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Glencore Ltd v. Degussa Engineered Carbons L.P.

January 24, 2012

GLENCORE LTD.,
PETITIONER,
v.
DEGUSSA ENGINEERED CARBONS L.P., A/K/A EVONIK CARBON BLACK L.L.C.,
AND HDI-GERLING AMERICA INSURANCE COMPANY,
RESPONDENTS.



The opinion of the court was delivered by: Paul A. Engelmayer, District Judge:

OPINION & ORDER

This decision resolves a motion to compel arbitration. The Court holds that the dispute between Petitioner Glencore Ltd. ("Glencore") and Respondent Degussa Engineered Carbons L.P. a/k/a Evonik Carbon Black L.L.C. ("Evonik"), and Evonik's insurer, HDI-Gerling America Insurance Co. ("HDI"), is subject to a binding arbitration provision enforceable under the standards set out in Chapter 2 of the Federal Arbitration Act, 9 U.S.C. §§ 201--208. The Court further holds that it has personal jurisdiction over Evonik. The Court therefore grants Glencore's petition to compel arbitration.

I.Background*fn1

A.Evonik's Claims Against Glencore

Evonik owns and operates chemical plants in Orange, Texas, and Ivanhoe, Louisiana, where carbon black is made. On various occasions during the first three quarters of 2010, Glencore delivered, by barge, No. 6 feedstock oil to an Evonik plant. Evonik paid for those shipments of oil. These fuel deliveries and payments were made pursuant to quarterly agreements between representatives of Glencore and Evonik, governing such terms as the quantity, quality, delivery site, and test specifications of the oil. The parties' extensive written communications with each other (all by email) that bear on these agreements are chronicled, as relevant, later in this opinion.

On March 28, 2011, Evonik sued Glencore in the 163rd Judicial District Court of Orange County, Texas. Evonik asserted claims as to four of these shipments -- three during the first quarter of 2010 and one during the third.*fn2 Evonik claimed that the oil shipped by Glencore did not meet the specifications to which the parties had agreed. Evonik further claimed that this caused more than $3 million worth of damage to its equipment. The same day, Evonik's insurer, HDI, filed a suit against Glencore in the same court, making nearly identical claims. Evonik and HDI's claims are for breach of warranty, fraud, negligent misrepresentation, and product liability.

On March 30, 2011, and April 1, 2011, Glencore removed the two actions to United States District Court in the Eastern District of Texas. On April 29, 2011, Evonik and HDI moved to remand the actions to Texas state court. By orders dated June 13, 2011, and August 2, 2011, the district court remanded the actions to Texas state court. On August 18, 2011, Glencore filed answers to the two petitions.

On September 19, 2011, Glencore made a written demand for arbitration upon Evonik and HDI. To this demand, Glencore attached the portion of its "General Terms and Conditions" ("GTCs") requiring that any claims arising out of, or relating to, the parties' contracts be settled by arbitration. Glencore asserted that the GTCs bound Evonik, because the GTCs had been expressly incorporated by reference in the parties' various written contracts pursuant to which Glencore had made the feedstock oil deliveries in dispute.

The relevant excerpt of Glencore's GTCs, contained in Paragraph 11, provides:

11. LAWS AND ARBITRATION

This contract shall be governed by and construed in accordance with the laws of the State of New York, USA, and any claim or controversy arising out of, or relating to this contract or breach thereof shall be settled by arbitration, and subject to the rules of the American Arbitration Association ["AAA"], in the City of New York, by a panel of three arbitrators, one chosen by each party and the third nominated by the two arbitrators so chosen. The decision of the three arbitrators, or two of the three arbitrators[,] shall be final and binding on both parties. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction.

The arbitrators shall award to the prevailing party, as determined by the arbitrators, all of its costs and fees, administrative fees, travel expenses, out of pocket expenses such as copying and telephone, court costs, witness fees and attorneys fees.

The remedies set forth in this contract are in addition to any and all remedies provided by the Uniform Commercial Code and applicable law.

Also on September 19, 2011, Glencore filed a demand with the AAA, asking AAA to initiate administration of the arbitration. Glencore sought declaratory relief that it was not liable for the claims Evonik and HDI had brought. Glencore also sought reimbursement for attorneys' fees and related costs in the Texas litigation.

On September 29, 2011, Evonik, through counsel, declined Glencore's "recent invitation to arbitrate." Evonik denied that there was a binding arbitration agreement between the parties. On October 6, 2011, HDI told Glencore that it, too, declined arbitration. HDI explained that it believed "that [HDI's] claims and Evonik's claims should be resolved in the same forum."

B. Glencore's Petition to Compel Arbitration

On October 11, 2011, Glencore filed a petition in this Court to compel arbitration, in New York City, in accordance with the GTCs. Glencore asserted that the GTCs, including the arbitral provision, had been incorporated into its written sales contracts with Evonik, including the two contracts pursuant to which the fuel shipments in dispute had been made. These were (1) a sales contract dated December 22, 2009 (as later amended), which Glencore asserted governed the first quarter shipments; and (2) a separate sales contract dated July 2, 2010 (with an amendment also dated July 2, 2010), which Glencore asserted governed the third-quarter shipments.

On November 2, 2011, Evonik filed a motion to dismiss the petition. Evonik disputed that it was bound by the GTCs. It argued, in essence, that its agreement with Glencore had been complete before Glencore furnished it with the GTCs, and that it had not explicitly or implicitly adopted them. Under these circumstances, Evonik argued, any term within the GTCs could become part of the parties' contract under the Uniform Commercial Code ("U.C.C.") only if that term or condition did not "materially alter" the contract. See Resp't's Mem. of Law 8, Nov. 1, 2011 (Dkt. 16) (citing TEX. BUS. & COM. CODE § 2.207(b)(2) (West 2011)). Evonik argued that the mandatory arbitration provision in Paragraph 11 of the GTCs is a material alteration. Evonik also claimed that the Court lacked personal jurisdiction over it.

On November 2, 2011, the Court held an initial conference. After extended colloquy about the contracting process between the parties, the Court directed the parties to submit various materials to assist it in resolving expeditiously whether Evonik (and derivatively HDI)*fn3 was bound by the arbitration provision. These were: (1) all documents, arranged chronologically, which either party deemed relevant to that issue; (2) a list of all facts deemed relevant by either party to whose accuracy the parties were prepared to stipulate; and (3) for each party, a list of the facts, if any, that it deemed relevant but to which its adversary could not stipulate. See Conf. Tr., Nov. 2, 2011, 45--53 (Dkt. 27); Order, Nov. 22, 2011 (Dkt. 33).

The Court also directed the parties to submit memoranda of law addressing whether the documentary record and stipulated facts demonstrated a binding agreement to arbitrate. The Court advised that it would determine whether summary judgment could be granted on the basis of these submissions. If not, a jury trial would be held. See Order, Nov. 3, 2011 (Dkt. 22).

On December 9, 2011, the parties' helpful submissions, pursuant to these orders, were fully submitted.*fn4

C. Agreements and Communications Between Glencore and Evonik

The events and communications between the parties surrounding Glencore's shipment of oil to Evonik during the first three quarters of 2010 -- as revealed by the parties' submissions -- were as follows.

1.Shipments for the first quarter of 2010

On November 30, 2009, Brian Saucier, Evonik's Vice President of Energy Management / NAFTA Inorganic Materials, emailed D. Coleman Conkling of Glencore. Saucier's email noted that Evonik's Ivanhoe, Louisiana and Orange, Texas, quarterly contract for the supply of carbon black feedstock oil was coming to an end. It invited Glencore to bid for that business for the first quarter of 2010. Saucier's email attached detailed test and property specifications for the oil, and asked that any bids be submitted by December 4, 2009. Saucier was responsible for purchasing such oil for Evonik. See Ex. 1; Joint Statement of Facts ¶¶ 12--13 ("JS").*fn5

On December 4, 2009, Conkling sent an email response to Saucier. Conkling offered to supply "CBFS" (carbon black feedstock oil) to Evonik at a stated price for each plant. See Ex. 2; JS ¶ 15.

On December 15, 2009, Saucier emailed Conkling, stating: "Coleman, After reviewing all offers and group discussions, we are pleased to award you supply deal for the 1st Q 2010. Look forward to continuing our business. Please have contract prepared accordingly." Ex. 3; JS ¶¶ 16--17.

On December 23, 2009, Glencore's Samantha O'Connell sent an email to Saucier attaching a document identified as Glencore's sales contract. The sales contract was dated December 22, 2009 ("the December 22 sales contract"). See Ex. 4; JS ¶¶ 18--21. The preamble to the December 22 sales contract states: "This sales contract confirms the agreement negotiated on Dec 17, 2009 between Evonik Degussa GmbH and Glencore Ltd regarding the sale of No. 6 Fuel Oil on the following terms and conditions." The preamble then sets out a contract number (2103063/62/61/59/58) and separate paragraphs identifying the buyer, seller, product, and quantity to be provided to the Orange, Texas and Ivanhoe, Louisiana plants. The ensuing paragraphs set out specifications as to quality (¶ 5), price (consistent with the earlier email exchange between Conkling and Saucier, ¶ 6), delivery (¶ 7), title and risk of loss (¶ 8), payment (¶ 9), and taxes (¶ 10). See id. ¶¶ 5--10.

Paragraph 11 to the December 22 sales contract, entitled, "all other terms," states: As Glencore is the selling party in this transaction, and as per standard industry practice, Glencore's contract along with Glencore Ltd's general terms and conditions dated October 2005 with amendments made in July 2008 and July 2009 shall govern the terms of this transaction. If any of the above is contrary to your understanding of our agreement, please respond immediately by fax with your specific points of disagreement (not a full contract) to seller's fax number indicated on this contract. Glencore Ltd. will not accept any notices sent to any other number and will not be responsible for any costs or liabilities resulting therefrom. In the event no such notification is received by the close of business on the next working day following the date of this contract, the provisions set forth in Glencore's contract shall be binding upon both parties without further modification or substitution.

Id. ¶ 11.

The December 22 sales contract attached separate specifications for the Ivanhoe, Louisiana, and Orange, Texas facilities. These matched the specifications that Saucier had supplied. Glencore did not attach a copy of its GTCs, to which paragraph 11 had referred.

On January 5, 2010, Saucier responded by email to O'Connell's December 23, 2009 email attaching the December 22 sales contract. He wrote: "We are still Degussa Engineered Carbons, LP . . . Can you change that so I can get PCG [parent company guarantee] in place?" Saucier did not otherwise note any changes to be made to -- or points of disagreements with -- the December 22 sales contract. See Ex. 4; JS ¶ 22.

Later on January 5, 2010, Crystal Kora of Glencore sent an email to Saucier, attaching an amended sales contract. The amended contract was identical to the December 22 sales contract, save that it changed the buyer's name on the contract (in ¶ 1) from "Evonik Degussa GmbH" to "Degussa Engineered Carbons, LP," as Saucier had requested. Ex. 5; JS ¶ 23.

On January 11, 2010, another Glencore employee, Vincent Ciardello, emailed Saucier, inquiring as to "the status of the pending PCG" and noting that the parent company's guarantee "needs to be in place before 1/13/10." Ex. 6; JS ¶ 24.

On January 12, 2010, following an exchange of emails (Exs. 7--8; JS ¶ 25), Evonik Industries AG, the German parent of Evonik ("the parent company"), sent an email to Glencore containing the parent company guarantee ("PCG"), dated as of January 1, 2010. The PCG referenced Glencore's December 22 sales contract (including by its contract number), repeatedly referred to that contract as "the AGREEMENT," and acknowledged that Glencore would deliver No. 6 fuel oil to its subsidiary during the first quarter pursuant to that agreement. In the PCG, Evonik Industries AG unconditionally guaranteed prompt payment to Glencore and stated that the guarantee would remain in force until April 15, 2009. The PCG also acknowledged that "CREDITOR [Glencore] and PURCHASER [Degussa Engineered Carbons] may mutually modify the AGREEMENT, and GUARANTOR [the parent company] acknowledges that such modification will not impair or affect GUARANTOR's obligation under this guaranty." Ex. 8; JS ¶¶ 26--27.

On January 21, 2010, Glencore's Kora sent an email to Saucier attaching an amended sales contract. The amended contract modified the document's price section. All other terms remained the same. Ex. 9; JS ¶¶ 28--30.

On January 21, 2010, Evonik's Saucier responded by email to Kora. He asked: "Can you also send me copy of terms and conditions?" Ex. 10; JS ¶ 10.

Also on January 21, 2010, approximately five minutes after Saucier sent his email, Kora responded by email to Saucier, attaching Glencore's current GTCs. She stated: "Below is a copy of our most current GTCs. Thank you." Ex. 10; JS ¶¶ 31--32.

Glencore's GTCs are an 11-page single-spaced document. Separate sections address such subjects as title and risk of loss, warranty, limitation of loss, payment, credit, marine provisions, security, force majeure, taxes, assignment, environmental and regulatory compliance, safety regulations, the effect, new and changed (legal) regulations, non-performance and liquidation, and confidentiality. See Ex. 10. The preface to the GTCs states that they are applicable to all contracts for Glencore products, including "crude oil, refinery feedstock, [and] refinery and refined petroleum products." Id. ¶ 1. The concluding section of the GTCs states that the GTCs and the other contract documents "constitute the parties' entire agreement with respect to the subject matter" and that there are "no oral understandings" between the parties. Id.

¶ 28. Paragraph 11 of the GTCs ("LAWS AND ARBITRATION"), providing that any claim or controversy arising out of the contract will be settled by arbitration and will be governed by New York law, is excerpted in full above.

The parties have stipulated that Saucier received Kora's email attaching Glencore's GTCs, and that Saucier did not object to the GTCs or any terms therein. JS ¶ 33.

Between February 16 and March 9, 2010, Glencore delivered shipments of No. 6 fuel oil to Evonik on at least three occasions: on February 16, 2010 (to the Orange, Texas plant); in March 2010 (to the same plant); and on March 9, 2010 (to the Ivanhoe, Louisiana plant). JS ΒΆΒΆ 36, 38--39. ...


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