Second Circuit Vacates District Court's Dismissal of Action Seeking a Declaratory Judgment that Owner was Not Bound to Arbitrate Dispute

In Garanti Finansal Kiralama v. Aqua Marine & Trading, Inc., the Second Circuit Court of Appeals vacated the Southern District of New York's judgment dismissing an action brought by Garanti Finansal Kiralama A.S. (GFK) seeking a declaratory judgment that the company was not contractually bound to arbitrate a dispute with the Defendant, Aqua Marine & Trading, Inc. (AM).  The Second Circuit Court of Appeals held that the District Court prematurely resolved disputed factual issues related to an alleged agency relationship and incorrectly dismissed the action.

In June 2010, AM initiated arbitration in New York against GFK, demanding to be paid for fuel delivered to two (2) vessels owned by GFK, the M/V CEMREM and the M/V SEMA ANA.  In its demand for arbitration, AM asserted that GFK was bound by the arbitration provision found in the order confirmation contracts signed by CMR Denizcilik Veticaret A.S. (CMR) as "manager on behalf of the registered owners [GFK]."  In its complaint, GFK argued that CMR was not its "manager" and had not been authorized to act as their agent; therefore CMR had no authority to bind GFK to any contracts with AM.  GFK claimed that they had leased the two (2) vessels to non-party shipping companies under bareboat charter agreements, and the charterers had hired CMR to manage the vessels.  To refute this claim, AM offered into evidence documentation showing that the vessels were registered in the Panama Public Registry to GFK and no bareboat charter or other leasing contract had been registered for the vessels.  Additionally, many of the other documents submitted were silent as to any chartering, leasing, or management arrangements between GFK and the charterers.  

The District Court dismissed the case from the bench, stating that GFK had failed to meet its burden of showing that it was not bound by the contract.  The Court stated that it was "more likely than not that CMR was functioning as the agent for GFK and not for the lessee or bareboat charterer," and thus a contract existed between AM and GFK and/or their agent.  GFK subsequently submitted a letter requesting a pre-motion conference, with plans to make a motion to reopen the case on the grounds of newly discovered evidence.  However, the District Court treated this letter as the motion itself and denied it.  GFK immediately appealed the dismissal of its case. 

On appeal, the Second Circuit stated that the District Court should not have dismissed the request to reopen the case because there were factual issues regarding the agency relationship between GFK and CMR and further evidence was required to determine whether the agency relationship existed.  Further, because GFK denied that it was a party to any contract with AM and had stated that CMR was not their agent, the Second Circuit stated that AM had the burden to prove their affirmative defense that CMR was GFK's agent and had actual or apparent authority to act as agent.  

The Second Circuit stated that AM failed to demonstrate that there were no material disputes of fact regarding the agency relationship in the District Court and the action should not have been dismissed.  Accordingly, the Second Circuit held that the District Court prematurely resolved disputed factual issues regarding and vacated the judgment against GFK.

Read a copy of the Second Circuit Court of Appeals case

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