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CATZ AMERICAN CO. v. PEARL GRANGE FRUIT EXCH.

September 30, 1968

CATZ AMERICAN CO., Inc., Petitioner,
v.
PEARL GRANGE FRUIT EXCHANGE, INC., Respondent



The opinion of the court was delivered by: MANSFIELD

MANSFIELD, District Judge.

 Petitioner has moved to confirm, and respondent to vacate, an arbitration award. The background of the proceeding is as follows:

 On March 6, 1968 Pearl Grange Fruit Exchange, Inc. (hereinafter "Pearl"), a Michigan corporation, invoked the New York Supreme Court in a proceeding against Catz American Co., Inc. (hereinafter "Catz"), a New York corporation, to stay arbitration of a dispute between them. On March 11, 1968 Catz removed the proceeding to this Court and petitioned, pursuant to § 4 of the Federal Arbitration Act (9 U.S.C. § 4), for an order to compel arbitration. Pearl cross-moved to stay arbitration, arguing that it never entered into an arbitration agreement. The motions were heard by Judge Tyler, who granted Catz's motion and ordered Pearl to submit to arbitration. The Court of Appeals refused to stay Judge Tyler's order or the pending arbitration.

 The matter was arbitrated, as provided by the three contracts in question, by the Association of Food Distributors, Inc. and on July 9, 1968 the arbitrators found in favor of Catz on all three contracts and awarded Catz a total of $93,759.87.

 Catz has now moved for an order, pursuant to §§ 9 and 13 of the Federal Arbitration Act (9 U.S.C. §§ 9, 13), confirming the arbitrators' award and directing entry of a judgment based on that award. Pearl opposes and requests that the arbitrators' award be vacated pursuant to § 10 of the Federal Arbitration Act (9 U.S.C. § 10), and that there be a rehearing before the American Arbitration Association or other arbitrators appointed by the Court.

 In view of the existence of an underlying controversy concerning interstate commerce these motions are properly brought under the Federal Arbitration Act and must be resolved in accordance with the provisions of that Act. See, Prima Paint Corp. v. Flood & Conklin, 388 U.S. 395, 404-405, 87 S. Ct. 1801, 18 L. Ed. 2d 1270 (1966). A separate motion by Pearl to vacate the arbitrators' award is not necessary. Such relief may properly be requested in the papers submitted in opposition to a motion to confirm an arbitrators' award. The Hartbridge, 57 F.2d 672 (2d Cir.1932). Further, Pearl's application is timely. Despite its prior knowledge of some of the grounds now claimed to indicate "evident partiality," it could not properly have brought the issue of partiality before this Court until after the arbitration and rendition of the award. Petition of Dover Steamship Company, 143 F. Supp. 738, 742 (S.D.N.Y.1956).

 In affidavits opposing Catz's motion, Pearl attempts to reargue the facts that were before the arbitrators. As the merits of the controversy submitted to arbitration cannot be reopened before this Court, see, James Richardson & Sons v. W. E. Hedger Transp. Corp. 98 F.2d 55, 57 (2d Cir.1938); Saxis Steamship Co. v. Multifacs International Traders, Inc., 375 F.2d 577 (2d Cir.1967), we only review Pearl's claims that it was not accorded a fair and impartial arbitration. Five such claims are asserted. In reviewing them we recognize that since one of the fundamental purposes of resorting to arbitration is, through use of informal proceedings, to reduce the cost and delay frequently encountered in the courts, our role must be a limited one if it is not to frustrate that objective, see, Amicizia Societa Navegazione v. Chilean Nitrate & Iodine Sales Corp., 274 F.2d 805 (2d Cir.1960), cert. denied, 363 U.S. 843, 80 S. Ct. 1612, 4 L. Ed. 2d 1727 (1959), so that an arbitration award should be upset only "with great hesitation," see Karppinen, et al. v. Karl Kiefer Machine Co., 187 F.2d 32, 34 (2d Cir.1951), and then only where the party attacking it clearly establishes one of the grounds specified in § 10. After reviewing the papers presented by the parties, we find that the claims asserted by Pearl are not sufficiently supported to justify vacating the award.

 CLAIM OF "EVIDENT PARTIALITY"

 The major thrust of Pearl's objections is that there was "evident partiality" on the part of the arbitrators toward Catz, a ground for vacation of an award specified in § 10 of the Arbitration Act, 9 U.S.C. § 10. When such a claim is made, the court must ascertain from such record as is available whether the arbitrators' conduct was so biased and prejudiced as to destroy fundamental fairness. "The burden of proof on this issue in the confirmation proceedings in the district court rests upon the party making the claim." Saxis Steamship Co. v. Multifacs International Traders, Inc., 375 F.2d 577, 582 (2d Cir.1967). Something more than "mere error in the law or failure on the part of the arbitrators to understand or apply the law" must be shown. San Martine Compania de Navegacion, S.A. v. Saguenay Terminals, Ltd., 293 F.2d 796 (9th Cir.1961).

 Since no record was made of the arbitration proceeding, Pearl's claim of bias rests upon the affidavits of its President and counsel, containing conclusions and characterizations of the type frequently voiced by disappointed litigants, which are sharply controverted by opposing affidavits filed on behalf of Catz. Such a meager, conflicting, and inconclusive record, which of necessity results from the very informality inherent in arbitration proceedings, illustrates why the Court must be reluctant to vacate an award in the absence of clear and convincing evidence.

 Pearl first points to the conduct of one of the arbitrators, Mr. Morris Schwartz, who was substituted for another designee (as permitted by the Association's rules) on the day of arbitration. At the beginning of the proceedings Mr. Schwartz commented that he did not approve of attempts to stay arbitration by recourse to the courts, a remark characterized by the Executive Director of the Association, to whom Pearl directed its objection, as a "general comment, not affecting this case." Pearl, possibly because it decided the remark not sufficiently prejudicial to warrant further action, chose not to exercise its right to challenge Schwartz's appointment as an arbitrator under § IV(3) of the Arbitration Rules of the Association of Food Distributors, Inc., which permits a party one challenge without cause and unlimited challenges for cause. But even if this waiver is disregarded, Schwartz's comment does not rise to the level of "evident partiality" requiring vacation of the award. Nor are Pearl's contentions that Schwartz's questions, interjections and summaries during the course of the hearing showed a disposition in favor of petitioner to the point where he seemed like an advocate for Catz, sufficiently supported to demonstrate such a degree of partiality. In refusing to vacate an award on similar charges, our Court of Appeals, in Ballantine Books, Inc. v. Capital Distributing Co., 302 F.2d 17 (2d Cir.1962), stated:

 
"A judge is not wholly at the mercy of counsel, and would be remiss if he did not participate in questioning to speed proceedings and eliminate irrelevancies. A fortiori an arbitrator should act affirmatively to simplify and expedite the proceedings before him, since among the virtues of arbitration which presumably have moved the parties to agree upon it are speed and informality." (p. 21)

 Pearl next points, as evidence of bias, to the fact that Catz's president is a member of the Board of Directors of the Association that conducted the arbitration, and an obvious business and social friend of all the arbitrators, which Catz does not dispute. The simple answer is that Pearl agreed to arbitration according to the Association's rules, which involved selection of arbitrators from lists of its members.

 When an arbitrator is not appointed by the method provided in the arbitration agreement and is found to have a business relationship with one of the parties, vacation of the arbitrators' award as being inherently partial is justified. See, American Guaranty Co. v. Caldwell, 72 F.2d 209 (9th Cir.1934). Here, however, Pearl did not object to the method of appointment of any of the arbitrators nor did it, at the time of the arbitration, challenge any of the arbitrators even though it knew that Catz and the arbitrators had "close personal relations." It may be that Pearl considered such objections futile because of Catz's continuing relationship with the Association and Pearl's position as an outsider. But we cannot, because of Pearl's belated post-award belief that the Association could not be impartial, ignore the arbitration agreement between the parties, which specifically provided that ...


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