Republic of Nicaragua v. Standard Fruit Co.

• Decision Date: 01 July 1991
• Docket Number: 89-15803,Nos. 88-2585,s. 88-2585
• Citation: 937 F.2d 469
• Parties: REPUBLIC OF NICARAGUA, a foreign sovereign, Plaintiff-Appellant, v. STANDARD FRUIT COMPANY, Standard Fruit and Steamship Company, and Castle & Cooke, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 469

937 F.2d 469

REPUBLIC OF NICARAGUA, a foreign sovereign, Plaintiff-Appellant, v. STANDARD FRUIT COMPANY, Standard Fruit and Steamship

Company, and Castle & Cooke, Inc., Defendants-Appellees.

Nos. 88-2585, 89-15803.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Oct. 3, 1990.

Decided July 1, 1991.

Judith C. Appelbaum, Reichler, Choate, Appelbaum & Wippman, Washington, D.C., and Paul J. Laveroni, Cooley, Godward, Castro, Huddleston & Tatum, San Francisco, Cal., for plaintiff-appellant.

Steven M. Schneebaum, Patton, Boogs & Blow, Washington, D.C., for defendants-appellees.

Appeal from the United States District Court for the Northern District of California.

Before SCHROEDER, FERGUSON and BRUNETTI, Circuit Judges.

FERGUSON, Circuit Judge:

The Republic of Nicaragua appeals from two orders of the district court which denied its motion to compel international arbitration of a contract dispute (Count I) and granted summary judgment to Standard Fruit Company ("SFC") and its two parent companies, Standard Fruit and Steamship Company ("Steamship") and Castle & Cooke, Inc. ("C & C"), ¹ on Nicaragua's breach of contract claim (Count II).

Nicaragua raises three points on appeal. First, it argues that the questions of whether a document entitled "Memorandum of Intent" was a valid contract and whether Standard Fruit Company was bound by that contract should have been referred to arbitration in the first instance, not decided by the district court. Secondly, it contends that disputed issues of material fact exist on the question of whether the Memorandum of Intent was a binding contract for the purchase and sale of bananas, or merely an "agreement to agree" at some later date. Finally, Nicaragua alleges that a factual dispute exists on the question of whether the Memorandum of Intent was executed on behalf of SFC, thus precluding summary judgment on that issue as well.

We hold that although it was the court's responsibility to determine the threshold question of arbitrability, the district court improperly looked to the validity of the contract as a whole and erroneously determined that the parties had not agreed to arbitrate this dispute. Instead, it should have considered only the validity and scope of the arbitration clause itself. In addition, the district court ignored strong evidence in the record that both parties intended to be bound by the arbitration clause. As all doubts over the scope of an arbitration clause must be resolved in favor of arbitration, and in light of the strong federal policy favoring arbitration in international commercial disputes, Nicaragua's motion to compel arbitration should have been granted. Whether the Memorandum was binding, whether it covered banana purchases, and whether Standard Fruit Company was bound by it are all questions properly left to the arbitrators. Finally, genuine disputes of fact exist as to the intent of the parties and the validity and scope of the Memorandum. Therefore, the grant of summary judgment to the three defendants is reversed.

FACTS

Since 1970, defendant Standard Fruit Company has been involved in the production and purchase of bananas in western Nicaragua. It is a wholly-owned subsidiary of Standard Fruit and Steamship Company, which purchases the bananas from SFC and transports and distributes them in the U.S. Steamship in turn is a wholly-

owned subsidiary of C & C. From 1970 until October 1982, SFC operated by entering into limited partnership agreements with sixteen different landowners in Chinandega Province, Nicaragua. The equity interests in the partnerships ² were allocated such that the landowners held 80% and SFC held 20%. Secondly, SFC leased the 16 banana plantations from their owners and assigned those leases to the partnerships. Third, each partnership entered into an exclusive fruit purchase agreement with SFC, promising to sell all export-quality bananas from its plantations to SFC.

A. THE REVOLUTION

In 1979, the Sandinistas overthrew the Somoza government in Nicaragua, forming a new "Government of National Reconstruction," led by a three-person junta. The Sandinistas wished to assume closer control over the banana industry, and eventually to transfer SFC's shares in the partnerships to the Nicaraguan government. For over a year, the new government discussed these issues with SFC's representative in Nicaragua, General Manager James Sousane.

On June 23, 1980, Nicaraguan Minister of Foreign Trade Alejandro Martinez Cuenca sent Sousane a memo (at Sousane's request) which proposed a set of basic guiding principles for the new contractual relationship between the Republic of Nicaragua and SFC, including the transfer proposal mentioned above. SFC objected to this proposal on the grounds that it could not transfer its 20% share in the partnerships to the government without the consent of its partners. Negotiations continued on this and other points until December 20, 1980.

On that date, Nicaragua promulgated "Decree No. 608," which declared that the banana industry was to become a state monopoly, that all plantation leases would be transferred to a new government agency, and that all preexisting lease, partnership, and fruit purchase contracts were nullified. SFC interpreted this decree as an expropriation of its business, and immediately ceased all operations in Nicaragua. Sousane and a few key employees left the country, and no more bananas were purchased. Both sides were surprised and upset by the issuance of the decree and the almost immediate withdrawal of SFC, with the bananas still ripe on the trees and ready to pick. As a result, Nicaragua requested a "summit meeting" at which SFC and its two parent companies, Steamship and C & C, could sort out their differences with the Sandinistas and come back to the country. The situation had obviously reached crisis proportions.

B. THE MEMORANDUM

The meeting commenced in San Francisco on Friday, January 9, 1981, and continued for three days of intense negotiations, led by C & C Vice-President and General Counsel Robert Moore (principal draftsman of the Memorandum) and Norton Tennille, Nicaragua's legal counsel. On Sunday, January 11, a document entitled "Memorandum of Intent" was executed by two officers of C & C, two officers of Steamship, and two Ministers of Trade and a member of the ruling junta of Nicaragua. Sousane and other SFC representatives participated in the negotiations but did not sign the document. ³

The Memorandum, termed an "agreement in principle," contained an arbitration provision, and envisioned the renegotiation and replacement of four operating contracts between SFC and "the competent Nicaraguan national entity." ⁴ These were Within a week after the Memorandum was signed, SFC returned to Nicaragua and resumed its operations there. In addition, it began negotiating with Nicaraguan officials regarding the technical assistance and fruit purchase contracts referred to in the Memorandum, as well as the share transfers and asset buy-outs. Many subsequent drafts of these four documents were exchanged, some similar to the Memorandum and some not, although none were ever finalized and executed.

to include a detailed fruit purchase contract, a technical assistance contract, the transfer of SFC's shares in the production societies, and Nicaragua's purchase of SFC's assets in the country. The Memorandum also established the essential elements of the fruit purchase contract: a price term ($4.30 per box, less specified deductions), the length of the contract (five years, although no dates were specified), and stated that it would cover all the first-quality bananas produced by the Nicaraguan growers. Additional provisions rescinded the terms of Decree 608 for five years, reinstated SFC's favored tax status, and clarified the financing arrangements for Nicaragua's banana industry.

Throughout the negotiations and for the next 22 months, SFC complied with the terms of the Memorandum as though it were bound by it. For example, it began paying $4.30 per box of bananas, rather than $1.26 as it had been paying up to that time, and bought over $30 million worth of bananas at that price. Nicaragua, in turn, began allowing the $.75 per box deduction for asset buy-back, debt reduction, and technical assistance, for a total rebate of over $3.5 million to SFC over the two years. During this period, C & C and SFC produced and disseminated a number of documents which referred to the Memorandum as "a contract," a "commitment," or "a final agreement," several of which were signed and/or approved by Robert Moore. These included a C & C press release sent out the day after the Memorandum was signed, SEC reports, Annual Reports, letters, telexes, letters to the editor, and internal memoranda. Although SFC, Steamship, C & C, and Nicaragua all acted as though the Memorandum was binding for almost two years, the implementing contracts were never finalized, and SFC left Nicaragua for good on October 25, 1982.

The arbitration clause states that:

Any and all disputes arising under the arrangements contemplated hereunder ... will be referred to mutually agreed mechanisms or procedures of international arbitration, such as the rules of the London Arbitration Association.

Nicaragua admits that this clause is less than crystal clear and in fact refers to an association which does not exist. However, it introduced a letter written by Robert Moore, principal draftsman of the Memorandum, to explain the inconsistency. The letter, written to Nicaragua's representative only three weeks after the negotiations, described the "deep sense of urgency on both sides," the "exceedingly tight time schedule," and the "highly political nature of the agreement (from the Nicaraguan standpoint)." It explained that, during the negotiations themselves, neither side could remember the name of the arbitration body in London, and stated: "What resulted was an agreement providing for...