Ore & Chemical Corp. v. Stinnes Interoil, Inc.

• Decision Date: 22 April 1985
• Docket Number: No. 84 Civ. 6553 (DNE).,84 Civ. 6553 (DNE).
• Citation: 606 F. Supp. 1510
• Parties: The ORE & CHEMICAL CORPORATION, Petitioner, v. STINNES INTEROIL, INC. and Sergeant Oil & Gas Co., Inc., Respondents.
• Court: U.S. District Court — Southern District of New York

606 F. Supp. 1510

The ORE & CHEMICAL CORPORATION, Petitioner, v. STINNES INTEROIL, INC. and Sergeant Oil & Gas Co., Inc., Respondents.

No. 84 Civ. 6553 (DNE).

United States District Court, S.D. New York.

April 22, 1985.

Milgrim, Thomajan Jacobs & Lee, P.C., New York City, David P. Langlois, New York City, of counsel, for petitioner.

Parker, Auspitz, Neesemann & Delehanty, P.C., New York City, Jack C. Auspitz and Martin S. Himeles, Jr., New York City, of counsel, for respondent Stinnes Interoil, Inc.

Healy & Baillie, New York City, Raymond A. Connell, New York City, of counsel, for respondent Sergeant Oil & Gas Co., Inc.

OPINION AND ORDER

EDELSTEIN, District Judge:

The Ore & Chemical Corporation ("OCC") has petitioned this court to compel consolidated arbitration and to appoint arbitrators. Petitioners contend that this court has jurisdiction over the petition, pursuant to 9 U.S.C. § 4 and this court's diversity jurisdiction, 28 U.S.C. § 1332. Respondents Stinnes Interoil, Inc. ("Stinnes") and Sergeant Oil & Gas Co., Inc. ("SOG") contend that the petition should be dismissed because the court lacks the power to compel consolidated arbitration under 9 U.S.C. § 4, and that, in any event, consolidation is not warranted in this case. Because the court agrees with respondents, the petition to compel consolidated arbitration is denied.

FACTUAL BACKGROUND

For the purposes of this motion, the facts as stated in the petition and in plaintiff's supporting papers are taken as true. OCC is a trader of commodities, including petroleum products. On January 15, 1984, OCC purchased 220,000 barrels of gas oil, plus/minus ten per cent buyer's option, from SOG. The contract provided for delivery at Trinidad during the period February 5 through 10 (the "lifting period") and that OCC was to nominate a vessel to receive the gas oil. The initial OCC-SOG sales agreement did not contain an arbitration clause.

On January 20, 1984, OCC entered into a contract, through a broker, with Stinnes for the sale of the 220,000 barrels of gas oil for delivery during the same "lifting period." The contract was confirmed by a telex from the broker, which provided: "Laws of the State of New York to govern with arbitration in New York." Stinnes also agreed to provide a vessel to load the gas oil, the Tanja Jacobs.

Stinnes's vessel arrived on February 11, 1985, outside the lifting period. OCC contends that SOG did not make the oil available at this point. Stinnes, taking the position that OCC had breached the contract because it could not produce the contractual amount of the gas oil, sold the cargo for account of OCC in a fallen market, obtaining $1.2 million less than OCC was to have received under the contract. OCC contends that either Stinnes or SOG is liable to it for $1.2 million. If OCC did not breach the OCC-Stinnes contract, then Stinnes is liable to it. If, on the other hand, there was a breach of the OCC-Stinnes contract, OCC contends that SOG is liable to it, because any breach was caused by SOG's failure to make the gas oil available as it was obligated to do under the SOG-OCC contract.

In the weeks following the lifting period, SOG negotiated with OCC for payment under the original sales agreement. On March 5, 1985, the parties entered into an agreement which provided, inter alia, "Laws of the State of New York to Apply with Arbitration in New York."

OCC made demands for arbitration under the two contracts. Both Stinnes and SOG have agreed to arbitrate in New York, but they will not agree to consolidated arbitration.

DISCUSSION

OCC contends that the court should consolidate arbitration because common issues of law and fact between the three parties "predominate" in this action and that OCC would be prejudiced by having to arbitrate separately with SOG and Stinnes, in that it would be subject to the risk of inconsistent verdicts. The Federal Arbitration Act, 9 U.S.C. § 4, provides in pertinent part:

A party aggrieved by the alleged failure, neglect or refusal or another to arbitrate under a written agreement for arbitration may petition any United States district court ... for an order directing that such arbitration proceed in the manner provided for in such agreement.... 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.

In Compania Espanola de Pet., S.A. v. Nereus Shipping, S.A., 527 F.2d 966 (2d Cir.1975), cert. denied, 426 U.S. 936, 96 S.Ct. 2650, 49 L.Ed.2d 387 (1976), the Court of Appeals for the Second Circuit held that "the liberal purposes of the Federal Arbitration Act clearly require that this act be interpreted so as to permit and even to encourage consolidation of arbitration proceedings in proper cases." Id. at 936, 96 S.Ct. at 2650. Since the Nereus decision, courts in this circuit "have frequently ordered consolidated arbitration proceedings when the `interests of justice' so require either because the issues in dispute are substantially the same and/or because a substantial right might be prejudiced if separate arbitration proceedings are conducted." Matter of Czarnikow-Rionda Co., Inc., 512 F.Supp. 1308, 1309 (S.D.N.Y. 1981).

Respondents urge this court to reject Nereus on the ground that it is no longer good law. The general rule is that a federal district court is bound by the rule of the circuit. United States v. Posner, 549 F.Supp. 475, 476-77 n. 1 (S.D.N.Y. 1982); Bolf v. Berklich, 401 F.Supp. 74, 76 (D.Minn.1975). A district court, however, should not rely on older precedents that have been rejected in later decisions. C.D.R. Enterprises, Ltd. v. Board of Educ. of City of New York, 412 F.Supp. 1164, 1170 (S.D.N.Y.1976), aff'd, sub nom., Lefkowitz v. C.D.R. Enterprises, Ltd., 429 U.S. 1031, 97 S.Ct. 721, 50 L.Ed.2d 742 (1977). The Nereus decision has been rejected by a district court and Court of Appeals for the Ninth Circuit, Weyerhaeuser Co. v. Western Seas Shipping Co., 568 F.Supp. 1220 (N.D.Cal.1983), aff'd, 743 F.2d 635 (9th Cir.), cert. denied, ___ U.S. ___, 105 S.Ct. 544, 83 L.Ed.2d 431 (1984), and is contrary to recent Supreme Court pronouncements on the scope of the Federal Arbitration Act, see, e.g., Dean Witter Reynolds Inc. v. Byrd, ___ U.S. ___, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985). Accordingly, this court opines that if the Court of Appeals for the Second Circuit were to reconsider the issue, it would overrule Nereus, and hold that a district court does not have the power under 9 U.S.C. § 4 to compel consolidated arbitration, where the parties did not provide for consolidated arbitration in the arbitration agreement.

The starting point in any case involving the construction of a statute is the language of the statute. See Byrd, supra, ___ U.S. at ___, 105 S.Ct. at 1241. Section four of the act, by its terms, does not empower the court to compel consolidated arbitration. It only authorizes the district court to order the parties to arbitrate "in the manner provided for in the arbitration agreement." As the court stated in Weyerhaeuser, supra, "this provision comports with the statute's underlying premise that arbitration is a creature of contract, and that `an agreement to arbitrate before a specified tribunal is, in effect, a specialized kind of forum-selection clause that posits not only the situs of suit but also the procedure to be used in resolving the dispute.'" Weyerhaeuser, supra, 743 F.2d at 637 (quoting Scherk v. Alberto-Culver Co., 417 U.S. 506, 519, 94 S.Ct. 2449, 2457, 41 L.Ed.2d 270 (1974)). Thus, when the parties themselves have not placed a provision for consolidated arbitration into their arbitration agreement, 9 U.S.C. § 4 does not provide any authority for a court order compelling consolidated arbitration.

Petitioner contends that separate arbitrations exposes OCC to the risk of inconsistent awards, and that consolidated proceedings would be more expeditious. Assuming, arguendo, that this is so, the court, nevertheless, does not have the authority to compel consolidated arbitration, absent a provision for consolidation in the contract. In Byrd, supra, the Supreme Court "rejected the suggestion that the overriding goal of the Arbitration Act was to promote the expeditious resolution of claims." ___ U.S. at ___, 105 S.Ct. at 1242. The Court in Byrd held that the Arbitration Act requires district courts to compel arbitration of pendent arbitrable claims, even when the result would be the possibly inefficient maintenance of separate proceedings in different forums. See also Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 20, 103 S.Ct. 927, 939, 74 L.Ed.2d 765 (1983) (affirming an order requiring enforcement of an arbitration agreement, even though the arbitration would result in bifurcated proceedings, "because the relevant federal law requires piecemeal resolution when necessary to give effect to an arbitration agreement") (emphasis in original). The Court stated that "passage of the Act was motivated, first and foremost, by a congressional desire to enforce agreements into which parties had entered, and we must not overlook this principal objective when construing the statute, or allow the fortuitous impact of the Act on efficient dispute resolution to overshadow the underlying motivation." Byrd, supra, ___ U.S. at ___, 105 S.Ct. at 1242. Thus, the Second Circuit's reliance in Nereus on the "liberal purposes" of the Arbitration Act was misplaced. 9 U.S.C. § 2 "is a congressional declaration of a liberal policy favoring arbitration agreements," Moses, supra, 460 U.S. at 24, 103 S.Ct. at 941, not of reforming them.

The court in Nereus also relied on Rules 81(a)(3) and 42(a) of the Federal Rules of Civil Procedure, as support for the statutory authority of federal courts to order consolidated arbitration,...