Petition for Writ of Certiorari — Standard Fruit Co. v. Republic of Nicaragua
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Supreme Court, U.S.
‘61-1154 FILED_
MAM 1S 1992
No. {
ame scientist
[a
IN THE
Supreme Court of the United States
OCTOBER TERM, 1991
STANDARD FRUIT COMPANY,
STANDARD FRUIT AND STEAMSHIP COMPANY,
and CASTLE & COOKE, INC.
Petitioners,
v.
REPUBLIC OF NICARAGUA,
Respondent.
Petition for Writ of Certiorari to the United States
Court of Appeals for the Ninth Circuit
PETITION FOR WRIT OF CERTIORARI
STEVEN M. SCHNEEBAUM
Counsel of Record
CHARLES E. TALISMAN
G. KENDRICK MACDOWELL
PATTON, Boccs & BLow
2550 M Street, N.W.
Washington D.C. 20037
(202) 457-6000
Attorneys for Petitioner
PRESS OF BYRON S. ADAMS, WASHINGTON, D.C. (202) 347-8203
QUESTIONS PRESENTED
1. Whether an appellate court may review de novo a
district courts’ factual findings, made pursuant to the
Federal Arbitration Act, 9 U.S.C. § 4, that the sig-
natories to a Memorandum of Intent did not enter
into a binding arbitration agreement.
2. Whether Prima Paint v. Flood & Conklin Mfg. Co.,
- 388 U.S. 395 (1967) requires a trier of fact, in de-
termining whether ambiguous language in a Memo-
randum of Intent created a binding arbitration
agreement, to sever the arbitration language from its
context and reject consideration of surrounding terms,
the nature of the document, and other extrinsic evi-
dence of the parties’ intent.
ii
TABLE OF CONTENTS
Page
GUTS PIGS PIRMMOURE LURE? scssecincizsastidscrsersessntesaseivess i
TARAS OF ALFIE EIED céintssisdcineiaeens ili
CTR ES TEAETT sncsicnsessriscasseinineeenaas 2
FAs REITs RIDES cn ctasninnsasenceesierescensaseemaanaae 2
TEXT OF STATUTES AND RULES .....................008
STATEMENT OF THE: CARE sesscccssscescecsccssevsesnecececes 5)
REASONS FOR GRANTING THE WRIT .................. 13
I. The Panel Violated Settled Federal Proce-
dure and Split with Other Circuits by Re-
viewing De Novo the District Court’s Factual
Findings Concerning the Existence of a
Binding Arbitration Agreement ................... 14
II. The Panel Misconstrued Supreme Court
Precedent and Distorted Federal Arbitration
Law by Severing Ambiguous Arbitration
Language from Its Context in a Preliminary
Document and Mandating Arbitration De-
spite the District Court’s Factual Finding
That the Parties Never Intended to be
BONING nccsccrsncevncnsasesoscenunieeicaltasabanlanetias 22
CORNICE ATION onnvinsssverssiscnnssnnapseeneeunepbianeneentnaaaaes 28
APPTEINGIER, cccsvccsssscnnsscsensinccenssentsopeenanteneasaiebdenaaes la
Opinion of the United States Court of Appeals
for the Ninth Circuit, 987 F.2d 469 ............... la
Memorandum Opinion of Judge John J. Vuk-
asin, Jr., of the United States District Court
for the Northern District of California .......... 27a
Memorandum Of TnGent ..ccccscoccscscsccovcssetccsscsers 49a
iil
TABLE OF AUTHORITIES
Cases: Page
Anderson v. Bessemer City, N.C., 470 U.S. 564
NEE Sodikatchiakindsenias Es cabebameahacsiekiiakiwaate Scie wekekaiens 18
AT&T Technologies, Inc. v. Communications Work-
SR MGR, MEE CAUMEMED scccncccsesnasessonnsesccssess 23,27,29
Drake Bakeries, Inc. v. Local 50, Am. Bakery &
Confectionery Wkrs. Int’l, 370 U.S. 254
NT ndacncinnssentbsesnenessuatudensonsss<tllieceves 17
FDIC v. Air Florida System, Inc., 822 F.2d 833
Tee ccd a cindesoudsudannensbisousass 21
In re Bubble Up Delaware, Inc., 684 F.2d 1259 (9th
NI ascii cahcukchuceacuncssensssnceasnosessavnnpannsess 17
In re U.S. Financial Securities Litig., 729 F.2d 628
I ss cia fh ndidnhgahcudbanesanewavavscarsnsedsens 20
Interocean Shipping Co. v. National Shipping and
Trading Corp., 523 F.2d 527 (2d Cir. 1975),
cert. denied, 423 U.S. 1054 (1976) .................. 16
I.S. Joseph Co. v. Michigan Sugar Co., 803 F.2d
IN UI i scicscsananicctentantenncnchrscseeses 23
Laborers Health & Welfare Trust Fund v. Kaufman
& Broad, 707 F.2d 412 (9th Cir. 1988) ......... 20
Marshall v. Green Giant Co., 942 F.2d 539 (8th Cir.
is aivcslsensneahstinnascncsiennnane 25
Matterhorn, Inc. v. NCR Corp., 763 F.2d 866 (7th
Nee aca dicuséch bsbuantsinceecexsnese 22
McDonnell Douglas Finance Corp. v. Pennsylvania
Power & Light Co., 858 F.2d 825 (2d Cir.
id wnasudiakichbcennspansacteasencessens 28
Mediterranean Enterprises, Inc. v. Ssangyong Corp.,
708 F.2d 1458 (9th Cir. 1983) ................s.ccse0. 17
National R.R. Passenger Corp. v. Boston and Maine
Corp., 850 F.2d 756 (D.C. Cir. 1988) ...............004. 27
iv
Table of Authorities Continued
Page
Nordin v. Nutri/System, Inc., 897 F.2d 339 (8th Cir.
PEPIN «Gi sasbueivncncceatnnahaaianidaaeatiivacennanmemaddéaasiasenn 16,17
Painewebber, Inc. v. Hartmann, 921 F.2d 507 (3d
Saas PII bic iscisiaenamiasacplcnnsusananunthanmubsdasialienaseminicaces 21
Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636
ep gk Fos Se Neen eren 14,15,25
Pollux Marine Agencies, Inc. v. Louis Dreyfus Corp.,
455 F. Supp. 211 (S.D.N.Y. 1978) .................. 23
Prima Paint v. Flood & Conklin Mfg. Co., 388 U.S.
Ne TD Gadcsinnintiicsisditiceonons 1,14,20,22,23,24,25,27,28
Pullman Standard v. Swint, 456 U.S. 273
ERNIE: Nisiasucishetdia nese Genceenntaebagensdndpeiniiaageabaidadaitsiiies 15,16,20
Sauer-Getriebe KG v. White Hydraulics, Inc., 715
F.2d 348 (7th Cir.), cert. denied, 464 U.S. 1070
IEE sanecssnaccainencdicunbuesmbddiniibineitacinaaneicaehiwnes 24
Seaboard Coast Line R.R. Co. v. Trailer Train Co.,
690 F.2d 1343 (llth Cir. 1962) ..........000000...... 21
Smith Wilson Co. v. Trading and Development Es-
tablishment, 744 F. Supp. 14 (D.D.C. 1990)... 22
Three Valleys Municipal Water District v. E.F.
Hutton & Co., 925 F.2d 1136 (9th Cir.
SATE -dodhisebciasaciheneen nadia adiambaaiiciedomantaerese 23
United States v. City of Twin Falls, 806 F.2d 862
(9th Cir. 1986), cert. denied, 482 U.S. 914
PTTL: Las hacis sea na Daeaabesaaagaacaenanencina Naceetenacintebeiae 20
Volt Information Sciences, Inc. v. Board of Trustees
of Leland Stanford Junior Univ., 489 U.S. 468
RINNE sluice i situnhaiasciaihivicia sind isaccesacseteniiavccemauibonnckavees 28
Statutes and Rules
PE A ahi aos ccsahicumaduinesanaaendedanaen 3,6,13,14,22
ee ee eG 2 vesctiinictenangaicin aaantonsiaes 4,13,16,21
IN THE
Supreme Court of the Gnited States
OCTOBER TERM, 1991
STANDARD FRUIT COMPANY,
STANDARD FRUIT AND STEAMSHIP COMPANY,
and CASTLE & COooKE, INC.
Petitioners,
wi
REPUBLIC OF NICARAGUA,
Respondent.
Petition for Writ of Certiorari to the
United States Court of Appeals for the Ninth Circuit
PETITION FOR WRIT OF CERTIORARI
Petitioners Standard Fruit Company (‘Standard
Fruit’’), Standard Fruit and Steamship Company
(“Steamship”), and Castle & Cooke, Incorporated
(‘Castle & Cooke’’) respectfully pray that a writ of
certiorari issue to review the judgment and opinion
of the United States Court of Appeals for the Ninth
Circuit entered on July 1, 1991. The Ninth Circuit
panel’s determination of a matter of federal arbitra-
tion law violated settled federal procedure, created a
circuit split, and distorted this Court’s precedent in
Prima Paint v. Flood & Conklin Mfg. Co., 388 U.S.
395 (1967).
OPINIONS BELOW
The Memorandum Opinion of Judge John P. Vuk-
asin, Jr., of the United States District Court for the
Northern District of California, was issued on April
14, 1988 after a three-day evidentiary hearing, and
is reprinted in the Appendix at 27a.
The opinion of the Ninth Circuit panel is reported
at 937 F.2d 469 (9th Cir. 1991) and is reprinted in
the Appendix at la.
JURISDICTION
This action was brought by the Republic of Nica-
ragua (‘Nicaragua’) against Standard Fruit, Steam-
ship, and Castle & Cooke. Jurisdiction in the district
court was proper under 28 U.S.C. §§ 13382(a)(4) and
1603(a) in that the matter in controversy exceeded
$50,000 and was between a foreign state as Plaintiff
and citizens of California or different states as
Defendants. Nicaragua’s amended complaint sought
arbitration pursuant to the Federal Arbitration Act,
9 U.S.C. §1 et seq.
After a three-day evidentiary hearing, the district
court filed its Findings of Fact and Conclusions of
Law on April 14, 1988. Sitting as the trier of fact
on the arbitration issue, it denied Nicaragua’s motion
to compel arbitration and dismissed Count I of the
complaint. The district court also granted summary
judgment on Count II of the amended complaint al-
leging breach of contract. Nicaragua sought appeal of
the arbitration decision in the Ninth Circuit under 28
U.S.C. § 1292(aX1) and 9 U.S.C. § 15(aX(1). Nicaragua
also appealed the district court’s award of summary
judgment on its breach of contract claim pursuant to
the district court’s certification under 28 U.S.C.
§ 1292(b) and the Ninth Circuit’s order filed June 14,
1989.
The Ninth Circuit panel filed its opinion on July 1,
1991. The Petition for Rehearing was denied on Oc-
tober 17, 1991. This Petition is filed within 90 days
of the denial of rehearing as allowed under 28 U.S.C.
§ 2101(c) and Supreme Court Rule 13.1. ‘
The jurisdiction of this Court to review the Ninth
Circuit judgment is invoked under 28 U.S.C. § 1254(1).
TEXT OF STATUTES AND RULES
9 U.S.C. § 4 provides in pertinent part:
A party aggrieved by the alleged failure, ne-
glect, or refusal of another to arbitrate under a
written agreement for arbitration may petition
any United States district court which, save for
such agreement, would have jurisdiction under
Title 28, in a civil action or in admiralty of the
subject matter of a suit arising out of the con-
troversy between the parties, for an order di-
recting that such arbitration proceed in the
manner provided for in such agreement. ... The
court shall hear the parties, and upon being sat-
isfied that the making of the agreement for ar-
bitration or the failure to comply therewith is not
in issue, the court shall make an order directing
the parties to proceed to arbitration in accord-
ance with the terms of the agreement... . If the
making of the arbitration agreement or the fail-
ure, neglect, or refusal to perform the same be
in issue, the court shall proceed summarily to the
trial thereof. If no jury trial be demanded by the
party alleged to be in default, or if the matter
in dispute is within admiralty jurisdiction, the
court shall hear and determine such issue. Where
such an issue is raised, the party alleged to be
in default may, except in cases of admiralty, on
or before the return day of the notice of appli-
cation, demand a jury trial of such issue, and
upon such demand the court shall make an order
referring the issue or issues to a jury in the man-
ner provided by the Federal Rules of Civil Pro-
cedure, or may specially call a jury for that
purpose. If the jury find that no agreement in
writing for arbitration was made or that there is
no default in proceeding thereunder, the pro-
ceeding shall be dismissed. If the jury find that
an agreement for arbitration was made in writing
and that there is a default in proceeding there-
under, the court shall make an order summarily
directing the parties to proceed with the arbitra-
tion in accordance with the terms thereof.
Fed. R. Civ. P. 52(a) provides in pertinent part:
In all actions tried upon the facts without a
jury or with an advisory jury, the court shall find
the facts specially and state separately its con-
clusions of law thereon, and judgment shall be
entered pursuant to Rule 58; .. . Findings of fact,
whether based on oral or documentary evidence,
shall not be set aside unless clearly erroneous,
and due regard shall be given to the opportunity
of the trial court to judge of the credibility of
the witnesses. ....
STATEMENT OF THE CASE
District Court Proceedings and Factual Findings
Nicaragua filed suit against Petitioners’ on October
21, 1986, alleging, inter alia, breach of a five-year
contract for the purchase of bananas that allegedly
arose out of a Memorandum of Intent (App. at 49a)
signed by high-ranking Nicaraguan Government offi-
cials and officers of Castle and Cooke and Steamship
in 1981.2 Nicaragua subsequently amended its com-
‘Standard Fruit is a production company which enters into
contracts with fruit growers overseas, and engages in agricul-
tural development and other activities for fruit production and
exportation. Pursuant to Supreme Court Rule 29.1, Petitioners
provide the following corporate information. Castle & Cooke, Inc.
changed its name to Dole Food Company in 1991. Dole Food
Company owns Castle & Cooke Fresh Fruit Company, which in
turn owns: (1) Standard Fruit & Steamship Company; and (2)
Dole Fresh Fruit Company, which in turn owns Standard Fruit
Company. Dole Food Company (formerly Castle & Cooke, Inc.)
has no parent company. Its non-wholly owned subsidiaries are:
Thai-American Products; T.A.I.C., Ltd.; Dole Thailand Limited;
Compania Exportadora de Productos Agricolas Vana, Ltda.; and
House of Investments, Inc. The parent company of Standard
Fruit & Steamship Company is Castle & Cooke Fresh Fruit
Company. Standard Fruit & Steamship has no non-wholly owned
subsidiaries. The parent company of Standard Fruit Company
is Dole Fresh Fruit Company. Standard Fruit’s non-wholly owned
subsidiaries are: Cerveceria Hondurena, S.A.; Fabrica de Man-
taca y Jabon Atlantida, S.A.; Manufacturas de Carton, S.A.; and
Standard Fruit Company de Costa Rica.
2 Standard Fruit actively participated in the negotiations, but
did not sign the Memorandum of Intent. The district court, after
hearing inter alia the testimony of the Head of Standard Fruit’s
Nicaragua Division, considered this fact of “great significance”’
because Standard Fruit “had been the purchaser of bananas and
would be transferring its shares, selling its assets, providing
plaint to add a demand for arbitration. Petitioners
moved to dismiss the breach of contract and arbitra-
tion claims, and Nicaragua then filed a motion to
compel arbitration.
On January 21, 1987, the district court (Hon. John
P. Vukasin, Jr.) heard Nicaragua’s motion and con-
cluded that the alleged making of an arbitration
agreement was “‘in issue,”’ and set the matter for an
evidentiary hearing pursuant to 9 U.S.C. § 4. At Nic-
aragua’s request, the court permitted full discovery
with respect to: (1) whether the Memorandum of In-
tent was intended by the parties to be a binding
contract; (2) if so, whether the language within the
Memorandum of Intent concerning dispute resolution
was intended to evidence a present agreement to ar-
bitrate; and (8) if it was, whether the disputes before
the court were of the type contemplated to fall within
the scope of the agreement to arbitrate.
The district court heard three days of testimony,
including five witnesses who signed the Memorandum
of Intent, and received 92 exhibits and excerpts from
depositions of 10 additional witnesses. On April 14,
1988, the district court entered its Findings of Fact
and Conclusions of Law, in which it found as a matter
technical assistance, and buying and selling bananas under the
contemplated new structure, [but] was not a signatory. This can
only lead to the conclusion that the Memorandum of Intent was
not a purchase agreement or a contract to purchase but was a
statement of ‘political willingness to have Standard Fruit come
back to Nicaragua’ and a statement that would lay the broad
ground rules for the anticipated contract between the Republic
of Nicaragua and the eventual purchaser of bananas.”’ Findings
of Fact ¢ 60. The panel held that this fact was irrelevant. 937
F.2d at 479.
of fact that the Memorandum of Intent was not in-
tended to be, and was not, a contract, and in any
event did not incorporate a present agreement to ar-
bitrate disputes. The court therefore denied Nicara-
gua’s motion to compel arbitration.*
The district court’s findings detailed Petitioners’
pre-Sandinista business arrangements in Nicaragua,
which the 1979 overthrow of the Government ar-
rested. The ruling Junta indicated its intent to assume
greater control over the production and marketing of
bananas. On December 20, 1980, the Junta promul-
gated Decree No. 608, declaring that the banana in-
dustry would thenceforth operate solely as a state
enterprise, that all land leases would be transferred
to the new state enterprise, and that all pre-existing
lease, partnership, and fruit purchase contracts were
nullified. Standard Fruit construed Decree No. 608
as an expropriation of its banana business, and de-
cided to cease operations in Nicaragua.’
3 After determining that Nicaragua’s claims were not arbitr-
able, the district court then proceeded to rule on the merits of
Petitioners’ motions to dismiss the breach of contract claim,
which had been converted into motions for summary judgment.
The court granted summary judgment in favor of defendants,
holding that: (1) Nicaragua had failed to establish any genuine
issue of material fact as to whether any signatory to the Mem-
orandum of Intent was acting or reasonably appeared to be
acting as an agent for Standard Fruit Company, and therefore
granted summary judgment as to Standard Fruit on the breach
of contract count; and (2) the Memorandum of Intent, even if
considered a binding contract, as a matter of law did not con-
stitute a contract for the purchase and sale of bananas over a
five-year period. The Ninth Circuit vacated these holdings and
remanded with instructions to refer the breach of contract issues
to arbitration.
‘In late 1980, Standard Fruit was the only enterprise pro-
8
The parties met, at the Sandinistas’ request, to dis-
cuss whether there was any basis for resumption of
banana operations in Nicaragua. After three days of
meetings, on January 11, 1981, Nicaragua, Castle &
Cooke, and Steamship (but not Standard Fruit) exe-
cuted a document entitled ““Memorandum of Intent.”’
App. at 49a. The Memorandum embodied preliminary
terms of agreement for Standard Fruit to return to
Nicaragua, pursuant to the following contracts that
the parties would subsequently negotiate: (1) a pur-
chase of Standard Fruit’s shares in the banana pro-
duction societies ‘‘under mutually agreeable
conditions” and of Standard Fruit’s assets at a price
to be determined; (2) a fruit purchase contract; and
(8) a technical assistance contract. In essence, Nica-
ragua was to acquire Standard Fruit’s business over
a five-year period, during which Standard Fruit would
resume purchasing fruit and providing technical help.
The Nicaraguan officials themselves stressed the
preliminary nature of the Memorandum, and insisted
on certain changes in the Memorandum to reflect its
preliminary nature. For example, the Nicaraguans ins-
isted upon changing the preamble language from ‘‘the
parties hereby agree,’’ to ‘‘the parties hereby agree
in principle.”’ The Nicaraguans further insisted on di-
lution of the arbitration language in Paragraph IV;
language originally providing that any disputes ‘‘aris-
ing under the arrangements contemplated hereunder’”’
“will be referred to arbitration in London, England,
according to the rules of the London Arbitration As-
sociation”’ was changed to read as follows (as qualified
by the preamble phrase “‘in principle’’):
ducing and marketing bananas in Nicaragua. Standard Fruit thus
properly perceived that it was the target of Decree No. 608.
[a]ny and all disputes arising under the arrange-
ments contemplated hereunder, should same not
be able to be settled amicably settled [sic] by the
parties, will be referred to mutually agreed mech-
anisms or procedures of international arbitration,
such as the rules of the London Arbitration As-
sociation.
(Emphasis added.) Robert Moore, Esq., the General
Counsel of Castle & Cooke and the principal drafts-
man of the Memorandum, testified that Paragraph IV
expressed the parties’ intent that the subsequent con-
tracts discussed in the Memorandum (i.e., the con-
tracts for acquisition of assets; purchase and sale of
fruit; and technical assistance), once finalized, would
include provisions for arbitration.° Nicaragua’s wit-
nesses also testified that the parties expected the con-
templated contracts to include arbitration clauses, and
in fact, all of Nicaragua’s contract drafts contained
such arbitration provisions.
The parties understood that many obstacles re-
mained before an actual contractual arrangement
could emerge. For example, Standard Fruit would
have to obtain the consent of the landowners who
were its partners in the banana production societies
5 Judge Vukasin denied the motion to compel arbitration in
part because ‘‘the testimony of defendants’ witnesses that the
Memorandum was not intended as a binding contract is credible
and consistent with the document’s language, surrounding cir-
cumstances, and the parties’ contemporaneous conduct,’ while
the testimony of plaintiff's witnesses was ‘“‘less credible and
consistent.” Findings of Fact ¢ 57. The court found the testi-
mony of Robert Moore, the principal draftsman of the Memo-
randum, particularly ‘credible and authoritative.”” Findings of
Fact q 69.
10
formed prior to the Sandinista revolution; Nicaragua’s
obligations to assume certain debts and to purchase
certain assets would depend upon an audit according
to generally accepted accounting and evaluation prin-
ciples; Nicaragua would have to form a ‘“‘competent
national entity’’ that would enter into contracts with
the banana production societies as a prerequisite to
a fruit-purchase contract between Standard Fruit and
the ‘‘competent national entity’’; and many significant
terms in the contemplated fruit-purchase contract re-
quired extensive negotiation: definitions of “‘quality,”
the price of other than first-quality fruit, payment
terms, the effective date, the choice of law, shipping
schedules, and provisions for renegotiating prices.
The Memorandum’s conclusion observes:
in accordance with the spirit of compatibility and
cooperation evidenced during the negotiations
hereinabove memorialized, the Government of
Nicaragua and Standard Fruit will take all such
further actions and execute and deliver all such
applications, decrees, documents and/or other pa-
pers as are necessary to the full accomplishment
of the aims expressed herein.
(Emphasis added.)
Much of the Memorandum, including the arbitration
language, was extensively renegotiated between Jan-
uary 11, 1981 and October 25, 1982. Nicaragua’s
drafts departed markedly from even those few terms
that had been defined clearly in the Memorandum of
Intent. Each of the fruit purchase and technical as-
sistance contract drafts exchanged between the par-
ties over 20 months contained its own arbitration
clause, and the parties continued to bargain over the
11
mechanisms to be used, the scope of the clauses, and
the forum for arbitration.
During the course of negotiations, Standard Fruit
resumed operations in Nicaragua in good faith pur-
suant to the limited guidelines in the Memorandum.
For example, it bought first-quality bananas at $4.30
per box, the price agreed in the Memorandum, pro-
vided technical assistance in connection with the
growing of bananas, and deducted 50¢ per box for
amortization of the value of its assets and 25¢ per
box for technical assistance.”
After one year and eight months of negotiations,
none of the contracts contemplated in the Memoran-
dum was ever finalized or signed. Nicaragua’s req-
uisite ‘competent national entity’’ never entered into
a contract with the production societies to purchase
their bananas for resale, and there was therefore
never a fruit purchase contract between the ‘‘com-
petent national entity” and Standard Fruit. The par-
ties never signed a technical assistance contract, nor
did they execute documents establishing the Govern-
ment’s assumption of the partnerships’ debts (which
represented a large part of Standard Fruit’s assets
in Nicaragua). The consent required of all the part-
ners to authorize Standard Fruit’s transfer of its in-
6 James Sousane, General Manager of Standard Fruit’s Nic-
aragua Division, “returned to Nicaragua and operated on the
assumption that the fruit purchase contracts and technical as-
sistance contract would eventually be concluded.”’ Findings of
Fact ¢ 33. “Standard Fruit’s conduct pending execution of im-
plementing contracts was based not on its understanding that '
the Memorandum was a contract requiring it to return to Nic-
aragua immediately, but on a good faith desire to further the
interest of all parties involved.” Findings of Fact ¢ 35.
12
terest in the partnerships to Nicaragua was never
obtained. Standard Fruit’s preexisting lease and fruit
purchase contracts with its partners and the produc-
tion societies were never officially resolved.
Months of protracted negotiation failed to produce
an agreement, and conditions for the conduct of busi-
ness by U.S. multinationals deteriorated under the
Sandinistas. Standard Fruit ceased its banana grow-
ing and purchasing activities in Nicaragua on October
25, 1982. The parties had never even signified accord
on the guidelines in the Memorandum, much less the
multiple essential terms it left to negotiation. Nor did
Nicaragua ever, in the ensuing four years, suggest
that Standard Fruit’s failure to buy bananas after
October 1982 was an arbitrable breach of the Mem-
orandum of Intent.
The facially preliminary nature of the Memorandum
of Intent cast doubt on whether it reflected a binding
agreement, 9 U.S.C. § 4, and the district court there-
fore considered the factual questions of context and
intent. The court found, based on its assessment of
the language in the Memorandum, the circumstances
of the negotiations, and the relative credibility of the
witnesses as to both parties’ intent, that the ““Mem-
orandum reflected a mere agreement to agree’ and
that ‘“‘the Memorandum of Intent does not contain a
present agreement among the signatories to submit
to arbitration, but rather contains a provision declar-
ing the expectations of the parties that contracts to
be negotiated later would include agreements to ar-
bitrate.”’ Findings of Fact 4¢ 63, 65.
The Appellate Court’s Basis for Reversal
On July 1, 1991, the Ninth Circuit reversed the
judgment and remanded the case for an order di-
iemeemeereernne eesti
recting arbitration. The panel held _ that
“{djeterminations of arbitrability, like the interpre-
tation of any contractual provision, are subject to de
novo review.’’ 937 F.2d at 474. The panel therefore
independently reviewed the district court’s Findings
of Fact and Conclusions of Law. It held that the
district court erred in considering the language of the
Memorandum as a whole, and that evidence of
whether the parties actually intended the Memoran-
dum to be binding was irrelevant. 937 F.2d at 479.
The panel held that “where the parties admit to sign-
ing a document that contains an arbitration provision,
. all questions regarding breach of the agreement
must be referred to arbitration.” 937 F.2d at 477
(emphasis added).
REASONS FOR GRANTING WRIT
The Ninth Circuit panel characterized the district
court’s three-day evidentiary hearing as an exercise
in contract interpretation, and thus subject to de novo
review. 937 F.2d at 474. Contract interpretation, how-
ever, presupposes the existence of a “contract.” The
panel’s imposition of a contract as a matter of law,
contrary to the factual finding of the district court,
violates Rule 52(a) of the Federal Rules of Civil Pro-
cedure and the Federal Arbitration Act, which pro-
vides for a jury trial to determine the facts of whether
the parties entered into a binding arbitration agree-
ment. 9 U.S.C. § 4.
The Ninth Circuit panel disregarded the district
court’s factual findings and rendered the opposite
judgment by severing the arbitration language from
its context and reciting the federal policy favoring
arbitration. All that a court need determine, according
to the panel, is that “the parties admit to signing a
14
document containing an arbitration provision.’ 937
F.2d at 477 (emphasis added). The document need
not reflect an agreement at all, much less an agree-
ment to arbitrate. This proposition violates numerous
precedents of this Court and others emphasizing that
a party cannot be forced into arbitration absent a
binding arbitration agreement, and misinterprets this
Court’s pronouncement in Prima Paint v. Flood &
Conklin Mfg. Co., 388 U.S. 395 (1967) (arbitrator must
decide defense of fraudulent inducement of contract
containing otherwise valid and binding arbitration
provision if defense does not apply directly to arbi-
tration provision). Nothing in Prima Paini nullifies
the district court’s statutory duty to examine the con-
text of ambiguous arbitration language and the intent
of the parties on the threshold issue of whether the
parties ever intended to enter into any contract.
I. The Panel Violated Federal Procedure and Split With
Other Circuits by Reviewing De Novo the District
Court’s Factual Findings Concerning the Existence of
a Binding Arbitration Agreement.
When the making of an arbitration agreement is
“in issue,’ the Federal Arbitration Act contemplates
a factual inquiry to resolve that issue, and even pro-
vides for a jury trial to determine it. 9 U.S.C. § 4.
The scope of that factual inquiry plainly embraces
Petitioners’ contention that the parties never entered
a binding agreement. See. Par-Knit Mills, Inc. v.
Stockbridge Fabrics Co., 636 F.2d 51, 54 (3d Cir. 1980)
(order to arbitrate requires ‘‘express, unequivocal
agreement to that effect. If there is doubt as to
whether such an agreement exists, the matter ...
should be submitted to a jury.’’). Because Standard
Fruit did not request a jury, Judge Vukasin sat as
15
factfinder.’? The panel should not have disregarded
application of Rule 52(a) to Judge Vukasin’s Findings
of Fact since one party alleged and the other denied
that there existed an arbitration contract.
The panel’s conceptual error is manifest on the face
of its pronouncement. of independent review:
‘‘[dJeterminations of arbitrability, like the interpre-
tation of any contractual provision, are subject to de
novo review.” 937 F.2d at 474. The issue that pre-
ceded ‘‘contract”’ interpretation, indeed the issue that
triggered the § 4 trial, was whether there ever existed
a contract to interpret. That dispute could not be
resolved as a matter of law. See Par-Knit, 636 F.2d
at 54 (“Only if there is no genuine issue of fact con-
cerning the formation of the agreement should the
court decide as a matter of law that the parties did
or did not enter into (an arbitration] agreement.’’).
Only by assuming that the parties achieved a meet-
ing of the minds, only by appellate fact-finding of the
existence of a contract, could the panel characterize
its review as exclusively ‘contract interpretation.”
But settled federal procedure admits no such mav-
erick appellate rendering of a factual issue, contrary
to the district court finding, unless: (1) the district
court’s decision was clearly erroneous; and (2) “‘the
record permits only one resolution of the factual is-
sue.”” Pullman Standard vy. Swint, 456 U.S. 273, 291-
‘The panel conceded that the district court acquired jurisdic-
tion to decide arbitrability only because Standard Fruit did not
demand a jury trial. 937 F.2d at 475 n.8. A jury finding that
the parties did not enter into an arbitration agreement would
plainly have precluded independent review. Had a jury therefore
concluded precisely as did the district court, the panel presum-
ably would not have confused the appropriate standard of re-
view.
16
92 (1982). ‘Rule 52(a) broadly requires that findings
of fact not be set aside unless clearly erroneous. It
does not make exceptions or purport to exclude cer-
tain categories of factual findings from the obligation
of a court of appeals to accept a district court’s find-
ings unless clearly erroneous. ” Id. at 287.
Against the foregoing fundamental propositions of
appellate procedure, and against the weight of au-
thority in circuits that have addressed this issue, the
panel cited distinguishable cases that involve review-
ing the scope of arbitration language in an acknowl-
edged contract. The panel curiously signals its creation
of a circuit split by citing, without discussion, a Sec-
ond Circuit case that directly conflicts with its con-
clusory rejection of Standard Fruit’s ‘proposed
‘clearly erroneous’ ‘especially deferential’ standard of
review.” 937 F.2d at 474, citing Interocean Shipping
Co. v. National Shipping and Trading Corp., 523 F.2d
527 (2d Cir. 1975), cert. denied, 423 U.S. 1054 (1976).
In Interocean Shipping, as here, the parties dis-
puted ‘‘whether there was a meeting of the minds on
[the] essential terms’’ of a contract containing an ar-
bitration provision. Jd. at 534. The district court held
a four-day evidentiary hearing, decided that a con-
tract did exist, and ordered arbitration accordingly.
Id. The Second Circuit held that ‘‘[w]hether there was
a meeting of the minds is a question of fact’’ subject
to Rule 52(a), and affirmed because the district court’s
“findings that a valid charter party existed were not
clearly erroneous.”’ Id. See also Nordin v. Nutri/Sys-
tem, Inc., 897 F.2d 339, 344 (8th Cir. 1990) (‘‘to the
extent that the district court’s order [denying arbi-
tration] is based on factual findings, our review is
guided by the clearly erroneous standard’’). The Sec-
17
ond and Eighth Circuits, as well as the Third Circuit
in Par-Knit, thus delineate the proper standard from
which the Ninth Circuit now departs.
The panel fails to appreciate the fundamental dis-
tinction between a dispute over the scope of language
in an acknowledged agreement, and a genuine dispute
that any agreement ever existed. The following two
cases cited by the panel* underscore the distinction.
“(T]he issue of arbitrability is a question for the courts
and is to be determined by the contract entered into
by the parties.” Drake Bakeries, Inc. v. Local 50, Am.
Bakery & Confectionery Wkrs. Int'l, 370 U.S. 254,
256 (1962) (emphasis added) (holding employer’s claim
against union within scope of arbitration provision in
acknowledged contract); accord Mediterranean Enter-
prises, Inc. v. Ssangyong Corp., 708 F.2d 1458, 1462-
63 (9th Cir. 1983) (interpreting words of arbitration
provision in acknowledged contract). See also Nordin,
897 F.2d at 344 (district court order denying arbi-
tration ‘‘reviewed de novo only to the extent we are
reviewing the actual language of the arbitration
agreement” but factual findings ‘‘guided by the clearly
erroneous standard’’).
* The panel also cited In re Bubble Up Delaware, Inc. , 684
F.2d 1259 (9th Cir. 1982) (construing liquidated damages pro-
vision of contract) to support de novo review of ‘‘contract inter-
pretation.”” In Bubble Up Delaware, however, the facts were not
significantly disputed, and the Ninth Circuit simply noted in dicta
that the district court incorrectly portrayed a legal conclusion
as a factual finding. Jd. at 1262. The district court in this case
did not incorrectly portray its legal conclusions as factual find-
ings, and the panel did not so hold. Bubble Up Delaware there-
fore fails to support the panel’s overbroad assertion that all
aspects of arbitrability determinations, including findings of fact,
are subject to de novo review.
——
18
The district court based its factual findings not only
on the voluminous documentary evidence before it,
but on the strength of its credibility determinations,
which this Court has characterized as especially de-
serving of appellate deference.
When findings are based on determinations re-
garding the credibility of witnesses, Rule 52(a)
demands even greater deference to the trial
court’s findings; for only the trial judge can be
aware of the variations and demeanor and tone
of voice that bears so heavily on the listener’s
understanding of and belief in what is said. . .
When a trial judge’s finding is based on his de-
cision to credit the testimony of one of two or
more witnesses, each of whom has told a totally
coherent and facially plausible story that is not
contradicted by extrinsic evidence, that finding,
if not internally inconsistent, can virtually never
be clear error.
Anderson v. Bessemer City, N.C., 470 U.S. 564, 573
(1985).
The district court heard three days of live testi-
mony, and specifically found that “‘the testimony of
defendants’ witnesses that the Memorandum was not
intended as a binding contract [was] credible and con-
sistent with the document’s language, the surrounding
circumstances, and the parties’ contemporaneous con-
duct,” and further that ‘‘the testimony of plaintiff’s
witnesses that the Memorandum was intended as a
contract [was] less credible and consistent.’ Findings
of Fact ¢ 57. The court notably credited the testimony
of the principal draftsman as to the meaning of the
ambiguous language of the provision.
19
The Court finds Mr. Moore’s testimony that the
word ‘‘arrangements”’ in Paragraph IV meant the
contracts contemplated in the Memorandum to be
credible and authoritative. Therefore, the phrase
in Paragraph IV of the Memorandum, ‘‘disputes
arising under the arrangements contemplated
hereunder,’ could at best encompass only dis-
putes relating to the interpretation or perform-
ance of any contracts to be made by the parties
which were ‘‘contemplated”’ in the Memorandum
of Intent, such as the contracts for fruit sales,
technical assistance, asset sales, and sales of part-
nership interests. Those final contracts contem-
plated were never concluded. Therefore, 0
disputes, including the disputes before this Court,
can have arisen under them.
Findings of Fact ¢ 69.
The panel ignored the district court’s credibility de-
terminations even though it conceded two obvious
predicates for deference to such factual findings: (1)
the ambiguity of the arbitration provision, 987 F.2d
at 476 (‘‘the key language in Paragraph IV seems
highly ambiguous, since it refers to ‘the arrangements
contemplated hereunder,’ and thus requires extensive
inquiry into just what arrangements are being re-
ferred to’’);* and (2) the relevance of the parties’ in-
tent, id. at 479 (asserting, incorrectly in Petitioners’
view, that the district court failed to consider evi-
dence “‘presented by Nicaragua as to the intent and
scope of the arbitration agreement’’).
% See also 937 F.2d at 473 (‘‘Nicaragua admits that this [ar-
bitration] clause is less than crystal clear and in fact refers to
an association which does not exist.’’).
20
The Ninth Circuit itself, in a case cited but sub-
stantively ignored by the panel, 987 F.2d at 474, set
forth the proper standard for review of findings re-
lating to ambiguity and intent, and illuminated an-
other critical distinction lost on the panel: identifying
contractual ambiguity is a matter of law, but resolv-
ing that ambiguity is a matter of fact. United States
v. City of Twin Falls, 806 F.2d 862, 869 (9th Cir.
1986), cert. denied, 482 U.S. 914 (1987).
The determination of whether contract language
is ambiguous is a matter of law. In re U.S. Fi-
nancial Securities Litig., 729 F.2d 628, 632 (9th
Cir. 1984). “If a provision is ambiguous, however,
its interpretation depends on the parties’ intent
at the time of execution.’’ Kemmis, 767 F.2d at
597. The district court then should make factual
findings as to the parties’ actual intent. Jd. The
district court’s factual findings concerning what
the parties intended, said, and did are reviewed
under the clearly erroneous standard. Id.; Inter-
petrol Bermuda Ltd., 719 F.2d at 998; see also
Laborers Health & Welfare Trust Fund v. Kauf-
man & Broad, 707 F.2d 412, 418 (9th Cir. 1983)
(intent as issue for trier of fact).
Id. If the arbitration provision is ambiguous, and the
district court could properly assess the parties’ intent
as to that provision, as the panel concedes, then fac-
tual findings thereupon trigger the clearly erroneous
standard.'° See Swint, 456 U.S. at 288 (‘‘Treating is-
‘© The panel held that whether the parties intended to be bound
by the Memorandum was irrelevant, a conclusion which
Petitioners dispute in the next section. But even if that ex-
traordinary extension of Prima Paint were valid, and the panel
21
sues of intent as factual matters for the trier of fact
is commonplace.”’); Painewebber, Inc. v. Hartmann,
921 F.2d 507, 510 (8d Cir. 1990) (‘‘Because the inter-
pretation of contractual language to discern contrac-
tual intent is a question of fact, our review is limited
to a determination whether the district court’s find-
ings are clearly erroneous.”’); F'‘DIC v. Air Florida
System, Inc., 822 F.2d 833, 836 n.2 (9th Cir. 1987)
(“If ambiguity exists and the district court makes
factual findings as to the parties’ intent, the court’s
findings will not be disturbed unless clearly erro-
neous’); Seaboard Coast Line R.R. Co. v. Trailer
Train Co., 690 F.2d 1348, 1348 (11th Cir. 1982) (“A
determination by a trial court of what was intended
by the parties in their agreement [to arbitrate] is a
question of fact, not to be disturbed by this court
unless clearly erroneous.”’’).
The panel was not at liberty to disregard the dis-
trict court’s findings absent clear error. The panel’s
disregard of the proper standard of review, its de-
parture from precedent, and its creation of a circuit
split on such a fundamental tenet of federal procedure
demand this Court’s attention. This Court should
therefore grant the Petition for Certiorari, and ulti-
mately restore the viability of Rule 52 in cases under
the Federal Arbitration Act.
could consider the arbitration provision in a vacuum, the panel
remained bound to review for clear error the district court’s
factual findings on the parties’ intent specifically with respect
to the arbitration provision, and the resolution of ambiguity in
that provision. The district court carefully distinguished these
independent bases for denying the motion to compel arbitration.
Findings of Fact ¢ 64, 68. The panel did not.
a
22
II. The Panel Misconstrued Supreme Court Precedent and
Distorted Federal Arbitration Law by Severing Ambig-
uous Arbitration Language from Its Context in a Pre-
liminary Document and Mandating Arbitration Despite
the District Court’s Factual Finding that the Parties
Never Intended to be Bound.
The panel opinion collapses the 9 U.S.C. § 4 trial
to a single dangerously simplistic inquiry: did the par-
ties sign a piece of paper containing arbitration lan-
guage? 937 F.2d at 477. This published holding
stretches Prima Paint v. Flood & Conklin Mfg. Co.,
388 U.S. 395 (1967) far beyond its proper scope and
in fact subverts the very policy favoring arbitration
that the panel repeatedly states that it wants to pro-
mote.
This Court held in Prima Paint that the arbitrators,
not the court, should decide whether a contract con-
taining an arbitration clause that was clear on its face
was fraudulently induced. Only if the allegation of
fraudulent inducement went to the arbitration clause
itself would the issue require judicial resolution. 388
U.S. at 402-04. An arbitration provision may there-
fore be “‘severable’” from the contract in which it
appears. See, e.g., Matterhorn, Inc. v. NCR Corp., 763
F.2d 866, 868-69 (7th Cir. 1985) (‘‘An arbitration
clause will often be ‘severable’ from the contract in
which it is embedded, in the sense that it may be
valid even if the rest of the contract is invalid.’’)
(emphasis added) (cited in Smith Wilson Co. v. Trad-
ing and Development Establishment, 744 F. Supp. 14,
17-28 (D.D.C. 1990) (‘under certain circumstances—
but not always—an arbitration clause is severable from
the rest of the contract and therefore is not ‘infected’
by the dispute going to the contract’s central pur-
pose’’)).
23
In this case, however, both the appellate court and
Nicaragua concede that the arbitration language in
the Memorandum of Intent is ‘‘less than crystal clear’’
(937 F.2d at 473) and in fact “highly ambiguous’”’ (id.
at 476). Under the circumstances, a court simply can-
not divorce the arbitration clause from the rest of
the document and surrounding circumstances in order
to determine if the arbitration language was intended
by the parties as a binding agreement to arbitrate.
In other words, the panel’s misplaced insistence on
severability begs the question of whether there ever
existed a “‘contract’’ from which the arbitration pro-
vision could be severed. The Ninth Circuit itself re-
cently dispelled the notion that Prima Paint required
such question-begging:
By contending that they never entered into such
contracts, plaintiffs also necessarily contest any
agreements to arbitrate within the contracts. To
require the plaintiffs to arbitrate where they deny
that they entered into the contracts would be in-
consistent with the “‘first principle”’ of arbitration
that ‘“‘a party cannot be required to submit [to
arbitration] any dispute which he has not agreed
so to submit.”” AT&T Technologies, Inc. v. Com-
munications Workers, 475 U.S. 648, 648.
Three Valleys Municipal Water District v. E.F. Hut-
ton & Co., 925 F.2d 1136, 1142 (9th Cir. 1991) (em-
phasis added); see also I.S. Joseph Co. v. Michigan
Sugar Co., 803 F.2d 396, 400 (8th Cir. 1986) (district
court’s conclusion that arbitrators should decide chal-
lenge to validity of assignment ‘‘assumes the exist-
ence of an agreement in the first instance. It begs
the issue ... that there is no contractual relation-
ship’’); Pollux Marine Agencies, Inc. v. Louis Dreyfus
eee
24
Corp., 455 F. Supp. 211, 217 (S.D.N.Y. 1978) (‘‘some-
thing can be severed only from something else that
exists’). Quite simply, if the parties did not intend
to promise anything, then neither did they promise
to arbitrate. No case, except for the panel opinion,
stands for the contrary proposition."
It simply cannot be federal law that a signed paper
containing “‘highly ambiguous” arbitration language
dispatches the issue of arbitrability. Again, no case
except the panel opinion so boldly holds. The cases
upon which the panel relies pointedly illustrate the
flaw of its Prima Paint extension. In Prima Paint
itself, the question of whether the parties intended
their contract to be binding at the time they signed
it was not in issue. 388 U.S. at 406. It was clearly
intended to be binding; the question was whether it
had been fraudulently induced. Nor was there any
doubt in that case that the parties had intended to
make an immediately-effective agreement to arbitrate
disputes.
Similarly, the panel’s heavy reliance on Sauer-Ge-
triebe KG v. White Hydraulics, Inc., 715 F.2d 348
(7th Cir.), cert. denied, 464 U.S. 1070 (1984) again
ignores the critical distinction therein that the arbi-
tration clause in the agreement signed by the parties
was, on its face, clearly and unequivocally intended
as binding. Jd. at 349. The Seventh Circuit simply
'! The appellate court conceded the logic of the district court’s
analytical framework, but erroneously concluded that the arbi-
tration statute and Prima Paint compelled a different result.
937 F.2d at 476 n.10. Even so, the panel misunderstood the
district court’s framework. The district court did not analyze
the contractual ‘“‘validity’’ of the Memorandum; it considered
only whether the parties intended to be bound by it.
25
held, consistent with Prima Paint, that allegations of
lack of consideration, unconscionability, and vague-
ness did not retroactively nullify the arbitration
agreement because that agreement did not suffer any
of the alleged defects of the rest of the contract.
‘“Sauer’s promise to arbitrate was given in exchange
for White’s promise to arbitrate and each promise
was sufficient consideration for the other.” Jd. at 350.
Here, by contrast, both the arbitration language and
the document as a whole were highly ambiguous, and
the district court rightly considered extrinsic evidence
and language before determining as a factual matter
that there was no mutual promise to arbitrate because
there was no mutual promise at all.
Arbitration language subject to the doctrine of sev-
erability does not occupy an analytical vacuum. An
arbitration provision is not exempt from the rudi-
ments of contract law. ‘“‘The mere execution of a doc-
ument, however, even assuming that it is executed
by a corporate agent, does not negate the factual
assertion that such signature was not intended to rep-
resent a contractual undertaking.”” Par-Knit Mills, 636
F.2d at 54-55 (holding that a denial, supported by
affidavit, that an arbitration agreement was made
would be sufficient to require a jury—i.e., a factual—
determination on whether there had been a meeting
of the minds). Here, the district court necessarily in-
quired whether the parties actually assented to be
bound by the arbitration language.'* In examining and
12 The district court could not properly evade this necessarily
factual inquiry simply because some of the facts that bore on
whether minds had met overlapped with the merits of the un-
derlying dispute. See Marshall v. Green Giant Co., 942 F.2d 589,
547 (8th Cir. 1991) (district court’s ‘‘obligat{ion] to determine
_
26
resolving that threshold question, the district court
properly considered, inter alia, the following:
e The Memorandum preamble recites that its sets
forth only agreement ‘“‘in principle,’ language
added at the insistence of the Nicaraguans.
Findings of Fact 4§ 23, 32(b).
e Article VIII specifically characterizes the Mem-
orandum as ‘‘memorialized negotiations.” Find-
ings of Fact ¢ 32(d).
e Nicaragua inserted language, both in the ar-
bitration provision and elsewhere, to make the
document less definite. Findings of Fact ¢{ 23,
61.
e Specific binding contracts were to be concluded
only after certain conditions relating to third
parties had occurred. Findings of Fact 44 25-
29, 32(c).
e Essential details were omitted, not only from
the arbitration clause, but throughout the Mem-
orandum. Findings of Fact 44 27, 32(d), 48.
e All drafts of the contracts contemplated by the
Memorandum contained arbitration clauses, and
these clauses differed markedly in form and
content from the arbitration language in the
Memorandum. Findings of Fact 44 44, 45.
The district court properly considered the foregoing
facts, as well as extrinsic evidence, to determine
whether the arbitration agreement was enforceable . . . did not
disappear merely because the topic of enforcement involved is-
sues or facts that were likely to arise again elsewhere in the
case’’).
— °° a
27
whether a contract existed, and to resolve any am-
biguity of the arbitration language. The fact that the
parties signed a “document” does not mean that they
created an agreement. The panel’s aberrant conclu-
sion to the contrary requires this Court’s intervention
to restore the integrity of federal arbitration law and
proper adherence to this Court’s precedents in Prima
Paint and AT&T Technologies.
Ironically, the Ninth Circuit holding subverts the
federal policy favoring arbitration, which the panel
repeatedly recites, by threatening absurd results. Sup-
pose, for example, that two parties memorialize dis-
cussions in a signed document entitled ‘‘Guidelines for
Future Negotiation’ and state in Paragraph 1 that
the provisions are not binding. If Paragraph 20 con-
tains the rudiments of an arbitration clause, e.g., “All
contractual disputes will be resolved by arbitration as
agreed by the parties,”’ the Ninth Circuit’s doctrinaire
insistence on severance would require the court to
disregard what, upon full reading of the document,
was plainly the intent of the parties. If upheld, the
panel holding would cause undue concern that any
pre-contractual discussions about the possibility of ar-
bitration would compel dispute resolution in a forum
they would not have chosen for certain types of dis-
putes. Parties mindful of the Ninth Circuit precedent
would likely tend to avoid discussions about arbitra-
tion provisions altogether.’ These practical conse-
13 See National R.R. Passenger Corp. v. Boston and Maine
Corp., 850 F.2d 756, 760 (D.C. Cir. 1988) (noting that federal
policy favoring arbitration cannot override the will of the parties
by giving arbitration clause greater coverage than parties in-
tended, and that “private parties may be reluctant to agree to
arbitration if they believe that, despite their best efforts to ex-
28
quences of the panel precedent, quite apart from its
legal infirmities, underscore the ironic and undesirable
impact on federal arbitration policy that this Court
should redress.
The legal infirmities of the panel decision, however,
threaten a more fundamental disruption. Federal ar-
bitration jurisprudence rightly promotes the benefits
of arbitration, but this Court’s emphasis on the de-
sirability of commercial arbitration was never in-
tended to manufacture binding arbitration contracts
out of preliminary negotiations. See Volt Information
Sciences, Inc. v. Board of Trustees of Leland Stanford
Junoor Univ., 489 U.S. 468, 478 (1989) (purpose of
Arbitration Act is “’to make arbitration agreements
as enforceable as other contracts, but not more so’’’),
quoting Prima Paint, 388 U.S. at 404 n.12; Me-
Donnell Douglas Finance Corp. v. Pennsylvania Power
& Light Co., 858 F.2d 825, 831 (2d Cir. 1988)
(‘[FJederal policy alone cannot be enough to extend
the application of an arbitration clause far beyond its
intended scope.’’). The panel holding distorts the fed-
eral favoring of arbitration by employing that policy
to circumvent the most fundamental axiom of contract
law: the assent of the parties.
CONCLUSION
The Ninth Circuit panel’s maverick application of
de novo review violates settled federal procedure and
departs from the precedent of other circuits. Its re-
pudiation of the district court’s findings misconstrues
this Court’s directive in Prima Paint and disrupts
press their wishes to the contrary, any slight ambiguity in their
words or deeds can be seized upon to extend their obligation
to arbitrate beyond the terms of their contract.’’).
A
J
;
29
the smooth intersection of federal arbitration law and
contract law established by statute and by this Court’s
pronouncements in AT&T Technologies. Its mischief
warrants review and reversal.
Respectfully submitted,
STEVEN M. SCHNEEBAUM
Counsel of Record
CHARLES E. TALISMAN
G. KENDRICK MACDOWELL
PATTON, Boccs & BLOW
2550 M Street, N.W.
Washington D.C. 20037
(202) 457-6000
Dated: January 15, 1992 Attorneys for Petitioner
APPENDIX
la
APPENDIX A
United States Court of Appeals,
Ninth Circuit.
Nos. 88-2585, 89-15803.
REPUBLIC OF NICARAGUA, a foreign
sovereign, Plaintiff-Appellant,
V.
STANDARD FRUIT COMPANY, Standard Fruit and
Steamship Company,
and Castle & Cooke, Inc., Defendants-Appellees.
Argued and Submitted Oct. 3, 1990.
Decided July 1, 1991.
A foreign government moved to enforce an arbitration
clause contained in a ‘““Memorandum of Intent’ with cor-
porations engaged in fruit business, regarding the pro-
duction and distribution of bananas. The United States
District Court for the Northern District of California, John
P. Vukasin, Jr., J., denied motion. Appeal was taken. The
Court of Appeals, Ferguson, Circuit Judge, held that: (1)
trial court erred by determining validity of arbitration
clause in reference to portions of the memorandum of
intent outside of the arbitration clause; (2) arbitration
clause was a binding provision; and (8) material issues of
fact, precluding summary judgment, existed as to whether
subsidiary of parent and grandparent corporations which
had signed memorandum was bound by arbitration clause.
Reversed and remanded.
2a
1. Arbitration - 73.7(4)
Trial court determinations of arbitrability, like interpre-
tations of any contractual provision, are subject to de novo
review by Court of Appeals.
2. Arbitration - 23.7
District court has little discretion to deny arbitration
motion under Federal Arbitration Act, as Act is phrased
in mandatory terms. 9 U.S.C.A. §1 et seq.
3. Arbitration - 6
Trial court erred by determining that arbitration pro-
vision contained in a ““Memorandum of Intent’’ regarding
the production and sale of bananas, which was severable
from remainder of memorandum, was invalid on grounds
that the rest of the memorandum did not establish a con-
tractual relationship between parties; trial court should
have determined arbitrability by reference only to the ar-
bitration clause. 9 U.S.C.A. §1 et seq.
4. Arbitration - 23.14, 23.16
Courts are strictly limited when determining arbitrabil-
ity of disputes and enforcing agreements to arbitrate, and
must leave merits of claim and any defenses to arbitrator.
5. Arbitration - 6
Trial court incorrectly determined that arbitration pro-
vision in “Memorandum of Intent” regarding production
and sale of bananas, stating that ‘‘any and all disputes
arising under the arrangements contemplated hereunder”
were to be committed to arbitration, was not sufficiently
specific to be enforceable.
6. Arbitratien - 23.7
Trial court determining that arbitration provision con-
tained ‘‘Memorandum of Intent”’ regarding production and
sale of bananas did not commit parties to arbitrate erred
eee
3a
by considering evidentiary factors contained in portions of
the memorandum other than arbitration clause.
7. Arbitration - 6.1
Trial court improperly found that arbitration provision
contained in ‘“‘“Memorandum of Intent’’ covering production
and sale of bananas was invalid, based upon failure of
corporation closely involved with banana activities to sign
memorandum.
8. Arbitration - 23.7
A foreign government’s six-year delay in enforcing ar-
bitration provision of ‘‘“Memorandum of Intent” governing
production and sale of bananas did not preclude assertion
of such rights; efforts had been made to settle dispute
informally prior to invoking request for arbitration.
9. Arbitration - 6
Arbitration provision contained in ‘‘Memorandum of In-
tent’’ regarding production and sale of bananas was not
invalidated by the placement of arbitration clauses in drafts
of agreements intended to replace memorandum.
10. Federal Civil Procedure - 2510
Trial court improperly entered summary judgment on
question of whether ‘Memorandum of Intent” regarding
production and sale of bananas was binding contract; dis-
trict court had relied improperly on credibility findings.
11. Arbitration - 23.15
Question of whether a subsidiary of a corporation which
signed a ‘‘Memorandum of Intent” regarding production
and sale of bananas was bound by arbitration clause was
for court rather than arbitrator.
12. Federal Civil Procedure - 2510
Material issues of fact, precluding summary judgment,
existed as to whether parent and grandparent corporations
4a
which had signed ‘“‘Memorandum of Intent” regarding the
production and sale of bananas were the ostensible agents
of subsidiary which had not signed memorandum, so as to
bind subsidiary to arbitration provision of memorandum;
all parties to memorandum had treated all three corpo-
rations as one entity, subsidiary had opened negotiations
leading to memorandum, and subsidiary’s general manager
testified he did not know which corporation he had been
representing in negotiations leading to memorandum.
13. Federal Civil Procedure - 2510
Material issues of fact, precluding summary judgment,
existed as to whether subsidiary which had not signed a
‘Memorandum of Intent’’ regarding the production and
distribution of bananas was bound by agreement signed
by its parents and grandparent corporations, by virtue of
ratification, so as to be subject to the arbitration provision
of the memorandum; subsidiary had operated pursuant to
terms of memorandum during a 22-month period after it
was signed.
Judith C. Appelbaum, Reichler, Choate, Appelbaum &
Wippman, Washington, D.C., and Paul J. Laveroni, Cooley,
Godward, Castro, Huddleston & Tatum, San Francisco,
Cal., for plaintiff-appellant.
Steven M. Schneebaum, Patton, Boggs & Blow, Wash-
ington, D.C., for defendants-appellees.
Appeal from the United States District Court for the
Northern District of California.
Before SCHROEDER, FERGUSON and BRUNETTI, Cir-
cuit Judges.
FERGUSON, Circuit Judge:
The Republic of Nicaragua appeals from two orders of
the district court which denied its motion to compel in-
’ , a
= 5a
ternational arbitration of a contract dispute (Count I) and
granted summary judgment to Standard Fruit Company
(““SFC’’) and its two parent companies, Standard Fruit and
Steamship Company (‘Steamship’) and Castle & Cooke,
Inc., (““C & C’’),! on Nicaragua’s breach of contract claim
(Count II).
Nicaragua raises three points on appeal. First, it argues
that the questions of whether a document entitled ‘‘Mem-
orandum of Intent’’ was a valid contract and whether
Standard Fruit Company was bound by that contract
should have been referred to arbitration in the first in-
stance, not decided by the district court. Secondly, it con-
tends that disputed issues of material fact exist on the
question of whether the Memorandum of Intent was a
binding contract for the purchase and sale of bananas, or
merely an “agreement to agree’”’ at some later date. Fi-
nally, Nicaragua alleges that a factual dispute exists on
the question of whether the Memorandum of Intent was
executed on behalf of SFC, thus precluding summary judg-
ment on that issue as well.
We hold that although it was the court’s responsibility
to determine the threshold question of arbitrability, the
district court improperly looked to the validity of the con-
tract as a whole and erroneously determined that the par-
ties had not agreed to arbitrate this dispute. Instead, it
should have considered only the validity and scope of ar-
bitration clause itself. In addition, the district court ig-
nored strong evidence in the record that both parties
intended to be bound by the arbitration clause. As all
doubts over the scope of an arbitration clause must be
resolved in favor of arbitration, and in light of the strong
federal policy favoring arbitration in international com-
mercial disputes, Nicaragua’s motion to compel arbitration
should have been granted. Whether the Memorandum was
binding, whether it covered banana purchases, and whether
‘The three companies are herein referred to collectively as ‘“‘Stand-
ard.”
6a
Standard Fruit Company was bound by it are all questions
properly left to the arbitrators. Finally, genuine disputes
of fact exist as to the intent of the parties and the validity
and scope of the Memorandum. Therefore, the grant of
summary judgment to the three defendants is reversed.
FACTS
Since 1970, defendant Standard Fruit Company has been
involved in the production and purchase of bananas in
western Nicaragua. It is a wholly-owned subsidiary of
Standard Fruit and Steamship Company, which purchases
the bananas from SFC and transports and distributes them
in the U.S. Steamship in turn is a wholly-owned subsidiary
of C & C. From 1970 until October 1982, SFC operated
by entering into limited partnership agreements with six-
teen different landowners in Chinandega Province, Nica-
ragua. The equity interest in the partnerships? were
allocated such that the landowners held 80% and SFC held
20%. Secondly, SFC leased the 16 banana plantations from
their owners and assigned those leases to the partnerships.
Third, each partnership entered into an exclusive fruit pur-
chase agreement with SFC, promising to sell all export-
quality bananas from its plantations to SFC.
A. THE REVOLUTION
In 1979, the Sandinistas overthrew the Somoza govern-
ment i: Nicaragua, forming a new “Government of Na-
tional Reconstruction,’”’ led by a three-person junta. The
Sandinistas wished to assume closer control over the ba-
nana industry, and eventually to transfer SFC’s shares in
the partnerships to the Nicaraguan government. For over
a year, the new government discussed these issues with
SFC’s representative in Nicaragua, General Manager
James Sousane.
? These limited partnerships are also referred to as ‘‘banana produc-
tion societies’” and ‘‘banana programs.”’
7a
On June 23, 1980, Nicaraguan Minister of Foreign Trade
Alejandro Martinex Cuenca sent Sousane a memo (at Sou-
sane’s request) which proposed a set of basic guiding prin-
ciples for the new contractual relationship between the
Republic of Nicaragua and SFC, including the transfer
proposal mentioned above. SFC objected to this proposal
on the grounds that it could not transfer its 20% share
in the partnerships to the government without the consent
of its partners. Negotiations continued on this and other
points until December 20, 1980.
On that date, Nicaragua promulgated ‘‘Decree No. 608,”
which declared that the banana industry was to become a
state monopoly, that all plantation leases would be trans-
ferred to a new government agency, and that all preex-
isting lease, partnership, and fruit purchase contracts were
nullified. SFC interpreted this decree as an expropriation
of its business, and immediately ceased all operations in
Nicaragua. Sousane and a few key employees left the coun-
try, and no more bananas were purchased. Both sides were
surprised and upset by the issuance of the decree and the
almost immediate withdrawal of SFC, with the bananas
still ripe on the trees and ready to pick. As a result,
Nicaragua requested a ‘“‘summit meeting’”’ at which SFC
and its two parent companies, Steamship and C & C, could
sort out their differences with the Sandinistas and come
back to the country. The situation had obviously reached
crisis proportions.
B. THE MEMORANDUM
The meeting commenced in San Francisco on Friday,
January 9, 1981, and continued for three days of intense
negotiations, led by C & C Vice-President and General
Counsel Robert Moore (principal draftsman of the Mem-
orandum) and Norton Tennille, Nicaragua’s legal counsel.
On Sunday, January 11, a document entitled ‘“Memoran-
dum of Intent’? was executed by two officers of C & C,
two officers ofSteamship, and two Ministers of Trade and
a
8a
a member of the ruling junta of Nicaragua. Sousane and
other SFC representatives participated in the negotiations
but did not sign the document.’
The Memorandum, termed an “agreement in principle,”
contained an arbitration provision, and envisioned the re-
negotiation and replacement of four operating contracts
between SFC and “‘the competent Nicaraguan national ent-
ity.’’"* These were to include a detail fruit purchase con-
tract, a technical assistance contract, the transfer of SFC’s
shares in the production societies, and Nicaragua’s pur-
chase of SFC’s assets in the country. The Memorandum
also established the essential elements of the fruit purchase
contract: a price term ($4.30 per box, less specified de-
ductions), the length of the contract (five years, although
no dates were specified), and stated that it would cover
all the first-quality bananas produced by the Nicaraguan
growers. Additional provisions rescinded the terms of De-
cree 608 for five years, reinstated SFC’s favored tax sta-
tus, and clarified the financing arrangements for
Nicaragua’s banana industry.
Within a week after the Memorandum was signed, SFC
returned to Nicaragua and resumed its operations there.
In addition, it began negotiating with Nicaraguan officials
regarding the technical assistance and fruit purchase con-
tracts referred to in the Memorandum, as well as the share
transfers and asset buy-outs. Many subsequent drafts of
these four documents were exchanged, some similar to the
* SFC itself was bound by an intricate mesh of prior exclusive con-
tracts with the banana societies and therefore was not able to commit
to the Memorandum without resolving its other commitments first and/
or obtaining the consent of its partners.
‘This entity, apparently set up in 1980 or 1981, was called BAN-
ANIC, and worked with the partnerships and SFC until mid-1981. At
that point, another government agency was created, called the Pro-
grama Bananero de Occidente, or EMBANOC, which also dealt with
SFC until its final departure from the country in October 1982.
9a
Memorandum and some not, although none were ever fin-
alized and executed.
Throughout the negotiations and for the next 22 months,
SFC complied with the terms of the Memorandum as
though it were bound by it. For example, it began paying
$4.30 per box of bananas, rather than $1.26 as it had been
paying up to that time, and bought over $30 million worth
of bananas at that price. Nicaragua, in turn, began allow-
ing the $.75 per box deduction, for asset buy-back, debt
reduction and technical assistance, for a total rebate of
over $3.5 million to SFC over the two years. During this
period, C & C and SFC produced and disseminated a num-
ber of documents which referred to the Memorandum as
a “‘a contract,’”’ a ‘“‘commitment,” or “‘a final agreement,”’
several of which were signed and/or approved by Robert
Moore. These included a C & C press release sent out the
day after the Memorandum was signed, SEC reports, An-
nual Reports, letters, telexes, letters to the editor, and
internal memoranda. Although SFC, Steamship, C & C,
and Nicaragua all acted as though the Memorandum was
binding for almost two years, the implementing contracts
were never finalized, and SFC left Nicaragua for good on
October 25, 1982.
The arbitration clause states that:
Any and all disputes arising under the arrangements
contemplated hereunder ... will be referred to mu-
tually agreed mechanisms or procedures of interna-
| tional arbitration, such as the rules of the London
Arbitration Association.
Nicaragua admits that this clause is less than crystal clear
and in fact refers to an association with does not exist.
However, it introduced a letter written by Robert Moore,
principal draftsman of the Memorandum to explain the
inconsistency. The letter, written to Nicaragua’s repre-
sentative only three weeks after the negotiations, de-
scribed the ‘deep sense of urgency on both sides,’’ the
a
10a
“exceedingly tight time schedule,” and the “highly political
nature of the agreement (from the Nicaraguan stand-
point).’’ It explained that, during the negotiations them-
selves, neither side could remember the name of the
arbitration body in London, and stated: ‘‘What resulted
was an agreement providing for arbitration but without
finally fixing the forum or an automatic method of trans-
mitting disputes.’’ Moore suggested ‘“‘we would be better
off agreeing in advance that Paragraph IV was to be read
and interpreted to provide for arbitration by [a certain]
agency,” and concluded ‘I am sure you will agree that it
is best done in the infancy of the agreement and at a time
that negotiations of the implementing agreements are being
worked out.’’ (Emphasis added).* Although this letter seems
to suggest both that C & C intended the clause to be
binding and that the parties intentionally left it vague
because they could not remember the name of the London
arbitration agency, the district court disregarded this evi-
dence.
C. THE DISTRICT COURT OPINION
The district court applied a three-part test for arbitra-
bility: ‘first, whether the parties entered into a contract;
second, that the contract included an agreement to arbi-
trate disputes, and third, that the disputes covered by the
arbitration agreement included those which are before the
Court.”’ It then proceeded to find that the Memorandum
as a whole was nct a binding contract, that the arbitration
provision was not a present agreement to submit to ar-
bitration, but merely ‘‘a provision declaring the expecta-
tions of the parties that contracts to be negotiated later
would include agreements to arbitrate,’ and that in any
event the scope of the clause was not broad enough to
require arbitration of the Memorandum’s enforceability.
* Attached to the letter was a very explicit page-long ‘‘substitute
arbitration clause,’’ providing for arbitration in London pursuant to the
Arbitration Act of Great Britain.
Le
lla
The court determined that the phrase “all arrangements
contemplated hereunder” in Paragraph IV referred only
to the ‘implementing agreements”’ subsequently to be ne-
gotiated, executed, and performed in Nicaragua, and not
to the Memorandum itself.
JURISDICTION
Diversity jurisdiction over the two issues in this con-
solidated appeal is proper under 28 U.S.C. §§ 1332(ay4) &
1603(a), since the case involves a lawsuit between a foreign
state and American citizen corporations. As noted above,
both the denial of arbitration (Count I) and the grant of
summary judgment on the breach of contract claim (Count
IT) are properly before this court. Other counts alleged in
the complaint remain before the direct court.‘
I. NICARAGUA’S MOTION TO COMPEL
Nicaragua contends that the district court erred in de-
nying its motions to compel international arbitration of its
breach of contract claim and to stay judicial proceedings
pending arbitration. It claims that the court should have
limited its inquiry to the narrow question of whether the
parties had, in fact, agreed to submit the validity of the
| contract itself to arbitration. Instead, the district court
| first determined that no binding sales contract existed be-
tween the parties and then proceeded to conclude, based
on a preponderance of the evidence standard, that there
was also no agreement to arbitrate. In the alternative, the
court also found that the scope of the arbitration clause
* We determined in an earlier order that interlocutory appeal was
available for denial of a motion to compel arbitration under 28 U.S.C.
§ 1292(aX1). See Order of March 9, 1989, No. 88-2585, and 9 U.S.C.
§ 16(aX1). The district court certified its grant of summary judgment
on the breach of contract claim (Count II) for interlocutory appeal
pursuant to 28 U.S.C. § 1292(b). This court granted permission to appeal
and consolidated the two cases.
ee
12a
did not cover the question of whether the Memorandum
of Intent was a binding contract.’
[1] Determinations of arbitrability, like the interpreta-
tion of any contractual provision are subject to de novo
review. Mediterranean Enterprises, Inc. v. Ssangyong
Corp., 708 F.2d 1458, 1462-63 (9th Cir. 1983); In re Bubble
Up Delaware, Inc., 684 F.2d 1259, 1264 (9th Cir. 1982);
Drake Bakeries, Inc. v. Local 50, Am. Bakery & Confec-
tionery Wkrs. Int’l, 370 U.S. 254, 256, 82 S.Ct. 1346, 1348,
8 L.Ed.2d 474 (1962). We decline to adopt SFS’s proposed
“clearly erroneous” ‘‘especially deferential’ standard of
review on the threshold question of arbitrability. Cf In-
terocean Shipping Co. v. National Shipping and Trading
Corp., 523 F.2d 527 (2d Cir. 1975), cert. denied 423 U.S.
1054, 96 S.Ct. 785, 46 L.Ed.2d 643 (1976). The district
court’s interpretation of the contract language is a ques-
tion of law to be reviewed de novo. United States v. City
of Twin Falls, 806 F.2d 862, 869 (9th Cir. 1986), cert.
denied 482 U.S. 914, 107 S.Ct. 3185, 96 L.Ed.2d 674
(1987).
[2] Both parties agree that federal substantive law gov-
erns the question of arbitrability. See Moses H. Cone Mem-
orial Hospital v. Mercury Construction Corp., 460 U.S. 1,
24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983); Prima
Paint v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.C.
1801, 18 L.Ed.2d 1270 (1967); Mediterranean Enterprises,
708 F.2d at 1463-4. The Federal Arbitration Act? reflects
’ Nicaragua also challenges the district court’s grant of summary
judgment on the issues of whether the Memorandum is a binding con-
tract and agency, claiming that factual disputes exist and that the
court’s contrary conclusion was clearly erroneous. Since we vacate the
grant of summary judgment and refer the contract issue to arbitration,
we need not decide that question; see Section II for a discussion of
the agency issue.
*The Federal Arbitration Act of 1925, codified at 9 U.S.C. §1 et
seq., reflects the strong Congressional policy favoring arbitration by
13a
‘Congress’ intent to provide for the enforcement of ar-
bitration agreements within the full reach of the Com-
merce Clause.” Perry v. Thomas, 482 U.S. 483, 490, 107
S.Ct. 2520, 2525, 96 L.Ed.2d 426 (1987).
Section 2, therefore, embodies a clear federal policy
of requiring arbitration unless the agreement to ar-
bitrate is not part of a contract evidencing interstate
commerce or is revocable “‘upon such grounds as exist
at law or in equity for the revocation of any contract.”
9 U.S.C. § 2.
Id. at 489, 107 S.Ct. at 2525. The standard for demon-
strating arbitrability is not a high one; in fact, a district
court has little discretion to deny an arbitration motion,
since the Act is phrased in mandatory terms. The Supreme
Court has emphasized that the Act
leaves no place for the exercise of discretion by a
district court, but instead mandates that district courts
shall direct the parties to proceed to arbitration on
issues as to which an arbitration agreement has been
signed.
Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 218, 218,
105 S.Ct. 1238, 1241, 84 L.Ed.2d 158 (1985) (emphasis in
making such clauses ‘‘valid, irrevocable, and enforceable.” § 2. Section
4 states:
The court shall hear the parties, and upon being satisfied
that the making of the agreement for arbitration ... is not
in issue, the court shall make an order directing the parties
to proceed to arbitration in accordance with the terms of
the agreement. ... If the making of the arbitration agree-
ment ... be in issue, the court shall proceed summarily to
the trial thereof .... [T]he court shall hear and determine
such issue [unless] the party alleged to be in default .
demand{s] a jury trial of such issue ..
9 U.S.C. § 4 (emphasis added). Since Standard has not demanded a
jury trial on the issue of arbitration, the district court had jurisdiction
to decide arbitrability.
l4a
original). Such agreements, if made, shall be ‘‘rigorously
enforce[d].”’ Jd. at 221, 105 S.Ct. at 1242. The Ninth Cir-
cuit agrees:
Under Section 4 of the Act, the district court must
order arbitration if it is satisfied that ‘the making of
the agreement for arbitration ... is not in issue ...”’
Therefore, the district court ‘“‘can only determine
whether a written arbitration agreement exists, and
if it does, enforce it ‘in accordance with its terms.’ ”’
Howard Elec. & Mech. v. Briscoe Co., 754 F.2d 847, 849
(9th Cir. 1985) (emphasis added, citations omitted). See also
Cone, 460 U.S. at 15, 103 S.Ct. at 936.
However, this “‘ ‘liberal federal policy favoring arbitra-
tion agreements’ ... is at bottom a policy guaranteeing
the enforcement of private contractual arrangements.”
Mitsubishi Motor Corp. v. Soler Chrysler-Plymouth, Inc.
473 U.S. 614, 625, 105 S.Ct. 3346, 3353, 87 L.Ed.2d 444
(1985) (quoting Cone, 460 U.S. at 24, 103 S.Ct. at 941).
“Thus, as with any other contract, the parties’ intentions
control, but those intentions are generously construed as
to issues of arbitrability.”’ Jd. 473 U.S. at 626, 105 S.Ct.
at 3353. Therefore, the only issue properly before the dis-
trict court was whether the parties had entered into a
contract “evidencing a transaction involving commerce”’
under the Act and committing both sides to arbitrate the
issue of the contract’s validity.
Nicaragua contends that the court made three funda-
mental errors below. First, it argues that the district court
improperly looked to the contract as a whole to determine
arbitrability, which is impermissible under Prima Paint v.
Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801,
18 L.Ed.2d 1270 (1967); secondly, that it held Nicaragua
to an incorrect and overly harsh standard of proof for
arbitrability, in violation of clear federal policy; and thirdly,
that the court’s interpretation of the scope of the arbi-
tration clause was clearly erroneous on the factual record.
A. THE PRIMA PAINT DOCTRINE
[3] Nicaragua’s primary claim is that the three-part test
applied to determine whether the parties had in fact agreed
to arbitrate violates Prima Paint, which expressly held
that courts may not consider challenges to a contract’s
validity or enforceability as defenses against arbitration.
388 U.S. at 404, 87 S.Ct. at 1806. Relying- on the ‘‘un-
mistakably clear congressional purpose that the arbitration
procedure ... be speedy and not subject to delay and
obstruction in the courts,” id., Prima Paint demands that
arbitration clauses be treated as severable from the doc-
uments in which they appear unless there is clear intent
to the contrary. An arbitration clause may thus be en-
forced even though the rest of the contract is later held
invalid by the arbitrator. Accord, Teledyne, Inc. v. Kone
Corp., 892 F.2d 1404, 1410 (9th Cir. 1990).
As the Arbitration Act only applies to “contracts evi-
dencing transactions in commerce,” courts must first make
a threshold finding that the document at least purports to
be such a contract. 9 U.S.C. § 2; Prima Paint, 388 U.S.
at 401, 87 S.Ct. at 1804. However, in Prima Paint the
Supreme Court did not rule on whether the contract was
valid or enforceable—just that it existed. The Court re-
jected Prima Paint’s argument that it could not be forced
into arbitration because its entire contract (including the
arbitration clause at issue) was fraudulently induced and
therefore void. The Court held that because the fraud did
not go into the making of the arbitration clause itself, the
clause was severable and enforceable. Jd. at 404, 87 S.Ct.
at 1806. It therefore ordered the parties to proceed to
arbitration of all disputed issues, including the questions
of fraud in the inducement and the entire contract’s va-
lidity.
In the instant case, the district court made a preliminary
‘Factual Conclusion’ that the Memorandum “was not in-
— tended as a binding contract,” in direct opposition to the
l6a
Prima Paint rule.’ In addition to providing the basis for
granting summary judgment on the merits, this conclusion
is also the basis for the alternative holdings that no agree-
ment to arbitrate existed, and that the present dispute lay
outside the scope of the clause. All three holdings rely
chiefly on the trial testimony of Robert Moore, who drafted
most of the Memorandum, and on what the court termed
the ‘‘unambiguous” language of the document itself. How-
ever, as Nicaragua correctly points out, Moore’s testimony
directly conflicts with contemporary documents in the re-
cord, which should have precluded any summary judgment.
As a matter of law, the key language in Paragraph I[V
seems highly ambiguous, since it refers to ‘‘the arrange-
ments contemplated hereunder,’’ and thus requires exten-
sive inquiry into just what arrangements are being referred
to. Finally, many of the cases relied on by the district
court are not controlling in this circuit, and several favor
Nicaragua’s position rather than SFC’s.'°
* The district court reasoned that an arbitrator can derive his or her
power only from a contract, so that when there is a challenge to the
existence of the contract itself, the court must first decide whether
there is a valid contract between the parties. Although this appears
logical, it goes beyond the requirements of the statute and violates the
clear directive of Prima Paint, 388 U.S. at 404, 87 S.Ct. at 1806. See
discussion below.
‘© The district court relied heavily on a New York case, Pollux Marine
Agencies v. Louis Dreyfus Corp., 455 F.Supp. 211 (S.D.N.Y. 1978),
which has never been followed in our circuit and conflicts with Prima
Paint and Mediterranean Enterprises, 708 F.2d 1458 (9th Cir. 1983).
Pollux denied arbitration on the grounds that a challenge to the entire
contract went to “the making”’ of the arbitration clause, and that the
scope of the clause at issue was narrow. See 455 F.Supp. at 218. Since
Pollux is not the law in the Ninth Circuit, reliance on it here is ques-
tionable.
Several of the other cases cited below do not support the district
court’s conclusion. See A.T.T. Technologies v. C.W.A., 475 U.S. 643,
106 S.Ct. 1415, 89 L.Ed.2d 648 (1986); French v. Merrill Lynch, 784
F.2d 902 (9th Cir. 1986); Howard Elec. v. Frank Briscoe Co., 754 F.2d
17a
For example, the district court cited Georgia Power Co.
v. Cimarron Coal Corp., 526 F.2d 101, 106 (6th Cir. 1975),
cert. denied, 425 U.S. 952, 96 S.Ct. 1727, 48 L.Ed.2d 195
(1976), for the proposition that the arbitration provisions
of a proposed agreement must be interpreted-in their con-
text rather than alone. However, that statement was made
» in reference to the strict presumption favoring arbitration,
in the context of affirming an arbitration order. Thus, it
has no relevance to Prima Paint’s clear directive that
courts disregard surrounding contract language and “‘con-
sider only issues relating to the making and performance
of the agreement to arbitrate.’ 388 U.S. at 404, 87 S.Ct.
at 1806. The correct analysis is set forth in Sauer-Getriebe
KG v. White Hydraulics, Inc., 715 F.2d 348, 350 (7th
Cir.1983), cert. denied, 464 U.S. 1070, 104 S.Ct. 976, 79
L.Ed.2d (1984):
White argues that if there is no contract to buy and
sell motors there is no agreement to arbitrate. The
conclusion does not follow its premise. The agreement
to arbitrate and the agreement to buy and sell motors
are separate. Sauer’s promise to arbitrate was given
in exchange for White’s promise to arbitrate and each
promise was sufficient consideration for the other.
Id. There, the Seventh Circuit ordered arbitration despite
the facts that the district court had found the contract
“vague and ambiguous,” and construed it against its draf-
ter.'! See also Teledyne, Inc. v. Kone Corp., 892 F.2d 1404,
1410, (9th Cir. 1990).
847 (9th Cir. 1985); Schacht v. Beacon Ins. Co. 742 F.2d 386 (7th Cir.
1984); Sigety v. Axelrod, 535 F.Supp. 1169, 1172 (S.D.N.Y.1982). In all
these cases, the parties ultimately were ordered to arbitrate.
‘The district court’s decision here makes no mention of this basic
rule of contract construction, because it adopted Standard’s proposed
Findings and Conclusions word for word. While this does not constitute
reversible error, we do scrutinize such findings with extra care. Hagans
v. Andrus, 651 F.2d 622, 626 (9th Cir.), cert denied, 454 U.S. 859, 102
S.Ct. 313, 70 L.Ed.2d 157 (1981).
| —iiiiiiaiai
18a
Thus, in the absence of any evidence that Paragraph
IV of the Memorandum was intended as non-severable, we
must strictly enforce any agreement to arbitrate, regard-
less of where it is found. Under Prima Paint and Teledyne,
we hold that the district court erred in considering the
contract as a whole to determine the threshold question
of whether Nicaragua may enforce the arbitration agree-
ment contained in Paragraph IV.
Three Valleys Mun. Water District v. E.F. Hutton &
Co., Inc., 925 F.2d 1136 (9th Cir.1991), is not to the con-
trary, as that case involved entirely different facts. There,
no issue existed as to whether the Client Agreements which
called for arbitration were valid contracts; instead, the
plaintiffs argued that the Agreements were void because
the signatory was without authority to bind his principals.
As we hold below in response to SFC’s similar argument,
the issue of agency is essentially a legal one and must be
decided by a court. See Part II below; Three Valleys at
1140-1142. However, where the parties admit to signing
a document that contains an arbitration provision, as here
and in Teledyne, all questions regarding breach of the
agreement must be referred to arbitration.
B. ARBITRATION AGREKMENT AND SCOPE
The next question is whether Paragraph IV in fact con-
stitutes an agreement to arbitrate, and whether it encom-
passes the dispute at hand. The district court stated that
the parties had not made any present agreement to submit
all disputes under the Memorandum to arbitration, but
merely agreed to include such clauses in future contracts.
It also made a second alternative statement that the scope
of the clause was too narrow to encompass the breach of
contract issue, citing Mediterranean Enterprises, Inc. v.
Ssangyong Corp., 708 F.2d 1458, 1462-63 (9th Cir.1983).
It is unclear whether these statements were based on the
language of the Memorandum itself, or on the evidence of
the parties’ intent developed during the evidentiary hear-
——— —————
19a
ing. In any case, since ‘‘the issue of arbitrability ‘is to be
determined by the contract entered into by the parties,’
{t]he task before this court remains one of contractual
interpretation.” Jd at 1463 (quoting Drake Bakeries v. Lo-
cal 50, Am. Bakery & Confectionery Wkrs. Int’l., 370 U.S.
254, 256, 82 S.Ct. 1346, 1348, 8 L.Ed.2d 474 (1962); ac-
cord, A.T. & T. Technologies v. Comm. Workers of Amer-
wa, 475 U.S. 648, 648-49, 106 S.Ct. 1415, 1418-19, 89
L.Ed.2d 648 (1986).
[4] However, because of the presumption of arbitrability
established by the Supreme Court, courts must be careful
not to overreach and decide the merits of an arbitrable
claim. Our role is strictly limited to determining arbitra-
bility and enforcing agreements to arbitrate, leaving the
merits of the claim and any defenses to the arbitrator. See
Graphic Comm. Union, Dist. Council #2 v. GCIU-Employer
Retirement Benefit Plan, 917 F.2d 1184 (9th Cir.1990);
Camping Construction Co. v. D.C. Ironwkrs., Local U. #378,
915 F.2d 1333 (9th Cir.1990); Paulson v. Dean Witter Rey-
nolds, Inc., 905 F.2d 1251 (9th Cir. 1990); Teledyne, Inc.
v.Kone Corp., 892 F.2d 1404, 1410 (9th Cir.1990); Howard
Elec. & Mech. v. Briscoe, 754 F.2d 847, 850 (9th Cir.1985).'2
[5] Here, the district court disregarded “the emphatic
federal policy in favor of arbitral dispute resolutiofi [which]
applies with special force in the field of international com-
merce.’ Mitsubishi Motors Corp. v. Soler Chrysler-Plym-
outh Inc., 473 U.S. 614, 631, 105 S.Ct. 3346, 3356, 87
L.Ed.2d 444 (1985); Scherk v. Alberto-Culver Co., 417 U.S.
506, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974); Bremen v.
* See also Muh v. Newberger, Loeb & Co., Inc. 540 F.2d 970, 972
(9th Cir. 1976) (If parties have agreed to arbitrate, ‘‘the entire con-
troversy must be referred to the arbitrator, including the validity of
the contract’’); Sawer-Getriebe KG v. White Hydraulics, Inc., 715 F.2d
348, 350 (7th Cir. 1983), cert. denied, 464 U.S. 1070, 104 S.Ct. 976,
79 L.Ed.2d 214 (1984) (arbitration agreements severable, even where
defenses go to the validity of the contract itself).
20a
Zapata Off-Shore Co., 407 U.S. 1, 15, 92 S.Ct. 1907, 1916,
32 L.Ed.2d 513 (1972); Teledyne, 892 F.2d at 1410. Ac-
cording to the Supreme Court, when international com-
panies commit themselves to arbitrate a dispute, they are
in effect attempting to guarantee a forum for any disputes.
Such agreements merit great deference, since they operate
as both choice-of-forum and choice-of-law provisions, and
offer stability and predictability regardless of the vagaries
of local law:
“The elimination of all such uncertainties by agreeing
in advance on a forum acceptable to both parties is
an indispensable element in international trade, com-
merce, and contracting.”
An agreement to arbitrate before a specified tri-
bunal is, in effect, a specialized kind of forum-selection
clause that posits not only the situs of suit but also
the procedure to be used in resolving the dispute.
Scherk v. Alberto-Culver Co., 417 U.S. at 518-519, 94 S.Ct.
at 2456-2457 (citation omitted). See also Mediterranean,
708 F.2d at 1462-63.'%
The district court also found that the clause’s “lack of
specificity’’ mitigated against its enforcement. However,
the clear weight of authority holds that the most minimal
indication of the parties’ intent to arbitrate must be given
full effect, especially in international disputes. See, e.g.
Bauhinia Corp. v. China Nat’l Machinery and Equip. Co.,
819 F.2d 247 (9th Cir. 1987) (arbitration ordered where
contract contained two incomplete and contradictory ar-
bitration clauses); Mediterranean, 708 F.2d at 1462-63
(broadly construing scope of Korean arbitration clause un-
‘8 The fact that the United States has enacted the International Con-
vention on the Recognition and Enforcement of Foreign Arbitral Awards
as part of the Federal Arbitration Act, 9 U.S.C. §§ 201-208, is further
evidenced of this federal policy. See Mitsubishi, 473 U.S. at 631, 105
S.Ct. at 3356.
2la
der the Act).'* Under this analysis, Paragraph IV here was
not too vague to be given effect, especially when consid-
ered in light of Robert Moore’s letter explaining the am-
biguity.
_ The scope of the clause must also be interpreted |ib-
~ erally:
as a matter of federal law, any doubts concerning the
scope of arbitrable issues should be resolved in favor
arbitration, whether the problem at hand is the con-
struction of the contract language itself or an alle-
gation of waiver, delay, or a like defense to
arbitrability.
Moses H. Cone Mem’l Hosp. v. Mercury Const. Corp., 460
U.S. 1, 24-25, 103 S.Ct. 927, 941-942. See also Three Val-
leys, 925 F.2d at 1144; French v. Merrill Lynch, 784 F.2d
902, 908 (9th Cir. 1986) (if the “purported agreement ...
is susceptible of an interpretation” that would allow ar-
bitration, “‘any doubts ... should be resolved in favor of
arbitration’’); Howard, 754 F.2d at 850 (9th Cir. 1985)
(same).
Mediterranean construed contract language very similar
to the Memorandum at issue here. We stated that a clause
reading “‘[aJny disputes arising hereunder or following the
formation of joint venture ...” was synonymous with
“arising under” (the Memorandum’s term) and held that
it encompassed a count alleging breach of the agreement
itself—precisely the claim at issue here. 708 F.2d at 1461,
‘* See also Weyerhaeuser Co. v. Western Seas Shipping Co., 743 F.2d
635, 637 (9th Cir.), cert. denied, 469 U.S. 1061, 105 S.Ct. 544, 83
L.Ed.2d 431 (1984); Washington Heights v. District 1199, Nat’l Union
of Hosp. & Health Care Employees, 748 F.2d 105 (2d Cir. 1984)
(thoughtful discussion of Prima Paint issue).
22a
1464.5 Under Mediterranean and Cone, we hold that Par-
agraph IV’s commitment to arbitrate ‘‘any and all disputes
arising under the arrangements contemplated hereunder’’
is arguably susceptible of an interpretation that the parties
agreed to arbitrate this claim. As we must resolve all
doubts in favor of arbitration, we hold that this dispute
must be referred to the arbitrators.
C. IRRELEVANT EVIDENCE AS TO INTENT
[6,7] Finally, the district court’s analysis incorporated
several evidentiary factors which are irrelevant as a matter
of law to the question of arbitrability. These included the
language of the Memorandum generally, which is as we
have seen irrelevant under Prima Paint, and the identity
of the signatories, which is relevant only to whether SFC
is also bound. See Bauhinia Corp. v. China Nat’l Machin-
ery and Equip. Co., 819 F.2d 247 (9th Cir. 1987) (arbi-
tration clauses enforceable even if ambiguous); Howard
Elec. & Mech. v. Briscoe Co., 754 F.2d 847, 850 (9th Cir.
1985) (absence of third party no defense to enforcement);
Weyerhaeuser Co. v. Western Seas Shipping Co., 743 F.2d
635, 637 (9th Cir.), cert. dented, 469 U.S. 1601, 105 S.Ct.
544, 83 L.Ed.2d 431 (1984) (same).
[8,9] The district court also found it significant that Nic-
aragua waited until 1987 to invoke its arbitration rights.
However, as Nicaragua correctly points out, a delay in
invoking remedies does not foreclose the remedy. Nica-
ragua would certainly have been within its rights to at-
tempt to settle the dispute informally before proceeding
to arbitration. Finally, the district court concluded that
placing arbitration clauses in all subsequent contract drafts
evidenced Nicaragua’s understanding that the Memoran-
‘8 The district court cited Mediterranean for the proposition that
“arising under’ covers ‘‘a relatively narrow’’ range of disputes. It is
true that we denied arbitration of three other counts in that case as
outside the scope of the arbitration agreement. However, the claim of
breach was sent to arbitration. Jd. at 1464.
23a
dum’s clause was not binding. Nicaragua correctly main-
tains that the subsequent proposals by both sides merely
carried out the commitment established by the Memoran-
dum, and that a preliminary agreement may be binding
under California law regardless of whether subsequent con-
tracts are finalized. See Hotel del Coronado Corp. v. Food-
service Equip. Assn., 783 F.2d 1328, 1325 (9th Cir. 1986);
Seaman’s Direct Buying Service, Inc. v. Standard Oil Le..,
36 Cal.3d 752, 686 P.2d 1158, 206 Cal. Rptr. 354 (1984).
In addition, as noted above, the district court failed to
consider substantial amounts of documentary evidence pre-
sented by Nicaragua as to the intent and scope of the
arbitration agreement, and failed to resolve ambiguities in
favor of arbitration as required by Cone and its progeny.
We hold that the language of the clause at issue here,
read in light of the Prima Paint severability rule and the
strong presumption of arbitrability in international dis-
putes, requires that the arbitration clause be enforced
against C & C and Steamship. Nicaragua’s motion to com-
pel arbitration is granted, and the case remanded to de-
termine the appropriate arbitral agency.
II. SUMMARY JUDGMENT
[10] In reversing the district court’s finding of nonar-
bitrability and remanding for arbitration, we must also
reverse the district court’s grant of summary judgment to
defendants on the issues of whether the Memorandum is
enforceable and has been breached. In so doing, we note
that the district court relied improperly on credibility find-
ings to support its grant of summary judgment on the
parties’ intent. See Aronsen v. Crown Zellerbach, 662 F.2d
984, 591 (9th Cir. 1982), cert. denied, 459 U.S. 1200, 103
S.Ct. 1183, 75 L.Ed.2d 431 (1983); Pepper & Tanner, Inc.
v. Shamrock Broadcasting, Inc., 563 F.2d 391, 393 (9th
Cir. 1977). It also disregarded several factual conflicts be-
tween Nicaragua’s documentary evidence and testimony
presented at the arbitration hearing. .
bn
24a
Because the arbitrators may apply their own rules of
contract interpretation, we need not reach the district
court’s application of the California U.C.C. Statute of
Frauds and the parol evidence rule, or its holding that a
preliminary agreement cannot be a binding contract under
California law. See Cal. Comm. Code § 2201-2204.
[11-13] On the issue of agency, we also reverse the grant
of summary judgment and remand for further proceedings
in the district court. This issue is properly before the court
rather than before an arbitrator. Three Valleys Mun. Water
District v. E.F. Hutton & Co., Inc., 925 F.2d 1136 (9th
Cir. 1991). It is true that the Memorandum of Intent itself
did not expressly name Standard Fruit Company as a
party, and was not signed expressly on behalf of SFC.
However, the court’s finding that Nicaragua presented no
facts on which an inference of agency could be based was
erroneous, since the record contains evidence tending to
demonstrate both ostensible agency and ratification was
presented.
Agency is a question of fact under California law. See
Barclay Kitchen, Inc. v. California Bank, 208 Cal. App.2d
347, 353, 25 Cal. Rptr. 383 (1962); Myers v. Stephens, 233
Cal. App.2d 104, 43 Cal. Rptr. 420 (1965). In particular,
ostensible or apparent agency ‘“‘arises as a result of con-
duct of the principal which causes the third party reason-
ably to believe that the agent possesses the authority.”
Tomerline v. Canadian Indem. Co., 61 Cal.2d 638, 643,
394 P.2d 571, 39 Cal. Rptr. 731 (1964). Furthermore, a
party can be bound to an agreement by subsequent per-
formance whether agency existed or not. Feary v. Aaron
Burglar Alarm, Inc., 32 Cal. App.3d 553, 559, 108 Cal.
Rptr. 242 (2d Dist. 1973). The district court’s grant of
summary judgment to SFC on this issue was premature
and failed to reconcile at least three pieces of conflicting
evidence which tended to demonstrate that C & C and
Steamship did act as agents of SFC.
25a
First, all parties to the Memorandum treated the three
companies as one entity during the contract negotiations. '*
Secondly, it was SFC itself who opened negotiations in
Nicaragua after the revolution, and it continued actively
negotiating a new contractual relationship until a month
before the San Francisco meeting. Third, SFC General
Manager James Sousane was allegedly employed by C &
C and supervised by a Steamship officer, William Swin-
ford, and testified that he did not know which company
he had been representing in San Francisco. This evidence
creates an inference of ostensible agency in Nicaragua’s
favor, and the district court erred in disregarding it.
Furthermore, the court erred in failing to address the
issue of whether SFC ratified its parent companies’ con-
duct, although Nicaragua presented at least two pieces of
documentary evidence on this issue. The first was a letter
from SFC General Manager Sousane to a Nicaraguan Min-
ister, on SFC letterhead, which stated:
Our Company will continue operating in Nicaragua
and will extend to the state the technical assistance
as it has committed itself to doing in the San Fran-
cisco Memorandum of Intent .. .
(Emphasis added.) Secondly, during its 22 months of op-
eration in Nicaragua between the signing of the Memo-
randum and the final pull-out, SFC representatives
transferred company assets to Nicaragua as provided in
the Memorandum. It is not clear what their motive was
for incurring this substantial loss if they did not consider
themselves bound to do so. Finally, it is undisputed that
SFC acted as though it were bound by the Memorandum
for almost two years. Based on these facts, an inference
‘‘ Factual disputes also exist as to the corporate affiliation of the
four C & C and Steamship signatories: Nicaragua’s documentation in-
dicates that each was also an officer or director of SFC, which may
assist in establishing an agency relationship.
26a
is drawn in Nicaragua’s favor that an agency relationship
either existed during the negotiations or that SFC had
subsequently ratified, and therefore is bound by, the Mem-
orandum of Intent.
Therefore, summary judgment dismissing SFC on this
alternative ground was also improper, and the question of
agency is remanded for further consideration by the dis-
trict court in light of this opinion. We emphasize that this
issue is one which the district court itself must decide,
unlike the contractual] issues discussed above, since ‘‘the
‘first principle’ of arbitration [is] that ‘a party cannot be
required to submit [to arbitration] any dispute which he
has not agreed so to submit.’’’ Three Valleys Mun. Water
District v. E.F. Hutton & Co. Inc., 925 F.2d 1136, 1142
(9th Cir. 1991), quoting AT & T Technologies v. Comm.
Workers of America, 475 U.S. 648, 648, 106 S.Ct. 1415,
1418, 89 L.Ed.2d 648 (1986). Thus, unless ostensible agency
or ratification is found on remand so as to bind SFC, only
Steamship and C & C may be required to arbitrate the
claim of breach.
CONCLUSION
The judgment is REVERSED and the case RE-
MANDED for an order directing arbitration. The summary
judgment granted in favor of defendants C & C and
Steamship on Count II is REVERSED. The grant of sum-
mary judgment to SFC on the issue of agency is RE-
VERSED AND REMANDED for further consideration by
the district court in light of this opinion.
27a
APPENDIX B
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
Case No.: C-86-6035 JPV
REPUBLIC OF NICARAGUA, a foreign sovereign,
Plaintiff,
Vv.
STANDARD FRUIT COMPANY, STANDARD FRUIT AND
STEAMSHIP COMPANY, and CASTLE & COOKE, INC..
Defendants.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
The following findings of fact and conclusions of law
are based upon the evidence presented at the hearing of
June 29-July 1, 1987 and the exhibits and depositions filed
with the Court in connection therewith.
I. FINDINGS OF FACT
A. Underlying Factual Findings.
1. Defendant Standard Fruit Company (‘Standard
Fruit’’) is incorporated in Delaware and has corporate of-
fices in San Francisco, California. For tax reasons,
defendant Standard Fruit conducts 95% of its business in
the developing parts of the Western Hemisphere. Standard
Fruit is a production company which enters into contracts
with fruit growers and engages in agricultural develop-
ment and other activities for the purposes of production
and shipment of bananas and other fruit. Defendant-
Standard Fruit is a wholly-owned subsidiary of Standard
Fruit and Steamship Company (““Steamship’’).
28a
2. Defendant Steamship is a wholly-owned subsidiary of
defendant Castle & Cooke, Inc. (‘‘C&C’’). Steamship pur-
chases fruit products from Standard Fruit but does not
buy bananas from growers. Defendant Steamship distrib-
utes and transports fruit products in the United States.
3. Defendant C&C is not in the business of buying ba-
nanas or entering into fruit purchase contracts.
4. Starting in 1970, at the request of the Nicaraguan
government, defendant Standard Fruit set up banana plan-
tations in Western Nicaragua for the purpose of producing
bananas and exporting them to the United States and
other countries.
5. In order to carry out its banana exporting activities,
Standard Fruit entered into several legal arrangements
with landowners in the province of Chinandega, Nicaragua.
6. Standard Fruit entered into three sets of contracts
with landowners participating in the banana programs.
First, it concluded partnership agreements with each of
the landowners pursuant to which the parties invested in
limited liability production partnerships for the purpose of
planting, cultivating, and selling bananas. The equity in-
terests in the production partnerships were allocated such
that the landowners held 80% while Standard Fruit held
20%. Second, it leased plantations from the landowners
and assigned those leases to the partnerships. Third, each
of the partnerships entered into a fruit purchase agree-
ment with Standard Fruit pursuant to which it agreed to
sell exclusively to Standard Fruit all export-quality ba-
nanas they produced.
7. On July 19, 1979, a revolutionary government as-
sumed power in Nicaragua and thereafter created the five-
member, executive-styled National Reconstruction Govern-
ment Junta.
8. From late 1979 until December 1980, Standard Fruit
and the new government discussed the future of the ha-
29a
nana industry in Nicaragua in light of the new govern-
ment’s intent to assume greater control over the purchase
and marketing of bananas. Nicaragua was informed as
early as June 11, 1980 that any negotiations with Standard
Fruit should be conducted with Mr. James Sousane, its
General Manager, who had full negotiation authority. On
June 23, 1980, at Mr. Sousane’s request, Nicaragua’s Min-
ister of Foreign Trade, Mr. Alejandro Martinez Cuenca,
sent Mr. Sousane a memorandum summarizing the gov-
ernment’s proposed ‘‘basic guiding principles for the new
contractual relationship between the Republic of Nicaragua
and Standard Fruit Co.”
9. While Standard Fruit was willing to work with the
Nicaraguan government in developing a new structure, it
communicated to Nicaragua that it could not accept all of
the proposed guiding principles. Standard Fruit explained,
inter alia, that a new structure involving the transfer to
the government of its 20 percent interest in the banana
production societies would be subject to the consent of
Standard Fruit’s partners in those societies.
10. Standard Fruit and Nicaragua exchanged views on
these “basic guiding principles’’ until the Nicaraguan junta
promulgated Decree No. 608 on December 20, 1980.
11. Decree No. 608 declared that the banana industry
thenceforth would be operated solely by a state enterprise
to be created in the future and that all land lease contracts
by local banana plantation owners would be transferred to
the new enterprise. The Decree declared all preexisting
lease, partnership, and fruit purchase contracts nullified.
12. Standard Fruit construed Decree No. 608 as an ex-
propriation of its banana business in Nicaragua and de-
cided to cease operations in Nicaragua.
13. As a result, Mr. Sousane left Nicaragua in late De-
cember 1980; a small number of Standard Fruit employees
also left the country, and Standard Fruit stopped pur-
30a
chasing fruit. No Standard Fruit employees were termi-
nated, nor were equipment or supplies removed from
Nicaragua.
14. As a result of the effort of Mr. Arturo J. Cruz (a
member of the junta), Mr. Don Kirchhoff, the President
of C&C, agreed that high-level officials of C&C would meet
with senior officials of the Nicaraguan government in San
Francisco beginning on January 9, 1981, to discuss whether
there was a basis for Standard Fruit to resume its op-
eration of the Nicaraguan plantations.
15. Four days before the San Francisco meetings began,
Standard Fruit’s partners in the production societies wrote
to Standard Fruit that “the marketing contracts are still
in effect,”’ urging Standard Fruit ‘‘to comply with their
terms” and requesting to be represented in the upcoming
meetings. Standard Fruit’s partners did not, however, par-
ticipate in those meetings.
16. From January 9-11, 1981, the following individuals
among others convened at C&C’s San Francisco head-
quarters: Mr. Leonard Marks, Jr., Executive Vice Presi-
dent and Chief Administrative Officer, C&C; Robert M.
Moore, Esq., Senior Vice President and General Counsel,
C&C; Mr. Robert W. Fisher, Executive Vice President,
Steamship; Mr. William Swinford, Vice President, Steam-
ship; Mr. David DeLorenzo, former General Manager of
Standard Fruit’s Nicaragua Division; Mr. Carlos Mata, le-
gal advisor to the Nicaragua Division; Commander Jaime
Wheelock Roman, Nicaragua’s Minister of Agricultural De-
velopment and Agrarian Reform (possessing a law degree
from the University of Chile); Mr. Alejandro Martinez
Cuenca, Nicaragua’s Minister of Foreign Trade; Mr. Ar-
turo J. Cruz, member of Nicaragua’s junta; Norton T.
Tennille, Esq., a partner of Arnold & Porter, counsel to
Nicaragua; Kay Stubbs, Esq., translator and mzmber of
the Ohio and District of Columbia Bars.
3la
17. All witnesses concur that both sides were repre-
sented by “high-level” delegations.
18. Two of the three officials signing the Memorandum
of Intent on behalf of Nicaragua, Mr. Cruz and Com-
mander Wheelock, had not previously participated in dis-
cussions with Standard Fruit.
19. On January 11, 1981, Nicaragua, C&C, and Steam-
ship executed a document entitled “Memorandum of In-
tent’’ (‘Memorandum’). Messrs. Cruz, Martinez, and
Wheelock signed on behalf of the republic of Nicaragua.
Messrs. Marks and Moore signed on behalf of C&C. Messrs.
Fisher and Swinford signed on behalf of Steamship.
20. Standard Fruit was not a signatory to the Memo-
randum of Intent. Senior officials of Standard Fruit were
present at the time the Memorandum was negotiated but
did not execute it on Standard Fruit’s behalf. The docu-
ment nowhere names Standard Fruit as a party and no-
where notes that any other signatory was signing as
Standard Fruit’s agent.
21. At the meeting in San Francisco, no one represented
to the Nicaraguan delegation that any of the other sig-
natories to the Memorandum were executing the document
on behalf of Standard Fruit.
22. The contents of the Memorandum of Intent evolved
after four or more drafts.
23. During the negotiations over the contents of the
Memorandum of Intent, Nicaragua sought and effected
several changes in its language. At Nicaragua’s request,
the preamble’s language, “the parties hereby agree,”’ was
changed to read “the parties hereby agree in principle.”
At the request of Nicaragua, the direction that the fruit
purchase contracts, which were to be prepared later, would
“be on terms and conditions common to contracts of this
sort,’ was deleted. At Nicaragua’s request, the Memoran-
dum’s language providing that any disputes “arising under
32a
> 66
the arrangement contemplated [t]hereunder”’ ‘“‘will be re-—
ferred to arbitration in London, England, according to the
rules of the London Arbitration Association’? was changed
to provide for only “‘mutually agreed mechanisms or pro-
cedures such as the rules of the London Arbitration As-
sociation.”
24. The Memorandum of Intent established the concep-
tual guidelines under which Standard Fruit would return
to Nicaragua and start to negotiate commercial contracts
with the Nicaraguan government. It was not itself one of
those contracts.
25. The Memorandum of Intent contemplated that the
following documents or contracts would subsequently be
negotiated and executed: documents effectuating Nicara-
gua’s purchase of Standard Fruit shares in the banana
production societies “under mutually agreeable condi-
tions’; documents effectuating Nicaragua’s purchase of
Standard Fruit’s assets at a price to be determined; a
fruit purchase contract; and a technical assistance contract.
26. The reference in the Memorandum to Nicaragua’s
purchase of Standard Fruit’s shares in the production part-
nerships ‘‘under mutually agreeable conditions,’ pertains
to the requirement, under Nicaraguan law, that the ap-
proval of the other partners be obtained before the shares
could be transferred.
27. The Memorandum of Intent contemplated that after
the preexisting contracts to which Standard Fruit was a
party were resolved, Standard Fruit, a nonsignatory to
the Memorandum, would in the future enter a contract
with the ‘‘competent national entity’’ for the purchase of
all bananas produced on the acreage in cultivation at the
time of the ‘Programa Bananero del Occidente.”’ The
Memorandum contemplated that the contract would be for
the term of five years (without specifying starting or end-
ing dates) and would set forth a price of $4.30 per box
F.0.B. Nicaraguan port of loading for first-quality fruit.
— <UL
33a
The price of other-quality fruit was to be negotiated later.
The Memorandum also contemplated that the fruit pur-
chase contract would provide or a set off of 50¢ per box
for the amortization of loans and purchase of assets and
25¢ per box for Standard Fruit’s provision of technical
Services, pursuant to a separate technical services contract.
28. The Memorandum stated that the execution of a
fruit purchase contract was not an automatic event. Such
a contract would be executed only “following the official
resolution without claim or damage of preexisting con-
tracts which might be thought to conflict therewith” and
after or together with the completion of a technical as-
sistance contract.
29. The signatories of the Memorandum understood that
“preexisting contracts” referred at least in part to Stand-
ard Fruit’s contracts with its Nicaraguan partners and the
partnerships which would conflict with any contract by
which Standard Fruit would purchase fruit from anyone
else, such as the “competent national entity.”
30. Paragraph VII of the Memorandum contemplated
that Standard Fruit would provide and be compensated
for technical assistance pursuant to a separate technical
assistance contract to be negotiated in Nicaragua. No such
technical assistance contract had ever been signed, nor was
Standard Fruit willing to conclude such a contract without
simultaneously obtaining a fruit purchase commitment.
31. Paragraph IV of the Memorandum of Intent states:
‘‘Any and all disputes arising under the arrangements con-
templated hereunder, should same not be able to be settled
amicably settled [sic] by the parties, will be referred to
mutually agreed mechanism or procedures of international
arbitration, such as the rules of the London Arbitration
Association.”” The phrase “arrangements contemplated
hereunder” referred to the legal documents subsequently
to be negotiated, executed, and performed in Nicaragua.
The parties intended that all subsequent contracts called
34a
for by the Memorandum would have arbitration clauses,
pursuant to Paragraph IV.
32. The following are some examples among many of
language in the Memorandum of Intent which reveals both
the tentative nature of the document and the parties’ as-
sumption that contractual relationships would result only
at a later time and upon the occurrence of certain specified
events.
a. The document is titled ‘‘Memorandum of Intent.’’
b. Its preamble states that the parties have agreed only
“in principle.”’
c. In Article VII, entitled ‘‘Basic Operational Aspects
of Production,’ the Memorandum states that the Gov-
ernment of Nicaragua and Standard Fruit ‘‘shall enter
a contract (following the official resolution without claim
or damage of preexisting contracts which may be
thought to conflict therewith) ... for the purchase of
all bananas ...’’ [Emphasis supplied.] That provision
further states that the fruit purchase contract ‘shall
be”’ entered into with a competent national entity, which
“shall’’ in turn contract with the production societies.
d. In Article VIII, the Memorandum states:
The parties agree that in accordance with the
spirit of compatibility and cooperation evidenced
during the negotiations hereinabove memorialized,
the Government of Nicaragua and Standard Fruit
will take all such further actions and execute and
deliver all such applications, decrees, documents
and/or other papers as are necessary to the full
accomplishment of the aims expressed herein.
(Emphasis supplied.)
33. About a week after January 11, 1981, Mr. Sousane
returned to Nicaragua and operated on the assumption
that the fruit purchase contracts and the technical assist-
35a
ance contract would eventually be concluded. A few em-
ployees were brought back into the country. No employees
had been terminated, so none needed to be rehired.
34. About a week after January 11, 1981, Standard
Fruit returned to Nicaragua, started negotiating the fruit
purchase and technical assistance contracts, and began
working with Nicaragua to achieve the transfer of Stand-
ard Fruit’s partnership shares. In the meantime, Standard
Fruit bought all first-quality bananas at $4.30 per box,
provided technical assistance in connection with the grow-
ing of bananas, and deducted 50¢ per box for amortization
of debt and 25¢ per box for the technical assistance. In
those respects, Standard Fruit operated ‘‘as though” the
contracts whose negotiation was beginning were already
in force.
35. Standard Fruit’s conduct pending execution of im-
plementing contracts was based not on its understanding
that the Memorandum was a contract requiring it to return
to Nicaragua immediately, but on a good faith desire to
further the interest of all parties involved.
36. Standard Fruit’s 1981-82 internal budget report
Stated that “ ‘the good faith’ document signed in San
Francisco presumably will allow us to operate effectively
here for at least another two years.”
37. A telex from Nicaragua’s Washington lawyer, Wil-
liam Rogers, Esquire, a few days after the execution of
the Memorandum of Intent, reveals the following contem-
poraneous (and clearly correct) interpretation of the Mem-
orandum:
The Memorandum of Intent contemplates that
Standard Fruit will resume its traditional position
in the Nicaraguan Industry, and that Nicaragua
and Standard Fruit will sign a new contract, after
preexisting contracts are resolved. ... That new
contract has not yet been signed.
36a
38. After January 11, 1981, certain of C&C’s public
statements, such as press releases, annual reports, and
SEC filings, refer to the document signed on January 11,
1981 as a “final agreement.” This terminology is consist-
ent with the view of C&C and Steamship signatories that
the Memorandum of Intent effected a final resolution of
the “‘basic principles’’ which were to govern new contrac-
tual relationships.
39. C&C’s form 10-K for the period ending June 20,
1981 stated that C&C and Nicaragua have entered into a
“general agreement that should ensure a continuation of
normal business operations in Nicaragua.’’ (Emphasis sup-
plied.) The form states that the general agreement
will be implemented through a five-year purchase
contract for purchase of banana production by
the Company and purchase of the Company’s as-
sets by the Government of National Reconstruc-
tion of the Republic of Nicaragua. Another
contract contemplated in the general agreement
provides for a continuation of technical assist-
ance. Both this latter contract and the purchase
contract are being finalized.
40. After January 11, 1981 and until October 25, 1982,
Standard Fruit and Nicaraguan officials engaged in ne-
gotiations regarding the contracts contemplated in the
Memorandum of Intent. During the period, draft contracts
were frequently exchanged.
41. Standard Fruit first presented a draft agreement
reiterating most of the conditions contemplated in the
Memorandum of Intent.
42. Nicaragua responded with four draft contracts: a
draft fruit purchase agreement, a draft technical assistance
agreement, a draft contract for purchase and sale of
Standard Fruit’s assets and Nicaragua’s assumption of the
37a
partnerships’ debts, and a general draft contract between
the Government of Nicaragua.
43. Like Standard Fruit’s initia] draft, Nicaragua’s gen-
eral draft contract contained provisions reiterating or sim-
ilar to many of the general agreements in principle
established in the Memorandum of Intent. This suggests
that neither party felt it was already contractually bound
to those provisions.
44. All of the fruit purchase and technical assistance
contract drafts exchanged during the entire period of ne-
gotiations contained arbitration clauses. These clauses dif-
fer markedly from the language in Article IV of the
Memorandum of Intent. For example, the early drafts of
the technical assistance contract, the fruit purchase con-
tract, and the general agreement specified the scope of
the arbitration clause as covering ‘any disputes arising
out of the interpretation and enforcement of this Agreement
and out of the legal instruments wmplementing it.’’ A later
draft fruit purchase contract defined the arbitration
clause’s scope to cover ‘‘any dispute, difference of opinion
or claim which may arise out of or be related to this
Contract, its interpretation or its nonfulfillment, termi-
nation or invalidity ...”
45. One arbitration clause proposed by Nicaragua pro-
vides for submission of the dispute to a referee or arbi-
tration in accordance with the rules of the Inter-American
Commercial Arbitration Commission.
46. In the first draft contracts, Nicaragua’s proposals
frequently departed from the terms discussed in the Mem-
orandum of Intent that Nicaragua now argues were bind-
ing in all respects. For example, Nicaragua’s draft fruit
purchase agreement included a provision under which the
five-year term could be shortened if the debt owed to
Standard Fruit was fully amortized in a shorter time. In-
stead of providing for a 25¢ per box deduction for technical
assistance, the Nicaraguan technical assistance contract
38a
draft proposed an annual cap of $1.5 million. Instead of
providing for deductions on all bananas purchased by
Standard Fruit, Nicaragua proposed that the deductions
be allowed only for first-quality bananas, although Nica-
ragua took the position (contrary to what its witnesses
testified) that Standard Fruit was obligated to purchase
second-quality fruit as well.
47. In a later proposal, Nicaragua attempted to reserve
the option to sell bananas on a C.I.F. basis, even though
the Memorandum of Intent specified that the price in the
fruit purchase contract would be F.0.B.
48. The last complete fruit purchase contract draft pre-
pared eights months after the Memorandum reveals un-
resolved disputes over the price of second-quality fruit,
compensation for fruit not packed, premiums for first-qual-
ity fruit, failure to obtain 90% of the required minimum
number of boxes of bananas, and many other terms.
49. At the time the Memorandum was signed, no entity
of the Nicaraguan government held title to any bananas.
Nicaragua had not acquired bananas to sell from the par-
ties who owned them.
50. Nicaragua did not at any relevant time enter into
a contract with the production societies to purchase their
bananas for resale to defendants.
51. Standard Fruit and Nicaragua never signed a tech-
nical assistance contract, nor did they execute documents
establishing the government’s assumption of the partner-
ship debt.
52. Despite the efforts of Nicaragua and Standard Fruit,
the consent required of all of the partners to authorize
Standard Fruit’s transfer of its shares to Nicaragua was
never obtained.
53. No evidence was presented to suggest that Standard
Fruit’s preexisting lease and fruit purchase contracts with
39a
its partners and with the production societies ever were
officially resolved.
54. On October 25, 1982, when Standard Fruit ceased
its banana growing and purchasing activities in N icaragua,
Standard Fruit and Nicaragua had neither finalized nor
signed the fruit purchase contract they had been negoti-
ating.
55. The issues now before this Court arose in or before
October 1982, when Standard Fruit left Nicaragua. From
October 1982 until November 3, 1986, Nicaragua made no
written demand for defendants to submit to arbitration.
When Nicaragua finally sought a forum to resolve its dis-
pute, it selected this Court and filed a Complaint on Oc-
tober 25, 1986, which neither requested nor even
mentioned arbitration. Even after amending its Complaint
to preserve an option to arbitrate, Nicaragua did not com-
mit to that option until December 31, 1986 when
defendants moved to dismiss the bulk of its claims and
filed substantial counterclaims.
B. Conclusion from the Facutal Findings
(i) Is the Memorandum of Intent a Contract?
56. As the trier of fact, the Court finds that plaintiff
has failed to show by a preponderance of the evidence that
the Memorandum of Intent was a contract.
°7. On balance, the testimony of defendants’ witnesses
that he Memorandum was not intended as a binding con-
tract is credible and consistent with the document’s lan-
guage, the surrounding circumstances, and the parties’
contemporaneous conduct. The court finds the testimony
of plaintiff's witnesses that the Memorandum was intended
aS a contract to be less credible and consistent.
98. The history of negotiations prior to January 11, 198]
Suggests that the parties were discussing only “‘basic prin-
40a
ciples’’ and were not making contractual commitments.
Further, the evidence shows the clear understanding of
the negotiators present at the San Francisco meetings that
final contracts would be concluded in the future by Stand-
ard Fruit, a nonsignatory to the Memorandum of Intent,
after, inter alia, the resolution of existing contracts with
third parties and the consent of third parties to critical
elements of the proposed new structure.
59. There is no evidence that contracts for the sale and
purchase of bananas or other fruit products has ever been
negotiated by the highest level government officials of any
nation and the most senior officers of a corporation or a
parent corporation. As a plaintiff witness testified, if the
parties were “... negotiating a commercial contract ...”’
there was no need to have members of the junta, two
ministers, to sign the Memorandum of Intent. This, in and
of itself, supports the contention that the Memorandum of
Intent was not a contract for the sale and purchase of
bananas but rather was an agreement to agree.
60. Of great significance is the fact that officers of
Standard Fruit were present and participated in the meet-
ing of January 9-11, 1981 but did not sign the Memoran-
dum of Intent. Thus, the company that had been the
purchaser of bananas and would be transferring its shares,
selling its assets, providing technical assistance, and buy-
ing and selling bananas under the contemplated new struc-
ture, was not a signatory. This can only lead to the
conclusion that the Memorandum of Intent was not a pur-
chase agreement or a contract to purchase but was a state-
ment of ‘‘political willingness to have Standard Fruit come
back to Nicaragua’ and a statement which would lay the
broad ground rules for the anticipated contract between
the Republic of Nicaragua and the eventual purchaser of
bananas.
61. The Memorandum of Intent is replete with language
indicating its preliminary nature. It significantly lacks lan-
4la
guage acknowledging contractual status, which supports
the conclusion that the Memorandum is not a binding con-
tract. In several instances, language in the drafts of the
Memorandum of Intent was softened at Nicaragua’s re-
quest. These changes suggest that no contractual com-
mitments were being made.
62. A general draft contract submitted by Nicaragua
after January 11, 1981, incorporating the provisions of the
Memorandum of Intent, presumably to be signed by Stand-
ard Fruit and a competent national entity, evidences Nic-
aragua’s contemporaneous perception that the
Memorandum of Intent itself was not a binding contract.
63. Based on all of the foregoing, the Court finds that
the Memorandum reflected a mere agreement to agree.
The Memorandum of Intent was not a contract under which
disputes must be submitted to arbitration.
(ii) Does Paragraph IV of the Memorandum Evi-
dence an Agreement to Arbitrate?
64. Although the Court’s finding that the Memorandum
was not a contract renders the remaining issues regarding
arbitration moot, the Court will address the second issue
of whether Paragraph IV of the Memorandum of Intent
evidenced a present agreement to arbitrate certain dis-
putes. The Court finds that it did not.
65. The language of the Memorandum itself, contem-
plating future arrangements which required the active par-
ticipation of nonsignatories, the identity of those who
signed the documents, and the lack of specificity in the
arbitration clause itself, compel the Court’s conclusion that
the Memorandum of Intent does not contain a present
agreement among the signatories to submit to arbitration,
but rather contains a provision declaring the expectations
of the parties that contracts to be negotiated later would
include agreements to arbitrate. This interpretation is am-
42a
ply supported by the clause’s principal draftsman, Robert
M. Moore, and by his counterpart, Norton Tennille.
66. The fact that all drafts of the fruit purchase and
technical assistance contracts presented by both parties
after January 11, 1981 included arbitration clauses also
supports the view that the language in Paragraph IV of
the Memorandum reflected the parties’ intent that all con-
tracts negotiated pursuant to the Memorandum would con-
tain arbitration clauses. Had Nicaragua intended Paragraph
IV of the Memorandum to be binding, there would have
been no need to include arbitration clauses in its drafts
of the fruit sales or technical assistance contracts.
67. Finally, Nicaragua’s failure to demand arbitration
from October 1982 through the time the Complaint was
filed evidences Nicaragua’s understanding that no agree-
ment to arbitrate had been concluded.
C. Do the Disputes Before the Court Fall Within
the Scope of Any Agreement to Arbitrate?
68. Even if the parties entered a valid agreement to
arbitrate, plaintiff has failed to show by a preponderance
of the evidence that the interpretation or enforcement of
the Memorandum of Intent is within the scope of that
agreement.
69. The Court finds Mr. Moore’s testimony that the
word ‘‘arrangements” in Paragraph IV meant the con-
tracts contemplated in the Memorandum to be credible and
authoritative. Therefore, the phrase in Paragraph IV of
the Memorandum, ‘disputes arising under the arrange-
ments contemplated hereunder,’ could at best encompass
only disputes relating to the interpretation or performance
of any contracts to be made by the parties which were
“contemplated” in the Memorandum of Intent, such as the
contracts for fruit sales, technical assistance, asset sales,
and sales of partnership interests. Those final contracts
contemplated were never concluded. Therefore, no dis-
43a
putes, including the disputes before this Court, can have
arisen under them.
II. CONCLUSIONS OF LAW
A. Plaintiff’s Motion to Compel Arbitration
1. This hearing was held pursuant to the United States
Arbitration Act, 9 U.S.C. § 4, which provides that when
the making of an agreement to arbitrate is in dispute, the
Court shall proceed summarily to the trial of that issue.
2. In order for Nicaragua to prevail on its motion to
compel arbitration, it must demonstrate three things: first,
that Nicaragua and defendants entered into a contract:
second, that the contract included an agreement to arbi-
trate disputes; and third, that the disputes covered by the
arbitration agreement included those which are before the
Court. 9 U.S.C. §1 et seq .; Pollux Marine Agencies, Inc.,
v. Louis Dreyfus Corp. 455 F. Supp. 211 (S.D.N.Y. 1978):
AT&T Technologies, Inc. v. Communications Workers of
America, 475 U.S. 643, 651, 106 S. Ct. 1415, 1420 (1986);
French v. Merrill Lynch, Pierce, Fenner & Smith Co., Inc.,
784 F.2d 902, 908 (9th Cir. 1986).
3. The first issue before the Court is whether the Mem-
orandum of Intent is a contract. Since the arbitrator can
derive his power only from a contract when a party chal-
lenges its existence, the Court must decide whether there
is a contract between the parties. Sigety v. Axelrod, 535
F. Supp. 1169, 1172 (S.D.N.Y. 1982); Schacht v. Beacon
Ins. Co., 742 F.2d 386, 389-90 (1984).
4. A mere “agreement to agree” is not a contract and
has no legal force. Alaimo v,. Tsunoda, 215 Cal. 2d 94,
97; 29 Cal Rptr. 806, 807 (Ist Div. 1963). Carter v. Mile-
stone, 170 Cal. App. 2d 189: 338 P.2d 569, 571 (2d Dist.
1959).
o. If a contract exists, it is the Court’s responsibility
to interpret it to the extent of determining whether the
44a
parties intended to arbitrate any disputes regarding it.
AT&T Technologies, Inc. v. Communications Workers of
America, 475 U.S. 648, 651, 106 S. Ct. 1415, 1420 (1986);
Howard Electric v. Frank, 754 F.2d 847, 850 (9th Cir.
1985).
6. The arbitration provisions of a purported agreement
must be interpreted in their context rather than alone.
Georgia Power Co. v. Cimarron Coal Corp., 526 F.2d 101,
106 (6th Cir. 1975), cert. denied, 425 U.S. 952 (1976).
7. Even if the parties agreed to arbitrate some disputes,
the Court cannot compel the parties to arbitrate issues
not within the scope of an arbitration agreement. F’rench
v. Merril Lynch, Pierce, Fenner & Smith Co., Inc., 784
F.2d 902, 908 (9th Cir. 1986); Weyerhauser Co. v. Western
Seas Shipping Cv., 568 F. Supp. 1220, 1222 (N.D. Cal.
1983), affd, 743 F.2d 635 (9th Cir.), cert. denied, 469 U.S.
1061 (1984).
8. The words “arising under’ when used in an arbitra-
tion provision are generally construed as intended tu cover
a narrow scope of disputes. Mediterranean Enterprises,
Inc. v. Ssangyong Corp., v. 708 F.2d 1458, 1464 (9th Cir.
1983). The Court has found as a matter of fact that the
parties agreed only that subsequent contracts would con-
tain arbitration clauses and did not in the Memorandum
agree to arbitrate questions of its interpretation.
9. Because this Court has found as a factual matter that
the Memorandum of Intent is not a contract, plaintiff's
motion to compel arbitration must be denied. Alternatively,
plaintiff's motion must be denied because the Court has
found as a matter of fact that the parties did not enter
into a present agreement to arbitrate; and/or that the
parties did not agree to arbitrate the type of disputes
presently before this Court.
10. Count I of plaintiff's Amended Complaint must he
dismissed by virtue of plaintiff’s failure to establish by a
45a
preponderance of the evidence that the disputes before the
Court must be arbitrated.
B. Standard Fruit’s Motion for Summary Judgment
11. In order for-defendant Standard Fruit Company to
prevail on its motion for summary judgment, it must dem-
onstrate that there is no genuine issue of material fact
and that it is entitled to judgment as a matter of law.
Fed. R. Civ. P. 56.
12. Because the Memorandum of Intent does not ex-
pressly make Standard Fruit Company a party and nobody
signed expressly on behalf of Standard F ruit, a prima facie
case has been made that Standard Fruit is not bound
thereby whatever the legal force of the Memorandum. A
corporate subsidiary is not bound by the mere fact that
its parent has executed a document. Interocean Shipping
Co. v. National Shipping and Trading Corp., 523 F.2d
527, 539 (2d Cir. 1975), cert. denied, 423 U.S. 1054 (1976).
13. The law does not presume an agency relationship.
It is plaintiff's burden to establish facts sufficient to es-
tablish a dispute whether the officials signing the Memo-
randum of Intent were acting as Standard Fruit’s agents
or that some action by Standard Fruit reasonably led Nic-
aragua to believe they were so acting. Myers v. Stephens,
233 Cal. App. 2d 104, 43 Cal. Rptr. 420 (1st Dist. 1965);
Barclay Kitchen, Inc. v. California Bank, 208 Cal. App.
2d 347, 25 Cal Rptr. 383 (2d Dist. 1962); Keepelman v.
Hevkes, 111 Cal. App. 2d 475, 245 P.2d 54 (1952).
14. Nicaragua has presented no facts on which an in-
ference of actual or ostensible agency could be based.
Standard Fruit therefore is not a party to the Memoran-
dum, is not bound by it, and is entitled to judgment as a
matter of law.
C. The Remaining Defendants’ Motion for Summary
Judgment
15. In order to prevail on their motion for summary
judgment, the remaining defendants must establish that
46a
no issue remains as to any material fact relating to Count
II and that they are entitled to judgment as a matter of
law. Fed. R. Civ. P. 56.
16. The transaction alleged by Nicaragua is a transaction
in goods, Cal. Com. Code § 2102, evidenced by a document
signed in California. The transaction thus bears ‘“‘an ap-
propriate relationship to this state’ within the meaning of
Cal. Com. Code § 1105, Cal. Code Comment ¢ 3 (West’s
1964 and 1986 Supp.) and the California Commercial Code
governs this dispute.
17. Writings which look toward some future contract
but which do not evidence an existing contractual rela-
tionship do not satisfy the U.C.C. Statute of Frauds, Cal.
Com. Code § 2201. Conaway v. 20th Century Corp., 29
U.S.C. Rep. 1387, 1392-93 (Pa.1980); Dataserve Equip-
ment, Inc. v. Technology Finance Leasing Corp., 364 N.W.
2d 838 (Minn. App. 1985)
18. The plain meaning of Article VII of the Memoran-
dum of Intent is that a five-year fruit purchase contract
was to be concluded between Standard Fruit and a com-
petent Nicaraguan national entity at a later time after the
occurrence of certain specified events, including the official
resolution of preexisting contracts with the growers and
production societies. The Memorandum repeatedly states
that Standard Fruit and the competent national entity
“shall” enter into a contract and the purchase price ‘“‘will
be”’ $4.30 per box of first-quality bananas. Moreover, there
are a significant number of matters relating to the pur-
chase and sale of bananas reserved both explicitly and
implicitly in the Memerandum of Intent for subsequent
negotiation. The express terms of the Memorandum of
Intent thus show that a purchase-sales contract would re-
sult only at a later time and after the occurrence of certain
specified events and therefore does not establish that a
“contract for sale has been made’’ pursuant to Cal. Comm.
Code § 2201(1). See also Cal. Com. Code § 2204.
eee
47a
19. Plaintiff has taken the position that the Memoran- -
dum of Intent represents a binding contract. In light of
that position, the parol evidence rule would prevent the
introduction of testimony of a contemporaneous oral agree-
ment which contradicts the express language of the doc-
ument. Cal. Com. Code § 2202; Enrico Farms, Inc. v. H
J. Heinz, 629 F.2d 1304, 1306 (9th Cir. 1980); Schwartz
v. Shapiro, 229 Cal. App. 2d 238, 40 Cal. Rptr. 189 (1st
Dist. 1964).
20. The testimony of plaintiff's witnesses that on Jan-
uary 11, 1981, they believed that they were signing a
contract which contained immediately effective, uncondi-
tional obligations to purchase and sell fruit for a five-year
period contradicts the unambiguous language of the Mem-
orandum of Intent. Such testimony, therefore, may not
serve to create a genuine issue of material fact within the
meaning of Fed. R. Civ. P. 56. Cal. Com. Code § 2202.
21. Because the Memorandum of Intent itself is not a
final five-year fruit purchase contract, a five-year com-
mitment to buy and sell bananas cannot be established by
defendant’s alleged 22-month course of conduct. Even if
the parties bought and sold bananas for 22 months on
terms consistent with the Memorandum of Intent, as a
matter of law this can only establish a contract covering
that time in which performance was rendered. Cal. Com.
Code § 2201(3\Xc).
22. There remains no genuine issue as to any material
fact bearing on whether the Memorandum of Intent is a
five-year contract for the purchase and sale of bananas as
alleged in Count II of the Amended Complaint. Yet it is
only such a five-year contract that defendants stand ac-
cused of having breached.
23. Defendants have therefore established that they are
entitled to judgment on Count II as a matter of law.
DATED: April 13, 1988
48a
/s/J.P. VUKASIN, JR.
J.P. VUKASIN, JR., JUDGE
UNITED STATES DISTRICT COURT
49a
MEMORANDUM OF INTENT
This Memorandum of Intent entered into this 11th day
of January, 1981, by and between the Government of Na-
tional Reconstruction of the Republic of Nicaragua (‘‘Gov-
ernment of Nicaragua’”’) and Standard Fruit and Steamship
Company and its parent company, Castle and Cooke, Inc.
(both of which are collectively referred to as ‘Standard
Fruit’’), confirms the understanding reached by the parties
concerning the continued participation by Standard Fruit
in the banana industry of Nicaragua.
WHEREAS, the aforementioned parties recognize the
need to establish and maintain a social, political, and eco-
nomic environment conducive to the viability and long-term
stability of the banana program in Nicaragua; and
WHEREAS, the Government of Nicaragua is dedicated
to solving the serious and urgent social problems affecting
the labor force participating in this important agricultural
activity while providing an economically viable and realistic
framework fof the Nicaraguan banana program; and
WHEREAS, the Government of Nicaragua considers
that the main objectives of the decree adopted on Decem-
ber 21, 1980 concerning the banana program can be
achieved, and the spirit of that decree fostered, by the
arrangements described below, to the mutual benefit and
satisfaction of the parties and of the Nicaraguan laborers
and producers;
NOW, the undersigned after full and frank discussion
and negotiation and reflecting mutual confidence in their
future relationship, have agreed in principle that Standard
Fruit will continue in the banana business in Nicaragua
based upon the undertakings, and subject to the terms and
conditions, set forth below:
IT.
Il.
50a
Participation in Equity:
The Government of Nicaragua agrees to purchase
Standard’s shares in the production societies under
mutually agreeable conditions.
Acquisition of Assets and Debt Repayment Sched-
ule:
The Government of Nicaragua recognizes, con-
firms and assumes responsibility for and the re-
payment of the advances and receivables due
Standard Fruit, as shown on Standard Fruit’s
books, and will purchase the assets of Standard
Fruit, as described on the annexed exhibit, which
shall, however, be subject to audit and evaluation
according to generally accepted accounting and
evaluation principles and shall be amended as to
amount to reflect conditions as of the date hereof.
Such advances and receivables shall be paid and
assets be purchased with funds generated by the
set off against purchase price described in Section
VII.
Working Environment:
The Government of Nicaragua agrees to cooperate
in the establishment of an appropriate working
environment for Standard Fruit, particularly in
reference to:
a) The solution of labor controversies within the
framework of Nicaragua’s labor legislation.
b) The fostering of objective appraisals of the com-
pany’s operations, by official agencies dealing
with the media.
c) The assurance of safe passage (for legitimate
business purposes) in and out of Nicaragua and
Nicaraguan ports, of Standard Fruit’s employ-
ees, vehicles and vessels, and the quiet enjoy-
ment by Standard Fruit of a normal business
presence. ;
IV.
Vi.
VIL.
Arbitration:
Any and all disputes arising under the arrange-
ments contemplated hereunder, should same not
be able to be settled amicably settled by the par-
ties, will be referred to mutually agreed mecha-
nisms or procedures of international arbitration,
such as the rules of the London Arbitration As-
sociation.
Insurance of Investment:
Standard Fruit makes note of the fact that it has
in effect a policy of insurance from OPIC covering
a portion of its investment in Nicaragua. Standard
Fruit enters into this agreement with the under-
standing that such action will not adversely affect
its current confirmation thereof. The Government
of Nicaragua shall cooperate with Standard Fruit
and use its best efforts to assist Standard Fruit
in the latter’s efforts to obtain additional insurance
(from OPIC or such other governmental agency
as is mutually agreed upon).
Treatment of Claims:
The Government of Nicaragua shall refrain from
adopting actions that may result in claims against
Standard Fruit arising from the Situation that has
prevailed in the Nicaragua banana industry since
December 21, 1980.
Basic Operational Aspects of Production:
a) Contractual Obligations:
The Covernment of Nicaragua and Standard
Fruit shall enter a contract (following the of-
ficial resolution without claim or damage of pre-
existing contracts which might be thought to
conflict therewith) for the purchase of all ba-
nanas produced on the acreage presently under
52a
cultivation in the so called “‘Programa Bana-
nero de Occidente’’. Such contract shall be for
a term of five years, shall be entered into with
the competent national entity, which shall in
turn contract with the societies.
b) Prices:
The purchase price agreed by both parties will
be U.S. $4.30 per box F.0.B. Nicaraguan port
of loading for the purchase of first quality fruit,
the price of other quality fruit to be negotiated.
Nicaragua agrees to provide for an offset and
set off against such price of the sum of U.S.
$.50 per box for amortization of loans and pur-
chase of assets and U.S. $.25 per box for tech-
nical services to be provided by Standard Fruit
(as per contract previously negotiated between
the parties).
The corrtract shall contain a provision empow-
ering either party to request renegotiation of
the price to be paid if, at any anniversary date
thereof the aggregate of the prices paid for a
to be specified list of critical materials shall
have increased by more than 10% over that
existing at the date hereof, such base level to
be automatically raised after each reopening.
c) Supervision:
The Government of Nicaragua agrees to provide
for supervision by Standard Fruit of packing
plant practices enunciated by Standard Fruit
and for the carrying out of agricultural prac-
tices recommended by Standard Fruit pursuant
to the technical services agreement referred to
herein.
53a
d) Maintenance of Pre-existing Arrangements:
The integrity of the relationships concerning
the farms, the production societies and the own-
ers and participants thereof is hereby confirmed
by the Government of Nicaragua and the re-
lationships there among will be maintained in
existence as at present with the production so-
cieties ieasing the land, producing bananas and
entering new sale and technical assistance
agreements, all with the result that the decree
of December 21, 1980 shall be officially consid-
ered as having no effect during a period that
shall not exceed five years.
e) Financing: :
The Government of Nicaragua agrees to pro-
vide such advances for improvements, working
capital and capital requirements as are needed
by the production societies for their adequate
operations.
f) Tax Treatment:
The Government of Nicaragua agrees that mat-
ters of tax computation and responsibility shall
be governed by the spirit of the Tax Decree
No. 74 enacted in 1970.
VII. Execution and Delivery:
The parties agree that, in accordance with the
spirit of compatibility and cooperation evidenced
during the negotiations hereinabove memorialized.
the Government of Nicaragua and Standard Fruit
will take all such further actions and execute and
deliver all such applications, decrees, documents
and/or other papers as are necessary to the full
accomplishment of the aims expressed herein.
Thus done and signed, this 11th day of January,
1981.
enemies
54a
Thus done and signed, this 1lth day of January, 1981.
REPUBLIC OF NICARAGUA
by /signature/
A.J. Cruz
Member of Junta de Gobierno
by /signature/ by /signature/ _
Cmdt. J. Wheelock A. Martinez
Minister of Agricultural Minister of Foreign
Development Trade
CASTLE & COOKE, INC.
by /signature/
L. Marks Jr.
Executive Vice President
by /signature/
Robert M. Moore
Vice President and General Counsel
STANDARD FRUIT AND STEAMSHIP
COMPANY
by /signature/
Robert W. Fisher
Executive Vice President
by /signature/
William Swinford
Vice President
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