The opinion of the court was delivered by: HERLANDS
HERLANDS, District Judge.
In this action commenced on November 18, 1966 primarily to enforce an arbitration award, the following three motions are now before the Court: (1) defendant's motion to dismiss or in the alternative for a stay of proceedings; (2) plaintiff's motion to strike defenses, to dismiss or to sever counterclaims, and for summary judgment on the First Claim of its complaint, the claim seeking enforcement of the arbitration award; and (3) defendant's motion for leave to file and serve an amended answer.
Except for differences in legal maneuvering, the controversy between plaintiff and this defendant is substantially identical to that between plaintiff and, among others, the Chicago, Burlington and Quincy Railroad. The fundamental question is whether defendant is entitled to set-off claimed per diem freight car rentals (allegedly due by plaintiff to defendant) against interline freight balances due by defendant to plaintiff - obligations created when one carrier collects the entire freight revenue paid for shipments which move over several lines. The problem had arisen because of an industry-wide dispute concerning the proper per diem rate for freight car rentals, a dispute which has been pending before the Interstate Commerce Commission for more than eight years. Some railway carriers, including defendant and the Burlington railroad, resorted to self-help in the interim, attempting collection of the rentals claimed by offsetting amounts against interline freight balances owed.
In the present case, on July 2, 1965, plaintiff invoked the mandatory arbitration rules of the Association of American Railroads, of which both plaintiff and defendant are members, to recover the sums withheld. A three-man Arbitration Committee unanimously determined on January 20, 1966 that set-off was improper under Rule 149
of the Mandatory Railway Accounting Rules of the Association. A similar arbitration award against the Burlington railroad has already been reduced to judgment in this Court. Boston and Maine Corp. v. Chicago, Burlington and Quincy Railroad, 258 F. Supp. 930 (S.D.N.Y.1966), aff'd per curiam, 381 F.2d 365 (1967). That case disposes of all objections to plaintiff's motion for partial summary judgment herein save those which arise out of certain prior litigation between the present parties.
In 1959, plaintiff had instituted a suit against defendant, in the Supreme Court of the State of New York, to recover interline freight balances withheld from May 1, 1958 through September 30, 1958 (a period covered by the present arbitration award which extends to April, 1965). Defendant asserted a counterclaim for alleged per diem car rental charges. The court sustained the sufficiency of the counterclaim against plaintiff's motion to dismiss, but held that the question of the amount should await the I.C.C. determination of a proper rate. At the same time, it denied plaintiff's motion for summary judgment, for the reason that "the counterclaim on its face may equal or be greater than the amount claimed in the complaint". N.Y.L.J., May 7, 1959, p. 10. Later, in denying plaintiff's motion for reargument seeking severance of the counterclaim, the court stated:
"No proof was submitted that the matter before the Interstate Commerce Commission will unduly delay the trial any more than if this court had retained full jurisdiction and submitted the rate question to a referee. * * * If the defendant delays such hearing, the plaintiff may make an appropriate motion to sever the counterclaim based upon such facts. At the present time the court in its discretion will not sever the counterclaim." N.Y.L.J., July 3, 1959, p. 4, col. 7.
Subsequently, in 1963, the parties filed the following stipulation in the State court action:
"Neither the plaintiff nor the defendant will take any action before this Court in the above-captioned action until the appropriate per diem rates in issue herein have been decided by the Interstate Commerce Commission in Docket No. 31358, or otherwise, and judicial review of said determinations have either been completed or the time within which such judicial review can take place has expired; then the attorneys for the respective parties hereto will utilize their best efforts to resolve such issues, if any, as may remain in this action before this Court at that time."
When plaintiff initiated the arbitration proceeding in 1965, defendant submitted to the arbitration but moved to dismiss for lack of jurisdiction, contending that the question of a right of set-off had been finally determined by the New York courts, and, also, that the stipulation filed in the New York action constituted a "special arrangement" within the meaning of Mandatory Accounting Rule 149. Being dissatisfied with the unfavorable decision and award of the Arbitration Committee, defendant invoked the appeal process provided in the rules. The Interline Freight Accounting Appeal Committee, however, sustained the decision below, on June 13, 1966.
Defendant now seeks to overturn that arbitration award on essentially the same jurisdictional grounds asserted before the two arbitration panels - namely, that the issue of a right of set-off was res judicata by reason of the decision in the State court. In its proposed amended answer,
defendant further contends that the award is void because plaintiff waived its right to arbitration by electing to sue in the State court. Both defenses are plainly insufficient as a matter of law.
At the outset, it may be stated that the arbitration award in question - whose finality and enforceability are governed by the Federal Arbitration Act
- may be vacated only on certain narrow grounds.
Those grounds relate primarily to the fairness of the hearing and of the arbitrators themselves, and to the power of the arbitrators as contractually defined. No claim has been made that the arbitration proceedings were conducted unfairly. The sole basis urged is that the arbitrators lacked authority to deal with the question of the propriety of set-off.
While defendant might have secured a stay of arbitration
had it sought one prior to the arbitration proceeding - or barred enforcement of the award had it not participated - its claim that plaintiff waived the right to arbitration is now untimely. Having participated in the arbitration proceeding, defendant is foreclosed from upsetting the award on this basis. Submission to arbitration constituted a waiver, on defendant's part, of any such objection. See, e.g., Reeves v. Tarvizian, 351 F.2d 889 (1st Cir. 1965) (Massachusetts law); National Cash Register Co. v. Wilson, 8 N.Y.2d 377, 208 N.Y.S.2d 951, 171 N.E.2d 302 (1960).
This ruling flows logically from certain fundamental concepts. An agreement to arbitrate vests the arbitrators with powers as broad as the agreement explicitly or implicitly provides. Submission to arbitration ratifies the power of the arbitrators to deal with matters submitted. To permit a party who has participated fully in the proceedings to later challenge his obligation to arbitrate would be manifestly unfair since the award is otherwise binding on the facts and the law. Having sought expeditious justice in a contractual forum, the losing party may not turn around and upset the arbitration award with a claim that its opponent had foregone its right to arbitration. The public policy favoring arbitration would be greatly undermined were the Court to sustain such a "heads - I win, tails - you lose" objection.
A similar rationale bars defendant from overturning the award on a claim of res judicata. Having argued the defense before the arbitrators, defendant is now precluded from relitigating the question in this enforcement proceeding. Moreover, perusal of the State court opinions makes it plain that neither the defense of res judicata nor the related doctrine of collateral estoppel is available to defendant. The decision of the State court relied upon was a denial of summary judgment, not a final judgment on the merits. Indeed, that decision did not even make a final disposition of the question of defendant's right to set-off under common-law principles. The court explicitly noted, in denying reargument, that its decision was but a discretionary ruling subject to change, upon a proper showing, ...