Opinion
No. 05 Civ. 8470 (LBS).
January 3, 2006
MEMORANDUM AND ORDER
Before the Court is a motion by Petitioner, CVG Ferrominera Orinoco, C.A. ("Ferrominera"), to compel Respondents Transportes Ferreos de Venezuela, C.A., Transferven Ltd., ("Transferven") and Segmar Ltd. ("Segmar") to arbitrate the issue of whether Transferven and Segmar are alter egos. The Court finds that the alter ego issue is covered by the arbitration agreement and may be heard and determined by the arbitration panel at the time the panel deems most appropriate.
BACKGROUND
This case involves a dispute arising out of an arrangement for the transportation of iron ore mined in central Venezuela. The arrangement provided for ore to be ferried by small shuttle ships on the Orinoco River to another ship in the Atlantic Ocean which operated as a transfer station to points around the world. Ferrominera entered into an arrangement with Transferven and other companies in order to raise the funds necessary to convert ships for the shuttle service. Ferrominera also contracted with Transferven to operate, repair, maintain, and insure the vessels.
After disputes with Transferven regarding allegedly incomplete repair work, Ferrominera contracted with Segmar to perform repairs on the transfer station. That arrangement, too, quickly became the subject of a dispute and the contract was terminated. A dispute also arose over rightful ownership of one of the vessels. Ferrominera brought suit in New York State Supreme Court to require Transferven to return title to the vessel.
Before the action commenced in New York State Supreme Court, Ferrominera, Transferven, and Segmar reached an agreement in which they agreed arbitrate all of their claims. As part of this agreement, dated May 28, 2004, Transferven executed a transfer of the disputed title to Ferrominera. The arbitration agreement states that "[a]ll claims between [Ferrominera] and defendants [Transferven] and SEGMAR LIMITED will be and hereby are submitted to maritime arbitration in the city of New York before three arbitrators." In accordance with this agreement, labeled the "So Ordered Stipulation," arbitration proceedings commenced.
Ferrominera was aware of the close relationship between Transferven and Segmar and recognized the possibility of increasing its chances of obtaining a judgment via a piercing of the corporate veil. "In some instances, the corporate relationship between a parent and its subsidiary are sufficiently close as to justify piercing the corporate veil and holding one corporation legally accountable for the actions of the other."Thomson-CSF, S.A. v. Am. Arbitration Ass'n, 64 F.3d 773, 777 (2d Cir. 1995). During a March 29, 2005 conference with the arbitration panel, the issue of the arbitrability of the alter ego claim was raised by counsel for Ferrominera. The panel indicated that it did not have the authority to decide whether a veil-piercing claim was arbitrable. Petitioner would have to go to Court to resolve the claim "either before or after the [arbitration] award." (Arbitration Panel Tr. 45, Mar. 29, 2005.)
Ferrominera faxed the arbitration panel on May 13, 2005 and requested a stay of the arbitration proceedings pending a court determination of the scope of the issues to be arbitrated. No application was yet pending before this Court or any other court at that time. The panel denied the request.
Counsel for Ferrominera asserted at oral argument that such a determination would have included the issue of the arbitrabilty of the veil piercing claim.
On May 29, 2005 the parties signed a "Submission Agreement," whereby the arbitration claims were set forth in a clear and orderly manner for the arbitrators. That document states that
Ferrominera reserves the right to claim that the Transferven and Segmar companies are alter egos and that the Panel should pierce their corporate veils in deciding the rights and liabilities of all parties and Ferrominera also claims the right to offset any claims of one party against the liabilities of another party. Transferven and Segmar deny that those rights or defenses are arbitrable disputes.
Submission Agreement at 2.
On September 30, 2005 Ferrominera filed this petition to compel arbitration of the alter ego issue.
JURISDICTION
This Court has jurisdiction over the petition to compel arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1- 16, and 28 U.S.C. § 1333. Section 2 of the Arbitration Act states that a written agreement to arbitrate "in any maritime transaction or a contract evidencing a transaction involving commerce . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Section 4 states that a party aggrieved by the alleged refusal of another to arbitrate as provided in a written agreement "may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed." 9 U.S.C. § 4. The Arbitration Act "does not create any independent federal-question jurisdiction. . . . [T]here must be diversity of citizenship or some other independent basis for federal jurisdiction." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Co., 460 U.S. 1, 25 n. 32 (1983). The Court's admiralty jurisdiction covers the contract dispute. See Kossick v. United Fruit Co., 365 U.S. 731, 735 (1961) (noting that contracts to hire, repair, or insure vessels are maritime contracts within the admiralty jurisdiction of the federal courts). Jurisdiction is not contested.
DISCUSSION
The arbitration panel and the parties conclude correctly that it is for the Court to decide whether the arbitration clause covers the alter ego claim. See ATT Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 649 (1986) ("Unless the parties clearly and unmistakably provide otherwise [in the written agreement], the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator.").
In deciding whether a claim is arbitrable, the Court looks to the terms of the arbitration clause in the "So Ordered Stipulation." The standard for deeming a claim covered by an arbitration clause weighs in favor arbitration. "An order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage." United Steelworkers of Am. v. Warrior Gulf Navigation Co., 363 U.S. 574, 582-83 (1960). The Court "will order arbitration if the arbitration clause is broad and if the party seeking arbitration has made a claim that on its face is governed by the contract, even if the claim appears to be frivolous." Associated Brick Mason Contractors of Greater N.Y., Inc. v. Harrington, 820 F.2d 31, 35 (2d Cir. 1987). Here, the arbitration agreement between Ferrominera, Transferven, and Segmar covered "all claims." The language is extremely broad and it is not narrowed by the later Submission Agreement.
Though Respondents have attempted to claim that the terms of the Submission Agreement "supercede the prior agreement to any extent that the two documents conflict," (Resp'ts' Reply Br. at 7) this claim is belied by the facts. First, the Submission Agreement was not styled as an amendment to the original arbitration agreement. Instead, it was merely an orderly and clear description of issues the parties wanted the arbitration panel to address. Second, the language of the later document does not conflict with the original arbitration agreement's "all claims" language. The paragraph regarding the alter ego claim simply reflects differing interpretations as to what "all claims" included. Ferrominera wanted "all claims" to include a veil piercing claim; Respondents did not. The parties were entirely clear in their disagreement over this issue and the document reflects the fact that Petitioner would retain its right to press the alter ego claim and Respondents would be ready to challenge any such claim as outside the arbitration agreement.
It should be noted that this is not a case in which a third party is being pulled into an arbitration agreement by the veil piercing allegation. Ferrominera, Transferven, and Segmar entered into the arbitration agreement together in 2004. They have been participants in the ongoing arbitration for several months. The "all claims" language applies to all three entities, and thus the veil piercing claim is properly an issue for arbitration.
Respondents also argue that the veil piercing claim is not a "claim" within the meaning of the parties' arbitration agreement, but rather a theory or a method of enforcing this award. This argument does not help Respondents. If it is not a claim, the arbitration agreement does not bar specific theories of recovery. If it is a claim, it is covered by the "all claims" language.
A final matter is the issue of whether Ferrominera waived its right to arbitrate the veil piercing claim. Respondents citeRush v. Oppenheimer Co., 779 F.2d 885, 887 (2d Cir. 1985), and its statement that "waiver of the right to compel arbitration due to participation in litigation may be found only when prejudice to the other party is demonstrated." But in this case, there was no participation in litigation until the present dispute, and the delay from May to September in asserting the claim has not been shown to have prejudiced Respondents. Ferrominera is not compelling new parties to arbitrate; it is raising a new claim against existing parties in an ongoing arbitration proceeding. No showing of prejudice has been put before the Court which would justify a determination that Ferrominera had waived its right (expressly reserved) to bring a veil piercing claim.
CONCLUSION
Petitioner's alter ego claim is covered by the arbitration agreement. The merits of the claim are for the arbitration panel to decide. As the arbitration proceeding is nearing its conclusion on all other issues and as the panel has expressed its concern over the potential loss of momentum in resolving these other issues, the Court leaves it to the discretion of the panel to decide the appropriate point in time for any discovery and for determining whether Transferven and Segmar are alter egos. Furthermore, the parties agree there is the prospect that no award may issue in Petitioner's favor, in which case the alter ego issue may be moot.
Petitioner, having for whatever reason delayed presenting this issue to the Court until the arbitration procedings were nearing completion on all other issues, has little basis to complain if the panel should defer resolution of the alter ego claim until other matters are determined. Petitioner expresses concern that the further passage of time may impair its ability to collect a judgment against an entity with diminishing assets. Whether Petitioner would be entitled to some protection against an inappropriate transfer or encumbrance of Segmar's assets is a matter which may be raised before the panel.
SO ORDERED