Lummus Company v. Commonwealth Oil Refining Company, 93

• Citation: 297 F.2d 80
• Decision Date: 14 November 1961
• Docket Number: Dockets 27100,No. 93,27110.,93
• Parties: LUMMUS COMPANY, Petitioner, v. COMMONWEALTH OIL REFINING COMPANY, Inc., Respondent. LUMMUS COMPANY, Petitioner, v. Honorable Archie O. DAWSON, Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

297 F.2d 80 (1961)

LUMMUS COMPANY, Petitioner, v. COMMONWEALTH OIL REFINING COMPANY, Inc., Respondent.

LUMMUS COMPANY, Petitioner, v. Honorable Archie O. DAWSON, Respondent.

No. 93, Dockets 27100, 27110.

United States Court of Appeals Second Circuit.

Argued September 25, 1961.

Decided November 14, 1961.

Certiorari Denied February 19, 1962.

COPYRIGHT MATERIAL OMITTED

John T. Cahill, New York City (Cahill, Gordon, Reindel & Ohl, Lawrence J. McKay, Raymond L. Falls, Jr., Thomas F. Curnin, New York City, on brief), for petitioner.

John F. Dooling, Jr., New York City (Sullivan & Cromwell, Richard DeY. Manning, Milton Pollack, New York City, Ruben Rodriquez-Antongiorgi, San Juan, P.R., on brief), for respondent, Commonwealth Oil Refining Co., Inc.

Before LUMBARD, Chief Judge, and FRIENDLY and SMITH, Circuit Judges.

Certiorari Denied February 19, 1962. See 82 S.Ct. 601.

FRIENDLY, Circuit Judge.

An appeal and an alternative petition for mandamus bring us a host of questions in this sizable litigation, now well into its third year without even an approach to the merits. Much of the previous history is told in Lummus Co. v. Commonwealth Oil Refining Co., 280 F.2d 915 (1 Cir.), rehearing denied, 280 F.2d 932, cert. denied, 364 U.S. 911, 81 S.Ct. 274, 5 L.Ed.2d 225 (1960) sometimes hereafter "the First Circuit decision", and in Judge Weinfeld's opinion denying Lummus' motion to remand, 195 F.Supp. 47 (S.D.N.Y.1961). Nevertheless a brief discussion of the background is here required.

The controversy between Lummus and Commonwealth stems from two contracts, one executed July 8, 1954, and the other March 14, 1956, wherein Lummus, a Delaware corporation, agreed to construct an initial and an expanded oil refinery in Puerto Rico for Commonwealth, a Puerto Rican corporation. Each contract contained an agreement to arbitrate, paragraph 25.1, which we quote in the margin.¹ The contracts provided they "shall be deemed to have been made, executed and delivered in New York"; however, they did not say they were to be governed by New York law.

Commonwealth having withheld payment of large sums claimed by Lummus for services and materials, Lummus, on April 29, 1959, mailed a demand for arbitration of its claims, aggregating $4,697,997.85, and "any setoffs or counterclaims * * * which Commonwealth may assert." Commonwealth responded by commencing, in the District Court for Puerto Rico, an action for $60,000,000 and "other sums as yet undetermined" as damages for alleged fraudulent or negligent misrepresentations in the studies and projections prepared by Lummus prior to execution of the contracts; Commonwealth moved also, pursuant to 32 Laws of Puerto Rico (Ann.) § 3204 (4) (a), for a stay of the arbitration on the ground that the arbitration agreements "are invalid or do not exist by reason of" the alleged misrepresentations. May 20, Lummus moved in the New York state courts to compel arbitration pursuant to New York Civil Practice Act, § 1450; Commonwealth removed that proceeding to the District Court for the Southern District. On the morning of May 29 counsel for Lummus notified New York counsel for Commonwealth that Lummus was about to move to enjoin Commonwealth from taking further proceedings in Puerto Rico pending disposition of the New York action, and intended to apply that afternoon for a temporary restraining order, a procedure which complied with the admonition of Judge Lumbard in Arvida Corp. v. Sugarman, 259 F.2d 428, 429 (2 Cir. 1958). The virtue of Lummus' counsel was not rewarded; Commonwealth's Puerto Rico counsel immediately secured ex parte an order of the District Court there, temporarily restraining prosecution of the New York action. On July 20, after hearings, the District Court for Puerto Rico entered an "Order for Preliminary Injunction," containing extensive findings of fact and conclusions of law.² The Puerto Rico District Court found that "A substantial dispute has arisen and a substantial issue exists as between Commonwealth and Lummus as to whether there was fraud in the inducement of the contracts * * * which might make the consent of the parties unreal and nullify the whole contract including the arbitration clause"; that "The questions raised in the present case concerning the staying of the arbitration demanded by defendant Lummus are governed by the Arbitration Law of Puerto Rico"; and that the court had the power, in its discretion, to enjoin any further steps or proceedings by Lummus in the Southern District or before the American Arbitration Association until such questions were determined by it. An order issued so enjoining Lummus "until this Court enters its order finally determining whether there are valid and existing arbitration agreements between the parties and whether the said arbitration so demanded should be permanently stayed."

An appeal by Lummus to the First Circuit resulted in a comprehensive opinion, written by Judge Aldrich, unanimously reversing this order of the District Court for Puerto Rico. The Court of Appeals indicated that, if it felt free to apply its own views, it would hold the arbitration clause broad enough to include a claim of fraud in the inducement, as this Court had held under the Federal Arbitration Act, 9 U.S.C. §§ 1-13, in Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402 (2 Cir.1959), cert. granted, 362 U.S. 909, 80 S.Ct. 682, 4 L.Ed.2d 618, dismissed pursuant to stipulation, 364 U.S. 801, 81 S.Ct. 27, 5 L.Ed.2d 37 (1960), and has decided more recently in In re Kinoshita & Co., 287 F.2d 951 (2 Cir.1961); however, the First Circuit felt bound to apply the law of New York. Taking that view, it held that a New York court would consider a claim of voidability based on fraud in the inducement of the entire contract, even though not related specifically to the agreement to arbitrate, in deciding whether to compel arbitration; however, Commonwealth had not asserted any fraud peculiar to the agreement to arbitrate and its claim of rescission of the contracts in their entirety was inconsistent with its apparent unwillingness to return any part of the consideration — moreover, its attempt at rescission was not timely. The Court concluded, 280 F.2d at 931, that "Since Commonwealth failed to raise a substantial issue as to the making or the existence of the contracts, it was not entitled to a preliminary stay of the arbitration proceedings" or to the preliminary injunction issued thereafter. The various injunctive orders were vacated and the District Court in Puerto Rico was directed to stay its own proceedings pending the arbitration in New York. Denial of rehearing in a further opinion³ and denial of certiorari followed, after which the District Court for Puerto Rico took the action the First Circuit had directed.

The scene now shifts back to New York. On January 12, 1961, after a barrage of letters begun by Lummus and vigorously continued by Commonwealth, the American Arbitration Association advised it would proceed with the arbitration. A few days later Commonwealth moved in the Southern District to stay arbitration until Lummus' petition to compel it had been brought on for hearing or, in the alternative, pending a trial on issues of arbitrability. The issues proposed to be tried were fraud in the inducement of the contracts, a contention that certain of Lummus' claims did not arise under them, and the effect of the last sentence of the arbitration paragraph, relating to insurance. Lummus, evidently tiring of what had been its relatively passive role in the Federal arenas, moved to remand to the state court on numerous grounds set forth in Judge Weinfeld's opinion of June 2, 1961, 195 F.Supp. 47, denying its motion. On June 8, Judge Dawson filed a memorandum 195 F.Supp. 572, directing a trial of arbitrability. He held that this was governed by New York law and "That a substantial issue has been raised as to the making of the contract"; his memorandum did not discuss Lummus' contention that any such issue had been disposed of by the First Circuit or refer to the other issues Commonwealth had raised. After denial of a motion by Lummus for reargument or alternatively for the inclusion of a certificate pursuant to 28 U.S.C. § 1292(b), an order was entered granting Commonwealth's motion "to the extent of directing a trial of the issues concerning the making of the contracts of July 8, 1954 and March 14, 1956, and the arbitrability of the issues in conflict between the parties, * * * and staying all proceedings in connection with the arbitration demanded * * * pending determination of the said trial."

The last steps in this procedural marathon are that Lummus has appealed from this order; that Commonwealth has moved to dismiss for lack of appellate jurisdiction; and that Lummus has petitioned for mandamus if Commonwealth's motion to dismiss be granted.

(1) Appealability.

Plainly Judge Dawson's order is not a final judgment appealable under 28 U.S.C. § 1291, as an order dismissing Lummus' petition or an order directing arbitration would have been, Farr & Co. v. Cia. Intercontinental De Navegacion De Cuba, S.A., 243 F.2d 342 (2 Cir., 1957). The only provision of § 1292 in any way pertinent is subsection (a) (1) authorizing appeal from "Interlocutory orders * * * granting * * * or refusing * * * injunctions." Lummus says Judge Dawson's order did both; we hold it did neither.

(a) The claim that the order refused an injunction rests on the premise that a petition seeking to compel arbitration is in effect a request for a mandatory injunction, cf. Red Star Laboratories Co. v. Pabst, 100 F.2d 1, 3-4 (7 Cir.1938), hence a reference to trial on the issue of arbitrability is said to be the refusal of an injunction. A contrary position was taken in Division 689 Amalgamated Ass'n, etc., v. Capital Transit Co., 97 U.S.App.D.C. 4, 227 F.2d 19 (D.C.Cir. 1955), and John Thompson Beacon Windows, Ltd. v. Ferro, Inc., 98 U.S.App. D.C. 109, 232 F.2d 366 (D.C.C...