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September 30, 1982


The opinion of the court was delivered by: GOETTEL


 This litigation, which has become a legal donnybrook of regrettable proportions, arises from the shipment of mobile homes to Saudi Arabia. Before this Court are numerous motions and cross motions by each of the parties.

 Atlanta Shipping Corp. (Atlanta) is a Liberian corporation with its principal place of business in Zurich, Switzerland. Maritime Transport Overseas, Inc. (MTO) serves as Atlanta's general agent in the United States, booking cargoes for carriage from the United States to foreign ports aboard Atlanta's ships. *fn1" International Modular Housing, Inc. (IMH) sells modular structures such as mobile homes and mobile structures. It is an American company. Its place of incorporation and principal place of business are in dispute, but the dispute is not material. *fn2"

 In 1976, IMH contracted with a company called National Homes Corp. to purchase 560 mobile homes. IMH then entered into a shipping contract with Atlanta, referred to in the trade as a Liner Booking Note, whereby Atlanta would carry the mobile homes from the United States to Saudi Arabia in four voyages. The Liner Booking Note provided for freight charges of $1.54 million per voyage and a payment schedule of 25% of the total freight charges for each voyage to be prepaid when the bills of lading were signed and 25% each thirty days thereafter until the balance was paid off. The total contract price was $6.16 million.

 The first of the four contracted voyages was completed and paid for as provided for in the Liner Booking Note. Problems began with the second voyage. IMH paid the first three installments for this voyage, but did not pay the fourth. At about the same time that IMH missed this installment, it also failed to pay the first installment of the third voyage. (One installment was due on January 25, 1977; the other was due on February 9, 1977. The total arrearage came to $770,000.)

 On February 22, 1977, after a long series of negotiations during which Atlanta allegedly threatened to sell the cargo, IMH and Atlanta entered into a "Credit Agreement," which restructured IMH's indebtedness to Atlanta and gave Atlanta title, possession, and a security interest in the cargo then aboard Atlanta's ship. The Credit Agreement also required IMH to deliver a bill of sale for the cargo to Atlanta's attorneys, Zock, Petrie, Reid & Curtin (Zock Petrie), who would hold it in escrow. IMH delivered this bill of sale and, in addition, executed a promissory note reflecting its obligations to Atlanta.

 The State Court Litigation

 On March 23, 1977, the date that the first installment was due under the Credit Agreement, IMH filed an action in New York State Supreme Court to void the Credit Agreement on the ground that it was obtained by economic duress. Named as defendants were Atlanta, MTO, and Zock Petrie, the escrow agents. *fn3" A month after the action was filed, the state court preliminarily enjoined the defendants from enforcing the Credit Agreement and directed the parties to proceed to trial quickly. *fn4" That direction notwithstanding, there has yet to be a trial of this action. Instead, the parties entangled themselves and the state court in literally years of litigation over various discovery disputes.

 In April of this year, IMH stipulated to a voluntary dismissal of the action against Zock Petrie. When the state court entered a consent order based on this stipulation, Atlanta immediately filed a petition removing the state court action to this Court pursuant to 28 U.S.C. §§ 1441(b), 1446(b) (1976). (It bears civil index number 82 Civ. 3081.) The day before the case was removed, a State Supreme Court judge entered an order, on IMH's motion to strike Atlanta's pleading, directing Atlanta's principals to appear for deposition. As it appears they will not appear, this order might have had a dispositive effect in the state court case. The order was not filed, however, until the day after the case was removed to federal court.

 The First Federal Court Litigation

 On March 24, 1977, the day after IMH commenced the state court action to void the Credit Agreement, Atlanta commenced an action in this Court seeking to enforce the promissory note that IMH had delivered to Atlanta in connection with the Credit Agreement. (That case bears civil index number 77 Civ. 1471.) IMH moved to stay the federal court action pending the outcome of the state court litigation. This Court granted that motion by an order dated June 15, 1977, noting that the commencement of the action violated at least the spirit of the state court injunction. (Ironically, this Court also noted that there was no reason to believe that there would be a delay in a disposition of the state court action because it had been placed at the head of the waiting trial list.) The Court then placed the federal case on the suspense calendar of this Court, where it has since remained. *fn5"

 The New Federal Court Litigation

 The remaining two cases pertain to arbitration proceedings that grew out of the state court litigation. A month after the state court action was commenced, Atlanta moved in state court for an order staying the action pending arbitration. (The Liner Booking Note contained a clause requiring arbitration of any dispute arising out of the agreement.) The state court granted this motion with respect to IMH's claim for damages arising out of an eight-day delay in the unloading of the cargo from the third voyage. See supra note 3. (The details regarding these arbitration proceedings will be discussed below.) For the purposes of general background, it is sufficient to note that on April 22, 1982, the arbitration panel issued a "Partial Final Award" for $2,012,500 in Atlanta's favor. The case bearing index number 82 Civ. 2777, is a petition brought by Atlanta to confirm the arbitration award. The other case, 82 Civ. 2800, filed by IMH six hours after Atlanta filed its petition, is an action to vacate the arbitration award on the grounds that the arbitration proceedings violated IMH's constitutional rights and that Atlanta had waived its right to arbitration.

 The Motions

 Having managed to initiate four federal actions involving the same dispute, the parties then fired off a barrage of motions. The first motion was Atlanta's motion to confirm the arbitration award. This was met by a cross-motion by IMH to vacate the arbitration award. Then IMH, not surprisingly, moved to remand the state action to the state court where it appeared to be on the threshold of victory.

 While the foregoing motions were sub judice, IMH moved, in the removed action, for an order striking Atlanta's answer and granting judgment by default because of Atlanta's failure to obey the state court discovery orders. Atlanta then cross-moved, under the doctrine of judicial estoppel, to dismiss the complaint in the same action, claiming that IMH had acted inconsistently in the arbitration and the pending litigation. Atlanta also moved for an order staying the litigation pending the conclusion of the related arbitration proceedings. All of these motions are before the Court for resolution. *fn6"

 Motion to Remand

 Although not the first filed, it seems logical to consider the remand motion first. As noted above, Atlanta and MTO removed this action after IMH stipulated to the dismissal of the claims against Zock Petrie. IMH contends that Zock Petrie acted improperly in obtaining this stipulation and that this Court should therefore remand the case to the state court. Before considering this argument, it is necessary to review the law pertaining to the removal of cases in which complete diversity is not obtained until after the action has been filed.

 The general rule is that diversity must exist both at the time of filing in state court and at the time of removal. See, e.g., Kinney v. Columbia Savings & Loan Ass'n, 191 U.S. 78, 81, 48 L. Ed. 103, 24 S. Ct. 30 (1903); Stevens v. Nichols, 130 U.S. 230, 231, 32 L. Ed. 914, 9 S. Ct. 518 (1889). See generally 14 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 3723, at 592-93 (1976 & Supp. 1982). Under a judicially created exception, however, removal is permitted, even though diversity did not exist at the time the original action was commenced, when diversity is created by the plaintiff's voluntary termination of the action against the nondiverse party. *fn7" Thus, in this case, removal was possible because IMH stipulated to the dismissal of Zock Petrie. Had IMH objected to the state court's dismissal, removal probably would not have been allowed. See, e.g., Quinn v. Aetna Life & Casualty Co., 616 F.2d 38, 40 n.2 (2d Cir. 1980). *fn8"

 We now turn to the circumstances behind the stipulation to the dismissal of Zock Petrie. Counsel to Atlanta telephoned IMH's attorneys to request an adjournment of an IMH motion to impose discovery sanctions against Atlanta. During the course of this conversation, Donald Burke, a member of Zock Petrie, asked that the action be discontinued against Zock Petrie. When asked why, after five years of litigation, Zock Petrie was making such a request, Burke explained that the firm's presence in the lawsuit had cost it thousands of dollars in legal fees and that Zock Petrie would rather deposit the bill of sale into court than incur more fees. Counsel to IMH said that he would consider the request. Further discussions ensued over the next few days. In the meantime, Zock Petrie moved to dismiss the action against it on the condition that it deposit the bill of sale into court. More discussions followed. IMH ultimately agreed to stipulate to the dismissal of Zock Petrie, and the motion to dismiss was withdrawn.

 IMH claims that the only reason it agreed to stipulate to the dismissal was that Zock Petrie requested IMH to do so as a "matter of professional courtesy." (Although Zock Petrie denies requesting the dismissal on that basis, whether the phrase "matter of professional courtesy" was actually used is not crucial to the resolution of this motion.) According to IMH, had it known that the real motive for the request was to remove the case to federal court, IMH would have forced Atlanta to litigate the motion. See supra note 8 and accompanying text.

 Zock Petrie admits that removal, not the cost of litigation, was the firm's primary objective in making its request. Zock Petrie also admits that, once removal became the goal, the firm never disclosed its plan to IMH. It maintains that this ...

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