Clauses: Ohio Federal Court Declines to Enforce Med/Arb Provisions in Multiparty (Web)

In Marathon Ashland Petroleum LLC v. Selker Bros. Inc., et al, No. 3:04 CV 7638, 2006 WL 1878894 (N.D. Ohio July 6, 2006), a U.S. District Court in Ohio’s Northern District denied a fourth-party's motion to compel arbitration or mediation. The alternative dispute resolution sought depended upon the amount of damages under a contract provision; in denying the request, the court stated that the amount could not be determined at that particular stage in the proceeding.

The source of the motion wasn’t an original party in the matter, involving an oil supply contract. In the case, Marathon filed suit to collect payment for oil it delivered to Selker, alleging that the amount was more than $908,000. Denying Marathon's claim, Selker alleged in a counterclaim that Marathon had caused damages of more than $10 million by selling it contaminated petroleum products.

Denying liability, Marathon filed a third-party complaint against Duke Energy Merchants, the company that supplied the petroleum products to Marathon, which it in turn sold to Selker. Marathon claimed indemnification or contribution from Duke in case Marathon was found liable on Selker's counterclaim.

Duke filed a fourth-party complaint against Kinder Morgan Transmix Col. LLC, and Kinder Morgan Operating LP. Duke alleged that Kinder’s processing allowed contaminants into the fuel. Kinder is described in the opinion as “the entity alleged to own and/or operate the processing facility.”

Duke sought indemnification and contribution from Kinder if it was found liable in any way to Marathon in case the fuel in question was determined to have been contaminated, as Selker alleged.

Kinder’s motion was before the federal court. It sought dismissal based on a lack of “supplemental jurisdiction”; alternatively, it asked the court to compel arbitration or mediation. Duke and Marathon opposed the motion.

A “Transmix Processing Agreement” between Duke and Kinder provided that claims and controversies were subject to arbitration if they involved more than $1 million, while controversies involving less than that amount were to be referred to judicial arbitration and mediation services in Harris County, Texas, for mediation and, if mediation was unsuccessful, either party was permitted to resolve the dispute through litigation.

Kinder asserted that "it is not entirely clear whether millions of dollars as alleged is appropriate or whether it is something less than a $1 million."

The memorandum opinion states that whether arbitration or mediation should take place could be determined only after it is determined that Duke is liable to Marathon for indemnity or contribution. Only then could the amount be known, and if it is subject under the contract to either arbitration or mediation.

Therefore, the decision states that, “at this time it would be totally inappropriate for the Court to order arbitration and/or mediation.” The court denied Kinder's motion.

The court concluded that it would consider motions from the affected parties on whether discovery and further proceedings should be stayed.

-- Zoltan Elek, CPR Intern