In re Crysen/Montenay Energy Co.
| Decision Date | 31 August 1999 |
| Docket Number | No. 97 Civ. 5072 MGC.,97 Civ. 5072 MGC. |
| Citation | 240 BR 166 |
| Parties | In re CRYSEN/MONTENAY ENERGY COMPANY, Debtor. Crysen/Montenay Energy Company, Plaintiff, v. Shell Oil Company and Scallop Petroleum Company, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Becker, Glynn, Melamed & Muffly LLP by Richard N. Chassin, Matthew W. Woodruff, Zeb Landsman, New York City, for Debtor/Plaintiff.
Anderson Kill & Olick, P.C. by Mark L. Weyman, Noah H. Charlson, New York City, for defendants.
This is a non-core adversary proceeding arising out of a contract for the sale of fuel oil from Crysen/Montenay Energy Company ("Crysen") to Scallop Petroleum Company. After filing for bankruptcy, Crysen sued Scallop and Shell Oil Company, Scallop's former parent company and successor-in-interest, for breach of contract. Following more than eight years of litigation, Bankruptcy Judge Blackshear referred the proceeding to arbitration. The arbitration panel found for defendants, and Judge Blackshear issued proposed findings of fact and conclusions of law confirming the arbitration award and granting defendants' motion to dismiss the adversary proceeding with prejudice. Crysen now files objections to the proposed findings of fact and conclusions of law pursuant to 28 U.S.C. § 157(c)(1), arguing, inter alia, that the bankruptcy judge lacked the power to order arbitration and, in any event, erred in ordering arbitration because defendants had waived any right they had to arbitration. For the reasons set forth below, I accept Judge Blackshear's proposed conclusions of law and dismiss the adversary proceeding with prejudice.
In January of 1986, Scallop contracted with Crysen for the purchase of 300,000 barrels of fuel oil with a maximum sulfur content of 0.7 percent, at a price of $24.55 per barrel. (Pl.App.1 420.) After a portion of the contracted-for oil was discharged from the transporting vessel to Scallop's appointed port, Scallop asserted that the oil did not conform to the contract and refused to accept the remainder. While contesting Scallop's assertion, Crysen "cured" the allegedly non-conforming oil which had been discharged from the vessel by supplying a cargo of low-sulfur fuel oil for blending. However, Scallop allegedly refused to allow Crysen to "cure" the balance of the cargo, which had not been discharged from the vessel. According to Crysen, it ultimately sold this cargo to another customer at a lower price.
The contract between Crysen and Scallop provided: "All disputes arising or in connection with this contract will be determined by arbitration in New York, New York in accordance with the Rules of the American Arbitration Association by (3) three arbitrators." (Pl.App. 420b.)
In June of 1986, Crysen filed a petition for reorganization under chapter 11 of the United States Bankruptcy Code. On March 16, 1987, Crysen commenced an adversary proceeding against Scallop pursuant to 11 U.S.C. § 521 et seq., asserting a claim based on Scallop's rejection of the fuel oil.2 The complaint alleged that the action was a "core proceeding" under 28 U.S.C. § 157(b)(2). (Pl.App. 18.) Scallop's answer to the complaint, dated May 7, 1987, asserted a "First Affirmative Defense of Arbitration as to All Claims." On May 29, 1987, Bankruptcy Judge Blackshear denied Scallop's motion to stay the proceeding and submit the claims to arbitration. (Pl.App. 57-59.) Scallop did not appeal Judge Blackshear's order, and the parties now dispute whether that order was appealable at the time.
Scallop then served amended answers dated December 15, 1987, March 11, 1988, and August 25, 1988, none of which asserted a defense of arbitrability. (Pl.App. 60, 66, 78.) By stipulation dated November 15, 1988, Scallop and Crysen agreed that Shell—Scallop's parent company which had assumed Scallop's rights and liabilities in December 1987—would be added as a defendant. (Pl.App. 88.) Pursuant to that stipulation, Crysen served an amended complaint dated December 19, 1988 naming Scallop and Shell as defendants. (Pl. App. 93.) Scallop and Shell served an answer to the amended complaint and demanded a trial by jury on Crysen's claims. (Pl.App. 102.) Scallop and Shell did not assert a defense of arbitrability in this pleading.
Crysen moved for partial summary judgment in April 1990, arguing that even if the oil was non-conforming, Scallop wrongfully rejected the undischarged fuel by denying Crysen the right to cure under N.Y.U.C.C. § 2-508(2). (Pl.1990 App.3 1-2, 141.) In May of 1990, defendants "cross-moved" for partial summary judgment, arguing that N.Y.U.C.C. § 2-508(2) is inapplicable because the time-of-the-essence clause in the contract effectively eliminated Crysen's right to cure after the time set for performance. (Id. at 161-63, 555-80.) Defendants also sought a declaration that the fuel oil was non-conforming. (Id. at 551-55.) In a decision dated September 24, 1991, Judge Blackshear held that whether the oil conformed was a genuine issue of disputed fact. He also ruled that because the finder of fact might ultimately determine that the oil was conforming, thus mooting the cure issue, it was appropriate not to decide the legal question of whether Crysen had a right to cure. "A determination by this Court after trial that the oil does not conform to the contract specifications, would allow either party to again move for summary judgment on the issue of cure." (Pl.App. 128.)
In November of 1993, defendants sought to compel additional discovery. Judge Blackshear denied defendants' application, but permitted defendants to designate two additional expert witnesses for trial. (Pl. App. 199-200.)
On August 12, 1994, upon defendants' motion, Judge Blackshear ruled that the adversary proceeding was non-core. (Pl. App. 201-202.)
By notice of motion dated September 27, 1994, the defendants moved in the district court for an order withdrawing the reference from the bankruptcy court. The defendants argued that the claims should be adjudicated in the district court in light of the non-core determination and defendants' demand for a jury trial. Judge Duffy denied the motion, without opinion, on November 14, 1994. Defendants sought reargument, and Judge Duffy denied that application on January 5, 1995.
At the same time, Crysen moved in the bankruptcy court to strike defendants' demand for a jury trial. Defendants filed a "cross-motion" demanding a jury trial. At a December 7, 1994 hearing, Judge Blackshear denied Crysen's motion. (Pl.App. 278, 728.)
In October of 1995, the defendants renewed their 1987 application to stay the adversary proceeding and to compel arbitration of the claims. By order dated November 20, 1995, Judge Blackshear granted defendants' motion. (Pl.App. 394-95.)
A panel of three arbitrators issued an award on January 29, 1997 denying Crysen's claims in their entirety. (Pl.App. 396-97.) In proposed findings of fact and conclusions of law, Judge Blackshear recommended confirmation of the arbitration award.
In non-core proceedings, the district court reviews de novo those portions of a bankruptcy judge's proposed findings of fact and conclusions of law to which any party has made timely and specific objection. 28 U.S.C. § 157(c)(1); see also Fed. R.Bankr.P. 9033(d).
Crysen argues that the bankruptcy judge did not have the power to compel arbitration, because sections 3 and 4 of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., authorize only a United States district court to direct the parties to arbitrate, and because the power to compel arbitration is not one of the designated powers of a bankruptcy judge under chapter 6 of title 28 of the United States Code. Crysen also points to references in the FAA to the Federal Rules of Civil Procedure and jury trials as confirming that bankruptcy judges are not empowered to stay proceedings and compel arbitration. Crysen does not, however, cite any case holding or implying that a bankruptcy judge does not have the power to stay proceedings and compel arbitration.
The FAA provides that "courts of the United States" may stay an action pending arbitration:
"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, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, 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, providing the applicant for the stay is not in default in proceeding with such arbitration."
9 U.S.C. § 3.
It is debatable whether the term "courts of the United States" as used in the FAA should be interpreted to refer directly to bankruptcy courts. The term "courts of the United States" is not defined in the FAA. Moreover, the pertinent section of the FAA was enacted prior to the reconfiguration of the bankruptcy courts in 1978 and 1984. Act of July 30, 1947, Pub.L. No. 80-282, 61 Stat. 669. In construing the statutory language "courts of the United States" in other contexts, appellate courts have disagreed as to whether the term includes bankruptcy courts. Compare Grewe v. United States (In re Grewe), 4 F.3d 299, 304-05 (4th Cir.1993), and United States v. Yochum (In re Yochum), 89 F.3d 661, 668-69 (9th Cir.1996) (), with I.R.S. v. Brickell Inv. Corp. (In re Brickell Inv. Corp.), 922 F.2d 696, 698-702 (11th Cir.1991) ().
Even if Crysen is correct that the language of the FAA should not be construed to refer directly to bankruptcy...
To continue reading
Request your trial