United States Court of Appeals Fifth Circuit F I L E D February 28, 2001
REVISED, MARCH 29, 2001 Charles R. Fulbruge III Clerk UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT _______________________
No. 00-30799 _______________________
TEXACO EXPLORATION AND PRODUCTION COMPANY AND MARATHON OIL COMPANY,
Plaintiffs-Appellants,
versus
AMCLYDE ENGINEERED PRODUCTS COMPANY, Inc., ET AL,
Defendants.
__________________________________________
AMCLYDE ENGINEERED PRODUCTS COMPANY, Inc.,
Third-Party Plaintiffs,
J. RAY McDERMOTT, Inc.,
Third-Party Defendant-Appellee.
_________________________________________________________________
Appeal from the United States District Court for the Eastern District of Louisiana _________________________________________________________________
Before GOODWIN*, GARWOOD, and JONES, Circuit Judges.
* Circuit Judge of the United States Court of Appeals of the Ninth Circuit, sitting by designation. EDITH H. JONES, Circuit Judge:
At issue in this appeal is whether to carve out an
exception to the Federal Arbitration Act (FAA), 9 U.S.C. § 3,
where, in admiralty cases, its enforcement would deny a party the
ability to implead a third-party defendant pursuant to Federal Rule
of Civil Procedure 14(c). We conclude that the policy of liberal
joinder in maritime cases embodied in Rule 14(c) does not supersede
the statutory right to enforce contractual arbitration guaranteed
by the FAA. The district court’s decision to the contrary must be
reversed and remanded for the entry of a stay of litigation between
Texaco and McDermott, pending arbitration.
BACKGROUND
This case arises from an accident during the construction
of Texaco’s Petronius oil and gas production facility in the Gulf
of Mexico off the coast of Alabama. A barge-mounted crane failed,
causing a deck module to fall into the sea. The crane involved in
this incident was owned and operated by J. Ray McDermott, Inc.
(“McDermott”) and had been designed and manufactured by AmClyde
Engineered Products Company, Inc. (“AmClyde”).
In the wake of the accident, Texaco sued AmClyde,
Williamsport Wirerope Works, Inc., the manufacturer of the failed
wire rope line, Lowrey Brothers Rigging Center, Inc., the seller of
the failed line, and Lloyd’s Register of Shipping, the
classification society that inspected and certified the crane and
2 line. Because of a mandatory arbitration clause in its contract
with McDermott, Texaco did not file a complaint against McDermott.
The Texaco-McDermott contract includes a dispute
resolution clause stating that “[t]he Parties shall reserve any
controversy or claim, whether based in contract, tort or otherwise,
arising out of, relating to or in connection with the Agreement”
pursuant to a mandatory three-step process consisting of
negotiation, mediation, and binding arbitration. This provision is
mandatory.
Texaco attempted to avail itself of this alternative
dispute resolution provision, but was frustrated when AmClyde
tendered McDermott as a third-party defendant under Federal Rule of
Civil Procedure 14(c). The rule provides for liberal joinder in
admiralty actions. Texaco moved to strike the joinder. Before the
district court ruled on the motion to strike, McDermott moved for
partial summary judgment against Texaco. Texaco opposed this
motion, asserting that the district court was obliged by section 3
of the FAA to stay the proceedings between Texaco and McDermott
pending their arbitration. After hearing argument, the district
court denied Texaco’s motion to strike, denied its request for stay
and granted McDermott’s motion. Texaco now appeals the district
court’s denial of the requested stay.
3 DISCUSSION
Appellate review of the district court’s refusal to stay
litigation pending arbitration is de novo. See Hornbeck Offshore
Corp. v. Coastal Carriers Corp., 981 F.2d 752, 754 (5th Cir. 1993);
Neal v. Hardee’s Food Systems, Inc., 918 F.2d 34, 37 (5th Cir.
1990).
As an initial matter, McDermott argues that Texaco’s
appeal is not properly before this court. McDermott contends that
Texaco never formally moved for a stay and that it never had a
chance to oppose Texaco’s informal “request” for a stay. We
disagree. While Texaco did not file any document captioned “Motion
to Stay,” Texaco gave both written and oral notice adequate to
apprise both McDermott and the district court that it was
requesting a stay and of its supporting arguments. Five pages of
Texaco’s memorandum in opposition to McDermott’s motion for partial
summary judgment are dedicated to the stay issue. Additionally,
the record indicates that Texaco moved for a stay at the June 21,
2000 oral argument before the district court and that this motion
was promptly denied without discussion.1 McDermott did not contest
1 At that hearing, Texaco urged that “[u]nder the Federal Arbitration Act, any claim that we make . . . against McDermott, must be stayed pending that arbitration.” The district court then stated that Rule 14(c) can not be circumvented, impliedly denying Texaco’s motion to strike the Rule 14(c) tender. Without further discussion of the stay from either Texaco or McDermott, the district court announced its grant of partial summary judgment for McDermott. Texaco requested a clarification of the court’s ruling, specifically asking if the district court was “also denying our request that the matter be stayed pending arbitration?” The district court responded “correct.” Texaco then
4 the stay issue during the hearing because the district court had
already denied relief. Procedurally, the issue is properly
preserved and fully briefed for this court.
Moving to the merits, the Supreme Court has observed that
the FAA “is a congressional declaration of a liberal policy
favoring arbitration.” Moses H. Cone Memorial Hospital v. Mercury
Construction Corp., 460 U.S. 1, 24 (1983). Further, there is a
“strong federal policy in favor of enforcing arbitration
agreements.” Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 217
(1985). The language of the FAA is unambiguous:
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration . . . the court . . . 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 . . . .
9 U.S.C. § 3. The FAA specifically applies to both maritime
transactions and interstate commerce.2 An application for
stated its desire to appeal the denial of the stay immediately and the district court invited Texaco to prepare an appropriate order. The order stated that Texaco’s “instanter motion in open court . . . to stay claims . . . [is denied].” Taken together with Texaco’s extensive briefing on the stay issue in its memorandum opposing McDermott’s motion for partial summary judgment, there is no doubt that Texaco sufficiently presented a motion to stay. See Fed. R. Civ. P. 7(b)(1). 2 The FAA dictates that “[a] written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration . . . shall be valid, irrevocable, and enforceable.” 9 U.S.C. § 2. The Act defines “maritime transaction” as “charter parties, bills of lading of water carriers, agreements relating to wharfage, supplies furnished vessels or repairs to vessels, collisions, or any other matters in foreign commerce which, if the subject of controversy, would be embraced within admiralty jurisdiction.” 9 U.S.C. § 1. So regardless of whether the Petronius
5 arbitration by either party under section 3 “requests the district
court to refrain from further action in a suit pending arbitration,
and requires the court to first determine whether there is a
written agreement to arbitrate between the parties, and then
whether any of the issues raised are within the reach of the
agreement.” Midwest Mechanical Contractors, Inc. v. Commonwealth
Construction Co., 801 F.2d 748, 750 (5th Cir. 1986). “[I]f the
issues in a case are within the reach of that [arbitration]
agreement, the district court has no discretion under section 3 to
deny the stay.” Hornbeck, 981 F.2d at 754.
Here, an arbitration agreement governed by section 3 of
the FAA exists between Texaco and McDermott. The arbitration
clause is one this court has termed a “broad” agreement because it
covers “any dispute” between the parties. As a result, any
litigation arguably arising under such a clause should be stayed
pending the arbitrator’s decision as to whether the dispute is
covered. Id. at 754-55. See also Sedco, Inc. v. Petroleos
Mexicanos Mexican Nat’l Oil, 767 F.2d 1140, 1145 n. 10 (5th Cir.
1985); Mar-Len of La., Inc. v. Parsons-Gilbane, 773 F.2d 633, 635
(5th Cir. 1985).3
construction contract is treated as a maritime transaction or simply as interstate commerce, the FAA applies. 3 McDermott’s request for a remand to determine the scope of arbitration conflicts with these authorities that squarely allow the arbitrator to initially make that decision where a clause is “broad.”
6 In the absence of the Rule 14(c) exception carved out by
the district court, the Texaco-McDermott dispute would have been
subject to arbitration. However, the smooth operation of the
arbitration process was disrupted by AmClyde’s Rule 14(c) tender of
McDermott as a third-party defendant to Texaco. McDermott
contends, and the district court accepted, that Rule 14(c) “trumps”
section 3 of the FAA, preventing enforcement of the arbitration
clause.
The logical basis for the district court’s conclusion is
unclear. There seems upon analysis to be no real conflict between
Rule 14(c) and the FAA.
Rule 14(c) was designed to expedite and consolidate
admiralty actions by permitting a third-party plaintiff to demand
judgment against a third-party defendant in favor of the plaintiff.
As a consequence, the plaintiff is then required to assert his
claims directly against the third-party defendant. See 6 Charles
Alan Wright & Arthur R. Miller, FEDERAL PRACTICE AND PROCEDURE § 1465
(2d. ed. 1990). This unique liberal joinder policy served to
reduce the possibility of inconsistent results in separate actions,
eliminate redundant litigation, and prevent a third party’s
disappearing if jurisdiction and control over the party and his
assets were not immediately established. See id. at 481.
The FAA’s purpose, as has been noted, is to enforce
private arbitration agreements “even if the result is ‘piecemeal
7 litigation,’ at least absent a countervailing policy manifested in
another federal statute.” Dean Witter Reynolds Inc. v. Byrd, 470
U.S. 213, 219-20 (1985). As a tangential benefit, however,
arbitration usually provides a speedier, more economical form of
dispute resolution.
These two policies do not necessarily conflict. If
arbitration goes forward between Texaco and McDermott, it need not
hold up or interfere with the admiralty litigation between Texaco
and the other defendants. Apportionment of liability exists
whether or not McDermott is impleaded under Rule 14(c). Moreover,
the essential functions of Rule 14(c) are accomplished because
McDermott will have to face Texaco directly as a defendant, albeit
in arbitration.
A conflict arises only if Rule 14(c) is held to thwart
enforcement of the arbitration agreement pursuant to the district
court’s order. That result allows AmClyde, though not a party to
the arbitration agreement, to override the Texaco-McDermott
contract and fundamentally thwart the purposes of the FAA.
Further, to carve out a Rule 14(c) exception to the FAA could
severely undermine maritime arbitration clauses, inspiring abuse
and opportunistic behavior, as third parties are allowed or
encouraged to do what the parties to a contract themselves are not:
to put aside a mandatory arbitration provision and force
litigation. It is perhaps no accident that AmClyde did not even
8 file a brief in this appeal and by its silence rests on McDermott’s
arguments against enforcing the Texaco-McDermott arbitration
There is little caselaw to guide our analysis. However,
in the only previous decision to analyze this precise issue, the
court refused to create a Rule 14(c) exception to the FAA on
essentially similar facts. Shipping Corp. of India v. American
Bureau of Shipping, No. 84 CIV. 1920, 1989 WL 97821 (S.D.N.Y. Aug.
17, 1989). The India court concluded that an outside party cannot
use Rule 14(c) to override an arbitration agreement previously
reached between a plaintiff and a third-party defendant.
The cases cited by McDermott in favor of carving out a
Rule 14(c) exception to section 3 of the FAA are either
unpersuasive or irrelevant. In General Marine Construction Corp.
v. United States, 738 F.Supp. 586 (D. Mass. 1990), the court held
that “once a case is properly commenced as an admiralty matter in
the District Court, Rule 14(c) governs related claims even if the
issues raised by those related claims, standing alone, would
otherwise be subject to the CDA [Contract Dispute Act] procedural
scheme.” Id. at 590. General Marine has no bearing on the instant
case for three reasons: 1) it involves the Contracts Disputes Act,
41 U.S.C. § 605(a), not the FAA; 2) it does not involve a motion to
stay proceedings, but rather a motion to dismiss claims resulting
from a Rule 14(c) tender; and 3) the claims for which dismissal was
9 sought were not covered by the CDA. General Marine makes no
mention of the FAA or the strong presumption in favor of
arbitration.
McDermott also invokes National Gypsum Co. v. NGC
Settlement Trust & Asbestos Management Corp., 118 F.3d 1056, 1069
(5th Cir. 1997), in which this court held that a bankruptcy court
may refuse one party’s demand to arbitrate if the cause of action
is “derived entirely from the federal rights conferred by the
Bankruptcy Code . . . .” McDermott cites National Gypsum for the
general proposition that the FAA is not absolute and can yield,
upon a proper showing, to other discrete bodies of federal law.
But McDermott ignores the fact that under the Supreme Court case
controlling National Gypsum, Shearson/American Express, Inc. v.
McMahon, 482 U.S. 220, 227 (1987), “[t]he burden is on the party
opposing arbitration . . . to show that Congress intended to
preclude a waiver of judicial remedies for the statutory rights at
issue.” McDermott does not even attempt to bear this burden and
has not made such a showing on behalf of Rule 14(c).
McDermott’s reliance on Zimmerman v. Int’l Companies &
Consulting, Inc., 107 F.3d 344, 345-46 (5th Cir. 1997) is also
misplaced. Zimmerman held that a defendant-insurer with the
contractual right to arbitrate with the insured cannot force a
plaintiff who is not a party to the contract to arbitrate. Here
10 Texaco seeks only to compel McDermott, the party to the contract
containing the arbitration clause, to arbitrate.
Nor does Pensacola Construction Co. v. St. Paul Fire and
Marine Insurance Co., 705 F.Supp. 306 (W.D. La. 1989), support
McDermott’s position. The plaintiff in Pensacola sued two
defendants, only one of which had an arbitration agreement with the
plaintiff. The Pensacola court allowed the defendant with the
contractual right to arbitration to stay the plaintiff’s action
against it, but the court refused to stay the proceeding between
the plaintiff and the other defendant. Id. at 308. Pensacola
would be relevant if Texaco had sought to stay the proceedings
involving AmClyde and the other defendants. As Texaco only wants
to stay the proceedings between itself and McDermott, the two
signatories to the relevant contract, Zimmerman and Pensacola
actually support Texaco’s position.4
For these reasons, we conclude that the district court
erred in refusing to stay the Texaco-McDermott aspect of this
controversy pending arbitration.5
McDermott alternatively contends that Texaco has waived
its right to arbitrate. Normally, waiver occurs when a party
4 McDermott’s reliance on Montauk Oil Transp. Corp. v. Steamship Mut. Underwriting Ass’n., Ltd., 859 F.Supp 669 (S.D.N.Y. 1994), is similarly misplaced. 5 It follows that the district court’s partial summary judgment in favor of McDermott must be vitiated by this ruling.
11 initially pursues litigation and then reverses course and attempts
to arbitrate, but waiver can also result from “some overt act in
Court that evinces a desire to resolve the arbitrable dispute
through litigation rather than arbitration.” Subway Equipment
Leasing Corp. v. Forte, 169 F.3d 324, 329 (5th Cir. 1999). There
is a strong presumption against waiver, and any doubts thereabout
must be resolved in favor of arbitration. Id. at 326.
McDermott does not assert that Texaco attempted to
litigate any claims against it stemming from the crane line
collapse. To the contrary, Texaco did not sue McDermott for its
role in this accident and has tried to compel arbitration.
Instead, McDermott’s waiver argument is based on Texaco’s actions
in other litigation, Shell Offshore, Inc. Et. Al. v. Heerema
Offshore Construction Group, Inc. Et Al., Civil Action No. H-98-
1090, S.D. Texas.
In Shell, Texaco has alleged certain antitrust violations
against McDermott and other defendants relating to the Petronius
construction contract and other Gulf projects. However, Shell is
only tangentially related to the crane accident. On January 7,
2000 McDermott requested arbitration relating to the Petronius
contract and the crane accident, claiming that Texaco was
wrongfully withholding payment of some $23 million dollars.
Because Texaco wanted to use certain antitrust arguments in the
arbitration against McDermott and because those antitrust issues
12 were already before the district court in Shell, Texaco petitioned
the Shell court to stay the Petronius arbitration pending the
outcome in Shell. The district court declined to stay the
arbitration altogether, but it did limit the scope of arbitration
to the Petronius contract alone, thereby keeping Texaco’s antitrust
defenses out of the hands of the arbitrator and before the district
court.
McDermott contends that Texaco’s request for a stay
pending the outcome of the Shell antitrust litigation satisfies the
Subway test and constitutes a waiver of arbitration. While it is
true that Texaco’s actions delayed the arbitration proceeding and
narrowed its scope, Texaco never demonstrated the requisite desire
to resolve the arbitrable issues related to the crane accident
through litigation rather than arbitration. In order to waive
arbitration, a party must “do more than call upon unrelated
litigation to delay an arbitration proceeding.” Subway, 169 F.3d
at 328. This is precisely what Texaco has done by requesting a
stay of arbitration pending the outcome of the ongoing and largely
unrelated antitrust lawsuit. Moreover, mere delay falls far short
of the waiver requirements of Subway. See id. at 326. Texaco
never manifested any desire to litigate rather than to arbitrate
its claims against McDermott stemming from the December 3, 1998
incident.
13 CONCLUSION
Given the broad and unequivocal language of section 3 of
the Federal Arbitration Act, this court refuses to create a Rule
14(c) exception that would allow third parties unilaterally to
nullify an arbitration clause. Enforcing the arbitration clause
does not conflict with Rule 14(c) on the facts before us, whereas
the rigid enforcement of Rule 14(c) would utterly thwart the policy
of the FAA. In light of our analysis, and because Texaco has not
waived its right to arbitrate, this case is remanded to the
district court for the issuance of an order staying this litigation
pending the outcome of the contractually mandated arbitration.
This stay is limited in scope to the proceedings between Texaco and
McDermott and should not affect Texaco’s actions against AmClyde or
the other defendants. REVERSED and REMANDED.