Grand Bahama Petroleum Co., Ltd. v. Asiatic Petroleum Corp., 152

Decision Date03 March 1977
Docket NumberNo. 152,D,152
Citation550 F.2d 1320
PartiesIn the Matter of GRAND BAHAMA PETROLEUM COMPANY, LIMITED, Petitioner-Appellee, v. ASIATIC PETROLEUM CORPORATION, Respondent-Appellant. ocket 76-7222.
CourtU.S. Court of Appeals — Second Circuit

Peter E. Calamari, New York City (Cravath, Swaine & Moore, John R. Hupper, and Anthony A. Dean, New York City, Thomas R. McDade, Houston, Tex., and John M. Rochford, Secretary, Asiatic Petroleum Corp., New York City, on the brief), for respondent-appellant.

Samuel N. Greenspoon, New York City (Eaton, Van Winkle & Greenspoon, New York City, on the brief), for petitioner-appellee.

Before HAYS, ANDERSON and TIMBERS, Circuit Judges. *

ROBERT P. ANDERSON, Circuit Judge:

This is a proceeding to answer the following question, certified to this court pursuant to 28 U.S.C. § 1292(b):

"Whether (New York's Business Corporation Law) BCL § 1312 may be invoked to preclude a non-qualifying foreign corporation from maintaining an action predicated upon diversity jurisdiction to compel arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. § 1, et seq."

The district court felt that there was substantial ground for difference of opinion on this issue, citing In Re Master Key Antitrust Litigation, 528 F.2d 5 (2d Cir. 1975), although it did have some reservations as to whether its order involved "a controlling question of law" as prescribed by the statute. It was of the opinion, however, that if BCL § 1312(a) 1 could be invoked by Asiatic Petroleum Corp. (Asiatic), a New York corporation, against Grand Bahama Petroleum Co. (Grand Bahama), a Bahamian corporation, "the action would terminate at once without the necessity for trial by jury of the present issues before the court pursuant to 9 U.S.C. § 4," and that therefore the matter qualified under the requirement of 28 U.S.C. § 1292(b) that resolution of the legal issue "may materially advance the ultimate termination of the litigation. . . . " This court granted leave to appeal on April 29, 1976.

The certified question arises out of a petition to compel arbitration under the United States Arbitration Act, 9 U.S.C. § 1 et seq., initiated by Grand Bahama against Asiatic. In compliance with 9 U.S.C. § 4, the declared jurisdictional basis of the petition were diversity of citizenship and more than $10,000 in controversy.

The Petition alleged that Grand Bahama and Asiatic had signed an agreement 2 in April, 1972, whereby Asiatic agreed to sell and deliver to Grand Bahama 32,000 barrels per day of No. 6 fuel oil, while Grand Bahama agreed to pay for the oil. Deliveries would take place between April 1, 1972 and March 31, 1978, in accordance with various terms and provisions of the agreement and subject to a clause referring all controversies and claims arising therefrom to arbitration in New York City. The rules of The American Arbitration Association were to govern. It was also agreed that judgment upon any award could be entered in any court having appropriate jurisdiction.

Paragraph 2(d)(iv) of the 1972 agreement provided that price renegotiations for fuel oils to be delivered during each calendar year after 1974 were to take place during the fourth calendar quarter of the preceding year. If the parties could not agree on a price, either party was given the right to terminate the agreement by giving 60 days notice. Pursuant to this Paragraph, Asiatic notified Grand Bahama on September 13, 1974 that it wished to renegotiate a price for 1975 oil deliveries. Negotiations did not go well, and Asiatic wrote to Grand Bahama on December 4, 1974 that if agreement was not reached by December 31, 1974, the contract would be terminated as of March 2, 1975. Grand Bahama replied that it did not consider Asiatic's new price proposals as "good faith efforts to renegotiate the fuel oil price" and shortly thereafter, on December 18, 1974, Grand Bahama served and filed a demand for arbitration with the American Arbitration Association pursuant to the 1972 agreement provisions. On January 10, 1975, pursuant to the 1972 agreement, Asiatic gave written notice of termination (effective March 2, 1975) because the parties had been unable to agree on 1975 fuel oil prices. Grand Bahama unsuccessfully sought to enjoin Asiatic in Supreme Court, New York County, from terminating the contract. It next sought to prevent the agreement's termination through an expedited preliminary hearing before the arbitrators pursuant to the earlier demand for arbitration. The hearing took place on February 28, 1975, two days before the expiration date under Asiatic's notice. As a result of the hearing, an interim agreement was entered into on February 28, 1975 by stipulation of the parties, through which Asiatic would continue delivering No. 6 fuel oil to Grand Bahama and its parent company, New England Petroleum Corp., a New York corporation, pending the final award of the arbitrators. This stipulation was in turn amended on April 28, 1975 by a supplemental written agreement which provided that disputes arising therefrom "may be submitted to the Panel of Arbitrators in this proceeding. . . . "

Asiatic did in fact continue to deliver oil to Grand Bahama and New England Petroleum Corp. during the pendency of the arbitration proceedings. Grand Bahama, however, served and filed another demand for arbitration with the American Arbitration Association on May 29, 1975, claiming that it had been overcharged many millions of dollars by Asiatic. Grand Bahama has alleged in the present petition to compel arbitration that as of February, 1976, Asiatic had not filed any counterclaims in this latest arbitration and had "simply stricken whatever lists of arbitrators have been supplied by the AAA (American Arbitration Association)."

On October 22, 1975, the arbitrators made their award on the original claims of Grand Bahama, found that Asiatic's purported termination of the 1972 agreement was not effective, and directed Asiatic specifically to perform the agreement. A judgment of the Supreme Court, New York County, was entered on the award on January 8, 1976, as the parties had stipulated in the 1972 Agreement.

Meantime, however, the controversy over alleged overcharges by Asiatic continued to be a matter of major concern. Grand Bahama took delivery of three shipments of oil on September 13, 14 and 15, 1975, for which Asiatic claims it was never paid. As a result Asiatic instituted a diversity action against Grand Bahama in the Southern District of Texas to recover the value of the three shipments. Grand Bahama then filed the present petition, based upon diversity jurisdiction, to compel arbitration under the United States Arbitration Act, 9 U.S.C. § 1, et seq., in the Southern District of New York. In addition to arbitration, Grand Bahama sought temporary and permanent injunctions against Asiatic's maintenance of its action in the Southern District of Texas. It also alleged that Asiatic was in violation of the arbitrators' award of October 22, 1976 and the judgment entered thereon on January 8, 1976. It further claims that Asiatic could not sue in Texas on the theory that the September, 1975, oil deliveries in question "were made pursuant to the arrangement worked out in the arbitration," presumably the April 28, 1975 written agreement between Asiatic and Grand Bahama, which continued oil shipments during the pendency of the arbitration proceedings.

Soon after the February 25, 1976 filing of Grand Bahama's petition to compel arbitration, the district court in the Southern District of New York issued a show cause order to proceed to arbitration. On March 1, 1976 Asiatic filed a notice of taking the deposition of Grand Bahama through various officers and directors thereof. Next, Grand Bahama successfully moved for an order quashing Asiatic's notice to take depositions. In its memorandum opinion of March 11, 1976, the district court noted that the depositions sought by Asiatic were for the limited purpose of determining whether Grand Bahama was " 'doing business' within the State of New York within the meaning of § 1312(a) of the New York Business Corporation Law ('BCL') which would preclude petitioner (Grand Bahama) from bringing suit in this court." Asiatic reasoned that given the district court's diversity jurisdiction, and assuming Asiatic could show that Grand Bahama was "doing business" in New York within the meaning of BCL § 1312(a), the district court would be compelled to stay the action pending Grand Bahama's payment of the requisite New York fees and franchise taxes. The court instead agreed with Grand Bahama that because the petition had been brought under the United States Arbitration Act and "there is a body of federal substantive law which governs the case, Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402 (2d Cir.), cert. denied, 364 U.S. 801, 81 S.Ct. 27, 5 L.Ed.2d 37 (1960); Lawn v. Franklin, 328 F.Supp. 791 (S.D.N.Y.1971)," BCL § 1312(a) was not applicable even though the petition's underlying jurisdiction rested on diversity. The court also held that "(i)t is unnecessary to look to State law for any purpose once jurisdiction has been obtained; and § 1312 is not a jurisdictional requirement. Hot Roll Mfg. Co. v. Cerone Equipment Co., 38 A.D.2d 339, 329 N.Y.S.2d 466 (3d Dept. 1972)."

Following the denial of Asiatic's motion to dismiss, the district court considered Asiatic's motion to reconsider the March 11th order quashing notice of depositions or, in the alternative, for a certificate pursuant to 28 U.S. § 1292(b) for leave to appeal the order. The court reaffirmed its March 11th order, but granted the § 1292(b) certificate for the reasons set out at the beginning of this opinion.

At the outset, this court is confronted with a res judicata issue, which was neither fully briefed nor orally argued by either side. As pointed out at the beginning of this opinion, the arbitrators' October 22, 1976 award to Grand...

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