Document Type

Article

Publication Date

6-25-1991

Abstract

The defendants in this action are past and present owners, directors, officers, employees and affiliates of Bomar Resources, Inc. ("Bomar"), and other persons and firms having past and present business relations with Bomar and Bomar's attorneys. Bomar is a trading company specializing in the marketing and selling of commodities in international trade. Sierra, a subsidiary of Nord Resources Corporation ("Nord"), is the owner of a concession in Sierra Leone, West Africa, for the mining of rutile, a mineral sand used for making pigments for paints and papers.

In 1982, Bomar approached Sierra for the purpose of becoming Sierra's exclusive sales agent. That year, an agreement was entered into between Sierra and Bomar, under which Bomar undertook to market and sell Sierra's entire production of rutile. The agreement provided that any controversies arising out of or based on an alleged breach of the agreement would be settled by arbitration. As the exclusive agent, Bomar found customers for Sierra's production of rutile and arranged transportation where necessary. The relationship lasted for over six years. In 1988, Sierra terminated the relationship in accordance with the terms of the agreement, effective December 31, 1988. Bomar alleges that after the termination of the exclusive sales agency, the parties entered into negotiations for a continuing sales agency relationship on a non-exclusive basis. The negotiations, however, failed when the parties could not agree about the commissions allegedly owed to Bomar for shipments of rutile delivered after the termination of the exclusive agency relationship but made under contracts executed before the termination.

In January, 1990, Sierra served a demand for arbitration on Bomar for putative misdeeds committed during the term of the exclusive agency agreement. Sierra sought in its demand for arbitration substantial damages for breach of agency, conversion of trust funds and assets, dilution 746*746 of Sierra's rutile with an inferior product resold for Bomar's own account, concealment of hidden profits and commissions, and self-dealing. Additionally, at the same time it sought arbitration in New York, Sierra petitioned ex parte a court located in Amsterdam, Holland, to restrain the imminent transfer of rutile previously entrusted to Bomar and stored in a warehouse in Amsterdam. The Dutch court issued an order restraining the transfer.

On February 8, 1990, Sierra filed a petition in the Southern District of New York to compel arbitration of all issues included in its demand for arbitration ("Action I"), pursuant to section 4 of the Federal Arbitration Act, 9 U.S.C. § 4 ("FAA"). Sierra also sought temporary and preliminary injunctive relief, seeking to restrain Bomar from taking possession of Sierra's rutile product then on the high seas aboard the M/V Havjo ("Havjo"), to enjoin Bomar from obtaining the proceeds from a Romanian letter of credit in the amount of $500,000 issued for a previous sale, and to prevent Bomar from dissipating its assets. The district court temporarily enjoined Bomar from interfering with the rutile product aboard the vessel and from drawing on the letter of credit.

On February 21, 1990, the court granted the petition for arbitration of all issues in Sierra's demand. However, the court found that the need for protection against interference with the rutile product aboard the Havjo was moot because the product had been delivered to its intended customer. The court also refused to preliminarily enjoin Bomar from drawing on the proceeds of the letter of credit and from dissipating its assets because Sierra had not demonstrated irreparable injury or likelihood of success on the merits of its claims. Additionally, crediting the representation of Shimon Katz, Bomar's president, that Bomar would be able to pay its debts from funds maintained in bank accounts located throughout the world, the court refused to grant broader injunctive relief.

On March 7, 1990, Bomar moved for reargument of the district court's decision. Bomar informed the court that "old" Bomar had changed its name to Brinc Limited ("Brinc") in December, 1989 and that Rivson International, Inc. ("Rivson"), an affiliate of "old" Bomar, had changed its name to Bomar Resources, Inc. (referred to as "new" Bomar). Bomar requested a modification of the court's February 21, 1990 Opinion and Order, withdrawing from arbitral consideration the issues relating to the letter of credit and the rutile stored in the Amsterdam warehouse, contending that the disputes over those issues are between "new" Bomar and Sierra and that arbitration of those disputes, therefore, would be futile. In the alternative, Bomar sought to enjoin Sierra from asserting that "new" Bomar is liable for any obligation of "old" Bomar in the event of voluntary participation by "new" Bomar in the arbitration.

By order dated June 12, 1990, the district court denied the motion for reargument on the ground that since "Local Rule 3(j) requires a movant to set forth `concisely the matters or controlling decisions which counsel believes the Court has overlooked[,] ... [presumably] the Court was apprised of all the known pertinent facts when it rendered its initial decision." However, finding the information concerning Bomar's corporate restructuring pertinent to Sierra's prior request for a preliminary injunction regarding the dissipation of Bomar's assets, the court scheduled an evidentiary hearing for August 7, 1990.

Meanwhile, on June 4, 1990, "new" Bomar and Brinc had filed an action in the Southern District against Sierra and various officers and agents of Sierra for tortious interference with business relations, willful disparagement, conversion and violations of section 487 of New York Judiciary law ("Action II"). The gravamen of this action is that, following the termination of the agency agreement, Sierra and its officers and agents devised a scheme to drive plaintiffs out of business and, to that end, made disparaging statements about plaintiffs to plaintiffs' customers. The action 747*747 was assigned to Judge Keenan as a "related case."

On July 5, 1990, Sierra commenced in the New York State Supreme Court the action giving rise to this appeal. Among other claims alleged against the various defendants-appellees were claims based on the Racketeer Influenced and Corrupt Organizations Act ("RICO"), fraud, breach of fiduciary duty and constructive trust and conversion ("Action III"). These claims arise out of the dealings between Sierra and Bomar. On July 24, 1990, this action was removed to the Southern District of New York, see 28 U.S.C. § 1446(a), and likewise was assigned to Judge Keenan.

Apparently, the evidentiary hearing on Sierra's application for a preliminary injunction in Action I never took place. Instead, the attorneys for "old" Bomar and "new" Bomar agreed to the entry of an order restraining and enjoining the transfer of assets of both corporations. On August 7, 1990, the date set for the evidentiary hearing, counsel for the parties appeared before Judge Keenan for the purpose of presenting the agreed upon injunction order for the court's approval. At that time, counsel for the defendants orally moved for a stay of Action II and Action III. Sierra objected to the application on the ground that the defendant in Action I was not the same as the defendants in Action III, and therefore, there was no justification for staying Action III pending the outcome of arbitration in Action I. Sierra also informed the court that it intended to move for a remand of Action III.

On August 16, 1990, the district court granted the stay of Action II and Action III pending the arbitration ordered in Action I. Shortly thereafter, Sierra moved to remand Action III to the New York State Supreme Court on the grounds that not all of the defendants had joined in the notice of removal; that certain of the state law claims were against defendants over whom the court lacked subject matter jurisdiction; and that the Court should not exercise pendent jurisdiction over state law claims that predominate over federal claims. On September 4, 1990, the district court determined that the defendants "need not respond to [Sierra's] motion to remand until the stay is lifted." The motion was ordered to be held in abeyance pending completion of arbitration. On September 14, 1990, Sierra timely filed a notice of appeal as to the order staying Action III, the action at bar. It is unclear whether a notice of appeal was filed as to the stay of Action II.

Comments

937 F.2d 743 (1991)

SIERRA RUTILE LIMITED, Plaintiff-Appellant,

v.

Shimon Y. KATZ, Michael Lobel, Jack A. Weintraub, Benjamin Bollag, Berisford International, PLC, Berisford, Inc., f/k/a Erlanger & Company, Inc., Erlanger Minerals & Metals Inc., Berisford Metals Corporation, Bomar Holdings Inc., Bomar Resources Holdings Inc., Comsup Commodities Inc., f/k/a Bomar Commodities Inc., Global Technology Group, Ltd., Bomar Commodities Ltd., Bomar Resources Ltd., A/S Bulkhandling, Eggerding & Co., Concores Trading Establishment, Patmar Trading Establishment, Curtis, Mallet-Prevost, Colt & Mosle, Ephraim Margulies, Howard Zuckerman, Patrice Klein, Tradeco International Inc., Ronnie Greenwald, Roland Schaer, David Fleischman, William Karon, John Does 1 through 20, John Doe Corporations 1 through 20, Defendants-Appellees.

No. 908, Docket 90-7849. United States Court of Appeals, Second Circuit.

Argued January 23, 1991. Decided June 25, 1991.

New York Law School location: File #1143, Box #127

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