ELR Citation: ELR 20271
No(s). 90 Civ. 5702 (KMW) (S.D.N.Y. Apr 8, 1994)

The court holds that neither §311 of the Federal Water Pollution Control Act (FWPCA) nor a certificate of financial responsibility issued to the United States by a shipowners' insurance association provides the states of New York or New Jersey a cause of action against the association for damages resulting from an oil spill caused by explosions on a vessel allegedly insured by the association. After the incident, the association informed defendant vessel owner that its insurance was void as of the policy's renewal date two weeks before the incident, because the vessel owner allegedly failed to disclose a material fact at the time of renewal. After various parties filed claims against it, the vessel owner filed a third-party complaint impleading the association under Fed. R. Civ. P. 14(c) and seeking judgment against the association in favor of the United States, New York, and New Jersey.

The court first holds that FWPCA §311 does not create a right-of-action on behalf of states. Section 311(f)(1) clearly makes shipowners and operators liable only to the U.S. government, and not to the states, for costs incurred in oil removal. Although §311(f)(4) and (f)(5) refer to costs incurred by the states, these provisions are not inconsistent with the view that the Act creates no states' right-of-action. Section 311(f)(4) merely defines the shipowner's measure of liability to include certain expenses incurred by state governments, and §311(f)(5) restricts the purposes to which the state may direct any awards it collects by way of reimbursement from the federal government. The court holds that the certificate of financial responsibility also affords no right-of-action to the states. The court holds that insofar as the third-party complaint relies on the FWPCA and the certificate to create a right-of-action on behalf of New York and New Jersey, it fails to state a claim for which relief may be granted. The court dismisses the third-party complaint as to these claims without prejudice to the vessel owner's right to amend the complaint to allege that impleader of the association is proper because the association may be liable to the states under state law.

The court next holds that a clause in the association's rules that requires disputes between the association and its members to be submitted to arbitration does not bar the third-party complaint as to the claims on behalf of the United States. The mere fact that arbitration is pending is insufficient to show that the third-party complaint fails to state a claim for which relief may be granted. Under Fed. R. Civ. P. 14(c), a complaint that impleads a third-party defendant on the ground that it is liable to a plaintiff fails to state a claim only if the plaintiff has no cause of action against the third-party defendant under the facts alleged in the complaint. The third-party complaint filed on behalf of the government claimants in this action is based on the association's provision of a certificate of financial responsibility and on its consent to be sued by the United States directly under FWPCA §311(p)(3), and presents issues separate from the insurance policy's validity at the time of the accident. Also, to the extent that the third-party claim does turn on the policy's validity, arbitration has not yet decided the issue. Thus, any defense arbitration might provide the association under §311(p)(3) is speculative.

The court next holds that the third-party complaint as to the U.S. claims should not be stayed pending the outcome of the arbitration, because the third-party complaint is not an action "brought upon any issue referable to arbitration" within the meaning of the Federal Arbitration Act (FAA). Whether the association provided a certificate of responsibility, the validity of the certificate in light of the vessel owner's alleged misrepresentation, and when the termination of the undertaking represented by the certificate became effective, are not arbitrable issues under either the certificate or the FWPCA. Moreover, the FAA's goal of ensuring judicial enforcement of privately made agreements to arbitrate is not advanced by forcing a litigant who has not agreed to arbitrate to delay prosecution of its claims. The court also refuses to grant a discretionary stay, because the association has offered no compelling reason to outweigh the presumption against granting such a stay.

Affirming its holdings on reconsideration, the court also holds that §301(c) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) does not create a cause of action under the FWPCA on behalf of state trustees of natural resources. The court defers consideration of the city of New York's motion for partial summary judgment on the issue of damages, pending resolution of the vessel owner's liability. The court also defers consideration of the state of New Jersey's motion for partial summary judgment to resolve issues of negligence, causation, and knowledge, because these issues frequently involve factual disputes and are rarely appropriate for resolution on summary judgment.

Counsel for Plaintiff
William Losquadro
Connell, Losquardo & Zerbo
17 State St., New York NY 10004

Counsel for Defendant
Richard H. Brown Jr.
Kirlin, Campbell, Meadows & Keating
14 Wall St., New York NY 10005
(212) 732-5520