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BURGER CHEF SYS. v. BALDWIN INC.

November 7, 1973

In the Matter of Arbitration between BURGER CHEF SYSTEMS, INC., Petitioner,
v.
BALDWIN INCORPORATED et al., Respondents


Pollack, District Judge.


The opinion of the court was delivered by: POLLACK

FINDINGS AND OPINION

POLLACK, District Judge.

 This is an action under the federal Arbitration Act to compel arbitration and to stay a lawsuit seeking to frustrate arbitration.

 The petitioner, Burger Chef Systems, Inc. commenced arbitration proceedings against the respondents before the American Arbitration Association ("AAA"). The respondents, by their attorneys, filed an appearance with the Association and entered several objections to the Demand for Arbitration. They followed this up within a few days with a lawsuit in the Circuit Court for the County of Saginaw, State of Michigan, seeking an order therein which would restrain the present petitioner and the AAA from proceeding with arbitration pending a declaration of the rights of the parties under agreements which either contained or were subject to an arbitration clause.

 The Michigan suit was removed by the present petitioner to the federal court in that area and on objections to such removal, the federal court ruled that the controversy was not removable and announced that a remand pursuant to Title 28, U.S.C. § 1447 would be granted. An order thereon has been submitted for signature.

 In the present suit, the petitioner seeks an order compelling the respondents to continue with the arbitration that was commenced before the American Arbitration Association and seeks to enjoin the respondents from proceeding with the Michigan declaratory judgment suit until such time as arbitration is completed before the AAA and an award, if any, is entered thereon. For the reasons shown hereafter the petitioner is entitled to the relief sought herein. The facts are as follows.

 Petitioner is an Indiana corporation with its principal place of business in Tarrytown, Westchester County, State of New York, and licenses the use of its trademarks to individuals for the operation of Burger Chef Restaurants.

 On or about October 22, 1971, the corporate respondent, Baldwin Incorporated, entered into a certain Franchise and Lease Agreement by which respondents licensed from petitioner its trademarks and the right to operate a Burger Chef Restaurant at 2945 Bay Road, Saginaw, Michigan. The respondents have in fact operated this restaurant since prior to October 22, 1971; their liabilities under the Franchise and Lease Agreement continue to the present date. Paragraph 33 of the Agreement contains an arbitration clause which reads:

 
Any controversy or claim arising out of or relating to this Franchise and Lease Agreement or the breach thereof . . . shall be settled by Arbitration in accordance with the rules of the American Arbitration Association. . . . (Emphasis supplied).

 Contemporaneously with the execution of this Franchise and Lease Agreement by the corporate respondent, the individual respondents executed a "Guarantee of Franchise and Lease" in which they jointly and severally guaranteed the performance of the Franchise and Lease Agreement; it also contained the following language:

 
Any provisions of the Franchise and Lease Agreement on Arbitration shall apply jointly and severally to Guarantors . . . .

 Asserting that the respondents were in arrears under their agreements with petitioner in the sum of $21,365.16, the petitioner on or about May 3, 1973 served on respondents and filed with the New York Regional Office of the AAA a "Demand for Arbitration" requesting that arbitration be held in New York in accordance with the Rules of the American Arbitration Association.

 On or about May 18, 1973 the respondents appeared by counsel in the New York Regional Office of the AAA, and filed a document entitled "APPEARANCE AND OBJECTIONS TO DEMAND FOR ARBITRATION". The objections of respondents filed with the AAA recite that the locale for arbitration is unreasonable and should rather be in the City of Saginaw, Michigan; that the arbitration request is untimely; that the individual respondents are not parties to the arbitration agreement; that the Franchise and Lease Agreement was void ab initio and consequently that the arbitration requirement contained therein is ineffective and not binding; and that the lease agreement has been breached by the party requesting arbitration, thereby extinguishing the arbitration requirement of the contract.

 Within three days after this Appearance before the AAA, the respondents commenced the litigation in the Michigan Court, referred to above, seeking a stay of the arbitration before the AAA and a declaratory judgment in respect of the contracts between the parties. An exparte restraining order was obtained from the Michigan Court purporting to enjoin the AAA and the petitioner from proceeding with arbitration; that order allegedly remains in ...


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