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PANAMA PROCESSES S.A. v. CITIES SERV. CO.

June 26, 1973

PANAMA PROCESSES S.A., Plaintiff,
v.
CITIES SERVICE COMPANY, Defendant


Gurfein, District Judge.


The opinion of the court was delivered by: GURFEIN

GURFEIN, District Judge.

The defendant moves to dismiss the complaint in this action for a declaratory judgment on the ground of lack of jurisdiction over the subject matter and on the ground that the complaint fails to state a claim upon which relief can be granted. The defendant has limited its argument to a single point, that there is no "case or controversy" in the constitutional sense which would support jurisdiction.

 The plaintiff is Panama Processes S.A. ("Panama"), a Panamanian corporation with its principal place of business in Geneva, Switzerland. It does not do business in the State of New York. The defendant, Cities Service Company ("Cities") is a Delaware corporation with its principal executive office in New York City. Jurisdiction is based on 28 U.S.C. § 1332(a), being a civil action between a citizen of a foreign state and a citizen of a State, with the matter in controversy alleged to exceed the $10,000 jurisdictional requirement.

 The complaint alleges substantially the following:

 Compania Petroquimica Brasileira-Copebras ("Copebras") is a Brazilian corporation which was organized in 1955. In September 1965, Copebras was owned by the Celanese Corporation of America ("Celanese"), the plaintiff and Columbian Carbon, Inc. ("Columbian") which was a wholly owned subsidiary of the defendant.

 In August 1965 Celanese had indicated its desire to sell its shares (38.5% of preferred and 34% of common stock). Columbian wanted Celanese to sell its stock to Copebras which would have given Columbian an absolute majority of the shares. Columbian at the time held 46.5% of the preferred and 46% of the common; and Panama, with 15% of the preferred and 20% of the common, was then able by joining with Celanese to out-vote Columbian.

 The plaintiff objected to any sale by Celanese of its shares to Copebras on the ground that this would place the plaintiff at the mercy of Columbian with respect to declaration of dividends and capital expenditures; and it would also divest the plaintiff of any participation in the management and control of Copebras. *fn1"

 It is further alleged that to induce the plaintiff to consent to the purchase of the Celanese held shares by Copebras, Columbian entered into an agreement with the plaintiff dated September 7, 1965 (Ex. A). *fn2"

 The complaint stresses the alleged "covenant" by Columbian to cause Copebras to refrain from undertaking any further expansion of its productive capacities unless dividends amounting to at least 50% of each year's net income after taxes have been paid on a cumulative basis starting with the year 1964.

 Ultimately the Celanese owned shares were bought by Copebras. Since then Columbian and its successor, the defendant, have named a majority of the board of directors and of the consultative board, while the plaintiff has named a minority of each.

 The dispute that has allegedly arisen is described as a controversy with respect to the continued binding effect of Exhibit A. The complaint sets forth a quotation from a letter of February 13, 1973 from Cities (Exhibit B) which states that Cities believes that the September 7, 1965 letter is not binding. There followed, as alleged in the complaint, several letters in which Cities reiterated that position and in which the plaintiff maintained on the contrary that the September 7, 1965 letter is still binding.

 Apparently, some time before January 1973, Copebras had announced its intention to borrow money under a loan agreement that would restrict the amount of dividends payable by Copebras until repayment of the loan. The loan was apparently for the purpose of construction. These facts do not appear as allegations of the complaint, but are gleaned from the letters annexed as exhibits. Apparently, the plaintiff had made formal objection to the consultative board which were rejected, since Cities' letter of February 13, 1973 concludes as follows:

 
"Cities Service has carefully considered your objections, but continues to believe that the decisions made by the Consultative Board in regard to the expansion project and related loan agreements are in the best interest of Copebras. Cities, therefore, plans to continue to exercise such voting rights as we may have to cause Copebras to go forward in what we believe to be a sound business course."

 The complaint alleges that "by reason of this controversy, the rights of the plaintiff and the obligations of the defendant under Exhibit A are in dispute and ...


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