Ideal Unlimited Services v. Swift-Eckrich, Inc., Civ. No. 89-71 HL.

• Decision Date: 12 December 1989
• Docket Number: Civ. No. 89-71 HL.
• Citation: 727 F. Supp. 75
• Parties: IDEAL UNLIMITED SERVICES CORP., Plaintiff, v. SWIFT-ECKRICH, INC., et al., Defendants.
• Court: U.S. District Court — District of Puerto Rico

727 F. Supp. 75

IDEAL UNLIMITED SERVICES CORP., Plaintiff, v. SWIFT-ECKRICH, INC., et al., Defendants.

Civ. No. 89-71 HL.

United States District Court, D. Puerto Rico.

December 12, 1989.

Nicolás Jiménez, San Juan, P.R., for plaintiff.

Ricardo Casellas, Fiddler, González & Rodríguez, San Juan, P.R., for defendants.

OPINION AND ORDER

LAFFITTE, District Judge.

Plaintiff Ideal Unlimited Services Corp. ("Ideal"), a Puerto Rico corporation, filed a complaint under diversity jurisdiction against defendants Swift-Echrich, Inc. and Swift & Company ("Swift"), both Delaware corporations having their principal places of business in Illinois. Ideal claims damages for breach of contract, fraud, negligence and defamation under the laws of Puerto Rico, arising out of Swift's termination of the parties agreement, entitled "Warehouse and Delivery Agreement." Pending before the Court is Swift's motion to dismiss this action in favor of arbitration.

Swift argues that because the Warehouse and Delivery Agreement ("Agreement") contains an arbitration clause and the Agreement evidences a transaction involving interstate commerce, the complaint should be dismissed under the Federal Arbitration Act ("FAA"), 9 U.S.C. sec. 1 et. seq. Ideal concedes that all of the claims alleged in the complaint are arbitrable under Clause 16 of the Agreement and it should be referred to arbitration.¹ Ideal's Memorandum at 1. Ideal, however, contends that their Agreement is not a transaction involving commerce but is an intrastate transaction. Ideal consequently claims that the Puerto Rico Arbitration statute, 32 L.P.R.A. sec. 3201 et seq.² controls and this Court should stay rather than dismiss this action pending the arbitration proceedings.

The FAA was enacted "`to overrule the judiciary's longstanding refusal to enforce agreements to arbitrate' (citation omitted), and to place such agreements `upon the same footing as other contracts (citation omitted).'" Volt Information Sciences, Inc. v. Board of Trustees, ___ U.S. ___, 109 S.Ct. 1248, 1255, 103 L.Ed.2d 488 (1989). The FAA is intended to encourage speedy resolution of disputes and to bind parties to their voluntary agreements. Id.

The FAA applies only to arbitration agreements involving "maritime transactions" or "contracts evidencing a transaction involving commerce." 9 U.S.C. sec. 2. "Commerce," within the meaning of the FAA, refers to interstate, territorial, or foreign commerce. 9 U.S.C. sec. 1. The Court notes that the term "involving commerce" is to be broadly construed as a result of the strong federal policy favoring arbitration. Snyder v. Smith, 736 F.2d 409, 417 (7th Cir.1984), cert. denied, 469 U.S. 1037, 105 S.Ct. 513, 83 L.Ed.2d 403 (1984). See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 401 n. 7, 87 S.Ct. 1801, 1805 n. 7, 18 L.Ed.2d 1270 (1967); Securities Industry Ass'n v. Connolly, 883 F.2d 1114 (1st Cir.1989); Mesa Operating Ltd. Partnership v. Louisiana Intrastate Gas Corp., 797 F.2d 238, 243 (5th Cir.1986); Societe Generale De Surveillance v. Raytheon European Management & Systems Co., 643 F.2d 863, 867 (1st Cir.1981); C.P. Robinson Construction Co. v. National Corp. for Housing Partnerships, 375 F.Supp. 446 (M.D.N.C.1974).

In deciding whether there is a transaction involving commerce, the Court may look to the contract, affidavits, and the parties' business operations. Snyder v. Smith, 736 F.2d at 417. In this case, the Agreement is between two Delaware corporations with principal places of business in Illinois and a Puerto Rico corporation. The original agreement was prepared in the United States by Swift and sent via mail to Ideal for its execution in Puerto Rico. As shown from the Agreement and the affidavit of the Managing Director of the International Division of codefendant Swift-Eckrich, Inc., the Agreement concerns the importation of U.S. produced products into Puerto Rico and Ideal's receipt, storage and delivery of the products to Swift's customers in Puerto Rico. Specifically, Ideal is responsible for obtaining Swift's food products from the piers in San Juan, Puerto Rico, and storing them in Ideal's warehouse. A Swift representative is present at Ideal's warehouse for the purpose of coordinating Swift's activities. Swift's personnel are in charge of selling the imported food products in Puerto Rico. Once the products are sold to a local buyer and Ideal receives a sale order from Swift, Ideal must then deliver said products. It is apparent from the Agreement that the parties are involved in a commercial transaction and the FAA is applicable.

A number of courts have found that contracts that are to be performed in one state may still be considered transactions involving interstate commerce when the contracting parties are from different states; the contracts necessitate interstate travel; communication is through the postal system; and/or materials used in the performance of the contracts were manufactured or transported over state borders. For instance, in Mesa, 797 F.2d at 243, a contract was executed to sell royalty gas belonging to the state of Louisiana. The gas was produced in Louisiana and sold to Louisiana customers only. However, the sellers of the gas were citizens of Texas who were operating in Louisiana. The sellers had sent personnel from Texas to Louisiana and all communications and payments under the contract were received in Texas. The Fifth Circuit held that such a contract involved interstate commerce. The court stated that:

Citizens of different states engaged in performance of contractual operations in one of those states are engaged in a contract involving commerce under the FAA. Such a contract necessitates interstate travel of both personnel and payments. Commerce under the FAA is not limited to interstate shipment of goods ... but includes all contracts `relating to interstate commerce.'

Id. at 243 (citing Prima Paint, 87 S.Ct. at 1805 n. 7).

In addition, in Del E. Webb Construction v. Richardson Hosp. Authority, 823 F.2d 145 (5th Cir.1987), the court found that FAA was applicable to a construction contract to be performed in one state where the contracting parties were from "different states, employees of the plaintiff traveled interstate; the interstate mails were used to facilitate the work of the plaintiff's subcontractors; and materials used in the construction of the defendant's facilities were manufactured and moved in interstate commerce." Id. at 147. See also C.P. Robinson, 375 F.Supp. at 451; Sears Roebuck & Co. v. Glenwal Co., 325 F.Supp. 86, 89-90 (S.D.N.Y.1970), aff'd, 442 F.2d 1350 (2d Cir.1971).

Similarly, in this case, the FAA controls because the parties were from different locations³ and the contract involved the warehousing and delivery of imported food products. Food products were grown in the United States to be sold in the Puerto Rico market. The original agreement and its amendments were signed by Swift in Illinois and were then sent via mail to Ideal in Puerto Rico for execution. The use of interstate mail was used frequently to send delivery orders, shipping orders, ocean bills of lading and freight invoices. Swift personnel have frequently traveled from Illinois to Puerto Rico to inspect Ideal's warehouse, evaluate Ideal's financial condition, inventory handling and delivery practices and ensure contract compliance. Clearly, the parties's contract evidences a transaction involving commerce.

Ideal also contends that because the Agreement stipulated that it is governed by the laws of Puerto Rico this Court should stay the action.⁴ We, however, see no point in staying this action, when both parties agree that all issues alleged in the complaint are arbitrable and that this case should be submitted to arbitration. This action is similar to the case of Sea-Land Services, Inc. v. Sea-Land of P.R., Inc., 636 F.Supp. 750 (D.P.R.1986) in which the court held that:

Although we understand that plaintiff's motion to compel arbitration must be granted, we do not believe the proper course is to stay the action pending arbitration. Given our ruling that all issues raised in this action are arbitrable, retaining jurisdiction and staying the action will serve no purpose. Any post-arbitration remedies sought by the

...