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decided: December 1, 1966.


Lumbard, Chief Judge, and Friendly and Kaufman, Circuit Judges. Irving R. Kaufman, Circuit Judge (dissenting).

Author: Lumbard

LUMBARD, Chief Judge:

Once again a party to this multi-court, federal-state litigation between Necchi S.p.A. and Necchi Sewing Machines Sales Corp. (Sales) complains to us that arbitration of certain claims should be compelled. On July 15, 1965 we decided, 348 F.2d 693, cert. denied, 383 U.S. 909, 86 S. Ct. 892, 15 L. Ed. 2d 664 (1966), upon the appeal of Sales, that Necchi must arbitrate items 4 and 5 in the demand of Sales of May 22, 1964 as they were matters "arising out of or in connection with the agreement" between Sales and Necchi. Six days later, on July 21, 1965, Necchi, through its attorneys, advised Sales of the appointment of its arbitrator to determine the matters we had held to be arbitrable, and of their request that the arbitrators also determine eleven claims which were enumerated.

Seven months then passed before the Supreme Court denied certiorari; meanwhile, Sales objected to Necchi's counter-claims for arbitration. After much preliminary sparring and postponement by Judge Ryan of decision on several applications made by Necchi because the mandate was stayed by this court so that application for review could be filed in the Supreme Court, the motions were finally heard in February 1966. On March 30, Judge Ryan signed an order appointing a third arbitrator and denying Necchi's motion to compel arbitration of the items listed in its letter of July 21, 1965. From that order Necchi brings this appeal; meanwhile arbitration has been stayed.

Judge Ryan held that our decision of July 15, 1965 limited the arbitration to the matters we then passed upon, that Necchi was guilty of laches in not making its counterdemand until after our decision, that Necchi, by its conduct, had waived whatever right it may have had to arbitration of its counterdemand, and that the items in Necchi's counterdemand were not arbitrable in any event.

For reasons which follow we think that all of Necchi's counterclaims should be submitted to the arbitrators.

We find that under the circumstances and in the absence of any guiding rules or principles of law Necchi was not guilty of laches in failing sooner to make its counterclaims and that it did not waive any rights.

Our opinion of July 15, 1965 passed only upon the demands of Sales. It was the position of Necchi that these were not arbitrable and, indeed, we found only two of the nine claims to be so. Necchi asserts that it withheld its counterdemands which it had drawn up because it believed that to assert these demands at the same time that it sought to defeat arbitration sought by Sales might constitute a waiver of its objection to arbitration. We think the record shows that this assertion is made in good faith.*fn1 While we are of the view that the simultaneous assertion of the counterdemands would not have had the effect feared by Necchi, we cannot say that this belief was unreasonable as there seems to be no authority on this point -- at least none until this decision.

The protracted bickering and the delays which have postponed all attempts to reach any decision on the merits of the respective claims emphasize that the parties should be required to act in such a manner that will prevent such time-wasting in future arbitration litigation. We think the parties objecting to arbitration should couple their objections with all available counterdemands which they may wish to have arbitrated or determined if the court should overrule their objections to arbitration. Of course they should make clear that by serving such cross-demands they do not consent to arbitration but they make the demands in order that the court may at the same time pass upon all questions possibly relevant to its decision. Hereafter, if a party resisting arbitration should fail to serve its counterclaims at the same time, its failure to do so should bar it from asking arbitration of its counterclaims if its objections are overruled.

It is true that two and one-half years have already elapsed since Sales served its demand on May 22, 1964. But most of this delay is attributable to the time such litigation takes, and the fact that neither this court nor the district court passed upon the matters with dispatch. While the appellant is not entirely blameless we cannot charge it with a major share of this delay. Moreover, appellant acted promptly in serving its counterdemand within six days of the filing of our opinion.

We also find that Necchi's conduct, apart from good faith opposition to Sales' demands, was not inconsistent with a desire to arbitrate any or all claims within the purview of the arbitration agreement, and therefore, that it should not be held to have waived its right to assert these claims.

Lastly, in footnote 2 of his opinion, Judge Ryan expressed the view that

"In any event, it does not appear that the issues now raised by respondent would pass the test of arbitrability set by the Court of Appeals. Items 1 and 2 relate to unfair competition; 3 and 5 are mutually exclusive, inconsistent with each other and with all prior statements of respondent that petitioner continued as a distributor until the end of 1963; they are sham issues; 4 goes out with 3 and 5; 6 is but a conclusion unsupported by any arbitrable issue; 7 and 8 are part of Petitioner's item 4 ...

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