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ORE & CHEM. CORP. v. STINNES INTEROIL

April 23, 1985

THE ORE & CHEMICAL CORPORATION, Petitioner, against STINNES INTEROIL, INC. and SERGEANT OIL & GAS CO., INC., Respondents


The opinion of the court was delivered by: EDELSTEIN

OPINION AND ORDER

EDELSTEIN, District Judge:

The Ore & Chemical Corporation ("OCC") has petitioned this court to compel consolidated arbitration and to appoint arbitrators. Petitioners contend that this court has jurisdiction over the petition, pursuant to 9 U.S.C. § 4 and this court's diversity jurisdiction, 28 U.S.C. § 1332. Respondents Stinnes Interoil, Inc. ("Stinnes") and Sergeant Oil & Gas Co., Inc. ("SOG") contend that the petition should be dismissed because the court lacks the power to compel consolidated arbitration under 9 U.S.C. § 4, and that, in any event, consolidation is not warranted in this case. Because the court agrees with respondents, the petition to compel consolidated arbitration is denied.

 FACTUAL BACKGROUND

 For the purposes of this motion, the facts as stated in the petition and in plaintiff's supporting papers are taken as true. OCC is a trader of commodities, including petroleum products. On January 15, 1984, OCC purchased 220,000 barrels of gas oil, plus/minus ten per cent buyer's option, from SOG. The contract provided for delivery at Trinidad during the period February 5 through 10 (the "lifting period") and that OCC was to nominate a vessel to receive the gas oil. The initial OCC - SOG sales agreement did not contain an arbitration clause.

 On January 20, 1984, OCC entered into a contract, through a broker, with Stinnes for the sale of the 220,000 barrels of gas oil for delivery during the same "lifting period." The contrast was confirmed by a telex from the broker, which provided: "Laws of the State of New York to govern with arbitration in New York." Stinnes also agreed to provide a vessel to load the gas oil, the Tanja Jacobs.

 Stinnes's vessel arrived on February 11, 1985, outside the lifting period. OCC contends that SOG did not make the oil available at this point. Stinnes, taking the position that OCC had breached the contract because it could not produce the contractual amount of the gas oil, sold the cargo for account of OCC in a fallen market, obtaining $1.2 million less than OCC was to have received under the contract. OCC contends that either Stinnes or SOG is liable to it for $1.2 million. If OCC did not breach the OCC-Stinnes contract, then Stinnes is liable to it. If, on the other hand, there was a breach of the OCC-Stinnes contract, OCC contends that SOG is liable to it, because any breach was caused by SOG's failure to make the gas oil available as it was obligated to do under the SOG-OCC contract.

 In the weeks following the lifting period, SOG negotiated with OCC for payment under the original sales agreement. On March 5, 1985, the parties entered into an agreement which provided, inter alia, "Laws of the State of New York to Apply with Arbitration in New York."

 OCC made demands for arbitration under the two contracts. Both Stinnes and SOG have agreed to arbitrate in New York, but they will not agree to consolidated arbitration.

 DISCUSSION

 OCC contends that the court should consolidate arbitration because common issues of law and fact between the three parties "predominate" in this action and that OCC would be prejudiced by having to be arbitrate separately with SOG and Stinnes, in that it would be subject to the risk of inconsistent verdicts. The Federal Arbitration Act, 9 U.S.C. § 4, provides in pertinent part:

 
A party aggrieved by the alleged failure, neglect or refusal or another to arbitrate under a written agreement for arbitration may petition any United States district court . . . for an order directing that such arbitration proceed in the manner provided for in such agreement. . . . The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.

 In Compania Espanola de Pet., S.A. v. Nereus Shipping, S.A., 527 F.2d 966 (2d Cir. 1975), cert. denied, 426 U.S. 936, 49 L. Ed. 2d 387, 96 S. Ct. 2650 (1976), the Court of Appeals for the Second Circuit held that "the liberal purposes of the Federal Arbitration Act clearly require that this act be interpreted so as to permit and even to encourage consolidation of arbitration proceedings in proper cases." Id. at 936. Since the Nereus decision, courts in this circuit "have frequently ordered consolidated arbitration proceedings when the 'interests of justice' so required either because the issues in dispute are substantially the same and/or because a substantial right might be prejudiced if separate arbitration proceedings are conducted." Matter of CzarnikowRionda Co., Inc., 512 F. Supp. 1308, 1309 (S.D.N.Y. 1981).

 Respondents urge this court to reject Nereus on the ground that it is no longer good law. The general rule is that a federal district court is bound by the rule of the circuit. United States v. Posner, 549 F. Supp. 475, 476-77 n.1. (S.D.N.Y. 1982); Bolf v. Berklich, 401 F. Supp. 74, 76 (D. Minn. 1975). A district court, however, should not rely on older precedents that have been rejected in later decisions. C.D.R. Enterprises, Ltd. v. Board of Educ. of City of New York, 412 F. Supp. 1164, 1170 (S.D.N.Y. 1976), aff'd, sub nom., Lefkowitz v. C.D.R. Enterprises, Ltd., 429 U.S. 1031, 50 L. Ed. 2d 742, 97 S. Ct. 721 (1977). The Nereus decision has been rejected by a district court and Court of Appeals for the Ninth Circuit, Weyerhaeuser Co. v. Western Seas Shipping Co., 568 F. Supp. 1220 (N.D. Cal. 1983), aff'd, 743 F.2d 635 (9th Cir.), cert. denied, 469 U.S. 1061, 105 S. Ct. 544, 83 L. Ed. 2d 431 (1984), and is contrary to recent Supreme Court pronouncements on the scope of the Federal Arbitration Act, see, e.g., Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 105 S. CT. 1238, 84 L. Ed. 2d 158 (Sup. Ct. 1985). Accordingly, this court opines that if the ...


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