Opinion
No. 05 Civ. 9078 (RMB).
January 17, 2005
DECISION AND ORDER
I. Background
On or about October 25, 2005, IPC (USA) ("IPC") filed a Petition to Compel Arbitration and Appointment of an Arbitrator ("Petition") relating to a dispute between IPC and BP North America Petroleum ("BP") arising out of an agreement for the sale and delivery of diesel fuel entered into by the parties on or about March 12, 2004 ("Agreement"). IPC requests that this Court, pursuant to the Federal Arbitration Act ("FAA"), (1) compel arbitration of the dispute; and (2) appoint an arbitrator. BP opposes the Petition, arguing that (1) the parties have already stipulated that they would proceed to arbitration according to the terms of the Agreement; and (2) the terms of the Agreement provide that, in the event of a dispute, the parties are to petition the English High Court to appoint an arbitrator. (Memorandum of Law in Opposition to Motion to Compel Arbitration and Appointment of an Arbitrator, dated December 13, 2005 ("Opposition"), at 1-3.)
The Petition was filed approximately fourteen months after BP had filed a related petition in the Southern District of New York, dated August 25, 2004, "for an order: (1) staying respondent IPC from pursuing its claim against BP under the Sales Contract before the American Arbitration Association and (2) compelling respondent to arbitrate claims under the Sales Contract pursuant to the provisions of the 2002 Terms as incorporated therein." (Declaration in Opposition to Motion to Compel Arbitration and Appointment of an Arbitrator, dated December 13, 2005 ("Kenyon Declaration"), at Exhibit D.) The earlier petition was resolved by a July 5, 2005 Order and Stipulation, signed by United States District Judge Richard C. Casey, which stated that "(1) the AAA arbitration initiated by Respondent IPC (USA), Inc. against BP is hereby terminated with prejudice; and (2) the disputes arising out of BP/IPC Sales Contract U040006284 will be submitted to arbitration in accordance with the arbitration provisions incorporated therein, namely the arbitration provisions contained in BP America's General Terms and Condition for Sale Purchase of Petroleum Products, 2002 Edition." (Kenyon Declaration, at Exhibit E.)
After they entered the Agreement, a dispute arose over the condition/quality of the diesel oil. BP withheld approximately $1.5 million owing to IPC as "set off" against $2 million in alleged damages. (Affidavit of Jeremy J.O. Harwood in Support of Petition to Compel Arbitration ("Harwood Affidavit"), ¶ 3.; Kenyon Declaration, at Exhibit D.)
For the reasons set forth below, the Petition is denied.
II. Legal Standard
In evaluating a motion to compel arbitration, "the role of courts is limited to determining two issues: i) whether a valid agreement or obligation to arbitrate exists, and ii) whether one party to the agreement has failed, neglected or refused to arbitrate." Jacobs v. USA Track Field, 374 F.3d 85, 88 (2d Cir. 2004) (quoting Shaw Group Inc. v. Triplefine Int'l Corp., 322 F.3d 115, 120 (2d Cir. 2003)). A party refuses to arbitrate if it "commences litigation or is ordered to arbitrate this dispute . . . and fails to do so." Jacobs, 374 F.3d at 89 (citing Downing v. Merrill Lynch, Pierce, Fenner Smith, Inc., 725 F.2d 192, 195 (2d Cir. 1984)).
Section 5 of the FAA, 9 U.S.C. § 5, states that: "If in the agreement provision be made for a method of naming or appointing an arbitrator . . . such method shall be followed." See In re Salomon Inc. S'holders' Derivative Litig., 68 F.3d 554, 559-60 (2d Cir. 1995). Section 38.2 of BP's 2002 General Terms ("2002 Terms"), titled "Arbitration," states that "any dispute arising out of or in connection with the agreement . . . shall be referred to and finally resolved by arbitration pursuant to the terms of the Arbitration Act of 1996 ("1996 Act") . . . before a single arbitrator agreed upon by both parties or, if not so agreed, appointed in accordance with the said Act." (Harwood Affidavit ¶ 8; Kenyon Declaration, at Exhibit A.)
III. Analysis
IPC "requests that the Court select, three alternate sole arbitrators, in descending order of choice in the event of conflicts or unwillingness to serve, from the present Roster of the Society of Maritime Arbitrators in the tri-state area." (Memorandum of Law in Support of Petition to Compel Arbitration and Appointment of an Arbitrator, dated November 10, 2005, at 3, 4) (citing 9 U.S.C. § 4.) IPC also argues that "BP cannot call on this Court to enforce the arbitration provisions of the 2002 Terms in one petition but then claim that the same court has no power to adjudicate the arbitration provisions of the 2002 Terms, when it suits its purposes, to evade judicial review." (IPC's Reply Memorandum in Support of Petition to Compel Arbitration and Appointment of an Arbitrator, dated December 16, 2005, at 2-3.)
BP argues, inter alia, that, under Section 4 of the FAA, the Court should direct enforcement of the Agreement "in the manner provided in such agreement," and that "Section 5 of the Act concerning appointment of arbitrators further enforces the need to strictly comply with the provisions of the relevant arbitration agreement when appointing arbitrators." (Opposition, at 1-2.)
There does not appear to be a basis to compel arbitration at this time. A party may seek to compel arbitration "only when the respondent unequivocally refuses to arbitrate, either by failing to comply with an arbitration demand or by otherwise unambiguously manifesting an intention not to arbitrate the subject matter of the dispute." Painewebber Inc. v. Faragalli, 61 F.3d 1063, 1066 (3d Cir. 1995); see also Jacobs, 374 F.3d 85, 88-89. Here, BP has not refused to arbitrate. See Jacobs, 374 F.3d at 89.
And, there appears no basis for the Court to appoint an arbitrator. The parties have stipulated that they would arbitrate in accordance with the 2002 Terms. (Kenyon Declaration, at Exhibit E.) The 2002 Terms incorporate the 1996 Act which, in turn, requires that in the event of a dispute regarding the appointment of an arbitrator, the aggrieved party may petition the English High Court for relief. "As the language of the FAA illustrates, courts must focus on the agreed upon terms of the arbitration provision when confronted with an arbitration related dispute." Mut. Marine Office, Inc. v. Ins. Corp. of Ireland, No. 04 Civ. 8952, 2005 WL 1398597, at *3 (S.D.N.Y. June 13, 2005). "If the `method agreed upon by the parties for naming an arbitrator is explicit and unambiguous . . . [it] must be given controlling effect.'" Diemaco, A Div. of Devtek Corp. v. Colt's Mfg. Co., Inc., 11 F. Supp. 2d 228, 233 (D. Conn. 1998) (citing McMahon v. Shearson/Am. Express Inc., 709 F. Supp. 369, 373 (S.D.N.Y. 1989), rev'd on other grounds, 896 F.2d 17 (2d Cir. 1990)). Accordingly, the parties are obligated to petition the English High Court to appoint an arbitrator.
Section 18 of the 1996 Act, titled "Failure of appointment procedure," states that: "[T]o the extent that there is no such agreement any party to the arbitration agreement may (upon notice to the other parties) apply to the court to exercise its powers under this section." Section 105 of the Act, titled "Meaning of `the Court': jurisdiction of High Court and country court," states that: "In this Act `the court' means the High Court or a country court." (Kenyon Declaration, at Exhibit B.)
By facsimile transmission, dated March 11, 2005, IPC's counsel acknowledged that the 2002 terms provide for petition to the English High Court, but argued that "the procedure . . . will no doubt lead to a great deal of complexity and wasted effort and expense." (Kenyon Declaration, at Exhibit C.)
Nor is BP estopped from arguing that this Court should defer to the English High Court because it earlier argued that this Court had jurisdiction to interpret the Agreement. "To hold otherwise would mean that any time a party in good faith tested the scope of an arbitration agreement by bringing suit in court, the court could invoke § 5 to name arbitrators without following any procedures or limitations contained in the agreement." In re Salomon, 68 F.3d at 559-60.
IV. Conclusion and Order
For the reasons set forth above, IPC's Petition is denied. The Clerk of the Court is respectfully requested to close this case.