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April 24, 1980

In the Matter of the Application of LOUIS DREYFUS CORPORATION, Petitioner, For a Judgment Permanently Staying the Arbitration Commenced by

The opinion of the court was delivered by: KNAPP


In August of 1974 Cook and Dreyfus entered into a contract in which Cook agreed to sell and Dreyfus agreed to purchase 15,000 long tons of Canadian Feed Barley at 150 dollars per metric ton, subject to a "tolerance" of 5 percent more or less on the amount shipped. Subsequent to the purchase by Dreyfus from Cook, Dreyfus entered into a contract to sell these same goods to Industrie Chimiche Italia Centrale ("ICIC"). According to the parties, the Cook-Dreyfus and the Dreyfus-ICIC contract were merely two agreements in a string of sales.

 The buyers in the string nominated two vessels to lift the purchased barley and these vessels were loaded in December 1974 and January 1975.

 Subsequent to the loading, a dispute arose as to whether or not the vessel had loaded a sufficient amount of barley and by May 16, 1975 the contracts were terminated. The buyers in the string contended that the appropriate amount of barley had been loaded and that they had satisfied the contract, while the sellers contended that the buyers had failed to accept delivery of the appropriate amount. In other words, Dreyfus' position as to its seller, Cook, is that it completed the contract and as to its buyer, ICIC, that the correct amount of barley was not accepted. The parties have agreed that the same set of facts are at issue in both Cook's claim against Dreyfus and ICIC's claim against Dreyfus.

 In September 1979 Dreyfus received from Cook a Notice of Intention to Arbitrate and Demand for Arbitration. On September 24, 1979 Dreyfus filed a demand for arbitration against its buyer, ICIC.

 On October 24, 1979, Dreyfus commenced a special proceeding against Cook. Shortly thereafter ICIC commenced a similar special proceeding against Dreyfus.

 On November 21, 1979 Cook removed the special proceeding brought by Dreyfus to this court. Dreyfus thereafter moved to remand this proceeding on the ground that Cook had waived any right it might have had to removal and that unless that action were remanded, Dreyfus could be unfairly damaged by inconsistent results in the state and federal courts.

 We denied Dreyfus' motion, whereupon Dreyfus removed to this court the proceeding commenced by ICIC against it. We accepted that matter as a related case and the parties stipulated that the motions before the court today would be heard and determined jointly.

 We are presented with contracts evidencing a transaction in interstate or foreign commerce containing broad arbitration agreements, therefore, under Section 4 of the Federal Arbitration Act, we must "hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, ... make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement." 9 U.S.C. § 4.

 Dreyfus and ICIC claim that the relevant statute of limitations has run and that therefore the suits are time-barred. They have urged us to stay arbitration and to thereafter dismiss the claims as untimely brought. In our view we are compelled under Trafalgar Shipping Co. v. International Milling Co. (2d Cir. 1968) 401 F.2d 568 to send the actions to the arbitrator and allow him or her to determine whether or not the statute has run. In Trafalgar it was argued that the federal court should determine the question of laches rather than sending the issue to arbitration. The Second Circuit however, putting to rest any confusion which may have been created by Judge Frank's dicta in Reconstruction Finance Corp. v. Harrisons & Crosfield (2d Cir. 1953) 204 F.2d 366, squarely held that questions of limitations and of laches are solely for the arbitrator and that the only issue open to the federal court are those pertaining to "the making of the arbitration agreement or the failure, neglect, or refusal to perform the same, 9 U.S.C. § 4, Prima Paint Corp. v. Flood & Conklin, 388 U.S. (395) at 403, 404, (87 S. Ct. 1801 at 1805, 1806, 18 L. Ed. 2d 1270)." Trafalgar, supra at 571.

 Dreyfus and ICIC nonetheless argue that Trafalgar does not here control because the parties had agreed that New York law would govern the limitations question and under New York law the court must decide whether the statute of limitations has run before submitting the controversy to arbitration.

 For purposes of this discussion we will accept ICIC and Dreyfus' assumption (contested by Cook) that New York law requires the court to decide the statute of limitations question before submitting the action to arbitration.

 We must therefore determine only whether New York law should govern us in determining the issue of whether or not the court or the arbitrator should decide the statute of limitations question.

 In support of their contention that we should be bound by New York law in determining whether the court or the arbitrator should decide the issue of timeliness, ICIC and Dreyfus ...

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