CHINA RESOURCE PRODUCTS (USA) v. FAYDA INTERN.

• Decision Date: 07 September 1990
• Docket Number: Civ. A. No. 90-159-JLL.
• Citation: 747 F. Supp. 1101
• Parties: CHINA RESOURCE PRODUCTS (U.S.A.) LTD., Plaintiff, v. FAYDA INTERNATIONAL, INC., Defendant.
• Court: U.S. District Court — District of Delaware

747 F. Supp. 1101

CHINA RESOURCE PRODUCTS (U.S.A.) LTD., Plaintiff, v. FAYDA INTERNATIONAL, INC., Defendant.

Civ. A. No. 90-159-JLL.

United States District Court, D. Delaware.

September 7, 1990.

Edmund N. Carpenter, II, and Emily B. Horton of Richards, Layton & Finger, Wilmington, Del. (Eduardo L. Tabio of Fox & Horan, New York City, of counsel), for plaintiff.

Michael B. McCauley of Palmer, Biezup & Henderson, Wilmington, Del. (Thomas R. Kellogg of CPM Industries, Wilmington, Del., of counsel), for defendant.

MEMORANDUM OPINION

LATCHUM, Senior District Judge.

This contract dispute, which involves hundreds of thousands of dollars and the shipment of goods in international commerce, is actually the story of Little Red Riding Hood. Or so the defendant in this case apparently believes. The defendant describes itself as a small, American trading company. (See D.I. 13 at 10.) The plaintiff, on the other hand, although masquerading as a mere New York corporation, is in reality allegedly an arm of the People's Republic of China. (Id.) The latter, "one of the largest governments on earth" (id.), stars as the current dispute's Big Bad Wolf.

Presently before the Court is a motion by the plaintiff, brought pursuant to the Federal Arbitration Act ("FAA" or "the Act"), 9 U.S.C. §§ 1-15, to stay pending arbitration of a counterclaim filed by the defendant. The Court has jurisdiction pursuant to 28 U.S.C. § 1332(a),¹ as the amount in controversy is in excess of $50,000, exclusive of interest and costs (see D.I. 1 at ¶ 3; D.I. 6 at ¶¶ 53-54), and the parties are citizens of different states.² For the reasons noted below, the Court will grant the plaintiff's motion.

FACTUAL BACKGROUND

Plaintiff, China Resource Products (U.S.A.) Ltd. ("China Products"), initiated this lawsuit against defendant, Fayda International, Inc. ("Fayda"), for allegedly breaching a contract pursuant to which Fayda had agreed to purchase from China Products 187 metric tons of Chinese aluminum (hereinafter "the 1989 contract"). (See Docket Item "D.I." 1 at ¶ 5.) Fayda responded by denying liability and filing a counterclaim. This counterclaim alleges injury resulting from China Products' tardy performance of an earlier and different contract between the parties for the purchase of 200 metric tons of Chinese aluminum (hereinafter "the 1987 contract"). (See D.I. 6 at ¶¶ 46-54.)

China Products maintains that the 1987 contract between it and Fayda contains a clause which requires Fayda to submit its counterclaim to arbitration. (D.I. 8 at ¶ 6.) According to China Products, the 1987 contract consists of a written sales contract, which is dated July 13, 1987 and numbered "87MBN-010" (hereinafter "the July '87 writing"). (See D.I. 9, Affidavit of Guo-Qing Chen, Administrative Manager of China Products "Chen Aff." at ¶ 9; see also id., Exhibit A copy of contract.) This July '87 writing is signed by both parties³ and contains a broad arbitration clause on which China Products relies in its current motion to stay Fayda's counterclaim:

ARBITRATION: All disputes arising in connection with this Sales Contract or the execution thereof shall be settled amicably by negotiation. In case no settlement can be reached, the case under dispute shall then be submitted for arbitration to the Foreign Trade Arbitration Commission of the China Council for the Promotion of International Trade in accordance with the Provisional Rules of Procedure of the Foreign Trade Arbitration Commission of the China Council for the Promotion of International Trade. The decision of the Commission shall be accepted as final and binding upon both parties.

(D.I. 9, Exhibit A.)

Fayda describes its 1987 contract with China Products rather differently. It contends that the parties' sale agreement for these two hundred metric tons of aluminum was first concluded on August 21, 1987, and is contained in a writing dated as such (hereinafter "the August '87 writing"). (D.I. 13 at 5; cf. D.I. 6 at ¶ 47.) This August '87 writing, which is signed by the parties, is labeled at the top as a "CONTRACT Amendment" and states that it is a letter meant to "confirm the agreement between ... Fayda and China Products to amend contract No. 87MBN-010, dated July 13, 1987, as follows...." (D.I. 6, Exhibit E the August '87 writing.) Below these words are listed, inter alia, price, quantity, and delivery terms. (See id.) The delivery terms state that 17 metric tons were to be shipped first, with the remaining 183 metric tons to follow a few weeks later. (See id.)

Fayda maintains that after the 183-metric ton balance was not shipped in October of 1987 as agreed, the parties entered into a new contract for the purchase the same 183 metric tons of aluminum. (Cf. D.I. 6 at ¶¶ 47-48.) This second contract, which called for a higher, per pound price and delivery of the 183 metric tons of aluminum in May of 1988, was allegedly entered into on March 1, 1988. (See id. at ¶ 48.) As evidence of the existence of this agreement, Fayda offers two telefaxes. The first telefax was sent by Fayda to China Products and, in essence, recites a per pound price and a May 1988 shipment date. (See D.I. 6, Exhibit F.) The second telefax, which was China Products' response (see D.I. 6 at ¶ 48), confirms the price quoted by Fayda and states that shipment would be made in April or May. (See D.I. 6, Exhibit G.) In accepting the price stated by Fayda, China Products' telefax makes reference to the parties' July '87 writing: "ACCORDING OUR sic S/C 87MBN-010, THE PRICE SHALL BE USDO.86/LB. sic." (Id.)

Apparently, the 183 metric tons were never shipped pursuant to this alleged, second contract because Fayda argues that the parties entered into yet another agreement for the same shipment of aluminum. According to Fayda, the parties entered into a third contract in May of 1988. (See D.I. 6 at ¶ 49.) This alleged third agreement involved a new price arrangement and called for a June delivery date. (See id.) Fayda's allegations do not specify whether this agreement was oral or written, and Fayda has not proffered any evidence to substantiate its existence. (Cf. id.)

Following this alleged May 1988 agreement, the parties purportedly entered into yet another, now fourth, contract for the purchase of the 183 metric tons at issue. Although Fayda's claims regarding the latter contract are somewhat difficult to decipher, the Court understands its argument to be that the parties' alleged fourth and final agreement regarding the 183 metric tons consists of certain oral price and shipping arrangements made on August 2, 1988 and November 11, 1988. (See id. at ¶¶ 50-52.) To support the existence of this fourth contract, Fayda offers two telefaxes and an invoice. (See D.I. 6, Exhibits H-J.) The telefaxes are confirmations by the parties of two, different aluminum prices. (Compare D.I. 6, Exhibit H with D.I. 6, Exhibit I.) The invoice is dated November 11, 1988 and seems to indicate that the 183 metric tons, which were in fact finally delivered (cf. D.I. 6 at ¶ 53), had been shipped earlier, on August 24th. (See D.I. 6, Exhibit J.)

In sum, Fayda contends that the parties entered into no less than four different contracts for the purchase of the 183 metric tons of aluminum that were initially contracted for in the August '87 writing but were never shipped. Fayda maintains that the arbitration clause contained in the July '87 writing did not become part of these subsequent contracts. Thus, Fayda argues there is no existing arbitration agreement between the parties.

According to China Products, the parties entered into only one agreement, the July '87 writing. What Fayda calls subsequent contracts, China Products characterizes as at most merely modifications of the July '87 writing. (See D.I. 15 at 3.) Hence, China Products contends that the arbitration agreement contained in the July '87 writing remained in effect and, consequently, is still part of the parties' modified 1987 contract. Accordingly, China Products now moves, pursuant to section 3 of the FAA, 9 U.S.C. § 3, to stay Fayda's counterclaim pending arbitration. (D.I. 8.)

Both sides have had an opportunity to present their arguments on China Products' motion for a section 3 stay. The parties briefed the issues (see generally D.I. 8; D.I. 9; D.I. 12; D.I. 13; D.I. 15), and the Court heard oral argument on the motion. (See D.I. 20 transcript.)

DISCUSSION

The FAA "embodies a clear federal policy of requiring arbitration unless the agreement to arbitrate is not part of a contract evidencing interstate commerce or is revocable `upon such grounds as exist at law or in equity for the revocation of any contract.'" Perry v. Thomas, 482 U.S. 483, 489, 107 S.Ct. 2520, 2525, 96 L.Ed.2d 426 (1987) (quoting 9 U.S.C. § 2). The effect of the FAA is "to create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act." Moses Cone, 460 U.S. at 24, 103 S.Ct. at 941; see also Becker Autoradio U.S.A., Inc. v. Becker Autoradiowerk GmbH, 585 F.2d 39, 43 (3d Cir.1978).

There is no doubt that the July '87 writing's arbitration provision is covered by the FAA. Both parties concede entering into this agreement to arbitrate.⁴ The arbitration agreement is in writing, as required by the FAA. See 9 U.S.C. § 2. Furthermore, no one has disputed that the contract "evidences a transaction involving commerce," id., as that term is defined under the FAA. See 9 U.S.C. § 1. The July '87 writing therefore falls within the FAA, and its construction and enforceability is governed by federal law. See Moses Cone, 460 U.S. at 24-25, 103 S.Ct. at 941-42; see also Becker Autoradio, 585 F.2d at 43.

General Federal Law Arbitration Principles

Having determined that the parties' arbitration agreement is subject to the FAA, the only real question facing the Court is whether any of Fayda's four defenses to enforcement of the agreement have merit. In considering Fayda's arguments...