Arbitration between Oltchim v. Velco Chemicals

• Decision Date: 05 November 2004
• Docket Number: No. 02 CIV. 9787(SCR).,02 CIV. 9787(SCR).
• Citation: 348 F.Supp.2d 97
• Parties: In the matter of the ARBITRATION BETWEEN OLTCHIM, S.A., Petitioner, v. VELCO CHEMICALS, INC., Respondent.
• Court: U.S. District Court — Southern District of New York

348 F.Supp.2d 97

In the matter of the ARBITRATION BETWEEN OLTCHIM, S.A., Petitioner, v. VELCO CHEMICALS, INC., Respondent.

No. 02 CIV. 9787(SCR).

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

November 5, 2004.

Radu Herescu, Law Offices of Radu Herescu, Esq., Elmhurst, NY, for Plaintiff.

MEMORANDUM DECISION AND ORDER

ROBINSON, District Judge.

Plaintiff Oltchim, S.A. ("Oltchim") brings a petition for recognition and enforcement of two foreign arbitral awards. Defendant Velco Chemicals, Inc. ("Velco") disputes the validity of the awards and seeks dismissal of the action.

I. The Facts

Oltchim, a Romanian corporation, produces polyol, a chemical compound used in the production of flexible foam. Velco is an international distributor of polyurethane raw materials, including polyol. The two firms entered into various contracts in the 1990s that governed their agreement that Velco would purchase polyol from Oltchim and sell it to Velco's customers. Over the course of the relationship, the parties entered into repeated agreements referred to as "frame contracts," that set forth the rights and obligations of both parties concerning the transactions between them regarding polyol. These agreements each contained arbitration clauses that stated,

Whatever dispute deriving from the present contract and that could not be settled in a friendly way — will be submitted to the Arbitration instances with the Chamber of Commerce of Romania, whose awards will be final and executory.

The main law applied to the present contract is that of Romania.

Relations between the parties broke down in 1998 and 1999. Oltchim claims that in July 1999, Velco failed to pay for polycol it had purchased. Velco was the first to take legal action, however. It brought suit against Oltchim in federal court in the Southern District of New York on December 6, 1999, alleging breach of contract and seeking 3,243,000 DM in damages as well as pre and post judgment interest, and costs and attorneys fees. This suit was given case number 99 Civ. 11794.

On January 13, 2000, Oltchim filed a demand for arbitration with the Court of International Arbitration of the Chamber of Commerce and Industry of Romania (the "Arbitration Court") against Velco pursuant to Frame Contract 99/PET — C.C/3.12.1998 covering sales of polyol by Oltchim to Velco for the year 1999. This contract contained the arbitration clause excerpted above. Oltchim claimed 2,282,295 DM in unpaid fees and arbitration expenses.

On January 27, 2000, Velco moved to enter a default judgment against Oltchim due to its nonappearance in 99 Civ. 11794. Oltchim cross-moved to dismiss the case for lack of subject matter and in personam jurisdiction and to compel arbitration on February 28, 2000. Velco opposed the cross-motion in a filing on March 22, 2000.

Velco also appeared in the Romanian arbitration in March 2000.

On July 24, 2000, the Hon. Barrigton D. Parker heard oral argument on the motions. In his decision on the record, he found that a broad arbitration clause existed and stayed the case, placing it on the suspense calendar pending the outcome of the arbitration in Romania. Transcript of 99 Civ. 11794, dated July 24, 2000, at 15-16. Judge Parker took no position on whether or not Velco should bring cross-claims in the arbitration. When Velco's attorney asked if he was directing Velco to assert a counterclaim in Romania, he answered, "I can't tell you what pleadings are available or appropriate in Romania. I am not dismissing the action [99 Civ. 11794]. The action is here, but it seems to me the prudent thing to do is to see what results from the Romania arbitration proceeding, especially since you're in the middle of it." Id. at 12.

Velco admits that on November 17, 2000, it filed a counterclaim in the Arbitration Court asserting the same claims as those set forth in 99 Civ. 11794. Bizarrely, Velco characterizes this as an attempt to have "only the jurisdictional issues" presented to the Arbitration Court and claims that the submission was made in compliance with Judge Parker's "conditional order" directing it to proceed to arbitration to resolve the arbitrability dispute. As shown above, Judge Parker gave no "order" describing what Velco should or should not do before the Arbitration Court. Also, there is nothing in the November 17 submission that challenges the jurisdiction of the Arbitration Court; it is simply a restatement of the claims Velco made in the civil action in the Southern District of New York.

The Arbitration Court met on December 21, 2000. At this meeting, Velco asked the court for permission to file written documents sustaining its counterclaim and challenging the competence of the arbitration Court. On December 7, 2000, Velco filed a written challenge to the jurisdiction of the Arbitration Court, in which it argued that e 1998 Frame Contract (under which Oltchim made its claims) was invalid because the signator was not authorized by the company to bind it.

The minutes of the meeting of the Arbitration Court on March 15, 2001, reflect that Court's holding that when Velco filed its counterclaims, paid the fee to do so, and requested evidence, it agreed to resolve its dispute in that forum. The Arbitration Court further held that the agreement to the forum could only be reversed by mutual agreement. It held that examination of other issues concerning jurisdiction and the Frame Contract of December 3, 1998, had no relevance.

At a hearing on May 8, 2001, the Arbitration Court severed Oltchim's claim from Velco's counterclaim.

Oltchim's claim was heard by the arbitral panel on June 6, 2001. On June 27, 2001, the Arbitration Court awarded Oltchim the full amount it sought against Velco. Velco moved in Romania to vacate that award. Velco's counterclaims were heard on May 28, 2002, and on June 28, 2002, the panel dismissed those counterclaims and ordered Velco to pay Oltchim's attorneys fees on the second arbitration. Again, Velco moved to vacate the judgment.

On March 26, 2003, the Romanian Supreme Court of Justice, Commercial Division (the "Supreme Court") dismissed Velco's motion to vacate the arbitration decision of June 27, 2001, and ordered Velco to pay the costs that Oltchim incurred in arbitrating Velco's counterclaims. On March 17, 2003, Velco's appeal of the June 28, 2002, decision was rejected. On December 8, 2003, the 9-Judge Panel of the High Court of Cassation and Justice denied Velco's appeal of the March 17, 2003, decision. On January 26, 2004, the Panel of Nine Judges ordered Velco to submit a cash bond in order to have execution of the December 8, 2003, decision suspended. On February 16, 2004, the nine-judge panel denied Velco's petition for a suspension of the execution of arbitral awards in light of the facts that said bond had not been posted. Velco made an extraordinary appeal to an en banc nine judge panel of the High Court of Cassation and Justice, in an attempt to annul the December 8, 2003, holding. On March 15, 2004, the en banc panel of judges ruled against Velco for a final time, end the proceedings in Romania.

II. The Law

Foreign arbitral awards are recognized and enforced under the Federal Arbitration Act, (the "Act") which codified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Convention") in Title 9, United States Code, Chapter 2. Both the United States and Romania are signators to the Convention. 9 USC 201. The United States has strictly adhered to this convention, and enforced arbitral awards made under the Convention in its courts. The United States Supreme Court has observed that,

The goal of the Convention, and the principal purpose underlying American adoption and implementation of it, was to encourage the recognition and enforcement of commercial arbitration agreements in international contracts and to unify the...