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September 27, 1979


The opinion of the court was delivered by: DUFFY

Plaintiffs, Reading & Bates Corporation (hereinafter referred to as "R & B") and Reading & Bates Exploration Company (hereinafter referred to as "R & B Exploration"), both Delaware corporations, brought this motion to confirm an order of attachment issued Ex parte by me on August 22, 1979. Defendant, National Iranian Oil Company (hereinafter referred to as "NIOC"), a foreign corporation not licensed in New York, cross-moved to vacate the order of attachment and levy.

The complaint in the instant case alleges the unlawful taking and conversion by the defendant of the plaintiffs' oil drilling rig, the "Milton G. Hulme", located in Iranian territorial waters. Jurisdiction of the federal District Court is based on diversity of citizenship. The undisputed facts are as follows:

On November 1, 1977, the plaintiff corporations entered into two contracts with the Oil Services Company of Iran (hereinafter referred to as "OSCO"). The first contract, the "Bareboat Charter", chartered the drilling rig to OSCO for three years and the second, the "Drilling Contract" was for operation of the rig. OSCO, at that time, was under a service contract with NIOC dated July 19, 1973. Pursuant to this contract, OSCO was to conduct oil and gas exploration and drilling for NIOC. In turn, NIOC was to supply the oil and gas to members of the International Oil Consortium, also formed in 1973. NIOC provided OSCO's funding for the performance of the service contract. Until approximately November, 1978, invoices sent to OSCO by R & B and R & B Exploration were paid in full.

 Thereafter, the parties' interpretation of the facts diverges. The plaintiffs claim that no invoices were paid after November, 1978, save two partial payments in March and May, 1979. They further claim that despite urgent need for an inspection of the rig on February 16, 1979, they were physically prevented from doing so. R & B and R & B Exploration also assert that the failure to make required payments terminated the contract pursuant to its "Termination Clause" and that repeated demands have been made for payment and return of the rig. Finally, they assert that NIOC had complete dominion and control over OSCO and is properly before this Court as its "alter ego."

 Defendant, on the other hand, argues, Inter alia, that substantial payments have been made; that R & B had no right to an inspection; that R & B, in fact, violated the "Bareboat Charter" by attempting to tow the rig from Iranian waters; and that plaintiffs have submitted no evidence of a demand for return of the rig. According to defendant, the contract has not been terminated and, therefore, this cause of action at best sounds in contract; not in conversion. Finally, NIOC persistently argues that it is a separate juridical entity and is not a proper party to this lawsuit.

 Both sides concede that there is an arbitration clause in the "Bareboat Charter" between R & B and OSCO. This clause provides that:

All disputes arising in connection with the present Contract shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed.

 Plaintiffs' Exhibit 1 at 14. However, no demand for arbitration has been made by either party.

 Upon commencement of the suit the plaintiffs filed a summons and complaint and an Ex parte application for an order of attachment on August 22, 1979. The attachment application contemplated a levy of approximately $ 26 million at each of twenty-nine banks holding funds of the defendant. Only one of the banks indicated that it had no funds of defendant. At least four banks indicated that they each possessed funds of the defendant in excess of the amount to be attached. After the order of attachment was granted, pursuant to N.Y.Civ.Prac.Law § 6201, the parties and garnishee banks agreed by stipulation, dated August 31, 1979, to set aside a special fund of approximately $ 26 million at the Chase Manhattan Bank in lieu of a levy at each of the twenty-nine banks.

 As required by N.Y.Civ.Prac.Law § 6211(b), the plaintiffs made the instant motion to confirm the order of attachment within five days by an order to show cause dated August 27, 1979. I heard oral argument on this motion and the defendant's cross-motion to vacate the attachment on September 7th and reserved decision.

 This case involves several distinct issues. First, has the plaintiff met its burden of establishing the grounds for attachment, the need for a continuing levy, and the probability of success on the merits as required by N.Y.Civ.Prac.Law § 6223(b)? Second, is NIOC a proper party to this suit as the "alter ego" of OSCO? Third, if NIOC is a proper party, has its immunity to pre-judgment attachment under the Foreign Sovereign Immunity Act, 28 U.S.C. §§ 1602-11, (hereinafter referred to as the "FSIA"), been waived by the United States Treaty of Amity with Iran?

 At the outset, it should be noted that the provisional remedy of attachment is discretionary with the trial court. Weinstein-Korn-Miller, N.Y.Civil Practice P 6201.03 (1963). It is a harsh remedy which should be construed strictly against those seeking to use it. Siegel v. Northern Boulevard & 80th St. Corp., 31 A.D.2d 182, 183, 295 N.Y.S.2d 804, 806 (1st Dep't 1968). C.P.L.R. § 6223(b) provides that the plaintiff shall have the burden of establishing the grounds for attachment, the need for continuing the levy, and the probability of success on the merits. This provision is specifically made applicable to the motion to confirm the order of attachment via C.P.L.R. § 6211(b). I find that the plaintiff has failed to meet its burden pursuant to Section 6223(b).

 Pre-judgment attachments in New York are generally used either to obtain quasi-in-rem jurisdiction over a foreign defendant or to establish security for satisfaction of a potential judgment, or both. In the instant case, plaintiffs contend that there is personal jurisdiction over defendant by virtue of its "doing-business" in New York, N.Y.Civ.Prac.Law § 301 (McKinney), and that

the purpose of an attachment here is not to obtain jurisdiction in the quasi rem (sic) sense, it was done in order to secure any ...

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