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A.G.K. SARL v. A.M. Todd Co.

August 18, 2009

A.G.K. SARL
v.
A.M. TODD COMPANY, ET AL.



The opinion of the court was delivered by: McLaughlin, J.

MEMORANDUM

A.G.K. SARL ("AGK") filed this suit to recover damages it claims to have suffered when Zink & Triest International ("ZTI") refused to pay for vanilla beans that AGK shipped from the Comoros to Philadelphia. AGK contends that the failure to pay is a breach of a contract signed by AGK and ZTI. In 2005, AGK brought an arbitration against ZTI. After withdrawing from that arbitration in 2007, AGK filed this action against parties that it claims are also liable on the contract directly and by virtue of their relationship to ZTI and to one another, as well as on other non-contract grounds.

In August 2007, the defendants moved to dismiss the complaint or, in the alternative, for a change of venue. They argued that the Court should dismiss the complaint in view of the plaintiff's withdrawal of the 2005 arbitration against ZTI. They also argued that the Court lacked subject matter jurisdiction over the dispute in the first instance because AGK's contract with ZTI obligated AGK to arbitrate. At that time, neither the defendants nor the plaintiff asked the court to compel arbitration.

By memorandum opinion dated March 18, 2008, The Court decided that all six counts of the complaint fell within the scope of an arbitration clause in AGK's contract with ZTI, and that the defendants had standing to enforce that agreement against AGK. See Docket No. 25. Although the Court did not compel arbitration at that time, it did stay the case.

In June 2008, AGK commenced a second arbitration. AGK then filed a petition with this Court to compel the defendants in this lawsuit to submit to that arbitration. Defense counsel argued to the Court that the petition was premature because the defendants had not refused to go to arbitration. On defense counsel's representation, the Court denied AGK's motion without prejudice.

At some point thereafter, the arbitral tribunal bifurcated the arbitration into two phases. The parties have proceeded through the first phase of that arbitration. The arbitral tribunal issued a decision on April 30, 2009, in which it decided that it had jurisdiction over two of the defendants in this case - Zink & Triest Company, Inc. ("ZTC"), and A.M. Todd Company ("AMT"). ZTC and AMT ask this Court to vacate that decision pursuant to section 10 of the Federal Arbitration Act ("FAA"). They also ask the Court to stay the next phase of the arbitration proceedings against them, scheduled for September 14-17, 2009. Finally, they ask the Court to transfer this case to the Southern District of New York.

The Court will deny the defendants' motion to vacate the arbitral decision without prejudice. It will also deny the defendants' motion for a stay of the arbitration proceedings. Although the defendants are entitled to a judicial determination of whether they can be compelled to arbitrate, the Court concludes that now is not the appropriate time for it to make such a determination. The defendants' request to transfer the case to the Southern District of New York is also denied.

I. Background

AGK is a vanilla bean exporting company based in the Comoros. The defendants are ZTC, of whom ZTI is alleged to be a subsidiary, AMT, and Henry Todd, Jr. ("Todd"), an officer of ZTC and AMT.

In March 2005, AGK commenced an arbitration against ZTI, claiming that it had a contract for the sale of vanilla beans that included an arbitration clause. AGK withdrew the arbitration proceeding in February 2007, just before the final hearing was scheduled to occur, citing concerns that ZTI was judgment-proof and that it was a sham corporation.*fn1

A few months after the arbitration proceeding terminated, the plaintiff initiated this lawsuit. In all counts of the complaint, the plaintiff argued that the defendants should be treated as a single entity, or that ZTC's veil should be pierced to hold AMT and Todd liable.

The defendants previously moved to dismiss the case, or in the alternative, for a change of venue. This Court determined that all matters in the suit were within the scope of an arbitration clause agreed to by AGK, but stayed, rather than dismissed, the action. The Court did not order any party to file or to attend any arbitration proceeding. Indeed, neither party asked the Court for any such order. To the contrary, the plaintiff argued that the claims should proceed in federal court. The defendants, on the other hand, argued that the case should be dismissed in its entirety, or at the very least, that AGK was bound to arbitrate with ZTI.

The Court agreed with the defendants that ZTI must be found liable in an arbitration proceeding before any defendant could be liable on a veil-piercing theory. It also decided that the scope of AGK's consent to arbitrate was broad enough to cover all of its claims, even its non-contract claims, and that the defendants had standing to enforce the arbitration agreement against AGK. See Docket No. 25 at 3. The Court took no position, however, as to whether the defendants could be held liable in arbitration or in federal court; it also expressed no opinion as to whether the defendants could be held liable in the same arbitration in which ZTI was held liable.

AGK filed a second arbitration proceeding in June 2008, naming ZTI and the defendants in this suit as respondents. On June 16, 2008, the plaintiff filed a petition with this Court to compel the defendants to submit to the jurisdiction of the arbitral tribunal. The Court held a telephone conference with counsel on June 17, 2008. At the conference, defense counsel informed the Court that the defendants had not refused to appear before the arbitral tribunal, and urged the Court not to decide AGK's petition at that time for that reason. On the basis of defense counsel's representations, the Court denied AGK's petition without prejudice as premature on June 18, 2008. ...


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