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HYLTE BRUKS AKTIEBOLAG v. BABCOCK & WILCOX CO.

May 14, 1969

HYLTE BRUKS AKTIEBOLAG and Nymolla, AB, Plaintiffs,
v.
The BABCOCK & WILCOX COMPANY, Defendant


Cooper, District Judge.


The opinion of the court was delivered by: COOPER

COOPER, District Judge.

Plaintiffs Hylte Bruks Aktiebolag (Hylte Bruks) and Nymolla move pursuant to Rule 12(b)(1), F.R.Civ.P., to dismiss plaintiff Hylte Bruks' claims against defendant Babcock & Wilcox Co. (B & W) for lack of jurisdiction over the subject matter. Alternatively, plaintiffs seek pursuant to Rule 41(a)(2), F.R.Civ.P., an order permitting them to voluntarily dismiss without condition Hylte Bruks' claims.

 Defendant, on the other hand, opposes dismissal for want of jurisdiction. Additionally, while not opposing voluntary dismissal, it urges that such dismissal be conditioned upon (1) payment by Hylte Bruks of defendant's reasonable expenses including attorney's fees; (2) agreement by Hylte Bruks to certain guarantees regarding discovery sought by defendant; *fn1" and (3) acceptance by Hylte Bruks of a procedure to insure the continuation of defendant's counterclaim against both Nymolla and Hylte Bruks.

 Plaintiffs consent to the continuation of the counterclaim against them both. *fn2" However, plaintiffs resist B & W's other two proposed conditions on the ground that (1) a dismissal for want of jurisdiction may not be conditioned by the Court and (2) even if the Court should find subject matter jurisdiction present, this is not an appropriate case for imposing conditions upon the allowance of a voluntary dismissal.

 * * *

 In 1959, Hylte Bruks, a Swedish corporation, entered into two agreements with B & W relating to a proposed pulp mill to be constructed in Ivetofta, Sweden. The first agreement was for the sale of certain equipment to be designed, manufactured and installed by B & W. This agreement contains an arbitration clause and by its terms is non-assignable. The second agreement was a license in which B & W agreed to furnish certain " know-how" for the running of the pulp mill. The license agreement contains no arbitration clause and permits assignment. Subsequent to the execution of these two contracts, Hylte Bruks formed Nymolla as a wholly-owned subsidiary corporation, to which, in due course, it transferred the mill in Ivetofta, including the equipment manufactured and installed by B & W. Hylte Bruks payment for this transfer to Nymolla came by means of selling 60% of Nymolla's stock to the public and retaining the other 40%. Additionally, the license agreement between B & W and Hylte Bruks was assigned to Nymolla. Following these transactions, and when Nymolla sought to go into production, plaintiffs allege Nymolla suffered injury and damages because the equipment B & W installed was defective and B & W did not have and misrepresented the "know-how" it purported to sell.

 On April 19, 1967, after unsuccessful efforts to adjust differences, arbitration of the equipment contract was demanded by Hylte Bruks and Nymolla against B & W. B & W objected thereto contending that Nymolla was not a party to the equipment contract, the sole contract in which B & W had agreed to arbitrate, and that Nymolla lacked standing to participate in the arbitration as a party claimant on its own behalf. Plaintiffs, on October 24, 1967, consented to a stay of the arbitration proceeding so long as Nymolla remained a party.

 On October 17, 1967 (a week prior), Nymolla alone instituted a civil action in this Court, in which Nymolla sought damages for breach of the equipment contract by B & W, arguing that Nymolla was a third party beneficiary thereof. Judge Metzner dismissed that suit on the ground that Nymolla was not a party or a third party beneficiary on the equipment contract. 67 Civ. 4041 (S.D.N.Y. February 13, 1968). On appeal, the Court of Appeals affirmed, holding Nymolla not a proper party to either arbitrate or to sue as a third party beneficiary on the equipment contract. 399 F.2d 289 (2d Cir. 1968).

 The Court of Appeals recognized Nymolla's dilemma:

 
"Even assuming that Nymolla could prove beyond question that B & W was at fault and that its losses were caused by that fault, Nymolla has found itself up against difficulties in suing for redress. On the one hand Nymolla is not itself in privity with B & W under the contract; and on the other hand, Hylte Bruks, which has such privity and would like to see Nymolla recover its losses, has not suffered the particular damage asserted." Id. at 294.

 The Court of Appeals went on to note that the evidence suggested Nymolla as a purchaser may have a cause of action for breach of warranty against B & W, the manufacturer. Id. at 295.

 Following the decision by the Court of Appeals, this action was instituted on August 28, 1968. An amended complaint was filed on September 26, 1968 setting forth three causes of action to which Hylte Bruks is a party:2a

 
(a) Hylte Bruks and Nymolla seek recovery for breach of the licensing agreement alleged to have resulted in injury and loss to Nymolla;
 
(b) Hylte Bruks seeks reformation of the equipment contract to provide that Nymolla is included therein as the ...

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