July 18, 1994 UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT
No. 93-2179
VIMAR SEGUROS Y REASEGUROS, S.A.,
Plaintiffs, Appellants,
v.
M/V SKY REEFER, HER ENGINES, ETC., AND M.H. MARITIMA, S.A.,
Defendants, Appellees.
ERRATA SHEET
The opinion of this court issued on July 7, 1994, is amended
as follows:
On page 8, first full paragraph, line 1: Replace "Moveover"
with "Moreover."
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
M/V SKY REEFER, HER ENGINES, ETC.,
AND M.H. MARITIMA, S.A.,
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Mark L. Wolf, U.S. District Judge]
Before
Breyer*, Chief Judge,
Bownes, Senior Circuit Judge,
and Stahl, Circuit Judge.
Stanley McDermott, III with whom Sharyn Bernstein, Varet & Fink,
P.C., Alexander Peltz, and Peltz Walker & Dubinsky were on brief for
appellants.
John J. Finn with whom Thomas H. Walsh, Jr., Jeffrey S. King, and
Bingham, Dana & Gould were on brief for appellees.
July 7, 1994
*Chief Judge Stephen Breyer heard oral argument in this matter but did
not participate in the drafting or the issuance of the panel's
opinion. The remaining two panelists therefore issue this opinion
pursuant to 28 U.S.C. 46(d).
BOWNES, Senior Circuit Judge. This appeal asks us BOWNES, Senior Circuit Judge.
to decide whether a foreign arbitration clause in a maritime
bill of lading governed by the Carriage of Goods at Sea Act,
46 U.S.C. 1300 et seq. (COGSA), is invalid under that
statute, or whether such a clause is enforceable under the
Federal Arbitration Act, 9 U.S.C. 1 et seq. (FAA). We
conclude that the FAA controls, and that the arbitration
clause is valid. Accordingly, the order of the district
court staying this action pending arbitration in Tokyo is
affirmed.
I.
BACKGROUND
Plaintiff-appellant Bacchus Associates is a
wholesale fruit distributor in the Northeast United States.
Bacchus was the owner of a shipment of oranges travelling
from Agadir, Morocco to New Bedford, Massachusetts, in
February 1991 aboard the SKY REEFER,1 a vessel owned by M.H.
Maritima, S.A. Maritima had time-chartered the vessel to
Honma Senpaku Co., Ltd., who in turn time-chartered it to
Nichiro Corp. Bacchus entered into a voyage charter with
Nichiro for the February 1991 voyage.
1. The subrogated underwriter of the oranges, Vimar Seguros Y Reaseguros, is also a plaintiff-appellant in this action. Hereafter, references to Bacchus include Vimar where applicable.
-2- 2
The oranges were shipped under a bill of lading
issued in Morocco by Nichiro. The bill of lading constitutes
the contract of carriage between Bacchus and Maritima. En
route to New Bedford, numerous boxes of oranges were crushed.
Bacchus filed an action in the United States District Court
for the District of Massachusetts, in rem against the SKY
REEFER, and in personam against Maritima, seeking to recover
approximately $1 million in damages.
Maritima moved to stay the action and compel
arbitration in Tokyo pursuant to a clause in the bill of
lading:
Governing Law and Arbitration (1) The contract evidenced by or contained in this Bill of Lading shall be governed by Japanese Law.
(2) Any dispute arising from this Bill of Lading shall be referred to arbitration in Tokyo by the Tokyo Maritime Arbitration Commission (TOMAC) at the Japan Shipping Exchange, Inc., in accordance with the Rules of TOMAC and any agreement thereto, and the award given by the arbitrators shall be final and binding on both parties.
The district court held that the arbitration clause contained
in subsection (2) was enforceable, granted Maritima's motion
for a stay pending arbitration, and certified the following
question for interlocutory appeal pursuant to 28 U.S.C.
1292(b): "[W]hether 46 U.S.C. 1303(8) [ 3(8) of COGSA]
nullifies an arbitration clause contained in a bill of lading
-3- 3
governed by COGSA." With this question in mind, we begin our
journey through unsettled statutory waters.
II.
DISCUSSION
COGSA was passed in 1936 as the American enactment
of the Hague Rules, and was part of an international effort
to achieve uniformity and simplicity in bills of lading used
in foreign trade. Union Ins. Soc'y of Canton, Ltd. v. S.S.
Elikon, 642 F.2d 721, 723 (4th Cir. 1981). COGSA was also
intended to reduce uncertainty concerning the
responsibilities and liabilities of carriers,
responsibilities and rights of shippers, and liabilities of
insurers. State Establishment for Agric. Prod. Trading v.
M/V Wesermunde, 838 F.2d 1576, 1580 (11th Cir.), cert.
denied, 488 U.S. 916 (1988) ("Wesermunde"); S.S. Elikon, 642
F.2d at 723; see generally Grant Gilmore & Charles L. Black,
The Law of Admiralty 3-25 at 145 (2d ed. 1975).
COGSA applies to "[e]very bill of lading . . .
which is evidence of a contract for the carriage of goods by
sea to or from parts of the United States, in foreign trade .
. . . " 46 U.S.C. 1300. The parties agree that the bill
of lading at issue here is covered by COGSA ex proprio
vigore, in other words, as a matter of law. The bill of
lading also contains the following provision:
-4- 4
Local Law In case this Bill of Lading covers the Goods moving to or from the U.S.A. and it shall be adjudged that the Japanese Law does not govern this Bill of Lading, then the provisions of the U.S. Carriage of Goods at Sea Act 1936 shall govern before the Goods are loaded on and after they are discharged from the vessel and throughout the entire time during which the Goods are in the actual custody of the carrier.
Bacchus argues that the Tokyo arbitration clause is invalid
under 3(8) of COGSA which prohibits the "lessening" of the
carrier's obligation as imposed by COGSA's other sections.2
In Indussa Corp. v. S.S. Ranborg, 377 F.2d 200 (2d
Cir. 1967) (en banc), the Second Circuit held that all
foreign forum selection clauses in bills of lading governed
by COGSA are necessarily invalid under 3(8) because they
tend to lessen the carrier's liability. Id. at 204. The
court reasoned as follows:
From a practical standpoint, to require an American plaintiff to assert his claim only in a distant court lessens the
2. This provision provides as follows:
Any clause, covenant or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to or in connection with the goods, arising from negligence, fault, or failure in the duties or obligations provided in this section, or lessening such liability otherwise than as provided in this Act, shall be null and void and of no effect.
46 U.S.C. 1303(8).
-5- 5
liability of the carrier quite substantially, particularly when the claim is small. Such a clause puts "a high hurdle" in the way of enforcing liability, and thus is an effective means for carriers to secure settlements lower than if cargo [sic] could sue in a convenient forum.
Id. at 203.3 Moreover, "[a] clause making a claim triable
only in a foreign court would almost certainly lessen
liability if the law which the court would apply was not
[COGSA]." Id. Furthermore,
[e]ven when the foreign court would apply [COGSA], requiring trial abroad might
lessen the carrier's liability since there could be no assurance that it would apply [COGSA] in the same way as would an American tribunal subject to the uniform control of the Supreme Court . . . . We think that Congress meant to invalidate any contractual provision in a bill of lading for a shipment to or from the United States that would prevent cargo [sic] able to obtain jurisdiction over a carrier in an American court from having that court entertain the suit and apply the substantive rules Congress had prescribed.
3. The court also concluded that COGSA, wherever it governs a bill of lading, requires application of American law. Indussa, 377 F.2d at 203; see generally Thomas J. Schoenbaum,
Admiralty & Maritime Law 9-18 at 326-27 (Pra. ed. 1987).
Bacchus contends that the Japanese choice-of-law clause in its bill of lading, in addition to the arbitration clause, is null and void under 3(8) of COGSA, and, alternatively, that the "Local Law" clause in the bill of lading requires that COGSA, and not Japanese law, governs, because COGSA applies ex proprio vigore. Although both of these arguments appear
to be substantial, only the validity of the arbitration clause is at issue on this interlocutory appeal. In light of our holding, the choice-of-law question must be decided, in the first instance, by an arbitrator.
-6- 6
Id. at 203-04 (emphasis in original) (citations omitted)
(footnote omitted).
Since Indussa, 3(8) has been consistently used by
federal courts to invalidate forum selection clauses in bills
of lading governed by COGSA. See, e.g., Conklin & Garrett,
Ltd. v. M/V Finnrose, 826 F.2d 1441, 1442-44 (5th Cir. 1987)
(forum selection clause designating Finland invalid even
where bill of lading provided for application of COGSA in
Finland); Union Soc'y of Canton, Ltd., 642 F.2d at 723-25
(choice of forum clause requiring litigation in Germany
invalid under 3(8)); cf. Fireman's Fund Amer. Ins. Cos. v.
Puerto Rican Forwarding Co., 492 F.2d 1294 (1st Cir. 1974)
(distinguishing Indussa and upholding New York City forum
selection clause). Indussa has also been approved by
commentators. See Gilmore & Black, supra 3-25 at 145-46
n.23; Schoenbaum, supra 9-18 at 327; Charles L. Black, The
Bremen, COGSA and the Problem of Conflicting Interpretation,
6 Vand. J. Trans. L. 365, 368-69 (1973). But see Note,
Kenneth M. Klemm, Forum Selection in Maritime Bills of Lading
Under COGSA, 12 Fordham Int'l L.J. 459 (1989); Stephen M.
Denning, Choice of Forum Clauses in Bills of Lading, 2 J.
Mar. L. & Com. 17 (Oct. 1970).
While we need not fully explore the issue, we note
that the Supreme Court's recent decision in Carnival Cruise
Lines, Inc. v. Shute, 499 U.S. 585 (1991), in which the Court
-7- 7
held that the Limitation of Vessel Owners' Liability Act did
not invalidate forum selection agreements, casts some doubt
upon Indussa's continuing viability. See Fabrica De Tejidos
La Bellota S.A. v. M/V Mar, 799 F. Supp. 546, 560-61 (D.
Virgin Islands 1992); see also Patrick J. Borchers, Forum
Selection Agreements in the Federal Courts After Carnival
Cruise: A Proposal for Congressional Reform, 67 Wash. L.
Rev. 55, 77 (1992) (Carnival Cruise implicitly overruled
Indussa and its progeny). But see Underwriters at Lloyd's of
London v. M/V Steir, 773 F. Supp. 523, 526-27 (D.P.R. 1991)
(invalidating forum selection clause under 3(8) of COGSA,
holding that Indussa survives Carnival Cruise).
Moreover, in Fireman's Fund we questioned whether
Indussa even survived the Supreme Court's decision in The
Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972). In The
Bremen, the Supreme Court enforced a foreign forum selection
clause in a maritime contract not covered by COGSA. In doing
so, the Court focused on whether the clause was
"unreasonable" under the circumstances. The Bremen, 407 U.S.
at 10. We remarked as follows:
Although the Supreme Court has acknowledged the Indussa decision and has
not formally rejected it, see The Bremen
v. Zapata Off-Shore Co., 407 U.S. 1, 10
n.11, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972), several passages in the Bremen opinion cast some doubt on the underlying rationale of Indussa. See, e.g., 407
U.S. at 9, 92 S.Ct. at 1912 ("The expansion of American business and
-8- 8
industry will hardly be encouraged if, notwithstanding solemn contracts, we insist on a parochial concept that all disputes must be resolved under our laws and in our courts.") . . . .
Fireman's Fund, 492 F.2d at 1296 n.2. Because The Bremen is
not a COGSA case, however, it is easily distinguishable from
Indussa and its progeny. See S.S. Elikon, 642 F.2d at 724-25
(holding that The Bremen did not involve COGSA and therefore
did not disturb Indussa).
Notwithstanding the arguably tremulous ground on
which Indussa and its progeny currently sit, we will assume,
arguendo, that, for the reasons set forth in Indussa, foreign
forum selection clauses are invalid under 3(8) of COGSA.
The other statute implicated in this case is the
FAA. Section 2 of that act provides:
A written provision in any maritime transaction . . . to settle by arbitration a controversy thereafter arising out of such contract . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
9 U.S.C. 2. "[B]ills of lading of water carriers" are
explicitly included as "maritime transactions" under the
statute. 9 U.S.C. 1. Furthermore, the FAA requires a
federal district court, on the application of one of the
parties, to stay litigation and grant an order compelling
arbitration of any issue referable to arbitration under the
agreement. Id. 3, 4.
-9- 9
Where there is an agreement to arbitrate, the FAA
reflects a strong, well-established, and widely recognized
federal policy in favor of arbitration. Shearson/American
Express, Inc. v. McMahon, 482 U.S. 220, 226 (1987);
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473
U.S. 614, 625 (1985); Securities Indus. Ass'n v. Connolly,
883 F.2d 1114, 1118-19 (1st Cir. 1989), cert. denied, 495
U.S. 956 (1990). Arbitration agreements are unenforceable
under 2 of the FAA only where the agreement would be
revocable under state contract law. Southland Corp. v.
Keating, 465 U.S. 1, 11 (1984) (party may assert general
contract defenses, such as fraud and duress, to avoid
enforcement of arbitration agreement); McAllister Bros., Inc.
v. A & S Transp. Corp., 621 F.2d 519, 524 (2d Cir. 1980)
(same).4
Although this court has never decided whether a
foreign arbitration clause in a bill of lading governed by
COGSA is invalid under 3(8) of that statute, courts that
4. Bacchus argued below that the bill of lading was a contract of adhesion, and that the arbitration clause was therefore unenforceable. This defense was rejected by the district court, and that ruling is not before us on the present appeal. We recognize, however, that maritime bills of lading have been viewed as contracts of adhesion. See,
e.g., Organes Enters., Inc. v. M/V Khalij Frost, 1989 A.M.C.
1460, 1465-66 (S.D.N.Y. 1989); Pacific Lumber & Shipping Co.
v. Star Shipping A/S, 464 F. Supp. 1314, 1315 (W.D. Wash.
1979). Accordingly, if the adhesion issue had been a subject of this interlocutory appeal, it would warrant close scrutiny.
-10- 10
have reached the question are divided. A handful of courts,
including the Eleventh Circuit, have employed the reasoning
articulated in Indussa to invalidate foreign arbitration
clauses. See, e.g., Wesermunde, 838 F.2d at 1580-82; M/V
Khalij Frost, 1989 A.M.C. at 1462-66; Siderius v. M.V. Ida
Prima, 613 F. Supp. 916, 920-21 (S.D.N.Y. 1985); Star
Shipping A/S, 464 F. Supp. at 1314-15; see also Gilmore &
Black, supra, 3-25 at 146 n.23; Schoenbaum, supra 9-19 at
329.
In Wesermunde, the Eleventh Circuit declined to
enforce a foreign arbitration agreement contained in a bill
of lading governed by COGSA. Relying on Indussa, the court
explained as follows:
While we do not believe that arbitration in and of itself is per se violative of
COGSA's provisions, especially in light of Congress' encouragement of arbitration by its enactment of the Arbitration Act, 9 U.S.C. 1-14 (1970) the court does believe that a provision requiring arbitration in a foreign country that has
no connection with either the performance of the bill of lading contract or the making of the bill of lading contract is a provision that would conflict with COGSA's general purpose of not allowing carriers to lessen their risk of liability.
Wesermunde, 838 F.2d at 1581 (footnote omitted). Some courts
have gone one step further, holding that foreign arbitration
clauses in bills of lading are per se invalid under COGSA
because "[t]he considerations [stated in Indussa] are
-11- 11
substantially similar where the bill of lading requires the
consignee to arbitrate in a foreign country." Siderius, 613
F. Supp. at 920; accord Khalij Frost, 1989 A.M.C. at 1462
(Indussa rationale "appl[ies] with equal force in the case of
a foreign arbitration clause in a bill of lading").
On the other side of the coin, numerous federal
courts have upheld foreign arbitration clauses in bills of
lading subject to COGSA. See, e.g., Nissho Iwai Amer. Corp.
v. M/V Sea Bridge, 1991 A.M.C. 2070 (D. Md. 1991); Citrus
Mktg. Bd. v. M/V Ecuadorian Reefer, 754 F. Supp. 229 (D.
Mass. 1990); Travelers Indem., Co. v. M/V Mediterranean Star,
1988 A.M.C. 2483 (S.D.N.Y. 1988); Mid South Feeds, Inc. v.
M/V Aqua Marine, 1988 A.M.C. 437 (S.D. Ga. 1986); Midland Tar
Distillers, Inc. v. M/T Lotos, 362 F. Supp. 1311, 1315
(S.D.N.Y. 1973); Mitsubishi Shoji Kaisha Ltd. v. MS Galini,
323 F. Supp. 79, 83-84 (S.D. Tex. 1971); Kurt Orban Co. v.
S/S Clymenia, 318 F. Supp. 1387, 1390 (S.D.N.Y. 1970).
We join those courts upholding the validity of
foreign arbitration clauses in bills of lading subject to
COGSA. In reaching this result, we are guided by our belief
that the FAA alone governs the validity of arbitration
clauses, both foreign and domestic, and consequently removes
them from the grasp of COGSA.5
5. We recognize, however, that absent the FAA, COGSA might operate to nullify foreign arbitration clauses in bills of lading.
-12- 12
We begin with two canons of statutory
interpretation. First, a later enacted statute generally
limits the scope of an earlier statute if the two laws
conflict. Davis v. United States, 716 F.2d 418, 428 (7th
Cir. 1983); Tennessee Gas Pipeline Co. v. Federal Energy
Regulatory Comm'n, 626 F.2d 1020, 1022 (D.C. Cir. 1980);
Indussa, 377 F.2d at 204 n.4;6 see generally 2B Norman J.
6. Footnote four of Indussa states:
Our ruling does not touch the question of arbitration clauses in bills of lading which require this to be held abroad. The validity of such a clause in a charter party, or in a bill of lading effectively incorporating such a clause in a charter party, have been frequently sustained. Although the Federal Arbitration Act adopted in 1925 validated a written arbitration provision "in any maritime transaction," 2, and defined that phrase to include "bills of lading of water carriers," 1. COGSA, enacted in 1936, made no reference to that form of procedure. If there be any
inconsistency between the two acts,
presumably the Arbitration Act would
prevail by virtue of its reenactment as
positive law in 1947.
Indussa, 377 F.2d at 204 n.4 (citations omitted) (emphasis
added). Although a later Second Circuit opinion sought to narrow the scope of this dictum, see Aaacon Auto Transp. Co.
v. State Farm Mut. Auto Ins. Co., 537 F.2d 648, 655 (2d Cir.
1976) (explaining that footnote four of Indussa was concerned
"primarily . . . upon those commercial situations in which the economic strength and bargaining power of the parties is roughly equal"), courts have continued to rely on footnote four in enforcing foreign arbitration clauses in bills of lading governed by COGSA. See Fakieh Poultry Farms v. M/V
Mulheim, No. 85 Civ. 26577, slip op. at 2 (S.D.N.Y. Oct. 24,
1986); M/V Mediterranean Star, 1988 A.M.C. at 2484-85; see
also Kaystone Chem., Inc. v. Bow-Sun, 1989 A.M.C. 2976, 2981-
-13- 13
Singer, Sutherland Statutory Construction 51.03 at 141 (5th
ed. 1992). Second, where two statutes conflict, regardless
of the priority of enactment, the specific statute ordinarily
controls the general. See Watson v. Fraternal Order of
Eagles, 915 F.2d 235, 240 (6th Cir. 1990); see generally 2B
Sutherland Statutory Construction, 51.05 at 174.
With respect to the former canon, the FAA must be
given priority over COGSA in light of the FAA's reenactment
in 1947, eleven years after COGSA was passed. Similarly, the
latter canon suggests that the FAA be given effect. Section
3(8) of COGSA, which voids any clause in a bill of lading
that "lessens" the carrier's liability, makes no reference to
arbitration, or for that matter, forum selection clauses.7
Conversely, the FAA specifically validates arbitration
clauses contained in maritime bills of lading. See 9 U.S.C.
1, 2.
82 (S.D.N.Y. 1989) (stating that Indussa footnote "probably"
requires enforcement of foreign arbitration clause in COGSA bill of lading). But see Siderius, 613 F. Supp. at 920-21
(holding Aaacon substantially undercuts scope of the Indussa
footnote); Khalij Frost, 1989 A.M.C. at 1463-64 (same).
While we agree with the rule of statutory construction expressed in the footnote, we take no position on the effect of Aaacon on that note.
7. In fact, up until Indussa, the Second Circuit regularly
enforced foreign forum selection clauses in bills of lading governed by COGSA. See, e.g., William H. Muller & Co. v.
Swedish Amer. Line Ltd., 224 F.2d 806 (2d Cir.), cert.
denied, 350 U.S. 903 (1955); Cerro de Pasco Copper Corp. v.
Knut Knutsen, O.A.S., 187 F.2d 990 (2d Cir. 1951).
-14- 14
Next, and perhaps of paramount importance, we
believe that the strong federal policy favoring arbitration
supports the primacy of the FAA over COGSA where arbitration
agreements are concerned. See Ecuadorian Reefer, 754 F.
Supp. at 233-34. The existence of this policy distinguishes
the present case from foreign choice-of-forum cases because
in those cases "there was no compelling congressional mandate
in favor of giving effect to agreements to litigate before
foreign tribunals." MS Galini, 323 F. Supp. at 83.
Furthermore, American courts' mistrust of foreign
courts, a driving force in the Indussa court's decision to
invalidate foreign choice-of-forum clauses, is an
inappropriate consideration in the context of arbitration.
See Mitsubishi Motors, 473 U.S. at 626-27 (We are "well past
the time when judicial suspicion of . . . arbitration and of
the competence of arbitral tribunals inhibited the
development of arbitration as an alternative means of dispute
resolution."); Connolly, 883 F.2d at 1119 ("[C]ourts must be
on guard for artifices in which the ancient suspicion of
arbitration might reappear."). Finally, unlike a foreign
forum selection clause, an agreement to arbitrate does not
deprive a federal court of its jurisdiction over the
underlying dispute. S/S Clymenia, 318 F. Supp. at 1390; MS
Galini, 323 F. Supp. at 83.
-15- 15
For the foregoing reasons, the order of the
district court is Affirmed. Affirmed.
-16- 16