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COASTAL STATES TRADING v. ZENITH NAVIGATION S.A.

August 19, 1977

COASTAL STATES TRADING INC., Plaintiff,
v.
ZENITH NAVIGATION S.A. and SEA KING CORPORATION, Defendants.



The opinion of the court was delivered by: MOTLEY

CONSTANCE BAKER MOTLEY, D.J.

MEMORANDUM OPINION

 This is an action brought by Coastal States Trading, Inc. ("Trading"), as consignee of a cargo of some 28,000 tons of fuel oil, against Zenith Navigation S.A. ("Zenith"), the owner of the vessel MT GRAND ZENITH, and Sea King Corporation ("Sea King") which is apparently Zenith's agent in New York. *fn1" Coastal States seeks to recover the value of the oil, which was aboard the GRAND ZENITH on a voyage from Tees, England to Brayton Point, Massachusetts when the ship vanished virtually without a trace on or after December 31, 1976.

 Defendant Zenith seeks an order referring the entire dispute to arbitration pursuant to 9 U.S.C. ┬ž 3 or, in the alternative, dismissing the action.Plaintiff has corss-moved seeking an order of attachment of certain of Zenith's assets. The motion to dismiss is denied, the motion for an attachment is granted, but the action is ordered stayed and transferred to the Suspense Calendar of the court pending completion of arbitration.

 The Arbitration Question

 It is conceded, at the outset, that plaintiff is not a signatory to any arbitration agreement to which Zenith is also a party. However, the issues to be determined are (1) whether Trading is the "alter ego" of a corporation which is bound by the terms of an arbitration agreement with Zenith, such that it should also be bound on the authority of Fisser v. International Bank, 282 F.2d 231 (2d Cir. 1960) and its progency; and (2) whether the bill of lading for the cargo in question - the contract on which plaintiff is suing - can be said to have incorporated a charter party (and arbitration clause). See Son Shipping Co., Inc. v. De Fosse & Tanghe, et al., 199 F.2d 687 (2d Cir. 1952). Resolution of these issues requires discussion of the facts adduced by the parties. *fn2"

 On or about October 30, 1973, Zenith entered into an agreement with Pacific Gas and Electric Company ("Pacific Gas"), a California corporation, whereby Pacific Gas chartered the Grand Zenith for a period of four years. That charter party included an arbitration clause *fn3" which provided for arbitration in New York, and which forms one basis for Zenith's arbitration demand in this action. This time charter was subsequently assigned in writing to Pacific Refining Company, a Delaware corporation doing business principally in California.

 Pacific Refining Company is a wholly-owned subsidiary of CIC Industries Incorporated which, in turn, is a wholly-owned subsidiary of Coastal States Gas Corporation, another Delaware corporation, which is listed on the New York Stock Exchange. Coastal States Gas Corporation is the parent of a number of other subsidiaries, including the plaintiff, Trading, and Coscol Petroleum Corporation ("Coscol") both of which are separately constituted Delaware corporations.

 The interrelationship of these various corporate entities is critical to disposition of the arbitration question in this case. Coscol, Trading, and Pacific Refining are unquestionably closely related and interdependent parts of a large energy conglomerate. The deposition testimony adduced to date indicates that Trading, as its name implies, is the brokerage "arm" or "division" of Coastal States Gas Corporation, responsible for buying and selling various kinds of petroleum products. Coscol is the transportation "division", primarily responsible for ship chartering and operating arrangements to serve the other branches of the Coastal States Gas complex. Pacific Refining is the (or perhaps, one of the) production "divisions" of Coastal States Gas Corporation, operating a refinery in Hercules, California.

 The "divisions" with which this case is principally concerned unquestionably operate in close physical proximity to each other. With the exception of Pacific Refining, all of the previously mentioned corporations, along with other subsidiaries, maintain their principal offices in six stories of a twelve-story building at Five Greenway Plaza East, in Houston, Texas. Coscol, Trading, and Coastal States Gas Corporation all share the same business telephone number, although the local telephone directory contains only a listing for the parent corporation. The telephone calls from one "division" to another are made by dialing an extension, rather than a separate outside number.Persons employed within the Coastal States Gas umbrella commonly refer to the various corporate subsidiaries as "arms", "branches", or "divisions" of one larger concern, the parent company.

 However, such superficial indicia of interrelatedness are, of course, not dispositive of the question whether one company is an "alter ego" of another, as they do not give a complete or necessarily accurate picture of the corporate relationships involved. To obtain such a perspective, observation of the practical operation of these companies is more instructive, and the transaction underlying this lawsuit provides a good point of departure.

 After Pacific Refining became the disponent owner of the GRAND ZENITH, it became apparent that that company alone was not going to be able to utilize the ship sufficiently to make a profit. Therefore, around the first of September, 1976, the Chief Executive Officer of Coastal States Gas, Mr. Oscar Wyatt, Jr., instructed the relevant officers of Coscol to take over operation of the GRAND ZENITH and, presumably, to use it as fully and as profitably as possible. No written assignment or any other document was ever executed in effectuating the operational transfer of the GRAND ZENITH from Pacific Refining to Coscol, although, in later voyage subcharters, Coscol was listed as being the "chartered owner". Moreover, Coscol, rather than Pacific Refining, was paying the time charter fee to Zenith from that time forward.

 As it does with the other thirty or so ships under its operation, Coscol chartered the GRAND ZENITH both to subsidiaries of Coastal States Gas and also to unrelated corporations. In so doing, Coscol charged its "brother" corporations a freight rate based on current market conditions, just as it would unrelated corporations. This practice is followed even though the rate which Coscol is paying the owners of its chartered vessels may, due to changing market conditions, be substantially higher than the market rate currently prevailing for voyage charters. In the case of the GRAND ZENITH, for instance, Coscol was paying Zenith at a rate equivalent to World Scale *fn4" 200, while the prevailing market rate in the late fall of 1976 was around World Scale 85.

 Apparently, in the fall of 1976, International Phillips Petroleum became involved in negotiations with Trading for the sale of a quantity of fuel oil which would be carried on a number of consecutive voyages from England to New England. Ultimately, Trading was offered the fuel on either a C.I.F. or F.O.B. basis, since Phillips had the opportunity of chartering a vessel for a number of voyages at World Scale 85. If the fuel were to be purchased on an F.O.B. basis, Phillips would make an appropriate reduction in the sale price to reflect Trading's cost of transporting the fuel to New England at World Scale 85.

 Jose Iglesias, a Vice President of Trading, approached Clifford Neubauer, A Vice President with whom he dealt at Coscol, and informed him that if he could match the rate of World Scale 85, Trading would enter into an agreement with Coscol for transportation of the fuel oil shipments in question. On October 26, 1976, Neubauer, by telex, offered Phillips the use of the GRAND ZENITH and set forth the salient terms of the agreement, including the utilization of the "EXXONVOY/69" voyage charter party form. Phillips rejected the offer, however, on the ground that the ship was too old.

 Coscol and Trading thereafter entered into their own voyage charter agreement, and the contract between Trading and Phillips was consummated on an F.O.B. basis. with the sale price reduced by the amount of the projected transportation cost at World Scale 85. The charter agreement was unwritten, and based upon the understanding of Mr. Iglesias and Mr. Neubauer. The terms offered by Coscol and ...


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