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The Rice Company v. Precious Flowers Ltd and the Government of Peru

June 5, 2012

THE RICE COMPANY,
PETITIONER,
v.
PRECIOUS FLOWERS LTD AND THE GOVERNMENT OF PERU,
RESPONDENTS.



The opinion of the court was delivered by: Jesse M. Furman, District Judge:

OPINION AND ORDER

This case relates to two arbitration proceedings arising out of a single shipment of wheat from Texas to Peru. In the first arbitration proceeding, Precious Flowers Limited ("Precious Flowers") seeks to recover money from The Rice Company ("TRC"). In the second, TRC seeks to recover from the Government of Peru ("Peru") any money it is required to pay Precious Flowers as a result of the first arbitration. Although all three parties have appeared in the arbitration proceedings, and the rules governing those proceedings call for consolidation of proceedings that "arise in substantial part from the same maritime transactions," Peru has thus far refused to consent to consolidation. In light of that refusal, TRC - the one party common to both arbitration proceedings - filed a petition in this Court seeking to compel consolidation.

Complicating matters, Peru has not appeared in this action; although TRC served its petition on the counsel that represents Peru in the second arbitration proceeding, that counsel maintains that it is not authorized by Peru to accept service for purposes of these proceedings. Complicating matters further, the first arbitration proceeding - between Precious Flowers and TRC - now has a full panel of arbitrators in place and is underway. In light of this latter development, TRC has filed an application with this Court for a stay of the arbitration proceeding pending a decision by the Court on the petition to consolidate. (See Pet'r's May 17, 2012 Letter Brief ("Pet'r's 5/17 Ltr") (Docket No. 11)).*fn1 For the reasons stated below, TRC's application for a stay is denied.

BACKGROUND

Precious Flowers is a Thai corporation and the owner of the cargo vessel, the M/V NALINEE NAREE. (See Pet. to Consolidate Arbitrations ¶ 5 (Docket No. 1); id., Ex. 1). On October 2, 2004, Precious Flowers and TRC, an international trader of agricultural commodities, signed a time charter party in which Precious Flowers agreed to let TRC hire the M/V NALINEE NAREE for a period of approximately six months. (See id. ¶ 4; id., Ex. 1). On October 18, 2004, TRC entered into a separate charter party with Peru. (See Resp't's May 23, 2012 Letter Brief ("Resp't's 5/23 Ltr") Ex. B, at 19 (Docket No. 13)).*fn2 Each charter party included a broad arbitration clause referring any disputes arising out of, or in connection with, the contract to a three-person tribunal in New York. (See Pet. Ex. 1 ¶ 65; id., Ex. 2 ¶ 47). In each agreement, the parties agreed that the proceedings would be conducted in accordance with the Rules of the Society of Maritime Arbitrators ("SMA"). (See id.).

In November 2004, when both charter party contracts were in effect, the M/V NALINEE NAREE transported a cargo of wheat from Houston, Texas, to Matarani, Peru. (See Pet. Ex. 2). After the voyage, cargo claimants sued Precious Flowers in Peru alleging contamination and short delivery of the wheat. In mid-2011, Precious Flowers settled the case for $174,964.31. (See Resp't's 5/23 Ltr at 2). Seeking partial reimbursement of this amount, Precious Flowers sent a letter to TRC in October 2010 demanding the commencement of arbitration in accordance with the SMA Rules. (See id. at 2-3). Precious Flowers and TRC each selected an arbitrator, but before the two arbitrators selected a third arbitrator to serve as panel chairperson, TRC commenced a separate arbitration against Peru seeking to recover any damages that might result should TRC be found liable to Precious Flowers in the first arbitration. (See id.). Peru consented to arbitration. (See Pet. ¶ 11 (noting that Peru appointed a SMA arbitrator in response to TRC's demand for arbitration)).

On November 2, 2010, after TRC and Peru had each chosen an arbitrator in the second arbitration proceeding, but again before a panel chairperson had been selected, TRC took the position that the two arbitration proceedings should be consolidated pursuant to the SMA Rules. (See id. at 3). Section 2 of the SMA Rules provides, in relevant part:

The parties agree to consolidate proceedings relating to contract disputes with other parties which involve common questions of fact or law and/or arise in substantial part from the same maritime transactions or series of related transactions, provided all contracts incorporate SMA Rules. . . . Unless all parties agree to a sole Arbitrator, consolidated disputes are to be heard by a maximum of three Arbitrators to be appointed as agreed by all parties or, failing such agreement, as ordered by the Court.

SMA Rules § 2. Precious Flowers indicated that it was amenable to the proposed consolidation. (See Resp't's May 2, 2012 Letter Brief ("Resp't's 5/2 Ltr") at 2 (Docket No. 10)). Peru, however, opposed consolidation. (See Resp't's 5/23 Ltr Ex. D). In an e-mail dated December 19, 2011, to counsel for TRC and Precious Flowers (among others), counsel for Peru stated that because "Peru has no contractual agreement with Precious Flowers, it cannot be compelled to participate with such a non-party in arbitration. . . . No specific demonstration the authority [sic] and purpose of consolidation has been made." (Id.)

Instead of seeking relief through the arbitration proceedings themselves, TRC filed its Petition to Consolidate Arbitrations with this Court on January 20, 2012. (See Pet.). TRC served the petition on Precious Flowers. TRC also sent the petition to Peru's counsel in the arbitration proceeding, but that counsel advised TRC that it was not authorized to accept service on Peru's behalf and Peru has not appeared in this action. (See Resp't's 5/23 Ltr at 3). In the meantime, on March 16, 2012, concerned that resolution of the petition would unduly delay its arbitration proceeding with TRC, Precious Flowers wrote to the two-member panel in that arbitration urging it to select a chairperson and to proceed. (See id., Ex. E). The panel agreed and that arbitration is now underway. (See id., Ex. F).

On May 7, 2012, TRC and Precious Flowers appeared for a conference before this Court. At the conference, the Court expressed its view that the question of consolidation was better raised with the SMA, especially in light of the fact that Peru had not appeared in these proceedings. The Court gave TRC until May 21, 2012, to serve Peru with the petition in accordance with Title 28, United States Code, Section 1608. TRC did not do so. Instead, it submitted a letter dated May 22, 2012, explaining that it would take up to six months to serve Peru and arguing that service on Peru's counsel in the arbitration proceeding should be deemed sufficient. (See Pet'r's 5/22 Ltr). By letter dated May 17, 2012, TRC also sought to stay the arbitration proceeding with Precious Flowers pending the Court's decision regarding its petition to consolidate the arbitrations. (See Pet'r's 5/17 Ltr). Precious Flowers opposes the stay. (See Resp't's 5/23 Ltr).

DISCUSSION

The power to stay proceedings "is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants." Landis v. North Am. Co., 299 U.S. 248, 254 (1936). The Court must consider four factors when deciding whether to exercise its discretion and stay an arbitration:

(1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties ...


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