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WHIRLPOOL CORP. v. PHILIPS ELECS.

April 1, 1994

In the Matter of the Arbitration - between - WHIRLPOOL CORPORATION, Petitioner,
v.
PHILIPS ELECTRONICS, N.V., Respondent.


SWEET


The opinion of the court was delivered by: ROBERT W. SWEET

Sweet, D. J.

 Plaintiff Whirlpool Corporation ("Whirlpool") has moved for an order confirming a foreign arbitral award pursuant to 9 U.S.C. § 207. Defendant Philips Electronics N.V. ("Philips") has moved for an order dismissing or, in the alternative, staying this action pending arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1-14, 201-208.

 For the reasons set forth below, Whirlpool's motion for an order confirming a foreign arbitral award is granted. Philips' motion to dismiss or stay this action is denied.

 The Parties

 Whirlpool is a corporation duly incorporated under the laws of Delaware. Whirlpool manufactures and sells major domestic appliances ("MDAs") *fn1" and related components in various countries throughout the world. Whirlpool's principal offices are in Benton Harbor, Michigan.

 Philips is a corporation duly incorporated under the laws of the Netherlands. Philips is the parent corporation of a number of multinational companies which manufacture and sell numerous products, including: consumer electronics, medical diagnostic imaging equipment, lighting products and domestic appliances. Its principal place of business is in the Netherlands.

 Prior Proceedings and Facts

 Whirlpool and Philips formed a joint venture pursuant to the terms of the Reorganization and Purchase Agreement (the "RPA") which was entered into on August 18, 1988. Under the RPA, Whirlpool acquired a controlling interest in certain of Philips' operations which included, among others, the European and Asian MDA operations. The RPA also gave Whirlpool the option *fn2" to acquire additional operations in other locations (the "Optioned Operations"), including the subject of this action -- Philips' Argentine MDA Optioned Operation. See RPA § 7.5.

 A few months later, on January 2, 1989, Whirlpool and Philips entered into Amendment No. 1 of the RPA. Among other provisions, Amendment No. 1 specifically revised § 7.5 of the RPA which provides for the Whirlpool's right to acquire Philips' MDA Operation in Argentina. Pursuant to Amendment No. 1, the Argentine operations were to be acquired by Whirlpool as soon as Philips resolved certain tax questions with the Argentine government, but no later than January 1, 1992. Amendment No. 1 specifically provides that "Philips shall contribute to the JVC as soon as practicable after final decision by the relevant government authorities in Argentina concerning the tax preferences mention in Section 7.5(b), but no later than January 1, 1992, the MDA Operations located in Argentina . . . ." RPA Amendment No. 1 at 2.

 This transfer was entered into on January 7, 1992, pursuant to the "Sagad/Sofigad Contribution Agreement" (the "Contribution Agreement") between Whirlpool and Philips. Both Amendment No. 1 and the Contribution Agreement extended the principles of the RPA. *fn3" In addition, both Amendment No. 1 and the Contribution Agreement specify that the level of assets shown on the Argentine closing financial statements would determine whether Philips would have to pay Whirlpool (in the event the debt to equity ratio reflected on the balance sheet was above 50:50), or whether Whirlpool would have to compensate Philips (if the ratio was below 50:50). Amendment No. 1 at 3-4; Contribution Agreement at 7.

 Dispute Resolution Under the RPA

 The RPA contains two provisions concerning the resolution of disputes, § 4.4 and § 13.6. Section 4.4 of the RPA provides the following resolution procedure for disputes concerning financial statements:

 RPA § 4.4 at 23.

 The second dispute resolution provision in the RPA, § 13.6, provides that disputes, "other than disputes referred to in Section 4.4," first shall be settled by negotiations between the parties, and in the event an amicable settlement is not consummated, then the dispute shall be "submitted for decision and final resolution to arbitration to the exclusion of any courts of law, under the rules of Conciliation and Arbitration of the International Chamber of Commerce." RPA § 13.6 at 81.

 The Dispute Over the Argentine Contribution

 In conjunction with the transfer to Whirlpool of the Argentine assets and pursuant to § 3 of the Contribution Agreement, Philips delivered to Whirlpool certain financial statements concerning Argentina. Whirlpool's accountants, Ernst & Young, challenged certain accounting methods used in these statements. Whirlpool notified Philips on April 22, 1992 that it believed the financial statements provided by Philips had not been computed in accordance with the Contribution Agreement. Whirlpool listed 13 matters, all but one of which have been resolved.

 The unresolved matter, which is, of course, the subject of this action, concerns Philips' revaluation of the equity in the transferred Argentine operations. Philips, applying "current cost accounting," revalued its fixed assets annually to reflect their alleged current values. *fn4"

 Originally, the revaluation of fixed assets for the Argentine operation was to have been governed under what was known as "Schedule G (Argentina)," a document which was appended to the Contribution Agreement. Philips refused to sign this document at the time of the signing of the Contribution Agreement stating that: "As is noted in the definition paragraph of the Argentine Contribution Agreement ("PHILIPS Accounting policies"), it was contemplated to add an amended Schedule G to the contract on Argentina. However, presumably because of the type of arrangement covered in the Agreement itself, this idea was dropped by the lines somehow and not really pursued in the discussions." Pl.'s Ex. J, Philips' Mem. of Nov. 12, 1992 at 3.

 Whirlpool contends that by default the RPA required Philips to revalue the Argentine in accordance with the relevant provisions of Schedule G of the RPA:

 
Fixed Assets. Normal revaluation procedures will be followed in the various countries in which the Dedicated Operations are conducted, but the resulting changes in net book value as of December 31, 1988 when compared with January 1, 1988 will not, in percentage terms, exceed the official exchange rate fluctuation of the applicable local currency between January 1, 1988 and December 31, 1988 as compared with the Dutch Florin.

 RPA, Schedule G at 1-2.

 Philips, in turn, argues that it is inappropriate to apply Schedule G of the RPA (which concerns currency changes in 1988) for the entire three year period reflected in the 1991 Argentine financial statements. Philips bolsters its argument that the Schedule G in the RPA is inapplicable by noting that ...


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