Sterling Nat. Bank v. Southern Scrap Export Co.

• Decision Date: 30 March 1979
• Docket Number: No. 78 Civ. 3604.,78 Civ. 3604.
• Citation: 468 F. Supp. 1100
• Parties: STERLING NATIONAL BANK & TRUST COMPANY OF NEW YORK, Plaintiff, v. SOUTHERN SCRAP EXPORT CO., Southern Scrap Material Co., Commercial Metals Co., and the Kunsul Co., Defendants.
• Court: U.S. District Court — Southern District of New York

468 F. Supp. 1100

STERLING NATIONAL BANK & TRUST COMPANY OF NEW YORK, Plaintiff, v. SOUTHERN SCRAP EXPORT CO., Southern Scrap Material Co., Commercial Metals Co., and the Kunsul Co., Defendants.

No. 78 Civ. 3604.

United States District Court, S. D. New York.

March 30, 1979.

David J. Minder, New York City, for plaintiff.

Howard I. Rhine, R. Jeffrey More, Zimet, Haines, Moss & Goodkind, New York City, for defendants.

OPINION AND ORDER

PIERCE, District Judge.

This is an action for conversion in which two defendants now move to dismiss the complaint for lack of personal jurisdiction.

Most of the facts are not controverted. Plaintiff Sterling National Bank and Trust Company ("Sterling") is a New York bank. Defendant Southern Scrap Material and its wholly owned subsidiary defendant Southern Scrap Export (hereinafter collectively referred to as "Southern Scrap") are Louisiana corporations with their principal places of business in New Orleans. On September 7, 1977, Sterling entered into loan agreements with Metric Metals International Inc. ("Metric"), a corporation located in New York.¹ The agreements granted Sterling a security interest in all of Metric's then existing and thereafter acquired inventory and accounts receivable.

On or about May 2, 1978, Metric contracted to buy certain copper goods from Southern Scrap Export at a price in excess of $200,000. The contract contained a printed arbitration clause providing that:

"Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration in accordance with the Rules of the American Arbitration Association in the City of New York, and the judgment upon the award rendered by the Arbitrator(s) may be entered in any Court having jurisdiction thereof."

The goods were then delivered by Southern Scrap and accepted by Metric. Plaintiff alleges that, with full knowledge of Sterling's interest in the goods as after-acquired inventory and at a time when Metric was in default of its obligations to Sterling, Southern Scrap wrongfully repossessed and converted the goods. Southern Scrap apparently sold the goods to defendant Commercial Metal Co., a Delaware corporation with its principal place of business in Texas, and defendant Kunsul Co., a Korean corporation with its principal place of business in that country.

Sterling has made demand upon each defendant for the return and possession of the goods, without success. Plaintiff Sterling claims that Metric is still indebted to Sterling in an amount in excess of the contract price of the goods. Thus, Sterling brings this action for conversion, alleging that it has been damaged in the amount of the contract price of the goods by having been deprived of its security interest therein.

Discussion

Both Southern Scrap defendants move for an order pursuant to Fed.R.Civ.P. 12(b)(2) dismissing this action against them on the ground that this Court lacks personal jurisdiction over them. In support of this position, the president and vice president of Southern Scrap have submitted affidavits stating that neither moving defendant has any officers, employees, bank account, telephone listing, warehouse or property in New York, and neither solicits business in this state. They also state that the contract with Metric was initiated by a telephone call from Metric, that no Southern Scrap personnel ever came into New York State in connection with the contract, and that Southern Scrap's only connection with New York regarding the contract was an exchange of telephone calls, mail and telexes with Metric. Finally, the affidavits state that neither the goods nor any bills of lading with respect to them ever came into New York State, nor has Southern Scrap ever received any payment from Metric for the goods.

In response, Sterling advances three separate grounds upon which it argues that this Court has jurisdiction over Southern Scrap:

1. By executing a contract providing for arbitration in New York, the moving defendants have consented to personal jurisdiction in this Court.

2. Defendants' acts of conversion constituted tortious acts committed without the state which cause injury to persons or property within the state as contemplated by CPLR 302(a)(3)(ii).

3. Defendants' contacts with New York through their business relationship with Metric constituted transacting business in New York within the scope of CPLR 302(a)(1).

I.

Plaintiff's first argument is that by signing contracts containing a clause providing for arbitration in New York of disputes arising out of the contracts, defendants have consented to the jurisdiction of this Court for purposes of the present lawsuit.

However, it has been held that such an arbitration clause is normally deemed to be a consent to the jurisdiction of the state or federal court only with regard to the enforcement of the arbitration clause itself, not with regard to any other dispute that may arise between the parties.² Insurance Co. of North America v. S/S Jotina, 1974 A.M.C. 1190 (S.D.N.Y.1974); Aero-Bocker Knitting Mills v. Allied Fabrics, 54 A.D.2d 647, 387 N.Y.S.2d 635 (1st Dep't 1976). In Aero-Bocker, the Court rejected jurisdiction in spite of the presence of an arbitration clause which could have been read to be a broader consent to jurisdiction than the present one before this Court. The New York court said:

"Clause 10, entitled `ARBITRATION,' provides in pertinent part, for arbitration of any dispute or controversy to be conducted in New York City and the parties consent to the jurisdiction of the Supreme Court of the State of New York and to the Federal District Court for the Southern District of New York. The only fair reading of the clause is that the jurisdictional designation applies only to arbitration proceedings." Id. at 648, 387 N.Y.S.2d at 637.

By contrast, the clause in the case at bar provides only that "the judgment upon the award rendered by the Arbitrator(s) may be entered in any Court having jurisdiction thereof."

The cases cited by Sterling are inapposite since the relief sought therein was an order compelling arbitration, an order confirming an arbitration award, or an order staying an action pending arbitration. See Merrill Lynch, Pierce, Fenner & Smith v. Lecopulos, 553 F.2d 842 (2d Cir. 1977); Comprehensive Merchandising Catalogs, Inc. v. Madison Sales Corp., 521 F.2d 1210 (7th Cir. 1975); 8 Weinstein, Korn & Miller, New York Civil Practice ¶ 7501.34 (1971). Plaintiff also relies on Intermeat, Inc. v. American Poultry, Inc., 575 F.2d 1017 (2d Cir. 1978) which, however, did not involve the question of consent, but merely held that an agreement to arbitrate in New York could be counted among the minimal contacts necessary to make an attachment constitutional under the standard recently set down in Shaffer v. Heitner, 433 U.S. 186, 97 S.Ct. 2569, 53 L.Ed.2d 683 (1977).

In addition, Southern Scrap has consented to arbitrate only with respect to matters "arising out of or relating to the contract." In an action involving similar facts, a New York court commented:

"Although this clause would be applicable respecting a claim brought in contract, it has no application to Standard's claim which sounds in the tort of conversion. The alleged conversion by Synergal subsequent to the contract constitutes an undisputed act not arising out of the contract. Recognition that the contract created the property rights which were violated by Synergal's conversion does not render indistinct the fact that the conversion is a dispute outside of that contract." Fantis Foods, Inc. v. Standard Importing Co., 63 A.D.2d 52, 58, 406 N.Y.S.2d 763, 767 (1st Dep't 1978).

If the issues in an action are centered largely around the performance or nonperformance of the particular terms of a contract, a party should not be able to evade an arbitration clause by casting the action as one in tort. Altshul Stern & Co. v. Mitsui Bussan Kaisha, Ltd., 385 F.2d 158 (2d Cir. 1967). But in the case at bar performance is not at issue. The party asserting jurisdiction concedes that the goods were delivered and accepted. The sole charge, as in Fantis, is that the goods were thereafter converted. The Second Circuit's reasoning in Old Dutch Farms, Inc. v. Milk Drivers & Dairy Employees Union, 359 F.2d 598, 601, 603 (2d Cir. 1966) is equally applicable here:

"Nothing in the broad arbitration clause involved here commits to arbitration disputes which are unrelated to the interpretation of particular provisions of the collective agreement or to the subject matter of the agreement. . . . Reason dictates that for a dispute to be characterized as germane to the subject matter of the contract it must at the very least raise some issue, the resolution of which involves a reference to, or construction of some portion of the contract involved. . . . The present suit . . . does not raise any question of contract interpretation which can be characterized as particularly suited for arbitration."

Accordingly, the Court finds that jurisdiction cannot be based on the arbitration clause in the contract between Metric and Southern Scrap.

II.

Sterling also argues that this Court has jurisdiction over Southern Scrap pursuant to CPLR 302(a)(3)(ii). CPLR 302(a)(3)(ii) provides:

"As to a cause of action arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any nondomiciliary, or his executor or administrator, who in person or through an agent:

"3. commits a tortious act without the state causing injury to person or property within the state . . . if he (ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce."

Sterling concedes that any alleged acts of conversion were committed without New York State, but claims that Sterling was injured in New York when it "suffered a pecuniary loss by reason of its having been deprived of...