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GENERAL ELEC. CO. v. DEUTZ AG

July 31, 2000

GENERAL ELECTRIC COMPANY, PLAINTIFF,
V.
DEUTZ AG, DEFENDANT.



The opinion of the court was delivered by: McLAUGHLIN, District Judge.

MEMORANDUM OPINION

Plaintiff General Electric Company filed the instant action against Defendant Deutz AG on December 22, 1998. It alleges that Deutz breached section 9.08 of the Commercial Agreement entered into by General Electric, Montoren Werke Mannheim ("MWM") and Deutz by failing to provide MWM with sufficient funds to enable it to perform its obligations under the agreement. During the pendency of this action, on July 8, 1999, Deutz submitted a claim for arbitration against General Electric with the ICC International Court of Arbitration. It requested that the arbitration court decide, by way of a negative declaratory judgment, that General Electric has no claim against Deutz for breach of section 9.08. Presently pending before the Court is Plaintiff's Motion for a Permanent Injunction. Plaintiff requests that the Court enjoin Deutz from participating in the ICC arbitration proceeding. For the reasons that follow, the motion is granted.

I. BACKGROUND AND PROCEDURAL HISTORY

A. The Parties

Plaintiff General Electric is a company incorporated under the laws of the State of New York (Trial Ex. B at 1). It is in the business of designing and manufacturing locomotives, diesel engines, and certain other products (See id.). Defendant Deutz is a corporation incorporated under the laws of the Federal Republic of Germany. It is principally engaged in the manufacture of engines and industrial plan equipment. MWM, which is not a party to this action, is a corporation incorporated under the laws of the Federal Republic of Germany; it is engaged in the design and manufacture of diesel engines and engine products (See id.).

B. Commercial Agreement

On June 15, 1993, General Electric, MWM and Deutz entered into a "Commercial Agreement" for the mutual cooperative development of an innovative line of diesel engines (See id.). Essentially, MWM agreed to design engines for General Electric and General Electric would then build the engines at its facilities in Pennsylvania (See id.). Under the agreement, MWM was responsible for "all costs and expenses relating to the design, development and testing of the 632 Engine Family and the performance of MWM's other obligations" and General Electric was responsible "for all its costs and expenses relating to the manufacture and testing of the Additional Prototypes." (Id. § 1.07). General Electric was also obligated to "contribute DM 23.1 million of the costs of design, development, and testing of the 632 Engine Family." (Id.)

Deutz, formerly named Klockner-Humboldt-Deutz ("KHD"), also had obligations under the agreement. The signature page of the agreement provided, "KHD hereby joins in this Agreement and agrees to become a party to this Agreement for purposes of the obligations set forth in Sections 9.08 hereof and Sections 4.05, 4.06, and 4.07 hereof." (Id. at 45). Section 9.08 stated that KHD would provide MWM "with sufficient funds, by way of capital contribution, loan, or otherwise, to enable MWM or any such Affiliates to perform all of their respective obligations, commitments, undertakings, and covenants under this Agreement." (Id. § 9.08). Sections 4.05, 4.06 and 4.07 detailed the parties duties to keep certain information confidential (Id. §§ 4.05, 4.06, 4.07).

Additionally, article seven of the agreement contained an arbitration provision which provided that "[a]ll disputes, controversies, and claims directly or indirectly arising out of or in relation to this Agreement", if they cannot be resolved by negotiations between the parties, must be submitted to international arbitration (Id. at 36). The arbitrators would then rule on the dispute in accordance with the terms of the agreement and if their decision could not be made by referencing the agreement, they would resolve the dispute by applying Swiss law (Id. at 37).

C. Proceedings in This Court

On December 22, 1998, Plaintiff General Electric filed the instant action against Deutz. The complaint alleged that Deutz had breached section 9.08 of the agreement "[b]y failing to provide MWM with sufficient funds to enable MWM to perform its obligations under the Contract." (Am.Compl. ¶ 44). It alleged that as a result of the breach, General Electric suffered damages in excess of eighty million dollars including "[d]elayed deliveries and lost sales" and "[d]evotion of substantial internal resources to undertake engineering and other tasks with respect to the 632 Engine Family that should have been performed by MWM." (Id. ¶¶ 39, 46).

Deutz filed a motion to compel international arbitration on April 13, 1999. On December 29, 1999, we denied the motion. We held that the contract was ambiguous as to whether Deutz and General Electric agreed to arbitrate their disputes and that such ambiguity should be resolved by a jury after presentation of extrinsic evidence. On February 10 and 11, 2000, we held a jury trial for that purpose; the jury found that Deutz and General Electric did not agree to arbitrate their disputes. As a result of the verdict, we reaffirmed our denial of Deutz's motion to compel arbitration on February 28, 2000. Deutz subsequently filed a Motion for New Trial, which we denied on July 28, 2000.

D. Proceedings with the ICC Court of Arbitration

On July 8, 1999, while Defendant's motion to compel international arbitration was pending with this Court, Deutz submitted a claim for arbitration against General Electric with the International Chamber of Commerce Court of Arbitration ("ICC Court"). Deutz requested that the ICC Court decide, by way of a negative declaratory judgment, that General Electric has no claim against Deutz for breach of Section 9.08.*fn1

By way of background, under the ICC Rules of Arbitration, the ICC Court of Arbitration is an administrative body attached to the ICC. See Rules of Arbitration of the International Chamber of Commerce (hereinafter "ICC Rules") Article 1(1). The ICC Court does not itself settle arbitration disputes; rather, it sets the arbitrations in motion by referring them to arbitral tribunals and it ensures that the arbitrations are conducted in accordance with ICC Rules. See id. Article 1(1), App. I Article 1(1).*fn2

A party "wishing to have recourse to arbitration" may commence the proceedings by submitting a Request for Arbitration to the Secretariat of the ICC Court of Arbitration. See id. Article 4(1). The Request must include, among other things, a statement of the relief sought and the party's nomination of an arbitrator. See id. Article 4(3). Once it is received, the Secretariat will send a copy of the Request to the other party (the Respondent). See id. Article 4(5). The Respondent must then file an Answer with the Secretariat within 30 days; the Answer shall include a response and the Respondent's nomination of an arbitrator. See id. Article 5(1).

Once the ICC Court has confirmed the arbitrators, see id. Article 9, the Secretariat will submit the file to the Arbitral Tribunal and the Tribunal will immediately draw up "a document defining its Terms of Reference." Id. Article 18(1). The document shall include a summary of the parties claims, the relief sought and a list of issues to be determined. See id. The terms of reference must be signed by the parties and approved by the ICC Court. See id. Article 18(2). The Tribunal will then proceed to establish the facts of the case and hear the arguments of the parties. See id. Article 20. "When it is satisfied that the parties have had a reasonable opportunity to present their cases, the Arbitral Tribunal shall declare the proceedings closed." Id. Article 22. It will then issue an Award which must be confirmed by the ICC Court. See id. Articles 25, 27.

A party may challenge the jurisdiction of the Arbitral Tribunal on the grounds that they did not agree to arbitrate at two separate stages of the process. First, before the file is transmitted to the Arbitral Tribunal, the party may raise the issue with the ICC Court. The ICC Court's review of jurisdiction is limited, however; it merely considers whether "it is prima facie satisfied that an arbitration agreement under the Rules may exist." Id. Article 6(2).*fn3 "If the Court is not so satisfied, the parties shall be notified that the arbitration cannot proceed." Id. If it is so satisfied, then "any decision as to the jurisdiction of the Arbitral Tribunal shall be taken by the Arbitral Tribunal itself." Id. As long as "there is prima facie evidence of an arbitration agreement, the question of the ultimate validity or existence of such an agreement and other jurisdictional questions will be left to the arbitrators." Eric A. Schwartz, The Resolution of International Commercial Disputes Under the Auspices of the ICC International Court of Arbitration, 18 Hastings Int'l & Comp. L.Rev. 719, 728 (1995). Any decision rendered by an arbitral tribunal as to its jurisdiction is subject to review by a court of competent jurisdiction situated in the country where the arbitral tribunal is located.

In this case, after Deutz submitted its Request to the Secretariat on July 8, 1999, General Electric wrote a letter to the ICC Court on July 21, 1999 wherein it objected to any assertion of jurisdiction by the ICC Court (Doc. No. 62 Ex. A). It stated,

Before the ICC accepts jurisdiction over the dispute between GE and Deutz, we want the ICC to understand that GE objects to any such assertion of jurisdiction because the contract between GE and Deutz does not, on its face, contain an arbitration clause. Therefore, pursuant to Article 6(2) of the ICC Rules of Arbitration, the ICC Court should determine that the arbitration cannot proceed and should so notify the parties. At the very least, the ICC Court should stay its determination of whether a prima facie arbitration clause exists between GE and Deutz until after the United States District Court has ruled on the question of its jurisdiction, including the existence of an arbitration agreement, which that Court presently has sub judice.

(Id.). General Electric also wrote a letter dated July 30, 1999 to inform the ICC Court that it would not be submitting an answer since it did not believe the ICC had jurisdiction (See id.).

On October 7, 1999, pursuant to Article 6(2), the ICC Court ruled that there was prima facie evidence of the existence of an arbitration agreement between the parties (See id. Ex. D). Thereafter, the Arbitral Tribunal was nominated and confirmed and began its proceedings. General Electric asked the Arbitral Tribunal to determine that the jury verdict is res judicata and precludes its jurisdiction. Alternatively, it asked the Tribunal to independently decide that it did not have jurisdiction because the parties did not agree to arbitrate. It is our understanding that these issues have been fully argued, including extensive hearings held on May 23 and 24, 2000, and are currently under consideration by the Arbitral Tribunal.

E. Proceedings Before the High Court of Justice in England

On April 6, 2000, Deutz filed an application in the High Court of Justice in England for what was essentially an anti-antisuit injunction (Doc. No. 72 (Rivkin Aff.) Ex. A). It requested that the High Court temporarily restrain General Electric from asking this Court to enjoin Deutz from pursuing its arbitration claim until after the Arbitral Tribunal has ruled on the issue of res judicata and jurisdiction (See id.).*fn4 The same day, the High Court issued the temporary restraining order ex parte, enjoining General Electric from pursuing its motion for injunction in this Court until it (the English court) could hold a hearing on the issue of equitable relief (See id. Ex. B).

The High Court held the hearing on Deutz's application for a restraining order on April 12 and 13, 2000 (Doc. No. 69 Ex. E). Deutz contended that High Court should exercise its jurisdiction to grant the injunction on the grounds that General Electric is in clear breach of an agreement to arbitrate (See id.).

The next day, on April 14, 2000, the High Court lifted the previous ex parte order and denied Deutz any further equitable relief (Doc. No. 72 at 30). In a thorough written opinion, Justice Thomas explained that in light of Deutz's contentions, the threshold issue was whether Deutz made out a sufficient case that there was an arbitration agreement (See id. at 12, 15). He noted that his standard of review in that regard was "whether there was a serious issue to be tried." (Id. at 15) Justice Thomas concluded, "I have come to the view on this extraordinary short issue of construction that there is no serious issue to be tried and that Deutz cannot establish a sufficient case that there is an arbitration agreement." (Id.) He based his conclusion on the fact that the signature block did not mention the arbitration provision and the fact that the arbitration provision mentioned General Electric and MWM but not KHD (Id.).

Alternatively, Justice Thomas concluded that even if there was a serious issue to be tried, the Court should not exercise its discretion and issue the injunction (See id. at 16-30). He relied on several factors to reach this conclusion, including the fact that Deutz failed to act promptly in filing the arbitration and that many of the arguments that were being made to the High Court could be made to this Court for our consideration in ruling on the instant motion (See id.).

II. DISCUSSION

General Electric requests that this Court permanently enjoin Deutz from participating in the ICC arbitration in London. The parties make several arguments with regard to the propriety of an such an injunction. We will address each of these arguments in turn.

A. The Level of Discretion this Court May Employ

Citing PaineWebber, Inc. v. Hartmann, 921 F.2d 507 (3d Cir. 1990), General Electric argues that since the jury determined that the parties did not agree to arbitrate, we have no discretion with respect to this motion and are "obliged" to enjoin the ICC arbitration. In Hartmann, the Hartmanns maintained several brokerage accounts with PaineWebber under an agreement which required them to submit certain disputes to arbitration. See id. at 509. Pursuant to the arbitration provision, the Hartmanns filed a demand for arbitration with the New York Stock Exchange Department of Arbitration alleging that PaineWebber fraudulently mishandled their accounts. See id. In response, PaineWebber filed a motion for preliminary injunction in the United States District Court for the ...


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