Opinion
No. 84 Civ. 3272.
October 10, 1984.
Steven P. Calkins, Walker Corsa, New York, New York, attorney for the debtor.
Juvenal L. Marchisio, Newmark, Lamb, Dowling Marchisio, New York, New York, attorney for M. Golodetz Co., Inc.
Stay of Proceedings — Arbitration — Clause Enforced. — Because a domestic Bankruptcy proceeding was ancillary to a foreign bankruptcy and because the dispute was relatively simple, among other reasons, an arbitration clause was enforced to settle the issue of a right to payment under an admiralty contract.
See Sec. 105 at ¶ 7045.
[Opinion of the Court]
Plaintiff Clover Trading Company ("Clover"), a Liberian company in the business of chartering ocean vessels, brought this admiralty action against M. Golodetz Co., Inc. ("Golodetz"), the charterer of plaintiff's vessel M. V. Lago Llanquihue, to collect monies allegedly owing under the charter party. Golodetz has moved for an order staying proceedings in this Court on the ground that the charter party provides for settlement of disputes by arbitration in London. For the reasons below, the motion is granted.
Background
Most of the facts necessary for resolution of the instant motion appear to be undisputed. Clover and Golodetz entered into a charter party on August 7, 1980, under which Golodetz delivered a cargo of sugar to Chile. Ex.A to Calkins Aff. The cargo was subject to a 3% Chilean Merchant Marine Tax totalling $12,096, which was paid by Clover's local agent upon discharge. Clover contends that it made this payment on behalf of defendant, and that the express language of the charter party imposed upon Golodetz an obligation to reimburse Clover for the expense. Golodetz declined to make payment on demand.
In December 1981, after suffering heavy losses, Clover was forced into bankruptcy in Copenhagen, its principal place of business. Shortly thereafter, the Danish trustees petitioned the United States Bankruptcy Court for this district to commence ancillary proceedings in order to effectuate a transfer of funds in Clover's New York bank account. Calkins Aff. at ¶ 7. The trustees retained New York counsel in 1983 to recover debts owed by American subcharterers such as Golodetz. Calkins Aff. at 7-8. When counsel demanded payment of the Chilean tax, Golodetz asserted that under the terms of the cargo sales contract, the tax should have been paid by the receivers of the cargo rather than the vessel owner. Golodetz further stated that Clover had mistakenly paid and that Golodetz would not be accountable for the error. Ex.E to Calkins Aff. This action ensued.
Golodetz has moved to stay proceedings on the basis of paragraph 30 of the charter party which provides that any dispute arising under the charter is to be settled by arbitration before "commercial men" in London. Defendant cites the Federal Arbitration Act, 9 U.S.C. § 3, which states:
Stay of proceedings where issue therein referable to arbitration: If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.
Clover does not deny that it agreed to arbitrate disputes, nor does it deny the existence of a federal policy favoring arbitration. Plaintiff argues, nonetheless, that arbitration is inappropriate in the circumstances of this particular case, and that a stay should therefore be denied.
Discussion
Clover's principal argument, simply stated, is that arbitration clauses should not be enforced when the policies underlying arbitration conflict with other significant federal policies. Clover relies on the existence of bankruptcy proceedings and suggests that in light of "the importance of bankruptcy proceedings in general, and the need for expeditious resolution of bankruptcy matters in particular, . . . the intentions of Congress will be better realized if the Bankruptcy Reform Act is read to impliedly modify the Arbitration Act." Zimmerman v. Continental Airlines, Inc. 712 F.2d 55, 59-60 (3d Cir. 1983).
Clover is correct that exceptions to the policy of enforcing arbitration clauses have developed in certain types of cases; courts will generally decline to compel arbitration in the context of antitrust or securities fraud litigation, primarily because these claims are "imbued with strong public interest and protective public policy considerations." Katz v. Shearson Haydon Stone, Inc., 438 F. Supp. 637, 641 (S.D.N.Y. 1977); see generally Allegaert v. Perot, 548 F.2d 432 (2d Cir. 1977). Clover also cites several cases in which federal courts declined to compel arbitration after bankruptcy proceedings were commenced. Having reviewed these authorities, however, I am convinced that proceedings before me should be stayed pending arbitration in London.
As a rule, an agreement to arbitrate survives the filing of a bankruptcy action. Truck Drivers Local Union 807 v. Bohack Corp., 541 F.2d 312, 319 (2d Cir. 1976); Schilling v. Canadian Foreign Steamship Co., Ltd., 190 F. Supp. 462 (S.D.N.Y. 1961). This court noted in Schilling that "the right of a party to a contract to resort to arbitration provided for in that contract is as much a contract right as is the right of payment," and that bankruptcy does not deprive the bankrupt's debtors of their rights. Id. at 463.
Plaintiff cites Zimmerman v. Continental Airlines, Inc., supra, in support of his position that arbitration clauses should not be enforced when the Arbitration Act comes into conflict with the Bankruptcy Reform Act of 1978. It should be noted at the outset, however, that the bankruptcy proceedings in this case were commenced in Copenhagen, not in the United States. Although an ancillary proceeding was commenced in the bankruptcy court for this district, the sole apparent purpose was to transfer funds in a New York bank account to the control of the bankruptcy court in Copenhagen. Thus, to the extent that this Court should consider the policies underlying the Bankruptcy Act at all, they should not carry full weight. Moreover, although the Court of Appeals for the Third Circuit affirmed the bankruptcy court's decision not to compel arbitration in Zimmerman, it did so in recognition that resolution of the issue resides within the sound discretion of the bankruptcy judge. The court did not conclude, as might be implied from plaintiff's arguments, that conflicts between bankruptcy policies and arbitration policies should always be resolved in favor of bankruptcy.
Plaintiff also cites Allegaert v. Perot, 548 F.2d 432 (2d Cir. 1977), in which the Court of Appeals for the Second Circuit reversed a district court's ruling that a bankruptcy trustee was bound by arbitration clauses. However, Allegaert differs in several significant respects from the instant case. Allegaert arose out of the realignment of two securities brokerage firms and a subsequent bankruptcy proceeding. It involved a variety of claims, including violations of the Securities Act of 1933, the Securities Exchange Act of 1934, the Bankruptcy Act, state corporation law and common law. Several of the defendants moved to stay the action based upon three arbitration clauses binding on the bankrupt, two contained in the constitutions of the stock exchanges and the third in the realignment agreement. The presence of securities fraud claims is, of course, noteworthy; as indicated above, securities claims are considered inappropriate for arbitration. With respect to the claims of fraudulent and preferential transfers brought under the Bankruptcy Act, the court noted that these were causes of action belonging to the trustee rather than the bankrupt, and were asserted on behalf of the creditors. In light of the lack of identity between the trustee and the bankrupt, the court concluded that the trustee should not be compelled to arbitrate in order to assert the creditors' claims when the creditors themselves were not parties to the arbitration agreements.
In the present case, where there has been no fraudulent transfer, the Danish trustees' interests are closely aligned with the interests of the bankrupt. Neither the trustee nor the bankrupt's creditors have an independent cause of action against defendant; the claim is merely derivative. Accordingly, there is no reason to relieve the trustees of Clover's obligation to arbitrate.
The Second Circuit discussed in Allegaert three considerations affecting whether a claim is of a character appropriate for enforcement by arbitration: the public interest in the dispute; the degree to which the nature of the evidence makes the judicial forum preferable to arbitration; and the extent to which the agreement to arbitrate was the product of free choice. Allegaert, supra, at 436. Each of these factors cuts in favor of staying the present proceedings pending arbitration.
Unlike the situation in Allegaert, where alleged violations of the Securities Acts and the Bankruptcy Act suggested "wholesale fraud of institutional dimension" and "broad questions of policy," the instant controversy involves a relatively simple dispute between private parties. Although the existence of bankruptcy proceedings may implicate a generalized public interest, that interest is certainly no more significant here than in any other bankruptcy action. Indeed, as indicated above, the fact that the bankruptcy action was commenced in Copenhagen favors a stay pending arbitration.
Plaintiff has presented no persuasive reason why the district court is a better forum than arbitration for presentation or resolution of these claims. The dispute apparently centers around the construction of a clause in the sugar sales contract and the impact of that clause on the parties' obligations under the charter party. The Court has no special expertise in this area, and finds no support for plaintiff's conclusion that the relevant issues can be "dealt with more competently and efficiently by this court rather than by a London commercial man." Pl.Mem. at 4. Moreover, there is no reason to believe that arbitration will result in greater delays or greater expense than proceedings in this forum.
Finally, with respect to the third factor examined by the Second Circuit in Allegaert, there is little question but that the parties made a free choice to arbitrate their disputes in London. As the Third Circuit noted in Zimmerman, the policies underlying the Arbitration Act not only favor arbitration as an alternative dispute resolution process, but also favor enforcement of contractual obligations. 712 F.2d at 57. Clover's argument that the contract provision should not be enforced because the contract expired several years ago is unpersuasive, and its assertion that the collection of monies owed by a charterer is "not a dispute under the arbitration clause" because Golodetz never raised a timely objection to the payment is without merit. For all of the foregoing reasons, the Court concludes that these proceedings should be stayed pending arbitration of this dispute, pursuant to paragraph 30 of the charter party entered into between Clover and Golodetz. This matter will be placed on the Court's suspense docket, and the parties are instructed to notify the Court when the arbitration proceedings are complete.
SO ORDERED.