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IN RE SHARP ELECS. CORP.

December 5, 1984

In the Matter of the Arbitration between SHARP ELECTRONICS CORPORATION, Petitioner, and BRANDED PRODUCTS, INC, Respondent.


The opinion of the court was delivered by: MOTLEY

MOTLEY, Ch. J.

Petitioner Sharp Electronics Corporation ("Sharp Electronics") seeks an order to compel respondent Branded Products, Inc. ("Branded") to arbitrate in New York City disputes arising from a distributorship agreement between the two parties. It also seeks to stay a Texas court proceeding between the two parties which was commenced by Branded. A third party, Charles B. Allen, Inc. ("Allen"), is also a defendant in the Texas proceeding. Sharp Electronics is a New York corporation with its principal place of business in New Jersey. Branded is a Delaware corporation with its principal place of business in Texas. Allen is a Texas corporation with its principal place of business in that state.

 Respondent Branded has moved to dismiss the petition on grounds that this court lacks subject matter jurisdiction. It also seeks to stay arbitration on the grounds that an amended complaint in the Texas action eliminates all contract disputes and the contract requiring arbitration was a contract of adhesion. For the following reasons, respondent's motions to dismiss the petition and to stay arbitration are denied and petitioner's request for an order compelling arbitration is granted.

 FACTS

 Petitioner Sharp Electronics and respondent Branded entered into a distributorship agreement which gave Branded the right to sell Sharp Electronics' products. Paragraph 20 of this agreement prepared by Sharp Electronics provides:

 This Agreement and performance hereunder shall in all respects be governed by the laws of the State of New York. Any controversy or claim arising out of or relating to this Agreement or a breach hereof, shall be settled by arbitration in New York City, New York, in accordance with the rules of the American Arbitration Association, and judgment upon the award rendered by the (arbitrators) may be entered in any court having jurisdiction thereof.

 On September 4, 1984, respondent commenced an action in a Texas state district court against Sharp Electronics and Charles B. Allen, Inc., seeking to recover damages for breach of contract, breach of warranty, and violation of the Texas antitrust laws by petitioner. The complaint further alleged that Allen intentionally and willfully sought to induce Sharp Electronics to terminate its contract and business relationship with Branded. Petitioner then commenced this proceeding on October 2, 1984, seeking to compel arbitration. Respondent moved to dismiss the petition on October 10, 1984, and to stay arbitration on October 24, 1984. It then served an amended complaint in the Texas action, dropping the breach of contract claim, and filed a supplemental motion to stay arbitration in this proceeding.

 MOTION TO DISMISS

 Respondent moves to dismiss this action on the ground that there is no diversity jurisdiction between the parties. Respondent acknowledges that diversity does exist between Sharp Electronics and it. It argues, however, that since no diversity exists between Allen, the other defendant in the Texas action, and it, this court lacks subject matter jurisdiction. Respondent contends that Allen also should be a petitioner in this action. Respondent's argument is erroneous. Allen need not be a party to this proceeding. The Supreme Court has stated:

 if [petitioner] obtains an arbitration order for its dispute, the [respondent] will be forced to resolve these related disputes in different forums. That misfortune, however, . . . occurs because the relevant federal law requires piecemeal resolution when necessary to give effect to the arbitration agreement. Under the Arbitration Act, an arbitration agreement must be enforced notwithstanding the presence of other persons who are parties to the underlying dispute but not the arbitration agreement. If the dispute between [petitioner] and [respondent] is arbitrable under the Act, then the [respondent's] two disputes will be resolved separately -- one in arbitration, and the other (if at all) in state-court litigation.

 Moses H. Cone Hospital v. Mercury Constr., 460 U.S. 1, 20, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983) (emphasis in original) (footnote omitted). See also Hamilton Life Insurance Co. v. Republic National Life Insurance Co., 408 F.2d 606, 609 (2d Cir. 1969).

 PETITION TO COMPEL ARBITRATION

 The United States Arbitration Act, 9 U.S.C. sections 1-14, is applicable in this proceeding since the contract and the arbitration clause in issue evidence "a transaction involving [interstate] commerce." 9 U.S.C. section 2. Accord, Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 401, 18 L. Ed. 2d 1270, 87 S. Ct. 1801 (1967). Federal law applies to issues involving the interpretation, validity and enforceability of the contract regardless of state law or policy to the contrary. Id. at 400; Coenen v. W.R. Pressprich & Co., 453 F.2d 1209, 1211 (2d Cir.), cert. denied, 406 U.S. 949, 32 L. Ed. 2d 337, 92 S. Ct. 2045 (1972); Banque de Paris et des Pay-Bas v. Amoco Oil Company, 573 F. Supp. 1464, ...


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