author: MEMORANDUM OBERDORFER, District Judge.

text:
    ASSOCIATION OF RETAIL TRAVEL AGENTS, LTD. (ARTA), Plaintiff, v. AIR TRANSPORT ASSOCIATION OF AMERICA (ATA), et al., Defendants.
    Civ. A. No. 84-2942.
    United States District Court, District of Columbia.
    Dec. 3, 1985.
    Barry Roberts, Roberts & Singer, Washington, D.C., for plaintiff.
    David B. Lytle, Harry T. Jones, Jr., Hogan & Hartson, Washington, D.C., for defendants.
   MEMORANDUM

OBERDORFER, District Judge.

I.

This action is brought by the Association of Retail Travel Agents, Ltd. (ARTA), against the Air Transport Association of America (ATA), its member air carriers, and members of the ATA board of directors. The Airlines Reporting Corporation (ARC) program is run by ATA and coordinates the dealings between the airline members and the travel agencies with which the members deal. ARTA alleges that aspects of the ARC program are anti-competitive and in violation of federal antitrust laws. Because of the complex issues presented in this case, the Court adopted a “wave” discovery plan. The Court’s Second Wave Discovery Order (filed May 29, 1985) directed the parties to conduct discovery and file dispositive motions on the per se issues raised by plaintiff’s complaint. The action is now before the Court on the parties’ cross-motions for summary judgment on the per se issues.

Plaintiff claims that two general types of provisions of the ARC program constitute price fixing and are therefore per se illegal. First, plaintiff challenges the requirement that travel agencies participating in the ARC program pay “a variety of application and other fees.” Memorandum of Points and Authorities in Support of Motion for Summary Judgment (Plaintiff’s Mem.) at 22-25 (filed Aug. 30, 1985). Specifically, these uniform fees and charges include a $150 annual administrative fee and a $20 requisition fee to cover handling and shipping costs of the blank standard ticket stock ordered from ARC. Second, plaintiff contests the requirement of the Area Settlement Plan that participating agencies pay ARC for their sales on a weekly basis. Id. at 9-13.

Currently, the ARC program is a joint venture of 167 airlines. Joint Stipulation (Joint Stip.) at ¶ 6 (filed June 11, 1985). The program structures the airlines’ dealings with approximately 19,500 travel agencies in 26,100 travel agency locations. Joint Stip. at ¶ 10. The ARC program has two main functions. See generally Joint Stip. at Attachments C-F. The first is an accreditation function. By way of accreditation, ARC requires potential travel agencies to file an application to demonstrate financial stability. Those agencies approved by ARC become recognized travel agents on the Agency List. Although airline members of ARC can technically refuse to deal with agents on the List, as a practical matter a travel agent on the List becomes authorized to deal with all ARC member airlines. The second function, embodied in the Area Settlement Plan, is to regulate accounting and payment between the airlines and the travel agencies. The Area Settlement Plan requires travel agents to report and pay weekly for all sales of airline services. The agent can submit all its transactions on a single list to ARC. ARC then computes the amount due from each agent and the amount owed each airline, and distributes the necessary payments. ARC also monitors the reporting process and imposes sanctions, including removal from the Agency List of agents who do not pay weekly or otherwise fail to comply with the requirements of the ARC program.

The ARC program has been in operation only since the beginning of 1985 and grows out of the recent deregulation of the airline industry. Prior, to ARC, the Air Traffic Conference of America (ATC) operated a travel agency program with the formal approval of the Civil Aeronautics Board (CAB). The formal approval of the CAB afforded the ATC participants immunity from the federal antitrust laws.

During the movement toward deregulation of the airline industry, the CAB evaluated the ATC program in light of its antitrust implications. According to the Board:

Economic regulation by the Board is yielding to competitive discipline by the marketplace. To date, our efforts to direct and effect this transformation have focused primarily on the producers. However, neither the air transportation industry nor the consumers it serves will experience the greatest benefits if competition is limited solely to the air carriers. Therefore we have decided to extend our reappraisal to the marketing of air transportation in the U.S. By this order we are initiating an investigation to determine how competition can best be introduced into the entire marketing system.

Joint Stip. at Attachment K, p. 2 (footnote omitted).

The ensuing evaluation was called the Competitive Marketing Investigation. The CAB first appointed an administrative law judge (ALJ), who issued a 213-page decision. Joint Stip. at Attachment L. The Board then reviewed the AU’s decision and issued its own 137-page decision. Joint Stip. at Attachment M. The Board concluded that absent the exclusivity features, which prevented member airlines from independently dealing with travel agencies, the agreements as structured between ATC and travel agents “do not substantially reduce competition.” Id. at 122. Specifically, the CAB found the accreditation requirement, and the uniform remittance procedures of the Area Settlement Plan, necessary to the program’s efficient operation and thus not violative of the antitrust laws. Id. at 65-71, 101-104. The Board declined to extend antitrust immunity beyond an initial two-year period, on the grounds that “exposure to antitrust laws is most consistent with an industry controlled by competition.” Id. at 130. The CAB also noted that the program would not be subject to serious antitrust challenge. Id. at pp. 124, 130-32. The Court of Appeals affirmed the Board’s decision to terminate antitrust immunity at the end of two years. Republic Airlines v. Civil Aeronautics Board, 756 F.2d 1304, 1316-17 (8th Cir.1985).

After the CAB’s decision, ATC began to develop the ARC program to replace the ATC program. Plaintiff in this case opposed formation of the ARC program and, after filing suit in this Court, petitioned the CAB to extend antitrust immunity for an additional six months to give the industry more time to develop a fair program. Plaintiff alleged that the ARC program contained many features found by the CAB to be anticompetitive in its review of the ATC program. It further alleged that the ARC program would:

enable “a relatively small group” of carriers to gain exclusive control over the industry travel agent program, for no travel agent and no carrier except ATA members will own stock in ARC.

Joint Stip. at Attachment O, p. 2. The CAB denied plaintiff’s petition, reiterating that “ending antitrust immunity is the best means for keeping the domestic carriers from using their control of travel agents to restrain competition.” Id. at p. 6.

After formation, ARC submitted its proposed program to the Department of Justice for antitrust clearance pursuant to the Department’s Business Review Procedures. 28 C.F.R. § 50.6. The Department approved the planned ARC program. According to the Department’s letter, it expected the program to “achieve substantial efficiencies in accreditation, ticket sales and in reporting sales and remitting funds.” Joint Stip. at Attachment I, p. 6. The Department “evaluated the[ ] restraints under a rule of reason analysis and ... concluded that the restraints notwithstanding, the overall purpose and effect of the ARC plan is to enhance efficiency in the distribution of airline retailing services.” Id.

II.

A.

In support of its motion, plaintiff argues that the uniform fees and charges used to offset the cost of ARC are anticompetitive, since “[i]n the absence of ARC, ... the allocation of costs associated with the purchase of ticket sales services by the carriers would be determined in the price paid by carriers individually and competitively for such services.” Plaintiff’s Mem. at 22-23. Plaintiff contends that the collective establishment of fees and charges by ARC allows the airline members to shift costs from themselves to travel agents. This cost-shifting, argues plaintiff, was rejected by the CAB in the airlines’ regulated era. See ATC Application and Agency Fees, Docket No. 20650, 63 C.A.B. 681, 682 (1973). Now, plaintiff contends, the airlines “are clearly using their collective economic power to distort market allocations of the price they would competitively pay for agent services.” Plaintiff’s Mem. at 24.

The bulk of plaintiffs argument focuses on the collective establishment of uniform payment terms by ARC. These terms include a requirement that agents file a weekly reports of sales, and give ARC authority to draw drafts on agents’ accounts for the amounts due from them. Plaintiff also contests ARC’S enforcement scheme, which can ultimately result in removal of a noncomplying agent from the Agency List. Plaintiff argues that such a concerted refusal to deal by the airlines is per se unlawful. Plaintiff’s Mem. at 10 n. 11.

Plaintiff contends that the two functions of the reporting plan—accounting and payment—are severable. Plaintiff does not dispute the efficiencies of the centralized accounting system provided by ARC. It argues, however, that:

Defendants have gone far beyond merely establishing a centralized clearinghouse to process documents, perform accounting functions, and determine amounts due. Defendant’s [sic] have determined when and how amounts due are to be paid.

Plaintiff’s Mem. at 11 (footnote omitted). Plaintiff argues that the collective establishment of time and terms of payment, as distinguished from the accounting function, constitutes price fixing. It maintains that the effect of the ARC arrangement is to collectively establish credit terms. Plaintiff cites Catalano, Inc. v. Target Sales, 446 U.S. 643, 100 S.Ct. 1925, 64 L.Ed.2d 580 (1980) for the proposition that a horizontal agreement among competitors to fix the time of payment is price fixing and per se illegal. According to plaintiff:

[T]he commission level is only one element of the price they [the airlines] pay for travel agency services. The allocation of cash flow i.e., who gets the use of customer money for any period of time is also an important element of the price which Defendants pay for travel agent services, and it is that element which they have collectively fixed.

Plaintiff’s Mem. at 12.

Plaintiff recognizes that the ARC program allows for a direct form of payment (DFOP) whereby a travel agent receives an accounting from ARC but then pays the airlines directly according to negotiated terms and conditions. It admits that “in theory” such an arrangement would meet plaintiff’s concerns, but that:

[i]n practice ... the collectively fixed seven day remitting cycle has proven so beneficial to the carriers that there is no incentive for them to allow the use of DFOP.

Plaintiff’s Mem. at 20.

As to the relevance of the CAB findings and decision, plaintiff points out that the CAB noted its expectation that any future agreements between air carriers and travel agents should comply with the antitrust laws. Plaintiff’s Mem. at 3. Plaintiff distinguishes the CAB inquiry for the purpose of determining whether antitrust immunity should be granted, from a decision on the merits that the relationship does not violate the antitrust laws. Moreover, argues plaintiff, the CAB focused on the market for the sale of air transportation, and was primarily concerned with control of travel agent entry into the market. “The CAB,” argues plaintiff, “did not focus on Defendant air carriers as a cartel of purchasers fixing an element of the price paid for ticket sales services.” Plaintiff’s Opposition to Defendants’ Motion for- Summary Judgment (Plaintiff’s Opposition) at 18 (filed Sept. 9, 1985). In any event, argues plaintiff, it is for the court, not a regulatory agency, to determine whether a particular practice violates the antitrust laws.

Plaintiff also disputes the Department of Justice Business Review Letter issued December 26, 1984, which found the ARC program to be procompetitive. It argues that the letter “simply fails to address the price fixing issue.” Plaintiff’s Mem. at 13. Plaintiff contends:

DOJ ignores the fact that ARC is a horizontal arrangement among competing airlines purchasing ticket sales services. The business review letter is almost totally void of economic or legal analysis and is contrary to established precedent. At best, the business review letter is an expression of enforcement policy and not a reasoned legal and economic analysis.

Plaintiff’s Mem. at 13-14.

B.

Defendants’ motion argues that the legality of the four provisions of the ARC program at issue must be determined under the rule of reason, not per se analysis. They argue that a number of principles dictate that per se analysis is inappropriate in this case: first, the rule of reason is the prevailing standard of analysis under Section 1 of the Sherman Act; second, per se rules are appropriate only for conduct that is manifestly anticompetitive; third, per se analysis is not appropriate for restraints with which courts have not had “considerable experience;” finally, per se rules are inappropriate for analyzing activities that are integral parts of a potentially efficiency-creating joint venture.

Defendants then apply the four principles listed to the ARC practices at issue. They argue that the ARC provisions are an integral part of a joint venture with “obvious efficiency-creating potential.” Statement of Points and Authorities in Support of Defendants’ Motion for Summary Judgment on Plaintiff’s “Per Se” Claims (Defendants’ Mem.) at 33-34 (filed Aug. 30, 1985). Defendants cite Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1, 99 S.Ct. 1551, 60 L.Ed.2d 1 (1979) where the Supreme Court refused to apply per se analysis to the practices of a clearinghouse established by music producers; and National Collegiate Athletic Assoc. v. Board of Regents (NCAA), 468 U.S. 85, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984) where the Supreme Court similarly declined to apply per se analysis to the NCAA’s plan for televising college football games, noting that “a joint selling arrangement may be so efficient that it will increase sellers’ aggregate output and thus be procompetitive.” Id. at 2961. Defendants argue further that the virtues of the ARC program have been confirmed by the CAB, “the administrative agency with the greatest expertise in the passenger air transportation industry.” Defendants’ Mem. at 34. They urge the court to rely on the CAB’s findings, with the CAB itself recognizing that its decision should have some precedential effect:

Especially after lengthy procedures as in this case, we believe that our findings will be given significant deference by a court that may subsequently review the agreement. Admittedly our decision will not prevent subsequent antitrust challenge. However, the reviewing court will have to consider our special expertise in the air transportation industry and find significant error in our findings on an agreements’ [sic] likely competitive consequences.

Joint Stip. at Attachment N, p. 7. Finally, defendants maintain that the ARC arrangement is new and unique, and thus a court should hesitate to condemn it as per se illegal before there is substantial experience with it.

Defendants next address the specific aspects of the ARC program challenged by plaintiff. As to the annual participation fee and ticket stock handling charge, defendants argue that “courts have consistently recognized that a joint venture ‘must be allowed to recoup its costs of operation.’ ” Defendants’ Mem. at 38 (citing United States v. Realty Multi-List, Inc., 629 F.2d 1351, 1369 (5th Cir.1980)). They claim that the ARC provisions are “reasonably ancillary” to the potentially procompetitive effects of the program. Id.

Defendants defend the uniform reporting and remitting procedure of the Area Settlement Plan as promoting efficiencies of the ARC program as a whole. In support, they cite the CAB review which approved the provision, and the Justice Department letter, which stated:

Nor is there reason to suppose that ARC’S proposed seven day reporting and settling cycle has either the purpose or will have the effect of restraining competition. These proposed rules should not be viewed in isolation, but rather as part of an overall joint venture that has as a desirable goal the reporting and remitting of funds. The rules are designed to ensure the orderly and secure transmittal of monies from consumers to agents to carriers. They contribute to the efficiency of the ASP by reducing transactions costs for settling and monitoring the continued financial viability of travel agents.

Defendants’ Mem. at 42 (citing Joint Stip. at Attachment I, p. 7).

Finally, defendants distinguish Catalano, supra, relied upon by the plaintiff. Catalano involved an agreement between beer distributors not to extend credit on its sales to retailers. 446 U.S. at 644, 100 S.Ct. at 1926. By contrast, argue defendants, “[t]he principal-agent relationship that exists between air carriers and travel agents is unique.” Defendants’ Mem. at 41. There is no sale of services by the carriers to the agencies, instead the ASP merely “facilitates the orderly transfer of the funds collected by agents to their principals, the air carriers.” Id. In addition to the difference between the buyer/seller relationship in Catalano and the principal/agent relationship in this case, defendants argue that “unlike the naked agreement in Catalano which stood alone and had no conceivable countervailing benefits, the weekly cycle challenged here by plaintiff is an integral part of the Area Settlement Plan.” Defendants’ Memorandum in Opposition to Plaintiff’s Motion for Summary Judgment on “Per Se” Claims (Defendants’ Opposition) at 14 (filed Sept. 9, 1985).

III.

A.

Section 1 of the Sherman Act prohibits “[ejvery contract, combination ..., or conspiracy, in restraint of trade.” 15 U.S.C. § 1. Although the language of Section 1 is broad, it has been read to mean that only unreasonable restraints of trade are prohibited. Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 31 S.Ct. 502, 55 L.Ed. 619 (1911). Under the rule of reason, a court must engage in a complex inquiry to decide if a particular restraint, once found to exist, is “unreasonable.” According to the Supreme Court in Board of Trade of the City of Chicago v. United States, 246 U.S. 231, 38 S.Ct. 242, 62 L.Ed. 683 (1918):

[T]he legality of an agreement or regulation cannot be determined by so simple a test, as whether it restrains competition. Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence. The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts. This is not because a good intention will save an otherwise objectionable regulation or the reverse; but because knowledge of intent may help the court to interpret facts and to predict consequences.

246 U.S. at 238, 38 S.Ct. at 244. Because of the general complexity of antitrust cases, the rule of reason is the “prevailing standard of analysis” under Section 1 of the Sherman Act. Continental TV, Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 49, 97 S.Ct. 2549, 2557, 53 L.Ed.2d 568 (1977); see Smith v. Pro-Football, Inc., 593 F.2d 1173, 1181 (D.C.Cir.1978).

Certain types of restraints, however, are so clearly anticompetitive that a full inquiry under the rule of reason is not required. According to the Court in Northern Pacific Railway Co. v. United States, 356 U.S. 1, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958):

[TJhere are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use. This principle of per se unreasonableness not only makes the type of restraints which are proscribed by the Sherman Act more certain to the benefit of everyone concerned, but it also avoids the necessity for an incredibly complicated and prolonged economic investigation into the entire history of the industry involved, as well as related industries, in an effort to determine at large whether a particular restraint has been unreasonable—an inquiry so often fruitless when undertaken.

356 U.S. at 5, 78 S.Ct. at 518. The per se doctrine thus offers a “judicial shortcut” when the practice’s “pernicious effect on competition” can be assumed. Pro-Football, supra, 593 F.2d at 1181. The classic type of market restraint analyzed under the per se doctrine is price fixing among competitors. According to the Supreme Court:

Congress ... has not permitted the age-old cry of ruinous competition and competitive evils to be a defense to price-fixing conspiracies. It has no more allowed genuine or fancied competitive abuses as a legal justification for such schemes than it has the good intentions of the members of the combination
[U]nder the Sherman Act a combination formed for the purpose and with the effect of raising, depressing, fixing, pegging, or stabilizing the price of a commodity in interstate ... commerce is illegal per se.

United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 221-23, 60 S.Ct. 811, 843-44, 84 L.Ed. 1129 (1940). Thus, “naked restraints” on price cannot be justified. White Motor Co. v. United States, 372 U.S. 253, 263, 83 S.Ct. 696, 702, 9 L.Ed.2d 738 (1963). But, because the per se doctrine condemns a restraint without any analysis of the factors considered in a rule of reason inquiry, e.g., market power, effect on competition, efficiency-promoting potential, it must be invoked with caution. As our Court of Appeals has noted:

Invocation of a per se rule always risks sweeping reasonable, pro-competitive activity within a general condemnation, and a court will run this risk only when it can say, on the strength of unambiguous experience, that the challenged action is a “naked restraint[] of trade with no purpose except stifling of competition.”

Pro-Football, supra, 593 F.2d at 1181 (footnotes omitted).

B.

A fundamental task in an antitrust inquiry is to decide if a challenged practice is so “manifestly anticompetitive” that it should be condemned under per se analysis. The cross-motions at issue pose this question. Whereas a finding for plaintiff would dispose of the issue, a finding for defendant means only that the practice at issue is more appropriately analyzed under the rule of reason.

Plaintiff alleges that two ARC program practices are per se illegal. These are: (1) the fees charged travel agents by ARC, e.g., a $150 annual fee and a $20 fee for each unit of blank ticket stock purchased; and (2) the uniform payment terms, i.e.-, a weekly reporting and payment requirement imposed on travel agents by ARC. Plaintiff separates these two types of practices for analysis. This division, however, is artificial. Plaintiff seeks to view the challenged ARC provisions in isolation. But, the fact that the challenged provisions are parts of an overall plan significantly changes antitrust analysis of the restraints. Because of their place in a complex web of arrangements it is' not a simple matter for a court to find they “lack ... any redeeming virtue.” Northern Pacific Railway, supra, 356 U.S. at 5, 78 S.Ct. at 518. Moreover, both-the CAB and the Department of Justice have passed judgment on the entire plan, and the particular portions of the plan at issue. The court is not “bound ... by the views of the Department of Justice” or the CAB. But “while we must independently examine this practice, all those factors should caution us against too easily finding [the practice at issue] subject to per se invalidation.” Broadcast Music, supra, 441 U.S. at 16, 99 S.Ct. at 1561.

In Broadcast Music, the Supreme Court faced a situation where composers and publishing houses joined together and set the price for a blanket license sold by their organization. Unlike the ARC program, the joint venture in Broadcast Music produced a “different product,” which could not be produced by the joint venture members individually. 441 U.S. at 22, 99 S.Ct. at 1563. This fact was significant to the Supreme Court. The Court’s inquiry is nevertheless instructive in defining the bounds of per se. price fixing. In Broadcast Music the Court noted:

[T]his is not a question simply of determining whether two or more potential competitors have literally “fixed” a “price.” As generally used in the antitrust field, “price fixing” is a shorthand way of describing certain categories of business behavior to which the per se rule has been held applicable. The Court of Appeals’ literal approach does not alone establish that this particular practice is one of those types or that it is ‘'plainly anticompetitive” and very likely without “redeeming virtue.” Literalness is overly simplistic and often overbroad. When two partners set the price of their goods or services they are literally “price fixing,” but they are not per se in violation of the Sherman Act____ Thus, it is necessary to characterize the challenged conduct as falling within or without that category of behavior to which we apply the label “per se price fixing.” That will often, but not always, be a simple matter.

441 U.S. at 9, 99 S.Ct. at 1557. (citations omitted) (footnote omitted). The Court found that the blanket license was “not a ‘naked restrain^] of trade with no purpose except stifling of competition,’ ..., but rather accompanies the integration of sales, monitoring, and enforcement against unauthorized copyright use.” 441 U.S. at 20, 99 S.Ct. at 1562. (citation omitted). The Court concluded that because:

the blanket license has provided an acceptable mechanism for at least a large part of the market for the performing rights to copyrighted musical compositions, we cannot agree that it should automatically be declared illegal in all of its many manifestations. Rather, when attacked, it should be subjected to a more discriminating examination under the rule of reason. It may not ultimately survive that attack, but that is not the issue before us today.

441 U.S. at 24, 99 S.Ct. at 1564.

Recently, the Supreme Court again declined to apply per se analysis to a joint venture—this time a joint venture that controlled the entire market of college football games available for television coverage. The Court noted that “despite the fact that this case involves restraints on the ability of member institutions to compete in terms of price and output, a fair evaluation of their competitive character requires consideration of the NCAA’s justifications for the restraints.” NCAA, supra, 104 S.Ct. at 2962. As in Broadcast Music, the Supreme Court relied upon a specific fact about the particular joint venture in NCAA which made per se analysis inappropriate. In NCAA, the Court found that “what is critical is that this case involves an industry in which horizontal restraints on competition are essential if the product is to be available at all.” Id. at 2961. Although in both cases the Supreme Court relied on facts specific to the joint venture before it, its decisions in Broadcast Music and NCAA provide a more general lesson: where, as here, the redeeming values of the joint venture are readily apparent, the per se approach is inappropriate. Significantly, after engaging in a rule of reason analysis the Court reached different results in Broadcast Music and NCAA, upholding and condemning .the restraints, respectively. Important for the purposes now, however, is the fact that neither restraint was found per se illegal.

The business arrangement in the ARC program is perhaps most similar to the one present in Realty Multi-List, supra. There, licensed real estate brokers united to form Realty Multi-List, Inc. (RML). Its central function was to provide a multiple listing service for its members. At the time the suit was filed, RML “stood alone as the sole multiple listing service in the county.” 629 F.2d at 1357. The court noted that “[t]he benefits offered by a multiple listing service are manifest.” Id. at 1356. In that case, the government challenged various membership restrictions imposed by RML. One requirement was that each member purchase one share of stock, at a price of approximately $1000. The court first noted the limited circumstances in which the per se rule should be applied. It then concluded:

Certainly the antitrust laws must allow reasonably ancillary restraints necessary to accomplish these enormously procompetitive objectives. And restraints of the general types imposed by RML are not subject to out-of-hand condemnation. First, the operation of a multiple listing service is not cost free. While a fee structure could be abused to effectively deter all newcomers from entrance, the service must be allowed to recoup its costs of operation.

Id. at 1368-69 (footnote omitted).

Plaintiff cites in its support numerous cases where price fixing has been found per se illegal. For example, the case primarily relied upon by plaintiff, Catalano, supra, stands for the proposition that an agreement among competitors to limit credit terms can constitute price fixing. 446 U.S. at 648, 100 S.Ct. at 1928. But, in Catalano, the restraint was not a part of a complex joint venture with potentially redeeming qualities. The facts in Catalano were egregious:

[Respondent wholesalers secretly agreed m ordtn to eliminate competition among themselves, that ... they would sell to retailers only if payment were made in advance or upon delivery.

446 U.S. at 644, 100 S.Ct. at 1926. According to the Court, the agreement involved had “no apparent potentially redeeming value.” Id. at 649, 100 S.Ct. at 1928. Neither does the recent Supreme Court decision in Arizona v. Maricopa County Medical Society, 457 U.S. 332, 102 S.Ct. 2466, 73 L.Ed.2d 48 (1982) dispose of this case. In that case, a number of doctors united to set a maximum price for medical services. The Court condemned this agreement as per se price fixing, rejecting plaintiffs’ argument that the per se rule should be inapplicable because the agreement at issue had potentially procompetitive effects. 457 U.S. at 351, 102 S.Ct. at 2476. But, the doctors in Maricopa agreed to set a maximum for the entire price charged. Under the ARC program, airlines are free to negotiate the terms of a travel agent’s commission, which constitutes the bulk of the travel agent’s remuneration. The fees and payment terms, while affecting price, are not its major component. More importantly, the agreements at issue in both Maricopa and Catalano involved only price terms. Here, the price-related restraints are part of an arguably procompetitive joint venture. The Supreme Court decided Maricopa between its decisions in Broadcast Music and NCAA. The NCAA decision confirms that the philosophy of Broadcast Music —that a court should decide not just whether a practice is ostensibly “price fixing,” but also whether the per se approach should logically apply—lives.

As opposed to the bald price fixing agreements condemned in Catalano and Maricopa, the ARC program in its complexity is more comparable to the joint ventures at issue in Broadcast Music, NCAA, and Realty Multi-List. The Court in Broadcast Music noted that the blanket license developed:

out of the practical situation in the marketplace: thousands of users, thousands of copyright owners, and millions of compositions____ Individual sales transactions in this industry are quite expensive, as would be individual monitoring and enforcement.

441 U.S. at 20, 99 S.Ct. at 1562. Similarly, the multiple listing service in Realty MultiList aided information flow and reduced transaction costs. As to the ARC program, defendants claim that because it coordinates hundreds of carriers and thousands of travel agents, its efficiency advantages are obvious. See Joint Stip. at Attachment I. Moreover, like the restraints at issue in Realty Multi-List, supra, they claim the ARC provisions are reasonably ancillary to the joint venture. Specifically, the ARC payment terms, although “fixing” an aspect of price, are claimed to serve the genuine purpose of protecting the airlines which risk nonpayment by travel agencies. Defendants argue that the fees charged travel agents by ARC represent genuine costs of operation, and that the ultimate sanction of removing an agent from the Agency List is necessary to enforce the entire ARC scheme.

Defendants contentions as to the competitive virtues of the ARC program are sufficiently plausible at this stage of the proceedings to preclude summary judgment on a per se theory. The ARC program may also well have substantial anti-competitive drawbacks which plaintiff can demonstrate after further discovery or through reference to the recent experience with the program. Nevertheless, it cannot be said that the restraints at issue are so wanting in redeeming virtue as to be per se illegal. An Order will grant defendant’s cross-motion for summary judgment and deny plaintiff’s cross-motion. The Order will also schedule further discovery, a pretrial conference, and trial, without prejudice to renewed summary judgment motions after discovery on the rule of reason issues.

      . Plaintiff at one point challenged on per se grounds the requirement that participating agencies post a surety bond, in an initial amount of $10,000, to be eligible to use ARC ticket stock and to receive and hold monies from the public from the sale of those tickets. See Memorandum of Points and Authorities in Support of Preliminary Injunction at 7 (filed Sept. 21, 1984). It has not, however, specifically challenged defendants’ motion for summary judgment on that issue; and its reference to "a variety of application and other fees" charged travel agents, Plaintiffs Mem. at 22, cannot be read to encompass the bonding requirement which is clearly not a “fee.”

      . Defendants never address, and in fact do not acknowledge, the potential relevance of the Suprenie Court’s decision and language in Maricopa.


source: Caselaw Access Project

author: SHAW, District Judge.

license: Public Domain

text:
    PETROLEUM HELICOPTERS, INC. v. AVCO CORPORATION, et al.
    Civ. A. No. 84-1953—Section O.
    United States District Court, W.D. Louisiana, Lafayette-Opelousas Division.
    Dec. 3, 1985.

      Kenneth H. Laborde, McGlinchey, Stafford, Mintz, Cellini & Lang, New Orleans, La., for plaintiffs.
    Howard Daigle, Jr., Phelps, Dunbar, Marks, Claverie & Sims, New Orleans, La., for defendants.
   RULING

SHAW, District Judge.

This matter comes before the Court as a motion to dismiss by the defendant, Garrett Corporation (Garrett), for lack of personal jurisdiction.

In July 1983, a 1981 Aerospatiale AS-350 helicopter, N5774X, owned and operated by plaintiff, Petroleum Helicopters, Inc. (PHI), emergency landed in the Gulf of Mexico beyond the territorial limits of the state of Louisiana. The helicopter sank causing severe damage for which PHI instituted suit for property damage. PHI invokes this Court’s admiralty and maritime jurisdiction under 28 U.S.C. § 1333.

PHI named several defendants including Garrett, the manufacturer of the floatation devices which were installed on the aforementioned aircraft. PHI asserts that the accident sued upon was caused by the breach of express and/or implied warranties by defendant Garrett to PHI that the floatation devices and their component parts were of merchantable quality and free from inherent vices or defects and fit for their normal and intended uses.

Plaintiff, PHI, effected services of process on Garrett pursuant to the Louisiana Long-Arm Statute, by serving the Louisiana Secretary of State. Although Garrett has not challenged the technical effectiveness of the physical service, it does attack its amenability to the jurisdiction of this Court.

Garrett is a California corporation with its principal office and place of business located in Los Angeles, California. Garrett’s Air Cruisers Company Division, in Belmar, New Jersey, manufactures and markets floats to manufacturers of the helicopters for inclusion into the completed aircraft.

The floats on the helicopter at issue were manufactured by Air Cruisers in New Jersey and sold to Aerospatiale Helicopter Corp. (AHC) for use in helicopters assembled by AHC in Texas.

Garrett argues first that where the assertion of personal jurisdiction over a nonresident defendant such as Garrett depends on a state statute (LSA-R.S. 13:3201, et seq.), state law always governs amenability to jurisdiction, even in federal question cases, and the federal court can use the state’s long-arm statute only to reach those parties whom a court of the state could also reach under it. Burstein v. State Bar of California, 693 F.2d 511 (5th Cir.1982). Plaintiff has relied on the Louisiana Long-Arm Statute, LSA-R.S. 13:3201(1) for the assertion of personal jurisdiction over Garrett and R.S. 13:3204 for assertion of service of process on Garrett under the enabling authority of Federal Rule of Civil Procedure 4(e).

PHI asserts that the Court has jurisdiction over Garrett pursuant to La.R.S. 13:3201(1). PHI also argues that if the Court does not so find, that in a federal question case, the fifth amendment’s guarantee of due process alone controls the defendant’s amenability to suit. In other words, PHI argues that jurisdiction over Garrett could properly be asserted without reference to the Louisiana Long-Arm Statute since the subject matter jurisdiction of this Court is invoked pursuant to 28 U.S.C. § 1333.

This Court must first determine whether Garrett’s amenability to personal jurisdiction is governed by a federal or state standard. The question in this case is what standard of amenability should apply when the plaintiff’s claim is founded upon federal question jurisdiction, (28 U.S.C. § 1333) but service of process is effected under the state long-arm statute.

Plaintiff urges the Court to follow Lapeyrouse v. Texaco, Inc., 693 F.2d 581 (5th Cir.1982) wherein a Fifth Circuit panel declined to refer to a state long-arm statute to determine jurisdiction in a suit brought pursuant to the Outer Continental Shelf Lands Act, 43 U.S.C. § 1331. However, this Court has chosen to follow Burstein v. State Bar of California, 693 F.2d 511 (5th Cir.1982) and DeMelo v. Toche Marine, Inc., 711 F.2d 1260 (5th Cir.1983) which cases held that when a federal question case is based upon a federal statute that is silent as to service of process, and a state long-arm statute is therefore utilized to serve an out-of-state defendant, the Federal Rules of Civil Procedure governing personal service require that the state standard of amenability to jurisdiction applies. (Fed.Rules Civ.Proc. Rule 4(e)). In Bur-stein, a Louisiana resident sued the State Bar of California under 42 U.S.C. § 1983 and also raised diversity claims of negligence and breach of contract. In DeMelo, a worker and his wife brought claims against manufacturers based upon general maritime law and the Longshoremen’s and Harbor Workers’ Compensation Act, 33 U.S.C. § 905 (1976). In both Burstein and DeMelo state long-arm statutes were used to effect service of process. 4 C. Wright & A. Miller, Federal Practice and Procedure § 1075 at 313 supports the Court’s position. Wright and Miller state “on balance, then, it would seem that state law always should govern amenability when a state statute is used pursuant to 4(e).” Further, section 1075, p. 177 of the Wright & Miller pocket-part states “The general practice in federal question cases has been that questions of whether a foreign corporation is amenable to process are determined in accordance with concepts of due process developed with reference to state long-arm statutes.”

Having determined that it is necessary to decide whether personal jurisdiction exists over Garrett under the Louisiana Long-Arm Statute, the Court next has a dual inquiry; namely, whether Louisiana has provided by its long-arm statute for the assertion of jurisdiction in the context of the situation under scrutiny and assuming the answer is yes, the question arises whether the assertion of jurisdiction is constitutionally permissible.

PHI urges the Court to find jurisdiction over Garrett pursuant to La.R.S. 13:3201(1) which states “a court may exercise personal jurisdiction over a non-resident, who acts directly or by an agent, as to a cause of action arising from any one of the following activities performed by the non-resident: (1) Transacting any business in this state.” Garrett denies the applicability of La.R.S. 3201(1) because PHI’s cause of action does not “arise from” the business transacted in Louisiana.

There has been much confusion in the courts on the issue of whether Louisiana courts will insist upon a nexus between business transacted in the state and an asserted claim as a prerequisite to the exercise of in personam jurisdiction under that state’s long-arm statute. In Pedelahore v. Astropark, Inc., 745 F.2d 346 (5th Cir.1984), a panel of Fifth Circuit judges concluded that the Louisiana Long-Arm Statute does not require a nexus between the business transacted in Louisiana and the asserted claim. There, the court subjected a Texas amusement park to in personam jurisdiction in Louisiana due to the fact that the park actively advertised in Louisiana, that a sales representative for Louisiana was appointed and the park had significant numbers of Louisiana customers. The court’s decision was based on these minimal contacts with Louisiana - and the fact that it was not unfair to require the park to defend itself in Louisiana because its contacts with Louisiana were deliberate, not fortuitous.

Since Pedelahore held that Louisiana law does not require a causal connexity, the court did not discuss how the plaintiff’s cause of action fell within the Louisiana Long-Arm Statute or which section of the statute was applicable. The court omitted a discussion of the Louisiana Long-Arm Statute’s applicability to plaintiff’s cause of action and proceeded directly into a discussion of the due process two-pronged test.

In a case involving an issue of lack of personal jurisdiction, it is this Court’s opinion that the threshold question to decide is which, if any, section of the Louisiana Long-Arm Statute is applicable to plaintiff’s cause of action. Having established this, the Court must then determine whether the state of Louisiana would assert long-arm jurisdiction over the defendant under the applicable section of the statute. If this question is answered affirmatively, the Court must then determine that the exercise of personal jurisdiction is consonant with “traditional notions of fair play and substantial justice” and that the nonresident defendant had sufficient “minimum contacts” with the forum state so as to avoid offending the due process clause of the fourteenth amendment. These steps are important because if the plaintiff cannot assert that a section of the long-arm statute applies to the defendant by its literal wording, then the due process dual inquiry is unnecessary. The Louisiana Long-Arm Statute consists of eight sections. It states:

3201. Personal jurisdiction over nonresidents

A court may exercise personal jurisdiction over a nonresident, who acts directly or by an agent, as to a cause of action arising from any one of the following activities performed by the nonresident:
(1) Transacting any business in this state.
(2) Contracting to supply services or things in this state.
(3) Causing injury or. damage by an offense or quasi-offense committed through an act or omission in this state.
(4) Causing injury or damage in this state by an offense or quasi-offense committed through an act or omission outside of this state if he regularly does or solicits business, or engages in any other persistent course of conduct, or derives revenue from goods used or consumed or services rendered in this state.
(5) Having.an interest in, using or possessing a real right on immovable property in this state.
(6) Non-support of a child or spouse or a former spouse domiciled in this state to whom an obligation of support is owed and with whom the non-resident formerly resided in this state.
(7) Parentage and support of a child who was conceived by the nonresident while he resided in or was in this state.
(8) Manufacturing of a product or component thereof which caused damage or injury in this state, if at the time of placing the product into the stream or commerce, the manufacturer could have foreseen, realized, expected, or anticipated that the product may eventually be found in this state by reason of its nature and the manufacturer’s marketing practices.

It is this Court’s opinion that sections (1) and (2) apply to contractual based causes of action rather than tortious causes of action. King v. Carnival Cruise Lines, Inc. (W.D.La. Slip Op. No. 82-2791) For causes of action based on tort rather than contract, sections (3), (4) and (8) are applicable. This distinction is important because contract actions which fall under (1) and (2) of 3201 require less contacts with the state than do tort actions which fall under sections (3), (4) and (8) of 3201. This analysis of the long-arm statute is supported by the fact that if (1) and (2) were applicable to tort actions, then (3), (7) and (8) would be unnecessary additions to the statute. Hence, section (1) “transacting any business in this state” should only be used when the plaintiff’s cause of action is based on contract. It is not applicable to tort based causes of action with the possible exception of products liability cases as discussed below.

In two Louisiana court eases subsequent to Pedelahore, the courts required a nexus between the defendant’s business and the plaintiff’s claims. These cases also recognize the distinction between contractual and tortious causes of actions and their applicability under the long-arm statute. In Robinson v. Vanguard Ins. Co., 468 So.2d 1360 (La.App. 1st Cir.1985), the court held that the district court had no jurisdiction over actions against a nonresident manufacturer for damages arising from an airplane crash in Mississippi, where the facts did not show that the cause of action arose from the manufacturer’s transaction of business in Louisiana. The Robinson court also stated in footnote #2, p. 1362 that “Typically, a products liability case action a nonresident manufacturer is brought under La.R.S. 13:3201(3) or (4)”. The court used the term “typically” because it is possible in a products liability action for a plaintiff who has been injured to avail himself or herself of 13:3201(1) or (2). C.f. Fisher v. Albany Machine & Supply Company, 261 La. 747, 260 So.2d 691 (1972). This is so because a products liability action is an interweave of contract and tort principles. C.f. Philippe v. Browning Arms Co., 395 So.2d 310 (La.1980). In Alba v. Riviere, 457 So.2d 33 (La.App. 4th Cir.1984) the court held that since plaintiff’s cause of action did not arise from any transaction of business by any of the defendants in the state, such defendants were not subject to the jurisdiction of Louisiana courts. The Alba court also stated “But SOS did not transact any business in La. in a contractual sense, (emphasis added), or by a presence in La. ... and plaintiff’s cause of action cannot fairly be said to be one ‘arising from’ SOS’s transacting business here within subd. (1) ...)” (of La.R.S. 13:3201).

A panel of the Fifth Circuit recently has followed the Louisiana courts and held that state courts will insist upon a nexus between business transactéd in the state and an asserted claim as a prerequisite to the exercise of in personam jurisdiction under the Louisiana Long-Arm Statute. Famham v. Bristow Helicopters, 776 F.2d 535 (5th Cir.1985). Although this Court agrees with the Famham court’s conclusion, it is of the opinion that section (1) of the long-arm statute was not applicable to that case since the cause of action was based on tort. The facts in Famham were: The survivors of a man killed in a helicopter owned by an Indonesian corporation sued Bristow Helicopters, Inc., a Delaware corporation. Since the plaintiff’s cause of action did not arise from any contract, it is submitted that section (1) of the long-arm statute was inapplicable for that reason. The case at bar, however, is distinguished from Famham because the plaintiff’s cause of action in this case arose from breach of express and/or implied warranties by Garrett to PHI. This is clearly contractual rather than delictual. Farnham involved plaintiff’s assertion of a claim for personal injury to the deceased. PHI asserts an action closely resembling breach of contract. Accordingly, plaintiff is correct in asserting jurisdiction over defendant under Section (1) of 3201.

The Court must now determine whether the business transacted by Garrett in Louisiana has a sufficient connexity or nexus to the plaintiff’s claim to enable this Court to assert personal jurisdiction over Garrett.

Garrett has admitted that it has in the past transacted business in Louisiana but asserts that the cause of action herein does not arise from business previously transacted. The facts establish that Garrett derived a substantial amount of revenue from sales to Louisiana; for sales in 1980, Garrett derived $1,321,755; for 1981, $2,533,-932; for 1982, $1,905,503 and for 1983, $1,322,323. An account executive from Garrett visits Louisiana on an average of once a month to discuss Garrett equipment; Garrett representatives visit Louisiana in order to train users of Garrett products; twice yearly, a mobile van is dispatched from Garrett’s facility in Houston, Texas to Louisiana for servicing of Garrett products; Garrett mails service bulletins and service information letters directly to customers in Louisiana and advertises in a wide variety of national publications which are sold in Louisiana; and Garrett shipped helicopter floats to PHI in 1980 and 1981. Despite these facts, this Court does not find the required nexus between plaintiffs claim and defendant’s business because Garrett did not sell or supply the emergency floats or contract to sell or supply these floats in question to anyone in Louisiana, nor did Garrett sell or supply or contract to sell or supply any emergency floats for fitting to AS-350 aircraft in Louisiana during 1980 and 1981. There is no evidence of any contractual agreement between PHI and Garrett in the record.

Since the Court finds that there is no nexus between plaintiff’s cause of action and defendant’s business as required by Louisiana courts, the Louisiana Long-Arm Statute is not applicable. A discussion of due process is therefore not necessary since the long-arm statute is not available to plaintiff. Accordingly, defendant Garrett’s motion to dismiss for lack of personal jurisdiction is GRANTED.

      . La.R.S. 13:3204 states:
      A certified copy of the citation and of the petition in a suit under R.S. 13:3201 shall be sent by counsel for the plaintiff to the defendant by registered or certified mail, or actually delivered to the defendant by an individual designated by the court in which the suit is filed, or by one authorized by the law of the place where the service is made to serve the process of any of its courts of general jurisdiction.
      Service of process so made has the same legal force' and validity as personal service on the defendant in this state. Added Acts 1964, No. 47, § 3.

      . Rule 4 states:
      (e) Summons: Service Upon Party Not Inhabitant of or Found Within State: Whenever a statute of the United States or an order of court thereunder provides for service of a summons, or of a notice, or of an order in lieu of summons upon a party not an inhabitant of or found within the state in which the district court is held, service may be made under the circumstances and in the manner prescribed by the statute or order, or, if there is no provision therein prescribing the manner of service, in a manner stated in this rule. Whenever a statute or rule of court of the state in which the district court is held provides (1) for service of a summons, or of a notice, or of an order in lieu of summons upon a party not an inhabitant of or found within the state, or (2) for service upon or notice to him to appear and respond or defend in an action by reason of the attachment or garnishment or similar seizure of his property located within the state, service may in either case be made under the circumstances and in the manner prescribed in the statute or rule.

      . 28 U.S.C. § 1333(1) states:
      The district courts shall have original jurisdiction, exclusive of the courts of the States, of: (1) any civil case of admiralty or maritime jurisdiction, saving to suitors in all cases all other remedies to which they are otherwise entitled.

      . Even had the court found that this case sounded in tort rather than contract, the result would be the same. There was no act or omission committed within Louisiana as required by La. R.S. 13:3201(3). Further, the helicopter crashed outside the territorial waters of Louisiana and therefore the damage did not occur within the state as required by 13:3201(4) and (8). Offshore Logistics, Inc. v. M/V Maersk Transporter, (E.D.La.1984, Slip Op. No. 84-135). Consequently, sections (3), (4) and (8) of the long-arm statute are not applicable to plaintiff’s claim.


text:
    Vernon Isaiah FOGLEMAN, et al. v. ARAMCO, et al.
    Civ. A. No. 85-0010-Section O.
    United States District Court, W.D. Louisiana, Lafaeytte-Opelousas Division.
    Dec. 3, 1985.

      Gregg L. Spyridon, Camp, Carmouche, Barsh, Hunter, Gray, Hoffman & Gill, Lafayette, La., for plaintiffs.
    Kenneth J. Servay, Chaffe, McCall, Phillips, Toler & Sarpy, New Orleans, La., for defendants.
   RULING

SHAW, District Judge.

This matter came before the Court on a motion to dismiss for insufficiency of process, insufficiency of service of process, and lack of jurisdiction in personam filed on behalf of defendant Arabian American Oil Company (ARAMCO). For the following reasons this Court has determined that the motion to dismiss should be granted.

Plaintiff was injured on or about January 20, 1984 while employed as an electrician aboard the M/V Al Jubail # 1 and M/V A1 Mojil #8, while these two vessels were doing repairs and renovations on an oil drilling platform located in the Persian Gulf off the coast of Abu Ali, Saudi Arabia. He seeks damages under the Jones Act and unseaworthiness and seeks maintenance and cure. His alleged wife has joined in the suit seeking damages for loss of consortium, services, and society. Plaintiffs have attempted to effect service of process on ARAMCO by mailing to CT Corporation in Houston, Texas a “Notice and Acknowledgment” form along with the summons and complaint pursuant to Rule 4(c)(2)(C)(ii). This form has not been returned.

ARAMCO is a Delaware corporation whose stock is owned exclusively by Mobil Oil Corporation, Chevron, Inc., Texaco, Inc. and Exxon, Inc. Its principal place of business is Houston, Texas. At all times pertinent hereto, 100% of the stock of Aramco Services Company (ASC) was and is held by ARAMCO. ASC was established by ARAMCO primarily to avoid the tax ramifications of obtaining services and purchasing in the United States. A service agreement exists between ARAMCO and ASC which governs the business relations between them. ASC is obligated to perform many services for ARAMCO, including purchasing goods, selling goods, and recruiting and training personnel, etc. Approximately 90% of the business activity of ASC was and is directly performed for, or on behalf of, ARAMCO. None of the officers of ASC are employed by or have any official capacity with ARAMCO.

The first issue to be addressed is whether the service of process utilized by plaintiff to serve ARAMCO was proper. Defendants argue that Federal Rule 4(c)(2)(C)(ii) is not a federal long-arm statute and cannot be used, alone, to perfect service outside of the state. After review of the argument and the cited authorities, this Court concludes that defendant is correct. The rule was drafted to allow service by mail where personal service could otherwise be made under Rule 4(d)(1) [on individuals] or 4(d)(3) [on corporations]. As to corporations, such as ARAMCO, Rule 4(c)(2)(C)(ii) only allows service by mail where service could be made under Rule (4)(d)(3); that is, personally on the corporation’s officer or agent within the state. Rule 4(f) sets forth the territorial limits of service under Rule 4(d) and thus also limits Rule 4(c)(2)(C)(ii) service to the territory of the state in which the district court is found or within 100 miles of the place in which the action is brought. Thus Rule 4(c)(2)(C)(ii) can only be used to serve a defendant who is amenable to personal service of process within the state where the Court is located. San Miguel & Compania, Inc. v. International Harvester Export Co., 98 F.R.D. 572, 573 (D.P.R.1983) and William B. May Co., Inc. v. Hyatt, 98 F.R.D. 569 (S.D.N.Y.1983).

The court in San Miguel adopted this reasoning and stated: “Absent a congressional provision for the nationwide service of process when the defendant is a foreign corporation it must have an agent within the territorial limits of the state in which the court sits unless extrastate service can be made pursuant to a state rule.” There is no evidence that defendant, ARAMCO, has an agent for service of process in Louisiana; therefore, Rule 4(c)(2)(C)(ii) cannot be used to serve ARAMCO.

Another possible means of service upon ARAMCO is via the Louisiana Long-Arm Statute, La.R.S. 13:3201 et seq. The Fifth Circuit has held in DeMelo v. Toche Marine, Inc., 711 F.2d 1260 (5th Cir.1983) that when a party “borrows” a state long-arm statute to attempt service of process,' the party is bound by the state law restrictions that attach to the state long-arm procedure. Therefore, in order to utilize the service of process procedure in La.R.S. 13:3204, the requirements of La.R.S. 13:3201 must be met.

La.R.S. 13:3201 provides in pertinent part:

§ 3201. Personal jurisdiction over nonresidents:
A court may exercise personal jurisdiction over a nonresident, who acts directly or by an agent, as to a cause of action arising from any one of the following activities performed by the nonresident:
(1) Transacting any business in this state.
(2) Contracting to supply services or things in this state.
(3) Causing injury or damage by an offense or quasi-offense committed through an act or omission in this state.
(4) Causing injury or damage in this state by an offense or quasi-offense committed through an act or omission outside of this state if he regularly does or solicits business, or engages in any other persistent course of conduct, or derives revenue from goods used or consumed or services rendered in this state.

Sections (1) and (4) could possibly apply to this particular situation. In order to use (1)—transacting business in Louisiana—the dispute must be contractual in nature. Alba v. Riviere, 457 So.2d 33 (La. App. 4th Cir.1984); King v. Carnival Cruise Lines, Inc., (W.D.La. Slip Op. No. 82-2791). Subsections (1) and (2) are based on the Supreme Court’s decision of McGee v. International Life Insurance Co., 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223 (1957). In that case the Court concluded that although defendant’s only contact with the state of California was one insurance policy, that contact, alone was sufficient due to the deliberate nature of the contract. When a nonresident enters into a contract with someone in Louisiana he knows with whom he is dealing and therefore has knowledge that the other party to the contract may hale him into court in Louisiana. Through contract negotiations he can make adjustments to provide for the risk of being sued by the party with whom he is contracting. In contrast, in a tort action the defendant does not have an opportunity to make such adjustments. He does not know where a tort will manifest itself or who the potential plaintiffs will be and therefore cannot foresee being haled into court in Louisiana, absent additional contacts.

That subsections (1) and (2) are not intended to be used in tort actions is also reinforced by other parts of the statute. Subsections (3) and (4) refer to injury or damage, whereas (1) and (2) do not. (1) and (2) require much less conduct by the defendant than (3) and (4). If (1) and (2) could be used for tort actions, there would be no need for subsection (4).

This Court notes that even if subsection (1) could be applied to this tort action, the result would not be different. ARAMCO does not do any business in Louisiana. Plaintiffs claim that ASC, the wholly-owned subsidiary of ARAMCO, does business in Louisiana, and therefore the business of ASC can be attributed to the parent corporation, ARAMCO.

The Fifth Circuit stated in Hargrave v. Fibreboard Corporation, 710 F.2d 1154 (5th Cir.1983):

Generally, a foreign parent corporation is not subject to the jurisdiction of a forum state merely because its subsidiary is present or doing business there; the mere existence of a parent-subsidiary relationship is not sufficient to warrant the assertion of jurisdiction over the foreign parent____ It has long been recognized, however, that in some circumstances a close relationship between a parent and its subsidiary may justify a finding that the parent 'does business’ in a jurisdiction through local activities of its subsidiaries.

710 F.2d at 1155. They explained this conclusion by reasoning that in some situations the parent exerts such domination and control over its subsidiary that the two do not in reality constitute separate and distinct corporate entities but are one and therefore are considered the same corporation for jurisdictional purposes. The Court went on to discuss the type and degree of control necessary to ascribe to a parent the activities of its subsidiaries. Citing the Supreme Court case of Cannon Manufacturing Co. v. Cudahy Packing Co., 267 U.S. 333, 45 S.Ct. 250, 69 L.Ed. 634 (1925), the Court states that: “[S]o long as a parent and subsidiary maintain separate and distinct corporate entities, the presence of one in a forum state may not be attributed to another.” “100% stock ownership and commonality of officers and directors are not alone sufficient to establish an alter ego relationship between two corporations.” 710 F.2d at 1160. The Fifth Circuit demands proof of control by the parent over the internal business operations and affairs of the subsidiary in order to fuse the two for jurisdictional purposes. 710 F.2d at 1160; Walker v. Newgent, 583 F.2d 163, 167 (5th Cir.1978); Product Promotions, Inc. v. Cousteau, 495 F.2d 483, 493 (5th Cir.1974); Turner v. Jack Tar Grand Bahama, Ltd., 353 F.2d 954, 956 (5th Cir.1965). All the relevant facts and circumstances surrounding the operations of the parent and subsidiary must be examined to determine whether two separate and distinct corporate entities exist.

In the Hargrave case, the parent (“T & N”) owned 100% of the stock of the subsidiary (“K & M”) from 1938 to 1962. During this period T & N maintained its corporate headquarters in Manchester, England, while K & M was headquartered in Ambler, Pennsylvania. The two companies shared no common officers and at no time had more than one common director. T & N and K & M maintained separate bank accounts, accounting and payroll systems, insurance contracts, budget, and financial records; they also filed separate tax returns. No assets of the corporations were commingled.

T & N had complete authority over general policy decisions at K & M, including selection of product lines, hiring and firing of K & M officers, and approval of sizable capital investments. Day-to-day business and operational decisions, however, were made by K & M officers. The court concluded that based upon these facts the plaintiff had not demonstrated that T & N possessed and exercised the nature and degree of control over K & M necessary to fuse the two corporations for purposes of jurisdiction. T & N and K & M “were two separate corporations joined by the common bond of stock ownership.”

In the instant case, plaintiff has not shown that ARAMCO controls ASC any more than T & N controlled K & M. Although nearly 90% of the business activity of ASC was and is directly performed for or on behalf of ARAMCO, ASC operated as an independent corporation separate and distinct from ARAMCO.

This Court also notes that even if the business activities of ASC could be attributed to ARAMCO, subsection (1) would not apply to this situation because under recent Fifth Circuit jurisprudence there must be a nexus between the Louisiana business transactions and the incident in dispute. Farnham v. Bristow Helicopters, Inc., 776 F.2d 535 (5th Cir.1985). The evidence does not show any connection between the transactions of ASC and this remote accident in the Persian Gulf.

We now reach the issue of whether the facts of this case could fit under subsection (4) of La.R.S. 13:3201. Upon review of this provision the Court finds that it would not apply to this case. This injury occurred in the Persian Gulf and not “in this state; ” therefore, the long arm cannot be used and the defendant ARAMCO cannot be served under La.R.S. 13:3204. Alba, supra; King, supra; Offshore Logistics, Inc. v. The M/V Maersk Transporter, (E.D.La.1984, Slip Op. No. 84-135).

ARAMCO cannot validly be served by the plaintiff. Without service of process this Court cannot assert personal jurisdiction over ARAMCO. Accordingly, ARAMCO’s motion to dismiss is GRANTED.

Counsel for mover shall submit a judgment in conformity with this ruling within ten (10) days.


author: LAFFITTE, District Judge.

text:
    GEMCO LATINOAMERICA, INC., et al., Plaintiffs, v. SEIKO TIME CORP., et al., Defendants.
    Civ. No. 85-2119 HL.
    United States District Court, D. Puerto Rico.
    Dec. 3, 1985.

      A. Antonetti, Fiddler, Gonzalez & Rodriguez, San Juan, Puerto Rico, Jay Greenfield, Janet Hoffman, Paul Weiss Rifkind Wharton & Garrison, New York City, for plaintiffs.
    McConnel Valdes Kelley Sifre Griggs & Ruiz Suria, (Rafael Perez-Bachs,) John M. Hadlock, Ronald J. Thomas, Whitman & Ransom, New York City, for Seiko Time Corp. and Hattori Corp. of America.
   OPINION AND ORDER

LAFFITTE, District Judge.

Plaintiffs, Gemco Latinoamérica, Inc., (GEMCO), a distributor of Seiko watches and other Seiko products, and José and Carmen Pascual, Gemco owners and shareholders, filed this action on October 10, 1985, against the supplier of Seiko products, Seiko Time Corp. (SEIKO), and Seiko products manufacturer, Hattori Seiko Co., Ltd. and Hattori Corp. of America. Plaintiffs claim that defendants breached the distributorship contract, violated Puerto Rico Public Law 75, 10 LPRA 278, et seq., which protects distributors, and further violated federal and local antitrust laws, 45 U.S.C. sects. 1, 2; 10 LPRA sect. 257 et seq. The Court has jurisdiction of this action under 28 U.S.C. sects. 1331, 1332, and 1337, 15 U.S.C. sect. 15, 22, and 26.

On September 18, 1985, three weeks pri- or to the filing of this action, defendants herein filed a claim for a declaratory judgment in the Southern District of New York. With exception to the remedy sought by the parties, the issues in these two actions are identical. Seiko, the plaintiff in New York, asks for a declaration by the court that it is not in breach of the distributorship agreement and that it has not violated law 75 or the federal or local anti-trust laws. It also seeks an order by the court compelling Gemco to submit to arbitration pursuant to the distributorship agreement signed in 1974.

In the action before this Court Seiko, the defendant, has filed a motion to transfer this case to the Southern District of New York. Plaintiff, Gemco, has submitted a motion to enjoin arbitration proceedings in New York and opposes the motion to transfer. We decline to rule specifically on Seiko’s motion to transfer. Instead, we stay this action until the motions pending before the court in New York—Seiko’s motion to enjoin prosecution of this case and Gemco’s motion to transfer the case—have been decided. Plaintiffs’ motion to enjoin arbitration is denied.

I. FACTUAL BACKGROUND.

On October 3, 1974, Seiko and Gemco entered into a written distributorship agreement. The contract was drafted by Seiko. It was negotiated in both New York and Puerto Rico and was signed by the parties in San Juan.

The essential provisions of the contract are as follows: Gemco was appointed the exclusive U.S. distributor of Seiko products to retail stores and military exchanges in Puerto Rico. The number of products to be purchased and the sales target figures were set for the years 1974-1975. Gemco was to pay for each shipment “in accordance with the Supplier’s then current standard terms of payment.” Seiko warranted the products supplied and Gemco was prohibited from altering or deleting the Seiko logo on the package or the product.

The contract was to be construed and governed by the laws of New York. Under paragraph 21, any dispute arising out of or related to the agreement:

shall be settled by arbitration in New York City by three arbitrators appointed in accordance with the Rules of the American Arbitration Association.

Paragraph 3 of the contract provided that the agreement would expire March 31, 1976. Furthermore, according to paragraph 17:

No agreement shall be effective to extend the term of the Agreement unless the same shall be in writing and duly executed by both parties hereto, and any submission of orders by the Distributor or acceptance or filling of orders by Supplier after the expiration or termination of the Agreement shall not be construed as an extension of said term or as an indication of interest by either party that the Agreement be extended.

All other aspects of the distributorship relationship remained open to negotiation.

The contract was formally extended by a writing effective January 1, 1976 through March 31, 1977, and by a second writing effective January 1, 1977 extending the agreement to March 31, 1978. No formal, written extensions of the agreement were made after 1978.

Despite the formal expiration of the 1974 contract, the distributor-supplier relationship between Gemco and Seiko continued. Gemco remained the U.S. distributor of Seiko products in Puerto Rico. The parties continued annually to negotiate purchase and sales quotas which were submitted in writing. Only slight modifications occurred in the parties’ relationship. In 1979 or 1980 Seiko prohibited Gemco from soliciting sales in military exchanges, which had comprised only 5% of Gemco’s market, and in 1981 Seiko added a new line of products to the distributorship. In all other respects the business dealings between Seiko and Gemco appear to have remained unchanged.

In May, 1985, Seiko sent Gemco a copy of a proposed contract. This contract was virtually identical to the 1974 agreement except it contained a buy-out provision and the arbitration clause was dropped. In response to this proposed contract, plaintiff José Pascual wrote a letter to Dan Larson, Seiko Vice President in charge of Sales, which began:

“I was surprised to see that Seiko sent me a new distributorship contract which is pre-dated October 1, 1983. We are currently operating under a valid contract for 1985 as the conditions for renewal of the contract signed in 1974 have been met every year, including this year, in agreeing on the target figures.
“At the time that the prior contract was signed with the continental distributors, Mel Fishman (Seiko Vice President in charge of Finance) talked to me and told me it was Seiko’s wishes to keep on working with the original contract ...”

Gemco also acknowledged the existence of a contract in a footnote to a 1983-1984 financial statement prepared by an accountant. The footnote read:

“The Company (Gemco) is a party to a distributor agreement effective August 21, 1974 thru March 31, 1976. Although the agreement has not been renewed, the Company and the supplier continue operating considering the agreement to be in effect under the provisions of Puerto Rico’s law number 75.”

This financial report was required annually by Seiko to determine whether credit should be extended and it was shown to banks to obtain financing.

According to Gemco, the relationship between the parties began to deteriorate in' 1980. Gemco claims that Seiko allowed distributors in “parallel” markets to sell Seiko products in Puerto Rico and, at the same time, prevented Gemco from expanding its market into the United States. It is alleged that Seiko’s actions severely damaged Gemco’s business.

The relationship bottomed out in 1985. Between December, 1984, and May, 1985, Seiko claims to have invoiced and shipped Seiko products to Gemco valued at $2,850,-057.47. In the summer of 1985 Gemco advised Seiko that it was unable to pay this debt. Gemco claims that its lack of funds was due to the actions of Seiko preventing them from entering lucrative markets.

The parties attempted to negotiate a resolution to this situation between July and September, 1985. Melvin Fishman, Seiko's Vice President in charge of Finance, came to Puerto Rico for three days in July, 1985 to discuss the situation and determine whether an acceptable finance plan for Gemco could be arranged. Nothing corn crete came out of this meeting. Conversations between the parties continued by telephone. On September 15, 1985 Seiko’s attorney travelled to Puerto Rico for further discussions. Still no agreement was reached.

In accordance with paragraph 21 of the 1974 agreement, Seiko filed a demand to arbitrate the debt dispute with the American Arbitration Association in New York on September 16, 1985. On September 18, 1985, Seiko filed a declaratory judgment action in the Southern District of New York. Gemco, who claims to have lost the race to the courthouse because it was lulled into believing a resolution would be reached, filed its claim before this Court on October 10, 1985. Seiko has moved the District Court in New York to enjoin Gem-co from litigating this action. Gemco has requested the New York court to consider its motion to transfer the case to the district of Puerto Rico. The District Court in New York has not yet ruled on either of these motions.

Before this Court is a motion parallel to the motions presented in New York—Seiko, the defendant here, moves the court to transfer this action to the Southern District of New York; Gemco opposes. In the court’s view, the issue presented by Seiko’s motion to transfer is not whether this case should be transferred to New York, but whether this Court should be the court to decide the issue.

II. TRANSFER OF VENUE.

It is well accepted that the forum where an action is first filed is given priority over subsequent actions, unless there is “a showing of balance of convenience in favor of the second action,” Remington Products Corp. v. America Aerovap, Inc., 192 F.2d 872, 873 (2nd Cir.1951), or there are special circumstances which justify giving priority to the second, Joseph Bancroft & Sons Co. v. Spunize Co. of America, 268 F.2d 522 (2nd Cir.1959). See Codex Corp. v. Milgo Electronic Corp., 553 F.2d 735 (1st Cir.1977); William Gluckin & Co. v. International Playtex Corp., 407 F.2d 177, 178 (2nd Cir.1969); Mattel, Inc. v. Louis Marx & Co., 353 F.2d 421 (2nd Cir.1965). Furthermore, it has been held:

“Where an action is brought in one federal district court and a later action embracing the same issue is brought in another federal court, the first court has jurisdiction to enjoin the prosecution of the second action.” Meeropol v. Nizer, 505 F.2d 232, 235 (2d Cir.1974) (citations omitted.)

These principles are consistent with the doctrine of federal comity which requires the federal district courts to refrain from interfering with each other’s affairs. See Kerotest Mfg. Co. v. c-o-Two Fire Equipment Co., 342 U.S. 180, 72 S.Ct. 219, 96 L.Ed. 200 (1952); West Gulf Maritime Assoc, v. Ila Deep Sea Local 24, et al., 751 F.2d 721, 728 (5th Cir.1985); Pacesetter Systems, Inc. v. Medtronic, Inc., 678 F.2d 93 (9th Cir.1982). Absent such a rule, there would exist the possibility of conflicting judicial resolutions as well as a duplication of judicial efforts. Id.

The court is persuaded by these principles to stay the present action. The parties and issues presented by the law suit here and in New York are identical. Multiple litigation of these claims would clearly serve no purpose of judicial administration and would risk conflicting determinations. Since Seiko filed its claim in the Southern District of New York first, this action is stayed until such a time as Judge Kram, presiding over the New York case, decides Seiko’s motion to enjoin plaintiffs from proceeding with this action and Gem-co’s motion to transfer. Our decision is supported by Donaldson, Lufkin & Jenrette v. Los Angeles County, 542 F.Supp. 1317, 1321 (S.D.N.Y.1982), which held that “the district court hearing the first-filed action should determine whether special circumstances dictate that the first action be dismissed in favor of a later-filed action.” See also, Mann Manufacturing, Inc. v. Hortex, Inc., 439 F.2d 403 (5th Cir. 1971).

We have given careful and thoughtful consideration to plaintiffs’ allegation of balance of convenience and special circumstances. We are also mindful that federal antitrust provisions clearly indicate that Congress intended would-be antitrust plaintiffs to have a broader than usual choice of venue, 15 U.S.C. Section 15, 22; that the majority of the operative facts in this case occurred in Puerto Rico; that many witnesses are in Puerto Rico, and that any need for Spanish translation of local statutory or case law is more easily accommodated here. See Columbia Pictures Industries, Inc. v. Schneider, 435 F.Supp. 742 (S.D.N.Y.1977), aff’d. 573 F.2d 1288 (2nd Cir.1978). Yet, the Court feels that these are issues to be weighed by the District Court of New York in deciding whether to keep or transfer this case.

III. ARBITRATION: INJUNCTION.

We move now to the issue presented by Gemco’s motion to enjoin or stay arbitration in New York. This Court can fairly decide this motion without interfering with the principles of federal comity. The question of the arbitrability of the debt owed by Gemco to Seiko was put to this Court before it was raised by either party in the action pending in New York. The parties have fully briefed this issue. On October 25, 1985, a hearing was held on Gemco’s motion; evidence was presented and oral arguments were heard. It was expressly stated at the hearing that the sole issue before the Court was the question of arbitration. Neither party at any time challenged the court’s authority to hear this matter.

There is no dispute, here, that the distributorship agreement signed by the parties in 1974 is a “contract evidencing a transaction involving commerce” within the meaning of the Federal Arbitration Act, 9 U.S.C. Section 2, and that the contract contained a valid arbitration clause. In enacting section 2 of the Federal Arbitration Act, Congress declared a national policy favoring arbitration. Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984); Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983); Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967). The Supreme Court stated in Southland that Congress “contemplated a broad reach of the Act, unencumbered by State law.” As a result of Southland, it is probable that state regulations which hinder arbitration are preempted by federal law.

The First Circuit applied this interpretation of the Federal Arbitration Act to invalidate the direct application of section 278b-2 of Puerto Rico Law 75. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 723 F.2d 155 (1st Cir.1983), rev’d. on other grds.,—U.S.-, 105 S.Ct. 291, 83 L.Ed. 291 (1984). Section 278b-2 provides:

Any stipulation that obligates a dealer to ... arbitrate ... any controversy that comes up regarding his dealer’s contract ... shall be likewise considered as violating the public policy set forth by this chapter and is therefore null and void.

Mitsubishi held that this provision singling out arbitration agreements is preempted by the Federal law.

We are bound to apply the Federal Arbitration Act in the present case and compel Gemco to submit to arbitration if: 1) we find that the 1974 contract was in effect in 1985 when the dispute arose, and 2) we find that the claim is within the scope of the contract and is arbitrable. See Sumaza v. Cooperative Assc., 297 F.Supp. 345 (D.P.R.1969). Plaintiffs claim that the 1974 distributorship contract expired by the terms of clause 21 following the final formal extension of the contract in 1978. We disagree with plaintiff and find that the contract was automatically extended by Puerto Rico’s Law 75, and by the conduct of the parties.

Public Law 75 provides:
Section 278a. Termination of relationship
' Notwithstanding the existence in a dealer’s contract of a clause reserving to the parties the unilateral right to terminate the existing relationship, no principal (supplier) or grantor may directly or indirectly perform any act detrimental to the established relationship or refuse to renew said contract on its normal expiration, except for just cause. 10 LPRA 278a.

The purpose of this law is to protect the interest of commercial distributors working in Puerto Rico. See Warner Lambert Co. v. Superior Court of Puerto Rico, 101 D.P.R. 378 (1973). As the House Commerce and Industry Committee stated in the Statement of Motives of Act No. 75:

“The Commonwealth of Puerto Rico cannot remain indifferent to the growing number of cases in which domestic and foreign enterprises, without just cause, eliminate their dealers, concessionaries, or agents, or without fully eliminating them, such enterprises gradually reduce and impair the extent of their previously established relationships, as soon as these have created a favorable market and without taking into account their legitimate interests.” Vol. 18, Part 4, Diario de Sesiones 1724.

The constitutionality of this law as it applies to contracts signed after 1966, the law’s effective date, was upheld by the Puerto Rico Supreme Court in Warner Lambert Co. v. Superior Court of Puerto Rico, supra.

As a result of section 278a of Law 75 a contractual provision between a supplier and distributor in Puerto Rico which provides for a unilateral right to terminate or not to renew the relationship is null and void as it contravenes the law of Puerto Rico. See, Restatement (Second) of Contracts, Sect. 178 (1981). The Supreme Court of Puerto Rico explained in WARNER LAMBERT that “the practical effect of Act No. 75 is to extend the contract indefinitely, unless there is just cause for its termination or unless the principal is willing to pay damages.” Warner Lambert Co., supra, at 399.

The 1974 contract at issue in this case was drafted by Seiko Co., the supplier. Paragraph 21 of the contract provides that the agreement may be extended beyond March 26, 1976, the expressed expiration date, only by a formal writing signed by the parties, and, furthermore, any continuation in the business dealings between the parties is not to be interpreted as an indication of the parties’ intent to extend the contract term. This clause is as much in contravention of the law of Puerto Rico as a clause which allows for unilateral termination. Under paragraph 21, Seiko could refuse to renew the agreement without just cause and without compensating Gemco. Law 75 specifically prohibits a principal from “refusing] to renew [a] contract on its normal expiration, except for just cause.” Paragraph 21 violates this provision of Law 75, and, therefore, is void.

Having voided this provision, the Court agrees with the Puerto Rico Supreme Court that the practical effect of Law 75 is to extend the contract indefinitely. The result in this case, is that the 1974 agreement was extended indefinitely beyond the final formal extension in 1978 and was in effect in 1985 when the dispute between the parties arose.

The court does not mean to imply by this decision that a supplier and distributor are tied to a contract for life. The parties could mutually agree to terminate the relationship or could create a novation either in writing or through their actions. A contract is extinguished by a novation if a new agreement expressly declares that it replaces the former agreement or the old and new agreements are incompatible in all points. Here, there is clearly no novation. No writing exists which expressly replaces the 1974 agreement and, most importantly, the business dealing of the parties remained essentially unchanged. Warner Lambert Co. v. Superior Court, 101 D.P.R. at 389-90.

The conduct of the parties indicates that they intended to extend the contract. To determine the intention of the parties to a contract the Court must look to the parties’ acts contemporaneous and subsequent to the contract. Here, Gemco and Seiko continued their business dealings without altering the essence of the relationship, Gemco continued to be the U.S. distributor of Seiko products in Puerto Rico, they annually negotiated purchase and sales quotas and the manner of payment for the products and payment of a commission based on sales remained the same. Furthermore, Gemco indicated in a May 15, 1985 letter to Seiko it believed that the original contract was still in effect. Gemco also implied in a financial statement for the years 1983 and 1984 that the parties were acting pursuant to a contract. This financial statement was used to obtain an extension of credit from Seiko and to present it to banks in order to obtain financing. The statement of the court in Tepper Realty Co. v. Mosaic Tile Co., 259 F.Supp. 688, 692 (D.C.N.Y.1966) seems appropriate here:

“ * * * In short, the plaintiffs cannot have it both ways. They cannot rely on the contract, when it works to their advantage, and repudiate it when it works to their disadvantage. To permit them to do so would not only flout equity, it would do violence, we think to the congressional purpose underlying the Federal Arbitration Act. ‘Arbitration agreements are purely matters of contract, and the effect of the bill is simply to make the contracting party live up to his agreement. He can no longer refuse to perform his contract when it become disadvantageous to him’.”

Cited in Sumaza v. Cooperative Assoc., 297 F.Supp. 345 (D.P.R.1969).

The sole claim that Seiko has submitted to arbitration in New York is the dispute over the debt allegedly owed by Gemco. This dispute is clearly related to the distributorship agreement between the parties and is an arbitrable claim.

WHEREFORE, upon consideration of the testimonial and documentary evidence, briefs and argument of counsel, it is hereby ORDERED that Gemco’s petition for a preliminary injunction to enjoin arbitration proceedings before the American Arbitration Association is DENIED; and it is further

ORDERED that these proceedings shall be stayed until Seiko’s and Gemco’s transfer motions before the United States District Court for the Southern District of New York, Civil No. 85-7388 (SWK), áre ruled upon.

IT IS SO ORDERED.

      . 9 U.S.C. Section 2 provides in its pertinent part:
      "A written provision in any * * * contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” See, Hoeliering, Michael F., Arbitrability of Disputes, 41 The Business Lawyer 125 (1985).

        . The contract states that it is to be interpreted and construed under the law of New York. Here, however, the issue is not one of interpretation or construction, but whether the contract was in effect in 1985. This issue is decided under the law of Puerto Rico since the contract was negotiated here, in part, was signed here and was performed here.

      . Gemco’s motion presents the Court with a unique case. Here, the supplier (principal), Seiko, relies on the protection of Law 75 to establish that the 1974 contract was automatically extended and was in effect in 1985, while the distributor, Gemco, argues against this interpretation of the statute.

      . Article 1158 of the Civil Code of Puerto Rico, 31 L.P.R.A. 3242, provides: “In order that an obligation may be extinguished by another which substitutes it, it is necessary that it should be so expressly declared, or that the old and new be incompatible in all points.”

      . Article 1234 of Puerto Rico Civil Code, 31 L.P.R.A. 3472 reads: "In order to judge as to the intention of the contracting parties, attention must principally be paid to their acts, contemporaneous and subsequent to the contract.”

      . See Federal Deposit Ins. Corp. v. Cardona, 723 F.2d 132, 137 (1st Cir.1983), for the proposition that the acknowledgement of a debt in a company’s annual report has been held sufficient to remove the bar of the statute of limitations.