Jlm Industries, Inc. v. Stolt-Nielsen Sa

The named plaintiffs in this putative class action (collectively referred to hereinafter as "JLM"), are affiliated corporations which, according to the amended complaint, are "in the business of shipping, buying, selling and trading chemicals in bulk. The chemicals in bulk are shipped via parcel tankers to and from ports in the United States and to and from international ports."1 JLM undertakes these shipments by contracting with the owners of parcel tankers to lease space on board a tanker for a certain voyage. The four defendants in this action (collectively referred to hereinafter as "the Owners") are alleged by JLM to be among "the world's largest ocean carriers of liquid chemicals" via parcel tanker.2 Indeed, JLM contends in its brief before this Court that "the international parcel tanker service industry, which has annual revenues of more than $2.5 billion ... is dominated by [the Owners], who together comprise more than two thirds of the market."

The individual shipping transactions at issue were each governed by a standard form contract, which is known in the parcel tanker industry as the "ASBATANKVOY," and which is published by the Association of Ship Brokers & Agents (U.S.A.), Inc. This contract consists of two parts. Part I sets forth the terms of a particular shipment, such as the nature of the freight being shipped, expected departure and arrival dates, and freight rates. Part II sets forth a number of standard conditions and warranties. Among these is an arbitration clause, which in relevant part reads as follows:

24. ARBITRATION. Any and all differences and disputes of whatsoever nature arising out of this Charter shall be put to arbitration in the City of New York or in the City of London whichever place is specified in Part I of this charter pursuant to the laws relating to arbitration there in force, before a board of three persons, consisting of one arbitrator to be appointed by the Owner, one by the Charterer, and one by the two so chosen. The decision of any two of the three on any point or points shall be final.

It is undisputed that each charter contract entered into between JLM and the Owners specified either London or New York as the place of arbitration.

As declared in the amended complaint, JLM filed this action in order to vindicate "the benefits of free and unrestrained competition in the international parcel tanker service market." JLM's central allegation is that the Owners have exploited their market power by entering into

a continuing agreement, understanding and conspiracy to: (i) fix, raise, maintain or stabilize the worldwide freight rates or price of ocean shipping services for the transportation of liquid chemicals via parcel tanker ("parcel tanker service"); (ii) coordinate worldwide bidding for the provision of ocean shipping services for parcel tanker service provided by [the Owners]; (iii) not compete with one another in the international parcel tanker service market; and (iv) allocate their parcel tanker service customer by customer, trade lane by trade lane and route by route and otherwise "carve up" the worldwide market between one another....

Based upon this allegation, JLM states four causes of action: (1) a violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, in that the Owners "have engaged in a horizontal contract, combination or conspiracy in unreasonable restraint of trade"; (2) violations of Sections 35-26 and 35-28 of the Connecticut Antitrust Act, Conn. Gen.Stat. §§ 35-24-35-49; (3) a common law claim for unjust enrichment; and (4) a violation of the Connecticut Unfair Trade Practices Act, Conn. Gen.Stat. §§ 42-110a-42-110q.3

Pursuant to Rule 23 of the Federal Rules of Civil Procedure, JLM seeks to represent the following plaintiff class:

All persons or entities who paid freight and/or purchased ocean shipping services for the transportation of liquid chemicals via parcel tanker to and from the United States and to and from international ports from [the Owners], their co-conspirators, predecessors or controlled subsidiaries or affiliates from January 1, 1998 and continuing to present.

JLM does not specify the potential number of class members except to plead upon information and belief that "there are hundred's [sic] of individuals or entities in the United States and around the world who purchased parcel tanker service" from the Owners during the proposed class period. Further, JLM does not allege how many shipping transactions it has so far conducted with the Owners during the proposed class period, but an affidavit filed in the district court by JLM's head of charter operations puts the number at "nearly 80."

Prior to any determination as to certification of the proposed class, certain of the Owners moved to compel arbitration of all of JLM's claims pursuant to the terms of the ASBATANKVOY's arbitration clause. The district court denied these motions in an unreported opinion, concluding that price-fixing allegations against the Owners fall outside the scope of the arbitration clause. Specifically, the district court held that it would be improper to compel arbitration because "JLM's [Sherman Act] claim in no way depends upon interpretation, construction, or application of any provision of the [ASBATANKVOY]." The district court did not rule on JLM's remaining claims. These interlocutory appeals followed.4

We have jurisdiction over these consolidated appeals under the Federal Arbitration Act ("the FAA"), 9 U.S.C. §§ 1-16, 201-08, 301-07, which allows an interlocutory appeal from a district court's denial of a motion to compel arbitration. 9 U.S.C. § 16(a)(1)(A), (B). "We review a district court's determination of arbitrability de novo." Gold v. Deutsche Aktiengesellschaft, 365 F.3d 144, 147 (2d Cir.2004). In order to determine whether all or part of the instant action should be sent to arbitration, the Court must conduct the following inquiries:

[F]irst, it must determine whether the parties agreed to arbitrate; second, it must determine the scope of that agreement; third, if federal statutory claims are asserted, it must consider whether Congress intended those claims to be nonarbitrable; and fourth, if the court concludes that some, but not all, of the claims in the case are arbitrable, it must then decide whether to stay the balance of the proceedings pending arbitration.

Oldroyd v. Elmira Sav. Bank, FSB, 134 F.3d 72, 75-76 (2d Cir.1998). We now consider each of these inquiries and conclude that the district court erred in holding that arbitration is not appropriate in the instant case.

I. Did the Parties Agree to Arbitrate?

As already noted, the ASBATANKVOY contains an arbitration clause. JLM argues, however, that the clause should not be summarily enforced because "[f]acts germane to whether the arbitration agreements here were contracts of adhesion are in sharp dispute." In order to resolve these factual disputes, JLM contends that "an evidentiary hearing should be held," presumably by the district court upon remand.

We are unpersuaded by this argument. First, we note that a contract of adhesion

is a contract formed as a product of a gross inequality of bargaining power between parties. A court will find adhesion only when the party seeking to rescind the contract establishes that the other party used high pressure tactics, or deceptive language, or that the contract is unconscionable. Typical contracts of adhesion are standard-form contracts offered by large, economically powerful corporations to unrepresented, uneducated, and needy individuals on a take-it-or-leave-it basis, with no opportunity to change the contract's terms.

Klos v. Polskie Linie Lotnicze, 133 F.3d 164, 168 (2d Cir.1997) (internal citations and quotation marks omitted).

Although JLM's brief is not wholly clear on this point, we understand its argument to be that the ASBATANKVOY as a whole amounts to a contract of adhesion, rather than that the arbitration clause alone so qualifies. Thus, an affidavit filed by JLM International, Inc.'s Vice President of Trading declares as follows:

Because the owners, such as the subsidiaries of Stolt, Odfjell, Jo Tankers and Tokyo all use a standard form charter, the ASBATANKVOY form, every charterer has to accept arbitration or they will not be offered a ship.... The ABSTANKAVOY form was developed by shipowners and is the form used in shipping liquified products.

* * *

Because the shipowners control the form, . . . [the plaintiffs] are forced to accept arbitration, or else we cannot ship our products.... [W]e have no choice but to accept the arbitration clauses that are printed in the form contract. Our lack of leverage or alternatives with these Defendants with which to negotiate regarding arbitration clauses thus appears in substantial degree to have been reinforced by the same anticompetitive agreement we challenge in this case.

We take this to be an assertion that the ASBATANKVOY itself, and not merely the arbitration clause included therein, has been forced upon JLM. According to the principle announced in Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), the issue of whether the ASBATANKVOY — as opposed to the arbitration clause alone — is a contract of adhesion is itself an arbitrable matter not properly considered by a court.

In Prima Paint, the Supreme Court considered whether a claim that a party had been fraudulently induced into signing a contract containing an arbitration clause could be referred to arbitration. We recently explained the Court's holding in favor of arbitration as follows:

It is well settled that a claim or defense of fraudulent inducement, when it challenges generally the enforceability of a contract containing an arbitration clause rather than specifically the arbitration clause itself, may be subject to arbitration. See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) ("[I]f the claim is fraud in the inducement of the arbitration clause itself — an issue which goes to the `making' of the agreement to arbitrate — the federal court may proceed to adjudicate it. But the statutory language [of the FAA] does not permit the federal court to consider claims of fraud in the inducement of the contract generally."). This is true because "arbitration clauses as a matter of federal law are `separable' from the contracts in which they are embedded, and ... where no claim is made that fraud was directed to the arbitration clause itself, a broad arbitration clause will be held to encompass arbitration of the claim that the contract itself was induced by fraud. Id. at 402, 87 S.Ct. 1801."

ACE Capital Re Overseas Ltd. v. Cent. United Life Ins. Co., 307 F.3d 24, 29 (2d Cir.2002) (parallel citations omitted); see also Campaniello Imps., Ltd. v. Saporiti Italia S.p.A., 117 F.3d 655, 667 (2d Cir. 1997) ("Since there is no fraud or misrepresentation that relates directly to the arbitration clause," district court properly sent case to arbitration).

"Claims of unconscionability and adhesion contracts are similarly included within the Prima Paint rule." Wright v. SFX Entm't Inc., No. 00 CIV 5354, 2001 WL 103433, at *3 (S.D.N.Y. Feb. 7, 2001) (citing cases). Accordingly, JLM's claim that the ASBATANKVOY is a contract of adhesion is an issue for the arbitral panel to decide.5

II. The Scope of the Arbitration Agreement.

1. Does the Arbitration Clause Extend to Sherman Act Claims?

While the question of whether the ASBATANKVOY is a contract of adhesion is for an arbitrator, "a disagreement about whether an arbitration clause... applies to a particular type of controversy is for the court." Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002). Our inquiry is governed by the principle that, under the FAA, "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). This principle is based upon the fact that the FAA is an expression of "a strong federal policy favoring arbitration as an alternative means of dispute resolution." Hartford Accident & Indem. Co. v. Swiss Reinsurance Am. Corp., 246 F.3d 219, 226 (2d Cir.2001). Moreover, as our Court has recently repeated, we are mindful that "[t]he federal policy favoring the liberal enforcement of arbitration clauses... applies with particular force in international disputes." Paramedics Electromedicina Comercial, Ltda. v. GE Med. Sys. Info. Techs., Inc., 369 F.3d 645, 654 (2d Cir.2004); see also David L. Threlkeld, 923 F.2d at 248 ("Enforcement of international arbitral agreements promotes the smooth flow of international transactions by removing the threats and uncertainty of time-consuming and expensive litigation.").

Still, it remains the case that arbitration "is a matter of consent, not coercion." Volt Info. Scis. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 479, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989). Specifically, "`arbitration is a matter of contract,'" and therefore "`a party cannot be required to submit to arbitration any dispute which [it] has not agreed so to submit.'" Vera v. Saks & Co., 335 F.3d 109, 116 (2d Cir.2003) (quoting Transit Mix Concrete Corp. v. Local Union No. 282, 809 F.2d 963, 967 (2d Cir.1987)). Thus, "[w]hile the FAA expresses a strong federal policy in favor of arbitration, the purpose of Congress in enacting the FAA `was to make arbitration agreements as enforceable as other contracts, but not more so.'" Cap Gemini Ernst & Young, U.S., L.L.C. v. Nackel, 346 F.3d 360, 364 (2d Cir.2003) (quoting Opals on Ice Lingerie v. Body Lines Inc., 320 F.3d 362, 369 (2d Cir.2003); further internal quotation omitted).

We also note that JLM directs our attention to an investigation by the United States Department of Justice of alleged price-fixing activities undertaken by the Owners. Presumably, JLM does this in order to establish that its claims against the Owners are meritorious. We stress, however, that our determination of the arbitrability of the claims asserted by JLM does not in any way rest upon the strength of those claims. The arbitration clause at issue directs that "`[a]ny and all differences and disputes of whatsoever nature arising out of this Charter shall be put to arbitration...." We therefore "have no business weighing the merits of [JLM's] grievance[s].... The agreement is to submit all grievances to arbitration, not merely those which the court will deem meritorious.'" AT & T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 650, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) (emphasis added) (quoting Steelworkers v. Am. Mfg. Co., 363 U.S. 564, 568, 80 S.Ct. 1343, 4 L.Ed.2d 1403 (1960)); see also St. Paul Fire & Marine Ins. Co. v. Courtney Enters., Inc., 270 F.3d 621, 624 (8th Cir.2001) ("[T]he court may not rule on the merits of any claim the parties have agreed to arbitrate.").

With these threshold principles in mind, we turn to the arbitration clause itself. In determining whether JLM's claims fall within the scope of the clause, we proceed as follows:

[R]ecognizing there is some range in the breadth of arbitration clauses, a court should classify the particular clause as either broad or narrow.... Where the arbitration clause is narrow, a collateral matter will generally be ruled beyond its purview. Where the arbitration clause is broad, there arises a presumption of arbitrability and arbitration of even a collateral matter will be ordered if the claim alleged implicates issues of contract construction or the parties' rights and obligations under it.

Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading Inc., 252 F.3d 218, 224 (2d Cir.2001) (internal quotation marks and citations omitted).

Again, the arbitration clause at issue in this case provides that "[a]ny and all differences and disputes of whatsoever nature arising out of this Charter" are subject to arbitration. This language is at least as expansive as the language contained in a number of arbitration clauses that this Court has characterized as "broad." See, e.g., Paramedics Electromedicina, 369 F.3d at 649 ("any controversy, claim or dispute between the Parties arising out of or relating in any way to this Agreement"); Vera, 335 F.3d at 117 ("[a]ny dispute, claim, grievance or difference arising out of or relating to the Agreement"); Louis Dreyfus Negoce S.A., 252 F.3d at 225 ("[a]ny dispute arising from the making, performance or termination of this Charter Party") (internal quotations omitted); Oldroyd, 134 F.3d at 76 ("[a]ny dispute, controversy or claim arising under or in connection with" agreement).

Because the ASBATANKVOY's arbitration clause is broad, its coverage extends to "collateral matters." Louis Dreyfus Negoce S.A., 252 F.3d at 224. Our Circuit has not precisely defined this phrase. We have made it plain, however, that where the arbitration clause at issue is a broad one, it is presumptively applicable to disputes involving matters going beyond the "interpret[ation] or enforce[ment of] particular provisions" of the contract which contains the arbitration clause. Oldroyd, 134 F.3d at 77. We have said that "[i]f the allegations underlying the claims touch matters covered by the parties' contracts, then those claims must be arbitrated, whatever the legal labels attached to them." Id. (citation, internal quotation marks, and brackets omitted).

JLM points out that we have doubted the utility of phrases such as "touch matters" in determining whether a broad arbitration clause is applicable to a dispute which departs from the casebook model of a contract dispute because the applicability of such an arbitration clause cannot be resolved simply through the interpretation and enforcement of contract language. Specifically, we have found that "touch matters" and like phrases do not "yield[] a principled way of ... deciding whether ... claims should be sent to arbitration." Leadertex, Inc. v. Morganton Dyeing & Finishing Corp., 67 F.3d 20, 28 (2d Cir. 1995).

This point is well taken, but, based upon Supreme Court precedent and cases from our Circuit, we are confident that the district court erred in holding that the instant dispute should not be sent to arbitration. In reaching this conclusion, "we focus on the factual allegations in the complaint rather than the legal causes of action asserted." Oldroyd, 134 F.3d at 77 (citation and quotation marks omitted). The central factual allegations of the complaint in this case posit that a price-fixing conspiracy among the Owners undermined legitimate contractual relations between the parties. These allegations are directly analogous to the facts of a number of cases in which arbitration has been ordered.

We begin with Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985). That case dealt with a dispute between a Japanese automobile manufacturer ("Mitsubishi") and a Puerto Rican automobile dealership ("Soler"). The contract between the parties included a broad arbitration clause, which provided that "[a]ll disputes, controversies or differences which may arise ... out of or in relation to" the parties' contractual relationship were to be arbitrated. Id. at 617, 105 S.Ct. 3346. A dispute arose between the parties, which came to include a claim by Soler that Mitsubishi and its affiliate ("CISA") had engaged in a conspiracy in violation of the Sherman Act. Specifically, Soler alleged the existence of a comprehensive scheme to restrain trade which implicated matters well beyond those relating to the automobile distribution contract between Soler and Mitsubishi:

In the counterclaim premised on the Sherman Act, Soler alleged that Mitsubishi and CISA had conspired to divide markets in restraint of trade. To effectuate the plan, according to Soler, Mitsubishi had refused to permit Soler to resell to buyers in North, Central, or South America vehicles it had obligated itself to purchase from Mitsubishi; had refused to ship ordered vehicles or the parts, such as heaters and defoggers, that would be necessary to permit Soler to make its vehicles suitable for resale outside Puerto Rico; and had coercively attempted to replace Soler and its other Puerto Rico distributors with a wholly owned subsidiary which would serve as the exclusive Mitsubishi distributor in Puerto Rico.

Id. at 620, 105 S.Ct. 3346.

The Supreme Court commented that, in holding that these claims were arbitrable, the First Circuit Court of Appeals had acted correctly because "insofar as the allegations underlying the [Sherman Act] claims touch matters covered by the [terms of the contract between the parties], the Court of Appeals properly resolved any doubts in favor of arbitrability." Id. at 624 n. 13, 105 S.Ct. 3346. JLM points out that this comment is dictum because "Soler [did] not question the Court of Appeals' application of [the arbitration clause] to the disputes [between the parties] as a matter of standard contract interpretation." Id. at 624, 105 S.Ct. 3346. While this is correct, it is also true that our Circuit has found the Court's comment to be quite persuasive dictum. First, this language in Mitsubishi is the origin of the "touch matters" terminology to which we have already referred. Further, following Mitsubishi, our Circuit has on at least two occasions squarely held that broad arbitration clauses are applicable to factual scenarios similar to the one at issue in that case.

In Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840 (2d Cir.1987), we concluded that an alleged conspiracy in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962, was arbitrable. Genesco involved a series of purchase and sale agreements between a clothing manufacturer ("Genesco") and two affiliated firms — one Japanese and the other American — which served as Genesco's fabric suppliers. The arbitration clauses at issue provided that claims "arising under" and "arising out of or relating to" the agreements between the parties were subject to arbitration. Id. at 845. The RICO claim rested upon an alleged conspiracy between an officer of Genesco and the defendant firms:

These allegations state that the defendants overcharged Genesco over an extended period of time for the piece goods it had purchased from them under the purchase and sale agreements. Genesco claims that it later discovered that the prices paid were substantially above fair market value and that the piece goods were unsuitable, obsolete, out-of-season, or damaged. Defendants accomplished these overcharges and inappropriate sales, Genesco asserts, by conspiring with and bribing its vice-president for purchasing.

Id. at 846-47. While the plaintiffs thus asserted that conspiracy and bribery were at the heart of their complaint, the defendants in Genesco argued that matters relating to the agreements between the parties — overcharging and intentional supply of defective goods — formed the crux of the plaintiff's suit. Id. at 846. Finding both characterizations "essentially correct," id., we held that, especially in light of the international character of the transactions between the parties, the dispute as to the existence of this conspiracy fell within the scope of the applicable arbitration clauses. Id. at 848.

We reached a similar result with respect to the arbitrability of a RICO claim in Kerr-McGee Refining Corp. v. M/T Triumph, 924 F.2d 467 (2d Cir.1991). That case involved a charter contract for the shipment of crude oil and a dispute about whether the amount of oil agreed upon had actually been shipped by the chartered vessel. The parties — "Kerr-McGee" and "Triumph" — consented to arbitrate this discrete dispute, but, as the litigation progressed, arbitrated more matters than they had anticipated:

During the course of the arbitration, Kerr-McGee obtained information, including numerous detailed photographs of the vessel taken while it was being dismantled for scrap metal in China, that showed that a permanent concealed tank had been built into one of the vessels cargo tanks. The vessel had been further modified to allow oil to be transferred from the cargo tank to the concealed tank. In the words of the arbitration panel, "[w]hat appeared at first sight to be a fairly simple case of a short delivery developed over the seven hearings into a complex matter involving allegations of cargo stealing by this vessel, as well as other vessels operated by the same managers, perjury by the vessel's Chief Engineer, alterations to the Deck and Engine logs, etc." Because of the alleged theft of cargo, Kerr-McGee amended its claim in arbitration to recompute its damages and to seek damages under RICO.

Id. at 468-69.

The arbitration panel issued an award in favor of Kerr-McGee. Pursuant to the FAA, 9 U.S.C. § 9, Kerr-McGee then moved in federal district court for confirmation of the panel's award. The district court held that the award was improper "on the ground that the arbitration panel exceeded its power when it relied upon occurrences on other voyages not covered by the Charter in order to find" that Kerr-McGee had provided sufficient evidence to support its RICO claim. Id. at 469. We reversed because we found

that this was too restrictive a construction of the parties' intent as expressed in the Charter that "[a]ny and all differences and disputes of whatsoever nature arising out of this Charter shall be put to arbitration" (emphasis added). The dispute here was directly based on a shortage in the fuel oil delivered at the end of the single voyage covered by the Charter. It is true that Kerr-McGee thereafter obtained evidence that the shortage was intentional and part of a prior practice. This evidence, however, did not alter the facts that the dispute arose "out of" the Charter and the damages were inflicted during Triumph's performance under it. Even though the arbitration panel looked at other voyages, it did not determine the liability of a person not party to the contract, as was the case in Orion Shipping & Trading Co. v. Eastern States Petroleum Corp. of Panama, S.A., 312 F.2d 299 (2d Cir.), cert. denied, 373 U.S. 949, 83 S.Ct. 1679, 10 L.Ed.2d 705 (1963), relied on by Triumph. The award here imposes liability only on Triumph, a party to the agreement to arbitrate.

Id. at 470 (parallel citations omitted). Thus, in deciding whether an arbitration panel could consider relevant conduct by a RICO defendant that occurred prior to the execution of an arbitration agreement, we determined that the panel could consider any conduct that bears on damages. Id.

We believe that Mitsubishi, Genesco, and Kerr-McGee provide a firm basis for the conclusion that JLM's claims regarding a conspiracy among the Owners in violation of the Sherman Act are arbitrable. As in those three cases, we deal here with a broad arbitration clause and the question of its applicability to a dispute resting on factual allegations which concern matters beyond the making of a particular contract between the parties and the performance of its terms. The district court was therefore correct when it stated that the evidence supporting JLM's anti-trust claims will not focus exclusively "upon the parties' conduct under the terms of the charter." Rather, as was the case in Mitsubishi, Genesco, and Kerr-McGee, JLM will try to proffer evidence of a conspiracy which was formed independently of the specific contractual relations between the parties. Nevertheless, JLM asserts that it suffered damages as a result of this conspiracy, and it could not have suffered these damages if it had not entered into the "nearly 80" contracts with the Owners which it alleges were formed during the proposed class period. That is, the damages which JLM asserts it suffered as a result of the conspiracy among the Owners result from the fact that it entered into the charters, each of which specifies pr