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DAN RIVER, INC. v. CAL-TOGS

March 6, 1978

DAN RIVER, INC., Petitioner,
v.
CAL-TOGS, INC., Respondent



The opinion of the court was delivered by: DUFFY

KEVIN THOMAS DUFFY, D.J.

 Dan River, Inc. ("Dan River"), a Virginia corporation with its principal place of business in Virginia, has petitioned this Court for an order pursuant to 9 U.S.C. § 3 confirming and entering judgment on an arbitration award of $50,836.94 granted in its favor by a New York City arbitration panel against Cal-Togs, Inc. ("Cal-Togs"), a California corporation with its principal offices in California. Subject matter jurisdiction is additionally rooted in diversity of citizenship. 28 U.S.C. § 1332(a)(1). Cal-Togs has cross-moved to vacate the award asserting, inter alia, that the arbitrators exceeded the scope of their authority, engaged in procedural irregularities and misconduct, and, in the case of two of the three arbitrators, were biased. Jurisdictional objections are also proffered.

 It appears that pursuant to agreement between the parties, Dan River sold and delivered to Cal-Togs quantities of textile fabrics. Cal-Togs' purchase orders for the goods contained an arbitration clause which provided in part:

 
10. Any and all controversies or claims arising out of or relating to this contract shall be submitted to arbitration before the West Coast Textile Industry Arbitration Council and the arbitration of such controversies or claims shall be conducted at Los Angeles, California. The West Coast Textile Industry Arbitration Council, may, in its discretion, for convenience, transfer the arbitration proceedings to San Francisco, California. This contract in all respects shall be governed and construed by the laws of the State of California and the rules then obtaining of the West Coast Textile Industry Arbitration Council. . . . Consent is hereby given to entry of judgment upon the arbitration award in the courts of such county in California as has jurisdiction.

 (Exhibit A to Freedman Affidavit in Opposition to Confirmation). Dan River's sales forms, which were sent to Cal-Togs, contained the following arbitration clause.

 
Any controversy arising out of or in connection with the contract herein stated shall be settled by arbitration to be held in the City of New York, N.Y., in accordance with the laws of the State of New York, pursuant to the rules of the General Arbitration Council of the Textile Industry or the American Arbitration Association as may be determined by the seller. The parties consent and submit to the jurisdiction of the Supreme Court of the State of New York or the United States District Court for the Southern District of New York. . . .

 Apparently, after deliveries of the goods were made, a dispute regarding payment, therefore arose between the parties. Despite the fact that Cal-Togs' purchase order provided for arbitration before the West Coast Textile Industry Arbitration Council ("WCTIAC"), Cal-Togs proceeded to institute arbitration proceedings before the American Arbitration Association ("AAA") at its Los Angeles Regional Office by filing a Demand for Arbitration therefor. Dan River filed an answer and counterclaim with the AAA and a request that the AAA transfer the arbitration proceedings to New York. This application was granted. Cal-Togs thereupon commenced an action in the Superior Court of the State of California for the County of Los Angeles seeking, inter alia, to preliminarily enjoin continuation of the New York arbitration proceedings and to transfer those proceedings back to Los Angeles. The California court denied the preliminary injunction and Cal-Togs voluntarily discontinued the action.

 Administration of the arbitration proceedings in New York commenced in June 1976, pursuant to the Rules of the General Arbitration Council of the Textile Industry ("GACTI"), a division of the AAA. On August 10 and again on September 8, 1976, GACTI transmitted to the parties lists of arbitrators from which selections were to be made. Since Cal-Togs and Dan River could not agree on their selections from either list, GACTI advised the parties on October 6, 1976 that, pursuant to its Rules, David Stone from Cal-Togs' field and Edward O'Hayer from Dan River's field had been appointed as arbitrators. On October 14, 1976, GACTI further advised the parties of a prior business relationship between Mr. O'Hayer's company and a division of Dan River. Although Cal-Togs apparently orally objected to Mr. O'Hayer's appointment, GACTI affirmed that appointment on November 29, 1976. This action prompted Cal-Togs to object to the same by letter dated December 6, 1976; however, GACTI after reviewing the objection reaffirmed Mr. O'Hayer's appointment the following month, and then selected Gabriel Hellman, engaged in the business of piece and beck dyeing, as the third arbitrator. Apparently, no objection was made by the parties to Mr. Hellman's appointment.

 In May 1977, the parties were advised that Mr. O'Hayer was no longer associated with the company involved in a prior relationship with Dan River but had changed jobs. The parties were again invited to comment on Mr. O'Hayer's appointment in view of this changed circumstance. Although Dan River had previously objected to the appointment on the grounds that one of its witnesses was personally known to and had worked with Mr. O'Hayer, Dan River now assented to the appointment, apparently in view of the fact that such witness would not be called to testify. In fact, it is conceded that the anticipated witness known to Mr. O'Hayer did not participate in the arbitration proceedings in any manner. Apparently at this time Cal-Togs voiced no objection to Mr. O'Hayer's appointment.

 On August 12, 1977, GACTI sent each of the parties a list of six proposed hearing dates, requesting notification of unacceptable dates within ten days. Receiving no response, GACTI advised the parties by Notice of Hearing dated August 24, 1977 that a hearing would be held at the AAA on November 1, 1977, and that in the event of unforeseen circumstances making attendance impossible, requests for postponements were to be made "no less than 48 hours before the time and date set for the hearing." (Exhibit 20 to Kreindler Reply Affidavit). On October 25, 1977, Cal-Togs unsuccessfully sought an adjournment.

 Meanwhile, by letter dated October 2, 1977, GACTI confirmed its telephonic advice of October 21 and 25 to the parties that Mr. Hellman had withdrawn as arbitrator as a result of other commitments and that Vincent DePetrillo, also engaged in piece and beck dyeing, had been appointed in his stead. Since the hearing was scheduled for November 1, objections to this appointment were requested immediately. Cal-Togs so objected on October 27, 1977, on the grounds that it was not given ten days to consider the appointment, that Dan River was also engaged in dyeing fabrics, and that Mr. DePetrillo's company was possibly engaged in a dispute with a company closely affiliated with Cal-Togs. An adjournment was requested to investigate this dispute as well as to resolve the issues to Mr. O'Hayer's relationship with Dan River's witness and as to whether an ethical conflict existed by Cal-Togs' California counsel's representing Dan River in unrelated matters. This request was reiterated by mailgram dated October 28, 1977. Dan River objected to the postponement and represented that the witness known to Mr. O'Hayer would not be present. By GACTI's letter dated November 1, 1977, the adjournment request was denied.

 The hearing commenced as scheduled. Cal-Togs, however, was represented by New York counsel engaged merely to renew the request for an adjournment, asserting as grounds therefor the ethical complaint levelled at Cal-Togs' California counsel, the unavailability of Cal-Togs' principal witness due to business engagements concededly made no sooner than October 25, 1977, despite the August 1977 notice of hearing, and the necessity of pursuing questions relating to the composition of the panel. Dan River objected to their request; after due consideration, the arbitrators denied the postponement. Cal-Togs' counsel then objected to proceeding on the grounds of arbitrator partiality. This objection had previously been made to the Regional Director of the AAA and rejected; the arbitrators likewise rejected this contention and declined to recuse themselves. The hearing proceeded. Acting on instructions from California received telephonically during the luncheon recess, Cal-Togs' New York Counsel declined to examine any of the witnesses or present a case, although he remained and voiced objections to the evidence throughout. The arbitrators, however, independently examined the witnesses and then rendered an award in favor of Dan River.

 After issuance of this award, Cal-Togs, by letter dated November 3, 1977 to AAA's Regional Director, sought to have the arbitration proceedings invalidated, alleging administrative irregularities and improper arbitrator conduct as the bases therefor. These complaints consisted of objections to the AAA's transfer of the proceedings to New York, partiality on the parts of Messrs. O'Hayer and DePetrillo, improper selection of Mr. DePetrillo, and improper denial of Cal-Togs' request for a continuance. These grounds, plus others, including objections to administering the proceedings under GACTI rather than AAA rules, are now urged in support of Cal-Togs' application to vacate the award. Cal-Togs' initial contention that the dispute was not arbitrable since the parties failed to agree on the arbitration tribunal and locale is without merit. Although Cal-Togs' purchase order provides for arbitration in Los Angeles before the WCTIAC, Cal-Togs took it upon itself to institute arbitration proceedings before the AAA. It is also conceded that Cal-Togs expressly waived arbitration proceedings before the WCTIAC, consenting in its stead to arbitration before the AAA, by letter to the AAA dated January 21, 1976. (Exhibit 2 to Kriendler Reply Affidavit). Moreover, Cal-Togs' Demand for Arbitration before the AAA resulting from Dan River's purported breach of contract impliedly asserts the existence of a valid and binding arbitration contract; likewise, the action commenced by Cal-Togs in the California state court seeking to restrain the transfer to New York sought damages for breach of contract and alleged in the supporting affidavits on the preliminary injunction motion the fact that Cal-Togs had expressly consented to arbitration before AAA. (Exhibits K and L to David Affidavit). In view of this, Cal-Togs is estopped from contesting the existence of an arbitration agreement before this Court. See Avila Group, Inc. v. Norma J. of California, 426 F. Supp. 537 (S.D.N.Y. 1977).

 Cal-Togs argues that whatever the scope of the agreement, it did not encompass consent by the parties to have a specific court confirm the award and enter judgment thereon and that, as a result, this Court lacks ...


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