Republic of the Philippines v. Westinghouse Elec., Civ. A. No. 88-5150.

• Decision Date: 18 May 1989
• Docket Number: Civ. A. No. 88-5150.
• Citation: 714 F. Supp. 1362
• Parties: The REPUBLIC OF THE PHILIPPINES and National Power Corporation, Plaintiffs, v. WESTINGHOUSE ELECTRIC CORPORATION, Westinghouse International Projects Company, and Burns and Roe Enterprises, Inc., Defendants.
• Court: U.S. District Court — District of New Jersey

714 F. Supp. 1362

The REPUBLIC OF THE PHILIPPINES and National Power Corporation, Plaintiffs, v. WESTINGHOUSE ELECTRIC CORPORATION, Westinghouse International Projects Company, and Burns and Roe Enterprises, Inc., Defendants.

Civ. A. No. 88-5150.

United States District Court, D. New Jersey.

May 18, 1989.

COPYRIGHT MATERIAL OMITTED

Shaw, Pittman, Potts & Trowbridge by Mark Augenblick, James B. Hamlin, Matias F. Travieso-Diaz, Michael A. Schlanger, Washington, D.C., Greenbaum, Rowe, Smith, Ravin, Davis & Bergstein by Paul A. Rowe, Alan S. Naar, Woodbridge, N.J., Reichler, Choate, Appelbaum & Wippman by Paul S. Reichler, J. Samuel Choate, Jr., Judith C. Appelbaum, J. Patrick Hickey, Arthur V. Medel, Clifford & Warnke by Paul C. Warnke, Washington, D.C., for plaintiffs the Republic of the Philippines and National Power Corp.

Shanley & Fisher, P.C. by Raymond M. Tierney, Jr., Morristown, N.J., Cravath, Swaine & Moore by David Boies, Robert D. Joffe, Brooks Burdette, William Wilson, Alvin Vickery, New York City, Rogovin, Huge & Schiller by Johnathan D. Schiller, Randall L. Speck, Gary K. Harris, Randall Melch, Peter Brody, Catherine Fisk, Bradley Campell, Washington, D.C., for defendants Westinghouse Elec. Corp. and Westinghouse Intern. Projects Co.

Stein, Mitchell, & Mezines by Glenn Mitchell, Washington, D.C., McCarter & English, P.C. by W.C. McCarter, Newark, N.J., Cahill, Gordon & Reindel by Michael P. Tierney, Thomas J. Kavaler, Jonathan D. Thier, New York City, for defendant Burns & Roe Enterprises, Inc.

OPINION

DEBEVOISE, District Judge.

This is an action brought by the Republic of the Philippines and the National Power Corporation ("NPC"), the Philippine government agency responsible for electric power generation, against Westinghouse Electric Corporation ("WECOR"), a Pennsylvania corporation, Westinghouse International Projects Company ("WIPCO"), a wholly-owned subsidiary of WECOR (these entities are sometimes referred to collectively as "Westinghouse") and Burns and Roe Enterprises, Inc. ("Burns & Roe"), a New Jersey corporation. This case arises out of the construction of the 600-megawatt Philippines Nuclear Power Plant Unit 1 ("PNPP") in Bagac, Bataan during a ten-year period commencing in 1976. The fifteen-count complaint alleges breach of contract, fraud, tortious interference with fiduciary duties, negligence, civil conspiracy, RICO violations, antitrust violations and various pendent state claims. Defendants moved to stay this action pending arbitration pursuant to contractual arbitration clauses and Section 3 of the Federal Arbitration Act of 1925, as amended, 9 U.S.C. sec. 3, and/or pursuant to the court's inherent power to manage its docket. This motion has been vigorously contested by both sides and the parties have been permitted to file several supplemental briefs and affidavits.

I. The Background of the Dispute

Some understanding of the complaint's factual allegations is required in order to address knowledgeably the issues raised by this motion. For the purposes of this discussion only, plaintiffs' allegations will be accepted as true.

In the summer of 1973, Ferdinand E. Marcos, then President of the Republic of the Philippines, announced his government's decision to build the nation's first nuclear powerplant. Affidavit of Ramon R. Ravanzo dated Oct. 21, 1988 ("Ravanzo Affidavit"), para. 2. A number of foreign companies with technical expertise sought to obtain at least a piece of what promised to be a lucrative project. Westinghouse sought the contract for the construction of the plant's nuclear steam supply system and Burns & Roe was interested in obtaining the architect/engineering ("A/E") contract for the project.

Plaintiffs allege that, after consulting with Westinghouse sales employees who operated in the country, both Westinghouse and Burns & Roe concluded that the way in which business was done in the Philippines required the retention of a special sales representative ("SSR") who had both access to and influence in Malacanang, the presidential palace, if they were to have a chance of obtaining the contract. Since 1972, when Marcos declared a state of martial law, Marcos had ruled the nation largely by decree and his direct assent to such a high-profile project was considered essential. The complaint alleges that it was understood that the SSR would offer Marcos a "piece of the action" in order to obtain his endorsement of the bidders.

Westinghouse and Burns & Roe ultimately came to retain Herminio T. Disini as their SSR under separate agreements. Disini was a well-known Philippine businessman and close personal friend of President Marcos whose wife was also Mrs. Marcos' cousin and personal physician. The first test for Disini, even before any formal SSR agreements were entered, was to obtain the NPC project consulting contract for Burns & Roe.

Since the NPC had no expertise in the construction of nuclear power plants, it sought to enter a consulting contract to obtain technical advice and to assist it in selecting between competing project bidders. Although Burns & Roe bid for this contract, NPC announced its intention to award the contract to a competitor, Ebasco Industries, Inc. The Westinghouse and Burns & Roe Philippine operatives agreed that this prospect spelled disaster for their chances at the project since Ebasco was known to be a corporate ally of General Electric, a Westinghouse competitor, and would be expected to assert its influence with NPC on behalf of its confederate. Disini allegedly boasted to Burns & Roe that he could obtain a turnkey contract for PNPP project for Westinghouse including an A/E subcontract for Burns & Roe. Burns & Roe gave Disini the green light and requested that he intervene on their behalf. Days later, Marcos, directed NPC to award the consulting contract to Burns & Roe.¹

This demonstration of influence ultimately persuaded Westinghouse to retain Disini as SSR, agreeing to commission payments of three percent of the total contract price to be paid to various Disini-controlled corporations. Like Burns & Roe, Westinghouse allegedly knew that these commission payments were being passed through Disini to Marcos. Westinghouse wrote Marcos to request an opportunity to present a proposal for a turnkey contract for PNPP. Marcos agreed to hear Westinghouse and wrote the NPC to tell it he was meeting with Westinghouse.

At the Westinghouse presentation in May 1974, Marcos directed Westinghouse to use Burns & Roe as the project A/E subcontractor. Two weeks after the meeting, Westinghouse wrote Marcos requesting a commitment letter for the entire project. Marcos forwarded the letter to his Executive Secretary, Alejandro Melchor, who was also a member of the NPC Board, with a handwritten notation stating that if Westinghouse could deliver the financing terms discussed, "let us give them a letter of commitment." The following day, Marcos issued an order directing NPC General Manager Ravanzo to negotiate a turnkey contract for the construction of PNPP with Westinghouse.

In obedience to this directive, the NPC entered into contract negotiations with Westinghouse. Ravanzo established a negotiating committee comprised of three subgroups: a technical panel, a commercial panel and a legal panel, each comprised of NPC officials who were to meet with their Westinghouse counterparts in lengthy negotiations over the course of 1975. Looking back on that time, General Secretary Ravanzo recalled that Westinghouse refused to negotiate any critical contract terms:

NPC objected to many of the provisions proposed by Westinghouse, including the risk of loss, payment schedule, warranties, arbitration and liability limitation clauses. However, our efforts to negotiate better terms were frustrated because Westinghouse knew that it had the President's support and that NPC could not go to any other supplier for the nuclear plant. Therefore Westinghouse could get whatever terms it wanted, and NPC was powerless to bargain effectively. It was the first time in my experience that we were negotiating a contract in which I knew from the outset that we did not have a chance.

Ravanzo Affidavit para. 7.

Plaintiffs allege that when negotiations hit a snag, Disini would be called upon to intervene and, in response, Marcos would call Ravanzo to urge him into action. Frustrated with the slow progress of negotiations, Marcos at one point allegedly ordered the parties onto a Philippines naval vessel and gave the captain orders to cruise Manila Bay until agreement on certain provisions was obtained.

Among the terms in the Westinghouse draft contract considered by the legal panel, was the arbitration clause, Article 24. An alternate member of the NPC legal panel who was apparently actively involved in negotiations, Agripino E. Bagcal, recalled that Westinghouse was intransigent during negotiations and even indicated at one point that the terms in the draft contract were nonnegotiable. Affidavit of Agripino E. Bagcal ("Bagcal Affidavit"), dated Oct. 24, 1988, para. 3. Bagcal recalled that Article 24 was "lengthily discussed." Id. at para. 4. Because of bad experience with arbitrations in the past and because the Westinghouse draft contract was thought to favor the drafter, NPC wanted the procedural protections available in a judicial forum. Id. The parties' disparate positions on this issue are reflected in the minutes kept by Bagcal of the first meeting of the legal panel on January 24, 1975. Bagcal Affidavit Exhibit A. Apparently Westinghouse continued to insist on the inclusion of the arbitration clause and the parties were soon at an impasse.

The minutes of the next meeting of the legal panel reflect that some minor modifications were made to the arbitration clause. Bagcal Affidavit Exhibit B. The arbitration clause was again discussed at the April 18, 1975 meeting of the legal panel. Westinghouse's feet were still in cement on the issue. At this point, Westinghouse...