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LEA TAI TEXTILE CO. v. MANNING FABRICS

November 7, 1975

In the Matter of the Arbitration between LEA TAI TEXTILE CO., LTD., Petitioner,
v.
MANNING FABRICS, INC., Respondent



The opinion of the court was delivered by: DUFFY

OPINION AND ORDER

 KEVIN THOMAS DUFFY, D.J.

 This petition to compel arbitration and to stay a pending state court action is brought under diversity jurisdiction, 28 U.S.C. § 1332, and the Federal Arbitration Act (the "Act"), 9 U.S.C. § 4. Petitioner, Lea Tai Textiles, Ltd. ("Lea Tai"), is a corporation organized under the laws of Hong Kong where it has its principal place of business. Respondent, Manning Fabrics, Inc. ("Manning"), is a New York corporation with its principal place of business in St. Pauls, North Carolina. The amount in controversy well exceeds the jurisdictional minimum for diversity purposes.

 From November 1973 to April 1974, the parties entered into a series of contracts for the sale of cotton cloth. Manning would send a purchase order from its New York office to Lea Tai in Hong Kong. Lea Tai, in turn, mailed confirmations to Manning. In September of 1974, Lea Tai shipped 400,000 yards of cotton duck and 120,000 yards of cotton sateen to Manning. Lea Tai alleges that due to changing market conditions Manning wrongfully refused to accept the goods. Manning argues that after an August, 1974 shipment of defective goods it instructed Lea Tai to cease further shipments.

 Manning filed suit in the Court of Common Pleas, State of South Carolina, on October 31, 1974. Lea Tai seeks to stay this suit and compel arbitration in New York. Manning contends that no agreement to arbitrate was ever made.

 The Act provides that a party aggrieved by another's failure to arbitrate may petition a United States District Court to compel arbitration, 9 U.S.C. § 4. "If the making of the arbitration agreement . . . be in issue, the court shall proceed summarily to the trial thereof." Id. Although the existence of the arbitration agreement is in dispute, the essential facts are not and thus the matter can be disposed of without plenary hearing.

 In determining the validity of a contract to arbitrate, the Court of Appeals for this Circuit has consistently held that federal rather than state law controls. Robert Lawrence Company v. Devonshire Fabrics, Inc., 271 F.2d 402 (2d Cir.), cert. granted, 362 U.S. 909, 80 S. Ct. 682, 4 L. Ed. 2d 618, dismissed, 364 U.S. 801, 81 S. Ct. 27, 5 L. Ed. 2d 37 (1960); Coenen v. R. W. Pressprich & Co., 453 F.2d 1209 (2d Cir.), cert. denied, 406 U.S. 949, 32 L. Ed. 2d 337, 92 S. Ct. 2045 (1972).

 In the context of this case the conflicts of law inquiry is more of an academic pursuit. Although Congress did not substitute the Uniform Commercial Code ("U.C.C.") for the federal common law of contracts, the Code is nevertheless "a most appropriate source of federal law." In re Yale Express System, Inc., 370 F.2d 433, 437 (2d Cir. 1966). As Judge H. Friendly put it in United States v. Wegematic, Inc., 360 F.2d 674, 676 (2d Cir. 1966):

 
"We find persuasive the defendant's suggestion of looking to the Uniform Commercial Code as a source for the 'federal' law of sales. The Code has been adopted by Congress for the District of Columbia, 77 Stat. 630 (1963), has been enacted in over forty states, and is thus well on its way to becoming a truly national law of commerce, which, as Judge L. Hand said of the Negotiable Instruments Law, is 'more complete and more certain, than any other which can conceivably be drawn from those sources of "general law" to which we were accustomed to resort in the days of Swift v. Tyson.' New York, N.H. & H. R. Co. v. Reconstruction Finance Corp., 180 F.2d 241, 244 (2 Cir. 1950). When the states have gone so far in achieving the desirable goal of a uniform law governing commercial transactions, it would be a distinct disservice to insist on a different one for the segment of commerce, important but still small in relation to the total, consisting of transactions with the United States."

 This reasoning applies with equal force to questions of contract formation arising in cases under the Federal Arbitration Act.

 Turning to the existence of a contract to arbitrate, I am faced with the not uncommon exchange of inconsistent forms between a buyer and a seller. Both parties apparently concede the existence of a series of valid contracts for the sale of goods, they argue whether an arbitration clause was made a part thereof. Manning's order form under which Lea Tai seeks to compel arbitration provides as follows:

 
"11. ARBITRATION: Any controversy arising out of or relating to this contract shall be settled by arbitration in the City of New York in accordance with the Rules then obtaining of the American Arbitration Association or the General Arbitration Counsel [sic] of the Textile Industry, whichever shall be first selected by the party instituting the arbitration. The Arbitrator sitting in any such controversy shall have no power to alter or modify any express provision of this contract or to render any award which by its terms effects any such alteration or modification. The parties consent to the jurisdiction of the Supreme Court of the State of New York and the United States District Court for the Southern District of New York for all purposes in connection with said arbitration. The parties further consent that any process or notice of motion or other application to either of said Courts, or a Judge thereof, may be served outside the State or Southern District of New York by registered mail or by personal service provided a reasonable time for appearance is allowed, or in such manner as may be permissible under the Rules of said Court."

 Lea Tai's confirmation form, labeled a "contract," contains an arbitration clause different from Manning's:

 
"12. ARBITRATION. No disputes of any nature between Buyers and Sellers shall entitle the Buyers to defer and/or delay to take delivery of the cargo within the time stipulated in this Contract. Should any dispute arise between the Buyers and the Sellers in relation to this Contract which they are unable themselves to settle the same shall be referred to the arbitration of two arbitrators; one to be appointed by the Sellers and the other by the ...

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