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S.A. MINERACAO DA TRINDADE-SAMITRI v. UTAH INTL. I

December 27, 1983;

S.A. MINERACAO DA TRINDADE-SAMITRI, Plaintiff, against UTAH INTERNATIONAL INC., UTAH-MARCONA CORPORATION, MINERACAO MAREX LTD., MARCONA INTERNATIONAL S.A., MARCONA INC., and SAMARCO MINERACAO S.A., Defendants.


The opinion of the court was delivered by: GOETTEL

GEOTTEL, D.J.:

Plaintiff S.A. Mineracao da Trindade-Samitri ("Samitri"), a Brazilian corporation, brought this action to obtain, inter alia, a declaratory judgment and damages against six defendants, corporations in Brazil, Panama and the United States (the "Defendants"), *fn1" charging that the Defendants fraudulently induced Samitri to enter into a $600,000,000 *fn2" international iron ore mining venture, and alleging seventeen assorted claims under the laws of Brazil and the United States. *fn3" The Defendants have moved, pursuant to the United States Arbitration Act, 9 U.S.C. §§ 1-14, 201-08 (1982), to stay the prosecution of Samitri's complaint in this Court *fn4" and to compel arbitration. *fn5" In response, Samitri has crossmoved, pursuant to Fed. R. Civ. P. 65(a), to enjoin arbitration. For the reasons set forth below, the Court orders arbitration of all of Samitri's claims except the two brought under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968 (1982) ("RICO"), the litigation of which is temporarily stayed pending arbitration.

 BACKGROUND

 The chain of events culminating in this action began in the early 1970's when Samitri and the Defendants commenced discussions concerning the possibility of engaging in a joint venture to mine iron ore from certain undeveloped iron ore reserves owned by Samitri in Brazil. At the time, Samitri was supplying substantial amounts of iron ore products to European and South American purchasers but very little of those products to purchasers in the United States. Samitri's hope and, it contends, the Defendants' promise, was that if the parties entered into the venture than the Defendants would be able to procure long-term contracts for the sale of iron ore products to customers in the United States.In 1973 the parties agreed to undertake the venture and for that purpose formed a new jointly-owned corporation, Samarco Mineracao S.A. ("Samarco").

 On December 10, 1974, Samitri and the Defendants entered into three major contracts in order to structure and finance the project. These three contracts, hereinafter collectively referred to as the "1974 Agreements," include: (1) the "Samarco Project Agreement," which set forth the general business plan for the venture and the basic terms upon which the parties would proceed; (2) the "Samarco Shareholders' Agreement," which established the essential rules for Samarco's governance and the relations among its shareholders and provided that Samitri and the Defendants would purchase, respectively, 51% and 49% of the equity securities in Samarco; and (3) the "Contract of Commercial Representation," which specified the sales and marketing duties of the parties. In general terms, the 1974 Agreements called for Samitri to provide Samarco with access to Samitri's iron ore deposits in Brazil, for Samarco to mine and process the iron ore, and for the Defendants to act as Samarco's principal marketing agent throughout the world and as its exclusive marketing agent in the United States.

 Although the 1974 Agreements set forth in great detail Samitri's and the Defendants' rights and obligations with respect to the Samarco project, the parties continually amended those agreements and entered into a number of supplemental contracts during the latter part of the 1970's and early 1980's. Pursuant to the original Shareholders' Agreement, the parties executed a number of so-called stock purchase agreements under which Samitri and the Defendants together purchased a total of approximately $400,000,000 of securities in Samarco (the "Stock Purchase Agreements"). On August 16, 1979, the parties executed an agreement whereby Samitri and the Defendants agreed to guaranty Samarco's debts and liabilities (the "1979 Guaranty Agreement"). And on July 23, 1982, the parties consented to an additional agreement under which Samitri and the defendants were required to purchase even more securities in Samarco (the "1982 Memorandum of Agreement"). These agreements entered into after 1974 are collectively referred to by the parties as the "Post-1974 Agreements."

 On December 23, 1982, after learning of the cancellation of certain of Samarco's major contracts to supply iron ore products to United States purchasers, Samitri sought to withdraw its interest in Samarco and to rescind each of the contracts between itself and the Defendants. Subsequently, on March 22, 1983, Samitri brought this action to obtain, inter alia, a declaratory judgment that it had lawfully rescinded the 1974 and Post-1974 Agreements and a restoration of the status quo ante, including restitution of approximately $200,000,000, which it had paid for securities in Samarco.

 Samitri's argument essentially is that the Defendants fraudulently induced it to enter into the Samarco project by representing that the Defendants had obtained long-term agreements with three United States purchasers for the sale of more than one-third of the iron ore products expected to be produced by Samarco when it fact the Defendants had not obtained by Samarco when in fact the Defendants had not obtained such agreements. Samitri claims that these alleged sales agreements were central to its decision to invest in the project, and that without them, Samarco would never have been formed. Samitri also alleges a number of claims for breach of contract and for breach of fiduciary duties.

 On May 31, 1983, the Defendants filed a motion to compel arbitration of all of Samitri's claims on the grounds that such arbitration was required under the terms of each of the 1974 Agreements. Samitri, however, contends that its claims can properly be resolved only in court, arguing: (1) that the scope of the arbitration clause provided in the 1974 Agreements does not conclude claims of fraud in the inducement; (2) that claims of fraud in the inducement of the Post-1974 Agreements are not arbitrable because none of those agreements contains an arbitration clause; (3) that Samitri's claims under RICO are within the exclusive jurisdiciton of the courts and are therefore not arbitrable; and (4) that Samitri's claims under the Securities Act of 1933, 15 U.S.C. §§ 77(a)-(aa) (1982), and the Securities Exchange Act of 1934, 15 U.S.C. §§ 78(a)-(kk) (1982), are federal statutory claims which are not arbitrable. The Court now considers each of Samitri's arguments.

 DISCUSISON

 1. The 1974 Agreements

 Before considering the nature of any obligation to arbitrate under the 1974 Agreements, the Court notes that with respect to a contract involving a transaction in foreign or interstate "commerce," as defined in the United States Arbitration Act, 9 U.S.C. §§ 1-14, 201-08 (1982), *fn6" the interpretation, validity and enforcement of an arbitration clause within such a contract are governed by federal law. Prima Paint Corp. v. Flood & Conklin Mfg., 388 U.S. 395, 403-05, 18 L. Ed. 2d 1270, 87 S. Ct. 1801 (1967); Bell Canada v. ITT Telecommunications Corp., 563 F. Supp. 636, 638 (S.D.N.Y. 1983). An arbitration clause must be interpreted in accordance with the intention of the parties, Local No. 725, International Union of Operating Engineers v. Standard Oil Company of Indiana, 186 F. Supp. 895, 899 (D.N.D. 1960), and by ascertaining and examining the context in which it was made. Bricklayers, Masons, Marble and Tile Setters, Protective and Benevolent Union No. 7 of Nebraska v. Lueder Contruction Co., 346 F. Supp. 558, 562 (D. Neb. 1977). As a general rule, "a party cannot be required to submit to arbitration any disputes which he has not agreed to submit." Coudert v. Paine Webber Jackson & Curtis, 705 F.2d 78, 81 (2d Cir. 1983), citing United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 4 L. Ed. 2d 1409, 80 S. Ct. 1347 (1960). However, arbitration clauses must be interpreted broadly and all doubts as to whether a dispute is encompassed by a particular clause must be resolved in favor of arbitration. Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S. Ct. 927, 941-42, 74 L. Ed. 2d 765 (1983); Coenen v. R.W. Pressprich & Co., 453 F.2d 1209, 1212 (2d Cir. 1972). Importantly, arbitration clauses are separable from the contracts in which they are contained, so that a general claim of fraud in the inducement of a contract -- as distinguished from a claim of fraud directed at the arbitration clause itself -- does not operate to nullify the agreement to arbitrate. Prima Paint Corp., supra, 388 U.S. at 403-04.

 In the case at hand, each of the 1974 Agreements between Samitri and the Defendants contains a broad arbitration clause providing, in pertinent part:

 Whenever any question or dispute shall arise or occur under this [Agreement/Contract], such question or dispute shall (if it is not amicably settled by the Parties) be finally settled by arbitration in Paris, France, by one or more arbitrators appointed in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce. . . .

 See Affidavit of Kenneth E. Merklin: Exhibit A, Samarco Project Agreement P10; Exhibit B, Shareholders' Agreement P11; Exhibit C, Contract of Commercial Representation P8 (emphasis added).

 Samitri agrues that its claims of fraud in the inducement are not based upon matter within the 1974 Agreements, but rather on matters outside those agreements. Therefore, relying on In re Kinoshita & Co., 287 F.2d 951 (2d Cir. 1961), and Michele Amoruso E Figli v. Fisheries Development Corp., 499 F. Supp. 1074 (S.D.N.Y. 1980), Samitri contends that because its claims do not "arise or occur under" the agreements, even though they may "relate" to the agreements, the claims are not arbitrable. *fn7" The Court disagrees.Although ...


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