Texaco Exploration and Production Company and Marathon Oil Company v. Amclyde Engineered Products Company, Inc., Amclyde Engineered Products Company, Inc., Third-Party v. J. Ray McDermott Inc., Third-PartyTexaco Exploration and Production Company and Marathon Oil Company v. Amclyde Engineered Products Company, Inc., Amclyde Engineered Products Company, Inc., Third-Party v. J. Ray McDermott Inc., Third-Party
Before GOODWIN*, GARWOOD, and JONES, Circuit Judges.
EDITH H. JONES, Circuit Judge:
At issue in this appeal is whether to carve out an exception to the Federal Arbitration Act (FAA),
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 dеsigned 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 cranе and 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 tо 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
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 cаptioned “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 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 obsеrved 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 . . . .
Here, an arbitration agreement governed by of 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
In the absence of the Rule 14(c) exception carved out by the district court, the Texaco-McDermott dispute would have been subject tо 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 cоurt‘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 thе 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 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 оf dispute resolution.
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 Tеxaco-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 nоt: to put aside a mandatory arbitration provision and force litigation. It is perhaps no accident that AmClyde did not even file a brief in this appeal and by its silence rests on McDermott‘s arguments against enforcing the Texaco-McDermott arbitration clause.
There is little caselaw to guide our analysis. However, in the only previous decision to analyzе this precise issue, the court refused to create a Rule 14(c) exception to the FAA on essentially similar facts. Shipping Corporation of India v. American Bureau of Shipping, 1989 WL 97821 (S.D.N.Y.). 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,
McDermott also invokes National Gypsum Co. v. NGC Settlement Trust & Asbestos Management Corp., 118 F.3d 1056 (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 . . . .” Id. at 1069. 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 Texaco seeks only to compel McDermott, the party to the contract containing the arbitration clause, to arbitrate.
For these reasons, we conclude that the district court erred in refusing to stay the Texaco-McDermott aspect of this controversy pending аrbitration.5
McDermott alternatively contends that Texaco has waived its right to arbitrate. Normally, waiver occurs when a party 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 Equiрment 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 сompel 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 tangentiаlly 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 where 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 thrоugh 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 rеquirements 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.
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.