Ninth Circuit Refuses to Compel Arbitration Because Arbitration Clause Was Not Broad Enough to Cover Dispute

In Cape Flattery Limited v. Titan Maritime, LLC, No. 09-15682 (9th Cir. July 26, 2011) Cape Flattery, a shipowner had contracted with Titan, a salvage company, to remove a stranded vessel from a reef. The contract contained the following 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.

Titan moved the vessel from the reef, however, serious damage was inflicted on the reef and the U.S. government sued Cape Flattery for $15 million for damages to natural resources pursuant to 33 U.S.C. 2702(b)(2). Shortly thereafter, Cape Flattery sued Titan seeking indemnity and/or contribution alleging gross negligence in its salvage of Cape Flattery’s vessel. Titan moved to compel arbitration pursuant to the salvage agreement. The district court, however, refused to compel arbitration. Titan appealed.

The Ninth Circuit held that the claim for indemnification was collateral to the salvage contract and did not “arise out of” that contract. The court agreed with the trial court’s reasoning that the “arising under” language in the agreement signifies a narrow arbitration agreement. If the parties had intended all disputes associated with the contract to be resolved by arbitration, the court said, the parties would have used broader language such as “arising out of or relating to.” Therefore, the court concluded that the present dispute was not arbitrable.

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