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Connecticut Resources Recovery Authority v. Occidental Petroleum Corp.

April 6, 1983

CONNECTICUT RESOURCES RECOVERY AUTHORITY, AND THE TOWNS OF TRUMBULL, FAIRFIELD AND MONROE, CONNECTICUT, PLAINTIFFS-APPELLANTS, TOWN OF GREENWICH, CONNECTICUT, INTERVENOR-PLAINTIFF,
v.
OCCIDENTAL PETROLEUM CORPORATION, OCCIDENTAL RESOURCE RECOVERY SYSTEMS, INC., AND COMPACTION SYSTEMS OF BRIDGEPORT, INC., DEFENDANTS-APPELLEES, RESOURCE RECOVERY ASSOCIATES, INC., AND CEA-OXY RESOURCE RECOVERY ASSOCIATES, DEFENDANTS



Appeal from an order of the United States District Court for the District of Connecticut, Ellen B. Burns, Judge, denying a preliminary injunction which would have maintained the status quo of a contractual relationship pending arbitration.

Van Graafeiland, Meskill and Pratt, Circuit Judges.

Author: Pratt

PRATT, Circuit Judge

The Connecticut Resources Recovery Authority and three Connecticut towns appeal from an order of the United States District Court for the District of Connecticut, Ellen B. Burns, Judge, denying their motion for a preliminary "status quo" injunction that would have required defendants Occidental Petroleum Corporation and Occidental Resource Recovery Systems, Inc. to continue performing certain contested contractual obligations pending arbitration of a dispute over the existence and extent of those obligations. The district court denied relief because the contract's status quo provision was not intended to cover the disputed obligations, and because plaintiffs had failed to satisfy the traditional equitable prerequisites for specific performance.

On appeal, plaintiffs challenge the district court's interpretation of the status quo provision, its determination that the dispute was governed by ordinary principles of equity, and its application of those principles to the circumstances of this case. Because we conclude that Judge Burns applied the proper standard and that the findings supporting her conclusions of no irreparable harm and an available adequate remedy at law were not clearly erroneous, we affirm the denial of injunctive relief.

BACKGROUND

This dispute arises out of a complex cluster of contracts entered into by the Connecticut Resources Recovery Authority (CRRA) pursuant to its statutory mandate to establish regional resource recovery systems for the processing of solid wastes in Connecticut. See Conn. Gen. Stat. ยงยง 19-524p et seq. (1977). At the heart of the dispute is a contract CRRA entered into in March 1976 with CEA-OXY Resource Recovery Associates (CEA-OXY), a joint venture comprised of Resource Recovery Associates, Inc., which is a wholly owned subsidiary of Combustion Equipment Associates, Inc. (CEA), and Occidental Resource Recovery Systems, Inc. (ORRSI), which is a wholly owned subsidiary of Occidental Petroleum Corporation (Occidental). In this contract, which was "unconditionally and irrevocably" guaranteed by both CEA and Occidental, CEA-OXY agreed to design and construct a commercial scale, waste-to-fuel conversion system for CRRA's pilot project in Bridgeport, Connecticut. Although the contract established March 1, 1978 as the scheduled operation date for the system, it also obligated CEA-OXY to provide certain "interim services" beginning December 23, 1976 and continuing until the system achieved commercial operation. These interim services included maintenance of the system's facilities and, more importantly for present purposes, the hauling and disposal of solid wastes produced by the participating municipalities. The rate that CEA-OXY was entitled to charge the municipalities for these hauling and disposal services during the construction period was fixed by the contract, subject to escalation in accordance with the cost-of-living index.

Both parties agreed in section 213 to waive any rights they might have "by statute or otherwise, to terminate, cancel or rescind this Agreement except in accordance with the express terms thereof." This language was reinforced by section 305, which provided, with exceptions not pertinent to this appeal, that CEA-OXY had "no right to terminate this Agreement or to terminate any of its obligations hereunder". The parties also agreed in section 404 that "any and all disputes and differences pertaining to or arising out of this Agreement or the breach thereof shall finally be settled by arbitration". Section 404 further provided that "the parties shall continue to perform their obligations under this Agreement during the pendency of any arbitration proceeding." It is this "status quo" provision that plaintiffs seek to specifically enforce in this action.

Immediately after the contract was executed in March 1976, CEA-OXY was permitted by CRRA to subcontract its responsibilities to CEA, which soon began construction of the Bridgeport plant. CEA encountered substantial difficulties, however, and was unable to keep pace with the schedule established by the contract. As of October 1980, when construction was discontinued, the plant was still far from complete.

Throughout the construction period, CEA provided the interim services required by the contract without interruption. On October 20, 1980, however, CEA declared bankruptcy. Two months later when the United States Bankruptcy Court for the Southern District of New York permitted CEA to disaffirm its obligations under the subcontract, ORRSI immediately assumed responsibility for the functions theretofore performed by CEA. While it did not resume construction of the Bridgeport plant, ORRSI directly provided all of the required interim services until September 1981, when it entered into a five-year contract with Compaction Systems of Bridgeport, Inc. (Compaction Systems), under which Compaction Systems agreed to transport and dispose of the solid wastes produced by the participating municipalities. Since that time, ORRSI has retained responsibility for maintaining the system's facilities and for operating the five local "transfer stations" where wastes that have been removed from the municipalities are temporarily stored en route to various landfill locations.

The series of legal maneuvers and counter-maneuvers which culminated in this lawsuit began in November 1981, when, with construction at a standstill, CRRA filed a demand for arbitration to compel Occidental to honor its guarantee of CEA-OXY's obligation to complete the system. Occidental promptly retaliated by filing suit in the district court to stay the arbitration on the ground that it had never agreed to arbitrate its guarantee liability. At the same time, Occidental informed CRRA that the interim services, which it was then providing at a significant loss under the terms of the contract, would be discontinued as of January 15, 1982. CRRA responded by initiating an action in state court to compel Occidental to arbitrate; Occidental removed the action to the Connecticut district court. With both actions pending in federal court, the parties conducted settlement negotiations for roughly six months, during which ORRSI continued to provide the interim services at a loss.

After it became apparent that the negotiations would not succeed, ORRSI filed against CRRA an arbitration demand of its own. In the demand, ORRSI contended that the system could never be built in accordance with the specifications of the contract, and that under the doctrine of impossibility of performance, it was excused from its obligations both to construct the plant and to provide the interim services. Simultaneously, ORRSI again announced that the interim services would be terminated, this time as of July 16, 1982. However, ORRSI later agreed to defer termination of the services pending resolution of any prompt request by CRRA for judicial intervention. This was no small concession, since at $24 per ton the contract price for interim garbage disposal was roughly $7 per ton below its cost, a spread which ORRSI estimated was causing it to lose roughly $100,000 a month.

CRRA and the Towns of Trumbull, Fairfield, and Monroe then commenced that instant action in state court against Occidental, ORRSI, CEA-OXY and Compaction Systems, seeking to compel the continued performance of the interim services pending arbitration of Occidental's request for relief from the contract. After Occidental removed the case to federal district court, the Town of Greenwich intervened as a plaintiff. Following a three day hearing, the district court denied plaintiffs' motion for a preliminary injunction in an unreported opinion dated October 4, 1982.

Reasoning that our decision in Guinness-Harp Corp. v. Joseph Schlitz Brewing Co., 613 F.2d 468 (2d Cir. 1980), required a two-part inquiry, the district court focused first on "whether the contract plainly intended maintenance of the status quo pending arbitration", and second, on "whether plaintiffs have met the traditional test for specific performance of a contract". Following these guidelines, the district court concluded initially that the failure of the construction agreement to "expressly condition termination of interim services on prior arbitration" suggested "that maintenance of the status quo with respect to continued performance of all duties, including the provision of interim services, was not contemplated by the parties." Alternatively, the district court concluded that specific performance was inappropriate ...


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