UNITED STATES DISTRICT COURT, SOUTHERN DISTRICT OF NEW YORK
October 17, 1978
SCHULMAN INVESTMENT COMPANY, Plaintiff,
OLIN CORPORATION, Defendant and Third-Party Plaintiff, v. HABER & HENRY, INC., Tremco, Inc., and Brisk Waterproofing Company, Inc.,Third-Party Defendants
The opinion of the court was delivered by: TENNEY
In this action, third-party defendant Haber & Henry, Inc. ("H & H") moves pursuant to the Federal Arbitration Act, 9 U.S.C. § 3 ("the Act"), for a stay of proceedings against it pending arbitration. In the original diversity suit, Schulman Investment Company ("Schulman"), a New York partnership, sued Olin Corporation ("Olin"), a foreign corporation authorized to do business in New York, for breach of contract, breach of warranty, and negligence, the controversy growing out of work performed under a building construction subcontract. Olin in turn filed a third-party complaint against three entities to whom it had further subcontracted portions of the construction work: H & H, the movant, Tremco, Inc. ("Tremco"), and Brisk Waterproofing, Inc. ("Brisk"). These three crossclaimed against each other; Tremco, in addition, counterclaimed against Olin and Schulman, and Brisk counterclaimed against Olin. For the reasons given below, the motion for a stay is granted, but only as to Olin's third-party complaint against H & H.
The relevant facts as alleged are simple. In October 1971 Schulman and Olin contracted for Olin to provide labor, services, and materials to be used in building glass curtain walls in connection with a construction project in White Plains, New York. Olin then contracted with third-party defendants H & H, Tremco, and Brisk for the last three to perform work or to supply materials for the building of the walls. Schulman allegedly found the work defective and reported the defects to Olin. After the latter's attempts to remedy the problems were, as alleged, inadequate, Schulman sued Olin, and the litigation eventually assumed its current form.
H & H now moves on the basis of an arbitration clause in its contract with Olin
for an order staying the action against it pending arbitration.
It argues that the Act applies, that 9 U.S.C. § 3
and the arbitration clause require arbitration, and that it has not waived or defaulted on its right. In response, Olin concedes the validity of the clause and does not argue waiver, but argues that the stay should be denied because H & H is "virtually a "person needed for adjudication' " within the meaning of Rule 19 of the Federal Rules of Civil Procedure ("Rules"), Third-Party Plaintiff's Memorandum at 5, and because one trial of all issues affecting all parties is the most expeditious way to handle this litigation. Olin further alludes to "attendant problems of res judicata and collateral estoppel" that would purportedly result from granting the stay. Third-Party Plaintiff's Supplemental Memorandum at 2.
The Court must first determine whether the Act is applicable. It applies only to contracts described in 9 U.S.C. §§ 1 and 2. Bernhardt v. Polygraphic Co. of America, 350 U.S. 198, 76 S. Ct. 273, 100 L. Ed. 199 (1956); Varley v. Tarrytown Associates, Inc., 477 F.2d 208, 209 (2d Cir. 1973). Here the Act applies because the written agreement to arbitrate is clearly contained in a "contract evidencing a transaction involving commerce." 9 U.S.C. § 2. "Commerce" is defined to include "commerce among the several States." Id. § 1. The instant transaction involves work on New York buildings by Olin, a foreign corporation doing business in New York, and by the third-party defendant subcontractors. The contract between Olin and H & H provides further evidence of the interstate character of the transaction. It establishes an on going relationship that requires, Inter alia, Olin's supervision of H & H's work performance, agreements as to insurance and Workmen's Compensation, indemnification, and, generally, compliance with Olin's instructions. See Olin-H & H contract, appended to Notice of Motion as Exhibit A.
Moreover, the third-party complaint by Olin against H & H is by the terms of the contract between the parties clearly referable to arbitration, and H & H is not in default. The Court, therefore, has no choice but to grant the stay. C. Itoh & Co. (America) v. Jordan International Co., 552 F.2d 1228, 1231 (7th Cir. 1977) ("Itoh "); Acevedo Maldonado v. PPG Industries, Inc., 514 F.2d 614, 616 (1st Cir. 1975); See Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 400, 404, 87 S. Ct. 1801, 18 L. Ed. 2d 1270 (1967); Miller v. Aaacon Auto Transport, Inc., 545 F.2d 1019 (5th Cir. 1977). Olin, however, argues first that the presence of H & H is necessary to this action. The Court need not address this contention because H & H will remain a party by virtue of the claims against it by Tremco and Brisk, with whom H & H has no arbitration agreements. Olin next argues that considerations of judicial economy and avoiding confusion and inconsistent results militate against ordering arbitration. The latter contention focuses on the Court's discretion under section 3 of the Act. However, it is foreclosed not only by Itoh, supra, Acevedo Maldonado, supra, and Prima Paint Corp., supra
which found no such discretion
but also by the plain language of the statute: "(T)he court . . . upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, Shall . . . stay the trial of the action." Act, 9 U.S.C. § 3 (emphasis added).
The Court agrees with Olin that Itoh stands for the proposition "that a party plaintiff cannot avoid arbitration by suing two defendants, one of whom has a right to arbitration and one of whom does not." Olin's Memorandum at 3. But this Court cannot agree with Olin's assertion that the case stands for nothing more. In Itoh, the Seventh Circuit expressly addressed the question whether a district court has the discretion to deny a stay "on the ground that sound judicial administration requires resolution of the entire lawsuit in a single forum" where at least some issues are not referable to arbitration. Id., 552 F.2d at 1231. The court concluded that
(c)onsiderations of judicial economy bear no relation to "the making and performance of an agreement to arbitrate," and to permit a district court to deny a stay pending arbitration based on such discretionary considerations would, in our opinion, frustrate the strong federal policy in favor of arbitration which is expressed in the Federal Arbitration Act as interpreted by the Supreme Court.
Id., quoting Prima Paint Corp., supra (See note 5 Supra ).
Accordingly, H & H's motion for a stay of Olin's claims against it pending arbitration is granted.