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In Re Arbitration Between v. Pmi America

August 6, 2012


The opinion of the court was delivered by: Denise Cote, District Judge


The petitioner M.B. International W.W.L. ("MBI") seeks a preliminary injunction in aid of arbitration. The arbitration addresses MBI's claim that PMI America, Inc. ("PMIA") and its President, Matthew Pelham ("Pelham"), breached a contract to provide MBI with machinery capable of manufacturing certain water filtration devices.

This action was commenced on June 22, 2012, in the Supreme Court of the State of New York, New York County. The petitioner originally sought both a preliminary injunction and an attachment in aid of arbitration, but, as outlined below, the nature of the relief requested was narrowed during the course of pre-hearing proceedings. On June 25, respondents removed the case to federal court on the basis of diversity jurisdiction. See 28 U.S.C. § 1332. The Court held an initial conference to consider petitioner's application on June 26, at which time it was decided that the matter would be set down for an evidentiary hearing following expedited, targeted discovery.

Pursuant to this Court's individual practices, and with the consent of the parties, the direct testimony of the witnesses for the preliminary injunction hearing was submitted by affidavit. MBI submitted no declarations, relying on the deposition testimony of its sole proprietor, Mohammed Baluchi ("Baluchi"), and that of Pelham.*fn1 The defendants submitted declarations from defendant Pelham; Dr. Ronald L. Smorada, who had certain business dealings with the parties; and Andrew C. Burnett on behalf of accounting firm Frazier & Deeter. Although both parties were invited to submit legal memoranda in support of their proposed findings of fact and conclusions of law, only PMIA did so.

The parties' prehearing filings were submitted to the Court on July 23. On July 27, a final pre-hearing conference was conducted via telephone. At that time, the parties agreed to supplement the hearing record with the affidavit from Baluchi that was submitted to the Court in support of the initial petition for preliminary relief. Both parties also waived any objection to the authenticity of documents submitted as potential hearing exhibits and clarified that they did not seek to cross-examine any witnesses during the hearing.

During the July 27 telephone conference, the parties also discussed whether a resolution could be reached with respect to PMIA's obligation to deliver to MBI one manufacturing line still due under the contract. After further negotiations, the parties informed Chambers on August 3 that the issues with respect to delivery of the remaining manufacturing line had been substantially resolve. MBI represented that, having achieved delivery of the third line, it would forgo its demand for an attachment and proceed only on its application for a preliminary injunction.

The preliminary injunction hearing was held on August 6, 2012. Because neither party sought to cross-examine the witnesses of the other, the evidentiary record was complete in advance of the hearing. The parties' presentations therefore consisted solely of argument regarding the propriety of injunctive relief.

The following constitutes this Court's findings of fact and conclusions of law. While many of the findings of fact are contained in the next section of the Opinion, some may also be found in the final section.


MBI is a sole proprietorship in Bahrain that is wholly owned by Baluchi. It has been in existence since 1990 and manages and operates factories in Bahrain, including factories that manufacture water filtration devices.

PMIA is a Tennessee corporation with its principle place of business in the state of Georgia. PMIA designs and manufactures filter manufacturing machines known as Melt-Blown Continuous Cartridge Filter Winding Equipment. 2008 Agency Agreement Smorada introduced Baluchi to Pelham. PMIA and MBI executed an Agency Agreement ("Agency Agreement") on June 20, 2008, that made MBI the "exclusive agent" of PMIA in "GCC Middle-East and Asia". The defined territory included Bahrain. The parties agreed "not to compete in anyway [sic] with machinery and technology" in that region. The Agency Agreement had a one-year renewable term and provided that MBI would have "no authority to bind [PMIA] except upon written order or authorization by [PMIA]." Schedule A to the Agency Agreement created a "minimum order volume." Schedule A required a minimum order of $2.4 million for 2008, of $2.6 million for 2009, and of $2.8 million for 2010. 2009 Contract Between Pelican and BWTC

In the spring of 2009, MBI identified a project in Bahrain to manufacture coreless meltblown water filters. To pursue this project, MBI executed a memorandum of understanding with Inovest B.S.C. ("Inovest"), a Bahraini investment company. Inovest formed the Bahrain Water Technology Company ("BWTC") and Baluchi formed Pelican Machinery International W.L.L. ("Pelican"), a special-purpose Bahraini company, for this project. Baluchi owns 85% of the shares in Pelican; Pelham owns 5%; Smorada owns 5%; and the remaining 5% is owned by a Bahraini investor. Pelican, in turn, owns 20% of BWTC, a stake that was valued at $4.8 million as of May 24, 2009.

On June 1, 2009, Pelican "through Mr. Mahmood Baluchi" signed a contract with BWTC "through Dr. Khalid Abdula," committing Pelican to supply BWTC with four machine lines capable of manufacturing coreless meltblown water filters ("Lines"). The manufacturer of the Lines was identified as PMIA. The Contract explained that one of the shareholders in the manufacturer was also a shareholder in Pelican. In a separate undertaking signed on June 10, Pelham ratified PMIA's obligations as manufacturer under the contract between Pelican and BWTC.

PMIA shipped the first Line in July 2010. As of March 2012, it remained in need of repairs. A test of Line 1 was performed on April 17, 2012. Pelham represents that those tests indicate that Line 1 has a better than 97% efficiency rating. The record does not indicate whether Line 1 has begun to operate. 2011 Manufacturing and Supply Agreement

On June 3, 2011, MBI, PMIA, Pelham, and Smorada entered into a Manufacturing and Supply Agreement ("Agreement"). The two companies and the two individual were identified in the opening paragraph of the Agreement as the "Parties" to the Agreement. Baluchi and Pelham signed the Agreement for MBI and PMIA, respectively. Pelham listed his title as President. Smorada signed next to a line indicating that he was signing the Agreement "in his personal capacity". There was no second signature line for Pelham to sign in his individual capacity even though he is identified as a party to the Agreement.

As described in the Agreement, the parties desired that PMIA "continue to manufacture" the Lines ordered by MBI, and that it do so "pursuant to a more formal written agreement." The Agreement provided that MBI could issue Purchase Orders for equipment to PMIA, which PMIA would be given ten business days to accept or reject. If PMIA accepted a Purchase Order, it was required to supply the number of machines specified in the Order according to the timeframe set forth therein. PMIA's duties under the Agreement also included the assembly and testing of any Lines it manufactured for MBI, but the Agreement also provided that "[t]he initial installation of any Product shall be made at the expense of MBI."

The Agreement granted Smorada, or "any other person appointed by MBI," the right to "inspect the work conducted and services provided by PMI[A] under this Agreement". Smorada was a guarantor of PMIA's duty to deliver any Line due under the Agreement.*fn2

The Agreement contained an exclusivity provision, Paragraph 7, which reads: during the Term of this Agreement, and for a period of two (2) years from the effective date of this agreement neither PMI[A] nor [Mathew Pelham] shall sell Competitive Products to any purchaser or manufacturer located in the Middle East North Africa Region (MENA Region) without approval from MBI.

A "Competitive Products" is defined in the Agreement as a "product that is competitive directly with the Product." The "Product," in turn, is defined as "Continuous Meltblown Cartridge Filter Machine, as further described in the Specifications in Exhibit A." Though difficult to read, Exhibit A appears to be a list of machinery and parts.

The parties agreed that a breach of Paragraph 7's exclusivity provision would cause "irreparable harm and significant injury to the non-breaching Party which may be difficult to ascertain. Accordingly, the parties agree that each party shall have the rights and remedies available to a contracting party under the Uniform Commercial Code."

The Agreement also included confidentiality provisions and limitations on liability. The Agreement declared that it was to "be construed in accordance with and governed by" the law of Georgia without giving effect to any choice of law rules.

An arbitration clause required any dispute to be submitted to arbitration in New York. The Agreement provided, however, that the arbitration requirement did not prevent any part from "seeking, or a court of competent jurisdiction from granting, a temporary restraining order, temporary injunction or other equitable relief from any breach of any restrictive covenant or confidentiality covenant in this Agreement."

The Agreement's term ran for two years from its effective date of June 3, 2011. Any party was permitted to terminate the Agreement in the event that (a) the other Party materially breaches any material provision of this Agreement and such breach continues for a period of thirty (30) calendar days following the receipt by the defaulting Party of written notice of such breach (provided, that if such breach is incapable of being cured, such termination may be effective immediately), or (b) the other Party becomes insolvent, is adjudicated bankrupt, voluntarily or involuntarily files a petition for bankruptcy, makes an assignment for the benefit of creditors, seeks any other similar relief under any bankruptcy law or related statues or otherwise becomes financially incapable of performing its obligations in accordance with the terms of this Agreement, and such judgment, assignment or incapacity is not revoked within ninety (90) calendar days.

All notices were to be sent in writing by U.S. Mail or courier service or by facsimile with a confirmatory copy mailed to the addresses identified in the Agreement.

Finally, the Agreement provided that, in the event of termination, any purchase order which was "to be fulfilled after the expiration or termination of [the] Agreement [would] survive such expiration or termination, as [would] any terms [thereof] necessary with respect to the ...

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