UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
September 11, 1985
DEVELOPMENT BANK OF THE PHILIPPINES, Plaintiff, against CHEMTEX FIBERS INC. Defendant.
The opinion of the court was delivered by: WEINFELD
EDWARD WEINFELD, D.J.
Plaintiff, the Development Bank of the Philippines ("DBP"), was the guarantor of loans made by defendant Chemtex Fibers Inc. ("Chemtex") to American Philippine Fiber Industries Inc. ("APFI"). Chemtex, an American corporation incorporated in New York, is engaged in the business of rendering technical and engineering services, including the design of plants and machinery for the manufacture of synthetic fibers. APFI, a corporation organized under the laws of the Republic of the Philippines, with its principal place of business in Manila, contracted with Chemtex in 1976 for assistance in dismantling a used synthetic fiber plant in Virginia for reassembly and operation in the Philippines. Chemtex also agreed to provide financing for the project through disbursements up to $5.1 million, receiving in exchange promissory notes from apfi guaranteed in turn by DBP as guarantor.
DBP alleges in this action that Chemtex submitted false accounts of the disbursements made by it on APFI's behalf, and seeks to recover moneys paid to Chemtex in excess of the amounts it actually disbursed under theories of fraud and unjust enrichment. In addition, DBP alleges a civil violation of the Racketeer Influenced and Corrupt Organizations Act (RICO),
predicated upon Chemtex's alleged fraudulent use of the mails and international telephone and telex facilities. Chemtex moves, under the arbitration clause contained in the Loan Agreement, for a stay of proceedings in this Court, and an order compelling the parties to arbitrate their differences, which DBP opposes.
At the outset, DBP claims that it, as the guarantor, was not a party to the contract, and that the arbitration clause is not applicable to it.
This construction of the contract is without substance. While the agreement is in form a loan agreement between the lender, Chemtex, and the borrower, APFI, the guarantor, DBP, is a signatory and a party to the agreement. DBP in addition, along with the other parties, initialled every page, including the page containing the arbitration clause. The provision for giving notice to parties to the contract lists the guarantor, and gives DBP's address.
DBP relies for its position on the decision of our Court of Appeals in Interocean Shipping Co. v. National Shipping & Trading Corp.4 This reliance is misplaced. In Interocean Shipping, the Court of Appeals held that a guarantor not a signatory to a charter party was not bound by the arbitration clause in that agreement. The guarantee was embodied in a separate document, which did not incorporate the terms of the charter party. The situation in this case is entirely different; DBP is a signatory to the agreement containing the arbitration clause. The attempt by DBP, as the guarantor, to remove itself from the contract is contradicted by the document. As a party to the agreement, its claims against any other party are covered by the arbitration clause.
DBP further argues that its RICO claim is not subject to arbitration under the Federal Arbitration Act. DBP relies for this proposition upon the decision in S.A. Minercao da Trinidade-Samitri v. Utah International Inc.5 In Samitri, the Court analogized RICO claims to anti-trust claims, which courts have long held not to be subject to arbitration.
The Court in Samitri reasoned that RICO, like the Sherman Act, involves substantial public and community interests, the safeguarding of which Congress did not intend to leave in the hands of arbitrators. For this reason, the Court held, claims under RICO do not fall within the strong preference for arbitration over litigation established by the Federal Arbitration Act.
Samitri is substantially weakened by the recent decision of the Supreme Court in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.8 In Mitsubishi, the Supreme Court rejected the rule in American Safety where the antitrust claims sought to be litigated arose in an international commercial setting. In such a context, the Court held, "concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the needs of the international commercial system for predictability in the resolution of disputes require that we enforce the parties agreement, even assuming that a contrary result would be forthcoming in a domestic context."
This case, like Mitsubishi, arises in the context of international commerce; the desire for certainty and predictability in international commercial transactions is as compelling here as it was for the Supreme Court in Mitsubishi ; the interest of the domestic community in the enforcement of the federal anti-rackeetering statute in these circumstances is certainly no stronger that the interest in the enforcement of American antitrust principles found wanting in Mitsubishi, and is indeed arguably a great deal less strong.
The Supreme Court has in recent cases repeatedly stressed that the Federal Arbitration Act establishes a strong preference for arbitration, which is to be given presumptive effect in doubtful cases.
This preference for arbitration is strengthened in the international context.
In view of the recent guidance provided by the Supreme Court in Mitsubishi, and taking into account the preference for arbitration in the international commercial context established by the prior decisions, this Court is satisfied that plaintiff's RICO claims are arbitrable under the clause contained in the loan agreement.
Accordingly, proceedings in the present action are stayed pending the completion of arbitration, and the parties are hereby ordered to proceed to the arbitration of plaintiff's claims under the loan agreement.