of the Federal Arbitration Act clearly require that this act be interpreted so as to permit and even to encourage the consolidation of arbitration proceedings in proper cases, such as the one before us.
527 F.2d at 975 (emphasis added). Judge Medina first determined that Cepsa had agreed to arbitration and consolidation by signing an addendum requiring it to "'perform the balance of the contract' and to 'assume the rights and obligations of Hideca.'" 527 F.2d at 973.
He then affirmed the district court's finding that consolidation was proper because of the common questions of law and fact raised by the dispute, and the substantial danger of conflicting findings if arbitration was allowed to proceed. Id. at 974.
A majority of the cases in the Southern District have interpreted Compania Espanola to hold that consolidation of arbitrations is within a court's discretionary power even when an arbitration agreement is completely silent on the issue. For a summary of the factors used by court to invoke this power see Elmarina, Inc. v. Comexas, N.V., 679 F. Supp. 388, 390 (1988); see also Cable Belt Conveyors, Inc. v. Alumina Partners of Jamaica, 669 F. Supp. 577, 578 (S.D.N.Y. 1987); Sociedad Anonima de Navegacion Petrolera v. Cia de Petroleos de Chile, S.A., 634 F. Supp 805, 807 (S.D.N.Y 1986); Re Czarnikow-Rionda Co., 512 F. Supp. 1308, 1312 (S.D.N.Y. 1981); Antco Shipping Co. v. Sidermar, 417 F. Supp. 207, 219 (S.D.N.Y. 1975).
In Ore & Chemical Corp. v. Stinnes Interoil, Inc., 606 F. Supp. 1510 (S.D.N.Y. 1985), however, Judge Edelstein, in a well reasoned opinion, criticized the expansive holding of Compania Espanola, concluding that the Second Circuit would disavow Compania Espanola in light of the Supreme Court's decision in Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 105 S. Ct. 1238, 84 L. Ed. 2d 158 (1985), and the rationale of the Ninth Circuit in Weyerhaeuser Co. v. Western Seas Shipping Co., 743 F.2d 635, 637 (9th Cir. 1984). Judge Edelstein's reading of Dean Witter and Weyerhaeuser led him to conclude that: "the court can only compel arbitration if the arbitration agreements provided for consolidation." Ore, 606 F. Supp. at 1514 (S.D.N.Y. 1985).
He then referred the matter to arbitration stating that: "it is more efficient to let the arbitrators, [those] who will be deciding the merits of the matter, decide how the issues are to be adjudicated"). Ore, 606 F. Supp. at 1515.
In Dean Witter, the Supreme Court held that federal courts could not refuse to order arbitration of pendent law claims to a federal securities action even if the order resulted in a less efficient prosecution of the claims for the parties. The holding was based on the Supreme Court's analysis of the Arbitration Act's legislative intent:
We therefore are not persuaded by the argument that the conflict between the two goals of the Arbitration Act -- enforcement of private agreements and encouragement of efficient and speedy dispute resolution -- must be resolved in favor of the latter in order to realize the intent of the drafters. The preeminent concern of Congress in passing the act was to enforce private agreements to arbitrate, even if the result is "piecemeal" litigation, at least absent a countervailing policy manifested in another federal statute.
470 U.S. at 221, 105 S. Ct. at 1242-43 (emphasis added).
In Weyerhaeuser Company v. Western Shipping Co., 743 F.2d 635 (9th Cir.), reh., and reh. en bank denied (1984), cert. denied, 469 U.S. 1061, 105 S. Ct. 544, 83 L. Ed. 2d 431 (1984), the charterer of a vessel moved for an order to compel consolidation of two separate arbitrations -- one with the sub-charterer and the other with the shipowner. The charterer argued that in light of Compania Espanola the district court had erred in holding that it lacked the authority to order consolidation.
The Ninth Circuit affirmed the lower court and declined to follow Compania Espanola. The Court observed that, in relevant part, § 4 of the Arbitration Act limits a district court's authority to order consolidation: "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," Weyerhaeuser, 743 F.2d at 637. The Court underscored the well-settled principle that an agreement to arbitrate is a creature of contract and that parties may not be forced to arbitrate absent their agreement to do so. It then explained that the proper inquiry for a district court faced with a petition to consolidate is to determine whether an agreement exists and, if so, enforce it "'in accordance with its terms.'" Id. On the facts of the case, the court held that the district court lacked the power to order consolidation because the contract was silent on this point.
This Court is bound by Dean Witter's interpretation of Congress' legislative intent and is persuaded by the rationale expressed in Weyerhaeuser and Ore. The legislative history and wording of the Arbitration Act lead to the ineluctable conclusion that arbitration -- being a creature of contract law -- can only be ordered if the parties have agreed to arbitration, and then only in accordance with the terms of the agreement. A federal court faced with a motion to consolidate must determine whether an agreement to compel arbitration exists and, if so, must enforce it according to its terms.
Like Judge Edelstein, this Court believes that Rules 42(a) and 81(a)(3) do not authorize federal courts to order consolidation. As explained in Ore, Rules 42 and 81 apply to arbitration proceedings only to the extent that matters of procedure are not covered by the Arbitration Act. See 81(a)(3), Fed. R. Civ. P. Although Rule 42(a) provides for consolidation of actions involving common questions of law and fact, § 4 of the Arbitration Act forbids the enforcement of an arbitration agreement other than in accordance with its terms. Thus, absent an agreement to consolidate disputes, federal courts are powerless to compel consolidation. See generally Ore, 606 F. Supp. at 1513-14.
In determining whether to consolidate arbitrations, a court engages in a two-step process. First, the court must find that the parties have agreed to arbitrate. This is accomplished by recourse to general principles of contract and agency law. McAllister Bros., Inc. v. A & S Transp. Co., 621 F.2d 519, 524 (2d Cir. 1980). Second, a court must determine whether that agreement encompasses an agreement to consolidate arbitration claims either directly or by implication. An agreement to consolidate may be implied by: (1) the language of the arbitration clause, see McDonell Douglas Finance Corp. v. Pennsylvania Power & Light Co., 858 F.2d 825, 830 (2d Cir. 1988); (2) the amendments or addenda to the agreement, see Compania Espanola, 527 F.2d at 975; (3) the course of dealing between the parties, see Pervel Industries, Inc. v. T M Wallcovering, Inc., 871 F.2d 7, 8 (2d Cir. 1989); or (4) incorporation of rules that permit consolidation, see McDonell Douglas, 858 F.2d at 830.
This Court's conclusions are not contrary to the holding of Compania Espanola. In Compania Espanola, the Second Circuit properly concluded that the guarantor had agreed to consolidated arbitration because the guarantor signed an addendum to the original contract, agreeing not only to perform the underlying contract but to accept the rights and obligations of the guaranteed party in the original contract. Because common questions of law and fact permeated the dispute between the agent and charterer and agent and guarantor, the court not only had the power to consolidate but consolidation was, indeed, proper where there was an explicit incorporation of the rights and obligations, including the arbitration agreement, of the original contract.
By contrast, unlike Compania Espanola, the case at issue involves not one but two separate vertical charter agreements. There is no evidence that Coastal and Southern Petroleum agreed to or envisioned consolidated arbitration. Furthermore, there is no evidence that the sub-charter parties adopted, made reference to or engaged in any activity that could lead this Court to find that they are bound to the arbitration agreements between Coastal and Southern Petroleum. In fact the evidence is to the contrary. Although the factual and legal issues between Coastal and Southern Petroleum may seem similar at first glance, Southern Petroleum correctly points out that the perceived commonalities are non-existent: different issues will be raised by each of the sub-charter parties to the charter agreements. This will result in the filing of substantially different claims and counterclaims running up and down two independent charter agreements and involving dissimilar parties.
The absence of explicit language or other indicia that Coastal and Southern Petroleum intended to consolidate their disputes leads this Court to conclude that the parties did not consent to joint arbitration. This Court, therefore, does not have discretion to order consolidation but even if it did have such discretion, would decline to do so under the circumstances of the separate vertical charters. Coastal and Southern Petroleum are ordered to proceed with the independent arbitration of each claim.
Petitioner's motion to compel consolidated arbitration is DENIED. Coastal and Southern Petroleum are hereby ordered forthwith to appoint separate arbitrators to each dispute within ten (10) days of receipt of this order. The parties will keep the Court apprised of the progress of the arbitration proceedings by filing a status report every six (6) months. The first report is due on July 23, 1992.
Dated: New York, New York
February 1, 1993
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