
USCA1 Opinion

	




                            United States Court of Appeals                                For the First Circuit                                 ____________________        No. 96-1800                              KEYSTONE SHIPPING COMPANY,                                Plaintiff - Appellant,                                          v.                              NEW ENGLAND POWER COMPANY,                                Defendant - Appellee.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                  [Hon. George A. O'Toole, Jr., U.S. District Judge]                                                ___________________                                 ____________________                                        Before                                  Cyr, Circuit Judge,                                       _____________                           Campbell, Senior Circuit Judge,                                     ____________________                              and Stahl, Circuit Judge.                                         _____________                                 ____________________            Joseph D. Steinfield with whom Joshua A. Davis, C. Dylan Sanders,            ____________________           _______________  ________________        and Hill & Barlow were on brief for appellant.            _____________            Stanley McDermott, III, with whom James D. Kleiner, Piper &            ______________________            ________________  _______        Marbury L.L.P., and John F. Sherman, III, were on brief for appellee.        ______________      ____________________                                 ____________________                                    March 20, 1997                                 ____________________                      STAHL, Circuit Judge.  This   case   involving   an                      STAHL, Circuit Judge.                             _____________            underlying dispute over who is to pay for some $14 million in            repairs  to  a coal  cargo ship  requires  us to  resolve one            question: whether claims  asserted by defendant-appellee  New            England  Power  Company  ("NEP") against  plaintiff-appellant            Keystone Shipping Co. ("Keystone")  are arbitrable.  We reach            two conclusions pointing  to the same result.  First, because            the  issue  has  already  been litigated  by  the  parties in            Massachusetts state court, it is precluded  from relitigation            under  the doctrine of issue preclusion.  Second, even if the            issue  were not precluded, we find that Keystone and NEP have            a  legally-enforceable agreement  to arbitrate  disputes like            the one here.  We thus affirm.                           Background and Prior Proceedings                           Background and Prior Proceedings                           ________________________________                      In order to resolve this appeal we must  consider a            long series  of agreements and disputes  between Keystone and            NEP concerning  the S.S.  Energy Independence, now  named the            S.S.  Energy  Enterprise  ("the  Vessel").   The  Vessel  was            constructed in the  early 1980s  by the  New England  Collier            Company  ("NECCO"), an  unincorporated joint  venture between            Keystone   and  an   NEP   affiliate,   New  England   Energy            Incorporated  ("NEEI").  NEP, in  turn, chartered  the Vessel            from NECCO to deliver coal to its electric power plants.  The            joint  venture  agreement  and  the  NEP  time  charter  both            contained arbitration provisions.                                         -2-                                          2                      The relationship was not  an entirely happy one and            a  dispute between the  parties followed.   In 1987, Keystone            commenced arbitration  against NEEI under  the joint  venture            agreement,  while NEP  commenced  arbitration  against  NECCO            under the time  charter.  In a previous appeal to this Court,            we  held   that  the   two  arbitrations  were   amenable  to            consolidation by federal court order.  See New England Energy                                                   ___ __________________            Inc. v. Keystone Shipping Co., 855 F.2d 1, 8 (1st Cir. 1988),            ____    _____________________            cert. denied, 489 U.S. 1077 (1989).            _____ ______                      Before the arbitration  was concluded, the  parties            settled  their  differences  through  a  settlement agreement            signed  by Keystone, NEP, and NEEI in October 1989 ("the 1989            settlement  agreement").     Under  the  agreement's   terms,            ownership of the Vessel was to pass from NECCO to Keystone or            a  Keystone nominee.    The parties  further agreed  that the            Vessel's  new owner would time  charter the Vessel  to NEP on            "terms and conditions agreed  to by Keystone and NEP."   They            annexed  a draft of the proposed new time charter ("the draft            charter")  to  the  settlement  agreement.   Like  the  then-            operative  NEP time  charter, the  draft charter  contained a            sweeping arbitration provision.  In particular, Section 41 of            the draft  charter provided  that "[a]ny and  all differences            and disputes of whatsoever nature arising out of this Charter            which  cannot  be resolved  by the  parties  shall be  put to                                         -3-                                          3            arbitration in the  City of Boston  . . .  before a board  of            three persons."                      Keystone nominated Intercoastal Bulk Carriers, Inc.            ("IBC")  to be the Vessel's  new owner.1   In accordance with            the settlement  agreement, NECCO sold  the Vessel to  IBC and            IBC,  in turn,  chartered the  Vessel to  NEP through  a time            charter agreement  executed by  IBC and  NEP on December  27,            1989 ("the 1989 time charter"). The executed time charter was            substantially similar  to the October draft  charter, but not            exactly  identical.   The arbitration  provisions in  the two            documents,  however, were alike  in all respects.   That same            day, December 27, Keystone and  IBC entered into a management            agreement  which provided  that  Keystone  would continue  to            manage the Vessel.                      The executed 1989 time  charter gave NEP the option            to purchase  the Vessel  and terminate  the charter with  six            months' prior,  written  notice.   In  1994, NEP  decided  to            exercise its  option,  resell  the  Vessel  to  International            Shipholding Corp. ("ISC"), and then recharter the Vessel from            ISC.  On October 27, 1994, NEP and ISC signed a Memorandum of            Agreement to this effect.  Several days later, on November 1,            1994, NEP notified  Keystone and IBC  that it was  exercising            its six-month purchase option and would buy the Vessel on May                                            ____________________            1.  Like Keystone itself, IBC is a wholly-owned subsidiary of            Chas. P. Kurz & Co. ("Kurz").                                         -4-                                          4            1, 1995.  NEP concurrently demanded arbitration  of its right            to do this, because Keystone had previously communicated that            it would contest NEP's right to exercise the purchase option.            Keystone alleged  that in the negotiations  that produced the            1989 settlement  agreement NEP had represented  that it would            not  exercise  the time  charter's  purchase  option.   NEP's            exercise of  the option,  Keystone suggested,  indicated that            NEP had made misrepresentations at the time of the settlement            negotiations and had  violated Mass.  Gen. Laws ch.  93A.   A            three-member  arbitration  panel  was  convened  to  hear the            parties' dispute.                      On March  15, 1995,  the arbitration panel  decided            four  threshold  issues  concerning   NEP's  service  of  the            purchase notice and  demand for arbitration in  favor of NEP.            IBC  responded by filing an action  in federal district court            under  9 U.S.C.   10  to vacate the  arbitrators' ruling, but            the  court  dismissed  the   complaint  as  premature.    See                                                                      ___            Intercoastal Bulk  Carriers, Inc.  v. New England  Power Co.,            _________________________________     ______________________            No.  95-10880  RW2, (D.  Mass.  May 18,  1995).   Thereafter,            Keystone  and IBC resumed arbitration of the dispute.  On May            17,  1995,   Keystone  and  IBC  announced   that  they  were            withdrawing  the challenge  to  NEP's right  to exercise  the            purchase option  from arbitration,  leaving to the  panel the            issue  of whether NEP's actions had  violated Mass. Gen. Laws            ch. 93A.                                         -5-                                          5                      That  same  day,  May  17,  Keystone  sued  NEP  in            Massachusetts  state  court,  claiming  that  NEP   had  made            misrepresentations  during  the  negotiations over  the  1989            settlement agreement.  NEP moved to dismiss Keystone's claims            on  the ground  that they  were governed  by the  arbitration            provision of the 1989 time charter.  Keystone  responded that            its  claims against  NEP did  not arise  under the  1989 time            charter  signed by NEP and IBC, but  instead arose out of the            1989 settlement agreement, which  did not have an arbitration            provision.  The  state court  agreed with  NEP and  dismissed            Keystone's  complaint.   The state  court concluded  that the            settlement  agreement's provisions  meant  that Keystone  was            bound  by   the  1989  time  charter's   arbitration  clause,            notwithstanding  the fact  that Keystone  had not  signed the            charter, which  had been executed  by its  nominee, IBC,  and            NEP.  See Keystone Shipping Co. v. New England Power Co., No.                  ___ _____________________    _____________________            95-1141-B  (Mass. Superior  Court,  Essex County,  August 17,            1995).                      The   dispute   thus  returned   to   the  original            arbitration panel, which, on  August 21, 1995, concluded that            NEP had the right to exercise the purchase option in the 1989            time charter. The arbitrators ordered IBC to sell the  Vessel            to  NEP.   Two  days later,  IBC filed  an action  in federal            district  court seeking  to  vacate the  arbitrators'  latest            rulings. See Intercoastal Bulk  Carriers, Inc. v. New England                     ___ _________________________________    ___________                                         -6-                                          6            Power  Co., C.A.  No. 95-11881-GAO.   Shortly  thereafter, on            __________            September 5, 1995, Keystone filed a notice of appeal from the            state court's decision  to dismiss its state  cause of action            against NEP.                      This  was the  state of  legal affairs  between the            parties when, on September 20, 1995, IBC and NEP entered into            a new settlement agreement ("the 1995 settlement agreement").            Under the  new settlement  agreement, IBC agreed  to transfer            the Vessel  in accordance with NEP's wishes to ISC's nominee,            Enterprise Ship  Co. ("Enterprise").   The parties  expressly            acknowledged that  the arbitration  clause found in  the 1989            time charter would govern the  new settlement agreement.  The            settlement agreement also provided  for the mutual release of            claims by  Keystone and IBC in  favor of NEP and  vice versa.            There was one exception  to this general release.   Exhibit B            of the agreement  expressly provided that NEP did not release            Keystone  and  IBC from  "claims, if  any,  by reason  of the            Vessel not being in class at the Closing based upon a  survey            .  . .  when the  Vessel is  drydocked immediately  after the            Closing."                      On  September 28,  1995,  the  Vessel's new  owner,            Enterprise,  took title and sent the Vessel to a shipyard for            the  agreed-upon  inspection.    The  survey   that  followed            revealed corrosion damage to the Vessel's bulkheads and cargo            holds  exceeding the  tolerances established by  the American                                         -7-                                          7            Bureau of Shipping,  thereby making  the Vessel  unseaworthy.            The ship inspectors refused to allow the Vessel to sail until            the needed repairs were completed.  NEP alleges that the bulk            of  the corrosion  damage was a  direct result  of Keystone's            failure to maintain  the Vessel.  The total cost to bring the            Vessel to standard is claimed to be approximately $14 million            dollars. NEP argues that Keystone and IBC are responsible for            much of that amount under the terms of the 1989 time charter.                      On December 20, 1995, NEP notified  the arbitration            panel  that  it  desired  to  arbitrate its  claims  for  the            Vessel's  repair costs  against Keystone  and IBC.   Keystone            denied that it was required to arbitrate NEP's claims, and on            February  27,  1996  filed  suit in  federal  district  court            seeking a stay of arbitration pursuant to Mass. Gen. Laws ch.            251,    2(b).  NEP cross-moved  under the Federal Arbitration            Act,  9 U.S.C.   4, to compel  arbitration.  On May 24, 1996,            the district court granted NEP's motion to compel, concluding            that the  arbitrability of NEP's claims  against Keystone was            an issue  that had  been previously decided  in Massachusetts            state court, and, in  any event, was the result  compelled by            the merits.  This appeal ensued.                                  Standard of Review                                  Standard of Review                                  __________________                      We review de novo the district  court's application                                __ ____            of   the  doctrine   of   issue  preclusion   because  "[t]he            applicability vel non of  preclusion principles is a question                          ___ ___                                         -8-                                          8            of law."  Monarch Life Ins. Co. v. Ropes & Gray, 65 F.3d 973,                     ______________________    ____________            978 (1st Cir. 1995).  Accordingly, "[n]o special deference is            owed to the district court's determination."  Grella v. Salem                                                          ______    _____            Five Cent Sav. Bank, 42 F.3d 26, 30 (1st Cir. 1994).            ___________________                      Similarly,   we   exercise   plenary  review   over            determinations  regarding  arbitrability.    "[A]rbitrability            depends on  contract interpretation,  which is a  question of            law."  PaineWebber Inc.  v. Elahi, 87 F.3d 589, 592 (1st Cir.                   ________________     _____            1996) (construing Commercial Union  Ins. Co. v. Gilbane Bldg.                              __________________________    _____________            Co., 992 F.2d 386, 388 (1st Cir. 1993)).            ___                            The Issue Preclusion Question                            The Issue Preclusion Question                            _____________________________                      In  issuing its  order to  compel  arbitration, the            district court  concluded that the Massachusetts  state court            judgment precludes Keystone from relitigating the question of            arbitrability  under  the  1989  time   charter.  On  appeal,            Keystone maintains  that  the district  court misapplied  the            issue preclusion doctrine.  We disagree.                      Initially, we  note  that  "[t]he  full  faith  and            credit  statute, 28 U.S.C.    1738, requires us  to give 'the            same preclusive effect to state court judgments -- both as to            claims and issues previously adjudicated -- as would be given            in  the state court system in which the federal court sits.'"            Kyricopoulos  v. Town of Orleans,  967 F.2d 14,  16 (1st Cir.            ____________     _______________            1992)  (per curiam)  (quoting Willhauck  v. Halpin,  953 F.2d                                          _________     ______            689, 704 (1st  Cir. 1991)).   Massachusetts law thus  governs                                         -9-                                          9            the  preclusion  question in  this  case.   However,  we have            previously  recognized that  Massachusetts courts  "apply the            doctrine  of  issue  preclusion  in  a  traditional  manner."            Willhauck, 953 F.2d at 705 (citing Martin v. Ring, 514 N.E.2d            _________                          ______    ____            663, 664 (Mass. 1987); Fireside  Motors, Inc. v. Nissan Motor                                   ______________________    ____________            Corp., 479 N.E.2d 1386  (Mass. 1985); Restatement (Second) of            _____            Judgments   27  (1982)).   Because our cases  apply the  same            traditional  preclusion  principles that  would control  in a            Massachusetts court, our previous pronouncements in this area            of law are persuasive.                      "The principle  of  collateral estoppel,  or  issue            preclusion,"  we have  explained, "bars  relitigation  of any            factual or legal issue that was actually decided in  previous                                            ________            litigation 'between  the parties,  whether on  the same  or a            different  claim.'"  Grella, 42 F.3d at 30 (quoting Dennis v.                                 ______                         ______            Rhode Island Hosp. Trust,  744 F.2d 893, 899 (1st  Cir. 1984)            ________________________            (quoting  Restatement (Second)  of  Judgments    27 (1982))).            When the parties in a subsequent action are the same as those            in a prior  one, a  party seeking to  invoke the doctrine  of            issue preclusion needs to  establish four essential elements:            "(1) the  issue sought to  be precluded must  be the same  as            that  involved in the prior  action; (2) the  issue must have            been  actually  litigated;  (3)  the  issue  must  have  been            determined by a valid and binding final judgment; and (4) the            determination of the  issue must have  been essential to  the                                         -10-                                          10            judgment."   Grella, 42 F.3d  at 30; accord Ropes  & Gray, 65                         ______                  ______ _____________            F.3d at  981.   Each  of these  elements  is present  in  the            instant case.                      First,  the arbitrability  of NEP's claims  in this            case raises the same issue  raised in the Massachusetts state            cause of action.  Keystone ingeniously attempts to argue that            there  are two  separate and  distinct arbitrability  issues.            Keystone in particular maintains that the state court decided            that claims  against it  under the 1989  settlement agreement            were arbitrable, but that this case raises a different issue:            "whether claims  asserted by  NEP against Keystone  under the            1989 Time  Charter and 1995 NEP-IBC  Settlement Agreement are            arbitrable."   Keystone fails to persuade for  a very simple,            but  inescapable, reason.    The state  court concluded  that            Keystone was bound to  arbitrate claims concerning the Vessel            under the 1989  settlement agreement because (1) it was bound            to arbitrate such claims under the terms of the executed 1989            time charter,  and (2) Keystone  had expressly agreed  in the            1989 settlement agreement that  ownership of the Vessel would            pass  to Keystone or a Keystone nominee and that the Vessel's            new  owner would time charter the Vessel to NEP on "terms and            conditions  agreed   to  by  Keystone  and   NEP."    Because            arbitrability of  claims concerning  the Vessel was  one such            term and  condition in the  executed time charter,  the state            court  concluded  that  the  settlement  agreement's  express                                         -11-                                          11            language bound Keystone  to arbitrate  such claims.   Put  in            another  fashion, the state court found that Keystone, in the            1989 settlement agreement, had expressly  agreed that it or a            nominee would execute a time charter on terms and  conditions            agreeable to  Keystone, and thus  was bound to  arbitrate all            disputes because  the executed  time charter, like  the draft            charter attached to the settlement agreement and initialed on            every  page by  Keystone, made  claims concerning  the Vessel            arbitrable.                      Keystone's  argument  about  the   1995  settlement            agreement likewise  fails to persuade because  the parties to            the  agreement expressly  acknowledged  that the  arbitration            clause  found in the 1989 time charter would apply and govern            the  new settlement  agreement.   While it  is true  that the            settlement  agreement  provided  for  the mutual  release  of            claims by Keystone  and IBC in favor  of NEP and  vice versa,            the  agreement  expressly  carved  out an  exception  to  the            general  release for "claims, if any, by reason of the Vessel            not being  in class  at the  Closing."   Because NEP did  not            release  such claims, and because such claims arise under the            1989 settlement agreement and  are arbitrable under the terms            of  that   agreement  and   the  1989  time   charter,  their            arbitrability  in the  instant case  is the  very same  issue            previously  litigated  and  decided  in  Massachusetts  state            court.                                         -12-                                          12                      This point carries us to the  second element of the            issue preclusion  standard: the  issue raised here  on appeal            has  been  "actually litigated."    Grella,  42 F.3d  at  30.                                                ______            Keystone  opposed NEP's  motion to dismiss  the Massachusetts            state cause  of action  before the  state court  with briefs,            affidavits, and at a motion hearing.  Keystone  feebly argues            that the state court should not have disposed of its cause of            action  by  motion,  but  instead should  have  conducted  an            evidentiary  hearing.      As  NEP   correctly   notes,   the            Massachusetts court  had before it  the relevant  contractual            documents, read  and heard  the litigants' opposing  views on            what meaning and effect should be afforded to those documents            and  the history  of  the parties'  arbitration efforts,  and            properly concluded  that the arbitrability question  could be            decided on  motion.  Well-settled principles  of law indicate            that  the  arbitrability  issue  was  actually litigated  for            preclusion purposes  because it was "subject  to an adversary            presentation and consequent judgment" that was not "a product            of  the parties'  consent  and is  a  final decision  on  the            merits."   Jack  H. Friedenthal  et  al., Civil  Procedure                                                         ________________            14.11, at 672, 673 (1985).                      We  thus  reach  the  third  and  fourth  essential            elements  of  collateral estoppel:  the  issue  sought to  be            precluded must  have been determined  by a valid  and binding            final judgment  and the issue's determination  must have been                                         -13-                                          13            essential to the judgment.  See Ropes & Gray, 65 F.3d at 978;                                        ___ ____________            Grella,  42  F.3d at  30.   Keystone  does not  challenge the            ______            validity  and binding  nature  of the  state court  judgment.            Rather, Keystone argues that the state court judgment focused            on the 1989  settlement agreement and thus  did not determine            the arbitrability  of NEP's current claims  because the court            did not decide whether claims against Keystone are arbitrable            under  either the 1989  time charter  or the  1995 settlement            agreement.   This  argument is  nothing more than  a recycled            version  of the contention we have just rejected.  As we have            seen, the state  court determined that Keystone was  bound to            arbitrate under  the 1989  settlement agreement because  that            agreement contemplated the 1989 time charter, which contained            a  sweeping arbitration  clause.   The  arbitrability of  any            claims,  including NEP's  present ones,  under the  1989 time            charter was an essential component in the state court's prior            determination, even if it itself  was not the ultimate  issue            the court decided.   As we recently explained, an  "issue may            be  actually  litigated  and  resolved  'even if  it  is  not            explicitly  decided,' as long as it is logically necessary to            [the  court's] final decision."  Ropes & Gray, 65 F.3d at 982                                             ____________            (quoting and  construing Grella, 42 F.3d  at 30-31) (emphasis                                     ______            in original omitted).                      Our  review  of  the  record  indicates  that   the            arbitrability of NEP's present  claims against Keystone is an                                         -14-                                          14            issue  that  has already  been litigated  and decided  by the            parties  in Massachusetts state court.  Under the doctrine of            issue preclusion,  Keystone cannot  seek to  undo or  redo in            federal court what has already been done in state court.                           The Merits of the Arbitrability Issue                        The Merits of the Arbitrability Issue                        _____________________________________                      Our  decision  today  would  be the  same  even  if            principles  of collateral  estoppel  did  not bar  Keystone's            attempt  to  relitigate the  arbitrability  of  NEP's current            claims against it.  Our review of the record and the relevant            contractual  documents  contained therein  convinces  us that            Keystone  is bound  to arbitrate  NEP's claims  regarding the            Vessel.  In view  of the detailed factual discussion  we have            already undertaken, we do not feel it necessary to replay all            of  the evidence.    We shall  only  briefly explain  why  we            conclude  that Keystone is bound to  arbitrate such claims as            those NEP presently advances.                      Keystone entered into the 1989 settlement agreement            with NEP.   In that agreement, Keystone expressly agreed that            ownership  of the  Vessel  would pass  to  it or  a  Keystone            nominee  and that the  Vessel's new owner  would time charter            the  Vessel  to NEP  on "terms  and  conditions agreed  to by            Keystone and NEP." Attached to the settlement agreement was a            draft   of  the  contemplated   time  charter  that  Keystone            initialed  on every  page.   The  draft  charter contained  a            sweeping arbitration clause,  which provided that  "[a]ny and                                         -15-                                          15            all differences and disputes of whatsoever nature arising out            of this Charter which cannot be resolved by the parties shall            be  put  to arbitration  in the  City  of Boston."   Keystone            subsequently nominated IBC  to take title  to the Vessel  and            IBC, in turn,  executed the  time charter with  NEP that  was            contemplated in the 1989  settlement agreement.  The executed            time charter  contained the exact same  arbitration provision            as the  draft  attached to  the  settlement agreement.    The            inescapable  conclusion from the  foregoing is  that Keystone            agreed to time  charter the  Vessel to NEP,  via its  nominee            IBC,  under  the  terms  and conditions  established  in  the            executed  time charter,  including the  terms  and conditions            regarding the arbitrability of claims.                      The 1995  settlement agreement between IBC  and NEP            does not change this legal state of affairs.  Both parties to            the  agreement  expressly acknowledged  that  the arbitration            clause  found in the 1989  time charter would  govern the new            settlement  agreement.  While  the new  settlement  agreement            provided for the mutual release of claims by Keystone and IBC            in  favor  of  NEP  and vice  versa,  as  we  have  said, the            agreement  expressly  carves  out  one  exception  from  this            general  release. The  relevant  language could  not be  more            clear: NEP does not release Keystone and IBC from "claims, if            any, by  reason of  the  Vessel not  being  in class  at  the            Closing  based  upon a  survey  .  .  .  when the  Vessel  is                                         -16-                                          16            drydocked immediately  after the Closing."   Because NEP does            not release  such claims  against Keystone, and  because such            claims  arise under  the  1989 settlement  agreement and  are            arbitrable  under the  executed time charter  contemplated by            that earlier settlement agreement,  Keystone is obligated  to            arbitrate NEP's present claims.                      The fact  that Keystone itself did  not sign either            the 1989 time charter or the 1995 settlement agreement is not            dispositive.  Keystone is  bound by the terms and  conditions            of the executed  time charter because  of the commitments  it            undertook in  the 1989  settlement agreement.   And the  fact            that  Keystone is  not  a signatory  to  the 1995  settlement            agreement is  nothing more than a clever  red herring because            that  agreement  specifically   preserves  Keystone's   prior            exposure and liability  under the  1989 settlement  agreement            and  time  charter, for  "claims, if  any,  by reason  of the            Vessel not being in class at the Closing."                      Having weighed  the merits vel non  of this appeal,                                                 ___ ___            we  find that the balance swings clearly  in NEP's favor.  We            conclude  that  NEP's  claims   are  arbitrable  and  decline            Keystone's invitation to visit additional corollary issues.                                      Conclusion                                      Conclusion                                      __________                      Principles    of    collateral   estoppel    (issue            preclusion) raise a bar to Keystone's attempt to litigate the            arbitrability of NEP's present  claims for recovery of repair                                         -17-                                          17            costs  to the Vessel.  Even if  this were not the case, NEP's            claims against  Keystone are  arbitrable as a  consequence of            Keystone's contractual  commitments.  We  thus conclude  that            the district court's order to compel arbitration was correct.                      Affirmed.  Costs to appellee.                      Affirmed.  Costs to appellee.                                         -18-                                          18
