New Ninth Circuit Case on Arbitrability of Maritime Dispute - Cape Flattery, Ltd. v. Titan Maritime

This is a case about the applicability of the Federal Arbitration Act to a contract that specified the usage of English law.  Hold on, don't close the post, I'm posting because it arose out of the grounding of the M/V Cape Flattery, near Barbers Point, Oahu.  The salvage caused damage to the coral reef nearby and the United States asserted a natural resource damage claim of over $15 million.  The case is Cape Flattery, Ltd. v. Titan Maritime, LLC and can be downloaded here.

Facts:  Following the grounding and subsequent federal cleanup, the vessel owner contracted with Titan Maritime to salvage the vessel.  Either during the grounding or salvage, the coral reef was damaged.  The contract between the owner and salvage company had an arbitration clause:

Any dispute arising under this Agreement shall be settled by arbitration in London, England, in accordance with the English Arbitration Act 1996 and any amendments thereto, English law and practice to apply.

The owner filed suit in federal court in Honolulu seeking contribution and indemnity from the salvage company.  The salvage company sought to compel arbitration of the dispute, citing the contract provision.  The trial court denied the motion to compel arbitration and an interlocutory appeal followed.

Analysis:  Two issues on appeal were the choice of law clause of the arbitration provision and whether the arbitration provision was applicable to the dispute. 

Choice of law - the parties disagreed about which law should govern the analysis: the Federal Arbitration Act or the English Arbitration Act.  After reviewing the relevant precedent, the court held that the parties COULD contract around the applicability of the Federal Arbitration Act, even if the issue was being decided in federal court.

Arbitrability of arbitrability question or who-gets-to-decide if a dispute gets arbitrated: judge or arbitrator?  the parties disagreed that the court had the power to decide if the dispute was arbitrable.  The court found that general choice of law provisions do not constitute an agreement that the arbitrator is to decide the arbitrability of a dispute.  They require courts to apply federal arbitration law absent "clear and unmistakable evidence" that the parties intended the applicability of another law.

Did this dispute "arise under" the contract?  Ah - the circuit split cometh.  Under Ninth Circuit case law, specifically, Mediterranean Enterprises, Inc. v. Ssangyong Construction Co., 708 F.2d 1458 (9th Cir. 1983) and Tracer Research Corp. v. National Environmental Services Co., 42 F.3d 1292 (9th Cir. 1994), the words "arising under" denote a narrow arbitration agreement.  This line of decisions conflicts with the Second Circuit, 6th, 3rd, 11th and 4th.  The court followed its earlier decisions and narrowly construed the "arising under" language in the arbitration provision.  Following the precedent, only those disputes "relating to the interpretation and performance of the contract itself" and not tort claims like those prosecuted by the owner were arbitrable.