Regent Seven Seas Cruises, Inc. v. RollsRoyce, PLC, et al. and Alstom Power Conversion, et al. v. Radisson Seven Seas (France) S.N.C., et al.

Issue Discussed: Arbitrability/Scope of Arbitration

Submitted by Eric Haab, Ed Diffin

Date Promulgated: February 21, 2007

Issue Decided: Could non-signatories to a shipbuilding agreement be required to arbitrate their dispute?

In Regent Seven Seas Cruises, Inc. v. RollsRoyce, PLC, the United States District Court for the Southern District of Florida refused to compel arbitration of the dispute.

Regent Seven Seas Cruises, Inc. (“Regent”) is a cruise line which charters and operates cruise ships. In 1997, Regent decided to build or acquire the use of a new cruise ship (the “Mariner”) and began to meet with the RollsRoyce, PLC (“Rolls Royce”) and Alstom Power Conversion (“Alstom”) (collectively the “Petitioners’”) to discuss the specifications for the Mariner. On October 31, 1997, Regent signed a letter of intent with Chantiers de l’Atlantique (“CAT”) for the construction of a cruise ship with a conventional propulsion system. After Regent had signed the letter of intent, the Petitioners tried to convince Regent to use their Mermaid Pod System rather than the conventional propulsion system included in the letter of intent.

After signing the letter of intent, Regent decided that rather than own the Mariner, it would charter the ship from Radisson Seven Seas (France) S.N.C. (“Radisson”). Therefore, on December 21, 1998, CAT and Radisson entered into a written shipbuilding agreement for the construction of the Mariner. This agreement included specifications for the Mermaid Pod System, as well as an arbitration clause. Neither Regent nor the Petitioners were signatories to the shipbuilding agreement.

On December 21, 1998, Regent entered into a ten-year charter agreement with Radisson, whereby it was required to pay an annual charter fee for use of the Mariner. Regent obtained possession of the Mariner in March 2001, and allegedly began to experience problems with the Mermaid Pod System.

On August 9, 2006, Regent filed a complaint in the Circuit Court of Miami-Dade County, Florida against various entities of the Petitioners. On September 18, 2006, Rolls Royce filed a Notice of Removal of the action before the Southern District of Florida. On October 13, 2006, Petitioners filed a Joint Motion to Stay, or in the Alternative, Dismiss the Action, asserting that Regent’s claims must be arbitrated. Also on October 13, 2006, Petitioners initiated a separate action with a Petition to Compel Arbitration. The Petition asserted that any claims that Regent or Radisson might have against Petitioners needed to be arbitrated. On October 29, 2006, the two cases were administratively consolidated. On November 22, Radisson and Regent filed a Motion to Dismiss Petitioners’ Petition to Compel Arbitration. On the same day Regent filed an Amended Complaint against Petitioners, accusing them of (1) fraud in the inducement, (2) breach of express warranty, (3) breach of warranty of workmanlike performance/negligent warning, (4) negligent misrepresentation, (5) deceptive and unfair trade practices, and (6) civil conspiracy to defraud.

In deciding whether arbitration should be compelled, the Court noted that while Radisson could be bound by the arbitration clause, “[b]ecause Radisson has asserted no claims in this or any other related litigation, it will not be considered subject to arbitration in this matter.”

The Court next rejected Regent’s and Radisson’s argument that the Court did not have subject matter jurisdiction over the Petition to Compel Arbitration because there was no written agreement to arbitrate between Regent, Radisson, and Petitioners. The Court found that as long as it has been asserted that a written agreement exists, “questions over the existence or validity of the requisite written arbitration agreement go to the merits and do not implicate jurisdictional concerns.”

The Court next considered whether English law or U.S. federal law would govern the question of whether arbitration would be compelled in the dispute. It found that even where the underlying agreement has a choice-of-law provision, federal law still governs the question of arbitrability.

The Court then considered whether the dispute was arbitrable under the FAA. It noted that neither Petitioners nor Regent were signatories to the agreement to arbitrate. However, the Court noted that there are circumstances where a non-signatory can be compelled to arbitrate.

The Court then considered whether equitable estoppel allowed Petitioners to compel arbitration or required Regent to arbitrate. One situation in which equitable estoppel allows a party to compel arbitration or requires a party to arbitrate its claims is when the signatory to a written agreement must rely on the written agreement in bringing claims against a nonsignatory. The Court found that while the shipbuilding contract was “a necessary precursor to Regent’s possession of the Mariner, Regent has deliberately and adequately limited its claims against Petitioners to those arising outside the bounds of that contract….It is important to note that in doing so, Regent acknowledges that it may be giving up claims that depend upon the existence of the shipbuilding contract.” The Court held that as a result equitable estoppel did not apply.

Petitioners also tried to claim that they could compel arbitration on the basis of equitable estoppel because Regent alleged substantial interdependent and concerted misconduct by Petitioners and CAT. The Court rejected this argument, noting that the Amended Complaint had been “deliberately crafted to avoid this potential basis for compelling arbitration.”

Finally, the Court noted that under either theory of equitable estoppel, the case law seems to require that at least one party be a signatory to the arbitration agreement, which was not the case in the controversy before it.

The Court then considered whether the arbitration clause in the shipbuilding contract was enforceable against Regent because it was incorporated by reference into the charter agreement between Regent and Radisson when it was “annexed” to the charter agreement. The Court noted that the charter agreement had its own arbitration clause with unique rules for arbitration and these rules made it clear that Regent and Radisson did not intend to bind themselves to the arbitration clause in the shipbuilding contract. Instead, the Court found that the documents annexed to the charter commitment were annexed only to provide context to the charter agreement.

The Court also noted that Petitioners referred to CAT as an “Alstom entity,” seeming to suggest that they had a right to compel arbitration under an assignment, agency, alter ego or “close relationship” standing, but rejected this suggestion because Petitioners had not fleshed out the argument.

Finally, the Court considered Petitioners’ request that it craft a new theory or expand an existing one to require Regent to arbitrate, since it was clear that Regent knew of the existence of the arbitration agreement and sought to avoid it through multiple transactions and legal maneuvering. However, the Court declined to do this because Petitioners had not shown that the parties’ expectation was that the specific claims asserted by Regent would be arbitrated. The Court concluded by noting that “Petitioners have not presented a single case to the Court whereby one nonsignatory has compelled another nonsignatory to arbitrate claims pursuant to a remote arbitration agreement.”

*Eric Haab and Ed Diffin are partner and associate, respectively, in the insurance/reinsurance group of Lovells LLP. They each represent cedents and reinsurers in disputes involving a wide variety of issues.