Lummus Company v. Commonwealth Oil Refining Co.

• Decision Date: 02 June 1961
• Citation: 195 F. Supp. 47
• Parties: In the Matter of the Arbitration of Certain Differences Between LUMMUS COMPANY, Petitioner, and COMMONWEALTH OIL REFINING COMPANY, Inc., Respondent.
• Court: U.S. District Court — Southern District of New York

195 F. Supp. 47

In the Matter of the Arbitration of Certain Differences Between LUMMUS COMPANY, Petitioner, and

COMMONWEALTH OIL REFINING COMPANY, Inc., Respondent.

United States District Court S. D. New York.

June 2, 1961.

Cahill, Gordon, Reindel & Ohl, New York City, for petitioner. Lawrence J. McKay, Raymond L. Falls, Jr., Thomas F. Curnin, New York City, of counsel.

Sullivan & Cromwell, New York City, for respondent. Richard deY. Manning, Milton Pollack, New York City, Ruben Rodriguez-Antongiorgi, San Juan, P. R., John F. Dooling, Jr., Hamilton F. Potter, Jr., Jeffrey A. Fillman, New York City, of counsel.

WEINFELD, District Judge.

This proceeding was originated in the Supreme Court of the State of New York by The Lummus Company to compel Commonwealth Oil Refining Company, Inc. to arbitrate disputes arising out of two contracts entered into between them, each of which contained an arbitration clause.

Lummus now moves to remand the proceeding to the State Court,¹ from which it had been removed to this Court on the petition of Commonwealth, which alleged diversity of citizenship,² based upon the fact that Lummus is a Delaware corporation, with its principal place of business in the State of New York, and Commonwealth is a corporation organized under the laws of, and with its principal place of business in, the Commonwealth of Puerto Rico.

The principal basis for the motion to remand is a lack of diversity jurisdiction, although Lummus relies upon other grounds which will be considered separately.³

I

Lummus' basic contention is that this Court, as an Article III court, is without jurisdiction because Commonwealth is a citizen of the "Commonwealth of Puerto Rico," which is not a state within the meaning of Article III, section 2, of the Constitution, which specifies that the judicial power of the United States extends "to Controversies * * * between Citizens of different States * * *." Further, and as a corollary contention, it urges that section 1332(d) of Title 28, which defines "states" for purposes of diversity jurisdiction to include the "Commonwealth of Puerto Rico" and "territories" was beyond the constitutional competence of Congress.

In essence, the petitioner presses for adherence to the strict definition of the word "state," adopted by Chief Justice Marshall in Hepburn and Dundas v. Ellzey,⁴ which held that the District of Columbia is not a state and its citizens are not citizens of any state within the meaning of Article III, section 2, and of the Judiciary Act of 1789⁵—a holding⁶ that remains law despite National Mutual Insurance Co. of District of Columbia v. Tidewater Transfer Co.,⁷ decided 144 years later. The ruling in Tidewater finally opened the federal courts to citizens of the District of Columbia in suits where diversity existed; however, it did so, not under Article III, but by reason of the exclusive and plenary power of Congress to legislate for the District of Columbia under Article I, section 8, clauses 17 and 18. This rationale reflected the views of only three Justices. Two other Justices made up the necessary five-man majority by concurring in the Court's judgment, but they voted to overrule Hepburn and to hold that the District of Columbia is a "state" within Article III, section 2. Accordingly, the Supreme Court upheld the constitutionality of then section 41(1) of 28 U.S.C., as amended in 1940,⁸ insofar as it vested jurisdiction in the district courts in actions "between citizens * * * of the District of Columbia * * * and any State * * *."⁹

Lummus maintains that the Tidewater ruling only considered the issue with respect to citizens of the District of Columbia and urges that it be so limited. Specifically, it contends that by whatever route the Court reached a judgment in that case, it is inapplicable to citizens of territories; also, and in any event, that its scope cannot be extended to citizens of the Commonwealth of Puerto Rico since it is not a territory as that term is used in the Constitution.

One Court of Appeals has considered and rejected the initial contention advanced by petitioner,¹⁰ and another has reached a like conclusion as to both.¹¹ Petitioner urges upon this Court rejection of these rulings, since, having been decided by other circuits, they are not necessarily binding, although entitled to great respect.¹²

Siegmund v. General Commodities Corp.¹³ was decided within eight days after the Supreme Court ruling in the Tidewater case. In the face of a similar constitutional attack upon the same diversity statute insofar as it gave citizens of a territory access to federal district courts, the Court of Appeals held that the Tidewater ruling controlled and that diversity jurisdiction extended to an action between a citizen of the Territory of Hawaii and a citizen of a state. The Court observed that "the reasons assigned by the two groups of Justices who concurred in the Tidewater result are as applicable to cases involving citizens of territories as they are to cases in which citizens of the District of Columbia are parties."¹⁴ The Court readily acknowledged that the power of Congress to legislate for the territory was not as expressly stated as its power over the District of Columbia; nonetheless it found that the diversity statute in question was a legitimate exercise of the power to legislate for the territories under Article IV, section 3, of the Constitution, which provides that "The Congress shall have Power to dispose of and make all needful Rules and Regulations respecting the Territory or other Property belonging to the United States."

The Court is persuaded that the Siegmund conclusion that the Tidewater holding is equally applicable in the instance of territories is sound.

Lummus next urges that even if it be assumed that Siegmund was correctly decided, it is inapplicable to the issue here presented. It contends that Puerto Rico is not a territory—that its status as a commonwealth is different and entirely distinct from the status of Hawaii, then a territory, or from any other territory of the United States. However, the precise contention (for diversity purposes) was considered and rejected in Detres v. Lions Bldg. Corp.¹⁵ There, the Court of Appeals for the Seventh Circuit, after an extensive review of the status of Puerto Rico from the time it was ceded to the United States by Spain in 1898, 30 Stat. 1755, through the legislative history of the Act¹⁶ and events thereafter¹⁷ by reason of which Puerto Rico became a commonwealth in the federal system,¹⁸ found that although the new constitution vested in the Puerto Rican people broader local powers than they had previously enjoyed, "Puerto Rico both before and after the adoption and approval of its constitution was a territory of the United States within the meaning of the diversity section of the federal code of civil procedure."¹⁹

Strong support is found for this conclusion in the legislative history of the Act which led to the creation of the Commonwealth. The House Committee Report, which recommended its adoption, stated in "absolutely clear" terms that "the bill under consideration would not change Puerto Rico's fundamental political, social, and economic relationship to the United States."²⁰

Significantly, congressional action, in the wake of the Detres decision, gives legislative approval of its holding. When the Court of Appeals decided that case, the diversity section contained no specific reference to the Commonwealth of Puerto Rico.²¹ However, thereafter Congress amended the section to include the Commonwealth of Puerto Rico within the meaning of the word "states" as used therein.²² The Senate Committee Report accompanying the amendment, in referring to the Detres case, stated:

"The Seventh Circuit Court of Appeals held that even though the 1952 constitution refers to the `Commonwealth of Puerto Rico,' at the same time it is within the meaning of the term `Territory' in section 1332. The court indicates that there was no intention on the part of Congress to affect the status of Puerto Rico as far as the application of section 1332 was concerned when the new constitution was authorized. To remove any doubts, the House Judiciary Committee favorably reports H. R. 9038 to expressly include the Commonwealth of Puerto Rico in the coverage of section 1332 of title 28 of the United States Code."²³

Thus, there was an express manifestation of congressional purpose to accept the holding of the Detres case that Puerto Rico was a territory.

The record compels the conclusion that despite changes in its internal structure and the nomenclature used to designate it for diversity purposes, Puerto Rico's status as a territory was unaffected. Consequently, Congress, in enacting section 1332(d) to include the Commonwealth of Puerto Rico, acted within its constitutional power under Article IV, section 3, clause 2, to make "all needful Rules and Regulations respecting the Territory * * * belonging to the United States."

II

Lummus next attacks the removal of the arbitration proceeding to this Court based upon an alleged lack of power of the federal courts to apply what it refers to as the "peculiar" remedy created by the New York State Arbitration Law for the enforcement of agreements to arbitrate.

This proceeding, as already noted, was commenced by Lummus in the Supreme Court of the State of New York by a motion to compel Commonwealth to arbitrate disputes which had arisen between them under their contracts. The motion, supported by a petition, was made pursuant to section 1450 of the New York Civil Practice Act, one of the provisions of the Arbitration Law, which in general sets up the procedure and means whereby enforcement of an arbitration agreement is secured. It provides that upon notice to the defaulting party, and absent an issue as to the existence of the contract, the Court "shall make an order directing the parties to proceed to arbitration in accordance with the terms of the...