David L. Threlkeld & Co., Inc. v. Metallgesellschaft Ltd. (London)

Citation923 F.2d 245
Decision Date15 January 1991
Docket NumberNo. 359,D,359
PartiesDAVID L. THRELKELD & CO., INC., Plaintiff-Appellee, v. METALLGESELLSCHAFT LIMITED (LONDON), and Peter Montrose, and Terry Willsone, Defendants, METALLGESELLSCHAFT LIMITED (LONDON), Defendant- Counterclaimant-Appellant, v. DAVID L. THRELKELD & CO., INC., Counterclaim-Defendant-Appellee. ocket 90-7480.
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)

John M. Quitmeyer (Rogers & Wells, New York City, Nancy A. Brown and Nancy L. Hahn, on the brief), for defendant-counterclaimant-appellant.

Robert B. Hemley (Gravel and Shea, Burlington, Vt., Norman Williams and Dennis R. Pearson, on the brief), for plaintiff-appellee.

Before LUMBARD, KEARSE and McLAUGHLIN, Circuit Judges.

McLAUGHLIN, Circuit Judge:

Plaintiff-appellee, David L. Threlkeld & Co., Inc. ("Threlkeld"), sues for damages allegedly incurred as a result of a breach of contract and negligent performance of the contract by defendant-appellant, Metallgesellschaft, Ltd. (London) ("MG").

Threlkeld sued MG, Peter Montrose, and Terry Willsone in the Vermont Superior Court. 1 Threlkeld's complaint is that defendants negligently misvalued plaintiff's copper and aluminum forward positions and that MG breached an alleged oral agreement to provide plaintiff with accurate valuations of these copper and aluminum positions. MG subsequently removed the action to the United States District Court for the District of Vermont on the basis of diversity of citizenship. 28 U.S.C. Sec. 1441(a) (1988). MG moved to dismiss for lack of subject matter jurisdiction, or, in the alternative, to stay the action and to compel arbitration of Threlkeld's claims. Judge Coffrin converted the motion into one for summary judgment, and then denied it in all respects. MG appeals this denial. We have jurisdiction over this interlocutory appeal pursuant to 9 U.S.C. Sec. 15 (1988). For the reasons stated below, we reverse.

BACKGROUND

Threlkeld, a closely-held Vermont corporation with its principal place of business in Randolph, Vermont, engages in trading forward contracts for metals. To purchase and sell forward contracts on the London Metal Exchange ("LME"), a licensed "ring-dealing" member must perform the transaction. MG--a London based limited-liability company incorporated under the laws of the United Kingdom--is a "ring-dealing" member of the LME.

Forward contracts are promises to buy or to sell a particular commodity on a specified date at a predetermined price. This type of trading is inherently speculative, and sophisticated commodities traders such as Threlkeld profit from well-calculated purchases and sales.

MG, as a licensed "ring-dealing" member, acts as the principal in transactions it enters into for its clients. It is paid a fee for its services and may require a client to post security for any eventual loss should the value of the forward contract decrease before the scheduled delivery date. The amount of security required to be maintained in a client's margin account fluctuates In June, 1986, Threlkeld and MG entered into an informal agreement for MG to purchase and sell Threlkeld's forward contracts for metals on the LME. Several months later, the parties decided to formalize their relationship by reducing their agreement to writing. A preliminary agreement--the "Memo to File"--was signed by the parties on February 3, 1987. This document contemplated a still more formalized agreement at some point in the future. Among other things, the preliminary agreement stated: "The final agreement will be subject to arbitration and subject to the laws of England." The parties subsequently agreed that because of the good will between them, there was no need for a formalized agreement.

because it is tied to the daily valuation of the particular commodity. Should it appear to MG that a particular commodity has been inaccurately valued and MG, as the principal, is faced with an impending loss, it will make a margin call; and the client involved will then be required to insulate MG from the projected loss.

While their relationship was smooth, MG entered into numerous forward contracts for copper and aluminum on behalf of Threlkeld. Many of these contracts were memorialized in written confirmations sent by MG to Threlkeld and subsequently signed by Threlkeld. The confirmations specifically stated that the contracts were "subject to the current rules and regulations of the London Metal Exchange." Another document--the "Terms of Business"--was MG's standard-form customer contract, which Threlkeld executed on September 14, 1988. The Terms of Business also made the rules and regulations of the LME applicable to the parties' business relationship. The rules and regulations of the LME are, therefore, crucial to this controversy.

The LME Rules contain two arbitration provisions. The first states: "[A]ny dispute ... arising out of any Contract shall be referred to arbitration in accordance with the Rules." LME Rules, Part 4 ("Contract Regulations"), Rule 10.1. The second LME arbitration provision states: "All disputes arising out of or in relation to any contract which contains an agreement to refer disputes to arbitration in accordance with the Rules and Regulations of the London Metal Exchange ... shall be referred to arbitration as hereinafter provided." LME Rules, Part 8 ("Arbitration Rules"), Rule 1.1.

Threlkeld does not contest the general applicability of the LME Rules. Rather, Threlkeld maintains that, properly construed, neither the agreements between the parties (i.e., the Memo to File and the Terms of Business) nor the LME Rules call for arbitration of the present claims. Threlkeld asserts that its damages stem from a collateral agreement, wholly separate and distinct from the forward contracts entered into by MG on Threlkeld's behalf, and that this collateral agreement does not contain an arbitration provision.

The collateral agreement was allegedly reached in 1989, when Threlkeld found itself unable to evaluate its own financial position in its outstanding forward contracts. In need of accurate valuation services, Threlkeld turned to MG for help. Threlkeld alleges that MG agreed to provide Threlkeld with accurate ledger balances, forward contract valuations, and margin requirements on a daily basis. The complaint asserts that MG repeatedly assured Threlkeld that the required valuations would be accurate and that Threlkeld could safely continue to trade in reliance on MG's valuations.

In early August, 1989, MG, while evaluating the financial situation, realized that Threlkeld's copper contracts had been substantially overvalued. On August 2, 1989, MG projected a loss on these copper positions of approximately five million dollars and issued a margin call to Threlkeld of 1.7 million dollars.

Alarmed by the chaos in its copper positions, Threlkeld commissioned its own internal investigation of its aluminum positions, only to conclude that MG had systematically overvalued Threlkeld's aluminum positions as well. Threlkeld claims that it promptly informed MG of this situation. On September 8, 1989, pursuant to MG's re-evaluation of Threlkeld's aluminum Threlkeld sued in the Vermont District Court, claiming losses of approximately fifteen million dollars as a direct result of the systematic overvaluation by MG. MG counterclaimed for Threlkeld's outstanding margin balance, approximately ten million dollars. MG then commenced an arbitration proceeding in London based on its margin demand and moved in the district court action to dismiss the complaint for lack of subject matter jurisdiction, or, in the alternative, to stay the proceedings and compel arbitration.

positions, MG issued an additional margin call to Threlkeld in the sum of 4.9 million dollars.

The district court, treating the motion as one for summary judgment, held that "for MG to prevail, it must demonstrate that no material issue of fact exists, and that the undisputed facts indicate [Threlkeld]'s claims are subject to arbitration." Judge Coffrin determined that material issues of fact existed as to whether Threlkeld's claims were arbitrable and thus denied the motion for summary judgment, as well as the alternative motion.

DISCUSSION

As a point of departure, we note that federal policy strongly favors arbitration as an alternative dispute resolution process. See Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 109 S.Ct. 1917, 1919-20, 104 L.Ed.2d 526 (1989); Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 844 (2d Cir.1987). While it is still the rule that parties may not be compelled to submit a commercial dispute to arbitration unless they have contracted to do so, see Necchi S.p.A. v. Necchi Sewing Machine Sales Corp., 348 F.2d 693, 696 (2d Cir.1965), cert. denied, 383 U.S. 909, 86 S.Ct. 892, 15 L.Ed.2d 664 (1966), federal arbitration policy requires that "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941-42, 74 L.Ed.2d 765 (1983).

The policy in favor of arbitration is even stronger in the context of international business transactions. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 629-31, 105 S.Ct. 3346, 3355-56, 87 L.Ed.2d 444 (1985); Scherk v. Alberto-Culver Co., 417 U.S. 506, 516-518, 94 S.Ct. 2449, 2455-57, 41 L.Ed.2d 270 (1974). Enforcement of international arbitral agreements promotes the smooth flow of international transactions by removing the threats and uncertainty of time-consuming and expensive litigation. The parties may agree in advance as to how their disputes will be expeditiously and inexpensively resolved should their business relationship sour. See Scherk, 417 U.S. at 516-17, 94 S.Ct. at 2455-56. Stability in international trading was the engine behind the Convention on the Recognition and Enforcement of Foreign...

To continue reading

Request your trial
180 cases
  • Axa Equitable Life Ins. Co. v. Infinity Financial Grp., LLC, Case No. 08-80611-CIV.
    • United States
    • United States District Courts. 11th Circuit. United States District Courts. 11th Circuit. Southern District of Florida
    • March 31, 2009
    ...McAllister Bros., Inc. v. A. & S. Transp. Co., 621 F.2d 519, 522 (2d Cir.1980), as quoted in David L. Threlkeld & Co., Inc. v. Metallgesellschaft Ltd., 923 F.2d 245, 250 (2d Cir.1991)). "Arbitration clauses couched in language encompassing all disputes `arising under' or `in connection with......
  • Hooters of America, Inc. v. Phillips
    • United States
    • United States District Courts. 4th Circuit. United States District Court of South Carolina
    • March 12, 1998
    ...as a contract of adhesion, there must be a showing of unfairness, undue oppression or unconscionability. Threlkeld & Co. v. Metallgesellschaft, Ltd., 923 F.2d 245, 248 (2d Cir.1991). Having considered the testimony adduced at the evidentiary hearing concerning the commercial setting, purpos......
  • Chase v. Blue Cross of California
    • United States
    • California Court of Appeals
    • February 23, 1996
    ...placing greater requirements upon arbitration clauses than on other contract clauses are preempted. In David L. Threlkeld & Co. v. Metallgesellschaft Ltd. (2d Cir.1991) 923 F.2d 245, 249, the court held a Vermont statute that required arbitration agreements to be prominently displayed and s......
  • Dahiya v. Talmidge Intern., Ltd.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • May 18, 2004
    ...683 (1968); Clark v. Allen, 331 U.S. 503, 508, 67 S.Ct. 1431, 91 L.Ed. 1633 (1947); see, e.g., David L. Threlkeld & Co. v. Metallgesellschaft Ltd. (London), 923 F.2d 245, 250 (2d Cir.1991) (finding the FAA and the Convention preempted a Vermont statute that required any agreement to arbitra......
  • Request a trial to view additional results
2 books & journal articles
  • Table of Cases
    • United States
    • ABA Antitrust Library Franchise and Dealership Termination Handbook
    • January 1, 2012
    ...181 Dave Greytak Enters. v. Mazda Motors of Am., 622 A.2d 14 (Del. Ch. Ct. 1992), 15 David L. Threlkeld & Co. v. Metallgesellschaft Ltd., 923 F.2d 245 (2d Cir. 1991), 116 David R. McGeorge Car Co. v. Leyland Motor Sales, 504 F.2d 52 (4th Cir. 1974), 9, 46 Davis v. Gulf Oil Corp., 572 F. Sup......
  • Alternatives To Litigation
    • United States
    • ABA Antitrust Library Franchise and Dealership Termination Handbook
    • January 1, 2012
    ...517 U.S. 681 (1996). 61. MONT. CODE ANN. § 27-5-114(4). 62. 9 U.S.C. § 2; s ee also David L. Threlkeld & Co. v. Metallgesellschaft Ltd., 923 F.2d 245, 250-51 (2d Cir. 1991) (FAA preempts state statute requiring 10-point capital letters providing notice for an arbitration clause). 63. See Al......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT