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LORENTZEN v. LEVOLOR CORP.

October 18, 1990

ERIC LORENTZEN, PLAINTIFF,
v.
LEVOLOR CORPORATION, A NEW JERSEY CORPORATION, AND DWCC-HILLER HOLDING, INC., A DELAWARE CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Whitman Knapp, Senior District Judge.

MEMORANDUM AND ORDER

The complaint in this action seeks, among other things, to enjoin an arbitration which has been ordered by the courts of New Jersey in litigation arising out of the sale of a corporation known as Lorentzen-Levolor, Inc. (hereinafter "the corporation"). Plaintiff Eric Lorentzen (hereinafter "Lorentzen") now moves for a preliminary injunction which would in effect countermand an order of the New Jersey Superior Court directing that such arbitration proceed. Defendants cross-move to dismiss the complaint. This memorandum concerns itself only with Lorentzen's motion, and will confine its statement of facts to those relevant to the demand for preliminary relief. For reasons which follow, such preliminary relief is denied.

THE UNDERLYING FACTS

The merger agreement contemplated an August closing which ultimately occurred on August 17, on which day the purchasers paid the stated purchase price. Lorentzen asserts that immediately prior to the closing an unidentified attorney purportedly acting on behalf of the purchasers had informed him that any subsequent downward price adjustment would in the "worst case" be $15 million dollars; and that he had relied on this representation in deciding to proceed with the closing without attempting to renegotiate the arbitration clause. However, in November, the purchasers notified him and others from whom they had purchased shares that the true value of the corporation was approximately $33 million dollars less than the amount they had actually paid, and demanded repayment of such a sum. Upon refusal of such demand, the purchasers took steps to enforce the above-described arbitration clause.

THE NEW JERSEY ACTION

By means of a complaint signed on November 22, 1988, the siblings and other shareholders of the corporation instituted against the purchasers an action in the Superior Court of New Jersey. The complaint alleged the underlying facts as set forth above, and claimed fraud in the inducement of the merger agreement. It demanded among other things that the arbitration be enjoined. Although Lorentzen's name did not appear in the complaint as originally filed, he was subsequently allowed to intervene in the action as a party plaintiff.

The purchaser-defendants, rather than interpose an answer to that complaint, moved to dismiss it and for an order directing that the challenged arbitration proceed. On February 17, 1989 the court, acting through its Chancery Division, granted the purchasers' motion in part. It rejected the complaint's demand for an injunction, entered an order compelling Lorentzen and the other shareholders to proceed with the arbitration, and expressly withheld decision on all other aspects of the complaint (including the allegations of fraud) pending completion of such arbitration.*fn1

In April 1990, since Lorentzen had ignored the order of the Chancery Division directing him to proceed with the arbitration, the purchasers moved before the Superior Court's Law Division to compel him to obey that order. On April 27, the Law Division entered an order compelling him to appear before the arbitrator within 20 days or be fined $1,000 per day. However, in response to Lorentzen's assertion that he anticipated asking for relief from a federal court and was fearful that he might be placed in the position of being fined by the Law Division for obeying a federal court order staying arbitration, the Law Division amended its provision for a fine to read "so long as no restraint is issued by the U.S. District Court."

At all stages of the New Jersey action Lorentzen persisted in an unsuccessful contention that no arbitration should proceed until his claim of fraud had been resolved. At the same time he made clear that should the New Jersey court ultimately reject this contention he would turn to a federal court for relief. For example, on April 27, 1990 his counsel engaged in the following colloquy with the Law Division:

  MR. CROSS: Your Honor, we were prepared, in fact, to
    file a federal complaint yesterday when I was
    informed by counsel we had retained * * * that
    unbeknownst to him his firm had a conflict * * *
      As I stand here, I have the draft of a complaint
    but didn't get it filed, and I apologize.
  THE COURT: You are expecting to do that shortly. Is
    ...

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