El Hoss Engineering & Transp. Co. v. American Ind. Oil Co.

Citation183 F. Supp. 394
PartiesMatter of the Arbitration between EL HOSS ENGINEERING & TRANSPORT CO., Ltd., Petitioner, and AMERICAN INDEPENDENT OIL COMPANY, Respondent.
Decision Date05 May 1960
CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York

Taylor, Scoll & Simon, New York City, David E. Scoll, Kenneth Simon, New York City, of counsel, for petitioner.

Lundgren, Lincoln & McDaniel, New York City, Walter C. Lundgren, New York City, of counsel, for respondent.

FREDERICK van PELT BRYAN, District Judge.

This is a proceeding to compel arbitration pursuant to Section 4 of the Federal Arbitration Act, 9 U.S.C. § 4, and for injunctive relief during the pendency of such arbitration. After a hearing the injunctive relief sought was denied. The question of petitioner's right to compel arbitration remains.

Petitioner, El Hoss Engineering & Transport Co., Ltd. (El Hoss), is a Lebanese corporation with its principal place of business in Beirut, Lebanon. Respondent, American Independent Oil Company (Aminoil), is a Delaware corporation with its principal place of business in New York. The amount in controversy exceeds $10,000. This court, save for the arbitration agreement, would have diversity jurisdiction over the subject matter of a suit arising out of the controversy between the parties under 28 U.S.C. § 1332(a). It may therefore entertain this petition under Section 4 of the Federal Arbitration Act.

Aminoil operates extensive oil producing facilities in Kuwait at the head of the Persian Gulf adjacent to Iraq and Saudi Arabia.

On October 1, 1959, an agreement in writing was signed by El Hoss and Aminoil providing for the sale by Aminoil to El Hoss of a large quantity of automotive and construction equipment, the lease of other similar equipment by El Hoss to Aminoil, the furnishing to Aminoil by El Hoss of the major transportation services required in and about Aminoil's Kuwait oil field operations, and the payment therefor by Aminoil.

The agreement consists of fifty-four typewritten pages and deals in detail with the equipment to be sold to El Hoss by Aminoil, and leased by El Hoss to Aminoil, the transportation services to be performed and the manner in which they are to be carried out. Annexed is a lengthy "Operating Guide" of some sixty-nine pages detailing "the procedures covering the procurement and utilization of contract transportation and related services."

The agreement contains an arbitration clause reading as follows:

"11. In the event of any disagreement between the parties hereto as to the effectuation of this agreement, or performance thereof, or any part of the agreement, each party undertakes to use its best efforts to resolve said disagreement without submission to arbitration. However, should such solution be impossible, the parties hereto will select a mutually acceptable arbitrator whose decision as to the matters presented to him shall be final. If the parties cannot agree on such an arbitrator, each shall nominate an arbitrator of its choice and these shall in turn select a third, and the decision of a majority of this panel of three shall be final as to all matters submitted. This paragraph shall not effect the rights of the company to terminate this agreement under the provisions of paragraphs three (3) and four (4) of Section One (1)."

The amount to be paid by El Hoss for the equipment to be purchased by it approached one million dollars. The agreement provided that El Hoss was required to furnish a promissory note in favor of Aminoil, guaranteed by an acceptable financial institution, covering unpaid installments of purchase price. El Hoss was also obligated to furnish a performance bond in the sum of $25,000 covering penalties for failure to supply vehicles and equipment in accordance with normal oil field practices. It was further required to provide suitable liability insurance.

The signature page of the agreement reads as follows:

"This agreement consisting of sections one through thirteen inclusive and attachements one through seven inclusive totaling fifty-four pages is signed by authorized agents of the contractor this 1st day of October, 1959.

El Hoss Witness Claude T. Dinkel, Jr.

and accepted by the Company this 1st day of October, 1959, subject to compliance with the conditions of this agreement as to guarantees or endorsements by third parties in favor of the Company covering the unpaid installments on purchase price, performance bonds and insurance coverage, etc., not later than fourteen (14) days from the date of the acceptance by the Company.

Ken Bodine American Independent Oil Company Witness C. E. McCarty"

On or about October 1, 1959, or shortly thereafter, Aminoil turned over to El Hoss the bulk of the equipment which El Hoss was to purchase under the agreement, and El Hoss commenced the performance of the transportation services which it was to furnish. Time for El Hoss to give the guaranteed promissory note, performance bond and liability insurance and to comply with other similar conditions of the agreement, including certain down payments, was successively extended by Aminoil from October 14, 1959, to November 1, 1959, and then to November 20, 1959.

In the meantime, however, disputes had arisen between Aminoil and El Hoss as to the terms and suitability of the promissory notes, performance bond and insurance which El Hoss was prepared to furnish under the contract, and various proposals of El Hoss with respect to these matters were rejected by Aminoil. The relations between the parties deteriorated, although El Hoss continued to perform transportation services until December 15, 1959, which by then had amounted to over $100,000.

On December 13, 1959, negotiations between the parties with respect to the acceptance by Aminoil of tenders of notes, guarantee, performance bond and insurance terminated. On that day Aminoil advised El Hoss by letter that, effective December 15, 1959, all "negotiations and operations are to cease under the proposed transportation and tariff haul agreement dated October 1, 1959 between American Independent Oil Company and El Hoss Engineering & Transport Company (said agreement never having come into existence)". The letter requested that all Aminoil equipment affected by the agreement be returned immediately. Within the next few days Aminoil repossessed all the vehicles and equipment which had been turned over to El Hoss, with a few exceptions, and commenced to operate with other personnel the transportation services which El Hoss had been performing for it.

On December 14, 1959, El Hoss, through its counsel, advised Aminoil that it desired to proceed with arbitration under the arbitration clause of the agreement, and designated Theodore W. Keel of New York as its arbitrator. Aminoil replied "that arbitration * * * does not apply under the present circumstances, and we, therefore, neither accept nor reject arbitration as suggested in your letter".

The present proceeding was then instituted.

Section 2 of the Federal Arbitration Act (9 U.S.C. § 2) provides that

"A written provision in any * * * contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract * * *, shall be valid, irrevocable, and enforcible save upon such grounds as exist at law or in equity for the revocation of any contract."

Commerce as defined in Section 1 of the Arbitration Act includes commerce among the several states or with foreign nations. The agreement at bar involving as it does transactions between an American corporation and a foreign corporation, plainly comes within this definition of commerce. Reynolds Jamaica Mines v. La Societe Navale Caennaise, 4 Cir., 239 F.2d 689, 693. See, also, United States v. Wilson, 7 Cir., 160 F.2d 745, certiorari denied 331 U.S. 860, 67 S.Ct. 1757, 91 L.Ed. 1867, rehearing denied 332 U.S. 787, 68 S.Ct. 37, 92 L. Ed. 370; Omnium Freighting Corp. v. United Steamship Corp., Sup.Ct., 1st Dept., 15 Misc. 2d 800, 185 N.Y.S.2d 857.

Section 4 of the Act provides that where a petition to compel arbitration is filed

"* * * the court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. * * *."

Thus, the initial questions before the court are whether there was a valid agreement to arbitrate and whether respondent failed, neglected or refused to perform it. If there be triable issues as to these questions then "the court shall proceed summarily to the trial thereof". If, however, there are no such triable issues and these questions are determined in favor of the petitioner on the undisputed facts, all that remains is to construe the agreement and to determine whether the dispute between the parties falls within its ambit. Robert Lawrence Company v. Devonshire Fabrics, Inc., 2 Cir., 271 F.2d 402, 411.

Here there is no dispute as to the text of the agreement containing the arbitration clause nor as to the fact that both parties signed the agreement on October 1, 1959. There is, however, sharp disagreement as to the rights and obligations, if any, which arose out of such signing.

Aminoil contends that no binding contract between the parties ever came into existence and that thus there is no agreement on its part to arbitrate. It urges that the acceptance of the agreement of October 1, 1959, "subject to compliance with the conditions of this agreement as to guarantees, or endorsements by third parties in favor of the company covering the unpaid installments of purchase price, performance bonds and insurance coverage, etc., not later than fourteen (14) days from the date of acceptance by the company" was conditional only and that compliance was a condition precedent to the very existence of any contract binding upon it.

Aminoil says that El Hoss never complied with...

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