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MARATHON PETROLEUM SUPPLY v. SHIPPING

June 27, 1990

MARATHON INTERNATIONAL PETROLEUM SUPPLY CO., PLAINTIFF,
v.
I.T.I. SHIPPING, S.A., IN PERSONAM, M/T RUTH M, HER ENGINES, TACKLE, APPAREL, ETC., IN REM, AND SAYBOLT DE MEXICO, S.A., IN PERSONAM, DEFENDANTS. I.T.I. SHIPPING, S.A., AND SAYBOLT DE MEXICO, S.A., IN PERSONAM, DEFENDANTS AND THIRD-PARTY PLAINTIFFS, V. PETROLEOS MEXICANOS, THIRD-PARTY DEFENDANT.



The opinion of the court was delivered by: Sweet, District Judge.

OPINION

Defendant I.T.I. Shipping, S.A. ("I.T.I.") moves for reargument of this court's dismissal of its third-party complaint against Petroleos Mexicanos ("Pemex") under the Foreign Sovereign Immunities Act of 1976 ("FSIA"), Title 28 U.S.C. § 1605(a)(2) and, in the alternative, for an order dismissing the complaint of plaintiff Marathon International Petroleum Supply Company ("Marathon") under Rule 19 of the Federal Rules of Civil Procedure and for an extension of its time to appeal. For the reasons set forth below the motions to reargue and to dismiss for want of an indispensable party are denied and the motion for an extension of time to appeal is granted.

Prior Proceedings

The facts and proceedings of this case are set forth in detail in the January 16, 1990 opinion (the "opinion"), familiarity with which is assumed. 728 F. Supp. 1027. Oral argument was heard on the reargument on February 16, 1990 and on the Rule 19 motion on March 9, 1990. The motions were considered submitted as of the latter date. On February 22, 1990 I.T.I. filed a motion for an extension of time in which to file a Notice of Appeal pursuant to Rule 4(a), (5) of the Federal Rules of Appellate Procedure and on March 5, Pemex filed an opposition to that motion. This motion is also considered submitted as of March 9, 1990.

Reargument of Direct Effect Under the FSIA

I.T.I. moves for reargument on the basis that the court overlooked relevant case law when in fact I.T.I. has abandoned its original theory of jurisdiction and has recast its entire argument to try now another method for obtaining jurisdiction. I.T.I. has dropped its initial claim that the court must evaluate I.T.I.'s jurisdiction in light of Rule 14(c) and thus Marathon's jurisdiction to adjudicate and now contends that I.T.I. has jurisdiction to adjudicate because of the "direct financial loss" I.T.I. will suffer by dint of its having to engage in litigation and risk potential monetary exposure in the United States. Notwithstanding the impropriety of using reargument to switch one's theory of the case, I.T.I.'s new assertion is equally unpersuasive.

  I.T.I.'s position that the activity of a foreign sovereign
which caused "foreseeable financial consequences" lends
jurisdiction is based on the reversed lower court decision in
International Housing Ltd. v. Rafidain Bank Iraq, 712 F. Supp. 1112
 (S.D.N. Y. 1989), rev'd, 893 F.2d 8 (2d Cir. 1989). Not
only was the latest circuit opinion brought to the parties'
attention and relied upon in the January opinion, but when
applied to I.T.I.'s recast theory, it effectively bars I.T.I.'s
claim. See International Housing, 893 F.2d at 11 (a financial
injury to a foreign corporation does not constitute a direct
effect in the United States when losses in the underlying
transaction occurred elsewhere and method of transaction
incidental to United States interests).

I.T.I. in its reply memorandum now concedes that whether the plaintiff is a foreign corporation is relevant to whether the financial loss constitutes a direct effect in the United States but concludes, contrary to the facts here, that the facts of International Housing did not allow for a finding of a direct financial loss. I.T.I.'s presence in an American court, however, is only a by-product of the underlying dispute over the commercial activity and thus is, at best, an indirect result of commercial activities conducted outside of the United States. As in International Housing, the foreign corporation's loss occurred outside of the United States, and thus there is no direct financial loss to the foreign corporation in the United States. International Housing, 893 F.2d at 11.

Furthermore, jurisdiction to adjudicate cannot hinge on Marathon's choice of forum in which to pursue I.T.I. If it did the meaning of "direct effect" as a test of jurisdiction to adjudicate would be dependent on the pure fortuity of where the plaintiff, in this case Marathon, chose to sue the defendant/third-party plaintiff, I.T.I. I.T.I.'s assertion that monetary exposure resulting from litigation confers jurisdiction could be used by any foreign corporation defending a suit in the United States and thus would reduce the "direct effect" test to a tautology.

Finally, I.T.I. challenges the court's reliance on the arbitration clause through which Marathon "contracted away" recourse to an American court. I.T.I. concludes that because one clause of the contract says "may arbitrate" that the contract is optional and thereby relies on its Rule 14(c) bootstrapping argument that Marathon's jurisdiction would confer jurisdiction upon I.T.I. Not only does I.T.I. omit the very next paragraph which states that the parties shall arbitrate unless they expressly agree otherwise, but the Second Circuit has precluded this argument by holding that similar language is indeed mandatory and the exclusive remedy provided for in the agreement. See Local 771, I.A.T.S.E. v. RKO General, Inc. WOR Div., 546 F.2d 1107, 1116 (2d Cir. 1977).

The motion for reargument is denied.

Rule 19

Absent jurisdiction to adjudicate over Pemex, I.T.I. contends that the entire action should be dismissed under Rule 19 of the Federal Rules of Civil Procedure because Pemex's absence will preclude complete relief amongst the parties and I.T.I. will thereby be prejudiced in that it will be unable to seek indemnity or contribution in this action from the allegedly "principal tortfeasor and/or party at fault, Pemex" without retrying the action against Pemex in Mexico at great expense and waste of judicial economy.

Rule 19 of the Federal Rules of Civil Procedure provides for compulsory joinder of parties who are needed for just adjudication. Rule 19 entails a two-step inquiry. Rule 19(a) sets forth the standards for ...


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