SD of Texas Compels Arbitration with Nonsignatory in Maritime Dispute

The Southern District of Texas has ordered arbitration with a nonsignatory in a maritime contract dispute.  In Kingsbury Navigation Ltd. v. Koch Supply & Trading, LP, No. 4:12-CV-1851 (S.D. Texas, August 24, 2013), Kingsbury Navigation, Ltd. (“Kingsbury”) entered into an agreement with Koch Shipping, Inc. (“Koch Shipping”) to utilize Kingsbury’s tanker, the Seadancer, to transport fuel.  The agreement between the parties contained an arbitration clause.  As is normal practice in the industry, Kingsbury also entered into a contract with an unrelated party for the use of the Seadancer following Koch Shipping’s discharge of the fuel.  After Koch Shipping allegedly failed to discharge the cargo within a reasonable time period, the other contract was cancelled.

Following the cancellation, Kingsbury invoked the arbitration clause included in the contract with Koch Shipping in New York.  During arbitration, Koch Shipping agreed to pay Kingsbury more than $800,000 in in damages, but opposed a demand for more than $2 million in lost profits.  The arbitral panel agreed with Koch Shipping and the Southern District of New York confirmed the award.

During arbitration, Kingsbury allegedly learned that Koch Supply & Trading, LP (“KS&T”) actually caused the delay in discharging the cargo that was transported by Koch Shipping on the Seadancer.  In response, Kingsbury filed a claim for unlawful interference against KS&T in the Southern District of Texas.  KS&T responded by filing a motion to compel arbitration.

According to the Southern District of Texas,

It is undisputed that Kingsbury and Koch Shipping signed a Charter with an arbitration clause providing that “[a]ny and all differences and disputes . . . arising out of [the] Charter shall be put to arbitration,” (Doc. 10-1, Part II ¶ 24); thus, the only question is whether that arbitration clause also applies to Kingsbury’s claim against nonsignatory KS&T. A nonsignatory to an arbitration agreement may invoke that agreement “only in rare circumstances.”

Next, the court examined whether equitable estoppel allowed KS&T to invoke the arbitration clause.  With regard to the terms of the written agreement, the Southern District of Texas found,

Kingsbury’s claim “makes reference to or presumes the existence of the written agreement, [it] arise[s] out of and relate[s] directly to the written agreement, and arbitration is appropriate.” Grigson, 210 F.3d at 527.

After that, the court addressed interdependent and concerted misconduct by stating,

Alternatively, under the second Grigson prong, arbitration can be compelled “when the signatory to the contract containing an arbitration clause raises allegations of substantially interdependent and concerted misconduct by both the nonsignatory and one or more of the signatories to the contract.” 210 F.3d at 527. Once again, whether KS&T and Koch Shipping’s alleged misconduct was “substantially interdependent and concerted” can be answered by reference to Kingsbury’s own words.

Because the Southern District of Texas found that it was appropriate to apply equitable estoppel to the case at hand, the court granted KS&T’s motion to compel arbitration.