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October 22, 1980

MICHELE AMORUSO E FIGLI, Francesco Amoruso, Giovanni Amoruso,Nicola Amoruso, and Vito Amoruso, Plaintiffs,

The opinion of the court was delivered by: WEINFELD

Plaintiffs seek a declaratory judgment that certain agreements between them and the defendants are illegal and unenforceable. The action was commenced some six weeks after the defendants had instituted an arbitration proceeding pursuant to a provision contained in the agreements. Plaintiffs also seek a stay of the arbitration pending the determination of this action. The defendants cross move to stay this action pending arbitration as well as for other relief. Following final argument of the motions and the submission of extensive briefs, the parties are in accord that their respective motions are ripe for summary judgment disposition pursuant to Rule 56 of the Federal Rules of Civil Procedure. To put the issues raised under their motions in proper focus, it is desirable to identify the various parties and their components.

I. The Facts

 The plaintiffs are an Italian partnership, Michele Amoruso e Figli, and its four partners and principals, Francesco, Giovanni, Nicola and Vito Amoruso (the "Amorusos"), Italian subjects who are engaged in the commercial fishing business. The defendants are Fisheries Development Corp. ("FDC"), a New York corporation with its principal place of business in New York, and Raymond E. Gerson ("Gerson"). He is the chief executive officer and principal stockholder of FDC and all its officers, directors and stockholders are citizens of the United States.

 A. The Master Agreement

 In December 1978, after extensive negotiations conducted in New York City, FDC and the Amorusos entered into an agreement (the "Master Agreement") to engage in a joint venture pursuant to which they established a general partnership called "Amfish." The Amorusos' interest in the general partnership was in the name of Amfish, Ltd., a New York corporation that they wholly owned. All its officers and directors but one are United States citizens. The Amfish general partnership was divided into a 75% interest for FDC and a 25% interest for Amfish, Ltd. FDC was designated the managing general partner of Amfish.

 The Master Agreement provides, among other matters, that Amfish, the general partnership, was to construct and operate three American-built fishing vessels to fish for squid and other fish in the United States fishery conservation zone available to American citizens under the Fishery Conservation and Management Act of 1976 ("Fishery Act"). *fn1" The Amorusos agreed that when the Amfish vessels were in operation they would purchase the entire catch of the vessels.

 At the time the agreement was entered into, the Amorusos were owners of three fishing trawlers documented under the laws and flag of the Republic of Italy. Pending the construction of the Amfish vessels by the Amfish partnership, the agreement provided that FDC would use its best efforts to obtain federal legislation (the "Legislation") creating an exception to the restrictions imposed on foreign fishing by the Fishery Act. The Legislation would permit the three Amoruso vessels to fish for squid in United States waters and land their catch in the same manner as if they were American vessels until such time as the Amoruso vessels could be replaced by the Amfish vessels, whereupon any rights acquired by an Amoruso vessel as a result of such Legislation would be terminated. The agreement was to continue in force for a period of 15 years unless the Legislation was not enacted by the adjournment of the 96th Congress at the end of 1979. In the event the Legislation were enacted, the Amorusos were given the right to terminate the agreement within 90 days of its passage upon a good faith determination that performance under the Legislation as enacted was commercially unreasonable.

 FDC also agreed to attempt to obtain additional fishing rights for the Amorusos-including the right to continue fishing even after the Amfish vessels were constructed and in operation-but this additional legislation was not made a prerequisite to the continued vitality of the agreement.

 The agreement provided that, prior to the enactment of the Legislation, FDC would advance $ 77,500 to Amfish and the Amorusos would advance $ 102,500, the funds to be paid in two installments. FDC also had the right to require that each partner contribute up to an additional $ 50,000 to Amfish. Until the Legislation was obtained, the funds were to be used solely to form and operate Amfish, to pay the salaries of Gerson and his staff, and to construct Amfish vessels.

 Once the Legislation was enacted and the Amoruso vessels began fishing in American territorial waters, the Amorusos were required to make capital contributions to Amfish: an initial contribution of $ 250,000 upon the effective date of the Legislation; plus payments during the first year totalling $ 1,050,000; payments during the next two years of at least $ 1,300,000 at a rate of $ 210 per metric ton of all fish caught by the Amoruso vessels except mackarel and silver hate; and payments thereafter at a rate of $ 160 per metric ton. The purpose of this funding was to supply additional capital required in the construction of the Amfish vessels. The contributions were to cease if fishing rights of the Amoruso vessels were terminated. Upon liquidation of the partnership, capital contributions to the extent made were to be repaid after repayment of advances for start-up costs but before any distributions of profits based on the parties' equity interests. No capital contributions were required of FDC beyond the initial advances.

 That the parties were acutely sensitive to compliance with the United States laws and in particular with the Foreign Agents Registration Act ("FARA") *fn2" is evident from their respective representations that, subject only to the effectiveness of the Legislation, the execution and consummation of the agreement would not violate any law, order, rule or regulation of any government or governmental authority. The agreement noted that FDC had requested an opinion from the United States Department of Justice as to what action, if any, was required of it to comply with FARA and that FDC agreed to comply with its provisions. Finally, the agreement contained a provision that "(a)ny and all differences or disputes of whatever nature arising out of this Agreement shall be put to arbitration in the City of New York pursuant to ... the laws of the State of New York."

 B. The Increase Agreement

 By May 1979, the Legislation had not been passed. FDC and the Amorusos then entered into an additional agreement (the "Increase Agreement") whereby FDC undertook to use its best efforts to obtain from the Department of State an increased allocation to the Republic of Italy for squid fishing in American waters, some portion of which might in turn be allocated to the Amorusos. *fn3" The Amorusos undertook to fish for squid under any such increase and to make additional capital contributions to Amfish of $ 150 per ton of squid thus caught. In the event the increase was granted and the Amorusos fished under its terms, FDC further agreed to use its best efforts to obtain increases for successive six-month periods until the Amorusos were permitted to commence fishing under the Legislation. The Increase Agreement incorporated by reference the original Master Agreement, including its disposition of capital contributions upon liquidation and its arbitration provision. The Increase Agreement provided, however, that the Master Agreement would not terminate as long as the increase was in effect.

 Between December 1978 and December 1979, the Amorusos allege they advanced not less than $ 154,678 to Amfish pursuant to the Master and Increase Agreements. The defendants dispute that any capital contributions were made by the Amorusos; apparently, they contend that the sums were advanced, as required by the Master Agreement, for expenses, including salaries, incurred in the formation and operation of Amfish.

 On September 19, 1979, Gerson testified before the House Subcommittee on Fisheries and Wildlife Conservation and the Environment in support of H.R. 4360, the Under-utilized Species Development Act of 1979, which would have authorized ventures similar to Amfish. Gerson fully informed the Subcommittee of his relation to the Amorusos and of the nature of the partnership established by the agreements. The thrust of his testimony was the beneficial impact of the proposed legislation upon the American fishing and ...

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