Cook Chocolate Co. v. Salomon, Inc.
| Decision Date | 22 March 1988 |
| Docket Number | No. 87 Civ. 5705 (RWS).,87 Civ. 5705 (RWS). |
| Citation | 684 F. Supp. 1177 |
| Parties | COOK CHOCOLATE COMPANY, A DIVISION OF WORLD'S FINEST CHOCOLATE, INC., Plaintiff, v. SALOMON INC., Philipp Brothers, Inc., Philipp Brothers Trading Corporation, Philipp Brothers Commodities Corp., Cocoa Merchants, Ltd., Daniel F. Tulig, Mark Glowatz, and Esther Greenfield, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Cohen & Adolph, New York City (Alan S. Adolph, of counsel), for plaintiff.
Wachtell, Lipton, Rosen & Katz, New York City (Paul Vizcarrondo, Jr., Benjamin E. Rosenberg, of counsel), for defendants Salomon Inc., Philipp Bros., Inc. Philipp Bros. Trading Corp. and Philipp Bros. Commodities Corp.
Abberley Kooiman Marcellino & Clay, New York City (Michael Martell, Esq. of counsel), for defendant Daniel F. Tulig.
Obermaier, Morvillo, Abramowitz & Iason, P.C., New York City (Lawrence Iason, of counsel), for defendant Esther Greenfield.
Lankler, Siffert & Wohl, New York City (Frank H. Wohl, of counsel), for defendant Mark Glowatz.
Defendants Salomon, Inc. ("Salomon"), Philipp Brothers, Inc. ("PBI"), Philipp Brothers Trading Corporation ("PBTC") and Philipp Brothers Commodities Corp. ("PBCC") (collectively, "the Phibro defendants") have moved for an order pursuant to sections 2 and 3 of the Federal Arbitration Act, 9 U.S.C. §§ 2, 3 (1982), staying this action in favor of arbitration. Defendants Daniel F. Tulig ("Tulig"), Mark Glowatz ("Glowatz") and Esther Greenfield ("Greenfield") have joined in the motion to stay. Upon the findings and conclusions set forth below, the motion is granted.
Plaintiff Cook Chocolate Company ("Cook") is a division of World's Finest Chocolate, Inc. ("World's Finest"), a Delaware corporation with its principal place of business in Chicago, Illinois. World's Finest manufactures chocolate and confectioneries. Cook purchases the raw materials, such as cocoa and cocoa products, necessary for World's Finest's products. Cook is a member of the New York Coffee, Sugar & Cocoa Exchange ("NYCSE") and until December 31, 1984, was also a member of the Cocoa Merchant's Association of America ("CMAA").
Salomon is a holding company incorporated in Delaware with its principal place of business in New York. PBI, a wholly-owned subsidiary of Salomon, is a commodities trading firm incorporated and having its principal place of business in New York. PBI is a member of the CMAA. PBTC, a wholly-owned subsidiary of PBI, is a Delaware corporation with its principal place of business in New York. Among other things, PBTC buys and sells cocoa futures contracts on the NYCSCE, of which it is a member. PBCC, also a wholly-owned subsidiary of PBI, is incorporated and has its principal place of business in New York. PBCC is a licensed Futures Commission Merchant and trades cocoa futures for the accounts of others on the NYCSCE, of which it also is a member.
The CMAA is a trade organization of cocoa merchants. Article XII of the CMAA bylaws states that all contracts between members covering cocoa beans or cocoa products are subject to arbitration unless the contract specifically disavows arbitration. Article XII states, in relevant part:
The CMAA bylaws also specify the rules and procedures for the arbitration.
The CMAA promulgates standard form contracts that cocoa merchants may use or incorporate by reference in whole or in part. The CMAA standard form contract that is applicable to cocoa sales, Standard Contract 1-A, contains detailed terms and provisions relevant to the purchase, sale and delivery of cocoa beans. Standard Contract 1-A contains an arbitration provision, as follows:
Any dispute under this contract shall be settled by arbitration in accordance with the rules of the Cocoa Merchants' Association of America, Inc., whose award shall be final and binding upon buyer and seller, and judgment upon the award may be entered in any court having competent jurisdiction.
The NYCSCE is a contract market registered with the Commodities Futures Trading Commission ("CFTC") for the trading of cocoa and cocoa futures. It is the only contract market in the country for the trading of cocoa and cocoa futures.
NYCSCE Rule 6.02(b) provides for mandatory arbitration of any "claim or grievance" among members of the NYCSCE so long as either party elects to compel arbitration. The rule reads, in relevant part, as follows:
Any claim or grievance by a member of the NYCSCE against another member, whether originating before or during the membership of the parties, shall be settled by arbitration in accordance with these Arbitration Rules, if any such member so elects.
"Claim or grievance" is defined in NYCSCE Rule 6101(a) to mean "any dispute which arises out of any transaction on or subject to the rules of this Exchange, executed by or effected through a member of this Exchange...." NYCSCE Rule 6.02(a) provides for voluntary arbitration between a member of the NYCSCE and a customer. "Customer" is defined in NYCSCE Rule 6.01(b) to mean "any person with a claim or grievance against a member of this Exchange or any employee of such member; provided, however, that it shall not include members of this Exchange."
In June 1981, Cook entered into the first in a series of 43 standard form contracts with PBI for the sale by PBI to Cook of cocoa beans and cake. Each of the contracts was a single-page typewritten document that specified the quantity and type of cocoa bean or cake PBI would sell to Cook, the terms and dates of the shipment, and the date of delivery. Under each contract, the price that Cook would pay PBI would be fixed by reference to the price of specified cocoa futures. Finally, each of the contracts stated: "All relevant terms and conditions of the Cocoa Merchants' Association of America, Inc. contract to apply." None of the contracts disavowed the CMAA arbitration clause contained in the CMAA bylaws.
Cook filed the complaint in this action on August 3, 1987. The complaint challenges a practice that Cook claims threatens the integrity of the NYCSCE. The underlying contracts between Cook and PBI provided that the prices for Cook's purchases of cocoa products ("cocoa physicals") would be determined by Cook's purchase through PBI and PBTC of specified cocoa futures contracts. The complaint charges that the defendants, acting in concert, devised a scheme to defraud Cook in the course of its purchase of cocoa physicals and futures. In particular, the complaint alleges that the defendants falsely told Cook that they would execute futures contracts for the purpose of fixing the price for the cocoa physicals in a manner that was more advantageous to Cook than its prior transactions through independent brokers on the floor of the NYCSCE. Through the alleged scheme, Cook contends, the defendants falsely reported to Cook higher buy prices and lower sell prices than Cook would have obtained had such trades been executed on the NYCSCE floor. Thus, the complaint alleges violations of the Commodity Exchange Act ("CEA") and the Racketeer Influenced and Corrupt Organizations Act ("RICO"), and a number of common law offenses. The RICO count is premised on alleged violations of the mail and wire fraud statutes and Cook's characterization of the allegedly fraudulent scheme as an ongoing pattern of racketeering activity.
On September 30, 1987, the Phibro defendants filed the instant motion to stay this action in favor of arbitration. Following the submission of briefs and affidavits, oral argument was held on the instant motion on December 18, 1987.
Section 2 of the Federal Arbitration Act (the "Act"), 9 U.S.C. § 2 (1982), states that:
A written provision in any ... contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ... shall be valid, irrevocable, and enforceable save upon such grounds as exist at law or in equity for the revocation of any contract.
Section 3 of the Act, 9 U.S.C. § 3 (1982), provides:
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending ... shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement....
These sections of the Act represent a strong federal policy in favor of arbitration. The Supreme Court has repeatedly recognized and reaffirmed that policy, most recently in Shearson/American Express, Inc. v. McMahon, ___ U.S. ___, ___, 107 S.Ct. 2332, 2337, 96 L.Ed.2d 185 (1987):
The Arbitration Act thus establishes a "federal policy favoring arbitration," Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983), requiring that "we rigorously enforce agreements to arbitrate." Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213 at 221, 105 S.Ct. 1238 at 1243 84 L.Ed.2d 158 (1985).
See also Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625-26, 105 S.Ct. 3346, 3353-54, 87 L.Ed.2d 444 (1985); Southland Corp. v. Keating, 465 U.S. 1, 10, 104 S.Ct. 852, 858, 79 L.Ed. 2d 1 ...
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