were assigned to it. It argues that New York law applies because the case was removed on the basis of diversity of citizenship and that Hart did not assume the assignors' duty to arbitrate when it took the assignments.
Most fundamentally, Hart was not an assignee. It was the buyer on the Lu contracts. The six Lu contracts were executed with Henny Trading Co., Lustrade Limited, Hennyco Trading Ltd., and Henny Trading Ltd., all of Nicosia, Cyprus, as buyers. As noted, each was executed for the buyer, by Mr. Lu. Mr. Lu, whichever nom de commerce he happened to be using, was Hart's agent. Indeed, Hart's Mr. Haroutiounian on one occasion advised Anhui by letter that if he on occasion did not respond directly to its communications, "it is because I am speaking to Mr. Lu and when he speaks to you he speaks on behalf of me." In consequence, Hart is bound by the arbitration clauses in these six contracts because they were signed on its behalf by Hart's agent as distinguished from its assignor. The Court notes, however, that Hart's argument would be rejected for two reasons even if there were doubt concerning the principal-agent relationship.
First, Hart's premise that New York law applies is incorrect. The People's Republic of China and the United States (and, for that matter, Cyprus) are parties to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Convention"). Article II, Section 3, of the Convention requires courts of contracting States, when seized of an action in a matter in respect of which the parties have agreed to arbitration, to refer the parties to arbitration with exceptions not relevant here.
Section 206 of the Federal Arbitration Act, 9 U.S.C. § 206, implements the Convention in this respect. And the Supremacy Clause of the United States Constitution requires the conclusion that federal rather than New York law governs the question whether Hart is obliged to arbitrate its dispute with Anhui. E.g., Genesco, Inc. v. T. Kakiuchi & Co., Ltd, 815 F.2d 840, 845 (2d Cir. 1987); Coenen v. R.W. Pressprich & Co., 453 F.2d 1209, 1211 (2d Cir.), cert. denied, 406 U.S. 949, 32 L. Ed. 2d 337, 92 S. Ct. 2045 (1972); Filanto, S.p.A. v. Chilewich International Corp., 789 F. Supp. 1229, 1234-36 (S.D.N.Y. 1992), appeal dismissed, 984 F.2d 58 (2d Cir. 1993). Hart does not contend that it is not obligated under federal law to arbitrate, even assuming it is an assignee of the six contracts.
Second, and independently conclusive, is the fact that Hart misconstrues New York law. Even if Hart were an assignee of the Lu contracts, it would be bound to arbitrate if "it might be said to have assumed the duty of performance of the contract[s]." Matter of Kaufman v. William Iselin & Co., 272 A.D. 578, 74 N.Y.S.2d 23, 26 (1st Dep't 1947). This criterion is satisfied if Hart has taken any affirmative action under the assigned contracts to demonstrate an intent to assume their obligations. See BSI-Banca Della Svizzera Italiana v. Ensra Construction Corp., 194 A.D.2d 403, 598 N.Y.S.2d 515 (1st Dep't 1993); Matter of Keystone Shipping Co. v. Texport Oil Co., 782 F. Supp. 28, 31 (S.D.N.Y. 1992).
Hart here accepted not only the right to receive the goods contracted for by Mr. Lu's various companies, but assumed the obligation to pay for them and made at least some payments under the "assigned" contracts. It entered into a settlement agreement that sought to resolve disputes that arose under them. And it brought this lawsuit to enforce them. In consequence, even if Hart were correct in regarding the contracts as assigned and even if the issue were governed by New York rather than federal law, Hart nevertheless would be bound to arbitrate with respect to the six contracts.
Plaintiff argues that Lachmar v. Trunkline LNG Co., 753 F.2d 8 (2d Cir. 1985), is to the contrary. However, in Lachmar, the assignee was granted security interests in the assignor's rights but did not assume any obligations with respect to the contract.
4. Hart finally argues that remitting it to arbitration in Beijing would subject it to undue hardship. The short answer to the assertion is that Hart should have thought of that before it signed contracts specifying arbitration in Beijing in the event of a dispute.
Although the parties have not briefed the issue of remedy, the Court notes that there is some debate as to whether the appropriate disposition in these circumstances is a stay pending arbitration or a final judgment containing a direction to proceed to arbitration. E.g., Filanto, 789 F. Supp. at 1241-42. In view of the fact that no useful purpose would be served by a stay, the Court will enter a final judgment containing an appropriate injunction directing the parties to arbitrate in Beijing in accordance with the Convention and the contracts.
Settle judgment on five days notice.
Dated: June 12, 1995
Lewis A. Kaplan
United States District Judge