The opinion of the court was delivered by: LASKER
Canadian Overseas Ores Limited ("CANOVER") sues to recover for spare parts and related equipment allegedly delivered to the Compania Minera Santa Fe ("Santa Fe") in 1971 and to recover for loans allegedly made to Santa Fe prior to 1978, by its predecessor, Canadian Foreign Minerals Limited ("CAFOMI"). CANOVER alleges that Compania de Acero Del Pacifico S.A. ("CAP") is liable for these debts of Santa Fe because CAP acquired Santa Fe in November, 1971 and thereby assumed these liabilities.
CAP moves to dismiss the complaint on the grounds that 1) Count One of the complaint, relating to the sale of spare parts and related equipment, is barred by the statute of limitations, 2) Chile is a more convenient forum, and 3) this court lacks subject matter jurisdiction under 28 U.S.C. § 1330(a) because CAP is a foreign entity immune from suit under the Foreign Sovereign Immunities Act of 1976, 28 U.S.C. §§ 1602-1611. Since the filing of the instant motions, the Court of Appeals issued its decision in Verlinden B. V. v. Central Bank of Nigeria, 647 F.2d 320 (2d Cir. 1981), the effect of which is considered below.
CAP moves to dismiss Count One of the complaint on the ground that it is barred by the New York statute of limitations governing sales contracts. The parties agree that if the four year limitation of the New York Uniform Commercial Code (the "UCC") governs,
Count One is barred, while if the six year limitation for contract actions under New York's general statute of limitations governs,
Count One is not barred.
CANOVER argues that the four year limitation contained in the UCC does not apply because the UCC does not apply generally to this action. CANOVER relies on § 1-105(1) of the UCC which provides that where, as here, the contract itself contains no provision as to what law is to be applied, "this Act applies to transactions bearing an appropriate relation to this state." CANOVER contends that since New York was not the place of contracting, negotiation or performance, and was not the location of the subject matter of the contract, the transaction does not bear an "appropriate relation" to New York. It follows, according to CANOVER, that since the UCC does not apply to this action, the limitations contained in that Act do not apply. Instead, CANOVER asserts the New York borrowing statute, N.Y.C.P.L.R. § 202, governs because the cause of action accrued outside New York. Under § 202, New York applies either its own statute of limitations or that of the foreign jurisdiction where the cause of action arose, whichever is shorter. CANOVER argues that a six year limitation period must be applied here because New York's limitation period for contract actions not governed by the UCC is six years under N.Y.C.P.L.R. § 213 and Bermuda, where the cause of action arose, would also apply a six year limitation period.
CAP maintains that New York has only one statute of limitations for all actions alleging breach of a contract for the sale of goods, the four year limitation under N.Y.U.C.C. § 2-725(1). According to CAP, the exception from the terms of § 213, the general statute of limitations, for provisions "in article 2 of the uniform commercial code ..." was intended to take all sales contracts out of the general limitations period of six years, even though the substantive provisions of the UCC may not govern the particular sales contract. Moreover, CAP contends that CANOVER's reliance on the UCC choice-of-law provision, § 1-105, is misplaced because resort to choice-of-law provisions is only appropriate where there is a conflict between local law and the law of another jurisdiction, see Restatement (Second) of Conflict of Laws, § 2, comment a(3) (1971), and here there is no such conflict because New York law applies to the question, even if in some instances New York "borrows" shorter statutes of limitation of other jurisdictions under § 202. CAP asserts that § 1-105 of the UCC cannot be used to create a conflict between § 2-725(1) of the UCC and N.Y.C.P.L.R. § 213. Finally, CAP relies on the Official Comment to § 2-725 of the UCC to urge that § 2-725 was intended to introduce a uniform statute of limitations for all sales contracts and that CANOVER's statutory interpretation would preclude such uniformity by providing one limitation period for sales contracts governed by the substantive provisions of the UCC and another period for sales contracts governed by the substantive provisions of foreign law. It is said that this disparity would also violate New York policy by encouraging forum shopping and the prosecution of foreign claims in New York, since it would afford a longer statute of limitation to parties who bring causes of action governed by foreign law than to parties who bring causes of action governed by New York law.
A federal diversity court must apply the statute of limitation that a court of the forum state would apply. Guaranty Trust Company v. York, 326 U.S. 99, 65 S. Ct. 1464, 89 L. Ed. 2079 (1945). Both parties agree that the cause of action in this case accrued outside of New York. In such circumstances, New York applies either New York's limitation period or the limitation period of the jurisdiction where the cause of action accrued, whichever is shorter. N.Y.C.P.L.R. § 202. Assuming that the cause of action accrued in Bermuda and that Bermuda's limitation period is six years, as CANOVER contends, the question remains whether the applicable New York limitation period is the six year period of N.Y.C.P.L.R. § 213 or the four year period of the UCC § 2-725, since Bermuda's limitation period of six years is irrelevant under § 202 if New York's is shorter.
Neither party has presented any decision by the New York Courts (nor have we found any) on whether § 213 or § 2-725 governs a sales contract where the substantive law to be applied is not New York law. All relevant factors, however, point to the conclusion that a New York court would apply the four year limitation period under § 2-725. First, the literal language of § 2-725 broadly encompasses "an action for a breach of any contract for sale." (Emphasis added). Second, § 2-725 expresses a policy of not extending the time for bringing an action on a sales contract: while the contracting parties may reduce the limitation period, § 2-725 does not permit them to extend it. Third, while CANOVER contends that the facts of this case make the UCC inapplicable to this transaction, CANOVER relies on a weak reed as an alternative: that is, N.Y.C.P.L.R. § 213. Section 213 appears to carve out an exception for all sales contracts from its provision for a six year limitation period for contract actions. See Voth v. Chrysler Motor Corporation, 218 Kan. 644, 545 P.2d 371, 375 (1976). In fact, Section 213 uses the language "except as provided in Article 2 of the Uniform Commercial Code ..." to describe the exception to its six year limitation period, rather than more limited language, such as "except cases arising under" the UCC. This reading of § 213 is supported both by New York's policy by applying the shorter time period when more than one time period may apply, see e.g., N.Y.C.P.L.R. §§ 201, 202, 213 and N.Y.U.C.C. § 2-725, and the fact that a contrary construction would, as CAP argues, encourage forum shopping and the prosecution of causes of action governed by foreign law. Cf. 1 J. Weinstein, H. Korn & A. Miller, New York Civil Practice P 327.01 (1979). Finally, § 2-725 evidences a clear policy of uniformity for statutes of limitations governing sales contracts. N.Y.U.C.C. § 2-725, Official Comment. As CAP contends, this uniformity would be precluded if CANOVER's proposed statutory interpretation were accepted, for then a different limitation period would govern any action on a sales contract where foreign substantive law were to be applied and the foreign jurisdiction did not happen to have a limitation period the same as New York. See Alaska Airlines, Inc. v. Lockheed Aircraft Corporation, 430 F. Supp. 134, 140 (D.Alas.1977) (applying UCC limitation period to sales contract not governed by substantive provisions of the UCC in view of policy against extending limitation period.)
For the reasons stated, we conclude that Count One of the complaint is time barred under N.Y.U.C.C. § 2-725 and CAP's motion to dismiss it is granted.
CAP moves to dismiss the complaint under the doctrine of forum non conveniens on the grounds that 1) the courts of Chile provide an alternative forum where CAP is amenable to suit (and where a suit presenting the same issues as this suit is already pending), 2) the transactions are foreign in nature since they involve Santa Fe, a Chilean mining company with its principal place of business in Santiago, CAP, a Chilean corporation, and CAFORE and CAFOMI, corporations incorporated in the Bahamas and Canada respectively, with their principal places of business in Hamilton, Bermuda, and since the relevant negotiations all occurred in the Spanish language and in Chile, 3) all CAP's witnesses reside in Chile and those who are not CAP employees would not be subject to compulsory process from this court, 4) even if CAP's witnesses were to appear at trial here, their appearance would impose an unnecessary financial burden since transportation, lodging, and interpreters for trial would be required, 5) the need for continuous translation of testimony would render the resolution of the credibility issues more difficult, and 6) the documents material to CAP's defense are voluminous, were all kept in the Spanish language and in accordance with Chilean accounting procedures, and are all located in Chile. In addition, CAP emphasizes that any judgment obtained in Chile will be enforceable in New York as well as Chile and that procedural protections applicable in Chilean courts ensure that a fair trial will occur in Chile. CAP argues that the procedural protection available here is incomplete because, in the event it is held liable, it would look to the Santa Fe-Santa Barbara stockholders for indemnification and the stockholders only agreed to the jurisdiction of the courts in Santiago, Chile, with respect to litigation arising out of the acquisition agreements. Accordingly, since the stockholders of Santa Fe and Santa Barbara reside in various countries, they could be impled in Santiago but not in an American court. Finally, CAP contends that factors relating to the public interest support application of the doctrine of forum non conveniens since this dispute has no relation with this forum, is governed by Chilean law, and is already the subject of Chilean litigation.
CANOVER responds that the doctrine of forum non conveniens is not applicable because the alternative forum asserted by CAP, the courts of Chile, does not assure CANOVER of a fair trial. According to CANOVER, the Chilean judiciary is subject to the influence of the military junta governing Chile and therefore CANOVER would run the risk in any litigation in Chile that the government would exercise its influence to favor CAP, a state-owned corporation. CANOVER emphasizes that while the Chilean constitution guarantees the independence of the judiciary, the military junta has powers to amend or set aside constitutional provisions by executive decree. In addition, CANOVER maintains that procedural limitations on discovery in Chilean courts would prevent CANOVER from establishing its case; for example, CANOVER cites the lack of provisions for oral deposition, which it contends is necessary to establish the errors in the audit upon which CAP's defense is based, and the facts that in Chilean courts the number of witnesses a party may call on particular issues is limited and the judge conducts all the questioning of witnesses.
Finally, CANOVER argues that, even if Chile presented an adequate alternative forum, CAP has failed to present sufficient justification to disturb CANOVER's choice of forum. CANOVER asserts that CAP has not established substantial inconvenience resulting from litigation here and that the lengthy negotiations asserted by CAP did not in fact take place. In addition, CANOVER contends that the testimony of Chilean witnesses could be taken by letters rogatory and that many of the relevant witnesses reside outside of Chile. Moreover, CANOVER maintains that the fact that Chilean law is applicable is insignificant in a forum non conveniens determination and that, in any event, many of the transactions at issue arose in Bermuda rather than Chile. CANOVER also asserts that the case has a nexus with this forum because CAP is authorized to do business in New York and that a substantial portion of the ownership of CANOVER is American.
CAP replies that CANOVER has failed to sustain its burden of demonstrating that it will not receive a fair trial in Chile and presents its own experts to support the proposition that the independence of the Chilean judiciary remains in full force despite the fact that the country is ruled by a military junta. Moreover, CAP cites cases since the junta has been in power in which the Chilean courts have decided against the government's interests. CAP also asserts that CANOVER's arguments as to the lack of procedural safeguards in Chilean courts are baseless because the Chilean courts utilize essentially the same procedures as all civil law ...