Savage Se Operations, LLC v. Wartsila N. Am., Inc.

496 F.Supp.3d 1051

SAVAGE SE OPERATIONS, LLC, Plaintiff,

v.WARTSILA NORTH AMERICA, INC., et al., Defendants.

Civil Action No. 4:19-cv-01681

United States District Court, S.D. Texas, Houston Division.

Signed October 26, 2020

Hansford P. Wogan, Pro Hac Vice, Jones Walker LLP, Jefferson Randolph Tillery, Jones Walker et al., New Orleans, LA, for Plaintiff.

Marcus Rene Tucker, Phelps Dunbar LLP, Houston, TX, for Defendants.

MEMORANDUM AND ORDER COMPELLING ARBITRATION

Charles R. Eskridge III, United States District Judge

The motion to compel arbitration of this action is granted. Dkt 14. All claims are stayed until the arbitral proceedings conclude.

1. Background

This case arises under maritime law. It concerns damage to the Sulphur Enterprise , a ship owned by Plaintiff Savage SE Operations, LLC. The damage resulted from a fire allegedly caused by defective work performed by Defendants Wartsila North America, Inc. and Wartsila Corporation (together, Wartsila) when overhauling one of the ship's engines. See Dkt 1 at ¶¶ 10–14.

Wartsila submits two declarations to explain and verify the background of this dispute. One is from David Smith, who is its marine sales manager. See Dkt 14-1. The other is from Spencer Weber, who is its field service superintendent. See Dkt 18-1. These declarations are consistent with the exhibits submitted by both parties. And they are entirely undisputed because Savage submitted no declarations in response.

The record reflects that Wartsila had performed work under contract with Savage on at least eleven prior occasions. See Dkt 14-1 at ¶ 19 (Smith declaration); see also Dkts 15, 16, and 17 (prior contracts). As to the now-disputed overhaul work, representatives of Savage initially contacted Wartsila in the Fall of 2017 to request that Wartsila perform the work. See Dkt 14-1 at ¶¶ 3–4. The exchanges between the parties leading to the contractual services that Wartsila later provided were somewhat complicated, to say the least.

Wartsila sent an email on December 20, 2017 with an initial "Field Service Offer" offering to do the work once the Sulphur Enterprise was in dry dock. See Dkt 14-2. The attached offer (designated SO-6842-1) referenced the product numbers of all three engines, sequentially specified as DG#1, DG#2, and DG#3. See Dkt 14-3 at 1.

Savage then requested on January 5, 2018 that Wartsila perform the overhauls while the ship was in transit. See Dkt 14-1 at ¶ 5 (Smith declaration). Wartsila explained that only one engine could be done in transit due to logistical issues. Savage then requested two field service offers—one to overhaul a single engine in transit, and one to overhaul the other two in dry dock. Ibid.

Wartsila sent Savage the two requested service quotes on January 9th. The email clearly indicated that one offer (designated SO-07464-1) was "to overhaul one engine pre-dry dock with a riding crew." Dkt 14-4 at 1. That offer referred specifically to the product number corresponding to the engine specified as DG#1. See Dkt 14-5. The other (designated SO-06842-2) replaced the prior offer and was "to overhaul the other two engines in dry dock." Dkt 14-4 at 1. That offer referred to the "Customized Overhaul of Auxiliary Engines (2 units)"—but then again referenced the product numbers of all three engines. Dkt 14-6 at 1, 4–5.

Each of these offers contained the standard terms and conditions by which Wartsila makes all of its offers. These provide for arbitration of disputes as follows:

Any controversy, claim or dispute between the parties hereto arising out of or related to this Contract shall be submitted to the International Court of Arbitration of the International Chamber of Commerce for final and binding arbitration in accordance with the Rules of Arbitration of the International Chamber of Commerce by three (3) arbitrators appointed in accordance with the said Rules. The arbitration proceedings shall be in the English language and shall take place in Paris, France.

Dkt 14-3 at 19; Dkt 14-5 at 22; Dkt 14-6 at 22.

Savage accepted SO-7464-1 and provided Purchase Order SE180116-01 to Wartsila by email on January 16th. See Dkt 14-9. The email from Savage indicated that this work would be performed on the product number corresponding to DG#1. Id. at 2. Wartsila confirmed receipt that same day and again attached a copy of its terms and conditions. Id. at 1.

But Savage then provided express instructions on January 21st to perform the overhaul work on DG#3—not DG#1 as specified in the prior email. See Dkt 18-1 at ¶ 5 (Weber declaration); see also Dkt 14-1 at ¶ 5 (Smith declaration). That work commenced the following day while the ship remained at sea and in transit. See Dkt 18-1 at ¶ 2. The work on DG#3 then halted on February 5th because the engine was in worse condition than expected, requiring delay until the Sulphur Enterprise docked and necessary parts were brought on board. Id. at ¶ 6.

Wartsila then sent an email on February 9th to replace and update SO-6842-2. See Dkts 14-11. The scope of work of the revised offer (designated SO-6842-3) was again indicated as "Customized Overhaul of Auxiliary Engines (DG # 1 & 2)." Dkt 14-12 at 4. But like before, the revision referenced the product numbers of all three engines. Id. at 1. And again, the revised offer came with Wartsila's standard terms and conditions, including the arbitration clause. Id. at 17.

Savage noted an issue with its "limited credit" by email of February 9th. Dkt 14-13 at 1–2. Wartsila instructed Savage to submit a new purchase order to accept the revised offer terms on SO-6842-3. See Dkt 14-13 at 1. Savage responded by email of February 16th with "please use PO#: E2FC." Ibid.

Wartsila notes by declaration that reference to that purchase order number is "not an actual hard copy purchase order." Dkt 14-1 at ¶ 13 (Smith declaration). Wartsila requested by email dated February 28th that Savage send a hard copy for SO-6842-3 and eleven other outstanding purchase orders. See Dkt 14-14; see also Dkt 14-1 ¶ 15. Wartsila requested that Savage include language including the "quote number, your PO number and accepting our Terms and Conditions, and acknowledging that all FS orders may be subject to change orders throughout the job should we find something unexpected." Dkt 14-14 at 2. Savage did so on March 8th, sending Wartsila ten hard-copy purchase orders by email. See Dkt 14-16; see also 14-1 at ¶ 16. But Savage failed to include a hard-copy purchase order for SO-6842-3. Ibid.

The overhaul work on DG#3 then resumed on February 21st while the Sulphur Enterprise was dockside. See Dkt 18-1 at ¶¶ 8–9 (Weber declaration). Work on DG#1 began on February 24th. Id. at ¶ 10. And work began on DG#2 on March 6th after the ship entered dry dock. Id. at ¶ 12. Wartsila completed the overhauls of DG#1 and DG#3 before dry dock ended on May 3rd. Id. at ¶¶ 12–13. Savage decided to complete work on DG#2 after the Sulphur Enterprise returned to service. Id. at ¶ 12.

A fire broke out in the engine room as the ship entered the Port of Galveston four days later on May 7th. See Dkt 1 at ¶ 10. Savage alleges that this was caused by defective work performed by Wartsila when overhauling the fuel rack and other machinery on DG#3 between April 16th and April 25th. Id. at ¶ 13; see also Dkt 22 at 15–24 (Wartsila on-site daily reports).

Savage brought causes of action against Wartsila for negligent performance of maritime contract, breach of contract, and "breach of warranty and/or breach of workmanlike performance." Dkt 1 at ¶¶ 24–27. Wartsila moved to compel arbitration under its standard terms and conditions. Dkt 14. Savage filed an amended complaint with permission to add a subcontractor as an additional party. Dkt 31. This amendment didn't affect the presentation of the motion, which by then was fully briefed.

2. Legal Standard

The Federal Arbitration Act provides, "A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement." 9 USC § 4. This permits a party to file a motion to compel arbitration when an opposing party "has failed, neglected, or refused to comply with an arbitration agreement." American Bankers Insurance Co. of Florida v. Inman , 436 F.3d 490, 493 (5th Cir. 2006).

To determine whether to enforce an arbitration agreement, the court first determines whether there is a valid agreement to arbitrate and then considers whether the subject dispute falls within the scope of that agreement. Edwards v. Doordash Inc. , 888 F.3d 738, 743 (5th Cir. 2018), citing Klein v. Nabors Drilling USA LP , 710 F.3d 234, 236 (5th Cir. 2013). The court must compel arbitration if both elements are satisfied unless there is a federal statute or policy to the contrary. See Sherer v. Green Tree Servicing LLC , 548 F.3d 379, 381 (5th Cir. 2008).

Two important clarifications pertain to the consideration of validity at the first step. First, federal courts don't consider general challenges to the validity of the entire contract at this stage, which pertains only to a motion to compel arbitration. Buckeye Check Cashing, Inc. v. Cardegna , 546 U.S. 440, 449, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006). This is because an arbitration agreement is severable from the underlying contract under Section Two of the Federal Arbitration Act. Rent–A–Center, W., Inc. v. Jackson , 561 U.S. 63, 70–71, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010). The question is whether the challenge is directed to the contract as a whole or to the arbitration agreement itself. So long as it is to the former, it doesn't prevent a court from considering and enforcing a specific agreement to arbitrate. Ibid. And if the court...