The opinion of the court was delivered by: Lee H. Rosenthal United States District Judge
This court has reviewed the Memorandum and Recommendation of the United States Magistrate Judge signed on December 18, 2007. The court has made a de novo determination after considering the objections of the plaintiff, OceanConnect.com, and the response of the defendant, Chemoil Corporation. Rule 72(b), Fed. R. Civ. P.; 28 U.S.C. § 636(b)(1)(C); United States v. Wilson, 864 F.2d 1219 (5th Cir. 1989). This court adopts the Memorandum and Recommendation, grants the motion to compel arbitration, and dismisses this case without prejudice. The reasons are explained below.
The factual and procedural background was set out in the Memorandum and Recommendation and is not repeated here. It is useful, however, to set out a summary chronology.
April 2003: Chemoil purchased fuel oil bunkers.
June 2003: Chemoil advised its customers that the fuel oil bunkers may have a problem.
2003: Chemoil supplied its customer, LG International Pte. Ltd., with fuel bunkers. LG International sold the bunkers to Ocean Connect with an assignment of any claim it might have against Chemoil from the sale. OceanConnect sold the bunkers to STX Pan Ocean, a South Korean company that chartered the vessel Gant Vision. That vessel allegedly suffered engine damage as a result of the defective oil bunkers.
January 2004: Chemoil sued Shell Trading (US) Company, the ultimate supplier of the bunkers. That suit was dismissed on the parties' joint motion.
September 2004: OceanConnect learned of the alleged engine damage to the Gant Vision.
October 2004: OceanConnect notified Chemoil of the problems with the Gant Vision and requested "advise with respect to indemnification from Chemoil to OceanConnect." (Docket Entry No. 20, Ex. 2). April 2006: STX Pan Ocean sued OceanConnect, its supplier, in Korea, alleging damages from the defective bunkers.
August 2006: OceanConnect sued Chemoil and Shell in the Southern District of Texas, asserting contribution and indemnity based on the claims STX Pan Ocean asserted against OceanConnect in Korea. In that suit, OceanConnect "vouched" Chemoil into the Korean proceeding. OceanConnect voluntarily dismissed the suit after Chemoil had been served but before its answer date.
January 2007: STX Pan Ocean obtained a $860,000 judgment against OceanConnect. It is on appeal.
March 2007: OceanConnect again sued Chemoil in the Southern District of Texas, asserting a right to indemnity and contribution for the South Korean judgment. Chemoil invoked a contractual arbitration clause and moved to compel the arbitration and to stay the litigation.
The magistrate judge granted Chemoil's motion to compel arbitration. The magistrate judge held that the contract to sell the fuel oil bunkers contained an enforceable arbitration clause and that Chemoil did not waive its arbitration right because it failed to file a written arbitration demand "within 90 days after occurrence of the circumstances giving rise to the dispute," as the contractual arbitration clause to the parties' contract required. OceanConnect objected to the magistrate judge's rulings that including the arbitration clause was not a material alteration to the parties' contract and that Chemoil did not waive the right to arbitrate. Chemoil responded.
II. The Issue of Material Alteration
The offer and acceptance of the fuel oil bunkers were pursuant to a bunker nomination and order confirmation. The order confirmation stated that the sale was based on Chemoil's standard terms and conditions for the sale of marine fuel. Those terms and conditions contained the arbitration provision. The terms and conditions were incorporated by reference. Chemoil offered to supply OceanConnect with a copy of those terms and conditions and an opportunity to object to the terms and conditions. The record showed that the terms and ...