April 12, 1978
In the Matter of the Arbitration Between HIDROCARBUROS Y DERIVADOS, C.A., Petitioner,
COSTAS M. LEMOS, C. M. LEMOS & CO., LTD., TRITON SHIPPING INC., ALBATROSS SHIPPING CO., S.A., BOREAS SHIPPING CO., S.A., CELESTIAL SHIPPING CO., S.A., CLIPPER SHIPPING CO., S.A., EASTWIND SHIPPING CO., S.A., FAIRWIND SHIPPING CO., S.A., GALAXY SHIPPING CO., S.A., HERCULES SHIPPING CO., S.A., HOME SHIPPING CO., S.A., LEGEND SHIPPING CO., S.A., MERMAID SHIPPING CO., S.A., MOONBEAM SHIPPING CO., S.A., MOONFLOWER SHIPPING CO., S.A., MOONLIGHT SHIPPING CO., S.A., MOONSTONE SHIPPING CO., S.A., MOONTIDE SHIPPING CO., S.A., NILE SHIPPING CO., S.A., NORTHWIND SHIPPING CO., S.A., PLANET SHIPPING CO., S.A., REA SHIPPING CO., S.A., SEACREST SHIPPING CO., S.A., SEAHAWK SHIPPING CO., S.A., SEASPRAY SHIPPING CO., S.A., SKYDROME SHIPPING CO., S.A., SOUTHWIND SHIPPING CO., S.A., STARCLUSTER SHIPPING CO., S.A., STARDUST SHIPPING CO., S.A., SUNBEAM SHIPPING CO., S.A., SUNFLARE SHIPPING CO., S.A., SUNLIGHT SHIPPING CO., S.A., SUNRISE SHIPPING CO., S.A., TRADEWIND SHIPPING CO., S.A., VIRGO SHIPPING CO., S.A., WESTWIND SHIPPING CO., S.A., WINDWARD SHIPPING CO., S.A., NEREUS SHIPPING, S.A., and COMPANIA ESPANOLA DE. PETROLEOS, S.A., Respondents.
The opinion of the court was delivered by: HAIGHT
SUPPLEMENTAL MEMORANDUM OPINION AND ORDER
By memorandum opinion dated December 6, 1977, familiarity with which is assumed, the Court granted in part Hideca's petition to compel arbitration and directed the parties to settle an order implementing the opinion. No such order has yet been entered. In the interim the parties and the Court have explored together the possibility of agreeing on the terms of the order, with particular reference to avoiding a pre-arbitration evidentiary hearing while at the same time preserving all parties' rights. While the effort was worthwhile, it is now apparent that no such agreement can be reached, and the Court therefore enters the order set forth below.
While the Court would have preferred to see the parties begin addressing the merits before the arbitrators, deferring a hearing and judicial determination of what entities, corporate and individual, are parties to the contract (see prior opinion at pp. 29-30), compelling Second Circuit authority militates to the contrary.
Hideca moved to compel arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. § 4, which provides in part:
"If the making of the arbitration agreement or the failure, neglect or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof."
In the case at bar, the issue is whether certain corporations and one individual, Costas M. Lemos, should be regarded as "owners" under the contract of affreightment containing the arbitration clause, in addition to Nereus Shipping, S.A., which signed "as agents for owners." The resolution of that issue will determine which entities will be bound by the arbitration award and which will not.
The question is one for the Court to determine, not the arbitrators. Orion Shipping & Trading Co. v. Eastern States Petroleum Corp., 312 F.2d 299 (2d Cir. 1963). A threshold issue is whether that determination should be made before the arbitration, within the context of a petition to compel arbitration under § 4; or after the arbitration, within that of a motion to confirm the award under 9 U.S.C. § 9. Orion, supra, strongly suggests the former. In that case Signal Oil & Gas Company, as guarantor of the performance of Eastern Panama, was alleged to be the corporate alter ego of Eastern Panama, although Orion, the other party to the contract, did not test that theory in proceedings to compel arbitration under § 4. The arbitrator purported to hold both Eastern Panama and Signal liable, the latter on its guarantee. The district court held, and the Court of Appeals agreed, that the arbitrator had exceeded his powers in affixing liability upon Signal as guarantor. Orion sought to preserve the benefit of the arbitrator's action by moving to confirm the award against Signal under § 9, on the theory that Signal was Eastern Panama's alter ego. The Second Circuit rejected the effort in this language:
"It may well be, as Judge Dawson indicated below, that Eastern Panama is thoroughly dominated by Signal, and that Signal is properly accountable on an 'alter ego' theory. But we hold that an action for confirmation is not the proper time for a District Court to 'pierce the corporate veil.' The usual office of the confirmation action under 9 U.S.C. § 9 is simply to determine whether the arbitrator's award falls within the four corners of the dispute as submitted to him. This action is one where the judge's powers are narrowly circumscribed and best exercised with expedition. It would unduly complicate and protract the proceeding were the court to be confronted with a potentially voluminous record setting out details of the corporate relationship between a party bound by an arbitration award and its purported 'alter ego'. Our conclusion does not in any way impugn the soundness of the reasoning in the Fisser case, which arose in the quite distinguishable context of an action to compel arbitration under 9 U.S.C. § 4, rather than to confirm.
"As Judge Dawson concluded, our holding does not preclude Orion from prosecuting its action, still pending, against Signal as guarantor of Eastern Panama's obligations. Nor does it preclude Orion from bringing a separate action against Signal to enforce the award against Eastern Panama, invoking the 'alter ego' theory. But an action to confirm the arbitrator's award cannot be employed as a substitute for either of these two quite distinct causes of action." 312 F.2d at 301.
I read Orion and Fisser v. International Bank, 282 F.2d 231 (2d Cir. 1960), cited in Orion, to require that the alter ego theory, and any other theory determinative of the identity of parties to an arbitration agreement, be tested by an action to compel arbitration under § 4, prior to the arbitration hearings.
While this conclusion necessarily delays those hearings, there is much to be said for determining who are the parties to the arbitration before the arbitrators hear the merits.
For the reasons stated in the Court's memorandum of December 6, 1977 and in this supplemental memorandum, it is
ORDERED that the petition of Hidrocarburosy Derivados, C.A. to compel arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1, 4, be and the same hereby is granted in respect of those corporate shipowners whose vessels (1) were nominated to perform under the COA, and (2) are involved in disputes arising out of the COA. Those corporate shipowners and the vessels concerned are as follows:
Skydrome Shipping Co., S.A. POETIC
Galaxy Shipping Co., S.A. MAJESTIC
Clipper Shipping Co., S.A. TROPIC
Planet Shipping Co., S.A. ATHENIC
Seaspray Shipping Co., S.A. PLATONIC
Stardust Shipping Co., S.A. SCENIC
While the petition to compel arbitration is granted as to these corporations, their participation in the arbitration will be limited to claims and disputes involving their respective vessels.
IT IS FURTHER ORDERED that the arbitrator previously appointed on behalf of Nereus Shipping, S.A. will act as arbitrator on behalf of these additional parties, so that no alteration or ...
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