S.A. Mineracao Da Trindade-Samitri v. Utah Intern., Inc.

• Decision Date: 01 October 1984
• Docket Number: Nos. 1370,1504,P,D,TRINDADE-SAMITR,s. 1370
• Citation: 745 F.2d 190
• Parties: Fed. Sec. L. Rep. P 91,682 S.A. MINERACAO DAlaintiff-Appellant, v. UTAH INTERNATIONAL, INC., Utah-Marcona Corporation, Mineracao Marex Ltda., Marcona International S.A., Marcona Inc., and Samarco Mineracao S.A., Defendants-Appellees. ockets 84-7163, 84-7355.
• Court: U.S. Court of Appeals — Second Circuit

Page 190

745 F.2d 190

Fed. Sec. L. Rep. P 91,682

S.A. MINERACAO DA TRINDADE-SAMITRI, Plaintiff-Appellant, v. UTAH INTERNATIONAL, INC., Utah-Marcona Corporation Mineracao Marex Ltda., Marcona International S.A. Marcona Inc., and Samarco Mineracao S.A., Defendants-Appellees.

Nos. 1370, 1504, Dockets 84-7163, 84-7355.

United States Court of Appeals Second Circuit.

Argued June 29, 1984.

Decided Oct. 1, 1984.

Wayne A. Cross, New York City (Reboul, MacMurray, Hewitt, Maynard & Kristol, New York City, on the brief), for plaintiff-appellant.

Allan N. Littman, San Francisco, Cal. (Gerald Aksen, Christopher Connolly, New York City, Michael H. Salinsky, Charles R. Ragan, Kevin M. Fong, San Francisco, Cal., Reid & Priest, New York City, Pillsbury, Madison & Sutro, San Francisco, Cal., on the brief), for defendants-appellees.

Before KEARSE, PIERCE, and SWYGERT, ^* Circuit Judges.

Judge KEARSE dissents in a separate opinion.

SWYGERT, Senior Circuit Judge.

Plaintiff S.A. Mineracao da Trinidade-Samitri ("Samitri"), a Brazilian corporation, brought this action in the United States District Court for the Southern District of New York to obtain a declaratory judgment, damages, and other relief against six defendants, corporations in Brazil, Panama, and the United States ("defendants"). ¹ Samitri alleges that defendants fraudulently induced Samitri to enter into an international iron ore mining venture. In addition, Samitri alleges seventeen assorted claims under the laws of Brazil and the United States. Defendants moved pursuant to the United States Arbitration Act, 9 U.S.C. Secs. 1-14, 201-08 (1982), to stay the prosecution of Samitri's complaint in the district court and to compel arbitration. Samitri cross-moved to enjoin arbitration. The district court ordered arbitration of all of Samitri's claims except two brought under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Secs. 1961-68 (1982) ("RICO"), which the court stayed pending arbitration. S.A. Mineracao da Trinidade-Samitri v. Utah International, Inc., 576 F.Supp. 566 (S.D.N.Y.1983) and 579 F.Supp. 1049 (S.D.N.Y.1984). We affirm.

I

Samitri and defendants commenced discussions in the early 1970's concerning the possibility of engaging in a joint venture to mine iron ore from certain undeveloped reserves owned by Samitri in Brazil. In 1973 the parties agreed to undertake the venture which became known as the Samarco Project ("Project"). They formed a jointly-owned corporation to operate the mining project, Samarco Mineracao S.A. ("Samarco"). Under the Shareholders' Agreement, Samitri owns 51% and defendants own 49% of Samarco.

On December 10, 1974 Samitri and defendants entered into three major contracts setting forth the structure and financing of the Project. These contracts ("1974 Agreements") include: (1) the "Samarco Project Agreement" which sets forth the basic business plan; (2) the "Samarco Shareholders' Agreement" which establishes the rules for Samarco's governance and the relations among shareholders; and (3) the "Contract of Commercial Representation" which specifies the sales and marketing duties of the parties. See Affidavit of Kenneth E. Merklin, Exhibits A, B & C. Each of the 1974 Agreements contains an arbitration clause which provides in pertinent part:

Whenever any question or dispute shall arise or occur under this [Agreement/Contract], such question or dispute shall (if it is not amicably settled by the Parties) be finally settled by arbitration in Paris, France, by one or more arbitrators appointed in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce ....

See id., Exhibit A, p 10, at 9; Exhibit B, p 11, at 14; Exhibit C, p 8, at 5.

As the Project required additional financing, the parties continually made supplemental investments. The parties executed a number of so-called stock purchase agreements under which the parties purchased additional shares of Samarco stock. On October 21, 1977 the parties entered into a Preferred Stock Purchase Agreement which authorized defendants to purchase shares of Samarco preferred stock from Samitri. This Agreement thus deviated from the 51-49% ratio of ownership established in the Shareholders' Agreement. In 1977 the parties also agreed to guaranty Samarco's debts and liabilities. In 1979 Samarco refinanced its debt and Samitri and defendants entered into a new Guaranty. Finally, in July 1982, the parties agreed to purchase additional shares of Samarco stock and to contribute additional capital to Samarco. Except for the transfer and sale of certain shares of Samarco preferred stock pursuant to the 1977 Purchase Agreement, all transactions of the parties were done in accordance with the 51-49% ownership ratio established in the 1974 Shareholders' Agreement. And except for the 1977 Purchase Agreement, none of the post-1974 agreements contained an arbitration clause.

After learning in December 1982 of the cancellation of certain of Samarco's major contracts to supply iron ore to United States purchasers, Samitri sought to rescind its contracts with defendants and to withdraw its interest in Samarco. In March 1983 Samitri brought this action in the district court. Samitri alleges that defendants misrepresented that they had obtained long-term agreements with three United States purchasers. Samitri claims that the misrepresentations induced Samitri to enter into its agreements to invest and reinvest in the Project. Samitri also alleges a number of claims for breach of contract, breach of fiduciary duty, and violation of federal securities laws.

In May 1983 defendants filed a motion to compel arbitration of all of Samitri's claims on the ground that arbitration was required under the terms of the 1974 Agreements. In December 1983 the district court ordered arbitration to proceed on all but Samitri's two RICO claims which the court stayed. On appeal Samitri claims that (1) the arbitration clauses provided in the 1974 Agreements are not broad enough to encompass Samitri's claims of fraudulent inducement; (2) the arbitration clauses provided in the 1974 Agreements do not encompass Samitri's claims based on post-1974 Agreements; and (3) Samitri's RICO claims should not have been stayed pending arbitration.

II

Samitri claims that the arbitration provisions contained in the 1974 Agreements are relatively narrow and do not encompass claims of fraudulent inducement. Samitri relies upon In re Kinoshita, 287 F.2d 951 (2d Cir.1961). In Kinoshita this court found that a clause requiring arbitration of "any dispute or difference ... aris[ing] under" the agreement was not sufficiently broad to encompass a claim of fraudulent inducement. Id. at 952-53. See also Michele Amoruso E Figli v. Fisheries Development Corp., 499 F.Supp. 1074, 1080 (S.D.N.Y.1980) (involving claims of contract illegality); accord Mediterranean Enterprises, Inc. v. Ssangyoeng Corp., 708 F.2d 1458, 1464 (9th Cir.1983) (adopting the Second Circuit's analysis in In re Kinoshita).

Defendants argue that the instant case is controlled by Scherk v. Alberto-Culver Co., 417 U.S. 506, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974). Scherk involved a clause requiring arbitration of "any controversy or claim ... aris[ing] out of this agreement or the breach thereof." Id. at 508, 94 S.Ct. at 2452. The plaintiff in Scherk brought an action in federal court alleging that the defendant's fraudulent misrepresentations concerning trademark rights purchased from defendant violated the federal securities laws. The Supreme Court held that the plaintiff's claims were subject to arbitration. Id. at 519-20, 94 S.Ct. at 2457-58. Defendants argue that even though the scope of the arbitration clause was not raised by the parties in Scherk, the language and reasoning of the Supreme Court require us to sustain the district court's decision in the instant case. Scherk requires the federal courts to be particularly solicitous of arbitration provisions contained in international agreements. See also Parsons & Whittemore Overseas Co. v. Societe Generale de L'Industrie du Papier, 508 F.2d 969, 974 (2d Cir.1974). "A contractual provision specifying in advance the forum in which disputes shall be litigated and the law to be applied is ... an almost indispensable precondition to achievement of the orderliness and predictability essential to any international business transaction." Scherk v. Alberto-Culver Co., supra, 417 U.S. at 516, 94 S.Ct. at 2455. The Court pointed out that arbitration obviates certain dangers peculiar to the choice of forum for resolution of international business disputes. Those dangers include hostility by a forum to the interests of one of the parties and a forum's lack of familiarity with the law to be applied to and the subject matter of the agreement. Id.

The scope of an arbitration clause, like any contract provision, is a question of the intent of the parties. See Necchi S.P.A. v. Necchi Sewing Machine Sales Corp., 348 F.2d 693, 696 (2d Cir.1965), cert. denied, 383 U.S. 909, 86 S.Ct. 892, 15 L.Ed.2d 664 (1966). That principle, however, frequently fails to offer much guidance. A dispute over the scope of a contract provision generally arises when the parties failed to agree beforehand to the meaning of the provision or, as is usually the case, when they failed to consider the intended meaning of a provision.

Nevertheless, we are guided in our decision by a need to protect the intent of the parties. We decline to overrule In re Kinoshita, despite its inconsistency with federal policy favoring arbitration, particularly in international business disputes, because we are concerned that contracting parties may have (in theory at least) relied on that case in their formulation of an arbitration provision. We see no reason, however, why we may not confine Kinoshita to its precise facts. We are confident that parties who have actually relied on Kinoshita in an attempt to formulate a narrow...