties further agreed that the
Vessel's new owner would time charter the Vessel to NEP on
"terms and conditions agreed to by Keystone and NEP." They
annexed a draft of the proposed new time charter ("the draft
charter") to the settlement agreement. Like the then-
operative NEP time charter, the draft charter contained a
sweeping arbitration provision. In particular, Section 41 of
the draft charter provided that "[a]ny and all differences
and disputes of whatsoever nature arising out of this Charter
which cannot be resolved by the parties shall be put to
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arbitration in the City of Boston . . . before a board of
three persons."
Keystone nominated Intercoastal Bulk Carriers, Inc.
("IBC") to be the Vessel's new owner.1 In accordance with
the settlement agreement, NECCO sold the Vessel to IBC and
IBC, in turn, chartered the Vessel to NEP through a time
charter agreement executed by IBC and NEP on December 27,
1989 ("the 1989 time charter"). The executed time charter was
substantially similar to the October draft charter, but not
exactly identical. The arbitration provisions in the two
documents, however, were alike in all respects. That same
day, December 27, Keystone and IBC entered into a management
agreement which provided that Keystone would continue to
manage the Vessel.
The executed 1989 time charter gave NEP the option
to purchase the Vessel and terminate the charter with six
months' prior, written notice. In 1994, NEP decided to
exercise its option, resell the Vessel to International
Shipholding Corp. ("ISC"), and then recharter the Vessel from
ISC. On October 27, 1994, NEP and ISC signed a Memorandum of
Agreement to this effect. Several days later, on November 1,
1994, NEP notified Keystone and IBC that it was exercising
its six-month purchase option and would buy the Vessel on May
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1. Like Keystone itself, IBC is a wholly-owned subsidiary of
Chas. P. Kurz & Co. ("Kurz").
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1, 1995. NEP concurrently demanded arbitration of its right
to do this, because Keystone had previously communicated that
it would contest NEP's right to exercise the purchase option.
Keystone alleged that in the negotiations that produced the
1989 settlement agreement NEP had represented that it would
not exercise the time charter's purchase option. NEP's
exercise of the option, Keystone suggested, indicated that
NEP had made misrepresentations at the time of the settlement
negotiations and had violated Mass. Gen. Laws ch. 93A. A
three-member arbitration panel was convened to hear the
parties' dispute.
On March 15, 1995, the arbitration panel decided
four threshold issues concerning NEP's service of the
purchase notice and demand for arbitration in favor of NEP.
IBC responded by filing an action in federal district court
under 9 U.S.C. 10 to vacate the arbitrators' ruling, but
the court dismissed the complaint as premature. See
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Intercoastal Bulk Carriers, Inc. v. New England Power Co.,
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No. 95-10880 RW2, (D. Mass. May 18, 1995). Thereafter,
Keystone and IBC resumed arbitration of the dispute. On May
17, 1995, Keystone and IBC announced that they were
withdrawing the challenge to NEP's right to exercise the
purchase option from arbitration, leaving to the panel the
issue of whether NEP's actions had violated Mass. Gen. Laws
ch. 93A.
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That same day, May 17, Keystone sued NEP in
Massachusetts state court, claiming that NEP had made
misrepresentations during the negotiations over the 1989
settlement agreement. NEP moved to dismiss Keystone's claims
on the ground that they were governed by the arbitration
provision of the 1989 time charter. Keystone responded that
its claims against NEP did not arise under the 1989 time
charter signed by NEP and IBC, but instead arose out of the
1989 settlement agreement, which did not have an arbitration
provision. The state court agreed with NEP and dismissed
Keystone's complaint. The state court concluded that the
settlement agreement's provisions meant that Keystone was
bound by the 1989 time charter's arbitration clause,
notwithstanding the fact that Keystone had not signed the
charter, which had been executed by its nominee, IBC, and
NEP. See Keystone Shipping Co. v. New England Power Co., No.
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95-1141-B (Mass. Superior Court, Essex County, August 17,
1995).
The dispute thus returned to the original
arbitration panel, which, on August 21, 1995, concluded that
NEP had the right to exercise the purchase option in the 1989
time charter. The arbitrators ordered IBC to sell the Vessel
to NEP. Two days later, IBC filed an action in federal
district court seeking to vacate the arbitrators' latest
rulings. See Intercoastal Bulk Carriers, Inc. v. New England
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Power Co., C.A. No. 95-11881-GAO. Shortly thereafter, on
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September 5, 1995, Keystone filed a notice of appeal from the
state court's decision to dismiss its state cause of action
against NEP.
This was the state of legal affairs between the
parties when, on September 20, 1995, IBC and NEP entered into
a new settlement agreement ("the 1995 settlement agreement").
Under the new settlement agreement, IBC agreed to transfer
the Vessel in accordance with NEP's wishes to ISC's nominee,
Enterprise Ship Co. ("Enterprise"). The parties expressly
acknowledged that the arbitration clause found in the 1989
time charter would govern the new settlement agreement. The
settlement agreement also provided for the mutual release of
claims by Keystone and IBC in favor of NEP and vice versa.
There was one exception to this general release. Exhibit B
of the agreement expressly provided that NEP did not release
Keystone and IBC from "claims, if any, by reason of the
Vessel not being in class at the Closing based upon a survey
. . . when the Vessel is drydocked immediately after the
Closing."
On September 28, 1995, the Vessel's new owner,
Enterprise, took title and sent the Vessel to a shipyard for
the agreed-upon inspection. The survey that followed
revealed corrosion damage to the Vessel's bulkheads and cargo
holds exceeding the tolerances established by the American
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Bureau of Shipping, thereby making the Vessel unseaworthy.
The ship inspectors refused to allow the Vessel to sail until
the needed repairs were completed. NEP alleges that the bulk
of the corrosion damage was a direct result of Keystone's
failure to maintain the Vessel. The total cost to bring the
Vessel to standard is claimed to be approximately $14 million
dollars. NEP argues that Keystone and IBC are responsible for
much of that amount under the terms of the 1989 time charter.
On December 20, 1995, NEP notified the arbitration
panel that it desired to arbitrate its claims for the
Vessel's repair costs against Keystone and IBC. Keystone
denied that it was required to arbitrate NEP's claims, and on
February 27, 1996 filed suit in federal district court
seeking a stay of arbitration pursuant to Mass. Gen. Laws ch.
251, 2(b). NEP cross-moved under the Federal Arbitration
Act, 9 U.S.C. 4, to compel arbitration. On May 24, 1996,
the district court granted NEP's motion to compel, concluding
that the arbitrability of NEP's claims against Keystone was
an issue that had been previously decided in Massachusetts
state court, and, in any event, was the result compelled by
the merits. This appeal ensued.
Standard of Review
Standard of Review
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We review de novo the district court's application
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of the doctrine of issue preclusion because "[t]he
applicability vel non of preclusion principles is a question
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of law." Monarch Life Ins. Co. v. Ropes & Gray, 65 F.3d 973,
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978 (1st Cir. 1995). Accordingly, "[n]o special deference is
owed to the district court's determination." Grella v. Salem
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Five Cent Sav. Bank, 42 F.3d 26, 30 (1st Cir. 1994).
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Similarly, we exercise plenary review over
determinations regarding arbitrability. "[A]rbitrability
depends on contract interpretation, which is a question of
law." PaineWebber Inc. v. Elahi, 87 F.3d 589, 592 (1st Cir.
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1996) (construing Commercial Union Ins. Co. v. Gilbane Bldg.
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Co., 992 F.2d 386, 388 (1st Cir. 1993)).
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The Issue Preclusion Question
The Issue Preclusion Question
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In issuing its order to compel arbitration, the
district court concluded that the Massachusetts state court
judgment precludes Keystone from relitigating the question of
arbitrability under the 1989 time charter. On appeal,
Keystone maintains that the district court misapplied the
issue preclusion doctrine. We disagree.
Initially, we note that "[t]he full faith and
credit statute, 28 U.S.C. 1738, requires us to give 'the
same preclusive effect to state court judgments -- both as to
claims and issues previously adjudicated -- as would be given
in the state court system in which the federal court sits.'"
Kyricopoulos v. Town of Orleans, 967 F.2d 14, 16 (1st Cir.
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1992) (per curiam) (quoting Willhauck v. Halpin, 953 F.2d
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689, 704 (1st Cir. 1991)). Massachusetts law thus governs
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the preclusion question in this case. However, we have
previously recognized that Massachusetts courts "apply the
doctrine of issue preclusion in a traditional manner."
Willhauck, 953 F.2d at 705 (citing Martin v. Ring, 514 N.E.2d
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663, 664 (Mass. 1987); Fireside Motors, Inc. v. Nissan Motor
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Corp., 479 N.E.2d 1386 (Mass. 1985); Restatement (Second) of
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Judgments 27 (1982)). Because our cases apply the same
traditional preclusion principles that would control in a
Massachusetts court, our previous pronouncements in this area
of law are persuasive.
"The principle of collateral estoppel, or issue
preclusion," we have explained, "bars relitigation of any
factual or legal issue that was actually decided in previous
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litigation 'between the parties, whether on the same or a
different claim.'" Grella, 42 F.3d at 30 (quoting Dennis v.
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Rhode Island Hosp. Trust, 744 F.2d 893, 899 (1st Cir. 1984)
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(quoting Restatement (Second) of Judgments 27 (1982))).
When the parties in a subsequent action are the same as those
in a prior one, a party seeking to invoke the doctrine of
issue preclusion needs to establish four essential elements:
"(1) the issue sought to be precluded must be the same as
that involved in the prior action; (2) the issue must have
been actually litigated; (3) the issue must have been
determined by a valid and binding final judgment; and (4) the
determination of the issue must have been essential to the
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judgment." Grella, 42 F.3d at 30; accord Ropes & Gray, 65
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F.3d at 981. Each of these elements is present in the
instant case.
First, the arbitrability of NEP's claims in this
case raises the same issue raised in the Massachusetts state
cause of action. Keystone ingeniously attempts to argue that
there are two separate and distinct arbitrability issues.
Keystone in particular maintains that the state court decided
that claims against it under the 1989 settlement agreement
were arbitrable, but that this case raises a different issue:
"whether claims asserted by NEP against Keystone under the
1989 Time Charter and 1995 NEP-IBC Settlement Agreement are
arbitrable." Keystone fails to persuade for a very simple,
but inescapable, reason. The state court concluded that
Keystone was bound to arbitrate claims concerning the Vessel
under the 1989 settlement agreement because (1) it was bound
to arbitrate such claims under the terms of the executed 1989
time charter, and (2) Keystone had expressly agreed in the
1989 settlement agreement that ownership of the Vessel would
pass to Keystone or a Keystone nominee and that the Vessel's
new owner would time charter the Vessel to NEP on "terms and
conditions agreed to by Keystone and NEP." Because
arbitrability of claims concerning the Vessel was one such
term and condition in the executed time charter, the state
court concluded that the settlement agreement's express
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language bound Keystone to arbitrate such claims. Put in
another fashion, the state court found that Keystone, in the
1989 settlement agreement, had expressly agreed that it or a
nominee would execute a time charter on terms and conditions
agreeable to Keystone, and thus was bound to arbitrate all
disputes because the executed time charter, like the draft
charter attached to the settlement agreement and initialed on
every page by Keystone, made claims concerning the Vessel
arbitrable.
Keystone's argument about the 1995 settlement
agreement likewise fails to persuade because the parties to
the agreement expressly acknowledged that the arbitration
clause found in the 1989 time charter would apply and govern
the new settlement agreement. While it is true that the
settlement agreement provided for the mutual release of
claims by Keystone and IBC in favor of NEP and vice versa,
the agreement expressly carved out an exception to the
general release for "claims, if any, by reason of the Vessel
not being in class at the Closing." Because NEP did not
release such claims, and because such claims arise under the
1989 settlement agreement and are arbitrable under the terms
of that agreement and the 1989 time charter, their
arbitrability in the instant case is the very same issue
previously litigated and decided in Massachusetts state
court.
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This point carries us to the second element of the
issue preclusion standard: the issue raised here on appeal
has been "actually litigated." Grella, 42 F.3d at 30.
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Keystone opposed NEP's motion to dismiss the Massachusetts
state cause of action before the state court with briefs,
affidavits, and at a motion hearing. Keystone feebly argues
that the state court should not have disposed of its cause of
action by motion, but instead should have conducted an
evidentiary hearing. As NEP correctly notes, the
Massachusetts court had before it the relevant contractual
documents, read and heard the litigants' opposing views on
what meaning and effect should be afforded to those documents
and the history of the parties' arbitration efforts, and
properly concluded that the arbitrability question could be
decided on motion. Well-settled principles of law indicate
that the arbitrability issue was actually litigated for
preclusion purposes because it was "subject to an adversary
presentation and consequent judgment" that was not "a product
of the parties' consent and is a final decision on the
merits." Jack H. Friedenthal et al., Civil Procedure
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14.11, at 672, 673 (1985).
We thus reach the third and fourth essential
elements of collateral estoppel: the issue sought to be
precluded must have been determined by a valid and binding
final judgment and the issue's determination must have been
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essential to the judgment. See Ropes & Gray, 65 F.3d at 978;
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Grella, 42 F.3d at 30. Keystone does not challenge the
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validity and binding nature of the state court judgment.
Rather, Keystone argues that the state court judgment focused
on the 1989 settlement agreement and thus did not determine
the arbitrability of NEP's current claims because the court
did not decide whether claims against Keystone are arbitrable
under either the 1989 time charter or the 1995 settlement
agreement. This argument is nothing more than a recycled
version of the contention we have just rejected. As we have
seen, the state court determined that Keystone was bound to
arbitrate under the 1989 settlement agreement because that
agreement contemplated the 1989 time charter, which contained
a sweeping arbitration clause. The arbitrability of any
claims, including NEP's present ones, under the 1989 time
charter was an essential component in the state court's prior
determination, even if it itself was not the ultimate issue
the court decided. As we recently explained, an "issue may
be actually litigated and resolved 'even if it is not
explicitly decided,' as long as it is logically necessary to
[the court's] final decision." Ropes & Gray, 65 F.3d at 982
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(quoting and construing Grella, 42 F.3d at 30-31) (emphasis
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in original omitted).
Our review of the record indicates that the
arbitrability of NEP's present claims against Keystone is an
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issue that has already been litigated and decided by the
parties in Massachusetts state court. Under the doctrine of
issue preclusion, Keystone cannot seek to undo or redo in
federal court what has already been done in state court.
The Merits of the Arbitrability Issue
The Merits of the Arbitrability Issue
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Our decision today would be the same even if
principles of collateral estoppel did not bar Keystone's
attempt to relitigate the arbitrability of NEP's current
claims against it. Our review of the record and the relevant
contractual documents contained therein convinces us that
Keystone is bound to arbitrate NEP's claims regarding the
Vessel. In view of the detailed factual discussion we have
already undertaken, we do not feel it necessary to replay all
of the evidence. We shall only briefly explain why we
conclude that Keystone is bound to arbitrate such claims as
those NEP presently advances.
Keystone entered into the 1989 settlement agreement
with NEP. In that agreement, Keystone expressly agreed that
ownership of the Vessel would pass to it or a Keystone
nominee and that the Vessel's new owner would time charter
the Vessel to NEP on "terms and conditions agreed to by
Keystone and NEP." Attached to the settlement agreement was a
draft of the contemplated time charter that Keystone
initialed on every page. The draft charter contained a
sweeping arbitration clause, which provided that "[a]ny and
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all differences and disputes of whatsoever nature arising out
of this Charter which cannot be resolved by the parties shall
be put to arbitration in the City of Boston." Keystone
subsequently nominated IBC to take title to the Vessel and
IBC, in turn, executed the time charter with NEP that was
contemplated in the 1989 settlement agreement. The executed
time charter contained the exact same arbitration provision
as the draft attached to the settlement agreement. The
inescapable conclusion from the foregoing is that Keystone
agreed to time charter the Vessel to NEP, via its nominee
IBC, under the terms and conditions established in the
executed time charter, including the terms and conditions
regarding the arbitrability of claims.
The 1995 settlement agreement between IBC and NEP
does not change this legal state of affairs. Both parties to
the agreement expressly acknowledged that the arbitration
clause found in the 1989 time charter would govern the new
settlement agreement. While the new settlement agreement
provided for the mutual release of claims by Keystone and IBC
in favor of NEP and vice versa, as we have said, the
agreement expressly carves out one exception from this
general release. The relevant language could not be more
clear: NEP does not release Keystone and IBC from "claims, if
any, by reason of the Vessel not being in class at the
Closing based upon a survey . . . when the Vessel is
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drydocked immediately after the Closing." Because NEP does
not release such claims against Keystone, and because such
claims arise under the 1989 settlement agreement and are
arbitrable under the executed time charter contemplated by
that earlier settlement agreement, Keystone is obligated to
arbitrate NEP's present claims.
The fact that Keystone itself did not sign either
the 1989 time charter or the 1995 settlement agreement is not
dispositive. Keystone is bound by the terms and conditions
of the executed time charter because of the commitments it
undertook in the 1989 settlement agreement. And the fact
that Keystone is not a signatory to the 1995 settlement
agreement is nothing more than a clever red herring because
that agreement specifically preserves Keystone's prior
exposure and liability under the 1989 settlement agreement
and time charter, for "claims, if any, by reason of the
Vessel not being in class at the Closing."
Having weighed the merits vel non of this appeal,
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we find that the balance swings clearly in NEP's favor. We
conclude that NEP's claims are arbitrable and decline
Keystone's invitation to visit additional corollary issues.
Conclusion
Conclusion
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Principles of collateral estoppel (issue
preclusion) raise a bar to Keystone's attempt to litigate the
arbitrability of NEP's present claims for recovery of repair
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costs to the Vessel. Even if this were not the case, NEP's
claims against Keystone are arbitrable as a consequence of
Keystone's contractual commitments. We thus conclude that
the district court's order to compel arbitration was correct.
Affirmed. Costs to appellee.
Affirmed. Costs to appellee.
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