Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Oriental Republic of Uruguay v. Chemical Overseas Holdings

January 24, 2006

ORIENTAL REPUBLIC OF URUGUAY, ET AL., PLAINTIFFS,
v.
CHEMICAL OVERSEAS HOLDINGS, INC., ET AL., DEFENDANTS.
CHEMICAL OVERSEAS HOLDINGS, INC., ET AL., PETITIONERS,
v.
REPUBLICA ORIENTAL DEL URUGUAY, ET AL., RESPONDENTS.



The opinion of the court was delivered by: William H. Pauley III, District Judge:

MEMORANDUM AND ORDER

None of the parties in these two related actions believes that this Court is the appropriate forum in which to adjudicate their dispute. Four defendants in the first-filed action, No. 05 Civ. 6151 (WHP) (the "Fraud Action"), move to compel arbitration pursuant to section 206 of the Federal Arbitration Act ("FAA") and seek a stay. In the subsequently filed action, No. 05 Civ. 6154 (WHP) (the "Arbitration Action"), those same parties petition for an order compelling arbitration of Plaintiffs' claims in both the Fraud Action and a separate proceeding in Uruguay.*fn1 In turn, Plaintiffs -- the Oriental Republic of Uruguay (the "RoU"), Banco Comercial S.A. ("Banco Comercial") and Banco Comercial S.A. Fund for the Recovery of Banking Assets (the "Fund") -- move to remand the Fraud Action to New York State court in the event that this Court denies Defendants' applications to compel arbitration.*fn2

All three motions concern the intersection between the parties' obligation to arbitrate disputes "arising out of or in connection with" a written agreement, Plaintiffs' claims regarding events that pre-date the agreement, and the agreement's release provision that potentially disposes of Plaintiffs' claims. Defendants maintain that any dispute requiring construction of the release must be submitted to arbitration. Plaintiffs maintain that the release expressly excludes their claims and that there are no genuine disputes meriting arbitration. The two sides agree only that the agreement to arbitrate is valid and binding on them.

Given the broad language of the arbitration agreement, the parties' single point of concurrence requires that the very question of arbitrability be decided in arbitration and not by this Court. For the reasons that follow, this Court grants Defendants' motion and Petition to compel arbitration, grants Defendants' motion to stay the Fraud Action and denies Plaintiffs' motion to remand.

BACKGROUND

Until 2002, Banco Comercial was the oldest and largest private commercial bank in Uruguay. (Complaint, dated Dec. 9, 2005 ("Compl.") ¶ 9; Declaration of Louis B. Kimmelman, Esq., dated July 6, 2005 ("Kimmelman Decl.") ¶ 6.)*fn3 Chemical, Credit Suisse and Dresdner (together, the "Shareholders") were shareholders of Banco Comercial. (Compl. ¶¶ 10-13; Kimmelman Decl. ¶ 6.) Mulford, O'Neill and Sommer (collectively, the "Directors") were employees of the Shareholders who served on Banco Comercial's board of directors. (Compl. ¶¶ 14-16; Kimmelman Decl. ¶ 6.)

In early 2002, Banco Comercial teetered on the verge of financial collapse, in part due to a series of allegedly sham transactions designed to camouflage massive investment losses in Argentina. (Compl. ¶¶ 38-40; see Kimmelman Decl. ¶ 7.) Uruguay's economy depended on Banco Comercial's continued solvency and the RoU feared a crippling run on the bank's assets. While Plaintiffs now claim that the Shareholders and the Directors are liable for failing to oversee management or impose internal controls (Compl. ¶¶ 45-49), the RoU approached those Shareholders for additional capital in 2002. (Kimmelman Decl. ¶ 8.)

I. The Agreement

On February 26, 2002, the Shareholders entered into a Subscription and Investor

Rights Agreement (the "Agreement") with Banco Comercial and the RoU. (Kimmelman Decl. Ex. A ("Agmt.").) Each of the three Shareholders agreed to invest an additional $33,333,333 in Banco Comercial. (Agmt. § 2(a)(i).) In return, the RoU promised to maintain Banco Comercial in sound financial condition and provide all necessary liquidity for eleven years. (Agmt. § 6(b)(i).) In the event that the RoU determined that it was "unreasonable" to continue to sustain Banco Comercial, the Shareholders had the right to sell their new investments to the RoU for the return of their capital contribution. (Agmt. § 6(b)(ii).) The RoU and Banco Commercial also agreed to irrevocably and unconditionally release[] and forever discharge[] . . . each Investor, and its respective Affiliates, officers, Investor Directors, agents, employees, predecessors and successors (collectively, the "Investor Parties") from any and all Losses arising out of or related to any action or inaction, or alleged action or inaction, of any Investor Party prior to the date hereof in respect of [Banco Comercial] . . . except in respect of intentional misconduct by such Investor Party. (the "Release"). (Agmt. § 10(a).)

The Agreement also contains a broad arbitration clause (the "Arbitration Clause") that provides that "[a]ny disagreement or dispute ("Dispute") between one or more Parties . . . arising out of or in connection with this Agreement shall be finally settled under the Rules of Arbitration of the [International Chamber of Commerce ("ICC")]" by arbitration in New York. (Agmt. § 11(b)(i).) Each party covenanted that arbitration will be "the exclusive method for resolving any Dispute and . . . that it will not commence an action or proceeding based on a Dispute" except in aid of arbitration or if the arbitration clause is adjudged unenforceable. (Agmt. § 11(b)(i)(F).)

II. Disputes Over Obligations in the Agreement

Banco Comercial's financial condition continued to deteriorate even after it received the Shareholders' infusion of additional capital. In August 2002, the RoU decided to cease Banco Comercial's operations, effective at year's end. (Kimmelman Decl. ¶ 21.) The Shareholders then sought to exercise their right to sell their supplemental investments but the RoU refused to purchase them. (Kimmelman Decl. ¶ 22.) In January 2003, the Shareholders commenced an arbitration proceeding in New York against the RoU claiming that it breached the Agreement. (Kimmelman Decl. ¶ 23.) The RoU did not protest the propriety of arbitration as a means to resolve that dispute. On December 31, 2004, the ICC International Court of Arbitration ("ICA") issued an award in favor of the Shareholders for $100 million plus interest and costs. (Kimmelman Decl. Ex. B.) The award was confirmed in its entirety in a ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.